In most cases, gains from sales are taxable. But did you know that if you sell your home, you may not have to pay taxes? Here are ten facts to keep in mind if you sell your home this year.

1. Exclusion of Gain.  You may be able to exclude part or all of the gain from the sale of your home. This rule may apply if you meet the eligibility test. Parts of the test involve your ownership and use of the home. You must have owned and used it as your main home for at least two out of the five years before the date of sale.
2. Exceptions May Apply.  There are exceptions to the ownership, use and other rules. One exception applies to persons with a disability. Another applies to certain members of the military. That rule includes certain government and Peace Corps workers. For more on this topic, see Publication 523, Selling Your Home.
3. Exclusion Limit.  The most gain you can exclude from tax is $250,000. This limit is $500,000 for joint returns. The Net Investment Income Tax will not apply to the excluded gain.
4. May Not Need to Report Sale.  If the gain is not taxable, you may not need to report the sale to the IRS on your tax return.
5. When You Must Report the Sale.  You must report the sale on your tax return if you can’t exclude all or part of the gain. You must report the sale if you choose not to claim the exclusion. That’s also true if you get Form 1099-S, Proceeds From Real Estate Transactions. If you report the sale, you should review the Questions and Answers on the Net Investment Income Tax on IRS.gov.
6. Exclusion Frequency Limit.  Generally, you may exclude the gain from the sale of your main home only once every two years. Some exceptions may apply to this rule.
7. Only a Main Home Qualifies.  If you own more than one home, you may only exclude the gain on the sale of your main home. Your main home usually is the home that you live in most of the time.
8. First-time Homebuyer Credit.  If you claimed the first-time homebuyer credit when you bought the home, special rules apply to the sale. For more on those rules, see Publication 523.
9. Home Sold at a Loss.  If you sell your main home at a loss, you can’t deduct the loss on your tax return.
10. Report Your Address Change.  After you sell your home and move, update your address with the IRS. To do this, file Form 8822, Change of Address. You can find the address to send it to in the form’s instructions on page two. If you purchase health insurance through theHealth Insurance Marketplace, you should also notify the Marketplace when you move out of the area covered by your current Marketplace plan.

If you, your spouse or a dependent are heading off to college in the fall, some of your costs may save you money at tax time. You may be able to claim a tax credit on your federal tax return. Here are some key IRS tips that you should know about e tax credits:

• American Opportunity Tax Credit.  The AOTC is worth up to $2,500 per year for an eligible student. You may claim this credit only for the first four years of higher education. Forty percent of the AOTC is refundable. That means if you are eligible, you can get up to $1,000 of the credit as a refund, even if you do not owe any taxes.

• Lifetime Learning Credit.  The LLC is worth up to $2,000 on your tax return. There is no limit on the number of years that you can claim the LLC for an eligible student.

• One credit per student.  You can claim only one type of education credit per student on your tax return each year. If more than one student qualifies for a credit in the same year, you can claim a different credit for each student. For instance, you can claim the AOTC for one student, and claim the LLC for the other.

• Qualified expenses.  You may use qualified expenses to figure your credit. These include the costs you pay for tuition, fees and other related expenses for an eligible student. Refer to IRS.gov for more on the rules that apply to each credit.

•  Eligible educational institutions.  Eligible schools are those that offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify. If you aren’t sure if your school is eligible:

o Ask your school if it is an eligible educational institution, or

o See if your school is on the U.S. Department of Education’s Accreditation database.

• Form 1098-T.  In most cases, you should receive Form 1098-T, Tuition Statement, from your school by Feb. 1, 2016. This form reports your qualified expenses to the IRS and to you. The amounts shown on the form may be different than the amounts you actually paid. That might happen because some of your related costs may not appear on the form. For instance, the cost of your textbooks may not appear on the form. However, you still may be able to include those costs when you figure your credit. Don’t forget that you can only claim an education credit for the qualified expenses that you paid in that same tax year.

• Nonresident alien.  If you are in the United States on an F-1 Student Visa, the tax rules generally treat you as a nonresident alien for federal tax purposes.  To find out more about your F-1 Student Visa status, visit U.S. Immigration Support. To learn more about resident and nonresident alien status and restrictions on claiming the education credits, refer toPublication 519, U.S. Tax Guide for Aliens.

• Income limits. These credits are subject to income limitations and may be reduced or eliminated, based on your income.

By Sally P. Schreiber, J.D.

Tax software vendors will share analytical information about their customers’ tax filings with the IRS under new agreement announced by the IRS on Thursday. The IRS called the agreement “a sweeping new collaborative effort” to fight identity theft refund fraud in which it will partner with tax preparation and software firms, payroll and tax financial product processors, and state tax administrators (IR-2015-87).

