What To Do When the IRS Garnishes Your Wages

How can the IRS garnish your wages?

Fail to pay a regular debt, and your run-of-the-mill creditors will have to obtain a court order from a judge to collect their money directly from your wages, which could take months and cost hundreds if not thousands of dollars in legal fees. Not so with the IRS. The IRS is a super creditor, and one of its superpowers is that it doesn’t have to bother with court orders to garnish your wages.

When you owe taxes, the IRS sends a bill. Fail to pay it and they’ll send another bill, which will include any penalties and interest accrued since the previous bill. Insist in not paying and the IRS will start collection actions. These actions include garnishing tax refunds (another superpower only the IRS has), levying bank accounts, seizing houses, and/or the IRS garnishing wages. If you have to stiff a creditor, you may want to avoid doing it to the IRS.

So what should you do if the IRS garnishes your wages?

You Can Lawyer Up

If you don’t agree with the amount you owe the IRS, collect any evidence that supports your claim, such as tax returns, canceled checks, or other documents that show why the amount on the bill is wrong or has already been paid. Hire a lawyer. Those who can’t afford a lawyer should contact the IRS Taxpayer Advocate Service or call your local Low Income Taxpayer Clinic.

Or Just Pay Up

If you agree with the amount the IRS claims you owe but can’t afford to pay it, pay as much as you can. Consider getting a loan, a cash advance or using a credit card to pay it in full. The combination of penalties and interest charged by the IRS can be much higher than the cost of a regular loan.

The first step is to contact the IRS and check whether you actually owe the tax.

How to find out if you owe the IRS

Audit Reconsideration

For instance, it is possible you forgot or failed to respond to a previous IRS notice and the IRS may have assessed your tax liability based on incorrect assumptions. If so, request the IRS to reconsider the assessment.

Innocent Spouse Relief

The IRS may be charging you for taxes owed on your spouse’s income. Generally, spouses are responsible for the full amount owed on a joint tax return, but you may qualify for innocent spouse relief if the taxes are based on “mistakes” or “omissions” on your spouse’s income.

Identity Theft

If the deduction from your paycheck was the first you heard about your tax debt, call the IRS immediately. You could be the victim of identity theft. Call the number on the wage garnishment notice or 1-800-973-0424.

IRS Collection Alternatives

If you agree with the amount owed but the wage garnishment will impose too much of a hardship, call the IRS and ask for a levy release. This won’t get rid of the debt, but it will give you some breathing time while the IRS assesses alternative payment methods.

The IRS offers three main alternatives to a wage garnishment:

How to stop a wage garnishment

Enter into a monthly installment agreement

Taxpayers who owe $50,000 or less in taxes, can apply online to set up a payment agreement. How much you pay every month will depend on your income and living expenses. Paying a monthly installment through an employer comes with a one-time $120 fee; while using a direct debit agreement has a $52 fee.

Request an Offer in Compromise

An offer in compromise is the most attractive option because it means you only pay cents on the dollar of your tax debt. However, the IRS only agrees to an offer in compromise in cases when a taxpayer is unlikely to be able to pay the full amount in a reasonable period. You have to be in pretty bad financial shape to qualify.

Qualify as “Currently not Collectible

This option sounds better than it actually is. The IRS will temporarily pause the collection process on taxpayers who are currently unable to pay their debt but who the IRS considers are likely to be able to pay it in the future. Unfortunately, penalties and interest will continue to accrue on the debt, so this method is not a long-term solution.

Bankruptcy and Wage Garnishment

When it comes to getting rid of debt, bankruptcy is the nuclear option. In many cases, bankruptcy wipes out debt and permanently stops the garnishments it triggered. Unfortunately, bankruptcy also has a terrible effect on your credit. In the case of back taxes though, bankruptcy only offers a temporary stay. Once the bankruptcy case is over, you will still owe the taxes. This is another of the IRS’s superpowers.

Another Garnishment Could Cost You Your Job

Besides the obvious financial hardship, an IRS wage garnishment could also jeopardize your job. Some employers consider a wage garnishment as a stain on their worker’s character and may rethink their eligibility for a position, particularly if they have oversight over money or other valuables. Executing wage garnishments also creates additional work and expense for employers.

The Consumer Credit Protection Act prohibits an employer from firing you because of wage garnishments on a single debt. If an employer does fire you because of a wage garnishment, they may have to pay a $1,000 fine, face up to one year of incarceration, or both.

However, the Act does not protect workers who have wage garnishments on two or more debts. So, if you already have a wage garnishment with the IRS and you get hit with another wage garnishment, it could cost you your job.

