“On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act.”
Fact: Most Americans wonder how the current wave of tax reform will affect them. This article by Kimberly Amadeo summarizes how the Act changes the amount of income tax that both individuals and businesses pay.
Significant changes in the Act for individuals include
Lower tax rates (highest rate in 2017 was 39.6 percent drops to 37 percent in 2018) could mean an increase in the amount individuals take home each payday.
Personal exemptions ($4,150 in 2017) per person are eliminated.
The standard deduction almost doubles for a single person ($6,350 in 2017) to $12,000. For married and joint filers the standard deduction ($12,700 in 2017) is now $24,000.
More taxpayers will opt to take the standard deduction instead of itemizing deductions.
For those taxpayers who choose to itemize, many itemized deductions that were previously allowed have been eliminated.
Taxpayers who itemize can still deduct charitable contributions, most mortgage interest, retirement savings, and student loan interest.
Taxpayers who itemize can still deduct up to $10,000 in state and local taxes.
For businesses, the largest and most signification change is lowering the maximum corporate tax rate from 35 percent to 21 percent beginning in 2018.
The article does provides more specific information about how the Tax Cuts and Jobs Act affects both individuals and businesses.
Recently, there have been numerous calls from the “IRS” threatening you with lawsuits or jail sentences unless you pay up immediately. Don’t be a victim. The IRS doesn’t initiate contact with taxpayers by e-mail, text message or social media channels to request personal or financial information. This includes requests for PIN numbers, passwords or similar access information for credit cards, banks or other financial accounts.
Remember, the IRS will never
Call to demand immediate payment, nor will the agency call about taxes owed without first sending you a bill.
Demand that you pay taxes without giving you the opportunity to question or appeal the amount.
Require you to use a specific payment method for your taxes, such as a prepaid debit card.
Ask for a credit or debit card number over the phone.
Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.
You get a call from a scammer pretending to be with the IRS, threatening you’ll be arrested if you don’t pay taxes you owe right now. You’re told to wire the money or put it on a prepaid debit card. The scammer might threaten to deport you or say you’ll lose your driver’s license. Some scammers even know your Social Security number, and they fake caller ID so you think it really is the IRS calling. But it’s all a lie. If you send the money, it’s gone.
The Federal Trade Commission advises that if you get illegal sales calls, robocalls, or fake IRS calls, it’s best to ignore them. Don’t interact in any way. Don’t press buttons to be taken off the call list or talk to a live person or call back. When you have a tax problem, the IRS will first contact you by mail. The IRS won’t ask you to wire money, pay with a prepaid debit card, or share your credit card information over the phone. If you get fake calls, file a complaint with the Treasury Inspector General for Tax Administration at tigta.gov. You also can file a complaint with the FTC at ftc.gov/complaint. If you’re concerned there’s a real tax problem, call the IRS directly at 800-829-1040.
“Income tax identity theft is a huge problem that is only getting worse.”
According to a 2015 report of the General Accountability Office (GAO), the IRS paid out $5.8 billion in bogus refunds to identity thieves for the 2013 tax year–the latest year that complete data are available. To make matters worse, the actual dollar amount is probably higher because of the difficulty of knowing the amount of undetected fraud.
To combat the problem, the IRS announced a new cooperative effort between the IRS, state tax administrators, and private tax preparation services to fight income tax identity theft. A number of specific steps are outlined in this article. Unfortunately, the experts admit there are additional problems to stopping identity thieves that are not addressed in the new program. In fact, most experts agree that additional regulations are required to coordinate employer reporting of employee wages with Social Security reporting requirements.
For individual taxpayers, bogus tax returns become a very real and personal problem if their social security number is stolen and their personal tax return is flagged by the IRS as suspicious. To help resolve disputed tax returns, the office of the National Taxpayer Advocate, which is an internal watchdog for consumers at the IRS, suggests that you file a police report and then mail a paper tax return with an attached Form 14039–Identity Theft Affidavit with a copy of the police report. In addition to additional documentation, expect that it may take on average 278 days to resolve a claim if you become a victim of income tax identity theft.
You may want to use the information in this blog post and the original article to
Discuss the importance of protecting your personal identity and especially your social security number.
Stress the importance of monitoring your credit report and all financial documents that could indicate your personal identity has been stolen.
What steps can you take to protect your personal identity?
There are a number of credit monitoring services that will help protect your identity. Most charge $75 to $100 or more a year to monitor your financial and personal information. Do you feel this service is worth the cost?
Phone calls from criminals impersonating an Internal Revenue Service agent are the most common and serious tax scams reported by the IRS. Taxpayers should be aware the IRS never calls demanding payment or to ask for a credit card; the agency will first make contact by mail.
