TIME Scams

The New Way Scammers Are Fleecing America

Sending Text Message On Mobile Phone Nokia 3310
Alamy Seemed like a smart phone at the time.

That call you got probably isn't actually from the IRS

The FTC released its annual list of the top consumer complaints, and while there are some perennial gripes therein, there are also some new things consumers should watch out for.

Among the more than 2.5 million complaints, not including do-not-call complaints, identity theft once again takes the top spot—a position it’s held for 15 years running now. In 2014, 13% of the complaints the fielded by the FTC, state and federal agencies, consumer protection and other non-governmental groups pertained to identity theft.

Right behind it, debt collection complaints held onto the number two spot with 11% of the complaints, but a new entrant entered the third spot: so-called “impostor” scams.

Impostor scams are when someone calls and pretends to be from a government agency or other authority, usually the IRS, but not always. These scams often revolve around tax-related topics. The FTC says complaints about fake “IRS” agents was almost 24 times higher last year than in 2013.

“IRS employees won’t call out of the blue and threaten to have you arrested or demand specific methods of payment,” says Jessica Rich, director of the FTC’s Bureau of Consumer Protection. If the real IRS needs to get ahold of you about a tax bill, they know where you live — they’ll do it by mail.

Military personnel appear to be at a higher risk for impostor scams. While it was the third most common complaint overall last year, it was the second-highest complaint for military consumers.

“Whether it’s pretending to be the IRS during tax season, or making false promises of a lottery win, scammers are increasingly sophisticated in their efforts to deceive consumers,” Rich says.

Members of the military also seem to be targeted to a greater degree by shady educational outfits: Although complaints related to education were pretty far down the list among the general population, they ranked seventh-highest among members of the military.

Where you live also makes a difference in the likelihood that you’ll be targeted by scammers. The FTC says the most identity theft complaints come from Florida, Washington and Oregon, while the most fraud complaints come from Florida (again), Georgia and Nevada.

Nationwide, more than half of fraud complaints originate with a scammer calling the victim; about a quarter of the contacts are initiated by email. Fraud pertaining to government documents or benefits was the most common kind, making up almost 40% of complaints. Prepaid cards and wire transfers were the most common ways scammers separated victims from their money.

MONEY Taxes

How to Get Free Tax Help When the IRS Won’t Answer Your Call

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iStock

Budget cuts have made getting through to the agency by phone tougher than ever. Here's where else to turn.

Excruciatingly long holds on the Internal Revenue Service’s help line this year mean that taxpayers need to find better ways to get their questions answered.

The problems start with the fact that the IRS has cut nearly 12,000 positions as its budget has fallen by an inflation-adjusted 17% since 2010.

New health insurance requirements are also creating more paperwork. People with health coverage through their employers or other groups will just have to check a box, but those with coverage through Affordable Care Act insurance exchanges, or who are applying for an exemption, will have to submit more forms.

In addition, the IRS changed the rules on how repairs to tangible property are treated, requiring accounting changes for businesses, including landlords, that own real estate and equipment.

As there will likely be a last-minute crush of work for professionals as affected taxpayers belatedly learn about the changes, it’s best to start as early as possible, says Melanie Lauridsen, tax technical manager for the American Institute of Certified Public Accountants.

The National Taxpayer Advocate earlier this year predicted that about half of all hotline calls wouldn’t be answered and average wait times would stretch beyond 30 minutes.

Compare that to fiscal year 2004, when the IRS answered 87% of calls with average wait times of less than three minutes.

Tax professionals, who have their own dedicated hotline with the IRS, aren’t being spared either. One CPA recently spent two hours and nine minutes on hold before his call to the tax practioner’s hotline was answered, and his experience isn’t unusual, said AICPA’s Lauridsen.

“It’s going to be a horrible filing season for everyone,” she said. “As we’re getting deeper into the filing season, the wait times are getting worse.”

And taxpayers who get through to the IRS have no guarantees their question will be answered, Lauridsen added. This year helpline staff are limiting their answers to “basic” tax law inquiries, and won’t answer any tax law questions at all after the filing season ends.

Some free alternatives to the helpline exist, including:

1. The IRS website. Not only does the IRS site have every form and publication you’re likely to need, but the site also handles some of the most common tasks, including paying your tax bill, setting up a payment plan, getting a transcript of your return, and checking on the status of your refund (which you also can do with the agency’s mobile app, IRS2Go). The site features an interactive tax assistant, which uses an interview format to answer some of the most common preparation and filing questions.

