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Making Home Improvements? You May Qualify for a Substantial Tax Credit

by with No Comment Tax, Advisory

The Internal Revenue Code Section 25C credit, also known as the Energy Efficient Home Improvement Credit, is a valuable tax incentive for homeowners who make qualifying energy-saving improvements to their existing homes. This credit has undergone several modifications since its inception in 2006, with significant changes introduced by the Inflation Reduction Act (IR Act). Don’t confuse this credit with the one for installing home solar systems, which is in Sec 25D of the tax code. This article delves into the details of the Sec 25C credit, including credit percentages, qualified items, annual limits, home energy audits, qualifying homes, basis adjustments, and more. 

Credit Percentage – For years 2022 through 2032 the credit is 30% of the sum of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements installed during that year in a home used by the taxpayer as their principal residence.  

Specific Qualified Items and Per Item Annual Limits – The following energy-efficient home improvements are eligible for the Energy Efficient Home Improvement Credit:

Components Subject to an Annual $1,200 Aggregate Credit Limit:

Windows and Skylights: $600 annual limit.

Exterior Doors: $250 per door, up to a total of $500 for all exterior doors.

Central Air Conditioners, Natural Gas, Propane, or Oil Water Heaters, and Furnaces: $600

Components Subject to an Annual $2,000 Aggregate Credit Limit:

Heat Pumps and Biomass Stoves and Boilers. 

Home Energy Audits – 30% of costs, up to a $150 annual limit.

Annual Credit Limits, $1,200 vs. $2,000 – The Sec 25C credit has two primary annual limits:

  • $1,200 Annual Limit: This limit applies to most energy-efficient home improvements, including windows, skylights, exterior doors, and residential energy property expenditures. The $1,200 limit can be increased by up to $150 for a home energy audit, making the maximum potential credit $1,350 in a year when an audit is conducted.
  • $2,000 Annual Limit: This higher limit applies specifically to heat pumps, heat pump water heaters, and biomass stoves and boilers.

Home Energy Audits – A home energy audit is an inspection and written report that identifies the most significant and cost-effective energy efficiency improvements for a dwelling unit. The audit must be conducted by a certified home energy auditor. The credit for a home energy audit is 30% of the cost, up to $150. Taxpayers can claim this credit once per year.  

Qualifying Homes – Credit is only allowed for components installed in or on a dwelling unit located in the United States, and for energy-efficient building envelope components such as insulation and exterior windows and doors, the taxpayer must own and use the home as the heir principal residence. In addition, the energy-efficient property must reasonably be expected to be in use for at least 5 years.  

For home energy audits, the taxpayer must own the home oruse it as a principal residence. 

To claim a credit for the costs of certain types of water heaters, heat pumps, central air conditioners, furnaces, hot water boilers, stoves, boilers, and electric system improvements and replacements (collectively termed residential energy property), the taxpayer must use the home as a residence, but does not have to own the home or use it as a principal residence.

  • Manufactured Homes – The term “dwelling unit” includes a manufactured home which conforms to Federal Manufactured Home Construction and Safety Standards (part 3280 of title 24, Code of Federal Regulations) (Sec 25C(c)(4))
  • Original Use -The original use of such component commences with the taxpayer.

Basis Adjustment Requirements – The basis of the property is increased by the amount of the expenditure and reduced by the amount of the credit. This creates a different basis for federal and state purposes where the state does not provide a credit or if it differs from the federal credit amount.

Nonrefundable Credit, AMT, and Carryover – The Sec 25C credit is a nonrefundable personal credit, meaning it can only reduce the taxpayer’s tax liability to zero but cannot result in a refund. The credit can offset the Alternative Minimum Tax (AMT). However, there is no carryover provision for unused credits; they must be used in the year they are claimed.

Manufacturer’s Certification and Qualified Product ID Number – Taxpayers can rely on a manufacturer’s certification that a component is eligible for the credit, provided the IRS has not withdrawn the certification. 

Starting after 2024, taxpayers must include the qualified product ID number of the item on their tax return for the year the credit is claimed. Omission of a correct product identification number is treated by the IRS as a mathematical or clerical error.

Differences Between Sec 25C Credit and Rebates – The Sec 25C credit is a federal tax credit claimed on the taxpayer’s tax return for the year the installation is made, while rebates are typically cash incentives provided by manufacturers, utilities, or government programs. Rebates reduce the out-of-pocket cost of the improvement, which in turn reduces the amount eligible for the credit. 

