TurboTax Support Blog

Phishing Season Never Really Ends

And there is no enforceable bag limit, either.  Without a Phish and Game Department, we must learn to protect ourselves from these identity poachers. 

Once again the IRS is notifying us about new phishing scams targeting taxpayers.  There have been several this summer.  The first two use scare tactics and the third offers money.

So let’s outline these scams. 

The first claims to be from IRS Criminal investigation saying you’re being investigated for filing a false return with the California Tax Franchise Board.  Clicking the link downloads a Trojan program that allows someone else to access your computer from anywhere. 

The second is from the IRS “Fraud Department” asking you to complete a fraud investigation form.  It is suspected to also download a Trojan to your computer.

The latest scam tells you that you can receive $80 for filling out an online Customer Satisfaction Survey.  The IRS doesn’t say, but I suspect this is just a blatant attempt to get you to turn over personal data.  Or it could also download a program to open your computer to remote access.

I’ve written a blog on this before with tips on how to spot a fraudulent email.  Scammers are getting much better at disguising their emails to look like the real thing.  However, there are some rather obvious flaws in each of these that should alert you to the fact all is not as it seems.

Let’s start with the universal flaw.  As pointed out by rjs on my last blog, how did the IRS get your email address anyway?  It is not on your filed return.  If you did give your email address when you filed your return, it was for the company you filed with to notify you of your status.  It was not passed to the IRS.  This automatically reveals the emails to be what they are.  Scams.

Now let’s look at the specific flaws.

For the first, if you filed a fraudulent return with the state of California, why would the IRS care?  If your return filed with the IRS was correct, the California return is California’s problem.  The IRS has enough work to do without investigating you for something that isn’t theirs.

For the second, any time you are suspected of fraudulent activities you will be notified by regular mail, certified mail or in person by men with handcuffs depending on the level of fraud involved.  Not email.

The last one is my favorite though.  Since when has the IRS parted with a set amount of money like that without a court order or Presidential decree?  They just give you your refund due.  The IRS does have some concern over our impression of them, but a customer satisfaction survey?  We’re not their customers.  They know we’re not satisfied we have to give them money.  So while I can see them doing a survey on general opinion of the IRS, I doubt they’d call it a customer satisfaction survey.  And they’d probably do it by phone or regular mail.  Not email.

So as you can see, evaluation of the emails you receive can show you obvious flaws in logic that can protect you even if there are no other telltale signs in the email such as misspelled words and strange phrasing.  Just ask yourself a few questions.  How did they get your email?  Are they asking for information they should already have?  Is there an oddity like the IRS investigating a state issue or wanting to know if you are a satisfied customer?

If so, send it to the trash where it belongs.

It's Time to Buy a New Car- Can I Buy a Hybrid and Get a Tax Credit?

In Sunday’s newspapers, there were lots of “end of the year” car sale ads. Since it’s been almost a year since I talked about the tax credit that you can get if you purchase a hybrid car, I thought it would be a good subject for today.

What’s a hybrid car? Its description talks about drive trains powered by both an internal combustion engine and a rechargeable battery. It’s basically a gas saving vehicle.  If you purchase a car which has been certified by the IRS as a “qualified hybrid vehicle,” you might be able to get a tax credit on your tax return. (Tax credit is a subtraction dollar-for-dollar off your bottom line of taxes.)

To see which cars are qualified, go to this website IRS - Hybrid Vehicles. When you review the list, you’ll see that the credit amounts are different from vehicle to vehicle. The more gas a car saves, the larger the credit. The credit for a Honda GX is $4,000 and for a GMC Sierra 2WD Hybrid Pickup Truck — $250. That's quite a range.

To get the credit you need to purchase such a car before 2010 and be the original owner. Don’t wait too long. Only about the 1st 60,000 purchases from each auto dealer are eligible for the full credit. After that, the credit is slowly reduced to zero. To check for the latest information on a specific vehicle, go the to Fuel Economy.gov website.

After we talked about hybrid cars a year ago, we received quite a few comments from taxpayers who thought they would receive the credit and didn’t. They fell into the “AMT hole” and AMT tax may not have been on their tax return.  In order to get the credit, their “tentative minimum tax” must be less that their “regular tax.” (For an understanding of AMT tax, see the blog, What is AMT and Why Is It on My Return? . Also see TurboTax's AMT Webinar.

Here’s an example of such a 2006 tax return. You purchased a hybrid vehicle with a credit of $3,000. Your regular tax was $12,000 (Form 1040, Line 44 less credits from lines 47 through 54). Your “tentative minimum tax” was $ 11,000 (Form 6251, line 33). Since your “regular tax” only exceeded your “tentative minimum tax” by $1,000 – you will only get a $1,000 hybrid tax credit, not the full $3,000. And you can’t carry the remaining $3,000 to a future or prior year return. Ugh!  Albert Einstein said, “The hardest thing in the world to understand is the income tax”. And as you can see, the hybrid tax credit fits right into that saying.

