Identity Theft and Your Taxes

Ten Things to Know about Identity Theft and Your Taxes

Learning you are a victim of identity theft can be a stressful event. Identity theft is also a challenge to businesses, organizations and government agencies, including the IRS. Tax-related identity theft occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund.

Many times, you may not be aware that someone has stolen your identity. The IRS may be the first to let you know you’re a victim of ID theft after you try to file your taxes.

Here are ten things to know about ID Theft:


1. Protect your Records.  Do not carry your Social Security card or other documents with your SSN on them. Only provide your SSN if it’s necessary and you know the person requesting it. Protect your personal information at home and protect your computers with anti-spam and anti-virus software. Routinely change passwords for Internet accounts.

2. Don’t Fall for Scams.  The IRS will not call you to demand immediate payment, nor will it call about taxes owed without first mailing you a bill. Beware of threatening phone calls from someone claiming to be from the IRS. If you have no reason to believe you owe taxes, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484.

3. Report ID Theft to Law Enforcement.  If your SSN was compromised and you think you may be the victim of tax-related ID theft, file a police report. You can also file a report with the Federal Trade Commission using the FTC Complaint Assistant. It’s also important to contact one of the three credit bureaus so they can place a freeze on your account.

4. Complete an IRS Form 14039 Identity Theft Affidavit.  Once you’ve filed a police report, file an IRS Form 14039 Identity Theft Affidavit.  Print the form and mail or fax it according to the instructions. Continue to pay your taxes and file your tax return, even if you must do so by paper.

5. Understand IRS Notices.  Once the IRS verifies a taxpayer’s identity, the agency will mail a particular letter to the taxpayer. The notice says that the IRS is monitoring the taxpayer’s account. Some notices may contain a unique Identity Protection Personal Identification Number (IP PIN) for tax filing purposes.

6. IP PINs.  If a taxpayer reports that they are a victim of ID theft or the IRS identifies a taxpayer as being a victim, they will be issued an IP PIN. The IP PIN is a unique six-digit number that a victim of ID theft uses to file a tax return. In 2014, the IRS launched an IP PIN Pilot program. The program offers residents of Florida, Georgia and Washington, D.C., the opportunity to apply for an IP PIN, due to high levels of tax-related identity theft there.

7. Data Breaches.  If you learn about a data breach that may have compromised your personal information, keep in mind not every data breach results in identity theft.  Further, not every identity theft case involves taxes. Make sure you know what kind of information has been stolen so you can take the appropriate steps before contacting the IRS.

8. Report Suspicious Activity.  If you suspect or know of an individual or business that is committing tax fraud, you can visit IRS.gov and follow the chart on How to Report Suspected Tax Fraud Activity.

9. Combating ID Theft.  Over the past few years, nearly 2,000 people were convicted in connection with refund fraud related to identity theft. The average prison sentence for identity theft-related tax refund fraud grew to 43 months in 2014 from 38 months in 2013, with the longest sentence being 27 years.   During 2014, the IRS stopped more than $15 billion of fraudulent refunds, including those related to identity theft.  Additionally, as the IRS improves its processing filters, the agency has also been able to halt more suspicious returns before they are processed. So far this year, new fraud filters stopped about 3 million suspicious returns for review, an increase of more than 700,000 from the year before. 

10. Service Options. Information about tax-related identity theft is available online. The IRS has a special section on IRS.gov devoted to identity theft and a phone number available for victims to obtain assistance.

For more on this Topic, see the IRS' Taxpayer Guide to Identity Theft.

Additional IRS Resources:

• Publication 5027, Identity Theft Information for Taxpayers
• Publication 5199, Tax Preparer Guide to Identity Theft
• Publication 4524, Security Awareness-Identity Theft Flyer
• Publication 4523, Beware of Phishing Schemes

IRS YouTube Videos:

• Are You a Victim of Identity Theft? – English | Spanish | ASL
• Protect Yourself From Identity Theft – English | Spanish | ASL
• IRS Identity Theft FAQ: First Steps for Victims – English | Spanish | ASL
• IRS Efforts on Identity Theft – English | Spanish | ASL
• IRS Identity Theft FAQ: Going After the Bad Guys – English | Spanish | ASL
• Phishing-Malware – English | Spanish | ASL

IRS Podcasts:

• Are You a Victim of Identity Theft? – English | Spanish
• Protect Yourself From Identity Theft – English | Spanish

Real Estate Professionals- Contemporaneous Log and Travel Time

Real Estate Professionals

Contemporaneous Log and Travel Time 

On April 13, 2015,   the Tax Court ruled in Richard Leyh v. Comm (TC Summary Opinion 2015-27) that taxpayers who elected to aggregate their rental real estate activities and who kept a detailed contemporaneous log of the time spent operating their 12 rental properties were real estate professionals (REPs) who could deduct $69,531 of losses against their non-passive income such as wages. 