For example, if a taxpayer receives a rebate for purchasing an energy-efficient window, the cost of the window is reduced by the rebate amount before calculating the credit.

Installation Costs – For certain items qualified for the Section 25C credit, the cost of both installation labor and materials can count towards the credit. Specifically, the credit covers:

  • Residential Energy Property – This includes items such as heat pumps, biomass stoves, and biomass boilers. For these items, the credit is 30% of the costs, including labor, up to $600 for each item, provided they meet the energy efficiency requirements specified.
  • Building Envelope Components – This includes items like insulation, exterior windows, skylights and doors. However, for these components, the cost of installation labor is not included in the credit calculation—only the cost of the materials themselves is eligible.

Planning Modifications to Maximize Credits – Taxpayers can strategically plan their energy-efficient home improvements over several years to maximize the credits. By spreading out the improvements, taxpayers can take advantage of the annual limits each year.  

The Sec 25C credit for energy-efficient home modifications offers significant tax savings for homeowners who invest in energy-saving improvements. By understanding the credit percentages, qualified items, annual limits, and other requirements, taxpayers can make informed decisions and maximize their benefits. Whether it’s through home energy audits, upgrading heating systems, or installing new windows, the Sec 25C credit provides a valuable incentive for making homes more energy-efficient and reducing overall energy costs.

Please contact our office to see if and how you might benefit from this credit.

Adult senior 60s woman working at home at laptop. Serious middle aged woman at table holding document calculating bank loan payments, taxes, fees, retirement finances online with computer technologies

Essential Tax and Financial Planning Strategies for Boomers and Gen Xers Approaching Retirement

by with No Comment Tax, Advisory

As Boomers and Gen Xers approach retirement, effective financial planning becomes crucial to ensure a comfortable and secure future. This article outlines essential tax and financial planning strategies tailored to the unique needs of individuals nearing retirement. By understanding and implementing these strategies, you can navigate the complexities of retirement planning with confidence.

Understanding Retirement Goals

Before diving into specific strategies, it’s important to clearly define your retirement goals. Imagine Jane, a 58-year-old marketing executive, who dreams of traveling the world and spending more time with her grandchildren. To achieve this, Jane needs to assess her retirement lifestyle expectations and estimate her retirement expenses. This foundational step helps in creating a realistic financial plan that aligns with her aspirations.

Maximizing Retirement Contributions

One of the most effective ways to prepare for retirement is to maximize contributions to retirement accounts. For those over 50, catch-up contributions allow you to contribute more to your 401(k) and IRA, helping to boost your retirement savings. Take the example of Tom, a 52-year-old engineer, who increased his 401(k) contributions by taking advantage of catch-up provisions. This strategic move significantly enhanced his retirement nest egg, providing him with greater financial security.

Tax-Efficient Withdrawal Strategies

Understanding the tax implications of your retirement accounts is essential. Required minimum distributions (RMDs) must be taken from traditional IRAs and 401(k)s starting at age 73 for years 2023 through 2032. Planning your withdrawals strategically can help minimize your tax burden. Consider the benefits of Roth IRAs, which offer tax-free withdrawals. For instance, Sarah, a 65-year-old business owner, diversified her retirement accounts by converting a portion of her traditional IRA to a Roth IRA. This allowed her to manage her tax liabilities more effectively during retirement.

Social Security Optimization

Maximizing Social Security benefits requires careful planning. Delaying benefits until age 70 can result in higher monthly payments. Evaluate your financial situation to determine the optimal time to claim Social Security. John, a 67-year-old teacher, decided to delay his Social Security benefits until age 70. This decision increased his monthly benefits, providing him with a more substantial income stream during retirement.

Healthcare and Long-Term Care Planning

Healthcare costs can be a significant expense in retirement. Ensure you understand Medicare options and consider supplemental insurance to cover additional costs. Planning for long-term care is also crucial, as these expenses can quickly deplete your savings. Mary, a 60-year-old nurse, invested in a long-term care insurance policy. This proactive step ensured that she would have the necessary resources to cover potential long-term care expenses, protecting her retirement savings.

Estate Planning Essentials

Estate planning is not just for the wealthy. Having a will and, if necessary, a trust, ensures your assets are distributed according to your wishes. Be aware of the tax implications of your estate plan to minimize the tax burden on your heirs. Consider the story of Robert, a 62-year-old entrepreneur, who established a trust to manage his estate. This not only provided clarity on asset distribution but also minimized estate taxes, ensuring a smoother transition for his heirs.

