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Third IRS Stimulus Payment

Here Is How the Third Economic Impact Payment Is Different From Earlier Payments

The third Economic Impact Payment is different from the first and second payments in several ways.

The third Economic Impact Payment is an advance payment of the 2021 recovery rebate credit.

The two earlier payments are advance payments of the 2020 recovery rebate credit. Eligible people who didn’t get a first and second Economic Impact Payment or got less than the full amounts, may be eligible to claim the 2020 recovery rebate credit and must file a 2020 tax return even if they don’t usually file a tax return.

The third Economic Impact Payment will be larger for most eligible people.

Eligible individuals who filed a joint tax return will receive up to $2,800, and all other eligible individuals will receive up to $1,400. Those with qualifying dependents on their tax return will receive up to $1,400 per qualifying dependent.

More people qualify as dependents.

Unlike the first two payments, the third payment is not restricted to children under 17. Eligible families will get a payment for all qualifying dependents claimed on their return. This may include older relatives like college students, adults with disabilities, parents and grandparents.

Income phase-out amounts are different for the third payments.

Taxpayers will not receive a third payment if their Adjusted Gross Income exceeds:

  • $160,000, if married and filing a joint return or if filing as a qualifying widow or widower.
  • $120,000, if filing as head of household.
  • $80,000 for eligible individuals using other filing statuses, such as single filers and married people filing separate returns

This means that some people won’t be eligible for the third payment, even if they received first or second EIPs or are eligible for a 2020 recovery rebate credit.

Some people may be eligible for a Supplemental Payment.

The amount of the third payment is based on the taxpayer’s latest processed tax return from either 2020 or 2019. If the taxpayer’s 2020 return hasn’t been processed, the IRS used 2019 tax return information to calculate the third payment.

If the third payment is based on the 2019 return, and is less than the full amount, the taxpayer may qualify for a supplemental payment. After their 2020 return is processed, the IRS will automatically re-evaluate their eligibility using their 2020 information. If they’re entitled to a larger payment, the IRS will issue a supplemental payment for the additional amount.

Changes to earlier eligibility requirements.

For taxpayers who file jointly and only one individual has a valid SSN, the spouse with a valid SSN will receive up to a $1,400 third payment and up to $1,400 for each qualifying dependent claimed on their 2020 tax return. For taxpayers who don’t have a valid SSN, but have a qualifying dependent who has an SSN, they will only receive up to $1,400 for a qualifying dependent claimed on their return only if they meet all other eligibility and income requirements. If either spouse was an active member of the U.S. Armed Forces at any time during the taxable year, only one spouse needs to have a valid SSN for the couple to receive up to $2,800 for themselves, plus up to $1,400 for each qualifying dependent.

If married taxpayers filing jointly did not receive one or both of the first two Economic Impact Payments because one spouse didn’t have a Social Security number valid for employment, they may be eligible to claim a 2020 recovery rebate credit on their 2020 tax return for the spouse with the SSN valid for employment.

Business Changes due to ARPA

The recently passed American Rescue Plan Act has made substantial changes to issues concerning your business.

The following represents items that not only require your attention, but most importantly, your planning for these changes.

They include:

Payroll tax credits. The paid sick leave and family leave credits are extended to apply to wages paid through September 30, 2021 (instead of March 31, 2021).

There are also changes to these credits, including:

