Tax

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/.

 

Identity Safety And Staying Secure With Wearable Devices


The increasingly connected world brings new conveniences that greatly benefit our everyday lives. No new connected device seems more ubiquitous than wearable devices – nearly 33 million were in use in the U.S. in 2015 by an estimated 20 million people. Smartwatches like Pebble and Apple watch allow us to access the internet with a flick of a wrist. Wearable health tech like the Fitbit and the gadget-class favorite Jawbone help improve the livelihoods of millions.

As much as wearables bring value to our lives, they also create a new opportunity for criminals to extract personally identifiable information. Like many other new technologies, security vulnerabilities in wearables are being exposed and potentially exploited.

The more information that’s collected, the easier it is to identify account numbers and passwords as well as medical ID numbers and tax return data. Better understanding the individual’s routines and habits ensures that criminal activity will go unnoticed for longer periods of time.

But some wearable data can provide quicker wins for identity thieves:

Most wearable devices use an accelerometer and gyroscope to track forward motion and directional orientation. Some even contain an altimeter to measure altitude for hikers and climbers. All of this data is crunched into code that orients the user’s specific location and tracks their activity – sometimes down to a few inches. Shockingly, new research found that ATM PIN codes could be discerned from the data in wearables’ sensors with 80% accuracy on one try and 90% accuracy after three tries.

A flash survey conducted by corporate identity management firm Centrify exposed some worrying trends:

  • 69% of wearable device owners don’t utilize login credentials such as passwords, fingerprint scans, or voice recognition to access their device, and
  • 56% of wearable owners use their device to access corporate applications such as Outlook, Dropbox, and Salesforce.
  • While the sample size was small, the survey was conducted at the RSA Conference, one of the world’s largest gatherings of information security professionals. If those on the frontline of data security leave their personal and corporate data at risk, it’s easy to imagine that the population at large may be even less cautious – jeopardizing their identities and your corporate data security.

Staying Secure With Wearable Devices

While wearables (and all technology, for that matter) are never 100% secure, there are a number of tactics that can be undertaken to minimize the risk of data theft:

  • Opt-out of automatic data transmission that will continually upload information via Wi-Fi or other networks.
  • When using a Wi-Fi, stick to known and/or secure networks.
  • Enable passwords and change them regularly. If available, use two-step authentication.
  • Physically secure the device if it’s not in use. Particularly, when traveling, utilize hotel safes.
  • Take time to learn how to remotely erase data so that the device can be “cleaned” if it’s lost or stolen.
  • Make sure to regularly update the operating system in order to patch known security gaps.

Looking for ways to minimize your risk of identity theft? Maintain a peace of mind while using your wearable device by enrolling in Optima’s ID Protection Plan at optimatax.idprotectiononline.com.

Spring Cleaning For a Secure Identity

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Spring is in full swing with its longer and sunnier days, and for many people, it is time for the annual spring cleaning to disentangle their homes from the build-up of wintertime clutter. However, much of that “clutter” can be pure gold for an identity thief. Junk mail such as credit card offers and unsolicited loan pre-approvals are chock full of valuable information about finances and lifestyle. Virtual clutter is also a target – unsecured and unorganized computer and smart phone data can be mined.

Minimize identity theft risk this spring with these easy tips:

  • Paperwork. Decide which documents need to be saved and then file them in a secure location. Unwanted items that contain personal information should be shredded, including receipts, bank and credit card statements, credit card offers, medical records, and health insurance statements.
  • Computers. Organize personal information and documents into password-protected folders. When deleting old or unneeded files, make sure to regularly empty the computer’s recycle bin. Ensure that all anti-virus software is up-to-date and run a full scan to ensure that the computer is free of viruses and malicious software.
  • Smartphone. Enable the phone’s password-protection features and only use secure networks, especially when using online banking or other apps that transmit sensitive information. When upgrading to a new device, wipe the old phone’s memory and restore to factory settings.
  • Wallet and Purses. Shred old receipts and outdated credit cards. Remove everything that isn’t necessary on a day-to-day basis – especially a Social Security card.

This spring, you can make sure you’re keeping your identity as clean and secure as possible by enrolling in Optima’s ID Protection Plan at optimatax.idprotectiononline.com.

