How To eFile Taxes Like a Professional
Learn how to efile taxes as well as what e-filing is, how it works, and the advantages of e-filing your taxes in this detailed article.
Top 2022 IRS Dirty Dozen Tax Scams
The IRS has posted its annual Dirty Dozen list of tax scams for 2022. Continuing its 20 year legacy, the annual Dirty Dozen list is a way of alerting taxpayers and tax preparers of schemes and abusive arrangements. This year, the IRS is concentrating on abusive arrangements, identity theft scams, and bogus tax avoidance schemes that taxpayers may encounter at anytime, but especially during the peak of the filing season. Below is a listing (with a brief description) of the schemes that the IRS is highlighting this year. Identity Theft Scams The IRS continues to see identity thieves evolve their schemes and continue to use schemes they have used in past years. Below are some of the tax scams criminals are attempting to trick individuals into giving them their personal and financial information. Pandemic related tax scams Criminals are still using the COVID-19 pandemic to attempt to steal people’s money and identity with bogus e-mails, social media posts and unexpected phone calls. Examples are: Economic Impact payment and tax refund scams Unemployment fraud leading to inaccurate taxpayer 1099-Gs Fake employment offers posted to social media Fake charities Suspicious Communications Criminals continue to use communications such as bogus calls, texts, emails, and posts online to either trick, surprise, or scare someone into providing sensitive personal financial information, money, or other information. This data can be used to file false tax returns and tap into financial accounts. Email Spear Phishing Spear phishing is an email scam that attempts to steal a tax professional’s software preparation credentials and/or install malware. This allows the criminal access to the tax professional’s computer systems to steal client data and tax preparers’ identities in order to file fraudulent tax returns for refunds. See the following IRS News Releases for more information on identity theft related schemes. IR-2022-117 – IRS continues with Dirty Dozen this week, urging taxpayers to continue watching out for pandemic-related scams including theft of benefits and bogus social media posts IR-2022-121 – Dirty Dozen: Scammers use every trick in their communications arsenal to steal your identity, personal financial information, money and more IR-2022-122 – Dirty Dozen: Security Summit reiterate recent warning to tax professionals and other businesses of dangerous spear phishing attacks Abusive Transactions The IRS is focusing on the following four potentially abusive arrangements and Offer in Compromise mills. Offer in Compromise (OIC) Mills Offers in Compromise mills make outlandish claims, usually in local advertising, regarding how they can settle an individual’s tax debt for pennies on the dollar. OIC mills are a problem all year long, but these tax scams tend to be more visible right after the filing season is over and individuals are attempting to resolve their tax issues. Use of a Charitable Remainder Annuity Trust to Eliminate Taxable Gain These transactions involve the transferring of appreciated property to a charitable remainder annuity trust (CRAT). The taxpayer then improperly claims a step-up in basis to the fair market value as if the property had been sold to the trust. The CRAT then sells the property but does not recognize a gain due to claiming the step-up in basis for the property. The CRAT uses the proceeds from the sale to purchase a single premium immediate annuity and the beneficiary reports a small portion of the annuity received as income. The taxpayer treats the remaining payment as an excluded portion representing a return on investment for which no tax is due. In this tax scam situation, the taxpayer is misapplying the rules under sections 72 and 664 of the Internal Revenue Code. Maltese (or Other Foreign) Pension Arrangements Misusing Treaty A US taxpayer is attempting to avoid US tax by making contributions to certain foreign individual retirement arrangements in Malta (or possibly other foreign countries). They then improperly claim an exemption from US income tax on the earnings in, and distributions from, the foreign arrangement by asserting that it is a “pension fund” for US tax treaty purposes. Puerto Rican and Other Foreign Captive Insurance US owners of closely held entities participate in a purported insurance arrangement with a Puerto Rican, or other foreign corporation, with cell arrangements or segregated asset plans in which the US owner has a financial interest. The US owners claim a deduction for the cost of “insurance coverage”. Monetized Installment Sales These tax scam transactions involve the inappropriate use of the installment sale rules under section 453 by a seller who, in the year of the sale of the property, effectively receives sale proceeds through purported loans. See the following IRS News Releases more information the above abusive schemes. IR-2022-113 – IRS warns taxpayers of “Dirty Dozen” tax scams for 2022. IR-2022-119 – IRS urges anyone having trouble paying their taxes to avoid anyone claiming they can settle tax debt for pennies on the dollar, known as OIC mills. Bogus Tax Avoidance Strategies The IRS is warning taxpayers to watch out for promoters peddling the following bogus tax avoidance schemes. Concealing Assets in Offshore Accounts and Improper Reporting of Digital Assets The IRS remains focused on stopping tax avoidance by individuals who hide assets in offshore accounts and in accounts holding cryptocurrency and other digital assets. High-income Individuals not Filing Tax Returns The IRS continues to focus on individuals who choose to ignore the law and not file a tax return, especially those taxpayers earning more than $100,000 a year. These individuals represent a compliance problem that continues to be a top priority for the IRS. Abusive Syndicated Conservation Easements Promoters of these transactions take a provision of the tax law allowing for conservation easements and twist it by using inflated appraisals of undeveloped land and partnership arrangements devoid of a legitimate business purpose. These arrangements do nothing more than game the tax system with grossly inflated tax deductions and generate high fees for the promoters. Abusive Micro-Captive Insurance Arrangements In abusive “micro-captive” structures, promoters, accountants, or wealth planners persuade owners of closely held entities to participate in schemes that lack many of the attributes
State and Local Tax (SALT) Deduction
The state and local tax (SALT) itemized deduction allows certain taxes paid to state and local governments to be itemized deductions on their federal income tax return.
State Pass-Through Entity Tax
A total of 21 states have enacted or are considering legislation that creates a pass-through entity tax as a workaround to the $10,000 cap on the state and local taxes (SALT) itemized deduction. What is Pass-Through Entity Tax? The pass-through entity tax (PTE) allows partnerships and S Corporations to elect to be taxed at the entity level for state income tax purposes. If the entity makes this election the partner or shareholder is usually allowed to: (1) Claim a credit on their state individual income tax return for the amount of their distributive share of the pass-through entity tax paid by the partnership or S Corporation, and (2) Allows the partner or shareholder to not have to report their distributive share of income on their personal state income tax return. States with a Pass-Through Entity Tax A pass-through entity tax went into effect in the following states before 2022: Alabama California Connecticut Idaho Illinois Louisiana Massachusetts Maryland Minnesota New Jersey New York Rhode Island South Carolina Wisconsin States with Pass-Through Entity Tax Starting in 2022 A pass-through entity tax goes into effect in 2022 in the following states: Arkansas Arizona Georgia North Carolina Oklahoma Oregon States with Pending Legislation The following states have pending legislation to enact a pass-through entity tax: Iowa Mississippi Ohio New Mexico Pennsylvania Utah Virginia Pass Through Entity Tax Rules by State Here are brief details as well as where to learn more about the pass-through entity tax rules for the following States that have enacted a pass-through entity tax: Alabama Partnerships and S Corporations may elect to pay a 5% tax on their Alabama taxable income. The entity makes the election by submitting Form PTE-E via My Alabama Taxes. This form may be submitted any time during the year, or on or before March 15 of the following year. Partners or shareholders are entitled to a refundable credit in an amount equal to their pro rata distributive share of the Alabama income tax paid by the entity. Applicable for Tax Years 2021 and later. See the Alabama Electing Pass-Through Entity Tax Guidance page on the Alabama Department of Revenue website for more information. Arkansas Partnerships, S Corporations, or a limited liability company with one or more members may elect to pay a 5.9% flat tax on their net Arkansas business taxable income. The election must be made on an annual basis and must be approved by business owners holding more than 50% of the voting rights in the business. An entity makes the election by completing