For further information:

IRS Tax Tips -Tax Credit for Hybrid Vehicles

IRS - Hybrid Vehicles

IRS Summary of Credit for Hybrid Vehicles

www.fueleconomy.gov website

College Savings for Kids and a Tax Advantage Too

Summer is almost over and kids will be starting back to school. Often times, when your child moves up to the next grade level, you are forced to realize that the clock is ticking before that child is ready for college.  This gets you thinking about paying for college.  Guess what, there are some tax advantages to saving for college.

Have you heard of the 529 plan? It’s a tax-advantage savings plan to encourage you to save now for your children’s college expenses. The plans are named after Section 529 of the Internal Revenue Code and are sponsored by state agencies.

There are two types of plans – prepaid tuition and college savings. For the differences in these two plans, see http://www.sec.gov/investor/pubs/intro529.htm .  Every state has at least one type of a 529 plan. There are more than 100 such plans available and you can invest in any state’s plan. However, as you’ll see below, sometimes there is a definite tax advantage to investing in your state’s plan. To check out your state plan, see http://www.collegesavings.org/viewState.aspx.

So where does the tax-advantage show up?  Do you get to deduct your yearly contribution on your 1040?  Nope, sorry can’t do that! But the earnings on the plan are not subject to federal tax as long as you use the withdrawals from the plan for eligible college expenses. Those expenses include tuition, room, and board. However, if the withdrawal is not used for those college expenses, you will pay tax on the earnings plus a 10% penalty. There was concern because these tax-free withdrawals were due to expire in 2010 but Congress recently made these permanently tax-free.  Most states go along with this federal tax advantage.

Here’s the bigger tax advantage. Depending on your state, you might be able to deduct part or all of the yearly contribution to a 529 plan or receive a tax credit on your state tax return. Over 30 states currently have such a deduction or credit. . A good example is New York. If you’re a New York resident, you can deduct up to $5,000 of a contribution to a NY 529 plan ($10,000 if filing married jointly) on your New York tax return. To check out your state, see http://www.collegesavings.org/viewState.aspx . Select your state then select plan benefits – tax deductions.

Even better news, some states will let you deduct your 529 contribution even if it was made to another state’s 529 plan.  A good example is Kansas. In prior years, a Kansas resident can deduct up to $3,000 ($6,000 for joint filers) per student per year for contributions to Kansas’ 529 plan - Learning Quest Education Savings Program. Starting in 2007, contributions to a qualified tuition program established or maintained by any state are eligible for this deduction.

If your state does not currently allow a deduction or credit for your 529 plan contribution, keep your eye on your state tax website.  More states are moving in this direction to encourage these 529 plans.  In July, Arizona’s governor signed a bill that provides a subtraction from Arizona gross income for any contributions made to 529 College Savings Plans. The maximum amount that may be subtracted is $750 for a single individual or head of household, and $1,500 for a married couple filing a joint return.

For more information on 529 plans, check out:

http://www.sec.gov/investor/pubs/intro529.htm

http://www.collegesavings.org/index.aspx

http://www.savingforcollege.com/

http://www.savingforcollege.com/kiplinger/plan_details.php

Small Business Question? Check Out the IRS Website !

If you have a small business, different tax questions probably pop up from time to time. Questions like: I work out of my home; can I deduct some of my rent and utilities?  I have my first employee; do I have new tax responsibilities? Is my business a hobby and if so, can I still deduct all my expenses?

You need to check out the great information on the IRS’ website. If you go to the IRS Website and click on the Businesses tab, you’ll see tax information for businesses large and small. 

For small businesses, click on Small Business and Self-Employed One-Stop Resource . You’ll spot links to the latest tax news related to small businesses and articles on typical business questions. There is even an Online Learning and Educational Products link.  From there you can take online courses to learn business taxes at your own pace.  Also there are resource guides and even a yearly tax calendar for you.  Keep scrolling and you’ll find the link to Small Business Association (SBA) Online Training Courses for more online business courses.

If you’re worried about your employee tax responsibilities, click Employment Taxes for Businesses. There will be articles such as “What are Employment Taxes”, “Independent Contractors versus Employees, and “What are FTDs and Why are They Important?”

If you are wondering if your business might be considered a hobby, see a recent IRS Tax Tip: Business or Hobby? Answer Has Tax Implications. For your questions on office in the home, click another Tax Tip: Can You Take a Home Office Deduction or this link Business Use of Your Home.

Another great IRS link is Frequently Asked Tax Questions and Answers. You can find your answers through categories and subcategories. Category 12 is Small Business/ Self-Employed/Other Business.  Open that category and you’ll see 9 subcategories for everything from entities to starting/ending a business.   The answers are also indexed alphabetically. Click on “D” for depreciation questions or “S” for standard mileage rate.

If you are still searching for your answer, try Publications and Notices. Here you can scroll down the list of IRS publications and find the right publication.

Of course, you can search on the IRS website.  It’s in the top right hand corner of the screen. With my tax position at Intuit, I use that search almost every day; it’s a good search tool. Be sure to read the search tips and check out advanced search. 