Stop Garnishment-Talk to the IRS

Wage garnishments are usually reserved for taxpayers who have ignored a couple of overdue tax bills and the IRS’s Final Notice of Intent to Levy. In other words, you can usually stop a wage garnishment just by talking to the IRS and arranging for an alternative method of payment. Although you can deal with the IRS directly, you should talk to tax lawyer, CPA or enrolled agent whenever you have problems with the IRS. IRS procedures are purposefully complex, so contact Optima Tax Relief to work through the jargon for you.

The IRS doesn’t have your best interests at heart. Its purpose is to collect as much revenue as fast as it’s legally possible. That may be great for the nation as a whole but not so great for your bank account. Optima Tax Relief is here to get you compliant and out of collections with the IRS.

Live Here, Work There. Where do I pay state income taxes?

After weeks or months of job seeking, you land the position of your dreams–but the job is in a different state. The location of the job is close enough so that you can commute every day rather than move, but you are still faced with the dilemma of where and how to pay state income taxes. Here’s what you should know if you live in one state but work in another.

Where do I pay state income taxes?

The easy rule is that you must pay non-resident income taxes for the state in which you work and resident income taxes for the state in which you live, while filing income tax returns for both states.

However, this general rule has several exceptions. One exception occurs when one state does not impose income taxes. The other exception occurs when a reciprocal agreement exists between the two states.

States with No State Income Tax

There are currently seven states in the USA that have no state income tax:

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Texas
  • Washington
  • Wyoming

Two more states: New Hampshire and Tennessee tax only dividend and interest income. If you work in one of these nine states but live in one of the 41 states (plus the District of Columbia) that do impose state income taxes, you will generally pay only resident state income taxes for the state where you live. Similarly, if you live in one of these nine states but work in a state that imposes state income tax, you would only pay nonresident taxes for the state where you work.

For instance, if you live in Bristol, Virginia but work in Bristol, Tennessee, you would pay Virginia resident state income taxes. Likewise, if you worked in Bristol, Virginia and lived in Bristol, Tennessee, you would pay Virginia nonresident state income taxes. Though in both cases you would only file a single state income tax return.

States with Reciprocal Tax Agreements

What if you live in Milwaukee but you commute every day by Amtrak to Chicago? It just so happens that Wisconsin and Illinois share what is known as a reciprocal tax agreement. Reciprocal agreements allow residents of one state to work in other neighboring states without having to file nonresident state tax returns in that state they work. As a result, your employer would deduct only Wisconsin state taxes from your paycheck, and none for Illinois. Likewise, if you live in Chicago but work in Wisconsin, your employer would only deduct Illinois resident state income taxes from your paycheck. In both instances, you would only be required to file one state income tax return.

States without Reciprocal Tax Agreements

If you are unlucky enough to work across state lines in a state with no reciprocal agreement with your resident state, (for instance, Illinois and Indiana), then you will need to file income tax returns for both states. However, you should also be able to claim a credit on your resident state income tax return for the state income tax that you paid for the nonresident state. The result is that you actually pay taxes for one state, even though you must deal with the hassle of filing returns in both states.

Please note that reciprocity is not automatic. You must file request with your employer to deduct income taxes based on your state of residence rather than where you work. Unless you make a formal request, with your employer, you will continue to be taxed by both states and you will continue to be obliged to file two state income tax returns.

Filing Multi-State Income Tax Returns

Many people who are faced with the dilemma of working in one state and living in another, meaning they need to file a nonresident state tax return. People living and working in two different states often delegate the task of filing state income tax returns to an accountant or to a tax attorney. Still, know that many online and home-based tax preparation software programs include state income tax forms with detailed instructions on how to fill multi-state tax returns. If your tax situation is otherwise straightforward, you can save yourself a considerable amount of money by using a software program that includes both state and federal income tax forms and filing your own income tax returns.

If your career move was international there are other tax considerations, you should be aware of. Read our article on reporting foreign income to learn about your tax obligations when working overseas.

IRS Fresh Start Program: How It Can Help with Your Tax Problems

The IRS Fresh Start Program Initiative, first announced, February, 2011, has had one goal: to make it easier for individuals and businesses to pay their back taxes and penalties. The Initiative has been expanded since then, but still holds true to its original purpose. How exactly will it affect you if you’re struggling to pay taxes? Here are the four components that Fresh Start Program has changed for your benefit.

What Is the IRS Fresh Start Program?

The IRS Fresh Start Program is a tax relief program that is designed to allow taxpayers to pay off substantial tax debts affordably over time.

