After months of wondering just how it would play out – and if it could play out without the government being shut down – the government passed a spending bill last week that effectively funds everything the government will do. If you are interested in a larger overview of what’s included, this article from Forbes does a good job of that. In this space, however, I want to concentrate on the tax implications of it.

First, I feel like the Tax Cuts and Jobs Act comes up every week in some form or other, but the spending bill includes money whose specific purpose is for implementing tax reform. This sounds like a great thing, for we want the IRS to be ready for all the new rules and make next tax season as smooth as possible, but the fact that an extra $320 million has been slated to make sure that happens has to give anyone pause. If it takes the IRS that much money to figure it out, how is a taxpayer supposed to be able to get through it all?

Beyond that, the IRS is getting an overall bump in its budget, with its $11.4 billion allocation representing a $196 million jump from last year’s number after years of cuts. That money is earmarked for the agency to modernize its system and increase customer service. With the horror stories that have increased in recent years over how long it can take to actually get anyone from the IRS on the phone, we can only hope this move toward customer service helps that.

In fact, there is even a provision in the bill requiring an employee training program that will include “dealing courteously with taxpayers.” This sounds nice, but then again, one would hope that being courteous was already a general rule.

Overall, $2.5 billion of the IRS’s slate is for taxpayer services. This includes $5.5 million set for identity theft casework. When one sees how small that number is compared to the overall budget, it shows that scams may not be TOO terribly widespread if they can be handled with that amount, but it can also speak to the need for personal vigilance because the IRS is also not spending a TOO terribly great amount of money in the area.

I have written in the past about how the decreased funding for the IRS in recent years has resulted in a lower number of audits. Although it seems that much of its uptick in funding is slated for other areas, I would not be surprised to find that it leads to the number of audits leveling off, if not increasing.

I do not believe that this means anyone should be in greater fear of being audited. Rather, as I always say, your best protection against an audit is filing a legal tax return. Sure, there will still always be some things that trigger an audit, and you can never be guaranteed that you will not face one.  You can, however, be guaranteed that an audit will only be a nuisance (granted, possibly a huge one) if there is nothing in your tax return with which the IRS can find fault.

So yes, the tax laws as changing, the tax agency is changing, but there are some things that will always remain the same. And we are happy to also remain and help you through the new landscape with the same high-quality service that you have always been able to count on.

When I write in this space about tax scams, it is almost exclusively with an eye toward protecting you against unscrupulous criminals. The IRS, however, has been putting out a lot of information in its “Dirty Dozen” scams list, and it made me realize that there are different angles when it comes to taxes and scams. For although there are many criminals from the outside using the general structure of the tax system to take advantage of people, there are also unscrupulous people trying to take advantage from the inside, too.

Some of these are may only arise out of ignorance or faulty information. The IRS has labeled these as “frivolous tax arguments,” which can be used to try to get out of paying taxes. I can’t say this is something I run into that often (which makes sense, no one is coming to me to not pay taxes), but the agency lists the following as some of the most common:

· The First Amendment allows taxpayers to refuse to pay taxes on religious or moral grounds;

· The only “employees” subject to federal income tax are those who work for the federal government;

· Only foreign-source income is taxable.

What this boils down to is that you have to pay taxes. For all the loopholes one may hear talked about within the system, there is not a magical one that leads to a world where you don’t have to pay at all.

Even if you file taxes, though, doing things wrong within your return can also be seen as a scam. Some obvious ones that everyone can imagine are claiming expenses or deductions for which you are not eligible. What about claiming extra income, though? This doesn’t seem as obvious, but there are some tax credits for which some extra income could quality you for a larger credit.

With deductions, it is understandable that if one were preparing their own tax return, you could misread a tax rule (possibly with a hopeful, optimistic bent) and believe you are doing things correctly. If one was to alter their income, though, that is a little more willful by its nature. Both cases, however, would result in the submission of a tax return that can open you up to penalties and a bigger bill than you would have had if you just filed a legal return to start.

This brings me back to the “loophole” idea. It’s a term that is so often used that it almost feels like it is okay to look for ways to beat the system. The problem is that you can’t beat the system, but you can work the system to your greatest advantage. There are no secret tricks, just good strategies. I cannot claim that every small fudging of numbers of a return is going to trigger an audit, but if something does trigger it, you want everything to be legitimate.

There are things we can do with tax planning and preparation that can make a return look better than you may have thought it would. These aren’t tricks, though, and these aren’t scams. It is simply the value of having someone on your side who knows how to legally get you all that should be yours.

Sometimes the numbers involved when it comes to taxes can be staggering.  Like how about the fact that there could be over a billion dollars that the government in willing to pay out from three years ago? Now, don’t get too excited, for if you are reading this, I imagine chances are good that you are not in the group that stands to benefit from this – those we have not yet filed a 2014 federal income tax return.

Most of the time when we think about not filing a tax return, a heavy debt is imagined along with penalties and interest. And, of course, there is a segment of the population that tries to ignore filing taxes because they know they can’t pay the bill which will result. (We can discuss the lack of wisdom behind that decision at another time.) There are also groups, though, who don’t file a tax return even when it will result in then receiving a refund.

