2018 Tax Changes

President Trump recently signed the tax reform bill into law, and it makes major changes to the U.S. tax code for both individuals and corporations. In fact, the bill represents the most significant tax changes in the United States in more than 30 years.

With that in mind, here’s a guide to all of the changes that will go into effect — the new tax brackets, modified deductions and credits, corporate tax changes, and more.

The 2018 tax brackets

In President Trump’s campaign tax plan, he proposed reducing the number of tax brackets from seven to three, and the House of Representatives’ original tax reform bill contained four brackets. However, the final bill kept the seven-bracket structure but with mostly lower tax rates.

Marginal Tax Rate Single Married Filing Jointly Head of Household Married Filing Separately
10% $0-$9,525 $0-$19,050 $0-$13,600 $0-$9,525
12% $9,525-$38,700 $19,050-$77,400 $13,600-$51,800 $9,525-$38,700
22% $38,700-$82,500 $77,400-$165,000 $51,800-$82,500 $38,700-$82,500
24% $82,500-$157,500 $165,000-$315,000 $82,500-$157,500 $82,500-$157,500
32% $157,500-$200,000 $315,000-$400,000 $157,500-$200,000 $157,500-$200,000
35% $200,000-$500,000 $400,000-$600,000 $200,000-$500,000 $200,000-$300,000
37% Over $500,000 Over $600,000 Over $500,000 Over $600,000

Data source: Joint Explanatory Statement of the Committee of Conference.

For comparison, here are the 2018 tax brackets that were set to take effect under previous tax law.

Marginal Tax Rate Single Married Filing Jointly Head of Household Married Filing Separately
10% $0-$9,525 $0-$19,050 $0-$13,600 $0-$9,525
15% $9,525-$38,700 $19,050-$77,400 $13,600-$51,850 $9,525-$38,700
25% $38,700-$93,700 $77,400-$156,150 $51,850-$133,850 $38,700-$78,075
28% $93,700-$195,450 $156,150-$237,950 $133,850-$216,700 $78,075-$118,975
33% $195,450-$424,950 $237,950-$424,950 $216,700-$424,950 $118,975-$212,475
35% $424,950-$426,700 $424,950-$480,050 $424,950-$453,350 $212,475-$240,025
39.6% Over $426,700 Over $480,050 Over $453,350 Over $240,025

Data source: IRS.

The marriage penalty is (mostly) gone

One thing to notice from these brackets is that the so-called marriage penalty, which many Republican leaders (including President Trump) wanted to eliminate, is almost absent.

If you’re not familiar, here’s a simplified version of how the marriage penalty works. Let’s say that two single individuals each earned a taxable income of $90,000 per year. Under the old 2018 tax brackets, both of these individuals would fall into the 25% bracket for singles. However, if they were to get married, their combined income of $180,000 would catapult them into the 28% bracket. Under the new brackets, they would fall into the 24% marginal tax bracket, regardless of whether they got married or not.

In fact, the married filing jointly income thresholds are exactly double the single thresholds for all but the two highest tax brackets in the new tax law. In other words, the marriage penalty has been effectively eliminated for everyone except married couples earning more than $400,000.

Standard deduction and personal exemption

While it’s being sold as a tax cut, the higher standard deduction really falls more under the category of a simplification.

Yes, the standard deduction has roughly doubled for all filers, but the valuable personal exemption has been eliminated. For example, a single filer would have been entitled to a $6,500 standard deduction and a $4,150 personal exemption in 2018, for a total of $10,650 in income exclusions. Under the new tax plan, they would just get a $12,000 standard deduction. Is it better? Yes. But it’s not really “doubled.”

Having said that, here’s a comparison between the standard deductions of the new and old tax laws.

Tax Filing Status Previous Standard Deduction (Set to take effect in 2018) New Standard Deduction
Single $6,500 $12,000
Married Filing Jointly $13,000 $24,000
Married Filing Separately $6,500 $12,000
Head of Household $9,350 $18,000

Data source: IRS and Tax Cuts and Jobs Act.