Back in the bad old days, the image of the IRS was one of intimidation. Whether deliberately cultivated or not, the IRS did little to dispel this perception. In recent years, the IRS has sought to reboot the way it interacts with taxpayers, with agents receiving training and instruction in how to assist taxpayers who are in arrears rather than torment them. The IRS Fresh Start program combines penalty relief, installment payments; lien releases and a program known as Offer in Compromise that allows some taxpayers to settle their federal tax debts for less than what they actually owe.

How the IRS Fresh Start Program help waive Tax penalties

Originally, when paying and filing your taxes, missing the tax filing deadline meant immediate interest charges and penalties. But with the Fresh Start Initiative, qualifying unemployed taxpayers can apply to have Failure-to-Pay penalties waived for six months. This means that individuals have until October 15th, 2020 to pay their 2019 taxes.

How do you qualify for the IRS Fresh Start Program?

To qualify for the Fresh Start Program, you must:

  • Have been unemployed or seen a decrease in income
  • Earn less than $100,000 a year individually
  • Earn less than $200,000 a year as a couple
  • Not have a large tax balance from the previous tax year
  • The IRS Fresh Start Tax Relief program was launched in 2012 to help taxpayers who were struggling from the effects of the ongoing financial crisis. The first aspect of the program provided some unemployed taxpayers with exemption from the failure-to-pay penalty. Under this initial slice of the Fresh Start Initiative, taxpayers received a six-month reprieve from penalties on taxes owed for their 2011 federal tax returns. Although interest was still applied to any unpaid taxes, penalties were suspended from April 17 to October 15, 2012.

    Easy Installment Agreements

    The IRS Fresh Start Program also raised the maximum tax owed for taxpayers from $25,000 to $50,000 to qualify for streamlined repayment plans. Under the streamlined installment payment agreement program, taxpayers may establish payment plans online through the Online Payment Agreement page located on the IRS website. Taxpayers who owe more than $50,000 may still establish installment agreements but must either file a Collection Information Statement (Form 433-A or Form 433-F) or make sufficient payments against their past-due tax balance to bring the total tax owed below the $50,000 threshold.

    How To Withdraw Notice Of Federal Tax Lien

    The Fresh Start Initiative raises the minimum threshold for filing an IRS Notice of Federal Tax Lien on taxes owed from $5,000 to $10,000. The new standard is not retroactive, and the IRS may still impose liens against taxpayers who owe less than $10,000 when the agency deems that circumstances warrant doing so. To request that the IRS withdraw the Notice of Federal Tax Lien against liens that have been released, taxpayers must file Form 12777 – Application for Withdrawal, available on the IRS website. When citing a reason for the request, taxpayers should check the last box which states “the taxpayer, or the Taxpayer Advocate acting on behalf of the taxpayer, believes withdrawal is in the best interest of the taxpayer and the government.”

    How To Make use of ‘Offer in Compromise’ and settle for less Tax

    An Offer in Compromise, according to the IRS Fresh Start Program allows taxpayers to settle their obligations to the IRS for less than the total amount owed. The IRS only allows taxpayers to obtain relief under the Offer in Compromise program in circumstances where requiring repaying the full back taxes owed would constitute an undue burden or in cases where taxpayers demonstrate that they will be unlikely ever to be able to pay the full amount owed. Traditionally, the IRS has been stingy about accepting Offer in Compromise proposals from taxpayers; as a result, very few taxpayers were able to qualify for the program.

    The IRS Fresh Start Initiative has established more flexible standards in evaluating the financial standpoint of taxpayers who request relief under an Offer in Compromise. As a result, more taxpayers may qualify. To be eligible for this IRS tax relief program under the Offer in Compromise program for grounds other than Doubt as to Liability, taxpayers must meet all of the following conditions.

    Requirements to qualify for the Offer In Compromise program:

    • Cannot have an open personal or business bankruptcy petition
    • All required tax forms must have been filed
    • All required tax payments for the current year must be paid
    • Business owners with employees must have made current quarterly tax payments

    An Offer in Compromise may be either for a single lump-sum payment or for installment payments. To request an Offer in Compromise, taxpayers must submit Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses along with either $205 to cover the application fee and either a payment of 20 percent of the proposed lump-sum payment or an amount equal to the first proposed monthly installment payment. Individuals and sole proprietors who qualify under Low Income Certification guidelines set by the IRS are exempted from paying the application fee.

    New Installment Guidelines according to Fresh Start Program

    Installment agreements allow a person to make monthly payments on their tax debt if they can’t afford to pay the total at once, and/or aren’t eligible for an Offer in Compromise. In the past, once an individual’s tax balance reached $25,000, the IRS began conducting a financial analysis of the person’s income and expenses to determine how much the taxpayer would pay per month. Additionally, a Notice of Federal Tax Liens was filed.