  • One major change is that during the two-quarter extension period the credits are applied against the employer Medicare portion of payroll taxes instead of the OASDI (Social Security) portion. The Medicare taxes taken into account are those for all employees, not just employees to whom qualifying leave wages are paid. But the credits continue to be refundable (and, thus, allowed in excess of the Medicare taxes) and advance refundable (they can be applied against any employment taxes, including income tax withholdings, for the quarter in which eligible leave wages are being paid, with any remaining credit refundable at the end of the quarter).
  • An additional major change is that the allowable credit can be increased by both by both the amount of the OASDI taxes paid and Medicare taxes paid with respect to eligible leave wages, instead of just the Medicare taxes.
  • Rules are provided that coordinate the leave credits with second draw Payroll Protection Program loans and certain government grants.
  • The no-double benefit rule, which disallows claiming both (1) either of the above credits and (2) the income tax credit for family or medical leave is expanded to include similar coordination with certain other income and payroll tax credits.
  • An employer is ineligible for the leave credits if, in providing paid leave, the employer discriminates in favor of highly compensated or full-time employees or on the basis of employment tenure.
  • IRS is allowed an extended limitation-on-assessment period for deficiencies due to claiming either of the leave credits.
  • ARPA allows employers who voluntarily provide 80 hours of emergency paid sick leave and 12 weeks of emergency family leave beginning after March 31, 2021 to claim the leave credits, thereby resetting the leave bank regardless of whether the employee used leave previously or has exhausted leave.
  • The employee retention credit is extended to apply to wages paid before January 1, 2022 (instead of July 1, 2021). The result is that as a general rule (but see below) there is allowed a maximum per employee credit for 2021 of $28,000 ($10,000 of wages taken into account per quarter multiplied by the credit rate of 70%).
  • Also, there are modifications to this credit. A major change is that for the last two calendar quarters of 2021 there is allowed a maximum $50,000 credit per quarter to certain small start-up businesses (and under relaxed eligibility rules). This change makes a limited credit available to some businesses that couldn’t qualify for the credit at all because they can’t meet either the full/partial suspension or 20% drop-in-gross-receipts requirements. And, during those two quarters certain distressed businesses will be able to treat all wages as eligible (up to the $10,000 per quarter limit), enabling employers with more than 500 employees, who can ordinarily treat only wages paid to laid-off workers as eligible, to treat any wages as eligible.
  • Another of the major changes is that the change to applying the credit to Medicare taxes (discussed above for the paid sick and family leave credits) also applies (along with the continuing refundability and, for employers with no more than 500 employees, advance refundability of the credit).
  • Under related rules, the relieved amounts aren’t included in the income of the individuals and there is imposed by the Internal Revenue Code a penalty on individuals that fail to report the end of their eligibility.

Self-employment sick and family leave credits. These credits, which are creditable against the income tax, have been extended to apply to eligible days through September 30, 2021 (instead of March 31, 2021). A major change is that both credits treat as reasons for eligible leave the obtaining of or recovering from Covid-19 immunization. And, for the family leave credit, reasons for eligible leave are expanded to include all qualifying reasons for taking sick leave.

Another major change is that in determining whether the 10-day per tax year limit for the sick leave credit is complied with, only days after December 31, 2021, are taken into account (thus restarting the count and often increasing the cumulative number of eligible days). And, a major change to the family leave credit is that the maximum number of eligible days per tax year is increased from 50 to 60, again with only days after March 31, 2021 taken into account (resetting the count and often increasing the cumulative number of eligible days).

Excess business losses. In a revenue raiser, the disallowance of excess business losses is extended to run through 2026 instead of 2025.

Deduction disallowance for over $1 million employee remuneration. In another revenue raiser, for tax years beginning after calendar year 2026, the $1 million annual cap on the deductibility of remuneration paid to certain categories of employees of publicly held corporations is expanded to include as a new category the five highest compensated employees not included in other categories.

Tax treatment of certain non-tax relief. ARPA provides favorable tax consequences for targeted Economic Injury Disaster Loan (EIDL) advances made by the SBA under the Economic Aid to Hard-hit Small Businesses, Non-Profits and Venues Act. The advances aren’t included in income and the income exclusion doesn’t result in deduction disallowances, denial of basis increases or reduction of other tax attributes. The same treatment applies to SBA Restaurant Revitalization Grants.

Pension plans. ARPA relaxes some funding standards and other IRC or ERISA rules for multiple employer pension plans. For single employer plans, IRC or ERISA rules are relaxed for amortizing funding shortfalls and the pension funding stabilization percentages are changed. Also changed are the special rules that apply to community newspaper plans.

Reporting by third party settlement organizations. ARPA tightens the de minimis exception to tax reporting by third party settlement organizations (TPSOs, e.g., PayPal) by excluding from reporting only transactions that don’t exceed $600 (and eliminating the 200-transaction threshold). ARPA also clarified that TPSO reporting obligations are limited to transactions involving goods and services.