Capital gains taxes

The general structure of the capital gains tax system, which applies to things like stock sales and sales of other appreciated assets, isn’t changing. However, there are still a few important points to know.

For starters, short-term capital gains are still taxed as ordinary income. Since the tax brackets applied to ordinary income have changed significantly, as you can see from the charts above, your short-term gains are likely taxed at a different rate than they formerly were.

Also, under the new tax law, the three capital gains income thresholds don’t match up perfectly with the tax brackets. Under previous tax law, a 0% long-term capital gains tax rate applied to individuals in the two lowest marginal tax brackets, a 15% rate applied to the next four, and a 20% capital gains tax rate applied to the top tax bracket.

Instead of this type of structure, the long-term capital gains tax rate income thresholds are similar to where they would have been under the old tax law. For 2018, they are applied to maximum taxable income levels as follows:

Long-Term Capital Gains Rate Single Taxpayers Married Filing Jointly Head of Household Married Filing Separately
0% Up to $38,600 Up to $77,200 Up to $51,700 Up to $38,600
15% $38,600-$425,800 $77,200-$479,000 $51,700-$452,400 $38,600-$239,500
20% Over $425,800 Over $479,000 Over $452,400 Over $239,500

Data source: Tax Cuts and Jobs Act.

Finally, the 3.8% net investment income tax that applied to high earners remains the same and with the exact same income thresholds. If Congress is successful in repealing the Affordable Care Act, this could potentially go away, but it remains for the time being.

Tax breaks for parents

I mentioned earlier that the personal exemption is going away, which could disproportionally affect larger families.

However, this loss and more should be made up for by the expanded Child Tax Credit, which is available for qualified children under age 17. Specifically, the bill doubles the credit from $1,000 to $2,000, and also increases the amount of the credit that is refundable to $1,400.

In addition, the phaseout threshold for the credit is dramatically increasing.

Tax Filing Status Old Phaseout Threshold New Phaseout Threshold
Married Filing Jointly $110,000 $400,000
Individuals $75,000 $200,000

Data source: Tax Cuts and Jobs Act.

If your children are 17 or older or you take care of elderly relatives, you can claim a nonrefundable $500 credit, subject to the same income thresholds.

Furthermore, the Child and Dependent Care Credit, which allows parents to deduct qualified child care expenses, has been kept in place. This can be worth as much as $1,050 for one child under 13 or $2,100 for two children. Plus, up to $5,000 of income can still be sheltered in a dependent care flexible spending account on a pre-tax basis to help make child care more affordable. You can’t use both of these breaks to cover the same child care costs, but with the annual cost of child care well over $20,000 per year for two children in many areas, it’s safe to say that many parents can take advantage of the FSA and credit, both of which remain in place.

Education tax breaks

Earlier versions of the tax bill called for reducing or eliminating some education tax breaks, but the final version does not. Specifically, the Lifetime Learning Credit and Student Loan Interest Deduction are still in place, and the exclusion for graduate school tuition waivers survives as well.

One significant change is that the bill expands the available use of funds saved in a 529 college savings plan to include levels of education other than college. In other words, if you have children in private school, or you pay for tutoring for your child in the K-12 grade levels, you can use the money in your account for these expenses.

Mortgage interest, charitable contributions, and medical expenses

These three deductions remain, but there have been slight tweaks made to each.

  • First, the mortgage interest deductioncan only be taken on mortgage debt of up to $750,000, down from $1 million currently. This only applies to mortgages taken after Dec. 15, 2017, preexisting mortgages are grandfathered in. And the interest on home equity debt can no longer be deducted at all, whereas up to $100,000 in home equity debt could be considered.
  • Next, the charitable contribution deductionis almost the same, but with two notable changes. First, taxpayers can deduct donations of as much as 60% of their income, up from a 50% cap. And donations made to a college in exchange for the right to purchase athletic tickets will no longer be deductible.
  • Finally, the threshold for the medical expenses deductionhas been reduced from 10% of AGI to 7.5% of AGI. In other words, if your adjusted gross income is $50,000, you can now deduct any unreimbursed medical expenses over $3,750, not $5,000 as set by prior tax law. Unlike most other provisions in the bill, this is retroactive to the 2017 tax year.