Key elements of this case follow: 

• The court allowed the taxpayer's wife to include the travel time in driving from their principal residence to the rental properties to perform services.  

• Although a Tax Court Summary Opinion cannot be cited as precedent, it is comforting to see pro se taxpayers (taxpayers who represent themselves) beat the IRS with a detailed contemporaneous log and travel time.  

• The election to aggregate the properties also was critical to the taxpayers' victory.  

If you are a tax professional who represent taxpayers who purport to be real estate professionals, you may want to advise them to make an election to aggregate (if they have not already done so), keep a detailed contemporaneous log of the time spent servicing the rental properties, and remember to include travel time in their original log.  

If You Get a Letter from the IRS . . .

If You Get a Letter from the IRS . . .

The IRS mails millions of notices and letters to taxpayers each year. There are a variety of reasons why we might send you a notice. Here are the top 10 tips to know in case you get one.

1.    Don’t panic and don't ignore the letter. You often can take care of a notice simply by responding to it.

2.    An IRS notice typically will be about your federal tax return or tax account. It will be about a specific issue, such as changes to your account. It may ask you for more information. It could also explain that you owe tax and that you need to pay the amount that is due.

3.    Each notice has specific instructions, so read it carefully. It will tell you what you need to do.

4.    You may get a notice that states the IRS has made a change or correction to your tax return. If you do, review the information and compare it with your original return.

5.    If you agree with the notice, you usually don’t need to reply unless it gives you other instructions or you need to make a payment.

6.    If you do not agree with the notice, it’s important for you to respond. You should write a letter to explain why you disagree. Include any information and documents you want the IRS to consider. Mail your reply with the bottom tear-off portion of the notice. Send it to the address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.

7.    You won’t need to call the IRS or visit an IRS office for most notices. If you do have questions, call the phone number in the upper right-hand corner of the notice. Have a copy of your tax return and the notice with you when you call. This will help the IRS answer your questions.

8.    Always keep copies of any notices you receive with your other tax records and make notations of what you included in the response as well as the date you responded.  If the amount in question is significant, mail your response via Certified Mail with Return Receipt in order to prove mailing.

9.    Be alert for tax scams. The IRS sends letters and notices by mail. The IRS does not contact people by email or social media to ask for personal or financial information.  The IRS will not initiate collections by a phone call asking for immediate payment or threaten arrest.

10.    For more on this topic visit IRS.gov. Click on the link ‘Responding to a Notice’ at the bottom left of the home page. Also, see Publication 594, The IRS Collection Process. You can get it on IRS.gov/forms at any time.


Additional IRS Resources:

• Tax Topic 651 – Notices – What to Do
• Tax Topic 653 – IRS Notices and Bills, Penalties and Interest Charges
• Understanding Your CP2000 Notice

IRS YouTube Videos:

• Received a Letter from the IRS? – English | Spanish | ASL

Filing Late & Paying Late

What to Know about Late Filing and Late Paying Penalties

April 15 was the tax day deadline for most people. If you are due a refund there is no penalty if you file a late tax return. But if you owe tax, and you failed to file and pay on time, you will usually owe interest and penalties on the tax you pay late. You should file your tax return and pay the tax as soon as possible to stop them. Here are eight facts that you should know about these penalties.

1.    Two penalties may apply.  If you file your federal tax return late and owe tax with the return, two penalties may apply. The first is a failure-to-file penalty for late filing. The second is a failure-to-pay penalty for paying late.

2.    Penalty for late filing.  The failure-to-file penalty is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. It will not exceed 25 percent of your unpaid taxes.

3.    Minimum late filing penalty.  If you file your return more than 60 days after the due date or extended due date, the minimum penalty for late filing is the smaller of $135 or 100 percent of the unpaid tax.

4.    Penalty for late payment.  The failure-to-pay penalty is generally 0.5 percent per month of your unpaid taxes. It applies for each month or part of a month your taxes remain unpaid and starts accruing the day after taxes are due. It can build up to as much as 25 percent of your unpaid taxes.

5.    Combined penalty per month.  If the failure-to-file penalty and the failure-to-pay penalty both apply in any month, the maximum amount charged for those two penalties that month is 5 percent.

