Your Friends that Count

While multiple media outlets were reporting last week that the Internal Revenue Service (IRS) was over 1.2 million returns backlogged prior to the start of tax season due to the government shutdown, taxpayers should expect delays as warned. Additional delays may also be caused due to new laws related to stopping identity theft. Some delays could be two weeks to a month or more.

Expecting delays doesn’t mean taxpayers may as well wait to file their returns. Getting a tax return filed as quickly as possible can alleviate both concerns – the IRS treats tax returns on a first come first served basis, so the sooner you complete your return the sooner it will get processed and the sooner you complete your return the less chance for a scammer to beat you to your refund.

The IRS estimates it paid out $1.3 billion in fraudulent tax refunds last year. It’s a real issue that can cause more headaches than you think. If you're a victim of identity theft, you're going to have to submit documents to the IRS to get the identity issue resolved, which can be a long and difficult process. Additionally, if a criminal has the necessary material to file a fraudulent return, think about what else they could do with that information.

The IRS suggests the following steps if you might be a victim of identity theft:

• File a report with the local police.
• File a complaint with the Federal Trade Commission (FTC) at www.consumer.ftc.gov or the FTC Identity Theft hotline at 877-438-4338 or TTY 866-653-4261.
• Contact one of the three major credit bureaus to place a “fraud alert’ on your account:

• Equifax – www.equifax.com, 800-525-6285
• Experian – www.experian.com, 888-397-3742
• TransUnion – www.transunion.com, 800-680-7289

• Close any accounts that have been tampered with or opened fraudulently.

If your SSN has been compromised and you know or suspect you may be 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 800-908-4490. We have teams available to assist.

If you are unable to get your issue resolved and are experiencing financial difficulties, contact the Taxpayer Advocate Service toll-free at 877-777-4778.

Now is a good time to consult a tax professional to best determine how the law affects your unique situation. John Kasperek Co., Inc. is a leading expert accounting firm in the Chicago Southland region and can be reached at (708) 862-2262 or email This email address is being protected from spambots. You need JavaScript enabled to view it..

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According to the Internal Revenue Service (IRS), about 75% of taxpayers take the standard deduction but could be missing out on valuable tax deductions if they can itemize. If you are like the thousands of Americans who will owe taxes or will have difficulty finalizing your returns next year, understanding some basic deductions accepted by the IRS in advance could have a significant impact on your bottom line. To maximize your returns, consider the advantages of year-end tax planning to set up your best possible tax scenario in the New Year.

The tax laws are pretty straightforward, but beware of the alternative minimum tax and always consult a tax professional to best determine how the law affects your unique situation (John Kasperek Co., Inc. is offering a $25 credit for individuals and $50 for businesses who begin planning before the year-end). Here are some tips to consider as you explore your year-end options:

Accelerate Your Deductions
Before the year’s over, make those charitable donations or expense purchases that will be considered deductible. You control the timing, so contact your favorite charity to make donations, purchase tickets or donate in-kind contributions in advance. Other expenses you can accelerate include an estimated state income tax bill due January 15, a property tax bill due early next year, or a doctor’s bill. Remember, you must have a receipt to back up any contribution, regardless of the amount.

Deferred Income
Income is taxed in the year it is received, but you may be able to defer a year-end bonus into next year if your employer has done so before. If you are self-employed, delaying billings until late December can ensure that you won't receive payment until the next year. Whether you are employed or self-employed, you can also defer income by taking capital gains in 2018 instead of in 2017 if you think you will be in the same or a lower tax bracket next year. (You don't want to be hit with a bigger tax bill next year if additional income could push you into a higher tax bracket.)

Sell Investments
Selling investments such as stocks and mutual funds to realize losses can offset any taxable gains you have realized during the year. Losses offset gains dollar for dollar, and if your losses are more than your gains, you can use up to $3,000 of excess loss to wipe out other income, and if you have more than $3,000 in excess loss, it can be carried over to the next year.

Contribute to Retirement Accounts
Tax-deferred retirement accounts can grow to a substantial sum because they compound over time free of taxes. You may want to increase your 401(k) contributions so that you are putting in the maximum amount of money allowed ($18,000 for 2017, $24,000 if you are age 50 or over). At a minimum, try to contribute the amount that will be matched by employer contributions.