The effort involves identifying new steps to validate taxpayer and tax return information at the time of filing, using increased information sharing between industry and governments. The tax industry has agreed to share suspected identity fraud information and analytics to identify fraud schemes and discover indicators of fraud patterns.

“This agreement represents a new era of cooperation and collaboration among the IRS, states, and the electronic tax industry that will help combat identity theft and protect taxpayers against tax refund fraud,” IRS Commissioner John Koskinen said in a press release. “Taxpayers filing their tax returns next filing season should have a safer and more secure experience.”

Three specialized working groups were established when the project kicked off in March. They are: Authentication; Information Sharing; and Strategic Threat Assessment and Response (2015 Security Summit). Each team has members from the IRS, states, and industry. Since then, the teams have focused on ways to validate the authenticity of taxpayers and the information they include on their tax returns, ways to improve information sharing to increase detection and prevention of refund fraud, and threat assessment and strategy development to prevent risks and threats.

The IRS also announced the following new initiatives:

Taxpayer authentication. The working groups identified new data that can be shared at the time of filing to help authenticate a taxpayer and detect identity theft refund fraud. The data will be submitted to the IRS and states with the tax return transmission for the 2016 filing season. These include:

• Reviewing the tax return transmission, including improper and/or repetitive use of an Internet Protocol number, which is the internet “address” from which the return originates;
• Reviewing computer device identification from the return’s origin;
• Reviewing the time it takes to complete a tax return, so computer-mechanized fraud can be detected; and
• Capturing metadata in the computer transaction to permit review for identity-theft-related fraud.

Identifying fraud. The groups agreed to expand sharing of fraud leads. Under the agreement, for the first time, the entire tax industry will share aggregated analytical information about their filings with the IRS. In the past, this post-return filing process has produced valuable fraud information because trends are easier to identify with aggregated data. Currently, the IRS obtains this analytical information from some groups.

Assessing information. In addition to continuing existing efforts, the groups will look to establish a formal Refund Fraud Information Sharing and Assessment Center to more efficiently share information between the public and private sectors to help stop fraud schemes. The IRS says this project would be helpful in many ways, including providing better information to assist law enforcement in investigating and prosecuting identity thieves.

Cybersecurity framework. Tax industry participants agreed to align their practices with the National Institute of Standards and Technology cybersecurity framework that the IRS and states currently operate under. (Many in the tax industry already operate under this standard.)

Increasing taxpayer awareness and communication. The IRS, industry, and the states agreed to increase their efforts to inform taxpayers about protecting sensitive personal, tax, and financial data to help prevent refund fraud and identity theft. These efforts, which have already started, will increase through the year and expand, in particular, for the 2016 filing season.

Continuous improvement

According to the announcement, the parties to the agreement recognize the need to continuously improve the tax system’s defenses for combating this threat to taxpayers and the tax system, including improving multilevel identity proofing and authentication capability that anticipates and stops threats.

The ability to answer knowledge-based authentication questions, known as “out-of wallet” questions, about taxpayers financial dealings such as car or mortgage payments was the reason the cybercriminals successfully breached the Get Transcript application system.

By Courtney L. Vien

Financial abuse more frequently hurts senior citizens emotionally than it does financially, according to a recent survey of CPA financial planners.

Thirty-seven percent of the 266 planners polled in the AICPA PFP Trends Survey in May rated the emotional impact of elder financial abuse as “substantial.” Yet just 5% rated the financial impact of such abuse as “substantial.”

The reason elder financial abuse causes such emotional pain may be the fact that family members are often the perpetrators. Seventy-two percent of planners said that during the last five years, they’d had elderly clients who were unable to refuse family members’ requests for gifts or loans. Fifty-seven percent said they’d had older clients who were supporting nondisabled adult children.

Nearly 4 out of 5 financial planners (79%) reported that they had clients fall victim to internet or phone scams in the past five years. Half had clients whose identities were stolen.

Though slightly less than half of the financial planners surveyed (47%) said they thought elder abuse was on the rise, 73% said they encountered it at least a few times a year.

Financial planners have also had to address other concerns of aging clients, the survey found, including where clients should live in their declining years. Planners said that they had helped 15% of their elderly clients make decisions about housing or perform nursing home due-diligence analysis in the past year. Forty-four percent said they provide such assistance more often now than they did five years ago.

CPA financial planners use several strategies to protect clients from elder financial abuse, including conducting periodic reviews of their financial plans and encouraging clients to run all major financial decisions past them. If clients show signs of diminished mental capacity or have a difficult time saying “no” to their relatives’ requests, financial planners may recommend placing their assets in a revocable living trust and naming a co-trustee.

