Starting a Business This Summer? Here’s Five Tax Tips

New business owners may find the following five tax tips helpful:
1. Business Structure.  An early choice to make is to decide on the type of structure for the business. The most common types are sole proprietor, partnership and corporation. The type of business chosen will determine which tax forms to file.
2. Business Taxes. There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. In most cases, the types of tax a business pays depends on the type of business structure set up. 
3. Employer Identification Number (EIN).  Generally, businesses may need to get an EIN for federal tax purposes. Search “EIN” on IRS.gov to find out if the number is necessary. If needed, it’s easy to apply for it online.
4. Accounting Method.  An accounting method is a set of rules used to determine when to report income and expenses. Taxpayers must use a consistent method. The two most common are the cash and accrual methods:
a. Under the cash method, taxpayers normally report income and deduct expenses in the year that they receive or pay them.
b. Under the accrual method, taxpayers generally report income and deduct expenses in the year that they earn or incur them. This is true even if they get the income or pay the expense in a later year.
Get all the basics of starting a business on IRS.gov at the Small Business and Self-Employed Tax Center.

Eight Tips to Protect Taxpayers from Identity Theft

Identity theft happens when someone steals personal information for financial gain. Tax-related identity theft happens when someone uses another person’s stolen Social Security number (SSN) or Employer Identification Number (EIN) to file a tax return to obtain a fraudulent refund.
Many people first find out they are victims of identity theft when they submit their tax returns. That’s because the IRS lets them know someone else already used their SSN to file.
The IRS continues to work hard to stop identity theft with a strategy of prevention, detection and victim assistance. So far, the agency has stopped millions of dollars from getting into the hands of thieves.
Check out these eight tips on how to protect against identity theft:
1. Taxes. Security. Together. The IRS, the states and the tax industry need everyone’s help. The IRS launched The Taxes. Security. Together. awareness campaign in 2015 to inform people about ways to protect their personal, tax and financial data. 
2. Protect Personal and Financial Records. Taxpayers should not carry their Social Security card in their wallet or purse. They should only provide their Social Security number if it’s necessary. Protect personal information at home and protect personal computers with anti-spam and anti-virus software. Routinely change passwords for online accounts.
3. Don’t Fall for Scams.  Criminals often try to impersonate banks, credit card companies and even the IRS hoping to steal personal data. Learn to recognize and avoid those fake communications. Also, the IRS will not call a taxpayer threatening a lawsuit, arrest or to demand immediate payment. Beware of threatening phone calls from someone claiming to be from the IRS.
4. Report Tax-Related ID Theft. Here’s what taxpayers should do if they cannot e-file their return because someone already filed using their SSN:

• File a tax return by paper and pay any taxes owed.
• File an IRS Form 14039, Identity Theft Affidavit. Print the form and mail or fax it according to the instructions. Include it with the paper tax return and/or attach a police report describing the theft if available.
• File a report with the Federal Trade Commission using the FTC Complaint Assistant.
• Contact Social Security Administration at www.ssa.gov and type in “identity theft” in the search box.
• Contact financial institutions to report the alleged identity theft.   
• Contact one of the three credit bureaus so they can place a fraud alert or credit freeze on the affected account.
• Check with the applicable state tax agency to see if there are additional steps to take at the state level.

5. IRS Letters. If the IRS identifies a suspicious tax return with a taxpayer’s stolen SSN, that taxpayer may receive a letter asking them verify their identity by calling a special number or visiting an IRS Taxpayer Assistance Center.
6. IP PIN. If a taxpayer is a confirmed ID theft victim, the IRS may issue them an IP PIN. The IP PIN is a unique six-digit number that the taxpayer uses to e-file their tax return. Each year, they will receive an IRS letter with a new IP PIN.
7. Report Suspicious Activity. If taxpayers suspect or know of an individual or business that is committing tax fraud, they can visit IRS.gov and follow the chart on How to Report Suspected Tax Fraud Activity.
8. Service Options. Information about tax-related identity theft is available online. The IRS has a special section on IRS.gov devoted to identity theft and information for victims to obtain assistance.
For more on this Topic, see the Taxpayer Guide to Identity Theft.

Avoid scams. The IRS does not initiate contact using social media or text message. The first contact normally comes in the mail. Those wondering if they owe money to the IRS can view their tax account information on IRS.gov to find out.