    Under Fresh Start, more taxpayers will be able to avoid this invasive process altogether, as the tax balance threshold has been raised to $50,000. At that point, once the installment agreement process is started, you’ll now have six years to pay the debt off. If you are considering entering an installment agreement, let us know and we’ll make sure you qualify.

    Notice of Federal Tax Liens and the Fresh Start Program

    If an individual fails to pay their tax debt the government can file a claim against that person’s property with a federal tax lien. “Property” includes everything an individual owns, including real estate, vehicles and financial assets. The Notice of Federal Tax Lien alerts creditors that the government has a legal right to a taxpayer’s property. This may limit your ability to get credit.

    Similar to installment agreements, FSI has raised the Notice of Federal Tax Lien filing threshold to $10,000 from $5,000. The IRS might still choose to file at an amount less than $10,000, but it’s not as automatic as before.

    How the IRS Fresh Start Program can help with your Tax problems

    While none of these alternatives represents an easy tax solution, each of them does provide a viable avenue for tax relief. If you have been struggling to pay your federal income tax burden, investigating possible assistance under the IRS Fresh Start Tax Relief program is definitely worth your while, either on your own or with the assistance of a tax professional. You may find that your overall tax burden is significantly reduced.

    Wondering if you’re eligible for the Fresh Start program? Give us a call.

    Do you need tax relief help? If you’re struggling with paying your taxes, don’t know how to fill out an Offer in Compromise or don’t know which forms to file, contact us today. We’ll help you take advantage of the Fresh Start Initiative, and deal with the IRS so you don’t have to.

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    How To Prepare For A Tax Audit

    So, you’ve done your taxes and alas, the IRS has sent you a letter that you are being audited. The walls are caving in, you’re having panic attacks, and can’t possibly fathom what are you going to do. Take a deep breath and read this article on how to prepare for a tax audit. Rest assured that you don’t need to be nervous. IRS audits are just trying to figure out if incomes and figures add up right; it simply inquires of your tax return. The IRS its self says that an audit is,” to determine if income, expenses, and credits are being reported accurately.” Follow these steps and be prepared.

    How do I handle an IRS audit?

    The first step to handling an IRS audit is reading and acknowledging the notification letter. Don’t ignore the IRS letter, even though it might seem easier and tempting to ignore bad news. Read it, read slow, and read it one more time.

    Check the letter is legitimate and actually notifying you of an audit. An IRS audit letter will come to you by certified mail, it will include personal information such as name, taxpayer ID, form number, employee ID number. Just because you receive a letter from the IRS doesn’t automatically mean you’re being audited.

    Read which year in question they are auditing, and what documents specifically the IRS are asking for. Prepare all the necessary returns and explanations for the representatives.

    Types of IRS Audits

    There are different types of IRS tax audits. These are:

    • Correspondence Audit
    • Office Audit/In-person Audit
    • Field Audit
    • Taxpayer Compliance Measurement Program Audit

    Preparing for an in-person audit

    There are steps you can take when preparing for an in-person interview. This is an interview where you physically have to be in the IRS office and speak with IRS employees. The IRS may question abnormally high deductions, and ask to see proof.

    Carefully prepare for this office audit by gathering the necessary returns and explanations that were requested in your IRS letter.

    Once in this audit, don’t say more than what is asked. Do not offer up any extra documents other than what you were asked to bring. The less you say the better, because saying more leads to more questions.

    It is important to know that you do have the right to have an attorney present if you feel that it is needed.

    Preparing for a correspondence audit

    A correspondence audit, also known as a mailed in audit, is usually just the IRS requesting additional information relating to your tax return, such as receipts or canceled checks. In many cases this audit is just asking you about a simple mistake that you can correct by mailing in all the correct documents. If you’ve read your letter carefully and provided the correct documents, then these audits can be simply resolved.

    Preparing for a field audit

    The last type of IRS audit is a field audit, where the IRS may actually come to your home or to your job. This can be scary but remember to breathe and don’t offer information if you aren’t fully prepared. Remember if you feel that you need an attorney or tax professional you can request to have the audit done in their office.

    Tips for preparing for an IRS audit

    Understand the issue

    To better prepare yourself for any of these types of tax audit, read up on the tax laws that are specific to the problem. Knowing this information will better prepare you for questions asked by the auditor and leave them more satisfied with your answers.

    Be polite & honest

    When being questioned be polite and courteous and answer each question truthfully. It is not wise to lie to the IRS.

    Gather the right documentation

    Make sure that all the documents presented are accurate, clear, and on time. Be sure you have all the documents at the auditing. If you have all the correct information the auditing process will run much smoother.

