IRS Warns Taxpayers About A New Scam

The Internal Revenue Service (IRS) and its Security Summit partners have issued a warning to taxpayers about a new scam attempt. This scam involves a fraudulent letter with IRS heading sent by mail using a delivery service. The letter asks the recipients to send photos of their driver’s license, Social Security card, and bank account information to verify their identity in order to receive a refund. The identity thieves can try to obtain a tax refund and other sensitive financial information by using these photos.

What the Scammers Attempt To Do?

This scam is an attempt to steal personal and financial information from taxpayers. Meanwhile, the IRS and its partners remind taxpayers that they will never contact them by mail, phone, email, or text message to ask for personal or financial information. Consequently, taxpayers should never provide such information to anyone who contacts them unsolicited. In addition, they should report any suspicious communications to the IRS or the Treasury Inspector General for Tax Administration (TIGTA).

What Should You Do if You Receive Scam Mailing?

If you receive this scam mailing, you should not respond to it. In addition, you should also check your credit reports and bank accounts for any unauthorized activity, and report any identity theft or fraud to the Federal Trade Commission (FTC) and your local police department.

For more information on how to protect yourself from tax-related scams, click here.

Conclusions

In conclusion, you, as a taxpayer should be careful and watch out for red flags that can make you suspicious about the mail received. There are a few details that you should pay attention to, like:

• you are asked to send sensitive information,
• the letter includes contact information and a phone number that do not belong to the IRS,
• wrong punctuation,
• unprofessional wording and incorrect spelling,
• mixture of fonts, which is something that IRS does not use, as you can see in this example of scam wording: “A Clear Phone of Your Driver’s License That Clearly Displays All Four (4) Angles, Taken in a Place with Good Lighting”.

In any case, you should be aware that the IRS never initiates contact with taxpayers by email, text or social media regarding a bill or a tax refund.

Furthermore, if you receive a suspicious email, text or letter, you should contact the IRS directly. You should use the contact information found on the official IRS website at https://www.irs.gov/help/telephone-assistance and check the status of your account or your refund.

The IRS also warns us to be careful of unsolicited texts or emails that appear to be from friends or family, using possibly stolen or compromised accounts. In this situation, you should report these scam attempts to the IRS at phishing@irs.gov. Include:

• the email address or
• the caller ID of the unsolicited communication source,
• your email or phone number on which you received the suspicious messages,
• the date and time you received the communication

In the meantime, if you need tax and accounting services, we are here to help. We serve small businesses and real estate investors. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

New Initiative Launched by IRS

The Internal Revenue Service has announced a new initiative called “Paperless Processing”. This initiative’s objective is that by 2025 to allow all tax returns to be filed electronically. Another objective is that by 2024 to allow taxpayers to go paperless for the IRS correspondence. As a result, it will not be necessary to print and mail your paper forms to the IRS. Currently you are able to e-file some tax returns and forms, but with this initiative you will be able to e-file 20 additional tax forms.

Why IRS Wants to Adopt This Initiative?

The IRS wants to make an easy process for the taxpayers who will now be able to digitally submit forms. The IRS also want to make things easier for its IRS agents who will now be able to digitally process the forms received. In addition, this process will reduce paper waste and will streamline the tax processing.

This initiative is part of the IRS’ efforts to modernize its system and to improve customer service for the taxpayers. This will bring a couple of benefits for taxpayers, including:

• Fewer errors: electronic filing reduces the chances of errors or omissions related to your tax return(s), which can delay refunds or result in penalties
• More security: electronic filing protects your personal information from identity theft or fraud, as paper forms can be lost or stolen in the mail
• More convenience: you, as a taxpayer can file your return(s) anytime, anywhere, using your computer, smartphone, or tablet; you can also use IRS Free File, a free service that offers online tax preparation and filing options for eligible taxpayers
• Access to your data: IRS will digitize up to 1 million historical documents
• Better customer service: customer service will have easier access to IRS database and past paper returns, thus being able to answer more questions and resolve more issues; with this initiative the IRS will be able to process the refunds several weeks faster than it does now
• Better IRS enforcement: having a robust digital database, the IRS can extract data for advanced analytics and pattern recognition methods to go after wealthy taxpayers and big corporations that are trying to evade paying taxes by using complicated tax schemes

Conclusions

The IRS encourages all taxpayers to take advantage of Paperless Processing and file their returns electronically. However, taxpayers who prefer to file on paper can still do so. The IRS will continue to accept and process paper returns. But they warn that the taxpayers may experience longer processing times and delays in receiving their refunds.

