Tax Tips for Individuals

The IRS’ “Dirty Dozen” — What Tops This Year’s List? Part 1

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Every year, the IRS releases its list of the “dirty dozen” scams that taxpayers, including business owners, should be aware of to protect themselves against fraud and identity theft.

As you begin preparing for tax season, here’s part 1 of our recap so you don’t fall victim to these sophisticated cons and schemes:

  1. Phishing or smishing. Designed to steal sensitive personal information, these scams target taxpayers with fake communications from entities posing as the IRS or state taxing authorities. Phishing schemes are generally sent in the form of an email, luring potential victims with the promise of a phony tax refund or the threat of legal action. Smishing scams use similar intimidation tactics via text or SMS messages. Be cautious of any unsolicited emails or texts requesting personal or financial information.
  2. Aggressive promoters of ERC claims. Many employee retention credit (ERC) promoters are responsible for leading unsuspecting employers astray, causing them to file a claim in error. These questionable claims add up to stiff penalties, hefty interest payments and potentially even criminal prosecution. The IRS urges you to carefully review the ERC guidelines before submitting a claim.
  3. Online account help scams. In this scam, a “helpful” third party offers to assist taxpayers in setting up an online IRS account where users can view balances, see copies of their IRS notices and more. With your log-in information in hand, they can easily access your personal information and steal your identity. Be sure to establish an account directly through IRS.gov to prevent the risk of information theft.
  4. Fuel tax credit claims. Similar to the ERC credit, promoters are pushing improper fuel tax credit claims that taxpayers aren’t qualified to receive — and they charge a substantial fee to the taxpayer to make these false claims. Scammers collect the fees while you are left with the responsibility of righting this wrong. Remain cautious and look to a reputable tax professional for their expertise regarding this credit.
  5. Offer in compromise mills. An offer is compromise is a legitimate IRS program that helps taxpayers settle their tax debt for less than what’s owed. But very few people actually qualify.In this scheme, scammers lure their targets with the promise of resolving debt through negotiating an offer in compromise, often requiring hefty fees for the bogus service. If it sounds too good to be true, it is. The phony deal will cost you, but it won’t deliver on its promises.
  6. Fake charities. Following a natural disaster or hardship, some fraudulent groups prey on good-hearted individuals and pressure them into making donations quickly to support the cause — and claim a deduction on their income tax return. Unless you can research and verify the charity, you could be giving your money away to a scammer. Do your due diligence, especially if you feel coerced into giving.

Stay tuned for continued guidance as we recap more scams from the dirty dozen list. In the meantime, don’t hesitate to reach out to the tax professionals at Magone & Company. We’re here to help.

This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your unique circumstances.

 

Unwrap Savings This Holiday Season: 7 Tax To-dos

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‘Tis the season for twinkling lights, holiday cheer and…tax planning?

As the final days of the year rapidly approach, it’s time to start checking off your tax to-do list for a merrier 2025. Here are some tips to help optimize your tax situation and avoid a Scrooge-like surprise come April.

1. Estimate your taxes. It’s not too late to estimate your 2025 tax liability, ensuring you’re paying enough through withholding or estimated tax payments. Review your income, deductions and credits for the year, and make any necessary adjustments before the year-end.

 Accurate tax estimation and proper record organization not only helps with current year compliance; it also provides a foundation for future financial planning and potential audit defense if you need one.

2. Consolidate financial records. Gather and organize all financial documents such as W-2s, 1099s, receipts, investment statements and records of any additional income streams. Remember, taxable income extends beyond your salary. Investment gains, freelance work, rental income and even certain Social Security benefits all impact your tax obligation.

Act now to help streamline the filing process and avoid missing out on potential deductions or credits, as well as any potential issues with the IRS.

3. Review your retirement accounts. If you have a 401(k), IRA or other retirement savings plan, review your contributions for the year. Contributions are typically tax-deductible, so by contributing the maximum amount allowed, you can lower your tax bill and grow your retirement savings at the same time.