The SALT deduction

Perhaps the most controversial aspect of tax reform on the individual side was the fate of the SALT deduction. Early versions of the bill proposed eliminating the deduction (which stands for “state and local taxes”), which didn’t sit well with some key Republicans in high-tax states.

The final version of the bill keeps the deduction, but limits the total deductible amount to $10,000, including income, sales, and property taxes.

Deductions that are disappearing

While many deductions are remaining under the new tax law, there are several that didn’t survive, in addition to those already mentioned elsewhere in this guide. Gone for the 2018 tax year are the deductions for:

  • Casualty and theft losses (except those attributable to a federally declared disaster)
  • Unreimbursed employee expenses
  • Tax preparation expenses
  • Other miscellaneous deductions previously subject to the 2% AGI cap
  • Moving expenses
  • Employer-subsidized parking and transportation reimbursement

Itemizing won’t be worthwhile anymore for millions of households

While we’re on the topic of deductions, many of these may now be a moot point, even to taxpayers who have been using them for years. Even though most major deductions are being kept in place, the higher standard deductions will make itemizing not worthwhile for millions of households.

For example, let’s say that a married couple pays $8,000 in mortgage interest, makes $4,000 in charitable contributions, and pays $5,000 in state and local taxes. This adds up to $17,000 in deductions, which when compared with the previous $13,000 standard deduction makes itemizing look like a smart idea.

However, with the new $24,000 standard deduction for married couples, it would no longer be worth it to itemize.

In fact, the Joint Committee on Taxation estimates that 94% of households will claim the standard deduction in 2018, up from about 70% now.

Obamacare penalties will be going away

Republicans were unsuccessful in their efforts to repeal the Affordable Care Act, otherwise known as Obamacare, in 2017. However, the tax reform bill repeals the individual mandate, meaning that people who don’t buy health insurance will no longer have to pay a tax penalty.

It’s worth noting that this change doesn’t go into effect until 2019, so for 2018, the “Obamacare penalty” can still be assessed.

The pass-through deduction — does it apply to you?

The new tax code makes a big change to the way pass-through business income is taxed. This includes income earned by sole proprietorships, LLCs, partnerships, and S corporations.

Under the new law, taxpayers with pass-through businesses like these will be able to deduct 20% of their pass-through income. In other words, if you own a small business and it generates $100,000 in profit in 2018, you’ll be able to deduct $20,000 of it before the ordinary income tax rates are applied.

There are phaseout income limits that apply to “professional services” business owners such as lawyers, doctors, and consultants, which are set at $157,500 for single filers and $315,000 for pass-through business owners who file a joint return.

Alternative minimum tax, version 2.0

The alternative minimum tax, or AMT, was implemented to ensure that high-income Americans paid their fair share of taxes, regardless of how many deductions they could claim. Essentially, higher-income households need to calculate their taxes twice — once under the standard tax system and once under the AMT — and pay whichever is higher.

The problem is that the AMT exemptions weren’t initially indexed for inflation, so over time, the AMT started to apply to more and more people, including the middle class, which it was never intended to affect.

So, the tax reform bill permanently adjusts the AMT exemption amounts for inflation in order to address this problem, and makes them significantly higher initially in 2018. Here’s how the AMT exemptions are changing for 2018.

Tax Filing Status 2017 AMT Exemption Amount 2018 AMT Exemption Amount
Single or Head of Household $54,300 $70,300
Married Filing Jointly $84,500 $109,400
Married Filing Separately $42,250 $54,700

Data source: Tax Cuts and Jobs Act.

In addition, the income thresholds at which the exemption amounts begin to phase out are dramatically increased. Currently, these are set at $160,900 for joint filers and $120,700 for individuals, but the new law raises these to $1 million and $500,000, respectively.

A different way to calculate inflation

Perhaps one of the most significant, but least talked-about, provisions in the new tax bill is the switch in the way inflation is calculated.