Foreign tax. In a revenue raising provision, IRC section 864(f), which provided a one-time election under which, effectively, corporate groups could allocate some interest expense from foreign to domestic corporations and reduce the effect of limits on the foreign tax credit, is repealed. The repeal is retroactive to the election’s effective date (i.e., for tax years beginning after Dec. 31, 2020).

As these provisions may significantly affect your business, do not hesitate to call our office for an appointment to discuss.

Individual Tax Changes under ARPA

The American Rescue Plan Act of 2021 (ARPA), signed by President Biden on March 11, 2021, is the latest major legislation that provides economic relief and stimulus, both tax and non-tax, during the Covid-19 pandemic.

As tax law is moving very quickly in 2021, we wanted to make you apprised of these changes.

Individuals

Recovery rebate credits (stimulus checks). ARPA provides a third round of nontaxable stimulus checks directly payable to individuals. The payments are structured as refundable tax credits against 2021 taxes but will paid in 2021 (not 2022).

The maximum payments are $1,400 per eligible individual ($2,800 for married joint filers) and $1,400 for each dependent (which, unlike the first two stimulus payments, includes older children and adult dependents). The payment phases out proportionally between $75,000 and $80,000 AGI for single filers, $112,500 and $120,000 for head of household filers, and $150,000 and $160,000 for married joint filers.

Rules for identification, for payments made notwithstanding no filing of 2019 and 2020 returns, and for limitations on offsets apply. Eligibility is based on information from 2020 income tax returns (or 2019 returns, if 2020 returns haven’t been filed when the advanced credit is initially issued). For households whose payment was based on 2019 income data, and who would be eligible to receive a larger payment based on 2020 data, IRS is directed to issue a supplementary payment.

Child tax creditFor 2021 (1) qualifying children include 17-year-olds, (2) the credit is increased to $3,000 per child ($3,600 for children under six years of age), but the increase is subject to modified AGI phase out rules (and the existing modified AGI phase out rules for eligibility for any credit at all continue to apply), (3) the credit is refundable, and (4) IRS will make periodic advance payments totaling 50% of its estimate of the credit in the last half of 2021.

Earned income tax credit (EITC). (1) For 2021 the credit is increased for taxpayers with no qualifying children and age restrictions for those taxpayers are relaxed; (2) after 2020 taxpayers that have a qualifying child but can’t meet the identification requirements for the qualifying child are nevertheless allowed the credit; (3) taxpayers may use the greater of their 2019 or 2021 earned income in calculating the credit for 2021; (4) after 2020, the amount of investment income that a taxpayer can have and still earn the credit is increased; and (5) after 2020 there is broadening of the existing exception to the credit’s joint filing requirement under which separated married people eligible to file jointly are allowed the credit even if they don’t file jointly.

Child and dependent care credit. For 2021 (1) the credit is refundable; (2) the amount of qualifying expenses taken into account for the credit is increased from $3,000 to $8,000 if there’s one qualifying care recipient and from $6,000 to $16,000 if there are two or more; (3) the maximum percentage of qualifying expenses for which credit is allowed is increased to 50% from 35%; and (4) phase-down rules, based on AGI, are changed.

The increased dependent care assistance program exclusion amount (see below) under Code Sec. 129 will also affect the child and dependent care credit, as the amount of expenses taken into account for the credit is reduced by the amount excludable from the taxpayer’s income under Code Sec. 129.

Dependent care assistance programs. For 2021, the amount excludible under a dependent care assistance program is increased to $10,500 (or $7,500 for a married taxpayer filing a separate return). Retroactive plan amendments are allowed to facilitate the increase.

Health care premium assistance credit. For 2021 and 2022, the credit will be available for a larger percentage of insurance premiums, and individuals whose income is greater than 400% of the poverty line will be eligible for (rather than barred from) the credit. For 2020, individuals who were provided advances of the credit under the Patient Protection and Affordable Care Act in excess of the credits to which they are entitled aren’t obligated to pay back the excess. And, notwithstanding any other rules, individuals who receive unemployment compensation during 2021 are eligible for the credit (and under rules that increase the amount of the credit).