Planners also suggest that advisers get to know members of their older clients’ “support teams,” including their loved ones and those authorized to make medical decisions on their behalf. As the survey found, spouses are the “team members” most likely to attend elder planning meetings alongside clients. They participate 77% of the time, whereas attorneys attend 39% of the time, and adult children attend 37% of the time.

By Jack Salewski, CPA, CGMA & Paul S. Hamann

Calculating Reasonable Compensation for an S Corp; C Corp; Small or Closely-Held business owner is not just about making the IRS happy.  There are many unintended consequences of not having reasonable compensation. They can be broken down into current; long-term; valuation; entity choice; and preparer issues. We will discuss the current and long-term issues here and follow up next month with valuation issues; entity choice; and the potential impact on the tax preparer.

Current Issues: The Obvious

The most common issue with an unreasonably low (S Corp) or unreasonably high (C Corp) compensation figure is exposure to an IRS Reasonable Compensation challenge.

S Corp: Owner-employees, who miscalculate their compensation too low, risk being required to pay additional payroll tax, penalties, and interest at the federal level.  These additional taxes, penalties, and interest can be double what the cost would have been if reasonable compensation was paid in the first place.  Add onto that cost – additional state payroll taxes; unemployment taxes; workers compensation insurance and their associated penalties and interest, and the costs jump again.  Like a bad, late-night infomercial: “But wait, there’s more”: The IRS usually looks at 2-3 years at a time; now the costs just doubled or tripled.  “But wait there’s even more…”:  Don’t forget the cost of paying an accountant to prepare amended payroll reports, W-2Cs; W-3Cs, tax returns, and the possible costs of a lawyer to defend the taxpayer.

C Corp: The Reasonable Compensation issue is reversed.  The IRS will want to make sure the owner-employee compensation is not unreasonably high. If they prevail, the overstated wages will be reclassified as dividends. The dividends are now taxable to the shareholder, but not deductible by the corporation.  Again, the IRS usually looks at 2-3 years at a time; the cost of paying an accountant; an attorney etc…

Current Issues: The Over-looked

Retirement Benefits: A miscalculated Reasonable Compensation figure can put a taxpayer’s retirement plan, (SEP, 401(k) or a defined benefit plan), out of compliance. The penalties for being out of compliance with a retirement plan will make other penalties look insignificant.  The IRS reference material on reasonable compensation states, “A Reasonable Compensation issue that includes an adjustment of a pension and profit sharing deduction requires a referral to employee plans.”

“S” Corporation Election: If the taxpayer has two or more shareholder-employees and the IRS determines that the owners have been paid unreasonably low compensation, the ensuing reclassification of distributions as wages will result in disproportionate distributions.  This could cause an involuntary revocation of the “S” election.  It may be possible to have the “S” election reinstated,  but not always; this is a situation no one wants to be in.  An involuntary revocation of an “S” election will usually be a financial disaster.

Long Term Issues:

Disability Insurance: Most disability insurance policies are based on earned income.  Understated wages reduces disability coverage.  If any of the shareholders become disabled, there may not be enough cash flow from the disability policy to pay the shareholder’s needs.  This same issue applies to Social Security disability. This is a situation one of the authors has seen firsthand:  The shareholder suffered kidney failure in his early thirties. Due to the dialysis treatments he could no longer work.  Because his Social Security disability benefit was based on his low earned income, he was reduced to poverty for the rest of his life.

Social Security: Let’s now fast forward to the shareholder’s golden years.  If the wages paid were less than the Social Security maximum, the benefits are also less.  Most shareholders spend all of the tax savings realized during their working years.  Few people have the self discipline to deposit all the tax savings into their retirement accounts, potentially leaving the shareholder with too little to live on throughout their retirement.

Stress!

Besides the dollar and cents costs of these adjustments, the time and stress put on the shareholder(s) is not measurable, but very real. All of the time the shareholder(s) devotes to these issues distracts them from running their business.  This translates into lost profits.

There are numerous negative consequences to under or overstating compensation that can affect tax liabilities, disability insurance, retirement benefits and Social Security benefits. We need to strive to make sure our clients are paying themselves reasonable compensation.

We know identity theft is a frustrating process for victims. We are committed to working with you to resolve your case as quickly as possible.

What is tax-related identity theft?

Tax-related identity theft occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund.

Generally, an identity thief will use your SSN to file a false return early in the year. You may be unaware you are a victim until you try to file your taxes and learn one already has been filed using your SSN.

