1099-C: What You Need to Know about the Cancellation of Debt Tax Form

January 6, 2021 &• 5 min read by Brooke Niemeyer Comments 4 Comments

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From early January to mid-February, you might receive a number of tax documents in the mail. They can range from expected W-2s from your employer to forms about mortgage interest you paid. One form that many people don’t expect is the 1099-C. Discover why you would receive such a form and what the IRS expects you to do with it. Make sure to consult with your tax professional for your specific situation.

What Is a 1099-C Form?

A 1099-C is a tax form required by the IRS in certain situations where your debts have been forgiven or canceled. The IRS requires a 1099-C form for certain acts of debt forgiveness because it sees that forgiven debt as a form of income.

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For example, if you borrowed $12,000 for a personal loan and only paid back $6,000, you still received the original $12,000. Not paying back the other half of the loan means you got the benefit of that money without paying for it. The IRS considers that to be income in many cases.

Why Did You Get a 1099-C Form?

Not every debt cancellation involves a 1099-C form. But if you received this form in the mail, it’s because of a debt cancellation that occurred at some point during the tax year.

Box 6 on the 1099-C form should have a code to help you determine why you received the form. You can also learn more about 1099-C cancellation of debt processes and the reasons you might receive such a form if you’re not sure whether yours is accurate.

The IRS provides instructions and information about 1099-C forms and cancellation of debt in general. That includes a list of potential codes that might be found in Box 6:

  • A—Bankruptcy (Title 11)
  • B—Other judicial debt relief
  • C—Statute of limitations or expiration of deficiency period
  • D—Foreclosure election
  • E—Debt relief from probate or similar proceeding
  • F—By agreement
  • G—Decision or policy to discontinue collection
  • H—Other actual discharge before identifiable event

What Should You Do with a 1099-C Form?

You should never ignore any tax form you receive, as each might have positive or negative implications on your tax return. But you should also not panic if you receive a 1099-C form indicating a large amount of income. It doesn’t necessarily mean that you will owe a lot more in taxes.

First, find out whether the type of debt cancellation on the 1099-C form is excluded from taxable income. The IRS provides a list of exclusions, which include debts that were forgiven because you were insolvent or involved in certain types of bankruptcies. It’s a good idea to double check with your bankruptcy lawyer about whether you need to claim 1099-C income relevant to your bankruptcy discharge.

Once you know whether you need to claim the income or not, you must incorporate the 1099-C into your federal tax filing. If the canceled debt doesn’t fall under an exclusion, you report it as “other income” on your tax return.

That income will be included with your other income in determining how much tax you must pay for the year. In short, you’ll have to pay taxes on the extra income. That might mean your refund is reduced or that you owe more taxes than you would otherwise.

In cases where the 1099-C canceled debt falls under an IRS exclusion—which means you don’t have to pay taxes on all or some of the income—you still may need to file a form. The creditor that sent you the 1099-C also sent a copy to the IRS. If you don’t acknowledge the form and income on your own tax filing, it could raise a red flag. Red flags could result in an audit or having to prove to the IRS later that you didn’t owe taxes on that money.

Luckily, the IRS provides a form for this purpose. It’s Form 982, the Reduction of Tax Attributes Due to Discharge of Indebtedness.

What to Do if You Received a 1099-C Form After Filing Your Taxes

If you don’t know a 1099-C form is coming—and many people don’t realize they might receive one—you could file your taxes before it arrives. You should file an amended return if this happens. That’s true even if the 1099-C doesn’t change your tax obligation, as you might want to get the Form 982 on record for documentation purposes. 

What’s the 1099-C Statute of Limitations?

There aren’t really statutes of limitations on cancellation of debt, though the IRS does have rules about when these forms should be filed. The creditor must file a 1099-C the year following the calendar year when a qualifying event occurs. That just means the creditor must file the next year if they discharge or forgive a debt.

If the creditor files a 1099-C with the IRS, then typically it must provide you with a copy by January 31 so you have it for tax filing purposes that year. This is similar to the rule for W-2s from employers.

However, there is no rule for how long a creditor can carry debt on its books before it decides it’s uncollectible. So, if your debt isn’t canceled via repossession, bankruptcy, or other processes, cancellation could happen at any time. The creditor doesn’t have to tell you about it other than sending the 1099-C.

Is a 1099-C Form Good or Bad for Your Credit?

The 1099-C form shouldn’t have any impact on your credit. However, the activity that led to the 1099-C probably does impact your credit. Typically, by the time a creditor forgives a debt, you’ve engaged in at least one of the following activities:

  • Failed to make payments for an extended period of time
  • Negotiated a settlement on the debt
  • Entered into a program with the creditor because you can’t pay the debt, such as a home short sale or voluntary repossession
  • Been sent to collections
  • Had a foreclosure or repossession
  • Gone through a bankruptcy

All of those are negative items that can impact your credit report and score for years. So, while getting a 1099-C itself doesn’t change your credit at all, you’ve probably already experienced a negative hit to your score.