Income exclusion for unemployment benefits. For 2020, taxpayers with modified AGI less than $150,000 can exclude from gross income $10,200 of their unemployment benefit. The exclusion is available to each spouse if a joint return is filed. For taxpayers who already filed 2020 returns and did not exclude unemployment benefits, IRS said that taxpayers shouldn’t file an amended return and that additional guidance will be provided.

Student loan forgiveness. Beginning in 2021 and continuing through 2025, the forgiveness of many types of loans for post-high school education won’t result in income inclusion for the forgiven amounts.

I’m available at your convenience to discuss in more detail any of the ARPA changes and how they apply to you.

Covid 19 Office Policy

We value the health of all of our clients, our employees, and their families.

  • Many of our clients are elderly, or care for elderly family members, or others whose immune systems may be compromised.
  • We are no longer accepting in-person tax preparation appointments until it is safe to do so.
  • Instead, all clients may mail in or drop off their tax papers, and we will schedule a telephone appointment to answer your questions if needed.
  • If no one in your household is sick, has a fever, or has any flu symptoms, you may pick up your tax return in person, or elect to have us mail you your return. We will file your return electronically after you have returned the signed forms and payment.
  • Even if healthy, you may choose for us to mail your return, in which case, we will call you with the results and to answer any further questions prior to mailing it to you.
  • Please use hand sanitizer as soon as you enter our office. We have placed it on all desks and counters.  Make sure that everyone in your party uses it.
  • Please do not shake hands.
  • When using the restroom, please wash your hands before and after.
  • Please use hand sanitizer again as you leave our office. While we spray and wipe down surfaces regularly, you may have touched something before it was wiped down.

Thank you,

Essential Solutions, LLC

Press Release

Contact: John Michaels

(202) 822-0728

jmichaels@naea.org

 For Immediate Release

Alabaster Tax Practitioners Attends National Tax Practice Institute™

Washington, D.C. – 8/3/17 — In order to stay up-to-date on the latest changes in tax regulations, Cris Nelson, EA, and Kenyatta Ector, EA. attended the three-day National Tax Practice Institute® in Las Vegas, July 31 – August 3, 2017, further developing and fortifying their skills representing taxpayers before the IRS.

The course, open only to licensed tax professionals, was developed to prepare licensed representatives to protect their clients’ rights by disseminating the most recent information about IRS laws and procedures critical to representation.

At its core, NTPI is a three-level program developed to hone the skills of enrolled practitioners at all stages of their careers. With each level of this program, students expand their knowledge and skills, and gain the additional expertise needed to successfully guide their clients through the often challenging maze of IRS codes, internal regulations, and agency structure.

Enrolled agents (EAs) are a diverse group of independent, federally-authorized tax practitioners who have demonstrated a high level of technical competence in tax law and are licensed to practice by the United States government. EAs advise and represent taxpayers before the IRS, including taxpayers who are being examined, are unable to pay or are trying to avoid or recover penalties. EAs also prepare tax returns for individuals, partnerships, corporations, estates, trusts and any other entities with tax-reporting requirements. Unlike tax attorneys and CPAs, who may or may not choose to specialize in taxation, all EAs specialize in taxation and are required by the federal government to maintain their professional skills with continuing professional education. They are the only federally-authorized tax practitioners with unlimited rights of representation before IRS. That’s why they’re known as “America’s Tax Experts!”

Cris Nelson. EA and Kenyatta Ector, EA are members of the National Association of Enrolled Agents (NAEA) and the Alabama Society of Enrolled Agents.

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 About the National Association of Enrolled Agents

The National Association of Enrolled Agents (NAEA) has been powering enrolled agents, America’s tax experts®, for more than 45 years. NAEA is a non-profit membership organization composed of tax specialists licensed by the U.S. Treasury Department. NAEA provides the networking, educational opportunities, programs and services that enable enrolled agents and other tax professionals to excel beyond their peers. Enrolled agents are the only federally-licensed tax practitioners who both specialize in taxation and have unlimited rights to represent taxpayers before the Internal Revenue Service. To find out more, visit www.naea.org and follow NAEA on Facebook and Twitter.