Know the warning signs

Be alert to possible identity theft if you receive an IRS notice or letter that states that:

• More than one tax return was filed using your SSN;
• You owe additional tax, refund offset or have had collection actions taken against you for a year you did not file a tax return;
• IRS records indicate you received wages from an employer unknown to you.

Steps to take if you become a victim

• File a report with law enforcement.
• Report identity theft at ftc.gov/complaint and learn how to respond to it at identitytheft.gov.
• Contact one of the three major credit bureaus to place a ‘fraud alert’ on your credit records:
  • Equifax, www.Equifax.com, 1-800-525-6285
  • Experian, www.Experian.com, 1-888-397-3742
  • TransUnion, www.TransUnion.com, 1-800-680-7289
• Contact your financial institutions, and close any accounts opened without your permission or tampered with.
• Check your Social Security Administration earnings statement annually. You can create an account online at www.ssa.gov.

If your SSN is compromised and you know or suspect you are a victim of tax-related identity theft, take these additional steps:

• Respond immediately to any IRS notice; call the number provided
• Complete IRS Form 14039, Identity Theft Affidavit. Use a fillable form at IRS.gov, print, then mail or fax according to instructions.
• Continue to pay your taxes and file your tax return, even if you must do so by paper.

If you previously contacted the IRS and did not have a resolution, contact the Identity Protection Specialized Unit at 1-800-908-4490. We have teams available to assist.

How to reduce your risk

• Don’t routinely carry your Social Security card or any document with your SSN on it.
• Don’t give a business your SSN just because they ask – only when absolutely necessary.
• Protect your personal financial information at home and on your computer.
• Check your credit report annually.
• Check your Social Security Administration earnings statement annually.
• Protect your personal computers by using firewalls, anti-spam/virus software, update security patches and change passwords for Internet accounts.
• Don’t give personal information over the phone, through the mail or the Internet unless you have either initiated the contact or are sure you know who is asking.

The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.
Report suspicious online or emailed phishing scams to:phishing@irs.gov. For phishing scams by phone, fax or mail, call: 1-800-366-4484. Report IRS impersonation scams to the Treasury Inspector General for Tax Administration’s IRS Impersonation Scams Reporting.

Tax-related identity theft occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund. You may be unaware you are a victim until you receive an IRS notice or you file your return, but it is rejected because your SSN already has been used. It’s important that you take steps to protect all of your personally identifiable information.

Don’t fall for common scams

• An unexpected email purporting to be from the IRS is always a scam. The IRS does not initiate contact with taxpayers by email or social media to request personal or financial information. If you receive a scam email claiming to be from the IRS, forward it to phishing@irs.gov.
• An unexpected phone call from someone claiming to be an IRS agent, either threatening you with arrest or deportation if you fail to pay immediately, is a scam. In another variation, the caller requests your financial information in order to send you a refund. Report these calls and other IRS impersonation schemes to the Treasury Inspector General for Tax Administration at 1-800-366-4484 or online at IRS Impersonation Scam Reporting.
• If you discover a website that claims to be the IRS but does not begin with ‘www.irs.gov,’ forward the link to phishing@irs.gov.

Tips to Protect your SSN and identifiable information

• Keep your card and any other document that shows your Social Security number in a safe place; DO NOT routinely carry your card or other documents that display your number.
•  Be careful about sharing your number, even when you are asked for it; ONLY share your SSN when absolutely necessary.
• Protect you personal financial information at home and on your computer.
• Check your credit report annually.
• Check your Social Security Administration earnings statement annually,
• Protect your personal computers by using firewalls, anti-spam/virus software, update security patches and change passwords for Internet accounts.
• Protect your personally identifiable information; keep it private. Only provide your SSN when YOU initiate the contact or you are sure who you know is asking.

About data breaches

Not all data breaches or computer hacks result in identity theft and not all identity theft is tax-related identity theft. It’s important to know what type of personally identifiable information was stolen. For example, did a data breach compromise your credit card or did it compromise your SSN?

If you’ve been a victim of a data breach, keep in touch with the company to learn what it is doing to protect you. Follow the steps recommended by the Federal Trade Commission’swww.identitytheft.gov site.

If your SSN was compromised, follow the steps outlined in the Taxpayer Guide to Identity Theft.

The IRS mails millions of notices and letters to taxpayers each year. There are a variety of reasons why we might send you a notice. Here are the top 10 tips to know in case you get one.

1.    Don’t panic. You often can take care of a notice simply by responding to it.

2.    An IRS notice typically will be about your federal tax return or tax account. It will be about a specific issue, such as changes to your account. It may ask you for more information. It could also explain that you owe tax and that you need to pay the amount that is due.