Tax Season Is Here…And So Are The Scammers

The start of each new year typically brings renewed resolve to get healthy, strengthened desires for personal improvement, and of course, tax season.

Tax season can mean different things to a lot of people. Some look forward to a large refund; for others, it’s one more thing to tack onto their to-do list. For the scammers out there, it means the annual opportunity to rake in fraudulent refunds has finally arrived. Tax scammers are ruthless. They’re unaffected by the thought of families and individuals dependent upon what is likely their biggest check of the year being denied this financial relief.

If there’s one thing we can be sure of, it’s that there will be scams this tax season. Fortunately, there are safeguards you can take to stay protected this tax season.

  • Schedule time with your tax preparer now so you can get your taxes done as early as possible. This will help decrease the chances that a fraudster will get your refund before you do.
  • Sign up for Scam Alerts from the FTC to stay abreast of all the dirty tricks scammers are currently using.
  • Talk to someone in your HR department to see if you can get your W-2 before it’s mailed out. This will help ensure that you actually receive it so you don’t have to risk it being lost or stolen in the mail.
  • Never send emails with personally identifiable information (PII) attached. It’s best to never send them through email at all, but if you must, you should encrypt your message by making a change in your email’s security settings.
  • Beware of computer scams. These can come via email or as popups on your computer asking for your personal information. The IRS saw an approximate 400% surge in phishing and malware incidents in the 2016 tax season.
  • Always use a professional, trustworthy tax preparer. Sometimes, even national tax preparation chains can scam you out of your money or use less-than-secure procedures when it comes to handling your personal information. Make sure you use someone you trust.
  • Never provide any personal information over the phone to someone who says they are from the IRS. The IRS will never contact you via phone, email or social media.

Tax season is stress enough as it is; worrying about tax fraud shouldn’t have to be a part of it. Maintain a peace of mind by filing taxes as early as possible and by enrolling in an Optima Protection Plan at optimatax.idprotectiononline.com.

New Year, New You: Invest in Your Identity Wellness

The holiday season is now a thing of the past and now, New Year’s resolutions are the hot topic of conversation. The ultra-motivated will have a ten-part list covering everything from weight loss goals to finding a new hobby. And then there will of course be some outliers (16% of us according to a Neilson sruvey) that will admit that resolutions just aren’t for them. Wherever your ambitions lie on the spectrum, the one area of your life that can’t afford to be brushed off is your identity wellness.

Though often overlooked, your identity wellness deserves the kind of attention that people tend to put towards their health at the start of each new year. Your identity wellness encompasses everything from your financial security, credit profile, and credit score to digital privacy.

The New Year is the perfect time to make proactive identity protection a part of your everyday life. With these tips, you’ll be on your way to a smarter, safer, and more identity-secure you:

  • Check your bank and credit accounts frequently. It’s best to catch fraud as early as possible so that you can take action immediately; this minimizes damage and makes the resolution process easier.
  • Check your credit report regularly. Federal law requires the three major credit bureaus (Equifax, Experian, and TransUnion) 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 pretty often. This is why credit monitoring services are so valuable: alerts are sent at the first sign of suspicious activity on your credit profile.
  • Stop connecting to public Wi-Fi. It’s convenient, of course, but frequently it’s unsecure. This means that any information you input while connected could be accessible by someone else. So if you must, just be sure to never access your financial accounts or any other sites that require a password when using public Wi-Fi.
  • Don’t click the “Remember Me” box on your digital accounts. If your computer, laptop, or smartphone ever got into the wrong hands, the perpetrator could have a field day accessing your accounts and gathering important personal information. Even worse, they could log into your bank or credit accounts.
  • Keep your firewall and anti-malware up to date. Firewalls block unauthorized access to your computer’s information, while anti-malware prevents malicious software from being downloaded to it. You must be sure to keep them up to date though, as hackers are constantly creating new ways to infiltrate your computer.
  • Update your passwords or look into a password manager. We all know by now that we should change our passwords often with strong, secure ones. Let’s face it though: most of us don’t. An easier solution might be to keep all of them together in a password manager so that you can use complex ones – without forgetting!
  • Shred your documents before tossing them. This includes your credit card/bank statements, pre-approved credit card offers, utility bills, and anything else that contains your personal information.