    Request more time

    If you feel that you need more time to prepare for the audit you can request it. Don’t hesitate to let the IRS know. You can go on their website and request more time to prepare.

    What Happens After an IRS Audit is Done?

    Once all the auditing is wrapped up you will receive an examination report, which is wise to look over carefully for anything that might confuse you. Don’t hesitate to call the IRS and ask about anything you need to clarify. If you disagree with a finding let them know, so that you and the auditor can come to a compromise.

    If you follow these tips then the audit process will be a breeze, or at least a little easier to handle.

    Avoid tax burdens with Optima Tax Relief. Read more about the benefits of working with a tax relief company.

    You can learn more about the different types of IRS audits and What Happens in an IRS audit in our dedicated blog post.

    When Filling Your 1099 Avoid These Common Pitfalls

    Every year around tax filing time as the deadline draws closer many employees scramble to file their taxes, however many seem to make the simplest mistakes that may end up costing them in the end. Some even meet the unfortunate fate of having Uncle Sam knock on their door or more realistically come to the mail to open an audit notification from the IRS.

    What is a 1099 form?

    For those that don’t know, 1099 forms are for people who are self-employed, have stocks dividends, capital gain distribution, or are receiving unemployment benefits. They are given to the employee from the company who has made them an independent contractor and pays them over $600 for their services. The company has a copy, and they send you the form to fill out as well. Before filing your 1099, here are a few tips that can help 1099 employees avoid these common pitfalls.

    What are the Different Types of 1099s?

    To not be confused there are several types of 1099 forms to file. They all can be found at the IRS website. Don’t file the wrong one or you will get fined from the IRS.

    1099-DIV

    The 1099-DIV is for those who need to report stocks and dividend as well as capital gain distributions.

    1099-MISC

    The1099-MISC is for those who are independent contractors or collect real estate disbursements or tips. It is also the one form you will fill out if you are considered an employee.

    1099-INT

    The 1099-INT is used to report interest income, and several other variations of the form.

    How do You File Taxes with a 1099?

    Need to file your taxes with a 1099? Follow these tips to help you.

    1. Make sure the information is accurate. Report your income that you make right. Not only do you have a copy of your 1099, but the company, and the IRS have the copy that the company has sent them. So whether you report the correct information or not, the IRS already knows what it should be, if you report less than earned income they will tax you, add on interest to the tax you owe, and probably audit you.

    2. Always, always, always file the W-9. People seem to always make this common mistake, but you must fill it out correctly if you are hired as an independent contractor. If you made more than $600 from the contractor, you must report it.

    3. The 1099 form is not a tax return but rather valuable information that the IRS needs. You still need to file you 1040 and input the information where designated from your 1099.

    4. Be extra careful when filling out your 1099 that you have the right account number, especially if you have to file multiple 1099-MISCs. Just like filing your regular tax returns, remember to sign and date all your pages. Include the right social security number and if needed, always have a professional look over your form or use a tax software.

    Still need some assistance? Consider working with a tax relief company. Unsure if you should work with a tax preparer? Learn more about the tax preparers and how you can avoid getting scammed here.

    Medical Identity Fraud – A Risk to Your Health and Wealth

    Imagine this scenario: you’re sitting in a doctor’s office with a long-lasting fever after your camping trip. Because it may be an infection from a tick bite, the doctor decides to give you an antibiotic shot. She glances at your records, swabs your arm with alcohol, picks up the syringe and says “this little dose of penicillin should help…” and you interrupt: “wait, I’m allergic to penicillin.” “But, that’s not what your records say… we gave you penicillin last time you were here.”

    Frightening? Yes. Impossible? Not at all.

    Medical identity theft is on the rise and it can not only have crippling effects on your finances but can seriously put your health in jeopardy.

    The Medical Identity Fraud Alliance, a group of concerned corporate and non-profit partners,  speculate that over 2 million Americans were put at risk of medical identity theft in 2014, a figure that leaped 22% from previous research. This doesn’t even take into account the nearly 80 million individuals affected by the Anthem data breach in 2015 – the country’s largest healthcare breach.

    Identity thieves steal personal health information (PHI) such as social security numbers and medical insurance identification numbers for two main reasons:

    • For financial gain by filing fraudulent claims to your health insurer (including Medicaid/Medicare) in order to receive a reimbursement check
    • Free medical care of high cost or elective procedures or to secure prescription medication – specifically narcotics that can be abused or sold on the black market

    Financial fraud such as a stolen credit card can be frustrating, but can be quickly resolved since it’s easier to detect, and often doesn’t have significant long-term financial impacts. Medical identity fraud, on the other hand can cost a victim $13,500 on average and be notoriously difficult to resolve.