6.    File even if you can’t pay.  In most cases, the failure-to-file penalty is 10 times more than the failure-to-pay penalty. So if you can’t pay in full, you should file your tax return and pay as much as you can. Use IRS Direct Pay to pay your tax directly from your checking or savings account. You should try other options to pay, such as getting a loan or paying by debit or credit card. The IRS will work with you to help you resolve your tax debt. Most people can set up an installment agreement with the IRS using the Online Payment Agreement tool on IRS.gov.

7.    Late payment penalty may not apply.  If you requested an extension of time to file your income tax return by the tax due date and paid at least 90 percent of the taxes you owe, you may not face a failure-to-pay penalty. However, you must pay the remaining balance by the extended due date. You will owe interest on any taxes you pay after the April 15 due date.

8.    No penalty if reasonable cause.  You will not have to pay a failure-to-file or failure-to-pay penalty if you can show reasonable cause for not filing or paying on time. There is also penalty relief available for repayment of excess advance payments of the premium tax credit for 2014.

Additional IRS Resources:

• IRS Direct Pay
• Make a Payment – payment options
• Tax Topic 653 - IRS Notices and Bills, Penalties and Interest Charges
• Q&A about interest and penalties for filing and paying late
• Publication 594, The IRS Collection Process
• Filing Your Taxes
• IRS Tax Map

IRS YouTube Videos:

• IRS Tax Payment Options – English | Spanish | ASL
• Online Payment Agreement – English | Spanish | ASL

IRS Podcasts:

• IRS Tax Payment Options – English | Spanish
• Online Payment Agreement – English | Spanish

Didn't File a Return?

If You Missed the Tax Deadline These Tips Can Help

April 15 has come and gone. If you didn’t file a tax return or an extension but should have, you need to take action now. Here are some tips for taxpayers who missed the tax filing deadline:

• File as soon as you can.  If you owe taxes, you should file and pay as soon as you can. This will stop the interest and penalties that you will owe. IRS Direct Pay offers you a free, secure and easy way to pay your tax directly from your checking or savings account. There is no penalty for filing a late return if you are due a refund. The sooner you file, the sooner you’ll get it.
• Use IRS e-file to do your taxes.  No matter who prepares your tax return, you can use IRS e-file through Oct. 15. E-file is the easiest, safest and most accurate way to file your taxes. The IRS will confirm that it received your tax return. The IRS issues more than nine out of 10 refunds in less than 21 days.
• Pay as much as you can.  If you owe tax but can’t pay it in full, you should pay as much as you can when you file your tax return. IRS electronic payment options are the quickest and easiest way to pay your taxes. Pay the rest of the tax you still owe as soon as possible. Doing so will reduce future penalties and interest.
• Use the IRS.gov tool to pay over time.  If you need more time to pay your tax, you can apply for an installment agreement with the IRS. The best way to apply is to use the IRS Online Payment Agreement tool. You can use the IRS.gov tool to set up a direct debit agreement. You don’t need to write and mail a check each month with a direct debit plan. If you don’t use the tool, you can use Form 9465, Installment Agreement Request to apply. You can get the form on IRS.gov/forms at any time.
• A refund may be waiting.  If you are due a refund, you should file as soon as possible to get it. Even if you are not required to file, you may still get a refund. This could apply if you had taxes withheld from your wages or you qualify for certain tax credits. If you do not file your return within three years, you could lose your right to the refund.

Additional IRS Resources:

• Make a Payment
• Tax Topic 202 - Tax Payment Options

IRS YouTube Videos:

• Welcome to Free File – English
• IRS Tax Payment Options – English | Spanish | ASL
• Online Payment Agreement – English | Spanish | ASL

IRS Podcasts:

• IRS Tax Payment Options – English | Spanish
• Online Payment Agreement – English | Spanish

File on Time Even if You Can’t Pay

File on Time Even if You Can’t Pay

Do you owe more tax than you can afford to pay when you file? If so, don’t fail to take action. Make sure to file on time. That way you won’t have a substantial penalty for filing late (cam be up to 25% of tax due). Here is what to do if you can’t pay all your taxes by the due date.

• File on time and pay as much as you can.  You should file on time to avoid a late filing penalty. Pay as much as you can with your tax return. The more you can pay on time, the less interest and late payment penalty charges you will owe.

• Pay online with IRS Direct Pay.  IRS Direct Pay is the latest electronic payment option available from the IRS. It allows you to schedule payments online from your checking or savings account with no additional fee and with an immediate payment confirmation. It’s, secure, easy, and much quicker than mailing in a check or money order. To make a payment or to find out about your other options to pay, visit IRS.gov/payments.