Investment Strategies for Retirement

As you approach retirement, your investment strategy should balance risk and return. Diversification and proper asset allocation can help protect your savings while still providing growth potential. Consider shifting to more conservative investments as you near retirement. Lisa, a 59-year-old financial analyst, rebalanced her investment portfolio to include more bonds and dividend-paying stocks. This strategy reduced her exposure to market volatility while still generating a steady income stream.

Managing Debt Before Retirement

Carrying debt into retirement can be risky. Develop a plan to pay down high-interest debt before you retire. Reducing your debt load can improve your financial security and provide peace of mind. Mark, a 55-year-old architect, focused on paying off his mortgage and credit card debt before retiring. This decision significantly reduced his monthly expenses, allowing him to enjoy a more financially stable retirement.

Selling a Company

For those who own a business, selling the company can be a significant part of retirement planning. Properly valuing the business, understanding the tax implications, and planning the sale can ensure you maximize the financial benefits. Consider the example of Susan, a 60-year-old small business owner, who sought professional advice to prepare her company for sale. By optimizing her business operations and understanding the tax consequences, Susan was able to sell her company at a premium, providing her with a substantial retirement fund.

It’s Not Too Late To Plan

Effective tax and financial planning is essential for Boomers and Gen Xers approaching retirement. By understanding your goals, maximizing contributions, planning tax-efficient withdrawals, optimizing Social Security, preparing for healthcare costs, managing debt, and considering the sale of a business, you can ensure a secure and comfortable retirement.

To navigate these complexities and tailor these strategies to your unique situation, seek professional advice from our office. Our experts can help you analyze best practices and develop a personalized financial plan that aligns with your retirement goals.

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A Retiree’s Guide to Reducing Taxes on Social Security Benefits

by with No Comment Tax, Advisory

Social Security benefits serve as a crucial financial backbone for millions of retirees, disabled individuals, and families of deceased workers in the United States. However, the taxation of these benefits often presents a complex landscape for beneficiaries. This article delves into the intricacies of how Social Security benefits are taxed, the conditions under which these benefits become taxable, and strategies to minimize tax liabilities.

These benefits are part of a social insurance program that provides retirement income, disability income, and survivor benefits. Funded through payroll taxes collected under the Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act (SECA), the Social Security Administration administers these benefits. The retirement benefits an individual receives is based on their lifetime earnings in work in which they paid Social Security taxes, modified by other factors, especially the age at which benefits are claimed. Benefits are adjusted annually for inflation.

Taxation Thresholds and Conditions – The taxation of Social Security benefits is contingent upon the beneficiary’s “combined income,” which includes adjusted gross income, nontaxable interest, and half of the Social Security benefits. The Internal Revenue Service (IRS) uses this combined income to determine the portion of benefits subject to taxation.

For individuals, if the combined income falls between $25,000 and $34,000, up to 50% of the benefits may be taxable. Should the combined income exceed $34,000, up to 85% of the benefits could be taxable. For married couples filing jointly, these thresholds are set between $32,000 and $44,000 for up to 50% taxation, and above $44,000 for up to 85% taxation. When the combined income is less than $25,000 ($44,000 for married joint filers), none of the Social Security benefits are taxable, with an exception for some married taxpayers filing separate returns as noted below.

Railroad Retirement – The taxation rules that apply to Social Security benefits also apply to Railroad Retirement benefits. Railroad Retirement benefits are reported on Form RRB-1099 whereas Social Security benefits are reported on Form SSA-1099. 

Married Taxpayers Filing Separate – Some married taxpayers for one reason or another may choose not to file jointly and instead each spouse files a return using the status Married Taxpayer Filing Separately.  Married individuals filing separately generally face taxation on up to 85% of benefits, regardless of combined income, if they lived with their spouse at any point during the tax year.

Survivor Benefits – Social Security survivor benefits are payments made by the Social Security Administration (SSA) to the family members of a deceased person who earned enough Social Security credits during their lifetime. Eligible family members include widows, widowers, divorced spouses, children, and dependent parents.

These benefits are a crucial financial support for families who have lost a wage earner. However, many beneficiaries are unaware that these benefits may be subject to federal income tax, depending on various factors.

Survivor benefits can be taxable and the amount that is taxable is determined in the same manner as for a retiree as discussed previously based on the beneficiary’s total income and filing status. 

Children and Social Security Survivor Benefits – A child’s taxable Social Security benefits are treated as unearned income and subject to the Kiddie Tax rules and thus will generally be taxed at their parent’s top marginal tax rate.The Kiddie Tax is designed to prevent parents from shifting large amounts of investment income to their children to take advantage of the child’s lower tax rate.