    Because of advancement in electronic communication and collaboration in the healthcare industry, PHI is more exposed and accessible. At the same time, this doesn’t always mean that your health provider is on the same page with your insurer. PHI is rarely tracked across multiple networks and this gap can make stealing and using it feasible.

    Here are a few things you can do to minimize your risk of medical identity fraud:

    • Carefully read all correspondence from your medical provider and Health Insurance Company. Treat each line item like you might for a bank statement and ensure that each charge or claim is valid.
    • Safeguard your Social Security number and healthcare data. Make sure that when you provide it, it’s absolutely necessary. It’s always okay to ask.
    • Avoid putting medical procedures and hospital stays on social media. You never know who’s looking and this piece of data could be the last one that the thief needs to commit their crime.

    Our identity protection program provides comprehensive, proactive monitoring for several data points, including your medical information. To learn more about how we can help you minimize your risk of medical identity theft, visit https://optimatax.idprotectiononline.com/enrollment/.

     

    Deducting Your Gambling Income & Losses

    We all know the thrill of winning from gambling whether you’re an avid gambler or the occasional one. But did you know that all winnings are fully taxable? No matter how small your winnings, they must be reported on your tax return. Gambling income includes but not limited to winnings from lotteries, keno, slot machines, table games (i.e. poker, craps, roulette, blackjack, etc.), racing or sports betting, and bingo.

    Here’s where the deductions on your gambling losses come in – you may be entitled to a deduction if you had any gambling losses come tax filing season, but only up to the extent of your winnings for the year. For example, if you won $3,000 from gambling for 2016, the most you can deduct on your 2016 tax return is $3,000, no matter how much you lost. Losses must be reported on Schedule A as an Itemized Deduction, which are separate from winnings. Continue reading for important facts about claiming your gambling losses on your tax return.

    Here are 5 important facts about deducting gambling income and losses:

    • You must report the full amount or your winnings as income and claim your losses (up to the amount of your winnings) as an itemized deduction.
    • You cannot reduce your gambling winnings by your gambling losses and then report the difference.
    • Claim your gambling losses on Schedule A, Itemized Deductions, under ‘Other Miscellaneous Deductions’.
    • The IRS recommends that you keep a written documentation, like a notebook or a diary, for proof in case of an audit and to keep winnings and losses separate and organized. According to the IRS Publication 529 Miscellaneous Deductions, your notebook should contain at least the following:
      • The date and type of your specific wager or wagering activity.
      • The name and address or location of the gambling establishment.
      • The names of other persons present with you at the gambling establishment.
      • The amount(s) you won or lost.
    • According to the IRS, you should also have other documentation for additional proof through the following:
      • Form W-2G (if given), certain winnings; Form 5754, statement by person(s) receiving gambling winnings; wagering tickets; cancelled checks; substitute checks; credit records; bank withdrawals; and statements of actual winnings or payment slips provided to you by the gambling establishment.

    To keep up to date with gambling tax laws and your responsibilities as a taxpayer, please refer to the IRS Help & Resource page or consult your local CPA or tax attorney.

    Child Identity Theft

    Parents do their best to keep their children safe. They advise them to wear a helmet when biking, avoid talking to strangers, and look both ways before crossing the street. But there’s one type of danger that’s hard to avoid. A recent study indicated that up to 10% of America’s youth have potentially been targets of identity theft.

    The large majority of children under the age of 18 have blank credit profiles which make them uniquely valuable to identity thieves. There’s no credit profile established, children’s social security numbers can be paired with any name to buy cars, apply for loans, open credit cards, or procure driver’s licenses.

    What makes child identity theft particularly troubling is that it can go unnoticed for several years leaving a complete financial disaster for the child when they turn 18 and begin applying for student loans, credit cards, mobile phones, or an apartment. If the incident occurred years in the past, it can be virtually impossible to track down the criminal.

    How does this happen? Even more so than adults, children’s Social Security Numbers (SSN) are used frequently as a form of identification at schools, doctor’s offices, and any number of extracurricular activities. If a child’s SSN is easily accessible in a written file or on an unprotected computer network, it could be targeted by identity thieves. Additionally, credit bureaus do not have checks in place to verify the age on credit applications. An individual’s credit profile begins when the first application is received. If the application says 26, then the credit bureaus will assume that’s true.