• Pay the rest of your tax as soon as you can.  If it is possible, get a loan or use a credit card to pay the balance. The interest and fees charged by a bank or credit card company may be less than the interest and penalties charged for late payment of tax. For debit or credit card options, visit IRS.gov.

• Use the Online Payment Agreement tool.  You don’t need to wait for IRS to send you a bill to ask for an installment agreement. The best way is to use the Online Payment Agreement tool on IRS.gov. You can even set up a direct debit installment agreement. When you pay with a direct debit plan, you won’t have to write a check and mail it on time each month. And you won’t miss any payments that could mean more penalties. If you can’t use the IRS.gov tool, you can file Form 9465, Installment Agreement Request instead. You can view, download and print the form on IRS.gov/forms anytime. 

• Don’t ignore a tax bill.  If you get a bill, don’t ignore it. The IRS may take collection action if you ignore the bill. Contact the IRS right away to talk about your options. If you face a financial hardship, the IRS will work with you.

In short, remember to file on time. Pay as much as you can by the tax deadline. Pay the rest as soon as you can. Find out more about the IRS collection process on IRS.gov. 

Also check out IRSVideos.gov/OweTaxes. 

IRS YouTube Video:

• Online Payment Agreement – English | Spanish | ASL
• IRS Tax Payment Options – English | Spanish | ASL

IRS Podcasts:

• Online Payment Agreement – English | Spanish
• IRS Tax Payment Options – English | Spanish

Charitable Contributions

Deducting Charitable Contributions

When you give a gift to charity that helps the lives of others in need. It may also help you at tax time. You may be able to claim the gift as a deduction that may lower your tax. Here are eight tax tips you should know about deducting your gifts to charity:

1. Qualified Charities.  You must donate to a qualified charity if you want to deduct the gift. You can’t deduct gifts to individuals, political organizations or candidates. To check the status of a charity, use the IRS Select Check tool.

2. Itemized Deduction.  To deduct your contributions, you must file Form 1040 and itemize deductions. File Schedule A, Itemized Deductions, with your federal tax return.

3. Benefit in Return.  If you get something in return for your donation, your deduction is limited. You can only deduct the amount of your gift that is more than the value of what you got in return. Examples of benefits include merchandise, meals, tickets to an event or other goods and services.

4. Donated Property.  If you gave property instead of cash, the deduction is usually that item’s fair market value. Fair market value is generally the price you would get if you sold the property on the open market.

5. Clothing and Household Items.  Used clothing and household items must be in at least good condition to be deductible in most cases. Special rules apply to cars, boats and other types of property donations. See Publication 526, Charitable Contributions, for more on these rules.

6. Form 8283.  You must file Form 8283, Noncash Charitable Contributions, if your deduction for all noncash gifts is more than $500 for the year.

7. Records to Keep.  You must keep records to prove the amount of the contributions you made during the year. The kind of records you must keep depends on the amount and type of your donation. For example, you must have a written record of any cash you donate, regardless of the amount, in order to claim a deduction. For more about what records to keep refer to Publication 526.

8. Donations of $250 or More.  To claim a deduction for donated cash or goods of $250 or more, you must have a written statement from the charity. It must show the amount of the donation and a description of any property given. It must also say whether the organization provided any goods or services in exchange for the gift.

Also refer to Publication 561, Determining the Value of Donated Property. You can get IRS tax forms and publications on IRS.gov/forms anytime.

Additional IRS Resources:

• Interactive Tax Assistant tool
• IRS Tax Map

IRS YouTube Videos:

• Fair Market Value of Charitable Donations - English | Spanish | ASL

Claiming a Home Office Deduction? Know the rules.

About the Home Office Deduction

If you use your home for business, you may be able to deduct expenses for the business use of your home. If you qualify you can claim the deduction whether you rent or own your home. If you qualify for the deduction you may use either the simplified method or the regular method to claim your deduction. Here are six tips that you should know about the home office deduction.

1. Regular and Exclusive Use.  As a general rule, you must use a part of your home regularly and exclusively for business purposes. The part of your home used for business must also be:

• Your principal place of business, or
• A place where you meet clients or customers in the normal course of business, or
• A place where you perform significant administrative functions.

2. Simplified Option.  If you use the simplified option, you multiply the allowable square footage of your office by a rate of $5. The maximum footage allowed is 300 square feet. This option will save you time because it simplifies how you figure and claim the deduction. It will also make it easier for you to keep records. This option does not change the criteria for who may claim a home office deduction.