Under the previous tax law, inflation is measured by the consumer price index for all urban consumers, also known as the CPI-U, which essentially tracks the cost of goods and services that affect the typical household.

The new law adopts a metric called the Chained CPI. My colleague Sean Williams does a great job of explaining the Chained CPI, but essentially the key difference is that the Chained CPI assumes that if a particular good or service gets too expensive, consumers will trade down to a cheaper alternative.

The effect is that the Chained CPI grows slower than the traditionally used CPI-U. This means that tax bracket thresholds will rise slower, as will other IRS inflation-sensitive numbers, such as eligibility limits for certain deductions and credits.

The estate tax exemption

The estate tax already applied to a small percentage of households. Essentially, the 40% estate tax rate applied only to the portion of an estate that was valued at $5.6 million or more per individual, or $11.2 million per married couple.

However, the new tax law exempts even more households by doubling these exemptions. Now, for 2018, individuals get a $11.2 million lifetime exemption and married couples get to exclude $22.4 million. As you can probably imagine, this won’t leave too many families paying the estate tax.

Most of the individual tax breaks are temporary

So far, we’ve discussed the tax changes that will affect individuals. It’s also important to point out that most of the changes to individual taxes made by the bill are temporary — they’re set to expire after the 2025 tax year.

The notable exception is the change to the Chained CPI as a means to calculate inflation. In simple terms, this means that the income thresholds for each marginal tax bracket will rise more slowly than they previously would, which will presumably make a greater portion of each worker’s income subject to higher marginal tax rates over time.

The combination of the temporary nature of the tax cuts and the permanent switch to the Chained CPI is expected to have the eventual effect of higher taxes on the middle class, as compared to current tax law.

Corporate tax rates

So far, we’ve discussed individual tax reform, but the most dramatic changes made by the bill are on the corporate side.

For starters, the bill lowers the corporate tax rate to a flat 21% on all profits. This is not only a massive tax cut, but is a major simplification as compared to the 2017 corporate tax structure.

Taxable Income Range Marginal Corporate Tax Rate (2017)
$0-$50,000 15%
$50,000-$75,000 25%
$75,000-$100,000 34%
$100,000-$335,000 39%
$335,000-$10,000,000 34%
$10,000,000-$15,000,000 35%
$15,000,000-$18,333,333 38%
$18,333,333 and above 35%

Data source: IRS.

The global average corporate tax rate is about 25%, so this move is designed to make the U.S. more globally competitive, which should in turn help keep more corporate profits (and jobs) in the United States.

In addition to these changes, the corporate AMT of 20% has been repealed.

A territorial tax system

The tax reform bill also changes the U.S. corporate tax system from a worldwide one to a territorial system. Currently, U.S. corporations have to pay U.S. taxes on their profits earned abroad, and the new system will end this effective double-taxing of foreign profits.

Repatriation of foreign cash and assets

As a result of the worldwide tax system, which makes foreign profits subject to the 35% top corporate tax rate, there is about $2.6 trillion in U.S. corporations’ foreign profits held overseas.

In order to bring this money back to the United States, the new tax law sets a one-time repatriation rate of 15.5% on cash and equivalent foreign-held assets and 8% on illiquid assets like equipment, payable over an eight-year period.

This could be big news for companies like Apple, which has more than $200 billion parked overseas.

When all of this goes into effect, and when you’ll notice the changes

To be clear, unless I’ve noted otherwise, the changes made by the tax reform bill go into effect for the 2018 tax year, which means you’ll first notice them on your tax return that you file in 2019.

However, you can expect to see a change in your paychecks after Jan. 1, as employers will modify their withholdings to adapt to the newly passed 2018 tax brackets.

 

Source:

“Your Complete Guide to the 2018 Tax Changes” The Motley Fool

Dec 30, 2017 at 6:52AM
https://www.fool.com/taxes/2017/12/30/your-complete-guide-to-the-2018-tax-changes.aspx

 

 

Phone Scams a Serious Threat; Remain on the IRS “Dirty Dozen” List of Tax Scams for 2017

IR-2017-19, Feb. 2, 2017

WASHINGTON — Aggressive and threatening phone calls by criminals impersonating IRS agents remain a major threat to taxpayers, headlining the annual “Dirty Dozen” list of tax scams for the 2017 filing season, the Internal Revenue Service announced today.