Check Withholding Now to Avoid Surprises at Tax Time

The federal income tax is a pay-as-you-go system. Employers generally withhold tax from workers’ wages. Taxpayers also often have taxes withheld from certain other income including pensions, bonuses, commissions and gambling winnings.
People who do not pay tax through withholding, like the self-employed, generally pay estimated tax. In addition, those who earn income such as dividends, interest, capital gains, rent and royalties are usually required to make estimated tax payments.
Each year, because of life events like changes to household income or family size, some people get a larger refund than they expect while others find they owe more tax.  
To prevent a tax-time surprise, the IRS offers these tips:

• New Job. When starting a new job, an employee must fill out a Form W-4, Employee's Withholding Allowance Certificate. Employers use this form to calculate how much federal income tax to withhold from regular pay, bonuses, commissions and vacation allowances. The IRS Withholding Calculator tool on IRS.gov is easy for taxpayers to use to figure how much tax to withhold to avoid surprises.
• Estimated Tax. People who have income not subject to withholding may need to pay estimated tax. Those expecting to owe $1,000 or more than taxes withheld from their wages may also need to make estimated tax payments to avoid penalties. The worksheet in Form 1040-ES, Estimated Tax for Individuals, helps to figure the tax.
• Life Events. A change in marital status, the birth of a child or the purchase of a new home can change the amount of taxes a taxpayer owes. The Managing Your Taxes After a Life Event page on IRS.gov provides resources to explain the tax impact of these changes. In most cases, an employee can submit a new Form W–4 to their employer anytime.

Avoid scams. The IRS will never initiate contact using social media or text message. First contact generally comes in the mail. Those wondering if they owe money to the IRS can view their tax account information on IRS.gov to find out.

Summer Newlyweds Should Also Think About Taxes

Spring showers bring summer flowers and weddings typically aren’t far behind. Newlyweds have a lot to think about and taxes might not be on the list. However, there is good reason for a new couple to consider how the nuptials may affect their tax situation.
The IRS has some tips to help in the planning:

• Report changes in:
• Name. When a name changes through marriage, it is important to report that change to the Social Security Administration. The name on a person’s tax return must match what is on file at SSA. If it doesn’t, it could delay any refund. To update information, file Form SS-5, Application for a Social Security Card. It is available on SSA.gov, by calling 800-772-1213 or at a local SSA office.
• Address. If marriage means a change of address, the IRS and U.S. Postal Service need to know. To do that, send the IRS Form 8822, Change of Address. Notify the postal service to forward mail by going online at USPS.com or at a local post office.
• Consider changing withholding. Newly married couples must give their employers a new Form W-4, Employee's Withholding Allowance Certificate, within 10 days. If both spouses work, they may move into a higher tax bracket or be affected by the Additional Medicare Tax. Use the IRS Withholding Calculator at IRS.gov to help complete a new Form W-4. See Publication 505, Tax Withholding and Estimated Tax, for more information.
• Decide on a new filing status. Married people can choose to file their federal income taxes jointly or separately each year. While filing jointly is usually more beneficial, it’s best to figure the tax both ways to find out which works best. Remember, if a couple is married as of Dec. 31, the law says they’re married for the whole year for tax purposes.
• Select the right tax form. Choosing the right income tax form can help save money. Newly married taxpayers may find they now have enough deductions to itemize them on their tax returns. Newlyweds can claim itemized deductions on Form 1040, but not on Form 1040A or Form 1040EZ.
• Avoid scams. The IRS will never initiate contact using social media or text message. First contact generally comes in the mail. Those wondering if they owe money to the IRS can view their tax account information on IRS.gov to find out.

Tips on How to Handle an IRS Letter or Notice

The IRS mails millions of letters every year to taxpayers for a variety of reasons. Keep the following suggestions in mind on how to best handle a letter or notice from the IRS:

1. Do not panic. Simply responding will take care of most IRS letters and notices.
2. Do not ignore the letter. Most IRS notices are about federal tax returns or tax accounts. Each notice deals with a specific issue and includes specific instructions on what to do. Read the letter carefully; some notices or letters require a response by a specific date.
3. Respond timely. A notice may likely be about changes to a taxpayer’s account, taxes owed or a payment request. Sometimes a notice may ask for more information about a specific issue or item on a tax return. A timely response could minimize additional interest and penalty charges.
4. If a notice indicates a changed or corrected tax return, review the information and compare it with your original return. If the taxpayer agrees, they should note the corrections on their copy of the tax return for their records. There is usually no need to reply to a notice unless specifically instructed to do so, or to make a payment.
5. Taxpayers must respond to a notice they do not agree with. They should mail a letter explaining why they disagree to the address on the contact stub at the bottom of the notice. Include information and documents for the IRS to consider and allow at least 30 days for a response.
6. There is no need to call the IRS or make an appointment at a taxpayer assistance center for most notices. If a call seems necessary, use the phone number in the upper right-hand corner of the notice. Be sure to have a copy of the related tax return and notice when calling.
7. Always keep copies of any notices received with tax records.
8.  The IRS and its authorized private collection agency will send letters and notices by mail. The IRS will not demand payment a certain way, such as prepaid debit or credit card. Taxpayers have several payment options for taxes owed.

Tips to Know for Deducting Losses from a Disaster

If a taxpayer suffers damage to their home or personal property, they may be able to deduct the loss they incur on their federal income tax return. If their area receives a federal disaster designation, they may be able to claim the loss sooner.
Ordinarily, a deduction is available only if the loss is major and not covered by insurance or other reimbursement.
Here are 10 tips taxpayers should know about deducting casualty losses:
1. Casualty loss.  A taxpayer may be able to deduct a loss based on the damage done to their property during a disaster. A casualty is a sudden, unexpected or unusual event. This may include natural disasters like hurricanes, tornadoes, floods and earthquakes. It can also include losses from fires, accidents, thefts or vandalism.
2. Normal wear and tear.  A casualty loss does not include losses from normal wear and tear. It does not include progressive deterioration from age or termite damage.
3. Covered by insurance.  If a taxpayer insured their property, they must file a timely claim for reimbursement of their loss. If they don’t, they cannot deduct the loss as a casualty or theft. Reduce the loss by the amount of the reimbursement received or expected to receive.
4. When to deduct.  As a general rule, deduct a casualty loss in the year it occurred. However, if a taxpayer has a loss from a federally declared disaster, they may have a choice of when to deduct the loss. They can choose to deduct it on their return for the year the loss occurred or on an original or amended return for the immediately preceding tax year.
This means that if a disaster loss occurs in 2017, the taxpayer doesn’t need to wait until the end of the year to claim the loss. They can instead choose to claim it on their 2016 return. Claiming a disaster loss on the prior year's return may result in a lower tax for that year, often producing a refund.
5. Amount of loss.  Figure the amount of loss using the following steps:

• Determine the adjusted basis in the property before the casualty. For property a taxpayer buys, the basis is usually its cost to them. For property they acquire in some other way, such as inheriting it or getting it as a gift, the basis is determined differently. For more information, see Publication 551, Basis of Assets.
• Determine the decrease in fair market value, or FMV, of the property as a result of the casualty. FMV is the price for which a person could sell their property to a willing buyer. The decrease in FMV is the difference between the property's FMV immediately before and immediately after the casualty.
• Subtract any insurance or other reimbursement received or expected to receive from the smaller of those two amounts.

6. $100 rule.  After figuring the casualty loss on personal-use property, reduce that loss by $100. This reduction applies to each casualty-loss event during the year. It does not matter how many pieces of property are involved in an event.
7. 10 percent rule.  Reduce the total of all casualty or theft losses on personal-use property for the year by 10 percent of the taxpayer’s adjusted gross income.
8. Future income.  Do not consider the loss of future profits or income due to the casualty.                                               
9. Form 4684.  Complete Form 4684, Casualties and Thefts, to report the casualty loss on a federal tax return. Claim the deductible amount on Schedule A, Itemized Deductions.
10. Business or income property.  Some of the casualty loss rules for business or income property are different from the rules for property held for personal use.
Call the IRS disaster hotline at 866-562-5227 for special help with disaster-related tax issues. For more on this topic and the special rules for federally declared disaster-area losses see Publication 547, Casualties, Disasters and Thefts. Get it and other IRS tax forms on IRS.gov/forms at any time.

Avoid scams. The IRS will never initiate contact using social media or text message. First contact generally comes in the mail. Those wondering if they owe money to the IRS can view their tax account information on IRS.gov to find out.