Tips to Know for Deducting Losses from a Disaster

The IRS wants taxpayers to know it stands ready to help in the event of a disaster. If a taxpayer suffers damage to their home or personal property, they may be able to deduct the loss they incur on their federal income tax return. If their area receives a federal disaster designation, they may be able to claim the loss sooner.

Ordinarily, a deduction is available only if the loss is major and not covered by insurance or other reimbursement.

Here are 10 tips taxpayers should know about deducting casualty losses:

  1. Casualty loss.  A taxpayer may be able to deduct a loss based on the damage done to their property during a disaster. A casualty is a sudden, unexpected or unusual event. This may include natural disasters like hurricanes, tornadoes, floods and earthquakes. It can also include losses from fires, accidents, thefts or vandalism.
  2. Normal wear and tear.  A casualty loss does not include losses from normal wear and tear. It does not include progressive deterioration from age or termite damage.
  3. Covered by insurance.  If a taxpayer insured their property, they must file a timely claim for reimbursement of their loss. If they don’t, they cannot deduct the loss as a casualty or theft. Reduce the loss by the amount of the reimbursement received or expected to receive.
  4. When to deduct.  As a general rule, deduct a casualty loss in the year it occurred. However, if a taxpayer has a loss from a federally declared disaster, they may have a choice of when to deduct the loss. They can choose to deduct it on their return for the year the loss occurred or on an original or amended return for the immediately preceding tax year.

    This means that if a disaster loss occurs in 2017, the taxpayer doesn’t need to wait until the end of the year to claim the loss. They can instead choose to claim it on their 2016 return. Claiming a disaster loss on the prior year’s return may result in a lower tax for that year, often producing a refund.

  1. Amount of loss.  Figure the amount of loss using the following steps:
    • Determine the adjusted basis in the property before the casualty. For property a taxpayer buys, the basis is usually its cost to them. For property they acquire in some other way, such as inheriting it or getting it as a gift, the basis is determined differently. For more information, see Publication 551, Basis of Assets.
    • Determine the decrease in fair market value, or FMV, of the property as a result of the casualty. FMV is the price for which a person could sell their property to a willing buyer. The decrease in FMV is the difference between the property’s FMV immediately before and immediately after the casualty.
    • Subtract any insurance or other reimbursement received or expected to receive from the smaller of those two amounts.
  1. $100 rule.  After figuring the casualty loss on personal-use property, reduce that loss by $100. This reduction applies to each casualty-loss event during the year. It does not matter how many pieces of property are involved in an event.
  2. 10 percent rule.  Reduce the total of all casualty or theft losses on personal-use property for the year by 10 percent of the taxpayer’s adjusted gross income.
  3. Future income.  Do not consider the loss of future profits or income due to the casualty.
  4. Form 4684.  Complete Form 4684, Casualties and Thefts, to report the casualty loss on a federal tax return. Claim the deductible amount on Schedule A, Itemized Deductions.
  5. Business or income property.  Some of the casualty loss rules for business or income property are different from the rules for property held for personal use.

Call the IRS disaster hotline at 866-562-5227 for special help with disaster-related tax issues. For more on this topic and the special rules for federally declared disaster-area losses see Publication 547, Casualties, Disasters and Thefts. Get it and other IRS tax forms on IRS.gov/forms at any time.

 

IRS Summertime Tax Tip 2017-01, July 3, 2017

IRS Offers Tips for Teenage Taxpayers with Summer Jobs

Students and teenagers often get summer jobs. This is a great way to earn extra spending money or to save for later. The IRS offers a few tax tips for taxpayers with a summer job:

