Monday September 23, 2019
Summertime IRS Tax Tips
- Just Married - When you marry, you may take a new name or address. You should contact the Social Security Administration to change your name and ensure proper credit for future retirement benefits. Your address change should be reported to the U.S. Post Office, your employer and the IRS.
- Children in Day Camp - While overnight camps do not qualify for the Child and Dependent Care Credit, IRS Publication 503, Child and Dependent Care Expenses, may show you how to qualify for the credit for your children's day camp expenses.
- Summer Jobs - Many Americans of all ages will earn extra income from a summer job. Even if you do not earn enough to pay federal income tax, your employer will withhold Social Security and Medicare taxes. If you are employed, your employer will send you a W-2, Wage and Tax Statement, by January 31 of the next year. If you are self-employed, you will need to file and pay the self employment, Social Security and Medicare taxes.
- Itemized Deductions - With the large standard deductions for 2019 ($12,200 for individuals and $24,400 for married couples), only about 10% of taxpayers are likely to itemize deductions. However, if you do plan to itemize, you will benefit from an understanding of the itemized deduction rules. State and local tax deductions are limited to $10,000. Mortgage interest on new loans up to $750,000 ($1 million on loans created before December 15, 2017) is deductible on a primary or second home.
Tax Security for Tax Professionals
In response to increased cyber attacks on CPAs, enrolled agents and other tax preparers, the IRS Security Summit published guidelines on safeguarding your data. These guidelines are designed to thwart the steadily-more-sophisticated attacks by cyber thieves on tax professionals.
The IRS Security Summit reports significant success in reducing consumer identity theft, following increased focus on publishing warnings to consumers and taking internal actions to reduce tax refund fraud. The IRS reports a decline in confirmed identity theft from 1.4 million returns in 2015 to 649,000 returns in 2018.
However, as cyberthieves are thwarted in their efforts to steal consumer identities, many scammers have decided to target tax professionals. If the cyberthief can obtain access to files of a tax professional, he or she can file large numbers of fraudulent tax returns with the stolen identities.
To assist tax professionals in protecting client data, the IRS published a five part plan for data security. The initial letter (IR-2019-122) includes a checklist called "Taxes-Security-Together."
- Basic Security Fundamentals - All tax professionals should use anti-virus software, maintain a server firewall, select two-factor authentication when available, back up client records daily, encrypt local and network hard drives and use virtual private networks for remote access.
- Data Security Plans - Tax-professionals are required by federal law to maintain a client record security plan. The plan should cover employee training, detecting any security breach and taking steps to correct a breach that has been discovered.
- Preventing Email Scams - Because email scams continue to become more sophisticated each year, keep current on the latest spear phishing methods and ransomware attacks.
- Recognize Client Data Theft - Watch for client reports of suspicious tax return filings or excessive numbers of returns filed with your Electronic Filing Identification Number.
- Data Theft Recovery Plan - If you have a client data theft, contact the IRS Stakeholder Liaison and obtain assistance from a cybersecurity consultant to safeguard your network.
Daines Bill to Stop $6.6 Billion in Excessive Conservation Easement Deductions
On July 11, Sen. Steve Daines (R-MT) reported that his bill, the Charitable Conservation Easement Program Integrity Act of 2019 (CCEPIA), had been scored by the Joint Committee on Taxation (JCT). The JCT "scores" tax legislation by estimating the revenue or expenditure impact. Daines reported the JCT score for CCEPIA is a revenue increase of $6.6 billion.
During the past three years, there has been a substantial increase in the number of syndicated partnerships who acquire land, sell interests to investors, deed a conservation easement to a qualified nonprofit and pass through large charitable deductions to the partners.
For these syndicated conservation easement partnerships, CCEPIA would set a maximum tax deduction of a multiple of 2.5 of the investment amount for each partner. This deduction maximum is substantially lower than the deductions that have been claimed for a number of syndicated partnerships.
Daines supported the bill and noted, "My bipartisan bill will protect this critical conservation tool by stopping abuse from bad actors. The massive $6.6 billion revenue estimate shows that, despite previous IRS guidance, abuses have continued and it demonstrates the need to bring integrity back to this program so this can be used for years to come."
Several conservation organizations also support limits on syndicated partnership conservation easement deductions. Glenn Marx is Executive Director of the Montana Association of Land Trusts. He noted, "Clearly a small number of bad actors are abusing the concept of charitable donations and also abusing U.S. taxpayers, and clearly Congress needs to pass S. 170, The Charitable Conservation Easement Program Integrity Act."
Andrew Bowman is President and CEO of the Land Trust Alliance. He commented, "This revenue estimate uses the best available data to illustrate how dramatically taxpayers have been bilked by bad actors abusing a system our nation established to encourage charitable giving. The nearly $7 billion estimate represents the known amount of abuse since 2016. If even more abuse comes to light, that number will surely grow. While the IRS has made combating abusive deals and enforcement priority, Congressional action is urgently needed."
Applicable Federal Rate of 2.6% for July -- Rev. Rul. 2019-16; 2019-28 IRB 1 (18 June 2018)
The IRS has announced the Applicable Federal Rate (AFR) for July of 2019. The AFR under Section 7520 for the month of July is 2.6%. The rates for June of 2.8% or May of 2.8% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2019, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.