Of course nothing beats having a comprehensive identity protection provider that is there 24/7 for when the unexpected happens. Services like credit and identity monitoring send alerts if any suspicious activity is found so that you can take action immediately. To find out how you can protect your identity with Optima’s Protection Plans, visit optimatax.idprotectiononline.com.

2016 Tax Season Forecast: Doom and Gloom if You Want Help from the IRS

During the 2015 income tax filing season, increased compliance requirements combined with budget cuts to produce one of the worst tax seasons in history, at least for taxpayers who sought assistance from the IRS. More than 137 million tax returns were filed, with more than 83 million taxpayers contacting the IRS toll-free customer service line at least once seeking assistance.

Hold, Please

Out of the 80 million-plus calls initiated, a miserable 37.6 percent were actually answered by an IRS agent, with remaining callers receiving what the IRS has named “courtesy” hang-ups after extended hold times. This figure is in sharp contrast to the more than 70 percent of taxpayer calls to the taxpayer toll-free IRS call center that were handled by an agent in 2014. Wait times for all callers averaged more than 23 minutes. Taxpayers who sought in-person assistance at Taxpayer Assistance Centers also experienced lengthy waits; funding for TACs was cut by 4 percent in 2015.

With no significant increases in funding assigned to the IRS in 2015, all indicators point to the availability of assistance by telephone being just as dreadful for the 2016 tax season. A number of factors are involved, many of which are repeats from earlier years. Several examples are outlined below.

Patient Protection and Affordable Care Act

The Patient Protection and Affordable Care Act (ACA), also known as Obamacare, went into full effect for individual taxpayers in 2014. One of the most misunderstood provisions of the ACA is the individual mandate which requires a majority of individuals to purchase health insurance that fulfills federal guidelines – or face a penalty. Many individuals had the mistaken impression that the penalty was 96 dollars across the board, and only learned differently when they prepared their 2014 tax returns.

For 2016, the penalty has increased dramatically, which will come as a surprise to still more taxpayers. Increased incentives related to the ACA almost undoubtedly mean that the number of returns filed will likely hold steady or even increase. More tax returns generates the knock-on effect of more taxpayer calls to the IRS – many of them going unanswered, just as they did in 2015. In addition, businesses with at the equivalent of 50 full-time employees will be required to provide health insurance to their workers. However, that requirement does not extend to part-time workers or to the families of full-time workers, which points to the likelihood of even more confusion for taxpayers preparing their 2015 federal tax returns.

Last Minute Tax Provisions

For the past several years, there has been suspense about whether particular tax provisions will be extended by Congress. The final determination often occurs right before the end of the year, which does not allow the IRS sufficient time to prepare its forms and instructions and have them ready by the customary January 1 opening date for tax season, resulting in delays in processing tax refunds. For instance, in 2014, Congress enacted last minute tax provisions on December 16, just two weeks before the end of the calendar year. As a result, the IRS delayed the acceptance of the first tax return until January 20, 2015.

Given the present divisiveness in Congress, it should come as no surprise that 2015 has proven to be no different than 2014. Although the Senate Finance Committee passed a set of 56 temporary tax breaks in July 2015, as of early December 2015 the full House and Senate had not taken action on the package. Expectations are that Congress will act on the provisions before they leave for the year, and as of this writing, there was no announcement of a delay for filing tax returns in 2016. However, depending on what Congress finally does or does not due, the possibility remains that a delay will occur for the beginning of the 2016 federal tax filing season, with subsequent delays in processing tax returns and issuing tax refunds.

Tax Fraud

tax_fraudThe IRS takes tax fraud very seriously. Nonetheless, in May 2015, the IRS reported that they had identified more than 163,000 fraudulent or potentially fraudulent tax returns, claiming more than 900 million dollars in refunds, with 787 million dollars in fraudulent refunds actually paid. In a related incident, the IRS reported in May 2015 that approximately 100,000 taxpayer accounts had been compromised through its online “Get Transcript” service. In response, the IRS suspended the ability to order transcripts online. Taxpayers can still order transcripts by mail, which the IRS states requires five to 10 calendar days for processing.

To reduce future incidents of tax fraud and data breaches, the IRS has boosted filters and screening – which will likely translate to delays in processing income tax returns as well as issuing tax refund checks during the 2016 tax season.