  1. Withholding and Estimated Tax. Students and teenage employees normally have taxes withheld from their paychecks by the employer.  Some workers are considered self-employed and may be responsible for paying taxes directly to the IRS. One way to do that is by making estimated tax payments during the year.
  2. New Employees. When a person gets a new job, they need to fill out a Form W-4, Employee’s Withholding Allowance Certificate. Employers use this form to calculate how much federal income tax to withhold from the employee’s pay. The IRS Withholding Calculator tool on IRS.gov can help a taxpayer fill out the form.
  3. Self-Employment. A taxpayer may engage in types of work that may be considered self-employment. Money earned from self-employment is taxable. Self-employment work can be jobs like baby-sitting or lawn care. Keep good records on money received and expenses paid related to the work.  IRS rules may allow some, if not all, costs associated with self-employment to be deducted. A tax deduction generally reduces the taxes you pay.
  4. Tip Income. Employees should report tip income. Keep a daily log to accurately report tips. Report tips of $20 or more received in cash in any single month to the employer.
  5. Payroll Taxes. Taxpayers may earn too little from their summer job to owe income tax. Employers usually must withhold Social Security and Medicare taxes from their pay. If a taxpayer is self-employed, then Social Security and Medicare taxes may still be due and are generally paid by the taxpayer, in a timely manner.
  6. Newspaper Carriers. Special rules apply to a newspaper carrier or distributor. If a person meets certain conditions, then they are self-employed. If the taxpayer does not meet those conditions, and are under age 18, they may be exempt from Social Security and Medicare taxes.
  7. ROTC Pay. If a taxpayer is in a ROTC program, active duty pay, such as pay for summer advanced camp, is taxable. Other allowances the taxpayer may receive may not be taxable, see Publication 3 for details.
  8. Use IRS Free File. Taxpayers can prepare and e-file their federal income tax return for free using IRS Free File. Free File is available only on IRS.gov. Some taxpayers may not earn enough money to have to file a federal tax return, by law, but may want to if taxes were withheld. For example, a taxpayer may want to file a tax return because they would be eligible for a tax refund or a refundable credit.  IRS Free File can help with these issues.

Visit IRS.gov for more about the tax rules for students.

IRS Summertime Tax Tip 2017-02, July 5, 2017

 

Last-Minute Savings for Tax Year 2016

Attention last minute savers! There’s still time to reduce your tax burden for 2016.

Have you funded a traditional IRA, Roth IRA, or SEP this year? The deadline for contributions to IRAs is April 18, 2017 — this year’s filing deadline. For self-employed taxpayers, contributions to a SEP may be postponed until October 16, 2017 if a tax return extension has been filed.

Increasing your 401(k) contribution so that you are putting in the maximum amount of money allowed is a smart way to lower taxes. If you can’t afford the maximum contribution, $18,000 for 2016, $24,000 if you are age 50 or over, you should still contribute the full amount that will be matched by employer contributions – no reason to leave money on the table!

If you are currently enrolled in an employer sponsored retirement plan, your contribution to a traditional IRA will not be tax deductible, but you will be able to take advantage of tax-deferred interest compounding. The cap for contributions to a traditional or Roth IRA in 2016 is $5,500 for taxpayers under 50 and $6,500 for those over 50.

If you have reason to believe you’ll be in the same or a lower tax bracket next year, it may make sense to defer income by taking capital gains in 2017 instead of in 2016. If you are self-employed or freelancing and can push revenue into a lower earning year, it may be wise to do so. Winding up in a higher tax bracket can result in a big surprise in your tax bill. Your forecast for personal income this year vs. next year is an important issue to discuss with your tax professional.

Charitable deductions are another great way to lower your taxes before year’s end. Just make sure that the charity to which you are donating is recognized by the IRS as being tax-exempt, and that you document and photograph all items donated.

“Loss harvesting” is the practice of selling stocks and mutual funds with the goal of realizing losses. Those losses can offset taxable gains you have realized during the year, dollar for dollar. This is another good conversation to have with your enrolled agent.

To make sure you’re taking advantage of all available tax savings, tax credits and deductions for 2016, be sure to bring the right documents to your tax professional. Along with any Forms W-2 from your employer, bring Forms 1099 declaring misc. income, mortgage interest information, and K-1 forms showing income from a partnership, small business or trust. Bring documentation of any student loans you may be paying off, and money spent on child care.

Some other things to consider: if you collected unemployment benefits at any time during the year, that money is generally taxable and you will need to bring a form 1099-G. For state filing, you’ll want to remember to include any personal property tax paid – for example, on your automobile. Did you collect Social Security, rent a property, receive self-employment income or pay alimony? Cancelled checks and receipts can help to document expenses you wish to claim, such as those related to a home office. Job search expenses, moving expenses and college expenses may all be deductible under certain circumstances. Medical expenses might be deductible, but the bar is high.