Additionally, if you’re over 50, you may be eligible to make catch-up contributions to your retirement accounts to save even more, while benefiting from additional tax savings.

4. Make charitable giving part of the giving season. The spirit of giving is alive and well, and the IRS loves it too. You can potentially reduce your tax bill by making charitable donations to qualified 501(c)(3) organizations.

 If you’re 70½ or older, you may consider making a Qualified Charitable Distribution (QCD), transferring up to $100,000 directly from your IRA to an eligible charity. If you have loved ones you’d like to gift, explore options like a 529 college savings plan or Roth IRA contributions for gifting them with your generosity — and saving on your taxes.

5. Capitalize on education-related tax breaks. If you or a family member are attending college, trade school or another higher-learning institution, take advantage of valuable tax credits and deductions related to tuition, fees and education-related expenses.

 The American Opportunity Tax Credit and Lifetime Learning Credit can boost your tax refund, while contributions to 529 college savings plans offer future tax-free growth. Review your eligibility for these education-focused tax benefits before the year ends.

6. Optimize your HSA and FSA accounts. Health Savings Accounts (HSA) offer unique triple tax advantages: tax-deductible contributions, tax-free growth and tax-free withdrawals for qualified medical expenses. While most HSAs roll over into the next year, it’s still important to gather all receipts for all HSA distributions, create digital copies of all forms and receipts, and sort qualified vs. non-qualified expenses to keep for your records come filing time. Assess whether to make additional contributions before year-end or wait until the New Year.

Flexible Spending Accounts (FSA) funds must be used within the plan year, though some employers offer a grace period (usually until March 15). Review your FSA balance carefully and create a plan to use any remaining funds before they’re forfeited. This might involve scheduling medical appointments, purchasing eligible supplies or ordering prescription refills. Submit any outstanding FSA claims before the December 31st deadline.

7. Consult a tax professional. Tax professionals, such as certified public accountants (CPAs) or enrolled agents, have specialized knowledge of the latest tax laws, regulations and filing requirements. They can help identify deductions and credits you may have overlooked, recommend tax-saving strategies tailored to your unique situation and ensure you’re in compliance with all applicable rules and deadlines.

Tax pros can also provide ongoing support throughout the year, assisting with quarterly estimated tax payments or advising on the tax implications of major life events like a job change, home purchase or retirement.

Looking for a trusted CPA? The professionals at Magone & Company will consider every deduction and incentive to help make the most of your tax situation for the 2024 tax year and beyond. Call us today at (973) 301-2300 to schedule a confidential consultation. Happy holidays!

This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your unique circumstances.

Countdown to Tax Savings: Year-end Reminders for Individuals

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As the year winds down, there’s an important deadline looming: the end of the tax year. The good news is you still have time to strategize and potentially reduce your tax burden before the New Year. Here are a few possibilities to get you started:

Check your tax withholding

It you had unexpected income or gains earlier this year and haven’t made estimated tax payments, increase your withholding for the remainder of 2024 to reduce or eliminate any underpayment.

Our tax experts can help you adjust your withholding amount to help eliminate an underpayment penalty.

Consider bunching itemized deductions

When filing, you can deduct the greater of itemized deductions — mortgage interest, charitable contributions, medical expenses and taxes — or the standard deduction.

The 2024 standard deduction is $14,600 for singles and married individuals filing separately, $29,200 for married couples filing jointly and $21,900 for heads of households. If your total itemized deductions will be close to the standard deduction, consider “bunching” itemized deductions, so they exceed your standard deduction.

Sell investments

It you’re looking to sell appreciated securities, it’s typically best to wait until they’ve been held for over a year to generate a long-term capital gain. You may also consider selling stocks that are worth less than amount you paid for them. Taking the resulting capital losses this year will shelter capital gains.

Note that selling investments to generate a tax gain or loss doesn’t apply to investments held in a retirement account where the gains and losses are not currently taxed.