So sure, most of my readers won’t fit in that category, but you might know someone who does. Some of those people may not have even known they had to file taxes. Some of those people may not have thought they needed to file taxes. Many of those people were students or only working part-time when it happened.

Now to get back to that big number from the beginning, the IRS estimates there could be unclaimed refunds totaling $1.1 billion from 2014 returns.

This becomes crucial now for taxpayers are given a three-year window of opportunity to claim a refund. After that time, the money becomes the property of the U.S. Treasury. So on April 17, 2018, you should have your 2017 return filed (or get an extension, which I’m sure we will also be discussing in the future), but it also marks your last opportunity to submit one of those 2014 returns.

There could be work involved in submitting a past return, for if one did not file, they probably didn’t keep any W2 forms from time either. A phone call to a former employer may be all that is necessary to get one, however. And let’s say that that call takes 20 minutes even, it could be well worth it, for it is believed that the median return on these unfiled 2014 returns is $847.

Yes, these are now more reasonable numbers, but it adds up when there are thousands of estimated unfiled returns worth millions from every state in the country.

In conclusion, yes, taxes can be scary. Avoiding them, however, never leads to a better place. And yes, taxes take some time to properly handle. It’s time, however, that when spent correctly returns a pretty good financial return. So if you know anyone who may have avoided filing taxes over the last three years (for that three-year window is still open through 2015 and 2016, too), send them our way. We pride ourselves on helping taxes feel better for all our clients, and it always feels better when it results in them leaving with a little extra money coming their way.

Occasionally, I feel like I get into a rut with these articles where it seems like I am writing about the same things over and over. So consider this a short apology for that before I commence doing it again. New tax law is again behind this article, and I’m afraid this may carry right through next tax season as the IRS figures out implementation, and we then react to their reactions.

This time, it’s because the IRS announced last week that its processing systems were reprogrammed to handle three benefits that are common in early tax returns. There are benefits that were renewed as part of the Bipartisan Budget Act that was passed on February 9 (just when you thought one big passage affecting taxes was enough).

So first the nuts and bolts. This means that you can still claim the following:

-        Exclusion from gross income of discharge of qualified principal residence indebtedness (claimed on Form 982)

-        Mortgage insurance premiums (PMI) can be treated as qualified residence interest (claimed on Schedule A)

-        Deduction for qualified tuition and related expenses (claimed on Form 8917)

Now what this means in practice:

First, it is only a good thing when extra deductions are allowed. So even if it feels wild that changes are still being made more than a month since the IRS started accepting tax returns (and yes, you are right if you feel this way), at least there is some solace that these are changes that will only positively affect you. More deductions only mean more potential money coming back to you.

Second, however, this means that if you already filed without being able to take these deductions, and they are ones you would have been able to use, then you should file an amended return.  If you have not yet filed, you can ignore this, for all will be in order when you submit your return (and we still have many appointments available to help you do this, but that number will steadily decrease over the next six weeks, hint, hint).

If you do need to look into an amended return, this is done with a different form (Form 1040X), and we will be happy to help you with this. Or if you know anyone who did their taxes on their own (or with a preparer that inspires less than full confidence), send them our way and we will help them determine if they missed any deductions for which they could be eligible.  Keep in mind, though, that amended returns cannot be filed electronically, and the IRS warns that it could take up to 16 weeks to process them. Sure, it is not convenient, but it is also not that difficult and a way to get yourself some extra money in the not too distant future, so why wouldn’t you do it?

Finally, the IRS also says that it is continually updating its systems to implement any other changes made necessary by the recent act, but those are expected to be more minor and affect a much smaller number of taxpayers. But if anything does happen where you feel your return could be helped by one of those, we will remain ready to help.

This is an interesting economic time, on many timescales. It starts with this week’s Presidents’ Day holiday, and how I have never quite been able to figure out why this has been deemed the moment when one should buy a car or a mattress. With another step back, there is the curiosity surrounding how the recent tax reform bill will play out as our economy adjusts over the next year. Then, I read this article from Forbes.com, which led me to take a much bigger step back.

Overall, this was a more playful article looking at Presidents’ Day and some historical tidbits when it comes to presidents and taxes. It wasn’t intended to be serious or groundbreaking, and did not try to present new information, but I was struck by an old fact – the United States’ modern income tax system did not start until 1913. There were some temporary and smaller income taxes prior to that date, but that was when the system began that included all people and was intended as a longstanding program. It even took a constitutional amendment to put into effect.

That means that the United States has existed for more time without this type of income tax than it has with it. It feels like such an unavoidable part of government and society, it’s a little mind-boggling to imagine the nation existing for over a century without it.

The concept of what government is, and what it should provide, has evolved to such a degree since then that it would be impossible to ever put that genie back into the bottle and imagine the country existing without such a tax. Sure, a handful of states operate without it, but it generally means they are taxing other things to fund themselves.

Still, however, the federal income tax has existed for a significant portion of time. That middle-level timescale of recent tax legislation, though, highlights how little consensus there is on how the system should operate. In fact, I would be much more shocked if there ever comes a time when there is general consensus over how the system should work than I was by this recent realization over how long it didn’t exist.

