Throughout 2022, there have been extensive fraudulent letters being mailed to US taxpayers that appear to be from the Internal Revenue Service. These letters may look legitimate to your average taxpayers who are not experienced with the formatting of an official correspondence letter from the IRS. Many versions of these fraudulent letters are circulating, but a professional tax preparer should be able to identify the clear errors within these letters. Please read the following tips and take a look below at some of the fraudulent letters my clients have received.
Key tips:
If you receive any letters that have the IRS logo or claim to be from the Internal Revenue Service or US Department of Treasury, always reach out to a professional tax preparer or CPA before responding to the letter.
NEVER give out your social security number over the phone. The IRS has multiple ways of identifying you as the correct taxpayer without asking you for your full social security number.
If you call a number listed on an official IRS letter, you will ALWAYS hear an automated welcome recording from the Internal Revenue Service that places you in a queue and asks for many phone prompts before you ever talk with an IRS agent. You are usually on hold for 30 minutes to an hour or longer on average. If you speak with an individual immediately upon calling a number in a fraudulent letter, this should be your first sign to hang up and not give any personal information.
IRS agents always provide their name and IRS agent ID when they are first connected with a taxpayer over the phone. It is good practice to write this information down in case you need to escalate your inquiry.
The IRS never refers to a tax return or tax year as a full date (ex. Dec 31, 2021). They always refer to a tax period by year only (ex., 2021)
If you have called a phone number from a fraudulent IRS letter and provided any personal information (social security numbers, home address, bank information, etc.), you should immediately complete an IRS Form 14039 Identity Theft Affidavit and submit to the IRS. This will allow the IRS to flag your tax accounts so if there are any fraudulent activities on future tax returns or tax returns you have already filed, you can easily make corrections and prevent incorrect penalties from being applied to your accounts. You will also want to apply for an IRS Identity Theft PIN number which will be required to be included on all future tax returns you file.
For your reference I have included a legitimate letter from the IRS and some examples of actual fraudulent letters my clients have received. Please use these as a reference anytime you receive a letter regarding your taxes. Finally, please reach out to me anytime you receive a letter from the IRS or any State agency regarding your taxes.
Standard deductions increase slightly for 2022 as follows:
Single = $12,950
Married Filing Joint = $25,900
Head of Household = $19,400
Child Tax Credit
The 2022 child tax credit reverts back to pre-2021 rules. The credits for 2022 are as follows (subject to AGI limitations):
$2,000 for each child under the age of 17 (17 year old children are not eligible for the credit in 2022)
Medical Expense Deduction
The AGI threshold for 2022 remains at 7.5%. Therefore, any out of pocket medical expenses you incur above 7.5% of your AGI (and you exceed the standard deduction amount) can be deducted. You must be able to itemize deductions to qualify.
Charitable Contributions
The 60%-of-AGI limit on deductions for CASH donations by individuals who itemize is in effect for 2022. You must itemize on Schedule A and does not include excess charitable contributions from prior years.
Capital Gains
1. Short-term capital gains are still taxed as ordinary income for investments held less than one year and ordinary dividends. Since the tax brackets applied to ordinary income since 2018 have changed significantly, your short-term gains are likely taxed at a different rate than they formerly were.
2. Long-term capital gains tax rates rates remain the same (0%, 15% or 20%) depending on filing status and income level. Income thresholds for each rate increase slightly for 2022.
3. The 3.8% net investment income tax rate (Medicare surtax) that applied to high earners remains the same.
Businesses
1. Business meals for 2022 remain 100% deductible to encourage restaurant dining. This includes client meals as well as meals for employees on business travel. The deduction will return to 50% in 2023.
2. Pass through companies (S-Corporations, Partnerships, LLCs and sole proprietors) still receive a 20% deduction of qualified business income. The taxable income limitation thresholds increase in 2022 ($340,100 married/$170,050 single). This deduction is complex and does have certain restrictions for service-type companies (law, accounting, health and financial services), so please contact me if you have specific questions.
3. 100% Bonus Depreciation for the purchase of certain assets that are put into use during the tax year. This deduction is temporary and will last until the end of 2022.