Get Tax Help if You Receive a 1099-C

As with other tax topics, the 1099-C can be complicated. It’s a good idea to work with a professional when dealing with complicated tax matters or trying to reduce your tax burden legally.

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Wealth Tax: Definition, Examples, Pros and Cons

Wealth Tax: Definition, Examples, Pros and Cons – SmartAsset

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A wealth tax is a type of tax that’s imposed on the net wealth of an individual. This is different from income tax, which is the type of tax you’re likely most used to paying. The U.S. currently doesn’t have a wealth tax, though the idea has been proposed more than once by lawmakers. Instituting a wealth tax could help generate revenue for the government but only a handful of countries actually impose one.

Wealth Tax, Definition

A wealth tax is what it sounds like: a tax on wealth. This can also be referred to as an equity tax or a capital tax and it applies to individuals.

More specifically, a wealth tax is applied to someone’s net worth, meaning their total assets minus their total liabilities. The types of assets that may be subject to inclusion in wealth tax calculations might include real estate, investment accounts, liquid savings and trust accounts.

A wealth tax isn’t the same as other types of tax you’re probably familiar with paying. For example, you might be used to paying income tax on the money you earn each year, self-employment tax if you run a business or work as an independent contractor, property taxes on your home or vehicles and sales tax on the things you buy.

Instead, a wealth tax has just one focus: taxing a person’s wealth. According to the Tax Foundation, only Norway, Spain and Switzerland currently have a net wealth tax on assets. But a handful of other European countries, including Belgium, Italy and the Netherlands, levy a wealth tax on selected assets.

How a Wealth Tax Works

Generally, a wealth tax works by taxing a person’s net worth, rather than the income they earn in a given year. In countries that impose a wealth tax, the tax is only levied once assets reach a certain minimum threshold. In Norway, for instance, the net wealth tax is 0.85% on stocks exceeding $164,000 USD in value.

Wealth taxes can be applied to all of the assets someone owns or just some of them. For example, the wealth tax can include securities and investment accounts while excluding real property or vice versa.

Every country that imposes a wealth tax, whether it’s a net tax or a tax on selected assets, can set the tax rate differently. It’s not uncommon for there to be exemptions or exclusions to who and what can be taxed this way.

A wealth tax can be charged alongside an income tax to help generate revenue for the government. The wealth tax rates are typically lower than income tax rates, in terms of the actual percentage rate, but that doesn’t necessarily mean paying less in taxes. Someone who has substantial assets that are subject to a wealth tax, for instance, may end up paying more toward that tax than income tax if they’re able to reduce their taxable income by claiming tax breaks.

Is a Wealth Tax a Good Idea?

In countries that use a wealth tax, the revenue helps to fund government programs and organizations. In some places, such as Norway, revenue from the wealth tax is split between the central government and municipal governments. It would be up to the federal government to decide how wealth tax revenue should be allocated if one were introduced here.

In the U.S., the concept of a wealth tax has been used to argue for a redistribution of wealth. Or more specifically, lawmakers who back the tax have suggested that it could be used to more fairly tax the wealthy while relieving some of the tax burdens on lower and middle-income earners. While wealthier taxpayers may take advantage of loopholes to minimize income taxes, a wealth tax would be harder to work around, at least in theory. That could yield benefits for less wealthy Americans if it means they’d owe fewer taxes.

That sounds good but implementing and collecting a wealth tax may be easier said than done. It’s possible that even with a wealth tax in place, high-net-worth and ultra-high-net-worth taxpayers could still find ways to minimize the amount of tax they’d owe. And the tax itself could be seen as unfairly penalizing wealthier individuals who own charities or foundations, invest heavily in businesses or save and invest their money instead of using it to buy things like luxury cars, expensive homes or other physical assets.

It’s important to keep in mind that a wealth tax is targeted at people above certain wealth thresholds, so most everyday Americans wouldn’t have to pay it. But it could cause problems for someone who unexpectedly receives a large inheritance that increases his wealth, even if his income remains at the lower end of the scale.

The Bottom Line

In the U.S., the wealth tax is still just an idea that’s being floated by progressive politicians and lawmakers. Whether a wealth tax is ever implemented remains to be seen and it’s likely that debate over it may continue for years to come. And enforcing one could be difficult if it were ever introduced, if for no other reason than there are many ways for the extremely wealthy to avoid taxes. In the meantime, talking with a tax professional may be the best way to manage your own personal tax liability.

Tips on Taxes

  • Consider talking to your financial advisor about the best ways to handle taxes as you grow an investment portfolio. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool can help you connect with professional advisors online. It takes just a few minutes to get your personalized financial advisor recommendations. If you’re ready, get started now.
  • Managing taxes is an important part of growing wealth and creating an estate plan. The less you pay in taxes, the more money you have to save and invest toward establishing a legacy of wealth. A free income tax calculator is a good way to start figuring what you owe or to get confirmation that  your calculations are correct.