and filing Form AR362 (Arkansas Pass-Through Entity Income Tax Election or Revocation Form). Applicable for Tax Years 2022 and later. For more information, see the Pass-Through Entity Tax: FAQs on the Arkansas Department of Finance and Administration’s website. Arizona Partnerships and S Corporations may elect to pay a 4.5% flat tax on their Arizona business taxable income. The election must be made on an annual basis. Partners or shareholders may opt-out of the election. Partners or Shareholders are allowed to claim a Credit for Entity Level Income Tax on their individual income tax return. The amount of credit is the pass-through entity tax that is attributable to a partner’s or shareholder’s share of income taxable in Arizona. Applicable for Tax Years 2022 and later. For more information, see the Senate Fact Sheet for HB 2838 on the Arizona website. California Partnerships, S Corporations, and LLCs taxed as partnerships may elect to pay a 9.3% tax on each consenting partner’s or shareholder’s pro-rata share of the entity’s income subject to tax in California. The election is made on the entity’s timely filed tax return. If entity makes the election, the individual partners or shareholders can choose not to have their income included in the calculation of pass-through entity tax. Partners or Shareholders that consent to the election are eligible to claim a nonrefundable credit for the amount of tax paid on their pro rata or distributive share and guaranteed payments included in the entity’s qualified net income. Unused credits can be carried over for up to 5 years. Applicable for Tax Years 2021 and later. For more information, see the Pass-through entity (PTE) elective tax page on the California Franchise Tax Board’s website. Colorado Partnerships, S Corporations, and LLCs taxed as partnerships or S Corporations may elect to pay a 4.55% flat tax on their Colorado business taxable income. The election must be made on an annual basis and it is binding on all of the pass-through entity’s owners. The election is made by checking a box on the entity’s applicable Colorado state income tax return. Applicable for Tax Years 2022 and later. For more information, see Colorado House Bill 21-1327 on the Colorado website. Connecticut All pass-through entities are subject to the pass-through entity tax. Tax is calculated by one of two methods. The Standard Base is the default method. An entity may elect to use the Alternative Base method. The tax rate applied to the applicable base is 6.99%. Partners may claim a PE Tax credit on their personal income tax return. This credit is a refundable credit. Applicable for Tax Years 2018 and later. For more information, see the following on the Connecticut Department of Revenue Services website: Pass-Through Entity Tax Connecticut Publication OCG-6 (Regarding the Calculation of the Pass-Through Entity Tax) Connecticut Publication OCG-7 (Regarding the Pass-Through Entity Tax Credit) Georgia Partnerships and S Corporations may elect to pay a 5.75% tax on their Georgia business income. Entity can make the election by checking a box and completing the applicable schedules for Form 600S for S Corporations or Form 700 for partnerships. Applicable for Tax Years 2022 and later. For more information, see Rule 560-7-3-.03 Election to Pay Tax at the Pass-Through Entity Level on the Georgia Department of Revenue’s website. Idaho Partnerships, S Corporations, and LLCs taxed as partnerships may elect and pay a 6.5% tax on the distributive share of their Idaho taxable income. The election is made on the entity’s timely filed return. All partners or shareholders must agree. Each resident partner or shareholder is allowed a
State and Local Tax Deduction (SALT Deduction)
The state and local tax (SALT) itemized deduction allows certain taxes paid to state and local governments to be itemized deductions on their federal income tax return.
Amended Tax Return
When a taxpayer discovers they made a mistake on their tax return, or they are provided with or find additional tax related information after they have filed their return, they can file an amended tax return to correct the errors or add the additional information.
Changes to Accessing IRS E-Services
In November of 2021, the IRS began switching many of their online services applications to a new authentication platform.
State Tax Filing Deadlines and Extension Requirements
A listing of the filing deadlines for Tax Year 2021 state individual income tax returns.
Tax Terms
Tax Terms and Definitions
IRS Online Account
On February 22, 2022, the IRS announced they have included a new option for individuals to use to authenticate themselves when setting up their individual IRS Online Account.