In the meantime, if you have any questions, we are here to help. We serve small businesses and real estate investors. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

Mortgage Interest as An Itemized Deduction

You can deduct on your schedule A as an itemized deduction the mortgage interest related to the mortgage for your primary and secondary residence.

The amount that you can deduct depends on the date you took out the mortgage, the amount of your mortgage balance, and how you used the mortgage proceeds. In addition, you must secure your loan by your primary or secondary residence.

Acquisition Debt

You can only use as an itemized deduction the interest on acquisition debt. Acquisition debt refers to funds that you used to:

• purchase,
• construct,
• or make significant improvements to your primary or secondary residence.

If you took out the mortgage between October 13, 1987 and December 15, 2017:

• the IRS caps the total acquisition debt for a primary residence and a second home at $1 million,
• $500,000 if you are married filing separately.

If you took out the mortgage between December 16, 2017 and December 31, 2025:

• the IRS caps the acquisition debt at $750,000,
• $375,000 if you are married filing separately.

The IRS does not allow you to deduct the mortgage interest that is allocated to acquisition debt exceeding these limits.

Average Balance

To calculate your total acquisition debt for the year, there are a couple of methods. The most you might benefit from is the one using the average balances during the year. You can calculate the average balances using 3 methods:

• average of first and last balance method,
• interest paid divided by interest rate method,
• and the method using the statements provided by your lender.

Each method has its specific requirements that you can see in Publication 936.

If you have a combined average balance of all your mortgages below the limits mentioned above, you can deduct in full your mortgage interest. Otherwise, you should use table 1 from IRS Publication 936, Home Mortgage Interest Deduction.

Court Case

It is important to make sure that you choose the correct method in calculating your acquisition debt for the year. As an example, you can see in the “McNamara v. Commissioner of Internal Revenue” court case how the IRS disallowed a portion of the mortgage interest deduction on the taxpayers’ 2019 joint personal return due to incorrect calculation of the average mortgage balance.

The taxpayers had the house only for 5 months in 2019, but they calculated the average mortgage balance using a 12 months period. The mortgage interest is deductible only if the home secures the outstanding balance of the loan. Since the taxpayers’ loan secured the home only for 5 months, from January 1^st up to May 2019, when the taxpayers sold their home, the taxpayers should have used a 5 months period in determining their average mortgage balance.

To avoid any IRS issues, you should always check what your tax preparation software does.

In the meantime, if you have any questions, we are here to help you with your business accounting, QuickBooks and tax needs. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

New change in IRS’ policy

The Internal Revenue Service (IRS) made public a major change on 24 July, 2023. According to the new release “IR-2023-133, July 24, 2023”, the IRS will no longer conduct unexpected visits to taxpayers’ homes or businesses. If you are selected for an audit, the IRS will send you a letter, informing you of the audit reason and requesting a meeting at a convenient time and place.

The IRS also assures taxpayers that the selection criteria for audits will remain the same, based on factors such as income, deductions, credits, and previous audit history.

What does IRS intend?

By adopting this major change, IRS intends to improve the efficiency and transparency of the audit process, as well as to reduce the stress and inconvenience for taxpayers and the hazards and uncertainty faced by the revenue agents.

Why IRS adopted this change?

There are several reasons that contributed to this change adopted by the IRS:

• the IRS hopes that by giving taxpayers more notice and flexibility, it will encourage more cooperation and compliance,
• the fact that scammers sometimes appeared at the door posting as IRS agents was very confusing for the taxpayers and law enforcement,
• this decision also comes after a series of complaints and lawsuits from taxpayers who felt harassed and intimidated by the IRS agents.

Unannounced visits

The IRS stated that it will only use unannounced visits in exceptional circumstances, such as when there is an imminent threat of destruction of evidence or harm to the public. The IRS also emphasized that it will continue to use other methods of contacting and auditing taxpayers, such as phone calls, letters, and scheduled appointments.

Conclusions

The IRS advises that taxpayers who receive a letter should respond promptly and provide the requested documents or records. Per the IRS most audits can be resolved quickly and easily, as long as the taxpayer cooperates and communicates with the IRS.

In the meantime, if you have any questions, we are here to help you with your business accounting, QuickBooks, and tax needs. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

 

What Are Tags?

