How Answering a Simple Question Will Put You At Risk

risk“May I please have your social security number?”

If you’ve ever checked in at the doctor’s office or filled out a job application, chances are you’ve had to provide your social security number. Doing so can put you at risk of identity theft.

We’ve all done it, because we are conditioned to hand it over to just about any professional party that asks: health care facilities, at school or our child’s school, the insurance office, or even when we call our health insurance company or bank.

The social security number has humble beginnings: it was originally devised to help the Social Security Administration (SSA) identify individuals eligible for Social Security benefits.

Since then, it’s morphed into an all-purpose identification number.

The good news? Chances are, if you politely decline to provide your social security number at the doctor’s office, or on the phone with your insurance company, there’s a good chance they can retrieve your information using your birthdate or even your last name and address.

Of course, you’ll need to provide it when filing taxes or filing for unemployment or disability benefits.

There are steps you can take to protect your social security number:

Never carry your social security card in your wallet. Leave it home in a safe place or in a safe deposit box at the bank. Take it out only when you need it, such as when you complete new hire paperwork, file your tax returns, or apply for government benefits.

You will also need it for passport and driver’s license applications as part of verifying your citizenship.

If you are completing a paper job application, leave the social security number field blank. If pressed to provide it, simply state you’ll be glad to furnish it when you are hired.

Online job applications can be tougher, as many of them require that you provide your social security number in order to advance to the next screen. However, employers are becoming more cognizant of security and privacy, and you may have to only disclose the last four digits of your social security number.

Never share your social security number online or on social networks. Never. Same goes for friends; never share your social security number with them.

Never program your social security number into your phone or tablet. If your phone or tablet is ever stolen or hacked, your social security number is there for all to see.

If you can’t memorize your social security number, create a sentence or short paragraph that contains parts of your social security number throughout, and keep it in a place other than your wallet or coin purse.

It only takes a second for your social security number to fall into the wrong hands and to put you at risk for identity theft.

Once you become a victim of identity theft, it can months and sometimes years to clear up your credit report, bank records, tax returns, and other vital records.

What once started out as a humble identification number for the SSA is now an all-purpose identification number. However, protecting your social security number is vital in lowering your risk of identity theft.

No one is ever immune to identity theft, but keeping your social security number under lock and key is one way to make yourself less of a target for identity thieves.

What You Need to Know About Student Loan Interest Deduction

Sure, those student loan payments are a pain. The student loan interest deduction is one way to ease the sting of student loan payments.

If you’re just starting out with student loan payments, you may not be aware of the potential tax benefits. The student loan interest deduction can reduce your taxable income by up to $2500.00. Here’s how it works:

You’ll receive a 1098-E form from your student loan servicer. If you’ve been making payment during 2015, they will have sent you this form no later than February.

Your student loan servicer will issue the 1098-E form if you paid $600.00 or more in interest during the tax year.

Box 1 on the 1098-E will indicate how much interest you’ve paid in 2015.

  • If your modified adjusted gross income is $65,0000 or less, you’ll be able to claim the full deduction, even if you don’t itemize your other tax deductions, such as medical or business expenses.
  • If your modified adjusted gross income falls between $65,000 and $80,000, the deduction will begin to phase out.
  • Once your income reaches $80,000 or more, you will not be eligible for this deduction.

As long as the student loan is in your name, and as long as you meet the income requirements, you can claim the deduction even if someone else is making the payments for you.

Keep in mind that if you will be filing as a married person filing separately, you won’t be able to claim the deduction.

While this deduction won’t completely take the sting out of those dreaded student loan payments, you can get some relief at tax time by deducting your student loan interest on your tax returns. student loan interest

 

 

Score! Your Guide to Fantasy Sports Winnings and the IRS

american-78095_1920Fantasy sports teams are a great way to channel your inner big-league team owner. After all, you can draft players, create and manage rosters, and compete against other fantasy teams throughout the season. What’s not to love about that?

