Tax Preparation Services

Be aware of scammers who might contact you via email or over social networking sites claiming to be from the IRS and asking for personal information, which IRS would never do,"

If you are contacted via the Internet or text message by someone claiming to be an IRS agent, you ought to immediate- ly inform the IRS by reporting the suspicious email or text to phishing@irs.gov. Also be aware of emails or texts that tell people to visit web sites that have IRS in the URL, but do not end .gov. The IRS' official web site is www.irs.gov.

It's easy for criminals to e-file using a real name and Social Security number combined with a phony Form W-2 (wages) or fabricated Schedule C (business income). The main thing (identi- ty thieves) want to do with your information is to file your tax return, and collect your “refund," before you find out.

Another form of fraud is when an unscrupulous return prepar- er modifies the bank-routing information on a return so the direct-deposit refund will wind up in his/her own bank account. Other preparers have abused the return information of former clients to file false refund returns in subsequent years.

IRS from all appearances is devoting significant resources to combating the problem. But, if you become a tax-identity theft victim, immediately seek a referral to the IRS Identity Protection Specialized Unit or the Taxpayer Advocate Service using Form 911.

OK, this is no one's favor-ite topic. As a taxpayer, you probably hate receiv-ing 1099s. If you're in business, you probably hate sending them out.

In fact, no one likes 1099s except the IRS. The agen-cy loves them because they allow its computers to keep tabs on ordi-nary taxpayers. The IRS matches nearly all 1099s and W-2s (those are the wage report forms from your employer) against your 1040.

1. It's better to give than receive. This time of year they're inevitable. Generally, businesses must issue the forms to any payee (other than a corporation) who receives $600 or more during the year. And that's just the basic threshold rule; there are many, many exceptions.

2. There are many varieties of 1099. There's a 1099-INT for interest; 1099-DIV for dividends; 1099-G for state and local tax refunds and unemployment ben-efits; 1099-R for pensions and payouts from your individual retirement accounts; 1099-B for broker transactions and barter exchanges; 1099-S for real estate transactions, etc. In fact, there's a dizzying array. There are many categories, but the Form 1099-MISC (for miscellaneous) seems to prompt the most questions and covers the biggest territory.

3. Timing is everything. Normally, businesses must send out Forms 1099 on or before Jan. 31 of each year for the prior cal-endar year.

4. Beware of changed addresses. Whether or not the payer has your correct address, the information will be reported to the IRS (and your state tax authority) based on your Social Security number.

5. The IRS gets them, too. Any Form 1099 sent to you goes to the IRS too. The normal dead-line

6. Report errors immediately. The time delay means you may have a chance to correct obvious errors. So don't just put arriv-ing 1099s in a pile; open them immediately. Suppose you get a 1099-MISC on Jan. 31 reporting $8,000 of pay, when you know you received only $800 from the company that issued the form? Tell the payer immediately. There may be time for the payer to cor-rect it before sending it to the IRS. That's clearly better for you. If the payer has already dispatched the incorrect form to the IRS, ask the payer to send in a corrected form. There's a special box on the form to show it is correcting a prior 1099--so the IRS doesn't just add the amounts together!

7. Report every 1099. The key to Forms 1099 is the IRS' computerized matching. Every Form 1099 includes the payer's employer identification number and the payee's Social Security (or taxpayer identification) num-ber. The IRS matches nearly every Form 1099 with the pay-ee's tax return. There's no perfect solution, but one thing is clear: If you receive a Form 1099, you can't just ignore it, because the IRS won't.

8. IRS "letters." No one likes a tax audit, and there are numerous tales about what will provoke one. But this much is clear: If you forget to report the $500 of interest you earned on a bank account, the IRS will send you a computer-generated letter billing you for the tax on that inter-est. If it's correct, just pay it.

9. Consider state taxes, too. Most states have an income tax, and they will receive all the same information the IRS does. So if you missed a 1099 on your federal return, be aware that your state will probably catch up with it, too.

10. Don't ask. Keeping payers advised of your current address is a good idea, as is reporting errors to payers. But that's where I'd stop. In other words, if you don't receive a Form 1099 that you expect, don't ask for it. If you are expecting a Form 1099, you no doubt know about the income, so just report that amount honestly on your tax return. The IRS computers have no problem with that. In my experi-ence, if you call or write the payer and raise the issue, you may be buying trouble. Forms 1099 are a vital part of the IRS's computer matching program, and nearly all of us receive payments reported in this way. Take these forms seriously. I assure you the IRS does. Robert W. Wood is a tax lawyer with a nationwide practice. The author of more than 30 books including Taxation of Damage Awards & Settlement Payments (4th Ed., 2009), he can be reached at wood@woodporter.com. This discussion is not intended as legal advice and cannot be relied upon for any purpose with-out the services of a qualified professional.

Chuck Trautman EA * 303-734-1040 1040@taxshop.bz