2. Walk-in centers. You can make an appointment to get free face-to-face help at one of the Taxpayer Assistance Centers. As with the IRS helpline, only basic tax law questions will be answered and only until April 15. The centers no longer will help you prepare a tax return.

3. Tax software. The IRS’ Free File program allows people with incomes under $60,000 to use popular tax preparation software such as H&R Block, TaxAct and TurboTax for free.

The programs offer an interview format and built-in error checkers that catch math and other common mistakes.

4. Volunteer sites. The AARP Foundation’s 35,000 Tax-Aide volunteers helped 2.6 million people file their returns last year, said Dorothy Howe, the program’s assistant national director. The program is designed to help low- to moderate-income people, but there’s no age limit, Howe said.

“Even though this is being offered by AARP, you don’t have to be over 50 and you don’t have to be retired,” Howe said.

What you do have to have is a relative straightforward return, Howe said. A 1040 with some itemized deductions is fine. If you’re a day trader with a ton of investments or a small business owner, you should hire a tax pro.

TIME apps

These Apps Will Make Filing Your Taxes Way Less Painful

Taxes
Jamie Grill—Getty Images Woman filing taxes online.

From planning to scanning, there’s an app for every accounting need

Let me start by saying that I am not a tax professional. But I am a professional who pays his taxes, and I highly recommend getting expert assistance in navigating the bureaucratic machinations that are the state and federal income tax systems.

Still, if you are planning on going it alone (or you want to get organized enough that your accountant doesn’t charge you a bundle), there are many ways technology can help you file your taxes. Let’s take a look:

Planning:

The best way to take the sting out of tax time is to make a plan and stick to it year-round. Online budgeting programs like Mint can continuously monitor your spending to keep you on the straight and narrow, while making it easier to pull out certain details once tax season comes around. But Learnvest, a financial planning program with a great educational element, can help you better understand your money, not just categorize it.

Where neither of these fit the bill, turn to Ask A CPA, a free app available on iOS and Android that shares answers to many questions asked by taxpayers, some common — “Are funeral costs deductible?” — and others not —“Can I deduct my ‘girlfriend’ who lives with me as a dependent?” — really.

Receipts:

Whether it’s keeping track of a year’s worth of healthcare payments or accounting for various business-related expenses, the long slog of shepherding your receipts can be a tough one to keep up. TurboTax ItsDeductible, which is available online or as an iPhone app, excels at keeping track of your charitable donations, whether they were goods or funds. Shoeboxed, as its cutesy name implies, helps get through the clutter of your favorite paper receptacle by not only providing a scan-by-mail service for your paper trail but also by collecting electronic receipts from your Gmail account. With an organization system approved by the IRS, it’s a great way to go paperless with confidence.

For people who would rather scan their own files, Neat offers a great combination of scanners, mobile apps, and software to keep your data categorized and easy to search. It also offers cloud backups, which is great in case something happens to your home or office computer. However you do it, make sure you keep track of IRS guidelines for keeping electronic records.

Filing:

Gone are the days of filling in forms with pencils (and littering your table with eraser bits). Now, programs like Intuit’s TurboTax (available in every permutation imaginable, from CDs to online interfaces to mobile apps) are the way most people make good with Uncle Sam. For people with relatively straightforward taxes, the app makes filing almost fun, with easy-to-follow questions and imagery to help guide your answers. Of course, these conveniences come at a cost, as the mobile software has a mind-boggling variety of in-app purchases available.

H&R Block 1040EZ 2014 keeps it simple and low-cost for iPhone users as well, with free-to-file federal returns and just $9.99 for state return preparation. But perhaps more valuable is the company’s free, in-person audit support for people who use their services.

Keeping Track:

Once you’ve submitted your income tax return information, be sure to download IRS2GoApp, which is available for both Android and iOS. The official smartphone app of the IRS, it can provide status updates on your refund as well as provide tax tips so you’re streamlined and ready to go next year.

TIME

Why You Won’t Be Splurging This April

We're getting responsible about that "free money" from Uncle Sam

About 80% of Americans who filed taxes got back a refund last year, averaging just under $2,800. Usually, even though it’s our money to begin with, we treat it kind of like a windfall, buying appliances, going on vacation or spending it in other fun ways.

That’s not happening this year.

According to an annual National Retail Federation survey, nearly half of Americans who plan to get a refund say they’re going to be socking part of all of it away into savings — the highest percentage ever recorded. About 40% say they’re going to pay down debt with part of all of their refund, a three-year high. Perhaps surprisingly, it’s young adults leading the charge, with 55% of those under 24 years old planning to save their refund money, the highest percentage of any age bracket.