Fantasy sports are also a way to pick up some extra money, and the IRS is knows this. Here’s what you need to know about fantasy sports leagues and the IRS.

Will My Winnings Be Taxed?

While the IRS has no specific tax code regarding fantasy sports winnings. At the same time, you’re required to report all income, including cash winnings if they exceed $600.00 in a single tax year.

Can I Write Off My Fantasy Sports Expenses as Losses?

You could potentially write off your expenses as losses if you also win money in the same year. This rule only applies if you win prizes or cash, and the IRS will allow you to write off losses only to the extent of your winnings.

Reporting Your Winnings

Since the IRS doesn’t classify fantasy sports as gambling, any cash and prizes worth over $600.00 will need to be reported as “miscellaneous income” on your tax return. Take the total from the 1099-MISC form issued by the fantasy league, and enter that amount on your 1040 or 1040A tax form. Even if you don’t get a 1099-MISC in the mail, you are required to report earnings over $600.00.

Read the program’s terms and conditions carefully when signing up: there should be a provision stating the program will issue a 1099-MISC on all winnings over the $600 threshold.

If you enjoy fantasy sports, keeping making those picks! One way to avoid potential tax troubles from unreported income is to keep careful records of your winnings throughout the year. If they exceed $600.00, be sure to include them on your tax return to avoid future tax troubles.

Fantasy sports leagues are a popular hobby for all types of sports fans. Where else will you get the chance to draft and manage your team, and to have that team play against others in the league with some money on the line?

Keep careful records of your cash and prize winnings, and report them at the end of the year on your tax form, even if the fantasy sports program didn’t issue a 1099-MISC. By doing so, you’ll avoid future tax problems related to unreported income.

Did You Know? Fun Facts About the IRS

 

embassy-935558_1920

The words “fun” and “IRS” aren’t paired too often. Here are some quick facts that you can either read and enjoy, or amaze your friends to at the next Trivia Night.

1. Donald Duck Was Once Their Mascot

The tax system was expanded in the 1940s to include citizens from all tax brackets. Prior to that, the only people who were subject to taxes were the wealthy. Middle-income and lower-income Americans were resistant to the change in tax structure and were balking at filing their taxes every year.

The U.S. government enlisted the Walt Disney Company to create two animated features that showed the revamped tax system in a more favorable light. Donald Duck was the star of both these animated short films.

2. Citizens Have Given Over $1 billion to the Presidential Election Fund

It’s true. Citizens have ponied up over $1 billion to this fund, mostly from designating a donation amount on their tax forms each year. Ever since this voluntary option was instituted in the 1970s, Americans have opened their wallets to donate to presidential campaigns.

3. You Can Choose From Nearly 500 Tax Forms and Schedules

One of the reasons filing your income taxes can be so complicated is the sheer number of available forms and schedules. The IRS website has a library of over 480 forms for retirees, business owners, parents, college students, caregivers, and Social Security recipients.

4. The IRS Receives More Than 130 Million Tax Returns Every Year

To keep up with the mountain of paperwork, the IRS has instituted online programs and electronic filing options.

5. The US Government Has Not Always Assessed an Income Tax

While it’s easy to think taxes have been around forever, it wasn’t until the 1800s did the US have a tax system. Due to the expenses involved in the Civil War, President Abraham Lincoln instituted the first income tax in 1861. Lincoln himself paid taxes in 1864 as a way to encourage all citizens to pay their share.

The government’s main source of revenue prior to the 1800s was specific taxes on tobacco and property.

Despite these early taxes, our current income tax system wasn’t instituted until 1913.

While these quick facts may or may not do much to alter your perception of the IRS, they could help make you the next Trivia Night or Jeopardy champ!

 

Meet The Revenue Officers

Chances are if you’ve called the IRS with a routine problem or question, you’ve spoken with a telephone agent in their Help Center. They’re trained to handle routine tax matters and to answer your questions. They can direct you to other departments within the IRS if needed.

However, if you’re saddled with an unusually large tax debt, you’ll be interacting with a revenue officer who has the authority to initiate and pursue collection action against you.