3.    Each notice has specific instructions, so read it carefully. It will tell you what you need to do.

4.    You may get a notice that states the IRS has made a change or correction to your tax return. If you do, review the information and compare it with your original return.

5.    If you agree with the notice, you usually don’t need to reply unless it gives you other instructions or you need to make a payment.

6.    If you do not agree with the notice, it’s important for you to respond. You should write a letter to explain why you disagree. Include any information and documents you want the IRS to consider. Mail your reply with the bottom tear-off portion of the notice. Send it to the address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.

7.    You won’t need to call the IRS or visit an IRS office for most notices. If you do have questions, call the phone number in the upper right-hand corner of the notice. Have a copy of your tax return and the notice with you when you call. This will help the IRS answer your questions.

8.    Always keep copies of any notices you receive with your other tax records.

9.    Be alert for tax scams. The IRS sends letters and notices by mail. The IRS does not contact people by email or social media to ask for personal or financial information.

10.    For more on this topic visit IRS.gov. Click on the link ‘Responding to a Notice’ at the bottom left of the home page. Also, see Publication 594, The IRS Collection Process. You can get it on IRS.gov/forms at any time.

The Affordable Care Act contains several tax provisions that affect employers. Under the ACA, the size and structure of a workforce – small, or large – helps determine which parts of the law apply to which employers.

The number of employees an employer had during the prior year determines whether it is an applicable large employer for the current year. This is important because two provisions of the Affordable Care Act apply only to applicable large employers. These are the employer shared responsibility provision and the employer information reporting provisions for offers of minimum essential coverage.

An employer’s size is determined by the number of its employees.

• An employer with 50 or more full-time employees or full-time equivalents is considered an applicable large employer – also known as an ALE – under the ACA.
• For purposes of the employer shared responsibility provision, the number of employees a business had during the prior year determines whether it is an ALE the current year. Employers make this calculation by averaging the number of employees they had throughout the year, which takes into account workforce fluctuations many employers experience.
• Employers with fewer than 50 full-time or full-time equivalent employees are not applicable large employers.
• Calculating the number of employees is especially important for employers that have close to 50 employees or whose work force fluctuates during the year.

To determine its workforce size for a year, an employer adds the total number of full-time employees for each month of the prior calendar year to the total number of full-time equivalent employees for each calendar month of the prior calendar year. The employer then divides that combined total by 12.

You may be tempted to forget all about your taxes once you’ve filed your tax return. Do not give in to that temptation. If you start your tax planning now, you may avoid a tax surprise when you file next year. Now is a good time to set up a system so you can keep your tax records safe and easy to find. Here are some IRS tips to give you a leg up on next year’s taxes:

• Take action when life changes occur.  Some life events can change the amount of tax you pay. Some examples that can do that include a change in marital status or the birth of a child. When they happen, you may need to change the amount of tax withheld from your pay. To do that, file a new Form W-4, Employee’s Withholding Allowance Certificate, with your employer. Use the IRS Withholding Calculatortool on IRS.gov to help you fill out the form.
• Report changes in circumstances to the Health Insurance Marketplace.  If you enroll in insurance coverage through the Health Insurance Marketplace in 2015, you should report changes in circumstances to the Marketplace when they happen. Report events such as changes in your income or family size. Doing so will help you avoid getting too much or too little financial assistance in advance.
• Keep records safe.  Put your 2014 tax return and supporting records in a safe place. If you ever need your tax return or records, it will be easy for you to get them. For example, you may need a copy of your tax return if you apply for a home loan or financial aid. You should use your tax return as a guide when you do your taxes next year.
• Stay organized.  Make tax time easier. Have your family put tax records in the same place during the year. That way you won’t have to search for misplaced records when you file next year.
• Shop for a tax preparer.  If you want to hire a tax preparer to help you with tax planning, start your search now. Choose your tax preparerwisely. Use the Directory of Tax Return Preparers tool on IRS.gov to find tax preparers in your area with the credentials and qualifications that you prefer.
• Think about itemizing.  If you claim a standard deduction on your tax return, you may be able to lower your taxes if you itemize deductionsinstead. A donation to charity could mean some tax savings. See the instructions for Schedule A, Itemized Deductions, for a list of deductions.
• Stay informed.  Subscribe to IRS Tax Tips to get emails about tax law changes, how to save money and much more. You can also get Tax Tips on IRS.gov or IRS2Go, the IRS mobile app. You’ll receive Tips each weekday in the tax filing season and three days a week in summer. You will also get Special Edition Tax Tips at other times during the year.

Planning now can pay off with savings at tax time next year