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Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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New Report Reveals Massive Shifts in Tenant

A recent study by Zumper, an online rental marketplace, reveals massive shifts in renter behavior and historic market changes for renting in 2020.

The company’s “State of the American Renter” report for 2020 was based on surveys of more than 14,000 Americans conducted between June 2020 and August 2020. It demonstrates how the coronavirus pandemic is altering renter behavior and reversing rental market trends. Key findings include:

  • Renters are moving back in with mom and dad. Nearly 50% more renters are moving back in with their parents, with Millennials moving most often.
  • The majority of renters are under financial stress, with tenant unemployment at 12.7%.
  • Renters are moving more than ever before. A quarter reported moving to a new city within the past year, up 33% from 2019.
  • Renters are abandoning expensive cities in favor of cheaper, often neighboring, markets. For example, Bay Area residents are moving to Sacramento.
  • The country’s priciest cities are seeing the sharpest rent declines. The median rents in San Francisco, New York, Boston, Oakland, San Jose, Washington, D.C., Los Angeles, and Seattle declined 15% from the start of 2020.

Source: century21.com

What You Need to Know About Filing Taxes Jointly

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As a married couple, you and your spouse have the option of filing taxes jointly or separately. The IRS does encourage you to file your income tax returns jointly by providing a host of resources and incentives to do so. There are a lot of advantages to filing taxes jointly. However, there are also some instances where doing so might not be the best idea for your circumstances. Here are some things to know about filing taxes jointly and what it means for your finances.

What Does Filing Taxes Jointly Mean?

The IRS allows you to file taxes jointly as a married couple if you are married by the final day of the tax year-the 31st of December. Even if you are in the process of divorcing but haven’t finalized it by December 31st, you’re still considered married.

As a married couple filing under the “Married Filing Jointly” status, both of you can record:

  • Both your incomes
  • Each of your exemptions
  • Each of your deductions

Experts agree that filing your taxes jointly only works if one of you has a significantly higher income. However, if both of you work and have itemized deductions that are both large and unequal, then it may be a better idea to file separately.

However, the IRS considers you unmarried if the following conditions apply to your union:

  • You and your spouse lived apart from each other for at least the last six months of the year-business trips, military service, school and medical care are not taken into consideration.
  • You were the primary shelter provider for your dependents for at least the last six months of the year.
  • You paid over half the cost of upkeep for your home in the last six months of the year.

Whenever you choose to file your income taxes jointly, you need to realize that both of you are legally responsible for both the taxes and returns. If one of you understates the taxes due or tries to trick the system, then both of you are held liable for the penalties that are incurred. That is, unless one of you can prove that he/she wasn’t aware of what the husband/wife was doing and did not benefit in any way from the deceit. Proving this can be difficult because your finances are intertwined.

Tax law is tricky. If you and your spouse are having a difficult time determining your tax liability, it would be best to talk to an experienced tax preparer to ensure that you file your income tax return correctly. Whenever you file your taxes under married filing jointly, both of you will use the same tax return to report your income, credits, exemptions and tax deductions.

What Kind of Tax Credits Are Available for People Who File Jointly?

Several advantages come with filing taxes jointly. Primarily, these advantages come in the form of tax credits for couples who choose to file jointly. Some available tax credits include:

Earned Income Tax Credit

The Earned Income Tax Credit is one of the most substantial credits you can get from filing jointly. Generally speaking, this tax credit offsets some of your Social Security taxes. Your eligibility as well as the amount of credit is determined by your gross income, investment income and earned income. Here are some of the associated eligibility terms:

  • You have to be at least 25 years old but younger than 65 years.
  • Both of you must have valid Social Security numbers.
  • Both of you must have lived in the country for more than six months.

If you are married but decide to file separately, you don’t qualify for this credit.

American Opportunity Tax Credit

Formerly known as the Hope Credit, the American Opportunity Tax Credit helps families pay for four years of post-high school education. As a married couple filing jointly, the full American Opportunity Tax Credit is available if your adjusted gross income is $160,000 or less. The students in question must be enrolled for at least half-time and be in the school for at least one academic year. The best part is that this credit is offered on a per-student basis.

Lifetime Learning Credit

Similar to the American Opportunity Tax Credit, the Lifetime Learning Credit was also set up to help pay for post-secondary education. The main difference is that the LLC is available for many years of post-secondary education as opposed to just the first four as is the case with the American Opportunity Tax Credit. As a married couple filing jointly, you could get up to $2,000 per-student if you make less than $114,000 jointly.

Child and Dependent Care Credit

If you have to pay for childcare for kids under 13 years of age, then the Child and Dependent Care Credit is there for you. The credit is also available if you’re caring for a spouse or a dependent who is either physically or mentally incapable of taking care of themselves. The credit gives you up to 35% of qualifying expenses.