Revenue Officer Vs. Revenue Agent

An IRS revenue agent conducts tax  audits and establishes the amount of tax you will owe as a result of that audit. Disregard that tax debt or any other IRS debt or collection action, and chances are you’ll soon be interacting with a revenue officer. While revenue agents don’t have the authority to collect taxes, revenue officers do have that authority.

Who Are These Guys, Anyway?

Generally speaking, a revenue officer is a specially trained revenue agent that has the authority to initiate collection actions against you should you run afoul of the IRS. They have received additional training in the IRS’s power and reach when it comes to collecting back taxes.

Revenue officers have the authority to contact you by any means, including phone calls, home visits, or workplace visits. A revenue officer also has the authority to issue a notice to appear at tax hearings or meetings regarding your delinquent taxes.

When Do They Get Involved?

Revenue officers are considered the “big guns” in terms of IRS enforcement. You generally won’t be interacting with a revenue officer for an “average” past due tax bill. If your tax debt is in the hundreds of thousands of dollars or if you have a track record of non-payment, then chances are you will be dealing with a revenue officer. The same holds true if you’re a habitual non-filer.

How To Interact With a Revenue Officer

Revenue officers have received additional training regarding tax code, tax law, and how to communicate more effectively with taxpayers. They have also received additional training in proper collection procedures, and part of this training involves learning to work with delinquent tax payers.

If an IRS revenue officer ever contacts you regarding your taxes,  don’t panic (as hard as that may be). Remember you have the right to consult a tax attorney to assist you. Keep in mind that an IRS revenue officer does not have the authority to arrest you or audit you. If you are facing IRS collection, it is important to work out a repayment plan with the revenue officer.

Hearing from an IRS revenue officer is never at the top of anyone’s bucket list. If you have a sizable tax debt or a habitual non-filer, chances are you’ll hear from a revenue officer. While they don’t have the authority to make an arrest or to conduct an audit, they do have the power to collect back taxes.

By understanding the scope and limitations of a revenue agent’s role, you’ll be better equipped to respond appropriately if and when you do hear from them.

What’s In a Name? Name Changes for Taxpayers

Richert/freeimages
Richert/freeimages

 

If you’ve changed your name for any reason, chances are you’ve covered all your bases: employment records, school records, DMV records, and your health care records. Don’t stop there: be sure to advise the IRS of your new surname in order to avoid any last-minute delays in filing your tax return.

How It’s Done:

Since the IRS relies on Social Security Administration (SSA) records when verifying your name on your tax returns, you’ll need to update your SSA records with your new last name. You’ll need to complete form SS-5, “Application for a Social Security Card.” Fill it out, drop it in the mail, or head to your local SSA office and drop off the form there.

It will take a few weeks for the changes to appear in your SSA records, so it’s a good idea to take care of the name change with the SSA as soon as possible to avoid any delays in processing your return. If the IRS notices a discrepancy between the name on their records and SSA records, your return will be rejected if you filed it electronically.

Adopting A Child:

You’ll need to do the same if your new family member already has a Social Security Number (SSN). If they don’t, you’ll need to obtain an Adoption Taxpayer Identification Number (ATIN). You’ll need to complete IRS form W-7A and submit it to the IRS.  You can then use the ATIN to claim your child as a dependent on your tax returns until you can get a Social Security Number for him or her.

Life changes can also mean name changes. Don’t neglect to update the SSA with your new name, or you could end up tangling with the IRS over a delayed or incorrect tax return. Life is hectic enough; don’t let a delayed tax return add to the mix. Take care of your name change early, and you’ll be in the clear come tax day.

 

Pregnancy-Related Deductions

Nancy Lowrie/freeimages
Nancy Lowrie/freeimages

 

Having your first child is not only a life-changing event, but also a time for many questions and concerns. There’s no doubt raising a child to age 18 is expensive: the most recent estimate, adjusted for inflation, is $304,480. Let’s not forget expenses before the child is even born.

Today we’re going to take a look at some of the deductible pregnancy-related expenses.