  • If the child only receives Social Security benefits and has no other income, the benefits are typically not taxable, and the child may not need to file a tax return.
  • If the child has other income, the taxability of Social Security benefits depends on their “combined income.” Combined income includes the child’s adjusted gross income (AGI), nontaxable interest, and one-half of the Social Security benefits. Basically, the same way a retiree’s benefits are taxed. 

Strategies to Minimize Taxation – Beneficiaries can adopt several strategies to minimize the taxation of their Social Security benefits.

  • Income Planning – Adjusting the timing and sources of income can help keep combined income below the taxable thresholds. For example, delaying withdrawals from retirement accounts or strategically timing the sale of investments can reduce AGI. If required to take distributions from a traditional IRA or 401(k) account, only take the minimum amount required if possible.
  • Tax-Deferred Savings – Contributing to tax-deferred savings accounts, such as traditional IRAs or 401(k)s, can lower AGI, potentially reducing the taxable portion of Social Security benefits. Of course, this suggestion only applies to those who have earned income (wages, self-employment income).
  • Tax-Efficient Investments – Investing in tax-efficient vehicles, such as Roth IRAs or growth stocks that aren’t currently paying dividends, can generate income that doesn’t count toward combined income, thus reducing the taxability of Social Security benefits.  
  • Deductions and Credits – Taking advantage of all eligible tax deductions can lower AGI, which in turn can reduce the taxable portion of Social Security benefits.

Other Issues

  • Tax Withholding on SS Benefits – Taxpayers can elect tohave federal income tax withheld from their Social Security benefits and/or the SSEB portion of Tier 1 Railroad Retirement benefits. Use Form W–4V to choose one of the following withholding rates: 7%, 10%, 12%, or 22% of the total benefit payment (flat dollar amounts aren’t permitted).  Once completed, the W-4V form can either be mailed or faxed to the Social Security Administration.  
  • Same-Sex Married Couples – The Supreme Court determined that same-sex couples have a constitutional right to marry in all states.  As a result, the Social Security Administration says that same-sex couples will be recognized as married for purposes of determining entitlement of Social Security benefits.  Therefore, their Social Security benefits are taxed the same way as for married taxpayers. 
  • Gambling & Social Security Taxation – For tax purposes gambling winnings are added to a taxpayer’s income while gambling losses are deducted as an itemized deduction. Thus, even if the gambling resulted in a net loss, the full amount of the gambling winnings is added to the combined income which can make more of the Social Security benefits be taxable or cause some of the benefits to be taxable at the higher 85% rate. 

Example: Suppose the combined income, without considering gambling income, for a married couple filing a joint return is $30,000. That is below the combined income Social Security taxable income threshold of $32,000. Thus, none of the couple’s Social Security benefits are taxable. However, suppose the couple are recreational gamblers and for the year had winnings of $20,000 and losses of $21,000 for a net gambling loss of $1,000. Because the gains and losses are not netted, the $20,000 of gambling winnings is added to the combined income, bringing it to $50,000, which makes nearly all the Social Security benefits taxable.     

To make matters even worse, if a taxpayer is covered by Medicare, the Medicare premiums are based on the taxpayer’s income two years prior, so the gambling winnings might very well also cause an increase in future Medicare premiums. If married taxpayers are both covered by Medicare, the increase would apply to each spouse.

  • Lump-Sum Payments – Some SS beneficiaries may receive a lump-sum payment that includes benefits for previous years. Special rules apply for reporting and taxing these payments, allowing beneficiaries to potentially reduce their tax liability.
  • State Taxes – While this article focuses on federal taxation, it’s important to note that some states also tax some or all Social Security benefits, which as of 2023 included Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont.
  • International Aspects and Treaties – The taxation of Social Security benefits also has international dimensions. The U.S. has entered tax treaties with several countries, which can affect how benefits are taxed for residents and nationals of those countries. For instance, benefits paid to individuals who are both residents and nationals of treaty countries may be exempt from U.S. tax.   

The taxation of Social Security benefits has evolved since its inception nearly 90 years ago, and future legislative changes could further impact how these benefits are taxed. Beneficiaries and financial planners must stay informed about these changes to effectively manage tax implications. This article includes issues in effect as of April 1, 2024.

If you have questions related to taxation of Social Security benefits, please contact our office.