During filing season, the IRS generally sees a surge in scam phone calls that threaten police arrest, deportation, license revocation and other things. The IRS reminds taxpayers to guard against all sorts of con games that arise at any time and pick up during tax season.

“Don’t be fooled by surprise phone calls by criminals impersonating IRS agents with threats or promises of a big refund if you provide them with your private information,” said IRS Commissioner John Koskinen. “If you’re surprised to get a call from the IRS, it almost certainly isn’t the real IRS. We generally initially contact taxpayers by mail.”

The Dirty Dozen is compiled annually by the IRS and lists a variety of common scams taxpayers may encounter any time during the year. Many of these con games peak during filing season as people prepare their tax returns or hire someone to do so.

The Treasury Inspector General for Tax Administration (TIGTA) reports they have become aware of over 10,000 victims who have collectively paid over $54 million as a result of phone scams since October 2013.

“Everyone can share the word about scam phone calls– just hang up and don’t engage these people,” Koskinen said. “Despite recent successes against phone scam artists, these scams constantly evolve and people need to remain vigilant. We’d like to thank law-enforcement, tax professionals, consumer advocates, the states, other government agencies, the Treasury Inspector General for Tax Administration and many others for helping us continue this fight and protect taxpayers.”

How do the scams work?

Scammers make unsolicited calls claiming to be IRS officials. They demand that the victim pay a bogus tax bill. They con the victim into sending cash, usually through a wire transfer or a prepaid debit card or gift card, like an iTunes card. They may also leave “urgent” callback requests through phone “robo-calls,” or via a phishing email.

Many phone scams use threats to intimidate and bully a victim into paying. They may even threaten to arrest, deport or revoke the driver’s license of their victim if they don’t get the money.

Scammers often alter caller ID numbers to make it look like the IRS or another agency is calling. The callers use IRS employee titles and fake badge numbers to appear legitimate. They may use the victim’s name, address and other personal information to make the call sound official.

The IRS also reminded taxpayers today that scammers change tactics. Aggressive and threatening phone calls by criminals impersonating IRS agents remain a major threat to taxpayers, but variations of the IRS impersonation scam continue year-round and they tend to peak when scammers find prime opportunities to strike.

Here are some things the scammers often do but the IRS will not do. Any one of these five things is a tell-tale sign of a scam.

The IRS will never:

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail  a bill to any taxpayer who owes taxes.
  • Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
  • Demand that taxes be paid without  giving  the taxpayer the opportunity to question or appeal the amount owed.
  • Ask for credit or debit card numbers over the phone.

For taxpayers who don’t owe taxes or don’t think they do:

  • Do not give out any information. Hang up immediately.
  • Contact TIGTA to report the call. Use their “IRS Impersonation Scam Reporting” web page. Alternatively, call 800-366-4484.
  • Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” in the notes.

For those who owe taxes or think they do:

  • Call the IRS at 800-829-1040. IRS workers can help.

Stay alert to scams that use the IRS as a lure. Tax scams can happen any time of year, not just at tax time. For more, visit “Tax Scams and Consumer Alerts” on IRS.gov.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore these rights and the agency’s obligations to protect them on IRS.gov.

Dangerous W-2 Phishing Scam Evolving; Targeting Schools, Restaurants, Hospitals, Tribal Groups and Others

IR-2017-20, Feb. 2, 2017

WASHINGTON The Internal Revenue Service, state tax agencies and the tax industry issued an urgent alert today to all employers that the Form W-2 email phishing scam has evolved beyond the corporate world and is spreading to other sectors, including school districts, tribal organizations and nonprofits.

In a related development, the W-2 scammers are coupling their efforts to steal employee W-2 information with an older scheme on wire transfers that is victimizing some organizations twice.