As with everywhere else in life, often what the large print giveth the small print taketh away. For instance, IRA contributions — both traditional and Roth — have some tricky limitations (and some workarounds, too). Enrolled agents (“EAs”), America’s tax experts, are well placed to help you navigate. Please feel free to call my office at xxx-xxx-xxxx to schedule an appointment.

 

About Enrolled Agents

To earn the EA license from the US Department of Treasury, candidates must pass a background check and a stringent three-part exam on tax administered by the IRS. To maintain the license, they must complete annual continuing education that is reported to the IRS. Members of the National Association of Enrolled Agents (NAEA) are obligated to complete additional continuing education and adhere to a code of ethics and rules of professional conduct.

Be Smart About Security at Tax Time

Although the IRS reports a 400 percent surge in phishing and malware incidents during the 2016 tax season, there are simple steps you can take to help protect yourself.

Here are nine hints that can help:

  1. Beware of IRS Impersonators. Some crooks call taxpayers to say they must settle their “tax bill.” These are fake calls and often demand payment on prepaid debit cards, gift cards or wire transfers. Also, students should know there’s no “Federal Student Tax.” If you get any unexpected calls, e-mails, letters or texts from someone claiming to be from the IRS, remember, the IRS never calls to demand immediate payment using a specific method nor will it threaten you with local law enforcement.
  2. Understand and Use Security Software. Security software helps protect computers against digital threats online. Generally, the operating system will include security software or you can access free security software from well-known companies or Internet providers. Essential tools include a firewall, virus and malware protection, and file encryption. Don’t buy security software offered as an unexpected pop-up ad on your computer or e-mail. It’s likely from a scammer.
  3. Let Security Software Update Automatically. Malware—malicious software—evolves constantly and your security software suite updates routinely to keep pace.
  4. Look for the “S.” When shopping or banking online, see that the site uses encryption to protect your information. Look for “https” at the beginning of the Web address. The “s” is for secure. Additionally, make sure the https carries through on all pages, not just the sign-on page.
  5. Use Strong Passwords. Use passwords of eight or more characters, mixing letters, numbers and special characters. Don’t use your name, birth date or common words. Don’t use the same password for several accounts. Keep your password list in a secure place or use a password manager. Don’t share passwords with anyone. Calls, texts or e-mails pretending to be from legitimate companies or the IRS asking to update accounts or seeking personal financial information are almost always scams.
  6. Secure Wireless Networks. A wireless network sends a signal through the air that lets it connect to the Internet. If your home or business Wi-Fi is unsecured, it also lets any computer within range access your wireless and potentially steal information from your computer. Criminals can also use your wireless to send spam or commit crimes that would be traced back to you. Always encrypt your wireless. Generally, you must turn on this feature and create a password.
  7. Be Cautious When Using Public Wireless Networks. Public Wi-Fi hot spots are convenient but often not secure. Tax or financial information you send though websites or mobile apps may be accessed by someone else. If a public Wi-Fi hot spot doesn’t require a password, it’s probably not secure.
  8. Avoid E-mail Phishing Attempts. Never reply to e-mails, texts or pop-up messages asking for personal, tax or financial information. One com-mon trick by criminals is to impersonate a business such as your financial institution, tax software provider or the IRS, asking you to update your account and providing a link. They ask for Social Security numbers and other personal information, which could be used to file false tax returns. The sites may also infect your computer. Never click on links even if they seem to be from organizations you trust. Go directly to the organization’s website. Legitimate businesses don’t ask you to send sensitive information through unsecured channels.
  9. Get Professional Advice. To make sure you can take advantage of all allowable tax-deferred savings, tax credits and deductions, consult with a licensed tax professional, your enrolled agent (EA). EAs are the only federally licensed tax professionals with unlimited rights of representation before the IRS. EAs abide by a code of ethics and must complete many hours of continuing education each year to ensure they are up-to-date on the constantly changing tax code.

You can save money and trouble if you follow professional advice and your own good sense when taking care of taxes.