Earned Income Tax Credit

EITC_grnThe Earned Income Tax Credit (EITC) provides workers with modest incomes with a refundable tax credit. It is also a popular target for attempted tax fraud. The IRS has created a due diligence checklist for the Earned Income Tax Credit that it stresses paid tax preparers to use. However, there will be additional efforts by the IRS to require individual taxpayers to use the checklist as well. This development is almost guaranteed to increase confusion among taxpayers, with the domino effect of delayed tax refunds.

Easing the Pain of Tax Filing Season

The IRS.gov website contains extensive information for individuals and business owners filing their own tax returns – or preparing documentation for paid tax preparers. News, informational articles and downloadable forms are readily available. Taxpayer related information is also available through the U.S. Treasury, Treasury Inspector General for Tax Administration and USA.gov websites.

However, taxpayers with complex income tax returns – or anyone who has questions about completing their tax returns – can’t count on receiving assistance from the IRS for the upcoming tax filing season. One alternative is to turn to the professionals at Optima Tax Relief. In addition to answering tax inquiries, they can assist you with any issue or dispute you may have with your federal or state tax returns – without a 20 minute wait to speak with an agent.

Historical Highlights of the IRS

Every taxpayer knows about the existence of the IRS, but many people do not realize that the United States only began collecting income taxes from individuals in 1862. The following timeline documents the history and intriguing development of the collection arm of the Treasury department.

The First Income Taxtax

1862 – President Lincoln issued a revenue-raising measure into law to help pay for Civil War expenses. The measure also created a Commissioner of Internal Revenue along with the nation’s first income tax. An additional 3 percent tax was levied on incomes between 600 and 10,000 dollars and a 5 percent tax on incomes of more than 10,000 dollars

1867 – Facing stiff public opposition, Congress cuts the income tax rate. As a result, from 1868 until 1913, 90 percent of all national revenue came from taxes on liquor, beer, wine and tobacco.

1872 – Income tax repealed.

Creation of the Bureau of Internal Revenue

1894 – The Wilson Tariff Act revived the income tax and created an income tax division within the Bureau of Internal Revenue.

1895 – The new tax was ruled unconstitutional by the Supreme Court on the grounds that it was a direct tax, not apportioned among the states on the basis of population. As a result, the income tax division was disbanded.

Ratification of the 16th Amendment and World War I

16th ammendment1909 – President Taft requested Congress to propose a constitutional amendment giving the government power to tax incomes directly. Congress also levied a 1 percent tax on net corporate incomes of more than 5,000 dollars.

1913 – Under the looming threat of World War I, Wyoming became the crucial 36th state to ratify the 16th Amendment. The amendment stated, “Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.” Later, Congress adopted a 1 percent tax on net personal income of more than 3,000 dollars with a surtax of 6 percent on incomes of more than 500,000 dollars. Congress also repealed the 1909 corporate income tax. The first Form 1040 was introduced the same year.

1918 – The Revenue Act of 1918 raised more money to finance the World War I effort. The Act also codified all existing tax laws and imposed a progressive income tax structure, with rates up to 77 percent.

Prohibition and Taxationprohibition

1919 – The 18th Amendment was ratified, barring the manufacture, sale or transport of intoxicating beverages. Congress also passed the Volstead Act, granting the Commissioner of Internal Revenue primary responsibility for enforcement of Prohibition. The Department of Justice assumed primary prohibition enforcement duties eleven years later.

1931 – An undercover agent employed by the IRS Intelligence Unit gathered evidence against gangster Al Capone. The evidence was used to convict Capone of tax evasion. He died in prison before serving out his 11 year sentence.

1933 – Prohibition repealed. IRS resumed responsibility for alcohol taxation the following year, along with administration of the National Firearms Act. Enforcement of the tobacco tax was added later.

Individual Deductions and Employer Tax Withholding

1942 – The Revenue Act of 1942 which FDR hailed as “the greatest tax bill in American history,” passed Congress. The Act increased taxes along with the number of Americans required to pay income tax. The Act also created deductions for medical and investment expenses.

1943 – Current Tax Payment Act, which required employers to withhold taxes from employees’ wages and remit them quarterly was passed by Congress

1944 – Congress passed the Individual Income Tax Act, creating standard deductions on Form 1040.