Savers Tax Credit

Formerly known as the Retirements Savings Contribution, the Savers Tax Credit is available to you if you have a qualified investment retirement account such as a 401(k) and other specific retirement plans. When filing jointly, you can get up to $2,000 in credit.

The Pros and Cons of Filing Taxes Jointly

Typically, the benefits of filing jointly tend to outweigh the cons. Here are some advantages of filing taxes jointly:

  • You can use your spouse as a tax shelter and save money.
  • Your jobless spouse can have an IRA.
  • You can greatly benefit from the tax credits that come with filing jointly.
  • Filing together can take less time and cost you less.

As is the case with everything that has a positive side, filing jointly also has its negative side:

  • Both spouses are responsible for the returns.
  • Your refunds can be blocked if one of you has a garnishment for unpaid child support or loan.

How Filing Taxes Jointly Works for Same-Sex Marriage

The Treasury and the IRS announced that all legally married same-sex couples must adhere to the same rules and laws as married heterosexual couples. That means that you can either file taxes jointly or separately.

When it comes to income and gift and estate taxes, they’re be treated the same as any other couple filing a joint tax return. It also applies to their filing status, their exemptions, standard deduction, employee benefits, IRA contributions, and the earned income and child tax credits.

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Reducing Capital Gains Tax on a Rental Property

Reducing Capital Gains Taxes on a Rental Property – SmartAsset

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Owning a rental property can help you to grow wealth long-term and diversify your income streams. Receiving regular rental income can help supplement withdrawals you might make from a 401(k) or an individual retirement account (IRA) in retirement or give you an extra cushion in addition to your regular paychecks if you’re still working. But rental income isn’t tax-free money; you do have to pay the IRS taxes on the income you earn. Capital gains tax can also apply when you sell a rental property. If you’re interested in how to avoid capital gains tax on rental property, there are some strategies you can try. It can also be helpful

How Rental Property Is Taxed

There are two dimensions to the tax picture when talking about rental properties. First, there’s the tax you pay on rental income paid to you. And second, there’s the taxes you might pay if you were to sell a rental property for a profit.

In terms of taxes on rental income, it’s subject to the same treatment as any earned income you might have from working or side-hustling. In other words, rental income is taxed as ordinary income at whatever your regular tax bracket may be for the year. The good news is, you can reduce what you owe in income taxes on rental income by claiming deductions for depreciation and rental expenses, such as maintenance, upkeep and repairs.

When you sell a rental property, you may owe capital gains tax on the sale. Capital gains tax generally applies when you sell an investment or asset for more than what you paid for it. The short-term capital gains tax rate is whatever your normal income tax rate is and it applies to investments you hold for less than one year. So, for 2020, the maximum you could pay for short-term capital gains on rental property is 37%.

Long-term capital gains tax rates are set at 0%, 15% and 20%, based on your income. These rates apply to properties held for longer than one year. If you own rental property as an investment year over year, you may be more likely to deal with the long-term capital gains tax rate. If you’re interested in minimizing capital gains tax on rental property or avoiding it altogether, there are three avenues open to you.

Use Loss Harvesting

Tax-loss harvesting is a strategy that allows you to balance out capital gains with capital losses in order to minimize tax liability. So, if your rental property appreciated significantly in value since you purchased it but your stock portfolio tanked, you could sell those stocks at a loss to offset capital gains.

Essentially, this could cut your capital gains tax bill to zero if you have enough investment losses to cancel out the profits. This strategy assumes, of course, that some of your other investments didn’t perform as well over the previous year.

If your entire portfolio did well over the past year then you may need to consider other ways to cut your taxes than loss harvesting. Or it may not yield enough of a benefit to offset all of your capital gains from selling a rental property.

Use a 1031 Exchange

Section 1031 of the Internal Revenue Code allows you to defer paying capital gains tax on rental properties if you use the proceeds from the sale to purchase another investment. You don’t get to avoid paying taxes on capital gains altogether; instead, you’re deferring it until you sell the replacement property. There are a few rules to know about Section 1031 exchanges. First, this is a like-kind exchange, which means that the rental property you buy must be the same type of property as the one you sold. The good news is the IRS allows for some flexibility in how like-kind is defined. So, for example, if you own a duplex and you decide to sell it, then use the proceeds to purchase a single-family rental home that could still meet the criteria for a 1031 exchange.

You also need to be aware of the timing when executing a 1031 exchange. If you want to use this strategy to avoid capital gains tax on a rental property, you must have a potential replacement property lined up within 45 days. The closing on the new property must be completed within 180 days. If you don’t meet those deadlines, you’ll owe capital gains tax on the sale of your original rental property.

Again, a 1031 exchange doesn’t let you off the hook for paying capital gains tax on rental property. But it could buy you time for paying those taxes owed if you’re interested in swapping out your rental property for a new one.