Phishing involves a taxpayer receiving an unsolicited email trying to obtain financial or personal information. These phony emails often look very official with an IRS logo. Tax-related identity theft occurs when a stolen a Social Security number is used to file a tax return for a refund. Fraudulent tax preparation services prey on innocent taxpayers with promises of large refunds. Be sure to investigate the credentials of the tax preparer and make sure the preparer will be available after April 15. Avoid tax preparers who base their fees on a percentage of the refund or promise a large refund.
Other common tax scams include inflated refund claims, fake charities, filing false documents to hide income, abusive tax shelters, falsifying income to claim tax credits, and excessive claims for fuel tax credits.
For additional information on tax scams, click here:
Have students talk with others to obtain information about actions taken to file their taxes.
Have students prepare a list of warning signs of tax scams.
What attitudes and behaviors can result in a person being a victim of a tax scam?
What actions can taxpayers take to avoid being a victim of a tax scam?
Certain provisions of the Affordable Care Act will probably affect your federal income tax return when you file this year. The law requires that you and each member of your family have qualifying health insurance coverage for each month of the year, qualify for an exemption from the coverage requirement, or make an individual shared responsibility payment when filing your federal income tax return.
Most taxpayers will simply check a box on the tax return to indicate that each member of their family had qualifying health coverage for the whole year. Qualifying health insurance includes coverage for most, but not all, types of health care coverage plans. If you bought coverage through the Health Insurance Marketplace, you should receive Form 1095A, Health Insurance Marketplace Statement from your Marketplace by early February.
As strange as it may sound, U.S. federal tax law requires that stolen property, bribes, kickbacks, and income from other illegal activities be reported as income. And, embezzlers, thieves, and bootleggers are allowed to take deductions for costs relating to generating that criminal “income.”
Due to an extensive network of hidden criminal earnings and witnesses unwilling to testify against him (for fear of their lives), infamous American gangster Al Capone was not prosecuted for illegal activities. He was, however, targeted and convicted of not paying taxes.
The government can collect taxes on illegal activity if it can be proven that an individual received income. Soviet spy Aldrich Ames earned more than $2 million cash for espionage. He was charged with tax evasion because none of the money was reported on his tax return.
Regarding stolen property, IRS instructions note that “if you steal property, you must report its fair market value in your income in that year you steal it, unless in the same year, you return it to its rightful owner.”
The IRS allows embezzlers, thieves, and bootleggers to take deductions for costs related to their criminal activity. A taxpayer who was guilty of violating the Securities Act of 1933 was allowed to deduct the legal fees spent defending himself.
For additional information on “tax absurdities” go to
The nation’s chief tax collector made a rare plea for overhauling the nation’s tax laws, saying the Internal Revenue Service is eager ‘to do whatever we can’ to help Congress simplify the tax code.”
John Koskinen, who rarely discusses the nation’s tax policy, told reporters the IRS needs to be involved in tax reform discussion to make sure the “simplication really is simple.” According to Koskinen, the two issues most in need of an overhaul are the taxation of American companies doing business abroad and the alternative minimum tax.
Koskinen also said it was a mistake to attempt to reform the multitudes of tax credits, deductions, and exemptions one by one. He likened that approach to fighting a “guerrilla war” with special interests. He indicated he would prefer to tackle tax reform all at once. He said “the advantage of doing it all at once is that the lobbyists can’t all get in the door at the same time.”
The last major tax reform of the nation’s tax code occurred in 1986.
Whether retirement is coming soon or feels far away, it’s something you need to think about.
This article encourages students to make retirement planning a part of their budget and one of their financial goals. It also points out the benefits of starting early—even if students can contribute only a small amount because of other obligations that include paying off student loans and other debt obligations, paying rent, buying groceries, and establishing an emergency fund.
A very good suggestion included in this article is to start by saving just $25 from each paycheck, and then increase the amount until someone feels they have reached a limit they are comfortable with.
Other suggestions include participating in a 401(k) account at work and using bonuses and salary increases to boost the amount contributed to your retirement account.
Are you saving enough for your retirement? The Retirement Estimator gives you an estimate based on your Social Security earnings. However, be aware that it is only an estimate since your earnings may increase or decrease in the future. Moreover, your benefit amount may be affected by military service, railroad employment or pensions earned through work on which you did not pay Social Security tax. Remember, your estimated benefits are based on current law and the law may change because by 2033, the payroll taxes collected will be enough to pay only 77 cents for each dollar of scheduled benefits.