About 13% of respondents do say they’ll use the money on a vacation, which is a high not seen since 2007’s tax season, before the recession hit. Only about 10% say they’re making a big purchase like a TV or a fridge, a slightly smaller number than last year and the lowest percentage in the survey’s history. About the same number say they’ll splurge on things like dinners out, spa treatments and new clothes.

“Americans are thinking of the future, and remaining financially secure is a big part of that,” NRF president and CEO Matthew Shay said in a release. Getting our hands on those refund checks is another part — when the survey was conducted in early February, almost a quarter of people said they’d already filed their taxes (although 15% are procrastinators who admit they’ll wait until April).

The good news, relatively speaking, is that fewer Americans are relying on their tax refunds to pay for everyday expenses. It’s still about a quarter of survey respondents, but that’s better than the 30% who said they needed that money for everyday expenses just two years ago.

Even with this year’s intention to be diligent about our tax refunds, though, Americans aren’t nearly out of the woods when it comes to the security of their savings accounts. A Bankrate.com survey published this week finds that nearly one in four Americans have more credit card debt than they do money in savings, while another 13% have no credit card debt, but no savings, either. Fewer than 60% have more savings than credit card debt, a situation Bankrate chief financial analyst Greg McBride describes in a release as “teetering on the edge of financial disaster.”

MONEY Taxes

Your Kids Are the New ID Theft Targets — Here’s How to Protect Them

child fingerpainting
Meg Fahrenbach—Getty Images

Identity theft poses a huge risk to your children's financial future, but it could make a mess of your taxes, too.

Filing your taxes should trigger a feeling of relief — it’s a huge thing you get to scratch off your to-do list — but millions of taxpayers have submitted their taxes only to have a very unpleasant experience: that their Social Security number has already been used in a tax filing. Most people discover this when attempting to file their taxes online, and they’ll instantly receive a notification from the IRS that the return has been rejected as a fraud attempt.

Instead of marking the end of your tax adventures for the year, such a notification is only the beginning of the many months it will take to correct your taxes. Risk isn’t limited to your Social Security number — if you have dependents and someone fraudulently files taxes with their Social Security numbers before you do, it will affect your return.

It happens. Identity theft among children is sometimes harder to detect, because one of the best ways to discover fraud is by checking credit reports. Your child shouldn’t have a credit report until he or she has a loan or credit card in his or her name, so parents assume there’s nothing to use as a fraud detector in the first place.

If Someone Claims Your Child as a Dependent

When you try to file your taxes, rightfully claiming your child as a dependent, you’ll likely receive a message from the IRS saying someone has already claimed the person with that Social Security number as a dependent and your return has been modified to exclude that person. That will affect the refund you receive (or how much you owe the IRS), even though you can rightfully claim the child as your dependent.

At this point, you need to do two very important things: Start the process of fixing the problem, and protect your child’s identity from further abuse.

How to Fix Your Taxes After Fraud

Jared Callister, a partner and tax attorney at Fishman Larsen Chaltraw & Zeitler in California, said the first thing you should do is contact the IRS to dispute the rejection of your dependent claim. The message from the IRS informing you of the issue should include contact information.

“Write a quick letter to that response, saying it’s your child and you want the IRS to adjust it back to what the original return said,” Callister said.

Then you need to notify the IRS of the identity theft by filling out Form 14039, Identity Theft Affidavit on behalf of your child.

“And then you’re just kind of waiting for a response from the IRS,” Callister said. “My guess is it will take about 6 months to get that resolved.”

To follow up on identity theft issues regarding taxes, you can contact the Identity Protection Specialized Unit at 1-800-908-4490 — expect to be on hold for a long time, especially if you’re calling during filing season.

How to Protect Your Kids From Further Fraud

Once someone’s Social Security number has been stolen, it can be extremely difficult to prevent abuse. Contact the credit bureaus and notify them your child’s Social Security number has been stolen, and regularly request the child’s credit reports to make sure no one is opening unauthorized accounts in his or her name.

Undetected fraud can wreck a child’s credit before he or she has had a chance to establish it, which is why it’s important to intervene early. Most parents want their children to enter adulthood with a good financial foundation, and credit is a huge part of that, so take action quickly if you sense your child’s identity has been abused.

More from Credit.com

This article originally appeared on Credit.com.