“This is one of the most dangerous email phishing scams we’ve seen in a long time. It can result in the large-scale theft of sensitive data that criminals can use to commit various crimes, including filing fraudulent tax returns. We need everyone’s help to turn the tide against this scheme,’’ said IRS Commissioner John Koskinen.

When employers report W-2 thefts immediately to the IRS, the agency can take steps to help protect employees from tax-related identity theft. The IRS, state tax agencies and the tax industry, working together as the Security Summit, have enacted numerous safeguards in 2016 and 2017 to identify fraudulent returns filed through scams like this. As the Summit partners make progress, cybercriminals need more data to mimic real tax returns.

Here’s how the scam works: Cybercriminals use various spoofing techniques to disguise an email to make it appear as if it is from an organization executive. The email is sent to an employee in the payroll or human resources departments, requesting a list of all employees and their Forms W-2.  This scam is sometimes referred to as business email compromise (BEC) or business email spoofing (BES).

The Security Summit partners urge all employers to be vigilant. The W-2 scam, which first appeared last year, is circulating earlier in the tax season and to a broader cross-section of organizations, including school districts, tribal casinos, chain restaurants, temporary staffing agencies, healthcare and shipping and freight. Those businesses that received the scam email last year also are reportedly receiving it again this year.

Security Summit partners warned of this scam’s reappearance last week but have seen an upswing in reports in recent days.

New Twist to W-2 Scam: Companies Also Being Asked to Wire Money
In the latest twist, the cybercriminal follows up with an “executive” email to the payroll or comptroller and asks that a wire transfer also be made to a certain account. Although not tax related, the wire transfer scam is being coupled with the W-2 scam email, and some companies have lost both employees’ W-2s and thousands of dollars due to wire transfers.

The IRS, states and tax industry urge all employers to share information with their payroll, finance and human resources employees about this W-2 and wire transfer scam. Employers should consider creating an internal policy, if one is lacking, on the distribution of employee W-2 information and conducting wire transfers.

Steps Employers Can Take If They See the W-2 Scam

Organizations receiving a W-2 scam email should forward it to phishing@irs.gov and place “W2 Scam” in the subject line. Organizations that receive the scams or fall victim to them should file a complaint with the Internet Crime Complaint Center (IC3,) operated by the Federal Bureau of Investigation.

Employees whose Forms W-2 have been stolen should review the recommended actions by the Federal Trade Commission at www.identitytheft.gov or the IRS at www.irs.gov/identitytheft.
Employees should file a Form 14039, Identity Theft Affidavit, if the employee’s own tax return rejects because of a duplicate Social Security number or if instructed to do so by the IRS.

The W-2 scam is just one of several new variations that have appeared in the past year that focus on the large-scale thefts of sensitive tax information from tax preparers, businesses and payroll companies. Individual taxpayers also can be targets of phishing scams, but cybercriminals seem to have evolved their tactics to focus on mass data thefts.

Be Safe Online

In addition to avoiding email scams during the tax season, taxpayers and tax preparers should be leery of using search engines to find technical help with taxes or tax software. Selecting the wrong “tech support” link could lead to a loss of data or an infected computer. Also, software “tech support” will not call users randomly. This is a scam.

Taxpayers searching for a paid tax professional for tax help can use the IRS Choosing a Tax Professional lookup tool or if taxpayers need free help can review the Free Tax Return Preparation Programs. Taxpayers searching for tax software can use Free File, which offers 12 brand-name products for free, at www.irs.gov/freefile. Taxpayer or tax preparers looking for tech support for their software products should go directly to the provider’s web page.

Tax professionals also should beware of ongoing scams related to IRS e-Services. Thieves are trying to use IRS efforts to make e-Services more secure to send emails asking e-Services users to update their accounts. Their objective is to steal e-Services users’ credentials to access these important services.

Inflated Refund Claims Remain on the IRS “Dirty Dozen” List of Tax Scams for the 2015 Filing Season

IR-2015-12, Jan. 29, 2015

WASHINGTON — The Internal Revenue Service today warned taxpayers to be on the lookout for unscrupulous tax return preparers pushing inflated tax refund claims. This scam remains on the annual list of tax scams known as the “Dirty Dozen” for the 2015 filing season.