Make charitable donations

You can reduce your 2024 taxable income by making charitable donations, as long as your itemized deductions exceed the standard deduction. If you donate assets to a public charity, you can deduct their fair market value and avoid the tax you would’ve paid if you sold the asset and donated the cash.

If you’re 70½ or older by the end of 2024, have a traditional IRA and are unable to itemize deductions, you may consider making 2024 charitable donations via qualified charitable distributions from your IRA.

Convert a traditional IRA into a Roth account

Converting makes sense when you expect to be in the same or higher tax bracket during your retirement years. In that situation, the current tax cost from a conversion this year could be a small price to pay for eluding potentially higher tax rates in the future on the account’s post-conversion earnings.

Spend remaining FSA funds

Generally, flexible spending account (FSA) funds not spent before the plan’s year-end are forfeited. There are a few exceptions, as some employers can allow their employees to carry over up to $640 from their 2024 medical FSA into their 2025 account.

It’s also a good time to consider increasing the amount set aside for next year’s FSA, especially if you put aside too little for the past year and you’re anticipating similar medical costs going forward.

Take advantage of the annual gift tax exclusion

The basic estate, gift and generation skipping transfer tax exclusion is scheduled to decrease significantly from $13.61 million ($27.22 million for married couples) in 2024 to $5 million ($10 million for married couples) in 2026. Annual exclusion gifts can help reduce your taxable estate. For 2024, you can make annual exclusion gifts up to $18,000 per gift recipients, with no limit on the number of gift recipients.

At Magone & Company, we can help you explore practical, easy-to-implement strategies to achieve a more favorable tax situation. We look forward to working together to create a plan based on your unique tax situation. Give us a call today at (973) 301-2300.

This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your tax situation.

Did Your Hobby Just Become a Business? See What the IRS Has to Say

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Have a hobby that’s become a passion? Maybe you’ve been crafting decorative wreaths to sell at local street fairs. Or perhaps you turned your love of fashion into a small side hustle, reselling thrifted treasures or styling your friends for big events.

Anytime money is exchanged for goods or services, the IRS will expect their cut. With part-time gigs becoming a more common way to generate income, here’s what you need to know from an IRS standpoint.

Defining hobby vs. business

The IRS considers a hobby any activity that’s engaged in primarily for pleasure, recreation or personal fulfillment — not for profit. But there are exceptions. For example, if you occasionally sell your homemade quilts at a yard sale and make a few bucks, it’s not typically considered taxable business income.

On the other hand, a business is an endeavor undertaken with the intention of making a profit. The key here is your intent.

You might not be profitable yet, but if your goal is to make money, the IRS may consider this a business. Other factors indicative of a business (according to the IRS) include whether or not you:

  • Maintain complete and accurate books and records
  • Put time and effort into the activity, demonstrating a plan to make it profitable
  • Depends on the income generated from the activity
  • Have been successful in making a profit in similar activities in the past
  • Expect to make a future profit

Understanding the implications

Whether it’s a hobby or business, maintaining thorough records is crucial for potential dealings with the IRS. For hobbies, keep track of any income earned, especially if you’re generating sales through a payment app. If you receive a Form 1099-K, you’ll need to report the earnings.

 For businesses, you’ll also want to record and report all income and expenses. You may also make applicable deductions. Keeping meticulous records will not only help at tax time but can also provide valuable insights into your business’s financial health. Be sure to regularly review your finances and adjust your strategies as needed.

For fun and profit?

The last thing any taxpayer wants is a surprise letter from the IRS. As your hobby grows, or if you’re considering turning your passion into something more, get up to speed with the tax implications. The experts at Magone & Co can help. For tax planning guidance, give us a call today at (973) 301-2300.

 

This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your tax situation. 

How Tax Debt Could Impact Your International Travel Plans

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Gearing up for a summer getaway abroad? Before you head to the airport, be aware of a potential roadblock for delinquent taxpayers — passport problems.