Convert a Rental Property to a Primary Residence 

One perk of being a homeowner is that the IRS offers a significant tax break if you sell at a profit. Single filers can exclude up to $250,000 in gains from the sale of a primary home from taxation. That amount doubles to $500,000 for married couples who file a joint return.

If you like your rental property enough to live in it, you could convert it to a primary residence to avoid capital gains tax. There are some rules, however, that the IRS enforces. You have to own the home for at least five years. And you have to live in it for at least two out of five years before you sell it.

This might be something to consider if you’re no longer interested in owning a rental property for income or you’d like to move from your current home into the rental.

The Bottom Line

Capital gains tax on rental properties can quickly add up if you’re able to sell a property you own for a large profit. Keeping an eye on conditions in the housing market and reviewing your overall financial situation can help you determine whether it’s the right time to sell to minimize taxes. For example, if your regular income is down for the year, then selling a rental property at a capital gain may not carry as much of a sting if you’re in a lower tax bracket. Talking to a tax expert or a financial advisor can help you find the best ways to manage capital gains tax.

Tips on Taxes

  • Consider talking to a financial advisor about how including rental properties into your financial plan could affect your taxes. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool can help you connect with professional advisors in your local area in a few minutes. If you’re ready, get started now.
  • Tax-loss harvesting isn’t limited to rental properties. You can also use stock losses to offset stock gains, for example. One thing to keep in mind, however, is the IRS wash-sale rule. This rule specifies that you can’t sell a losing stock and then replace it with a substantially similar one in the 30 days before or after the sale.

Photo credit: ©iStock.com/xeni4ka, ©iStock.com/designer491, ©iStock.com/supawat bursuk

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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3 Tax Scams You Need to Watch Out For

January 24, 2019 &• 5 min read by Adam Levin Comments 0 Comments

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According to the Internal Revenue Service (IRS), there was a 400% increase in phishing and malware incidents during the 2016 tax season. And tax scams extend far beyond email and malware to include phone scams, identity theft and more.  While the April 15 filing deadline still feels far away, as Yogi Berra said, “It ain’t over till it’s over.”

Scammers use multiple ploys and tactics to lure unsuspecting victims in. The IRS publishes an annual “Dirty Dozen” list of tax scams. Sadly, while some of those scams lure people into getting ripped off, others lure people into unwittingly committing tax fraud by falling victim to fake charities, shady tax preparers and false claims on their tax returns.

The most important things you can do to keep yourself scam-free and protected this—and any—tax year are to:

  • Be wary—if it seems too good to be true, it probably is
  • Educate yourself on the most common risks out there
  • File your taxes as early as possible

When you file your taxes as early as possible, you can just politely decline scammer and you can protect yourself from taxpayer identity theft. Tax-related identity theft is primarily aimed at someone posing as you stealing your tax refund. Scammers are creative, sophisticated, persistent and move fast once they have your information in hand. Armed with your Social Security number, date of birth and other pieces of your personally-identifiable information, they can rob you. If you’ve been the victim of a data breach—learn the warning signs—your information is likely available on the dark web. With your information, all a scam artist has to do is log in to a motel’s Wi-Fi network, fill out a fraudulent tax return online and walk away with a refund that could be and should have been yours.

What Is a Tax Scam?

A tax scam is a ploy intended to steal your information and/or your money. It can take several forms. The IRS’s “Dirty Dozen” for 2018 includes these scams:

  • Phishing scams, using fake emails or websites to steal personal information.
  • Phone scams where callers pretend to be IRS agents to steal your information or money.
  • Identity theft scams where identity thieves try and steal your personally identifiable information.
  • Return preparer fraud where a dishonest tax preparer submits a fraudulent return for you or steals your identity.
  • Fake charities where unqualified groups get you to donate money that isn’t actually deductible on your tax return.
  • Inflated refund claim scams where a dishonest tax preparer promises a high refund.
  • Excessive claims for business credits where you or a dishonest tax preparer promises a high refund for claiming credits you aren’t owed, such as the full tax credit.
  • Falsely padding deductions Taxpayers where you or a dishonest tax prepare reports more for expenses or deductions than really occurred.
  • Falsifying income to claim credits where a dishonest tax preparer cons you into claiming income you didn’t earn in order to qualify for tax credits, such as the Earned Income Tax Credit.
  • Frivolous tax arguments where a scam artist gets you to make fake claims to avoid paying taxes.
  • Abusive tax shelters where a scammer sells you on a shelter as a way to avoid paying taxes.
  • Offshore tax avoidance where a scammer convinces you to put your money offshore to hide it as a source of taxable income that you have to pay taxes on.

It’s important to know that if you fall victim, you may not just be the victim. You may also be a criminal and held accountable legally and financially for filing an incorrect return.