Forms and application for health insurance

A Secret to Lower Taxes: Special Deduction for Self-Employed Health Insurance

by with No Comment Tax

In the labyrinth of tax regulations, the self-employed health insurance deduction stands out as a beacon of relief for self-employed individuals, partners in partnerships, and shareholders in S corporations. This deduction allows eligible taxpayers to deduct 100% of their health insurance premiums from their gross income, providing a significant tax benefit. This article looks at who qualifies for this deduction, the nature of qualifying insurance, and the process of claiming it.

Who Qualifies for the Self-Employed Health Insurance Deduction?

  • Self-Employed Individuals – Self-employed individuals who report a net profit on Schedule C (Form 1040) or Schedule F (Form 1040) are eligible for the self-employed health insurance deduction. This includes freelancers, independent contractors, and small business owners who are not considered employees of another company. The deduction is limited to the net earnings from self-employment, after accounting for the 50% of self-employment tax deduction and contributions to certain retirement plans (but not traditional IRAs).
  • Partners in Partnerships – Partners with net earnings from self-employment, as reported on Schedule K-1 (Form 1065), box 14, code A, can also take advantage of this deduction. The health insurance policy can be in the name of the partnership or the partner.  
  • If the partnership pays the premiums, the premium amounts must be reported on Schedule K-1, Form 1065, as guaranteed payments included in the partner’s gross income.
  • If a taxpayer/partner pays the premiums, and the policy is in the taxpayer/partner’s name, the partnership must reimburse the taxpayer and the premium amounts will be included in gross income as guaranteed payments on Schedule K-1. Otherwise, the insurance plan won’t be considered established under the business. 
  • S Corporation Shareholders – Shareholders who own more than 2% of an S corporation are eligible if the corporation pays their health insurance premiums, which are then reported as wages on Form W-2. The policy can be in the name of the S corporation or the shareholder. If the shareholder pays the premiums and the policy is in their name, the S corporation must reimburse the shareholder, and the premium amounts must be reported on Form W-2 as wages
    • If the S corporation pays the premiums, the premium amounts are included on Form W-2 as wages.
    • If the shareholder pays the premiums, and the policy is in the shareholder’s name, the S corporation must reimburse the shareholder and report the premium amounts on the W-2 as wages. Otherwise, the insurance plan won’t be considered established under the business.

Where is the Deduction Claimed? – The self-employed health insurance deduction is an above-the-line deduction, meaning it reduces the taxpayer’s gross income directly. This advantageous positioning allows taxpayers to benefit from the deduction regardless of whether they itemize deductions or take the standard deduction. The deduction is figured on IRS Form 7206, Self-Employed Health Insurance Deduction, that is attached to the individual’s Form 1040 return. Form 7206 made its debut as part of 2023 returns. Previously, a worksheet in the IRS instructions to the 1040 was used to compute the deduction.

The Tax Benefit – Besides allowing it to be deducted above the line and avoiding the 7½% of AGI medical limitation as an itemized deduction, the SE health insurance deduction also reduces the taxpayer’s AGI. The AGI is frequently used to reduce other tax benefits for higher income taxpayers. This can result in substantial tax savings, making health insurance more affordable for those who are self-employed or small business owners.

What Insurance Qualifies? – To qualify for the deduction, the insurance plan must be established under the name of business, but for self-employed individuals, this means the policy can be in either the individual’s name or the name of the business. For partners and S corporation shareholders, certain conditions regarding the payment and reporting of premiums must be met, as outlined above.

The deduction covers medical, dental, and long-term care insurance premiums for the taxpayer, their spouse, dependents, and children under 27 years of age, even if they are not dependents. Medicare premiums voluntarily paid to obtain insurance in the individual’s name that is like qualifying private health insurance can be used to figure the deduction. I.   

Limitations and Restrictions – While the self-employed health insurance deduction offers significant tax relief, there are limitations.  

  • The deduction cannot exceed the earned income from the business under which the insurance plan is established.
  • The long-term care (LTC) insurance premium part of the deduction is limited based on the age of the person covered by the LTC plan.
  • No deduction is allowed for any month in which the taxpayer was eligible to participate in a health plan “subsidized” by their or their spouse’s employer. The term “subsidized” means at least 50% of the cost of the coverage is paid by the employer.

If you have questions related to this often-overlooked tax benefit, please contact our office.