In 2015, the Fixing America’s Surface Transportation Act empowered the IRS to inform the State Department about taxpayers with “seriously delinquent tax debts.” This information can be used to deny passport applications or renewals for individuals who owe a hefty amount to Uncle Sam. As of 2024, the “seriously delinquent” threshold stands at $62,000, including back taxes, interest and penalties.

So how can you help ensure you’re in your seat for takeoff?

Before the gate closes…

Affected taxpayers will receive written notice from the IRS outlining steps to resolve the issue.

Once the tax debt is settled, the IRS will reverse the certification within 30 days. The State Department also allows a 90-day period to make full payments or set up a payment arrangement before denying passport applications.

It’s essential to act promptly if international travel plans are on the horizon. Be sure to:

  • Pay the tax debt in full or set up a payment plan with the IRS to settle the debt in installments
  • Consider an Offer in Compromise (OIC)
  • Comply with a settlement agreement
  • Request a collection due process appeal or relief

An important reminder: The IRS will never call or email in an attempt to settle a tax debt, nor will they require payment via gift cards or other unorthodox means. Verify through official channels or contact your accountant or attorney for assistance to avoid falling victim to fraud schemes.

Departing on time

Whether you’re traveling for business or pleasure, don’t miss your flight due to delinquent taxes. By exploring these relief options and seeking guidance from a trusted tax advisor, you can navigate through challenges with a smoother landing.

Reach out to the tax experts at Magone & Company, or give us a call today at (973) 301-2300 for an evaluation of your tax situation.

 

This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your tax situation.

Before You File, Double Check Those Medical Bills

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According to the IRS, medical expenses include the “costs of diagnosis, cure, mitigations, treatment or prevention” of an injury or disease. And dealing with these costs can be a challenging part of life.

But what many taxpayers may not realize is that there are specific tax laws governing the deduction of certain medical expenses to help you save.

Understanding these regulations is essential to ensure you’re maximizing your tax benefits while staying compliant with the law. Here’s a rundown of the basic rules:

Flexible spending accounts (FSAs). An FSA is a tax-advantaged account offered by some employers to help alleviate qualified health-related expenses like prescriptions or eyeglasses. This type of account has a “use-it-or-lose-it” feature, so any money leftover at the end of the year will be forfeited. Keep that in mind when allocating how much to contribute for the year.

Medical and dental deductions. Medical and dental expenses that aren’t reimbursed by your insurance may be deducted to the extent your annual total exceeds 7.5% of your adjusted gross income.

To qualify for medical deductions, you must also itemize. When adding up your medical costs, be sure to include the cost of traveling to your doctor or medical facility for treatment. If you go by car, you can deduct a flat mileage rate, adjusted by the IRS each year, or you can keep track of your actual out-of-pocket expenses for gas, oil, repairs, parking and tolls.

So what’s eligible?

To make the most of your tax deductions, here’s a quick breakdown of items that you may and may not write off.

Questions about your medical deductions? Reach out to the CPAs at Magone & Company to ensure you’re on track to save.

Eligible Not Eligible
A physician-directed weight-loss program undertaken to treat obesity Meal replacements, diet foods and supplements, or a weight-loss program to maintain appearance
Treatment at a drug or alcohol clinic, a smoking-cessation program or  a prescription for nicotine withdrawal medication A doctor-recommended trip or vacation to rest or boost your mood
Acupuncture Marriage counseling
Dentures, hearing aids and orthopedic shoes Household help
Admission and transportation to a medical conference concerning the chronic illness impacting you or your family member The collection and storage of DNA (unless you can prove how DNA will be used for diagnostic testing)
Childbirth classes for a mother-to-be Maternity clothes
Teeth cleaning and orthodontia Teeth bleaching
A wig that benefits the mental health of patients suffering hair-loss from disease Hair transplants
Contact lenses and peripheral materials Retin-A for wrinkles
Nursing services at home or a care facility Home nursing services for a normal, healthy baby

 

This information is provided for educational purposes and should not be construed as financial or legal advice. Please consult your accountant or attorney for advice specific to your situation.