    While it’s impossible to absolutely prevent identity theft, there are a number of steps that can be taken to reduce your child’s risk:

    • If your child’s Social Security Number is being requested, it’s always okay to ask why it’s needed and if it’s completely neccessary. In most cases, an alternative identification number can be created.
    • don’t carry your child’s Social Security card with you. If your wallet or purse is ever lost of stolen, this could cause some big problems for you both in the future.
    • Shred or destroy any documents with your child’s SSN, such as medical or school records. If they need to be retained, make sure they are kept in a secure location.
    • Talk to your kids about the importqance of identity security. Let them know that they should never share their phone number, address, or SSN with anyone unless there’s a parent present.
    • Keep an eye out for suspicious activity. If credit card offers are arriving at your house with your child’s name on them, it’s a good sign that something isn’t right.
    • Once a year, ensure that your child’s credit is untouched by attempting to pull a credit report from any number of free credit report sites. If your child’s credit is secure, the credit bureau will not be able to provide a report. If you do request a credit report and one is returned, you should take immediate action.

    One of the best ways to protect your child’s identity is to enroll them in our family identity protection program. You can monitor your child’s date from your own dashboard and receive an alert if any suspicious activity takes place by enrolling in Optima’s Family Protection Plan at https://optimatax.idprotectiononline.com/enrollment/.

     

     

    Summer Travel Plans? Stay Protected From Identity Theft

     

    The warm weather is finally here and with it comes the busy travel season that so many people have excitedly been anticipating. Some have been planning for months in advance, booking flights abroad and hoping to fit as many countries as they can into their itineraries.

    Be cautious of being a target for identity thieves before you start to head out on your summer adventure. Travelers are an extremely attractive target for identity thieves, especially if you’re traveling to a place you’ve never ventured to before. Any locals – or scammers! – can probably pick up on this. Many travelers also rely on public Wi-Fi to look things up pertaining to their trip. Add to this the fact that you are likely carrying around more documentation than usual, and you’ve got all the makings for a sizable bull’s eye on their back.

    An American Express Spending & Saving Tracker revealed that 8 in 10 Americans have summer travel plans, with 72% of these planning stateside escapes and 15% traveling overseas. No matter how you dice it, there’s going to be a lot of movement in the skies and on the roads in the coming summer months.

    With millions of people packing their bags and leaving their homes for adventures, retreats and getaways, there will surely be an uptick in opportunities for identity thieves this summer. Experian’s Summer Travel and Budget survey showed that identity theft personally affects nearly one in ten travelers and that one in five people have had sensitive information lost or stolen while traveling.

    Below are quick identity protection tips for each stage of your summer travels and adventures:

     BEFORE YOU GO:

    • Check for any travel warnings or alerts for your destination country. The Department of State provides the latest security messages. It’s always best to be in the know about any crime – such as pick pocketing – happening in your destination country so that you can be as vigilant as possible.
    • Put only your last name and phone number on your luggage tags. Your full name and address are one too many personal details if put in the wrong hands.
    • Notify your bank and credit card companies of your travel plans. Many such companies now place freezes on accounts when they see suspicious activity like out-of-country use as a means to prevent fraud – it’s easy to avoid this inconvenience!
    • Don’t post any vacation plans on social media. It’s okay to be excited about your trip, but you don’t need to publicize it. You never know who could be lurking behind a computer screen happy to learn that your house will be unattended for a period of time.
    • Put a hold on your mail while you’re gone. An overflowing mailbox is a jackpot for an identity thief. It not only signifies that you’re away, but thieves can then steal the pieces that contain your personally identifiable information (PII).
    • Clean out your wallet and/or purse before leaving. Remove any receipts and expired cards, along with anything else you don’t absolutely need to be carrying with you. Keep only the credit and debit cards you know you will need to use while traveling. Less is more!

    WHILE TRAVELING:

    • Limit your use of public Wi-Fi as much as possible. While these networks are incredibly convenient, they are very often unsecured. This means that any information you input while connected to the hotspot could be viewed by someone else. Never access your financial account or any other sites that require a password when using public Wi-Fi.
    • Use cash when possible and credit cards over debit cards. Travelers are often warned of the dangers of carrying around large amounts of cash. However, depending on where you are traveling, some merchants still practice questionable transaction processes – making cash a safer method of payment. In most cases though, using a credit card is considered safe. Furthermore, it’s almost always recommended to use the credit option of your card versus the debit option. If your card numbers ever get into the wrong hands, most credit card companies will quickly reverse or cover fraudulent charges, while recovering funds from your drained bank account can be more complicated.
    • Be cautious when using ATMs. Inspect the machine carefully before inserting your card. Fraudsters can attach card skimmers to the slot that capture your information when you insert it; very often, these look like they are part of the machine. Also, always shield the keypad when entering your PIN – scammers can also set up hidden video recorders. The safest ATMs to use are attached to banks in well-lit areas.
    • Lock up valuables and personal documents at the hotel. This includes boarding passes, confirmation emails, passports, and jewelry. Even hotel staff have been known to go through rooms while they are cleaning and steal items. Everything is much more secure in a safe!
    • Keep your phone password-protected. If you’re not the type of person to keep a password guard on your phone, make an exception while traveling. If your phone is ever lost or stolen, an identity thief could easily access banking apps and social media accounts.