TIME Taxes

Here’s How Unlikely It Is the IRS Will Actually Audit You

But fines and jail time still await tax frauds

Here’s something the IRS probably doesn’t want you to know: Our entire tax code mostly works on the honor system. The much-feared agency only audited 0.86% of individual tax returns in 2014, the lowest percentage since 2004, Bloomberg reports. Among households with incomes greater than $1 million, 7.5% were audited.

The auditing rate is falling because the IRS is bleeding employees. By 2014, the number of revenue agents had declined 16% from its 2010 peak, to 11,629. It’s a trend that IRS Commissioner John Koskinen called “deeply disturbing” in a Tuesday speech.

At its peak efficiency, the IRS was auditing about 1.11% of individual returns back in 2011. Even if those figures seem small, getting caught committing tax fraud can result in heavy fines or jail time—which seems to be enough to keep most citizens honest.

[Bloomberg]

MONEY Ask the Expert

How to Turn Your Tax Loss Into a Gain

Investing illustration
Robert A. Di Ieso, Jr.

Q: I have a substantial amount of tax-loss carry forwards, but all of my net worth is now in tax-deferred accounts, such as my 401(k). I am 68 years old and don’t expect any large capital gains to offset these losses. Is there any way to recover these losses before I die?

A: The silver lining of investment losses is that you can use them to offset future capital gains—and you can carry them forward indefinitely. In other words, if you lose $10,000 on a stock in a taxable account, you can sell other stocks at a $10,000 gain and not owe taxes, even if those gains come years down the road. (Remember that to claim any loss you need to have actually sold the dud investment, and of course you’ll need to fill out the proper IRS paperwork to get that loss on record.)

Unfortunately, as you noted, these losses aren’t as useful if most of your savings is in tax-sheltered retirement vehicles, which aren’t subject to capital gains taxes. “Anything you take out of a 401(k) or other tax-deferred vehicle is taxed as ordinary income,” says Barbara Steinmetz, a certified financial planner and enrolled agent in San Mateo, Calif.

Uncle Sam does offer some consolation. Each year, you can use up to $3,000 of your losses to offset your ordinary income, says Steinmetz. But you need to first use your losses against any capital gains that year.

Moreover, upon death, your spouse effectively inherits those losses. A spouse can then use those losses to offset capital gains or, if there are no gains or excess losses, up to $3,000 a year against ordinary income. Once your spouse passes away, however, those losses are gone.

If you sell your home and make more than $250,000 on the sale ($500,000 if you’re married) you can apply your carry-forward losses toward any gains above those exclusion limits, says Steinmetz.

Likewise, you could open a taxable brokerage account knowing that you’ve banked some losses toward future appreciation and harvest your winners from there. But whatever you do, don’t let the proverbial tax tail wag the dog. Better to forgo the write off than make bad investment choices.

MONEY Taxes

The IRS Could Audit You for Doing This

Here are some things Uncle Sam might consider red flags.

Fewer than 1% of U.S. taxpayers are audited by the IRS each year. However, some things can dramatically increase your chances of being audited. Here are three things our experts say can make your tax return catch the IRS’ attention.

1) Claiming unusual deductions.

You generally needn’t worry about an IRS tax audit unless you’re trying to pull a fast one on Uncle Sam. That said, a return that is unusual in any way could draw attention from the agency. The IRS processes so many tax returns that it knows what to expect from all kinds of people and situations. It knows, for example, the typical range of charitable contributions for people at every income level. If your reported generosity in a given year is far above the norm, that can be a red flag that prompts the IRS to take a closer look. If you’re being honest on your return and you really did donate what you said, then an audit will be a simple matter of your providing records and the IRS’ closing the case.

Other unusual deductions can also raise eyebrows, such as mortgage interest deductions that seem too large. Another example: If you’re self-employed and claim outsized deductions for business meals and entertainment, the IRS might want to see your receipts.

Even having a high income can trigger an audit. The IRS audits those earning more than $200,000 per year more than three times as often as those earning less than $200,000. It also knows what people in various occupations tend to earn, so if your income as a high school teacher or nurse is much higher than the norm, the IRS might want a closer look.

You might not be able to avoid being audited one day, but you can make the process easier by keeping good records of your inflows and outflows, as well as any financial events that appear on your return in some way. — Selena Maranjian

2) Contradicting your ex-spouse.

One area where the IRS has ramped up enforcement activity involves alimony payments between divorced spouses. Under current law, alimony payments are deductible by the person making the payment, while the other person must declare that money received as taxable income. Yet because there are no specific 1099 reporting requirements, the only information the IRS has to go on is the two regular tax forms from the divorced spouses. If they’re inconsistent, then the IRS has grounds for an audit.