The Creation of the IRS

irs building sign1952 – Reorganization Plan No. 1 proposed by President Truman. The Plan, designed to restore public confidence in the agency, replaced the patronage system at the IRS with a career civil service system and decentralized service to taxpayers.

1953 – Truman’s reorganization plan endorsed by President Eisenhower, who changed the name of the agency from the Bureau of Internal Revenue to the Internal Revenue Service.

Mid Century Modifications

1954 – Filing deadline for individual tax returns changed from March 15 to April 15.

1961 – The dedication of the National Computer Center at Martinsburg, W.Va. heralded the beginning of the computer age for the IRS

1965 – First toll-free telephone number instituted for the IRS.

1972 – The division of Alcohol, Tobacco and Firearms separated from the IRS to become the independent Bureau of Alcohol, Tobacco and Firearms.

1974 – Congress passed the Employee Retirement and Income Security Act, assigning the IRS regulatory responsibilities for employee benefit plans.

Electronic Filingefile

1986 – First year for limited electronic filing. President Reagan signed the Tax Reform Act, containing 300 provisions and requiring three years to implement. As the most significant piece of tax legislation in 30 years, the Act codified federal tax laws for the third time since the Revenue Act of 1918.

1992 – Taxpayers owing money to the IRS were allowed to file returns electronically.

21st Century Reform

1998 – Congress passed the IRS Restructuring and Reform Act, expanding taxpayer rights reorganizing the agency into four operating divisions aligned to address taxpayer needs.

2000 – IRS ended its geographic-based structure and instituted four major operating divisions: Wage and Investment, Small Business/Self-Employed, Large and Mid-Size Business and Tax Exempt and Government Entities. This change represented the most sweeping adjustment to the IRS since 1953.

Mid-Year Refunds Initiated

tax-refund2001 – Mid-year tax refund program to provide advance payments of a tax rate reduction administered by the IRS

2003 – A second mid-year refund program, this time providing an advance payment of an increase in the Child Tax Credit was administered by the IRS. During this same year, electronic filing reached 52.9 million tax returns, representing more than 40 percent of all individual tax returns — a new high.

IRS “Courtesy Disconnects” Skyrocket During 2015 Tax Filing Season

During this year’s tax filing season, the IRS processed 126.1 million individual federal income tax returns and issued 91.8 million refunds, compared with 125.6 million income tax returns processed and 94.8 million refunds issued the previous year. Taxpayers also received larger refunds from the IRS in 2015hold – averaging $2,711 compared with an average refund of $2,686 last year.

However, many taxpayers faced significant challenges in filing their returns due to new filing requirements related to the Affordable Care Act and other changes in the tax code. Unfortunately, millions of taxpayers who attempted to contact the IRS by telephone for assistance with their tax returns encountered long wait times. Nearly 9 million taxpayers who called the IRS seeking assistance encountered a dial tone instead.

New Challenges, Less Funding

In her mid-year report to Congress, National Taxpayer Advocate Nina E. Olson declared that the IRS generally had a successful tax filing season for 2015, at least for taxpayers who were able to file their own returns without assistance from the IRS. This was despite the fact that the IRS was forced to operate with a budget about 17 percent smaller than the allotted funds for fiscal year 2010 – when adjusted for inflation. In addition, the 2015 tax filing season was the first to occur after the full implementation of the ACA. In 2015, the IRS also began implementing major portions of the Foreign Account Tax Compliance Act (FATCA).

“Courtesy Disconnects”

During the busiest periods of the tax filing season, the IRS switchboard can become overloaded. During such periods, taxpayers could be subjected to what is known as a “courtesy disconnect” – essentially having their calls disconnected without being answered. In 2014, the IRS executed about 544,000 “courtesy disconnects.” During the 2015 tax filing season that number shot up to an eye popping 8.8 million, an increase of more than 1500 percent over the previous year.

In her report, Olson wrote “For the segment of taxpayers who required help from the IRS, the (2015) filing season was by far the worst in memory.”

More Calls Dialed, Fewer Answered

olsonAccording to Olson’s most recent report, taxpayer calls referred to telephone agents increased by 41 percent during the most recent tax filing season, with an average call duration 10 percent longer than the year before. The number of calls actually answered by IRS agents plunged by 26 percent – only 37 percent of all telephone calls placed by taxpayers, with an average hold time of 23 minutes. This is in sharp contrast to the 2014 tax filing season, when the IRS answered 71 percent of calls from taxpayers, with an average hold time of 14 minutes.