A new scam recently hit the wires too. For this one, scammers email employees asking for copies of their W-2s. People who fall victim end up having their names, addresses, Social Security numbers and income sold online. The emails look very valid but aren’t If you see this or other emails that stink like “phish,” email the IRS at phishing@irs.gov

1. Phishing

Phishing uses a fake email or website to get you to share your personally-identifiable information. They often look valid. Know that the IRS will never contact you by email regarding your tax return or bill.

Phishing emails take many forms. They typically target getting enough of your personally identifiable information to commit fraud in your name, making you a victim of identity theft if you take the bait.

Phishing emails may also contain a link that places malware on your computer. These programs can do a variety of things—none of them good—ranging from recruiting your machine into a botnet distributed denial of service (DDoS) attack to placing a keystroke recorder on your computer to access bank, credit union, credit card and brokerage accounts to gathering all the personally identifiable information on your hard drive.

Here’s what you need to know: The IRS will never send you an email to initiate any business with you. Did you hear that? NEVER. If you receive an email from the IRS, delete it. End of story. Oh, and it will never initiate contact by way of phone call either.

That said, there are other sources of email that may have the look and feel of a legitimate communication that are tied to other kinds of tax scams and fraudulent refunds. And not all scams are emailed though. A lot of scammers will call. The IRS offers 5 way to identify tax scam phone calls.

2. Criminal Tax Preparation Scams

Not all tax professionals are the same and you must vet anyone you’re thinking about using well before handing over a shred of your personally identifying information. Get at least three references and check online if there are any reviews before calling them. Also, consider using the Better Business Bureau to see if the preparer has any complaints against them.

Here’s why: At tax-prep time, offices that are actually fronts for criminal identity theft pop up around the country in strip malls and other properties and then promptly disappear a few days later. Make sure the one you choose is legit!

3. Shady Tax Preparation

Phishing emails aren’t always aimed at stealing your personally identifiable information or planting malware on your computer. They may be simply aimed at getting your attention and business through enticing—and fraudulent—offers of a really big tax refund. While these tax preparers may get you a big refund, it could well be based on false information.

Be on the lookout for questions about business expenses that you didn’t make, especially watching out for signals from your tax preparer that you’re giving him or her a figure that is “too low.”

If you are using a preparer and something doesn’t seem right, ask questions—either directly from the preparer or by calling the IRS. The IRS operates the Tax Payer Advocate Service that can help answer your requests. The service’s phone may be unavailable during a government shutdown, but the website is always available.

Other soft-cons of shady tax preparation include inflated deductions, claiming tax credits that you’re not entitled to and declaring charitable donations you didn’t make. Bottom line: If you cheat—intentionally or unintentionally—chances are you’ll get caught. So make sure you play by the rules and follow the instructions or work with a preparer who does. Yes, the instructions are complicated. That’s why it’s not a bad idea to get honest help if you need it.

As Yogi Berra said, “You can observe a lot by watching.” Tax season is stressful without the threat of tax-related identity theft and other scams. It’s important to be vigilant, because, to quote Yogi all over again, “If the world were perfect, it wouldn’t be.”

This article was originally published February 28, 2017, and has been updated by a different author.


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Source: credit.com

Working Together as a Team: Negotiating with Commercial Tenants During COVID-19

The COVID-19 pandemic caused widespread mandatory closures of all types of commercial properties. These closures, along with reduced consumer spending, have hampered business operations and created challenges for many businesses that lease office and industrial properties – some of which have asked their landlords for assistance in the form of rent abatements or deferrals.

Landlords facing this issue should refer to a research brief issued by the NAIOP Research Foundation that identifies best practices for triaging office and industrial tenant requests, offering reasonable accommodations to those tenants who need short-term assistance and responding to affected tenants.

Based on input from brokers and building owners as well as NAIOP data, the brief identified these common practices:

  • Rent relief. Building owners are generally willing to offer tenants reasonable rent relief to help them weather short-term disruptions due to COVID-19. The most common practice is to offer tenants a few months of deferred – not forgiven – rent that can be repaid over the remainder of the lease. Some landlords also agree to rent abatements, but only in exchange for a longer lease term.
  • Due diligence. Owners commonly request tenant financials to confirm that the request for relief is due to COVID-19 and to determine if the tenant is able to fulfill the lease terms.
  • Lender assistance. Many owners seek assistance from their own lenders to help them pay for property maintenance, taxes and insurance during periods when tenants are deferring rent payments. Lenders have been amenable to borrowers deferring principal payments as long as they can demonstrate need and maintain the property.

Source: century21.com

Joe Biden’s Tax Plans for the Next Few Years

President-elect Joe Biden’s tax plans were laid out for all to see during his campaign last year. Yet, conventional wisdom said that Biden wouldn’t be able to implement much of his agenda because Republicans in the Senate were going to block most of his tax proposals. But that all changed when Democratic Senate candidates Jon Ossoff and Rev. Raphael Warnock beat incumbent Republican Sens. David Perdue and Kelly Loeffler in Tuesday’s Georgia runoff elections. Now that Democrats will control both the House and the Senate for at least the next two years, Biden’s tax plans have been resuscitated.