It’s important for divorced spouses to realize that not all payments they make or receive are alimony. Money for child support, property settlements, and voluntary payments between former spouses don’t qualify as alimony, so they’re not deductible by the payer or included in the income of the person who receives them. In general, if nothing says a payment isn’t alimony, then it will be treated as such, and the deduction and income rules will apply. Ideally, your divorce decree will include a breakdown of any payments between spouses and whether they’re considered alimony, but it’s still a confusing area that can draw IRS scrutiny if you don’t stick to the rules. — Dan Caplinger

3) Abusing business deductions.

One big red flag is reporting excessive business deductions or reporting an operating loss for a business, which leads to no income tax liability. These claims can indeed be legitimate — after all, many businesses lose money — but they dramatically increase the risk of an audit.

One particular deduction that’s abused by self-employed individuals (and therefore catches the attention of the IRS) is the home-office deduction. In order to claim this, a portion of your house must be used exclusively for the purpose of conducting your business. A computer workstation in the corner of your family room doesn’t count, so don’t even try it.

Many other business deductions are also abused frequently. For example, some people try to deduct family vacations as “business travel,” business clothing as “uniforms,” or their personal vehicle as a company car. Before you get creative with your business deductions, consider that the odds that your return will be audited triple if you submit a “Schedule C” to claim business income and expenses, and they increase almost tenfold if your business income is over $100,000.

By all means, claim every single legitimate tax deduction and credit to which you are entitled. Then you should have nothing to worry about, even if you are audited. Just make sure you can back up everything you claim. — Matt Frankel

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

MONEY Taxes

You Just Got a Break If You Messed Up Your Obamacare Tax Credit

The IRS will give you more time to pay back any excess premium subsidies when you file your taxes.

Consumers who received too much in federal tax credits when buying insurance on the health law’s marketplaces last year got a reprieve of sorts from the Internal Revenue Service this week. Although they still have to repay some or all of the excess subsidies, the IRS won’t ding them with a late payment penalty if they don’t repay it by the April 15 tax deadline.

“They’re trying to make this work,” says Timothy Jost, a law professor at Washington and Lee University who’s an expert on the health law.

Under the law, people with incomes between 100% and 400% of the federal poverty level ($11,670 to $46,680 for an individual in 2014) who did not have insurance through their job could qualify for tax credits to make premiums more affordable. They could elect to have these subsidies paid in advance directly to the insurance company, and many did. A typical tax credit was about $3,000 annually.

The amount people received was based on an estimate of their 2014 income. At tax time, that amount has to be reconciled against consumers’ actual income on IRS Form 8962. If consumers or the marketplace underestimated their 2014 income, they may have received too much in tax credits and have to pay back some or all of it.

How much people have to repay is based on their income and is capped at $2,500. People with incomes over 400 percent of the poverty line have to repay the entire amount, however.

This penalty reprieve only applies to the 2014 tax year. The IRS will allow people to repay what they owe on an installment basis. But be forewarned: Interest will continue to accrue until the balance is paid off.

MONEY Taxes

Where to Get Free Tax-Prep Help

American flag graphic on laptop computer key
Pgiam—Getty Images

Use a free program from the IRS to get a jump on tax season.

The IRS Free File program is now open, giving the 70% of Americans with adjusted gross incomes of $60,000 or less free access to federal tax preparation and e-filing software from 14 different tax-prep companies.

Available on irs.gov, Free File provides links to software that can help guide you through preparing and filing the most commonly used tax forms. The site also has an online tool to help you determine which software is the best fit for you and a guide for filing new forms required by the Affordable Care Act. Some of the programs also offer assistance for filing state taxes, but fees may apply.

The IRS will begin accepting electronically filed returns on January 20, but you may not be ready that soon. By law your employer has until the end of January to send your W-2 form, which spells out how much you earned and how much you had withheld in taxes.

If you make more than $60,000 and feel comfortable doing your own taxes, you can use Free File fillable forms starting on January 20.

When combined with direct deposit, electronic filing is the fastest way to get your refund. Considering this year’s tax season is expected to be exceptionally frustrating for taxpayers, with long wait times when calling the IRS, getting a jump on the process might not be a bad idea. If you tend to be a procrastinator, remember the filing deadline for federal taxes is, as usual, April 15. That’s a Wednesday this year.

 

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