Only 39 percent of calls placed to the National Taxpayer Advocate toll-free hotline were answered by the IRS, with an average wait time of 19 minutes. About 45 percent of calls placed by practitioners to the Practitioner Priority line were answered by the IRS, with hold times averaging an astonishing 45 minutes. The news was worse concerning calls from taxpayers who called the IRS after being notified that their tax returns had been blocked by the Taxpayer Protection Program because of suspected identity theft. Only 17 percent of those calls were answered by the IRS, with an average hold time of 28 minutes. For three consecutive weeks during the tax filing season, the IRS answered fewer than 10 percent of such calls.

Rethinking the IRS Mission

Much of the blame for this sharp decline in service can be attributed to cuts imposed by Congress on the IRS’ operating budget. But the IRS also bears some responsibility. For instance, IRS Taxpayer Assistance Centers and outlet partners such as local libraries and post offices did not receive paper forms until February 28. Facilities that ran out of forms could not order more – and many outlets never offered paper forms at all. Such limited availability of paper forms hampered taxpayers with limited access to personal computers or the Internet, many of whom traditionally collect significant tax refunds.

national-taxpayer-advocate-american-expats-692x300Olson also cited continued IRS emphasis on enforcement and ensuring compliance instead of providing customer service as a contributing factor to the agency’s woes. Despite occasional splashy headlines generated by prosecution of big-time tax cheats, less than 2 percent of all revenues collected by the IRS are gained through enforcement efforts. The remaining 98 percent of tax revenues are paid voluntarily – and in timely fashion. According to Olson’s report, focusing the limited resources of the IRS on snaring tax cheats makes it more difficult for honest taxpayers to navigate the system. The effort could actually be detrimental to the overall efficiency of the operation of the IRS.

“This focus has all sorts of consequences for the vast majority of taxpayers who are willing to comply, not the least of which is that they bear an increased burden in navigating processes designed for evaders. That is unwise, counterproductive, and expensive,” Olson wrote.

The IRS Response

Volume 2 of the 2015 Taxpayer Advocate’s report includes IRS responses to the Taxpayer Advocate’s 2014 report, along with additional comments. The 2014 report made 93 recommendations. According to the IRS, 45 of those recommendations have been or will be implemented, although additional resources would be required to fulfill some of the recommendations. With luck, taxpayers seeking assistance during the 2016 tax return season will receive answers – rather than a dial tone.

General Tax Info For The Gambler

In the last thirty years, gambling has changed its image from a quasi-legal activity to a major player in the economy. The IRS has responded accordingly, now requiring gambling winnings to be reported as a source of income, with losses deductible only to the extent of winnings. Even a professional gambler cannot generate a loss with gambling losses. (IRC section 165(d).) (If you win a prize in a drawing, that does not count as  “gambling.” It is reported on 1099-MISC, and other rules apply.)

If you are fortunate enough to win $1200 in a jackpot at a slot machine, $1500 from keno, $5000 from a poker tournament, or $600 or more from “other” gambling winnings, then the casino will record your Social Security Number and the amount of the win, and write it off as an expense. Casinos offer a win-loss statement for their slot players that itemizes coin-in and coin-out, but vary in their player-tracking policies for other types of play. The casino will give you a copy of the gambling win, on Form W-2G and send a copy to the IRS. The IRS will use this gross figure as increased ordinary income unless you can indicate losses against this win. Senior citizens beware: the amount indicated on line 21 of Form W-2G will potentially make more of your Social Security benefits taxable!

The traditional place to declare gambling losses is on Schedule A under miscellaneous deductions, but there are problems with doing it this way. First, you must “qualify” to itemize deductions on Schedule A.  For Schedule A to do you any good, your deductions must be greater than what you would receive as the standard deduction.

Let us say that you are single, so your standard deduction for 2014 is $6,200. If your allowable itemized deductions total less than this amount, then filing a Schedule A won’t benefit you. However, if you have sufficient mortgage interest, real estate taxes or charitable contributions to justify itemizing your deductions, then declaring a $1200 loss on Schedule A will help to offset the $1200 win.