“Every filing season, scam artists lure victims in by promising outlandish refunds,” said IRS Commissioner John Koskinen. “Taxpayers should be wary of anyone who asks them to sign a blank return, promise a big refund before looking at their records, or charge fees based on a percentage of the refund.”

Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter any time but many of these schemes peak during filing season as people prepare their returns or hire someone to help with their taxes.

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them.

Don’t Fall Victim to Promises of Outlandish Refunds

Scam artists routinely pose as tax preparers during tax time, luring victims in by promising large federal tax refunds or refunds that people never dreamed they were due in the first place.

Scam artists use flyers, advertisements, phony store fronts and even word of mouth to throw out a wide net for victims. They may even spread the word through community groups or churches where trust is high. Scammers prey on people who do not have a filing requirement, such as low-income individuals or the elderly. They also prey on non-English speakers, who may or may not have a filing requirement.

Scammers build false hope by duping people into making claims for fictitious rebates, benefits or tax credits. They charge good money for very bad advice. Or worse, they file a false return in a person’s name and that person never knows that a refund was paid.

Scam artists also victimize people with a filing requirement and due a refund by promising inflated refunds based on fictitious Social Security benefits and false claims for education credits, the Earned Income Tax Credit (EITC), or the American Opportunity Tax Credit, among others.

The IRS sometimes hears about scams from victims complaining about losing their federal benefits, such as Social Security benefits, certain veteran’s benefits or low-income housing benefits. The loss of benefits was the result of false claims being filed with the IRS that provided false income amounts.

While honest tax preparers provide their customers a copy of the tax return they’ve prepared, victims of scam frequently are not given a copy of what was filed. Victims also report that the fraudulent refund is deposited into the scammer’s bank account. The scammers deduct a large “fee” before paying victims, a practice not used by legitimate tax preparers.

The IRS reminds all taxpayers that they are legally responsible for what’s on their returns even if it was prepared by someone else. Taxpayers who buy into such schemes can end up being penalized for filing false claims or receiving fraudulent refunds.

Taxpayers should take care when choosing an individual or firm to prepare their taxes. The IRS has a list of tips and other resources to help taxpayers select a qualified tax professional.

Fake Charities Among the IRS “Dirty Dozen” List of Tax Scams for 2015

IR-2015-16, Jan. 30, 2015

WASHINGTON — The Internal Revenue Service today warned taxpayers about groups masquerading as a charitable organization to attract donations from unsuspecting contributors, one of the “Dirty Dozen” for the 2015 filing season.

“When making a donation, taxpayers should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities,” said IRS Commissioner John Koskinen. “IRS.gov has the tools taxpayers need to check out the status of charitable organizations.”

Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime, but many of these schemes peak during filing season as people prepare their returns or hire someone to prepare their taxes.

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice to shut down scams and prosecute the criminals behind them.

The IRS offers these basic tips to taxpayers making charitable donations:

  • Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible.
  • Don’t give out personal financial information, such as Social Security numbers or passwords to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money. People use credit card numbers to make legitimate donations but please be very careful when you are speaking with someone who called you.
  • Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.

Call the IRS toll-free disaster assistance telephone number (1-866-562-5227) if you are a disaster victim with specific questions about tax relief or disaster related tax issues.

Impersonation of Charitable Organizations

Another long-standing type of abuse or fraud involves scams that occur in the wake of significant natural disasters.

Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone or email to solicit money or financial information. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds.

They may attempt to get personal financial information or Social Security numbers that can be used to steal the victims’ identities or financial resources. Bogus websites may solicit funds for disaster victims.

To help disaster victims, the IRS encourages taxpayers to donate to recognized charities.

Information Center

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Check out our Information Center for more information on taxing issues such as finding a needed tax form to current and past tax bracket information.  You will also find all the information needed for filing you taxes including our handy tax organizer.  In addition, if you need to find a municipal tax form we can help.