    WHEN YOU RETURN:

    • Check your credit card and bank statements often for any fraudulent activity. It’s best to catch fraud as early as possible so that you can take action immediately. This minimizes damage and makes resolution that much easier.
    • Check your credit report throughout the year. Federal law requires the three major credit bureaus to provide you with a free credit report once a year. You can stagger these free reports every four months from each bureau so that you’re seeing your report somewhat regularly. Make sure you recognize everything that’s on there – if anything doesn’t ring a bell, look into it!
    • Change your PINs and passwords after a trip. This is especially important if you logged into any accounts while on the road or accessed an ATM. Traveling can open you up to all kinds of vulnerabilities; don’t take the risk with your PINs and passwords.
    • Make sure you properly dispose all trip confirmation emails and boarding passes. This means shredding them before tossing them into the recycling bin. These types of documents contain more information than most people think. Barcodes on boarding passes can actually contain your frequent flyer information, and other such documents reveal itineraries and other personally identifiable information that identity thieves would be happy to misuse.
    • Lastly, now is the time to post about your adventure on social media. Now that you’ve returned, you can share all those stunning snaps you shot. We really do want to hear about how much you enjoyed your vacation!

    Of course, nothing compares to the peace of mind you will receive from Optima’s ID Protection Plan, which includes services like suspicious activity alerts and identity monitoring that will provide you with an extra boost of confidence when you return from a trip. Most importantly, if you do fall victim to identity theft, our 24/7 Identity Theft Resolution Service Team will work to restore your identity and prevent further damage.

    Learn more and enroll in Optima’s ID Protection Plan at https://optimatax.idprotectiononline.com/enrollment/.

    Tax Tips: Your Child’s Summer Camp And Daycare Expense Tax Credit

    Summer is right around the corner – the wonderful season of good ol’ sunshine and time for relaxing. School is out for summer vacation and with it comes a whirlwind of family activities and the seasonal tradition of sending your kids off to summer camp. And if you’re a working parent who depends on summer day camp and and daycare, you know summer also means dishing out some extra expenses.

    Fortunately, you may have a break. Some of the added expenses may help you qualify for tax deductions and credits that can save you some money next tax season. Here are nine facts you need to know for claiming summer camp and daycare expenses, also known as the Child and Depended Care Credit:

    • Earned income. To qualify, you (and your spouse if filing jointly) must have earned income during the year.
    • Expenses must be work-related. Essentially, this means you’re paying for the camp or daycare for the qualifying child so you can work, or look for work.
    • Correct tax forms. To be able to claim this credit, you must file a Form 1040, 1040A, or Form 1040NR; you cannot claim the credit on Forms 1040EZ or 1040NR-EZ.
    • Age of your qualifying child or dependent. Qualifying child must be under the age of 13 and must be your dependent when care was provided.
    • Some qualifying care restrictions. Expenses for overnight camps or schooling/tutoring costs do not qualify – it is not considered a work-related expense for purposes of the credit. You also cannot claim the credit if you paid for someone else’s child or if someone else paid for your child.
    • Specialized summer camps. Camps that specialize in a particular activity, such as sport camps, math camps, or even art camps can qualify for the credit. Keep in mind expenses that go towards required, but personal items for the camp such as sports equipment, clothing, art supplies or even a laptop don’t qualify – they are still considered personal accessories.
    • Health-related expenses. The costs of “preparing” for the camp or daycare, such as required vaccinations or wellness exams are deductible if you itemize on Schedule A and if the total medical expenses during the year exceed 10% of your AGI, or adjusted gross income.
    • Qualifying childcare provider restriction. Your childcare provider cannot be your spouse, dependent, or the child’s parent.
    • “Are we there yet?” The costs to take your child to and from the daycare or camp location in your own transportation doesn’t qualify as an expense for purposes of the credit; however, if there are transportation fees associated with or included in the camp or daycare during operating hours, the costs may qualify as an expense.

    The purpose of this tax break is to financially assists working parents and guardians involved with raising children (or caring for a disabled dependent). The tax credit can be up to 35 percent of your allowable expenses, depending on your income. The total expense limit is $3,000 for one qualifying child or $6,000 for two or more qualifying children.

    Of course, we all know the tax code is very long and complex, so other exceptions and restrictions may apply. You can check out the IRS publication 503, Child and Dependent Care Expenses for full details about this tax credit on their website.