4. Business mileage rates for 2022 has been split between the first 6 months of the year and second 6 months of the year. Jan 1 – June 30, 2022 = $0.585 per mile, July 1 – Dec 31, 2022 = $0.625 per mile
5. The C-Corporation tax rate remains at a flat 21%.
There are many more small changes to both business and individual taxes, but this blog was intended to educate you on the major changes that effect the majority of taxpayers. If you have any specific examples or items you would like to discuss, please contact me!
Standard deductions increase slightly from 2020 as follows:
Single = $12,550
Married Filing Joint = $25,100
Head of Household = $18,800
Child Tax Credit
The 2021 child tax credit had a few major changes. The credits for 2021 are as follows (subject to AGI limitations):
$3,000 for each child ages 6 to 17 (17 year old children are eligible for the credit in 2021)
$3,600 for each child under age 6
Eligibility for the above increased credits phase out at AGI of $150,000 married/$112,500 head of household/$75,000 single.
$2,000 per child (ages 17 and younger) for higher income taxpayers ($400,000 or less for married/$200,00 or less all other taxpayers) who do not qualify for the above listed increased tax credits in 2021.
Taxpayers who qualified for the child tax credit based on their 2020 tax returns and received advance payments in 2021 from the IRS, must reconcile payments received and any changes to their 2021 filing status when filing their 2021 tax return. This is very important to avoid incurring penalties and interest for filing incorrect tax returns. A change in filing status or income between 2020 and 2021 could disqualify individuals from receiving the full credit (i.e. single in 2020 to married in 2021 with increased income).
Medical Expense Deduction
The AGI threshold for 2021 remains at 7.5%. Therefore, any out of pocket medical expenses you incur above 7.5% of your AGI (and you exceed the standard deduction amount) can be deducted. You must be able to itemize deductions to qualify.
Charitable Contributions
More donations to charity can be deducted for 2021 under the CARES Act. The 60%-of-AGI limit on deductions for CASH donations by individuals who itemize is suspended. You must itemize on Schedule A and does not include excess charitable contributions from prior years.
Taxpayers who do not itemize can deduct up to $300 of charitable CASH contributions “above-the-line” on their tax return for contributions made in 2021. For 2021 only, the per tax return maximum limitation for married taxpayers is suspended. Married taxpayers can deduct $600.
Capital Gains
1. Short-term capital gains are still taxed as ordinary income for investments held less than one year. Since the tax brackets applied to ordinary income since 2018 have changed significantly, your short-term gains are likely taxed at a different rate than they formerly were.
2. Long-term capital gains tax rates rates remain the same (0%, 15% or 20%) depending on filing status and income level. Income thresholds for each rate increase slightly for 2021.
3. The 3.8% net investment income tax rate (Medicare surtax) that applied to high earners remains the same.
Businesses
1. NEW for 2021: Business meals for 2021 and 2022 are 100% deductible to encourage restaurant dining. This includes client meals as well as meals for employees on business travel.
2. Pass through companies (S-Corporations, Partnerships, LLCs and sole proprietors) still receive a 20% deduction of qualified business income. The taxable income limitation thresholds increase in 2021 ($329,800 married/$164,900 single). This deduction is complex and does have certain restrictions for service-type companies (law, accounting, health and financial services), so please contact me if you have specific questions.
3. 100% Bonus Depreciation for the purchase of certain assets that are put into use during the tax year. This deduction is temporary and will last until 2022.
4. Business mileage rate for 2021 has decreased to $0.56 per mile
5. The C-Corporation tax rate remains at a flat 21%.
There are many more small changes to both business and individual taxes, but this blog was intended to educate you on the major changes that effect the majority of taxpayers. If you have any specific examples or items you would like to discuss, please contact me!
Standard deductions increase slightly from 2019 as follows:
Single = $12,400
Married Filing Joint = $24,800
Head of Household = $18,650
Medical Expense Deduction
The AGI threshold for 2020 has decreased from 10% to 7.5%. Therefore, any out of pocket medical expenses you incur above 7.5% of your AGI (and you exceed the standard deduction amount) can be deducted.