10 Year-End Tax-Planning Tips for Individuals

  1. Accelerate Deductions and Defer Income

It sometimes makes sense to accelerate deductions and defer income. There are plenty of income items and expenses you may be able to control. Consider deferring bonuses, consulting income or self-employment income. On the deduction side, you may be able to accelerate state and local income taxes, interest payments and real estate taxes.

  1. Bunch Itemized Deductions

Many expenses can be deducted only if they exceed a certain percentage of your adjusted gross income (AGI). Bunching itemized deductible expenses into one year can help you exceed these AGI floors. Consider scheduling your costly non-urgent medical procedures in a single year to exceed the 10 percent AGI floor for medical expenses (7.5 percent for taxpayers age 65 and older). This may mean moving a procedure into this year or postponing it until next year. To exceed the 2 percent AGI floor for miscellaneous expenses, bunch professional fees like legal advice and tax planning, as well as unreimbursed business expenses such as travel and vehicle costs.

  1. Make Up a Tax Shortfall with Increased Withholding

Don’t forget that taxes are due throughout the year. Check your withholding and estimated tax payments now while you have time to fix a problem. If you’re in danger of an underpayment penalty, try to make up the shortfall by increasing withholding on your salary or bonuses. A bigger estimated tax payment can leave you exposed to penalties for previous quarters, while withholding is considered to have been paid ratably throughout the year.

  1. Leverage Retirement Account Tax Savings

It’s not too late to increase contributions to a retirement account. Traditional retirement accounts like a 401(k) or individual retirement accounts (IRAs) still offer some of the best tax savings. Contributions reduce taxable income at the time that you make them, and you don’t pay taxes until you take the money out at retirement. The 2016 contribution limits are $18,000 for a 401(k) and $5,500 for an IRA (not including catch-up contributions for those 50 years of age and older).

  1. Reconsider a Roth IRA Rollover

It has become very popular in recent years to convert a traditional IRA into a Roth IRA. This type of rollover allows you to pay tax on the conversion in exchange for no taxes in the future (if withdrawals are made properly). If you converted your account this year, reexamine the rollover. If the value went down, you have until your extended filing deadline to reverse the conversion. That way, you may be able to perform a conversion later and pay less tax.

  1. Get Your Charitable House in Order

If you plan on giving to charity before the end of the year, remember that a cash contribution must be documented to be deductible. If you claim a charitable deduction of more than $500 in donated property, you must attach Form 8283. If you are claiming a deduction of $250 or more for a car donation, you will need a contemporaneous written acknowledgement from the charity that includes a description of the car. Remember, you cannot deduct donations to individuals, social clubs, political groups or foreign organizations.

  1. Give Directly from an IRA

Congress finally made permanent a provision that allow taxpayers 70½ and older to make tax-free charitable distributions from IRAs. Using your IRA distributions for charitable giving could save you more than taking a charitable deduction on a normal gift. That’s because these IRA distributions for charitable giving won’t be included in income at all, lowering your AGI. You’ll see the difference in many AGI-based computations where the below-the-line deduction for charitable giving doesn’t have any effect. Even better, the distribution to charity will still count toward the satisfaction of your minimum required distribution for the year.

  1. Zero out AMT

Some high-income taxpayers must pay the alternative minimum tax (AMT) because the AMT removes key deductions. The silver lining is that the top AMT tax rate is only 28 percent. So you can “zero out” the AMT by accelerating income into the AMT year until the tax you calculate for regular tax and AMT are the same. Although you will have paid tax sooner, you will have paid at an effective tax rate less than the top regular tax rate of 39.6 percent. But be careful, this can backfire if you are in the AMT phase-out range or the additional income affects other tax benefits.

  1. Don’t Squander Your Gift Tax Exclusion

You can give up to $14,000 to as many people as you wish in 2016, free of gift or estate tax. You get a new annual gift tax exclusion every year, so don’t let it go to waste. You and your spouse can use your exemptions together to give up to $28,000 per beneficiary.

  1. Leverage Historically Low Interest Rates

Many estate and gift tax strategies hinge on the ability of assets to appreciate faster than the interest rates prescribed by the IRS. An appreciating market and historically low rates create the perfect atmosphere for estate planning. The past several years presented a historically favorable time, and the low rates won’t last forever

 

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