He won’t get everything he asks for because the Democratic majorities in Congress are razor thin. And don’t expect quick action on tax changes, because he’ll have more important things to worry about early in his presidency (e.g., the pandemic). But let’s take a fresh look at some of the higher-profile tax proposals Biden pushed during his run for the presidency. Brush up on them now, so you’re prepared if and when he actually gets a few of his ideas through Congress.

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Higher Taxes on Wealthier Americans

picture of young rich couple outside their homepicture of young rich couple outside their home

Unlike some of his opponents in the Democratic primaries (e.g., Elizabeth Warren and Bernie Sanders), Biden didn’t push for a “wealth tax.” But that doesn’t mean he’s opposed to taxing the wealthy more heavily. For instance, to help close the income gap, he wants to raise the highest personal income rate back up to 39.6% (it was lowered to 37% by the 2017 tax reform law), cap itemized deductions for wealthier Americans, limit “like-kind exchanges” by real estate investors, and phase-out the 20% deduction for qualified business income for upper-income taxpayers. He promised not to raise taxes for anyone making less than $400,000, though.

The president-elect has also proposed eliminating the step-up in basis for inherited capital assets, which means more taxes on wealth passed to heirs, and ending favorable tax rates on capital gains for anyone making over $1 million. Also look for the federal estate tax exemption to be increased back to pre-tax reform levels. More estates of wealthy people will be subject to the estate tax if that change is made.

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Tax Breaks for Ordinary Americans

picture of truck driver with his familypicture of truck driver with his family

Taxing the wealthy isn’t the only way to narrow the income gap. Reducing taxes for low- and middle-income taxpayers will help that effort, too. Along those lines, Biden has proposed:

  • Temporarily increasing the child tax credit to $3,000 per child for children ages 6 to 17 and to $3,600 for children under 6, and making it refundable and payable in advance, during the pandemic;
  • Expanding the child and dependent care credit to $8,000 per child (up to $16,000), and making it refundable and payable in advance;
  • Forgiving student loan debt and excluding the forgiven amount from taxation;
  • Expanding the work opportunity tax credit to include military spouses;
  • Enhancing tax breaks and access to 401(k) plans for workers who are saving for retirement (including “equalizing” the tax benefits of 401(k) plans); and
  • Creating tax credits for small businesses that offer retirement plans for their workers.

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Stimulus Checks

picture of government checkpicture of government check

The day before the Georgia runoff elections, Biden said that “$2,000 checks will go out the door” if Ossoff and Warnock were elected. Well, now that that has happened, expect a full-court press for a third stimulus check.

In December, a new COVID-relief law authorized $600 stimulus checks (half as much as the $1,200 stimulus checks sent earlier in 2020 under the CARES Act). Nevertheless, many people saw that amount as too little, too late. So, with President Trump’s backing, the House passed the CASH Act, which would have increased the $600 second-round payments to $2,000 per eligible person. But Senate Majority Leader Mitch McConnell (R-Ky.) blocked all efforts to hold a vote on the CASH Act in the Senate. Now, though, with Sen. Chuck Schumer (D-N.Y.) set to take over control of the Senate, legislation authorizing a third stimulus check – presumably for $2,000 – appears very likely to pass shortly after Biden’s inauguration.

4 of 10

Health Care

picture of a doctor and his patientpicture of a doctor and his patient

Biden never jumped on the Medicare-for-all bandwagon. Instead, he would rather keep and improve Obamacare. As part of his plan to do this, he wants to eliminate the income-based cap on the premium tax credit so that all families who purchase insurance through a health insurance exchange can claim the credit. He also wants to increase the credit amount by basing it on the cost of a gold-level health plan, rather than a less-expensive silver-level plan.

In addition, Biden’s health care plan calls for a tax penalty on pharmaceutical companies that increase drug costs by more than the rate of inflation and taking away their deduction for advertising expenses. He also wants to eliminate any tax incentives for pharmaceutical companies to move production overseas.

5 of 10

Senior Citizens

picture of an elderly womanpicture of an elderly woman

Biden also proposed several tax changes to help senior citizens and those who care for them. First, his plan calls for increased tax benefits for elderly Americans who pay for long-term care insurance with their retirement savings. The president-elect also wants to allow low-wage workers over 65 years of age to claim the earned income tax credit (currently, you can’t claim the credit if you’re over 65).

To help protect Social Security, Biden hopes to make more income from wealthier Americans subject to the Social Security payroll tax. For 2021, wages above $142,800 are not subject to the payroll tax (the amount is adjusted annually for inflation). Biden wants to make wages above $400,000 subject to the tax.