What’s Deductible

Generally the IRS regards any “medically necessary” pregnancy-related expense as a deductible expense. There’s a catch, however: they must be out-of-pocket expenses. Anything covered by your insurance isn’t deductible, but any expense not covered by insurance can be deductible. Here are some of those expenses:

  • Childbirth courses
  • Prenatal visits with a health care provider
  • Prescription medication
  • Ambulance transportation
  • Labor & delivery charges not covered by insurance
  • Hospital charges not covered by insurance
  • Medically-necessary tests.
  • Post-partum care

Ultrasounds are deductible as long as they are prescribed by your doctor. At the same time, novelty ultrasounds (3-D or similar) that aren’t prescribed by your doctor are not deductible. Great for the grandparents, but not deductible.

As badly as you want to write off the piles of sweats and yoga pants and/or maternity work clothes, they’re not deductible. Exception: If you are required to wear a work uniform and you purchase the “maternity” version of that uniform, you can take the deduction.

Exception to the exception: If your employer pays for or reimburses you for the maternity uniform, you can’t deduct the cost from your taxes.

If your budget allows for a Mother’s Helper to get you through those crazed sleep-deprived weeks after the baby is born, you may save your sanity but you can’t deduct the cost.

Exception: If you are on medical bed rest prescribed by your physician, you can deduct the cost of having a Mother’s Helper.

The Math

The IRS generally allows for costs exceeding 7.5 percent of your AGI (Adjusted Gross Income) to be claimed deduction. You will need to file the 1040 long form and attach schedule A, which is used for itemized deductions.

As with anything else tax-related, keep all of your related receipts and documents in a safe place so you can refer to them on tax day.

Having your first child is a landmark event in your life, and in the life of your friends and extended family. Raising a child is expensive, but you can take the sting out of some of the earlier costs by taking certain pregnancy-related deductions on your tax return.

Any life event such as marriage, buying a home, or big jump in salary, warrants checking in with a qualified tax advisor if you have any questions regarding pregnancy-related tax deductions. He or she can clarify which expenses can be deducted given your unique tax situation.

 

How To Prevent Identity Theft

 

Photo: Melenchon
Photo: Melenchon

Yesterday’s entry focused on the signs of tax return identity theft and course of action to be taken once you realize you’ve been victimized. Identity theft has morphed over the years from a single person breaking into databases to sophisticated overseas identity theft syndicates. There are many warnings against identity theft, but they bear repeating.

  • Keep your Social Security Number (SSN) is a safe location, such as a lockbox or a safe. Avoid carrying your social security card in your wallet or purse. Same goes for any documents bearing your SSN.
  • Never write your SSN number on your check, even if the merchants asks for it. When filling out job applications that request your SSN, leave the field blank, or write “SSN to be furnished at time of hire” if you are using a paper application. Some online applications will generate an error code if you don’t provide your SSN while others will let you move to the next section without it.
  • Update your antivirus software and firewalls often. Install updates as soon as they are available. Those pop-ups advising us to download the latest browser update or software patches are annoying, but take the time to update. At the same time, never download an update from an unknown vendor. If you don’t recognize it from your software vendor, do not download it.
  • Change your passwords often and use strong passwords, which have a combination of upper case/lower case letters, numbers, and symbols.
  • Never provide personal or financial information over the phone unless you initiated the conversation.
  • Store sensitive information from your computer on an external drive and safely store that drive when not in use.
  • Log into your online banking portal often to check for unfamiliar transactions. Report any suspicious transactions to your bank’s fraud unit immediately.
  • Monitor your credit report at least once a year. Report any accounts under your name that don’t belong to you and take steps to close those accounts.

Identity theft has far-reaching consequences beyond a bogus tax return filed under your name and SSN. Your good credit rating and financial standing can be ruined and you are faced with the task of untangling the mess with the IRS, credit reporting agencies and your bank. By taking a proactive approach to protecting your sensitive personal and financial information, you can reduce your risk of identity theft.