If you still can’t find the answer, don't forget TurboTax’s Federal Tax Topics  forum.  It has a specific “Schedule C for Personal Businesses” board just for you!

Buy or Lease Your New Business Vehicle?

Recently I had dinner with friends who run a business. The table conversation turned to buying new cars.  Finally the buy versus lease question was asked of me…the so called tax expert. As always, I don’t answer any tax questions until I have time to double check the ever changing tax law. To answer their question, I told them to keep an eye out for my latest blog.  So Jeff, here it is!

As with most decisions in life, taxes should only be one of the considerations. Here are a few of the non tax considerations on buying or leasing a business vehicle:

1) Number of miles your drive each year (leased cars- often charged extra fees for miles driven over 10,000 or 12,000/year)

2) How long you keep a car (gets a new car every 3-4 years or keeps it until its junk)

3) How much do you want to spend on your monthly payments (lease payments are usually quite a bit less than monthly payments on car loan) 

Now let’s talk about the tax consequences for the self-employed taxpayer and his business car. With both purchased and leased cars, you can deduct the related expenses by standard mileage rate or actual expenses.

Note: If you own the vehicle, you can choose the standard mileage rate in the first year and switch to the actual expense method in a later year if it becomes more favorable. If you lease a vehicle, you may also choose the standard mileage rate in the first year but must use it for the life of the lease.

With the standard mileage rate, you’ll multiply your yearly business miles by 48.5 cents per mile. You can also deduct business related parking fees and tolls. For the purchased vehicle, you can also deduct the business percentage (business miles divided by total miles per year) of your interest expense on the loan for your vehicle.

Under the actual expense rules, for both leased and purchased vehicles, you can deduct the business percentage of your gasoline, oil, insurance, garage rent, parking & registration fees, lease or rental fees, repairs, tires, loan interest, etc.

Here is where the expenses differ between purchased and leased vehicles using the actual expense rules.

If you buy your business vehicle, you can deduct its cost over 5 years (known as depreciation), which does not sound too bad. However, if the car cost is over $15,300, it is considered a “luxury” car then there are limits on the amount that you can deduct. (Who would have guessed that Congress thinks a car over that value is a luxury car!)

§ If you buy a passenger auto for more than $15,300 and weighs no more than 6,000 lbs, the most you can deduct for “depreciation” the 1^st year is $3,060 and $4,900 for the 2^nd year..

§ If your new business vehicle is a light truck or van (including minivans and SUVs built on a truck chassis) , weighs less than 6,000 lbs and costs more than $16,800, you can only deduct $3,260 the 1^st year and $5,200 the 2^nd year.

§ If your new vehicle is built on a truck chassis and weighs more than 6,000 lbs (a Cadillac Escalade SUV or a Hummer), there is no limit on your deduction for each year.

Due to these limits, it could take 12 years depreciate all of the cost a vehicle with the original price of $25,000. If you could afford a $60,000 business car, it would take over 30 years for total write-off of its cost (unless it’s a Hummer!).

Now let’s talk about leased vehicles. Since you don’t own the car, you can’t depreciate it but here’s the good news! You can deduct the business percentage of your lease payments. So if your yearly lease payment is $4,200 ($350 / month) and your business use percentage is 80%, you can deduct $3,360 on your tax return for that year. There is one hitch. Since the tax code limits the depreciation on “luxury” cars, it also limits (to a very small degree) lease payments on such a car. It’s called a “lease inclusion amount” and it reduces the deductible lease payments. The higher the original value of the car, the greater the amount.

Here’s an example showing the differences in business deductions between purchase versus leasing a car with the value of $35,000 and 80% business use.

Purchased $35,000 car	1st year	2nd year	3rd year
Limited Depreciation	$3,060	$4,900	$2,850
Less 20% personal use	$612	$980	$570
Allowed business deduction	$2,448	$3,920	$2,280
Leased $35,000 car	1st year	2nd year	3rd year
Yearly payments	$4,500	$4,500	$4,500
Less inclusion	$138	$303	$452
Net monthly payments	$4,362	$4,197	$4,048
Less 20% personal use	$872	$839	$810
Allowed business deduction	$3,490	$3,358	$3,238

You can see that you need to look at the combined years to see if it’s better to purchase or lease a business vehicle. As the price goes up on the car, leasing usually becomes more preferable. But don’t forget if you purchased the vehicle, you can also deduct the business percentage of the interest on the vehicle’s loan. 

There is one more difference between buying and leasing a business vehicle. That difference is the disposition of the vehicle. When you dispose of a business vehicle that you own, there may be taxable gain or deductible loss. The portion of any gain that is due to depreciation will be taxed as ordinary income. When you return your leased car to the dealer, there is no taxable gain or loss.

For more information:

Tax Guide for Small Businesses

IRS Pub 463 - Travel, Entertainment, Gift, and Car Expenses

Lease Inclusion 2007 - IRS Rev Proc 2007-30, section 4