Don’t Be The Victim of a Scam or ID Theft

The Internal Revenue Service is encouraging taxpayers to guard against being misled by unscrupulous individuals trying to persuade them to file false claims for tax credits or rebates.

The IRS has noted an increase in tax return-related scams, frequently involving unsuspecting taxpayers who normally do not have a filing requirement in the first place. These taxpayers are led to believe they should file a return with the IRS for tax credits, refunds or rebates to which they are not really entitled.

Most paid tax return preparers provide honest and professional service, but there are some who engage in fraud and other illegal activities. Unscrupulous preparers deceive people into paying for advice on how to file false claims. In other situations, identity theft is involved.

Taxpayers should be wary of any of the following:

• Fictitious claims for refunds or rebates based on excess or withheld Social Security benefits.
• Claims that Treasury Form 1080 can be used to transfer funds from the Social Security Administration to the IRS, enabling a payout from the IRS.
• Unfamiliar for-profit tax services teaming up with local churches.
• Homemade flyers and brochures implying credits or refunds are available without proof of eligibility.
• Offers of free money with no documentation required.
• Promises of refunds for “Low Income – No Documents Tax Returns.”
• Claims for the expired Economic Recovery Credit Program or Recovery Rebate Credit.
• Advice on claiming the Earned Income Tax Credit based on exaggerated reports of self-employment income.
• Promises of larger tax refunds
• Emails from the IRS asking for anything! The IRS does NOT contact anyone by email.

In some cases, nonexistent Social Security refunds or rebates have been the bait used by the con artists. In other situations, taxpayers deserve the tax credits they are promised but the preparer uses fictitious or inflated information on the return, which results in a fraudulent return.

Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file with little or no documentation, have been appearing in community churches around the country. Promoters are targeting church congregations, exploiting their good intentions and credibility. These schemes also often spread by word of mouth among unsuspecting and well-intentioned people telling their friends and relatives. Promoters of these scams often prey upon low-income individuals and the elderly.

They build false hopes and charge people good money for bad advice. In the end, the victims discover their claims are rejected or the refund barely exceeds what they paid the promoter. Meanwhile, their money and the promoters are long gone.

Unsuspecting individuals are most likely to get caught up in scams. The IRS is warning all taxpayers, and those who help others prepare returns, to remain vigilant. If it sounds too good to be true, it probably is.

If your social security number has been fraudulently used on a tax return other than your own, we recommend that you contact your local police department and file a report. We also strongly urge you to call the three major credit reporting agencies (Equifax, Experion and Trans Union) and issue a fraud alert on your file.  Doing this will prompt them to contact you when an attempt is made to fraudulently open a new credit account without your knowing.  Lastly, you should alert the IRS that your identity has been stolen by filing IRS form 14039.

Above all, remember that the IRS does not initiate taxpayer contact by e-mail. Whenever you receive an unsolicited or dubious solicitation that includes you providing your SSN, bank account number or other financial information, be skeptical. These scam artists can make communication look and sound like it is legitimate. When in doubt, call this office. Don’t let yourself be a victim of these scams.

Feel free to contact E-File Florida if you have any questions or concerns regarding scams or ID theft. We are here as a resource to you!

New Mileage Rates for 2011 July-Dec

The IRS has increased the mileage rate deduction from .51 cents to 55.5 cents per mile beginning  July 1, 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business purposes.

The IRS made this special adjustment in recognition of the crazy gas prices that we are all paying at the pump. They normally update and adjust the mileage rates only one time per year~usually announced  in the fall for the upcoming calendar year.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations  is set by statute, not the IRS, and remains at 14 cents a mile.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Mileage Rate Changes

Purpose	Rates 1/1 through 6/30/11	Rates 7/1 through 12/31/11
Business	51	55.5
Medical/Moving	19	23.5
Charitable	14	14

Is Now The Time To Consider Owning Real Estate Rental Property?

Does the decline in real estate values present a business opportunity? Real estate rentals historically have been a popular long-term investment. If you believe that this market eventually will rebound from its current slump, this may be the time to consider such an investment. This article will explain some of the tax ramifications of renting residential real estate.

One of the biggest benefits of owning rental property is that the tenants, over time, buy the property for you. In addition, if structured properly, the allowable depreciation deduction will help to shelter the rental income and you will be able to benefit in the short term with legitimately favorable tax deductions. Another historical benefit of real estate rentals is property appreciation.

Before acquiring a rental property, there are several things to consider. Here are a few:

• After-tax cash flow
• Losses to offset income from other sources (Wages, etc)
• Potential for long or short term appreciation
• Property condition (with an eye on when you might get stuck with a large repair bill)
• Debt reduction
• Type of tenants
• Potential for rent increases or re-zoning
• Whether there is an HOA restriction on renting your property, etc.

Rental real estate income is business income but is not subject to Social Security taxes. (A tax savings of roughly 16%) Real estate rentals are also considered passive activities (Your property generates income without you having to be there to run things, as you would in a business for example). Generally, passive activity losses are deductible only to the extent of passive activity income. However, where there is active participation by the taxpayer in managing the rental, the taxpayer can deduct up to $25,000 of losses each year as long as his or her Adjusted Gross Income (AGI) for the year is less than $100,000. For higher-income taxpayers, the $25,000 loss exception is ratably phased out between an AGI of $100,000 and $150,000. For most taxpayers, this can be a beautiful thing. You can actually have cash flow every month (the money you take home after all expenses are paid) and yet show a legitimate rental loss on your tax return! This loss will help to reduce other taxable income that you may have, such as wages. There is also a special allowance for real estate professionals. (Call this office for details if you are a real estate professional)  Any losses not allowed under these two exceptions are not lost but suspended and carried forward indefinitely to tax years in which your passive activities generate enough income to absorb the losses. To the extent your passive losses from an activity are not used up in this fashion, you will be allowed to use those losses in the tax year in which you sell your rental property.

When a rental property is sold, it is treated as a capital asset. The gain or profit from the sale (except for depreciation recapture) is taxed at capital gains rates. Recaptured depreciation (Contact us for details), depending upon your tax bracket, can be taxed up to 25%. Besides outright selling of a rental, there are a number of options such as exchanging the existing rental for another while deferring the gain and avoiding current taxes, selling the property in an installment sale (which spreads the taxable gain over multiple years), or even converting the property to personal use (which forestalls the taxable gain until the property ultimately is sold).

Buying, operating, and selling a rental property can have profound tax ramifications and provide some interesting options not available to other investments. Please contact this office prior to the purchase or disposition of a rental property so that the tax impact can be analyzed prior to making a financial commitment.