Protect personal identity concept of privacy theft

Reclaim Your Life: Essential Steps to Overcome Identity Theft and Secure Your Future

by with No Comment Tax, Advisory

In an era where digital transactions and online interactions have become the norm, the specter of identity theft looms large, posing significant challenges and potential financial hazards for individuals. Among the various forms of identity theft, tax-related identity theft is particularly insidious. It occurs when someone uses your stolen personal information, including your Social Security Number (SSN), to file a tax return in your name and claim a fraudulent refund. This not only jeopardizes your financial health but also complicates your tax obligations with the Internal Revenue Service (IRS). Understanding the steps to take in the aftermath of identity theft and recognizing the measures the IRS employs to protect taxpayers can mitigate the impact and help restore your financial integrity.

Signs of Tax-Related ID Theft

According to the IRS, any of the following tax-related issues could indicate that your ID has been compromised:

  • You get a letter from the IRS inquiring about a suspicious tax return that you did not file.
  • You can’t e-file your tax return because of a duplicate Social Security number. In this case you should file a paper tax return along with a Form 14039, Identity Theft Affidavit.
  • You get a tax transcript in the mail that you did not request.
  • You get an IRS notice that an online account has been created in your name.
  • You get an IRS notice that your existing online account has been accessed or disabled when you took no action.
  • You get an IRS notice that you owe additional tax or refund offset, or that you have had collection actions taken against you for a year you did not file a tax return.
  • IRS records indicate you received wages or other income from an employer you didn’t work for.
  • You’ve been assigned an Employer Identification Number, but you did not request an EIN.

Immediate Steps for Taxpayers

Report the Incident – If you suspect or know that your identity has been stolen, report the incident to the IRS immediately. You can do this by filing a Form 14039, Identity Theft Affidavit, which informs the IRS of the potential fraud. This step is crucial, as it alerts the IRS to scrutinize any tax return filed under your SSN more carefully. Form 14039 can be completed and submitted online at  f14039.pdf (irs.gov), faxed or mailed to the IRS.

Contact Other Agencies – Beyond the IRS, you should also report the identity theft to the Federal Trade Commission (FTC) at IdentityTheft.gov, which acts as a central reporting point for identity theft and offers a recovery plan. Additionally, alerting the Social Security Administration and the major credit bureaus (Equifax, Experian, and TransUnion) can help prevent further misuse of your personal information.

Secure Your Personal Information – Change passwords for your online accounts, especially those related to financial institutions and email. Ensure your computer has up-to-date antivirus software and consider a credit freeze or fraud alert on your credit reports to prevent new accounts from being opened in your name.

Stay Vigilant – Monitor your financial accounts and credit reports regularly for any unauthorized transactions or changes. This proactive approach can help you catch any further attempts at identity theft early.

How the IRS Protects Taxpayers

The IRS has ramped up its efforts to combat tax-related identity theft with a multi-faceted approach focusing on prevention, detection, and victim assistance.  The IRS continuously enhances its security measures to prevent identity thieves from filing fraudulent tax returns. This includes employing advanced data analytics to flag suspicious returns and improving authentication procedures for online services.

The IRS has dedicated over 3,000 employees to work on identity theft cases, with more than 35,000 employees trained to recognize and assist victims of identity theft. The agency uses sophisticated return-processing filters to identify returns that may be fraudulent, stopping the issuance of fraudulent refunds.

For individuals affected by tax-related identity theft, the IRS offers specialized assistance through its Identity Protection Specialized Unit (IPSU). It can issue an Identity Protection PIN (IP PIN) – a six-digit number that must be included on tax returns to verify the taxpayer’s identity in addition to their Social Security Number.

Initially, the IP PIN was available only to victims of identity theft or those who were deemed at significant risk of it. However, recognizing the escalating threat of identity theft, the IRS expanded the program, making it available to all taxpayers who wished to participate and could verify their identity.

The process of obtaining an IP PIN begins with the taxpayer verifying their identity with the IRS. This can be done online through the IRS’s Get an Identity Protection PIN (IP PIN) tool, a secure platform designed for this purpose. However, the process is rigorous, reflecting the seriousness with which the IRS treats the security of taxpayer information. For those unable to validate their identity online, alternative methods include submitting IRS Form 15227 for those with an adjusted gross income of $72,000 or less or requesting an in-person appointment at an IRS Taxpayer Assistance Center.

Once a taxpayer is issued an IP PIN, it becomes an essential part of their tax filing process. The IP PIN must be included on their federal tax returns, serving as a unique identifier that helps the IRS verify the taxpayer’s identity. By doing so, it prevents identity thieves from filing fraudulent tax returns using the taxpayer’s Social Security number. It’s important to note that the IP PIN is valid only for one calendar year and must be renewed annually. Each year, the IRS generates a new IP PIN for individuals in the program, which they can retrieve through the same secure IRS online tool or wait for a postal notification.