If you don’t qualify for a Schedule A, or if you want to report less than what appears on line 21 of Form W-2G , then you have significantly more bookkeeping to do. All winnings, not just W-2G winnings, are reportable. Therefore, you must maintain a day-to-day diary that itemizes ALL of your winnings and losses per session, not just amounts of $1200 and over. The diary, similar to a tip diary, must be credible. It’s a good idea to back it up with bank records, ATM slips, and casino win-loss statements.

If you travel to gambling resorts once or twice a year, be prepared to keep a log of your winnings and losses per trip. As you arrive at your resort or hotel, make a dated note of your “buy in”, the amount of cash that you brought along to play with. When you check out of the hotel or resort, make a note of your “win” (or loss). This is considered the end of your gambling session.

If you live in a gambling city such as Reno or Las Vegas, then there is technically no way to delineate a gambling session, since slot machines are available in supermarkets and convenience stores 24 hours a day, as well as in bars and restaurants. If you are reporting less than the amount of winnings reported on Forms W-2G, be prepared for an IRS letter or an audit, and have all of the records required for a day-to-day record of wins and losses.  You should also be aware of various state laws that may vary from federal requirements. In such cases, it’s a smart strategy to have a tax professional assist you with the reportable figure. This option will require conforming to the situation in the court case Shollenberger v. Commissioner T.C. memo 2009-306, as referenced in The Tax Book, by Tax Materials , Inc.

Don’t expect casinos to proactively withhold any portion of your winnings for tax purposes unless state law requires it. Most state laws do not. Exceptions include foreign winners or other special circumstances.

There are two obvious reasons casinos won’t voluntarily place tax withholdings on your gambling winnings:

  1.      Withholding creates added administration paperwork
  2.      Withholding disrupts the flow of business (if the money is withheld, then you won’t lose it back)

You can request that money be withheld from your winnings (perhaps based on your marginal tax rate or higher) at the time of the payoff. But you should not request withholding if your winnings come from the casino where you work. (Some states and casinos allow casino workers to gamble where they work; others do not.) However you go about doing so, having tax withholdings from gambling winnings can potentially save you hundreds or even thousands of dollars at tax time.

Charitable Giving

As taxpayers are aware, charitable donations are deductible. Information concerning charitable giving has been provided directly from the Internal Revenue Service (IRS) and is included below.

Rules for Giving

A full discussion of the rules for charitable contributions is contained in Publication 526, which is available on the IRS website. It’s a good idea to read this information before making year-end charitable deductions and prior to claiming deductions for charitable giving on your 2014 federal income tax return. It’s especially important to understand the rules concerning cash and non-cash donations, including calculating the value of your gift.

For tax filers completing their own returns, it’s essential to read  Publication 561 to learn how to determine valuation for non-cash gifts, preferably before you have made the gift.  The IRS has provided several tips to making charitable donations.

A Few Tipsgiving

These are a few guidelines the IRS is providing before you fill out Schedule A and the section for charitable donations:

* Not all charities are created equal! Both qualified and unqualified charities exist. A list of qualified charities is available on the IRS website. The IRS cautions taxpayers that  “sounding like” a viable charity does not qualify a charity.

* You can deduct contributions to churches, synagogues, temples, mosques and government agencies even if they do not appear on the list of qualified charities.

* Cash donations and gifts are those paid in cash, but also by check, fund transfer, payroll deduction and credit card. The bank record or letter from the recipient provides sufficient documentation to fulfill the IRS requirement for maintaining records for claiming charitable cash deductions on your federal income tax return.

* Donations of household items (furniture, electronics, appliances, linens, window treatments, draperies, area rugs, etc) are deductible ONLY if they are in reasonably good shape. Non-cash donations valued at  more than $500, must be verified with a qualified appraisal retained with your tax records.

* Receiving charities should provide a thank-you letter for each contribution (money or property) of $250 or more. If the charity does not voluntarily supply such a letter, request one.

* Donations of airplanes, boats and cars are subject to specific rules. Check the IRS website for details  (www.irs.gov) and additional pertinent information.

It’s unlikely that the IRS would challenge your return solely on the basis of charitable deductions totaling less than four figures. Nonetheless, following these tips will help to keep you on the right side of filing guidelines — regardless of the size(s) of your donation(s).