Charitable Contributions
More donations to charity can be deducted for 2020 under the CARES Act. The 60%-of-AGI limit on deductions for CASH donations by individuals who itemize is suspended. You must itemize on Schedule A and does not include excess charitable contributions from prior years.
NEW for 2020: Taxpayers who do no itemize can deduct up to $300 of charitable CASH contributions “above-the-line” on their tax return for contributions made in 2020. Single and Married taxpayers max out at $300 due to a per tax return $300 limit.
Child Tax Credit
This tax credit remains the same at $2,000 for each dependent under age 17, with up to $1,400 refundable to lower-income taxpayers. The credit phaseout thresholds are much higher, so more higher-income taxpayers will now qualify to take this credit.
A credit of $500 is still available for each dependent who is not a qualifying child (ex., disabled parents, grandparents and adult children)
Capital Gains
1. Short-term capital gains are still taxed as ordinary income for investments held less than one year. Since the tax brackets applied to ordinary income since 2018 have changed significantly, your short-term gains are likely taxed at a different rate than they formerly were.
2. Long-term capital gains tax rate income thresholds are similar to where they would have been under the old tax law (0%, 15% or 20%) depending on filing status and income level.
3. The 3.8% net investment income tax (Medicare surtax) that applied to high earners remains the same and with the exact same income thresholds.
Businesses
1. The C-Corporation tax rate remains at a flat 21%.
2. Pass through companies (S-Corporations, Partnerships, LLCs and sole proprietors) still receive a 20% deduction of qualified business income. This change is complex and does have certain restrictions for service-type companies (law, accounting, health and financial services), so please contact me if you have specific questions.
3. 100% Bonus Depreciation for the purchase of certain assets that are put into use during the tax year. This deduction is temporary and will last until 2022.
There are many more small changes to both business and individual taxes, but this blog was intended to educate you on the major changes that effect the majority of taxpayers. If you have any specific examples or items you would like to discuss, please contact me!
There have been a few changes/updates to the tax laws in the United States for 2019, but none as significant as those put into law in 2018. Below are the updated 2019 tax bracket ranges and changes to federal tax rules for 2019.
New 2019 Tax Brackets (dollars are Taxable Income)
Standard Deduction and Personal Exemption
Standard deductions increase slightly from 2018 as follows:
Single = $12,200
Married Filing Joint = $24,400
Head of Household = $18,350
Medical Expense Deduction
The AGI threshold for 2019 has increased from 7.5% to 10%. Therefore, any out of pocket medical expenses you incur above 10% of your AGI (and you exceed the standard deduction amount) can be deducted.
Affordable Care Act (Obamacare) Healthcare Mandate
The rule has been eliminated for 2019. You will no longer be penalized for not having a minimum amount of healthcare coverage.
Child Tax Credit
This tax credit remains the same at $2,000 for each dependent under age 17, with up to $1,400 refundable to lower-income taxpayers. The credit phaseout thresholds are much higher, so more higher-income taxpayers will now qualify to take this credit.
A credit of $500 is still available for each dependent who is not a qualifying child (ex., disabled parents, grandparents and adult children)
Capital Gains and Investment Income Taxes
1. Short-term capital gains are still taxed as ordinary income. Since the tax brackets applied to ordinary income have changed significantly, your short-term gains are likely taxed at a different rate than they formerly were.
2. 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:
3. 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.
Businesses
1. The C-Corporation tax rate remains at a flat 21%.
2.Pass through companies (S-Corporations, Partnerships, LLCs and sole proprietors) still receive a 20% deduction of qualified business income. This change is complex and does have certain restrictions for service-type companies (law, accounting, health and financial services), so please contact me if you have specific questions.
3. 100% Bonus Depreciation for the purchase of certain assets that are put into use during the tax year begins on Sept. 27, 2017 (to apply toward the 2018 tax year). This deduction is temporary and will last until 2022.
There are many more small changes to both business and individual taxes, but this blog was intended to educate you on the major changes that effect the majority of taxpayers. If you have any specific examples or items you would like to discuss, please contact me!