The significance of the IP PIN cannot be overstated for victims of identity theft. For those who have experienced the misuse of their Social Security number for tax fraud, the IP PIN acts as a safeguard for future tax filings. It ensures that even if their personal information is compromised again, the presence of the IP PIN will prevent fraudulent returns from being processed in their name. This not only protects the taxpayer’s refund but also aids in the broader fight against tax-related identity theft.

The journey to recovery after experiencing identity theft can be daunting, but taking decisive action and leveraging available resources can significantly ease the process. By promptly reporting the theft to the IRS and other relevant agencies, securing personal information, and staying vigilant, taxpayers can mitigate the impact of identity theft.

Please contact this office for assistance in dealing with the IRS in case of identity theft.

Gavel On a Legal Text

Tennessee Tax Legislative Update

by with No Comment Tax, Advisory

As previously shared through an earlier update, in January Governor Bill Lee announced plans to amend the Tennessee franchise tax to simplify the calculation. Under existing law, the franchise tax base is the greater of 1) the taxpayer’s net worth or 2) the net book value of the property owned, and the rental value (using a defined multiple) of property used in Tennessee. Once calculated, the franchise tax base is subjected to a tax rate which is $0.25 per $100 of the tax base. Under Governor Lee’s simplification, the franchise tax would be determined based solely on net worth, with the alternative method using net book value of assets being repealed.

Since its announcement, this planned overhaul to the state’s franchise tax law has been subject to significant debate and negotiation among lawmakers; however, in the final hours of Tennessee’s legislative session last week, both chambers approved a compromise plan. The plan is projected to send approximately $1.5 billion back to taxpayers and reduce the state’s franchise tax revenue by approximately $400 million annually. Additionally, the compromise plan provides for three years of tax refunds desired by the Senate while also providing transparency provisions desired by the House. Tax refunds will be available for returns filed after January 1, 2021, covering a tax period that ended on or after March 31, 2020. Generally speaking, for calendar year taxpayers the applicable periods are tax years 2020 through 2023.  The refund claims will be required to be filed between May 15th and November 30th of this year and taxpayers claiming refunds will be required to waive all rights to sue the state over franchise tax obligations during the affected period. Specific to transparency, the compromise plan will require refunds paid to taxpayers to be disclosed in ranges – $750 or less; $751 to $10,000; greater than $10,000; or “pending” if a final payment has not been determined. 

Governor Lee is expected to sign the legislation.

Within the next few weeks, RBG tax advisors will be contacting our impacted Tennessee taxpayers to discuss the details of anticipated refund claims and expected timing of filings. Should you have any immediate questions, feel free to contact your RBG advisor.

RBG - Intern Post - 5 People (2)

2024 Internship Spotlight

by with No Comment UncategorizedFirm News

Internships offer a dynamic avenue for expanding your network and forging valuable connections. At RBG, interns collaborate directly with industry professionals, fostering relationships that can shape their future careers.

Beyond networking, internships serve as a direct pathway to permanent positions. RBG actively cultivates talent, often recruiting interns for full-time roles, with a clear trajectory for advancement up to Partner level. Dedication and effort during an internship with RBG can significantly increase your likelihood of receiving a job offer, setting the stage for a successful career journey.

This year, we’ve had the pleasure of hosting a fantastic cohort of interns. As we spotlight their experiences, we’ve asked each of them three key questions:

  1. What have you learned so far during your time at RBG?
  2. What has been your favorite part about interning at RBG?
  3. Based on your experience, what’s your biggest piece of advice you’d give to a future intern?
See their insightful responses below:

 

Q: What have you learned so far during your time at RBG?

A: “While interning at RBG, I have become more familiar with the audit process and how an audit team completes its work.”

Q: What has been your favorite part about interning at RBG?

A: “My favorite part of interning at RBG has been the fact that I don’t feel as though I am just an intern. RBG has made me feel like I am part of the staff, even if I am a very inexperienced part of the team.”

Q: Based on your experience, what’s the biggest piece of advice you’d give to a future intern?

A: “My advice to future interns is to be bold and ask questions because there will always be something you need help understanding, or there may be a more efficient way to perform the work you’re doing.”

— Eric Daniels
    Senior, University of Memphis

Q: What have you learned so far during your time at RBG?

A: “I have learned about the audit process for both banks and private companies. I did not realize how much teamwork was involved with accounting until I worked with the audit team. I have also learned how to fill out 1040’s and 1041’s. There is something new in almost every tax return I prepare, so it is interesting to see it and take in all that knowledge.”