Understanding Your Situation
If your qualifying expenses exceed the standard deduction, which in 2017 is $6,350 if you are single, or $12,700 if you’re married filing jointly, then you likely should maximize your deductions and itemize. However, sometimes accelerating deductions can cost you money if you're already in the alternative minimum tax (AMT) or if you trigger it. The AMT is figured separately from your regular tax liability and with different rules—you must pay whichever tax bill is higher. This is a year-end issue because certain expenses that are deductible under the regular rules—and therefore candidates for accelerated payments—are not deductible under the AMT. State and local income taxes and property taxes, for example, are not deductible under the AMT. So, if you expect to be subject to the AMT in 2017, consider paying the installments when they are due in January 2018 as opposed to paying them in December 2017.

If you are still waiting for your federal income tax return, you probably think you will be facing your first Internal Revenue Service (IRS) Audit. But don’t stress yourself out just yet, being selected for an audit doesn’t necessarily suggest there are issues and there are a number of other reasons your refund could be held up.

First and foremost, if you are selected for an audit, the IRS will notify you via mail on official letterhead. IRS Audits are NEVER communicated through phone calls, text messages or emails – don’t fall victim to these common scams. Selection for an audit does not always mean there’s a problem. The IRS uses several methods of random selection in their process along with computer screening. Another method for selection relates to your return’s involvement with issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.

There are limitations to selection – the IRS has three years to audit tax returns, although they could look back as far as six years if they come across a significant understatement of income. If your return is selected, the IRS manages audits either by mail or through an in-person interview. The IRS will provide all contact information and instructions in the letter you will receive. For an idea of what to expect, visit Audit Techniques Guides.

On the other hand – if you are not under IRS Audit and have not received your return – the U.S. Treasury Department’s Bureau of the Fiscal Service also has the authority to hold back all or part of your refund to cover certain debts you may owe to help pay them off, a practice called “offset.” Common reasons for offset include but are not limited to unpaid federal or state taxes, child or spousal support, a defaulted student loan, or even unemployment compensation to which you were not entitled.

Please keep in mind, as with almost every rule there are exceptions and limitations and John Kasperek Co., Inc. strongly recommends you consult a tax professional to best determine how the law affects your unique situation. The IRS also provides a free Taxpayer Advocate Service (TAS) using Form 911. The TAS is designed to assist both businesses and individual taxpayers with tax-related issues. It provides confidential and personalized service to taxpayers who need help resolving IRS problems that they have not been able to resolve through normal IRS channels. 

Creating a charitable organization is not a difficult task with the help of a good accountant. Many successful individuals, business owners and family trusts spend a significant amount of time, money and effort seeking out and/or vetting organizations to meet their donor goals, when in reality, establishing their own 501(c)(3) may be a much more successful way of creating a legacy of support for a particular cause. Additionally, local charitable service organizations can greatly impact communities with significant at-risk populations.

“There are just two critical steps in creating a charitable organization at the state and federal level in terms of filing articles of incorporation and applying for 501(c)(3) status respectively,” said Kyle Kasperek, of John Kasperek Co., Inc., a certified public accounting firm in Calumet City, Illinois. “Both tasks certainly can be accomplished on your own, but I would recommend guidance from an accounting professional to ensure a successful application particularly as it pertains to gaining tax exemption recognition from the IRS.”

 Kasperek most recently assisted with the establishment of a local youth organization and says the momentum can be “inspiring, impactful and immediate” during the infancy of a charitable organization.

Another common misconception is that creating a charitable organization is expensive. In fact, the Internal Revenue Service (IRS) further lowered the cost of applying for tax-exempt status effective July 1st from $400 to $275 for “small” organizations using the new short-form.  Organizations with less than $250,000 in assets or $50,000 in annual gross income can utilize the three-page 1023-EZ. The Form 1023-EZ was first established back in 2014 to streamline the application process under Section 501(c)(3) of the Tax Code. Previously, all groups seeking charity status regardless of their size were required to use the lengthy 26-page Form 1023.

“Perhaps more significant than the recent fee reduction is that the 1023-EZ has helped and will continue to reduce the backlog of submissions, allowing applicants to move forward much faster with their strategic planning,” added Kasperek.  “And it is a much simpler, less time-consuming form to complete.”