That means that it is only a matter of time before the next big tax change comes along. After all, it was not that long ago when the Affordable Care Act gave us our last batch of confusing changes where no one felt certain what their tax return was going to look like. And even If Republicans remain in power for a number of years, tweaks happen all the time.

I know this is different than most things I write, but hopefully you don’t mind this one-week historical interlude. I think it has value, for not only can it be slightly surprising, but it can also be heartening. It shows that changes always happen, and no matter how big they are, we always navigate those changes. Hopefully there is some wisdom to be drawn out of that in these uncertain times.  

The amount of money that moves around come tax time means the emergence of scams is inevitable. So even though many people are expecting tax refunds to hit their bank account over the next couple of months, be wary of unexpected ones. These unexpected returns are not a surprise windfall, and instead the start of a potentially large issue.

There are many different versions of this scam, but it starts with a fraudulent tax return being submitted, and scammers then using the victim’s real bank account for the refund deposit. The criminals then contact the taxpayer with one a variety of ways to reclaim this erroneous refund.

I don’t feel the need to really get into the ways the scammers try to get this money, for the way to halt any issues instead comes as soon as the mistaken money is deposited. As soon as it is noticed, contact the bank and have them return the refund to the IRS. Then contact the IRS and tell them why the money is being returned.

This also seems to be a time to mention that some taxpayers won’t know that someone filed a fraudulent return in their name until they try to electronically file the legitimate return. When a return bearing the same social security is on file, the IRS will reject the second one. This then requires filing a paper return along with an identity theft affidavit.

Now these aren’t the most fun things to talk about, for even if you follow all the rules as you should following any identity theft issue, it can have long-ranging consequences and take lots of time to try to set right. Just thinking about it is scary. Talking about it is good, though, for the more vigilant we remain, the more we stand a better chance of not becoming a victim.

And thankfully, this increasing awareness seems to be working.

Last week, the IRS reported that tax-related identity theft declined for the second straight year. This is good enough news, but it is amazing that they saw a 40 percent decline since 2016, a rather significant mark. Furthermore, the agency reported that since 2015, tax-related identity theft has fallen by more than two-thirds.

The overall numbers are still not negligible – 242,000 identity theft reports reached the IRS in 2016 – but the drops are huge. That number was 677,000 in 2015, after all.

There is no reason to think, though, that it will ever stop. After all, the IRS reported it recovered $204 million in fraudulent refunds last year, and it is impossible to keep out criminal acts when that much money is involved. But again, that number was $852 million in 2015, so things are improving.

Personally, this is also a moment when I can step back and be thankful that my clients trust me with their personal information and finances. That is a pact that I do not take lightly, and we take pride in doing everything we can to ensure your privacy. 

Over the past month or so, I often have written about getting your documents together in preparation for filing your taxes. I thought that this week I should take the time to actually expand upon that, and talk about what documents this could include. Please recognize, however, that this is really only the large-picture view, that everyone’s situation is different, and this is far from comprehensive, but hopefully will keep you thinking in the right directions anyway.

First off, since we are paying taxes because we earned some money, you’re going to need the documents that show just how much you earned. So get W-2 forms for any job you had in 2017 (and for the purposes of this article, “you” means you and your spouse if you are filing as married). This also means any side-work you did, however, and you should receive a 1099 form for any of that that earned you more than $600. Then there is income from any business you own (so you will need those accounting records), any interest earned from investments, any money received from unemployment, social security, jury duty, or gambling winnings.

Overall, remember that if you receive a tax form saying you got some money, that information was also sent to the IRS. So even if it was only a few dollars, you want to be sure it is included on your return. Yes, it won’t affect your tax return that much, but you want your numbers to look like the IRS expects them to look.

After income, we have to start looking at ways to reduce how much you owe, and some of these deductions and credits will have also come with tax forms, such as mortgage interest paid and student loan interest. You also want to track contributions made to retirement accounts and medical savings accounts.

There are some general purchases you made that could become deductions. These are especially important if you have any qualified business expenses.  And realize that getting tax numbers together is much easier if you provide receipts instead of saying, “Well, I had lunch with a client once around March and it cost about $50.” Even if you don’t have a business, though, there could be some expenses that were necessary to complete your job, and if you were not reimbursed for those, they could also qualify as deductions.

Beyond those, however, any costs that you had for education and child care can lower your tax liability. And if you added a child through adoption, some of those costs will also benefit your tax picture. If you had a number of medical expenses, you will also want to document those, as well as any moving expenses and charitable contributions.

Finally, there is also more basic information needed that some people can overlook. If you’re filing taxes with someone who doesn’t already have the information, you’ll need social security numbers for you, your spouse, and any dependents. And if you are expecting a refund, having your bank’s routing number and account number handy will help you get that money as quickly as possible.

Again, this is only the bare skeleton of what can be needed for a full tax return. I wanted to put out the biggest ideas, though, that one needs to think about when it comes to tax preparation. Thankfully, if you are already thinking about these things, then you have time to find everything you may need and get all that is owed to you. Also, at this time of tax season, we still have plenty of appointments available and are eager to help you in this endeavor.