Q: What has been your favorite part about interning at RBG?

A: “I have enjoyed everyone I have worked with. Everyone here wants others to learn and they want to help out anyway they can. Working here pushes me to want to learn and improve.”

Q: Based on your experience, what’s the biggest piece of advice you’d give to a future intern?

A: “I would definitely recommend coming into your internship wanting to learn. I had heard before about how everyone in accounting is always learning, but I really see it now. Don’t let that thought overwhelm you, but be excited for it.”

— James Strickland
     Senior, University of Memphis

Q: What have you learned so far during your time at RBG?

A: “During my time at RBG I have learned how to prepare tax returns for individuals and trusts. I have also learned how to improve my professional communication and time management skills throughout this internship.”

Q: What has been your favorite part about interning at RBG?

A: “My favorite part of interning at RBG has been the people, everyone is so willing to help and answer any questions I may have. It feels like everyone tries their best to make others feel comfortable asking questions and receiving help.”

Q: Based on your experience, what’s the biggest piece of advice you’d give to a future intern?

A: “My biggest piece of advice for a future intern would be to not be too hard on yourself at first. Taxes are complicated, and I often felt down about myself or my work especially in the beginning. The point of an internship is to learn and grow, so as long as you are willing to ask questions and learn from mistakes, then you will do great!”

— Christian Russell
    Senior, Arkansas State University

Q: What have you learned so far during your time at RBG?

A: “I have learned more about Partnership Tax and the many differences between it and an individual return.”

Q: What has been your favorite part about interning at RBG?

A: “I have enjoyed that there isn’t an overarching sense of seniority and that new hires can fit right in professionally and socially.”

Q: Based on your experience, what’s the biggest piece of advice you’d give to a future intern?

A: “Come into your internship willing to ask a lot of questions and get involved in the RBG culture!”

— Ian Sharp
    Master’s Student, University of Memphis

Q: What have you learned so far during your time at RBG?

A: “Auditing is very different from the classroom. In the classroom, you’re only rewarded when you get something right. However, in the real world, much of what you do is learned by asking questions and through trial & error.”

Q: What has been your favorite part about interning at RBG?

A: “The collaborative aspect! Because I’m introverted, reaching out to clients, meeting new people, and getting to try new things is easily what I value the most out of my internship.”

Q: Based on your experience, what’s the biggest piece of advice you’d give to a future intern?

A: “RBG is filled with nice people, so if you do run into something you don’t understand, just ask! As long as you are willing to learn, they will teach you.”

— Lucas Hayden
    Master’s Student, Christian Brothers University

Q: What have you learned so far during your time at RBG?

A: “I’ve gained valuable experience in setting up operations for the CAAS department through collaboration with IT. This allowed me the autonomy to implement robust data security measures like KeePass, safeguarding our clients’ sensitive information. My skills now include payroll management, e-filing of 1099s, business tax e-filing, and annual report creation. Additionally, I’ve honed my ability to conduct loan reviews and prepare tax workpapers, along with filing 1040s and 1041s. I’ve also acquired proficiency in various software applications such as Engagement, Return Manager, Client Write-Up, Document, and Yearli.”

Q: What has been your favorite part about interning at RBG?

A: “The opportunity to experience all 3 departments (CAAS, Audit, Tax). My internship with RBG gave me the opportunity to improve my cognitive ability in the profession before deciding where my career would start as a full-time employee. Each department has diversified my intellectual portfolio. In addition to this, I appreciated the level of understanding everyone had when it came to me balancing grad school and working hours.”

Q: Based on your experience, what’s the biggest piece of advice you’d give to a future intern?

A: “Make connections your first day on the job. Interacting with all colleagues (not just in your department) could open a door of opportunities for learning and mentorship. I also recommend that you not be afraid to ask questions and keep a notebook at all times to write down the responses. This notebook will be extremely helpful down the line when you need refreshers.”

— Martina Jones
    Master’s Student , Rhodes College

Q: What have you learned so far during your time at RBG?

A: “I have learned how to use tax forms before even having any of the classes. I’ve also learned how to work in an environment like RBG.”

Q: What has been your favorite part about interning at RBG?

A: “The exciting events, the kindness of the community, and the understanding of those working around you.”

Q: Based on your experience, what’s the biggest piece of advice you’d give to a future intern?

A: “When you come work at RBG, make sure you go to the events and just talk to everybody, they are all very kind.”

— Carson Young
    Sophomore , University of Memphis