3. Regular Method.  If you use the regular method, the home office deduction includes certain costs that you paid for your home. For example, if you rent your home, part of the rent you paid may qualify. If you own your home, part of the mortgage interest, taxes and utilities you paid may qualify. The amount you can deduct usually depends on the percentage of your home used for business.

Also keep in mind that the IRS regulations cite number of rooms, but the Form 8829 requires square footage - this means that you must adjust for 'non-room' square footage in determining the area of the home.

Furthermore, equipment, furniture and supplies are deducted under normal rules for business expenses and are not included in the home office rules.

4. Deduction Limit.  If your gross income from the business use of your home is less than your expenses, the deduction for some expenses may be limited.

5. Self-Employed.  If you are self-employed and choose the regular method, use Form 8829, Expenses for Business Use of Your Home, to figure the amount you can deduct. You can claim your deduction using either method on Schedule C, Profit or Loss From Business. See the Schedule C instructions for how to report your deduction.

6. S Corp Owners.  If you are an S Corp owner, we recommend reimbursing yourself for the business use of your home as you do for mileage, business use of your cell phone and/or home internet using the Form 8829 as a guide.

7. Employees.  If you are an employee, you must meet additional rules to claim the deduction. For example, your business use must also be for the convenience of your employer and having a home office must be a requirement of employment. If you qualify, you claim the deduction on Schedule A, Itemized Deductions.

For more on this topic, see Publication 587, Business Use of Your Home. You can view, download and print IRS tax forms and publications on IRS.gov/forms anytime.

Additional IRS Resources:

• FAQs - Simplified Method for Home Office Deduction

IRS YouTube Videos:

• Simplified Home Office Deduction – English | Spanish | ASL

IRS Podcasts:

• Simplified Home Office Deduction – English | Spanish

Standard vs Itemized Deductions

Standard or Itemized: Choose the Deduction Method That’s Best for You

Most people claim the standard deduction when they file their federal tax return. But did you know that you may lower your taxes if you itemize your deductions? Find out if you can save by doing your taxes using both methods. Usually, the bigger the deduction, the lower the tax you have to pay. You should file your tax return using the method that allows you to pay the least amount of tax. The IRS offers these six tips to help you choose:

1. Use IRS Free File.  Most people qualify to use free, brand-name software to prepare and e-file their federal tax returns. IRS Free File is the easiest way to file. Free File software will help you determine if you should itemize and file the right tax forms. It will do the math and e-file your return – all for free. Check your other e-file options if you can’t use Free File.

2. Figure your itemized deductions.  Add up deductible expenses you paid during the year. These may include expenses such as:  

• Home mortgage interest
• State and local income taxes or sales taxes (but not both)
• Real estate and personal property taxes
• Gifts to charities
• Casualty or theft losses
• Unreimbursed medical expenses
• Unreimbursed employee business expenses

Special rules and limits apply. Visit IRS.gov and refer to Publication 17, Your Federal Income Tax, for more details.

3. Know your standard deduction.  If you don’t itemize, your basic standard deduction for 2014 depends on your filing status:     

• Single $6,200
• Married Filing Jointly $12,400
• Head of Household $9,100
• Married Filing Separately $6,200
• Qualifying Widow(er) $12,400             

If you’re 65 or older or blind, your standard deduction is higher than these amounts. If someone can claim you as a dependent, your deduction may be limited.

4. Check the exceptions.  There are some situations where the law does not allow a person to claim the standard deduction. This rule applies if you are married filing a separate return and your spouse itemizes. In this case, you can’t claim a standard deduction. You usually will pay less tax if you itemize. See Pub. 17 for more on these rules.

5. Use the IRS ITA tool.  Visit IRS.gov and use the Interactive Tax Assistant that takes you through a series of questions just like one of our customer service representatives would.  The tool can help determine your standard deduction. It can also help you figure several of your itemized deductions.

6. File the right forms.  To itemize your deductions, use Form 1040 and Schedule A, Itemized Deductions. You can take the standard deduction on Forms 1040, 1040A or 1040EZ.


Additional IRS Resources:

• Publication 501, Exemptions, Standard Deduction, and Filing Information
• Filing Your Taxes
• IRS Tax Map

IRS YouTube Videos:

• Welcome to Free File – English
• Standard vs. Itemized Deductions – English | Spanish | ASL
• Interactive Tax Assistant – English | ASL

IRS Podcasts:

• Standard vs. Itemized Deductions – English | Spanish

Interactive Tax Assistant – English