In addition, expect Biden to push for a new $5,000 tax credit for “informal” caregivers—family members or other loved ones—providing long-term care to the elderly. Caregivers might also be allowed to make “catch-up” contributions to retirement accounts.

6 of 10

Disabled People

picture of man in wheelchair at workpicture of man in wheelchair at work

Once in office, look for Biden to push for increased tax credits for employers, including small businesses, that hire a person with a disability. The expected credit would be worth up to $5,000 the first year and $2,500 if the disabled worker completes a second year of employment. There could also be up to $30,000 in tax credits available to businesses that improve the accessibility of their workplace.

Biden also wants to expand access to ABLE accounts. These are tax-advantaged savings accounts that provide people with disabilities a way to pay for qualified disability-related expenses, such as education, housing and transportation. Specifically, Biden may help pass the ABLE Age Adjustment Act, which he said would make ABLE accounts available to 6 million additional adults with disabilities, including 1 million veterans.

7 of 10

Climate Change

picture of factory smoke stackspicture of factory smoke stacks

Biden issued a climate change plan that includes some tax provisions. His “Clean Energy Revolution” would be paid for by restoring the full electric vehicle tax credit (while aiming it at middle-class consumers); pushing tax breaks for energy efficiency in the homes and other buildings; and increasing tax incentives for carbon capture, use and storage. He also said that he would support a carbon tax.

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Affordable Housing

picture of apartment for rent signpicture of apartment for rent sign

Biden’s plan to expand access to affordable housing calls for creating a new refundable tax credit of up to $15,000 for first-time homebuyers. The credit would be paid when qualified taxpayers purchase a home, instead of when they file their tax return the following year.

He also wants to enact a new renter’s tax credit to reduce rent and utility costs to 30% of income for low-income individuals. In addition, Biden supports expanding the low-income housing tax credit, which provides incentives for the construction or rehabilitation of affordable housing for low-income tenants.

9 of 10

Opportunity Zones

picture of old movie theater building that is dilapidatedpicture of old movie theater building that is dilapidated

In a proposal that’s related to affordable housing, Biden also called for Opportunity Zone program reforms. Under the program, you can defer capital gains from the sale of business or personal property by investing the proceeds in qualified opportunity funds (QOF). These funds are then invested in economically distressed communities. If you keep your money in the fund for five years, your taxable gain on the original sale of property is reduced by 10%. Investments held for seven years get an additional 5% reduction. If you stay invested for 10 years, any gain from the QOF investment is tax-free. QOFs typically require investors to have a high net worth, a minimum annual income, and at least a six-figure investment. As a result, these investment vehicles, and the tax breaks that go with them, are mainly for the wealthy.

Biden wants to make sure people living in the distressed communities also benefit from the Opportunity Zone program. Too often, according to the Biden plan, Opportunity Zone projects are for things like luxury apartments and hotels, instead of for affordable housing and local business development. To change this, Biden wants to:

  • Create incentives for QOFs to partner with non-profit or community-oriented organizations, and jointly produce a community-benefit plan for each investment, with a focus on creating jobs for low-income residents and otherwise providing a direct financial impact to households within the Opportunity Zone;
  • Review Opportunity Zone benefits to make sure tax benefits are only being allowed if there are clear economic, social, and environmental benefits to a community, and not just high returns to investors; and
  • Require recipients of Opportunity Zone tax breaks to provide detailed reporting and public disclosure on their investments and the impact on local residents, including poverty status, housing affordability, and job creation.

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Corporate Taxes

picture of corporate income tax formpicture of corporate income tax form

Corporate taxes will increase if Biden gets his way. For example, he wants to raise the corporate income tax rate from 21% to 28% (the 2017 tax reform law dropped the rate from 35% to 21%). He also supports a 15% minimum tax on large corporations.

In addition, Biden wants to increase the global intangible low tax income (GILTI) rate on foreign profits from 10.5% to 21%. He also supports a “claw-back” provision to force companies to return public investments and tax benefits when they eliminate jobs in the U.S. and send them overseas. He has also called for a 10% surtax on businesses that avoid U.S. taxes by sending jobs and manufacturing overseas and then sell goods back to Americans. Any deductions for expenses associated with sending jobs overseas would be eliminated, too.

Look for the pharmaceutical industry to pay more taxes, too. This could include the elimination of tax breaks for prescription drug advertisements and of any tax incentives for pharmaceutical companies to move production overseas.

On the other hand, Biden may push for some new tax breaks for certain businesses. For example, Biden wants a new manufacturing communities tax credit that would promote revitalizing, renovating, and modernizing existing – or recently closed – facilities. Projects receiving the credit would have to benefit local workers and communities. He also supports a new 10% “Made in America” tax credit for companies that invest in the U.S. According to Biden, this credit would help businesses that revitalize or retool U.S. manufacturing facilities, bring back jobs that were previously sent overseas, expand operations in the U.S., or increase wages for U.S. manufacturing jobs.

Source: kiplinger.com