Tags represent labels that can be customized and that can help you track your transactions in QuickBooks. For now, you can use tags for your invoices, expenses, and bills.

Grouping tags together allows you to run reports and see how specific areas of your business are doing. For example, you are a wedding planner and you want to see the net result for each wedding that you planned.

Tags do not influence your books and they track things at the transaction level. QuickBooks offers some other grouping options, like categories or classes. Categories are used usually by accountants and they are reflected in the chart of accounts. Classes are used to group income and expenses for job costing, budgeting or fund accounting.

Creating Tag Groups

First of all, you should create groups to put tags into. You should follow the steps below:

• Go to Settings and choose Tags
  • Click on the New button and then Tag group
    • Choose a name for the group
    • Choose a color from the dropdown menu
    • When you’re done, click Save

For example, let’s say that you run a beauty products company and you want to see which product has the best sales. You can do this by creating a group called “products”. Then create tags for specific beauty products and add them to your products group.

Create New Tags and Tag Transactions

You can create tags while you’re working on a form, like an invoice or expense:

• In the Tags field, enter the name of the tag you want to create, then select + Add
• Select one of your groups to add the tag to it

This creates the tag and tags the form. You can also add existing tags to forms, by simply entering the name in the Tag field and selecting it. You can add as many tags as you’d like to one specific form, but you can only choose one tag per tag group.

Get Insights from Tags

In order to see the Profit and Loss report for each tag or tag group:

• Go to Banking, then select Tags
• Find a group or a tag on the list
• Under the Action column, select Run report

Since tags and the tag groups have both money in and money out transactions, you’ll see how everything in the tag or in the group affects your bottom line.

Edit Tags, Tag Groups

• Go to Settings and select Tags
• Find the tag or tag group you want to edit
• Under the Action column, select the Run report dropdown, then select Edit tag or Edit group

Turn Off Tags

• Choose Settings
• Select Account and Settings
• Click on the Sales tab
• In the Sales form content section, turn off Tags, next select Save
• Select the Expenses tab
• In the Bills and Expenses section, turn off the Show Tags field on expense and purchase forms, and select Save
• Click Done

Tags are an easy and useful method to have more efficient financial reports.

In the meantime, if you have any questions, we are here to help you with your accounting, QuickBooks, and tax needs. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

We advise that you link your bank and credit cards accounts to your QuickBooks for a fast way to easily record transactions and avoid manual data entry. Keep in mind that you can connect as many accounts as you want or have.

How Can You Link Your Bank And Credit Cards Accounts To Your QuickBooks?

• To connect your bank and credit cards accounts to your QuickBooks, you need to do the following steps:
  • Go to Bookkeeping -> Transactions -> select Banking
  • If this is the first bank account you’ve set up, select Connect account; if it is not the first account, select Link account

• In the search field -> enter the name for your bank or credit card institution
  • If you can’t find your bank, but you still want to avoid manual data entry, you can import your bank transactions (we will see how in a future blog)
• Select Continue -> sign in to your bank with your user ID and password -> follow the steps shown
• Choose the accounts you want to connect -> select the account type dropdown -> choose the account type that matches your chart of accounts in QuickBooks
• Select how far back you want to download transactions
  •  Some banks let you download the last 90 days of transactions
  •  Others can go back as far as 24 months
• Select Connect

How To Download Recent Transactions?

• You do not have to enter the transactions manually because QuickBooks allows you to download the transactions
• You will have to refresh the bank feed so you can download your latest transactions
• To download the recent transactions, do the following steps:
  • Go to Bookkeeping -> Transactions -> select Banking
  • Select Update

Categorize The Transactions

• Once you are done with the previous step, you will need to review and categorize the transactions to make sure they’re categorized right:
  • Go to Bookkeeping -> select Transactions -> select Bank transactions
  • Select the tile for the account you want to review
  • Select the For review tab to start your review

• QuickBooks sends downloaded transactions to the “For review” tab
• We advise that you review them one by one
• To streamline the review process, you can create a bank rule that automatically categorizes transactions for you
• For each transaction, you have the following options:
  • Match with an existing transaction
  • Confirm paired bank transfers
  • Add a new transaction
  • View and review multiple matches
  • Work with partially matched transactions

We will talk about how to create a bank rule and these options on how to match, add, or view multiple matches in a future blog.

In the meantime, if you have any questions, we are here to help you with your accounting, QuickBooks, and tax needs. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.