Protect Yourself From Scammers Claiming To Be From The IRS

I continue to sound like a broken record when it comes to protecting taxpayers from scammers, but it needs to be repeated. Obviously, these scams must be working for the perpetrators, as they continue these efforts with a vengeance! Here’s some info on what the IRS does and does not do:

The IRS Does Not:

  • Call to demand immediate payment using a specific payment method, such as a prepaid debit card, gift card or wire transfer.
  • Demand taxpayers pay taxes without the opportunity to question or appeal the amount owed.
  • Threaten to bring in local police, immigration officers or other law enforcement to have someone arrested for not paying.
  • Threaten to revoke someone’s driver’s license, business licenses or immigration status.

The IRS Does:

  • In general, first mail a bill to any taxpayer who owes taxes.
  • Normally initiate contact with taxpayers through mail delivered by the United States Postal Service.
  • Present official identification when visiting a taxpayer. Taxpayers have the right to see these credentials, and – if they would like – the representative will provide them with a dedicated IRS phone number for verifying the information and confirming their identity.
  • Call or visit a home or business under certain circumstances. This includes when a taxpayer has an overdue tax bill, to secure a delinquent tax return or a delinquent employment tax payment, or to tour a business as part of an audit or criminal investigation. Even then, taxpayers will generally receive several letters from the IRS in the mail first.
  • Assign certain cases to private debt collectors, but only after written notice is given to the taxpayer and their appointed representative.
  • Offer several payment options. Payment by check should be payable to the U.S. Treasury and sent directly to the IRS, not a private collection agency.

Maybe Some Tax Relief For Those Who Live In High-Tax States?

For personal state, local and property taxes paid beginning 2018, taxpayers are only allowed to deduct up to $10,000 on their tax returns. While the majority of taxpayers will not be affected by this change, some in the high-tax states (CA, NY, CT, IL, for example) may see their deductions reduced.

In response to this new limitation, some state legislatures are considering or have adopted legislative proposals that would allow taxpayers to make transfers to funds controlled by state or local governments, or other transferees specified by the state, in exchange for credits against the state or local taxes that the taxpayer is required to pay.  For example, the state of New York is considering having schools and some local government agencies set up nonprofit foundations, where the taxpayer makes a tax-deductible donation, and, in exchange, receives a tax credit. The goal is to allow taxpayers to characterize such transfers as fully deductible charitable contributions for federal income tax purposes, while using the same transfers to satisfy state or local tax liabilities.

A loose version of this is already available for teachers who incur unreimbursed classroom expenses that they don’t get to deduct because they don’t exceed the 2% adjusted gross income floor. Since donating to schools is deductible for charitable purposes, teachers can get an acknowledgement letter from the school and claim these expenses as charity. (I’ve discussed this in a prior blog)

The IRS is currently reviewing this and intends to publish clarifications as to whether or not this is allowable. I’m curious to know what they’ll say. From a taxpayer point of view, New York’s proposal appears desirable as it will create more deductions, AND the taxpayer will at least know exactly where his or her money is going. We shall see if it passes the IRS “smell test.”

Another Reason To Be A Real Estate Investor

You all know how much I love, love LOVE Real Estate. In my opinion, it’s a premier vehicle for building wealth, as well as providing you with a steady income stream. Real Estate also provides wonderful tax deductions, which I’ve discussed in detail in my prior posts.  But did you know that the 20% Qualified Business Income Pass-Through Deduction now also applies to Schedule E Rental Income? YES! This was a last-minute addition to the Tax Reform Act. Sweet.

In a nutshell, the 20% Pass-Through Income Deduction allows you to take 20% of taxable income (subject to certain limitations) as a deduction on your tax return beginning 2018. “Pass-Through Income” includes income from Schedule C, Schedule E, S Corporations and Partnerships.

When discussing tax strategy with your tax accountant, make sure you include this new bit of information.

From the IRS: Phone Scams Pose Serious Threat; Remain on IRS ‘Dirty Dozen’ List of Tax Scams

I continue to sound like a broken record, but the scams from IRS impersonators is getting more aggressive than ever.

The Internal Revenue Service reminded taxpayers to be careful with continuing aggressive phone scams as criminals pose as IRS agents in hopes of stealing money. These continuing phone calls remain a major threat to taxpayers and remain on the annual IRS “Dirty Dozen” list of tax scams for the 2018 filing season.

During filing season, the IRS generally sees a surge in scam phone calls threatening such things as arrest, deportation and license revocation if the victim doesn’t pay a bogus tax bill. In a new twist being seen in recent weeks, identity thieves file fraudulent tax returns with refunds going into the real taxpayer’s bank account – followed by a phone call trying to con the taxpayer to send the money to the scammer.

The Dirty Dozen is compiled annually by the IRS and lists a variety of common scams taxpayers may encounter any time during the year.

To help protect taxpayers, the IRS is highlighting each of these scams on 12 consecutive days to help raise awareness. The IRS also urges taxpayers to help protect themselves against identity theft by reviewing safety tips prepared the Security Summit, a collaborative effort between the IRS, states and the private-sector tax community.

How Do the Scams Work?

Con artists make unsolicited calls claiming to be IRS officials. They demand that the victim pay a bogus tax bill. They convince the victim to send cash, usually through a wire transfer or a prepaid debit card or gift card. They may also leave “urgent” callback requests through phone “robo-calls,” or send a phishing email.

Many phone scams use threats to intimidate and bully a victim into paying. They may even threaten to arrest, deport or revoke the driver’s license of their victim if they don’t get the money.

Scammers often alter caller ID numbers to make it look like the IRS or another agency is calling. The callers use IRS employee titles and fake badge numbers to appear legitimate. They may use the victim’s name, address and other personal information to make the call sound official.

The IRS also reminded taxpayers today that scammers change tactics. Aggressive and threatening phone calls by criminals impersonating IRS agents remain a major threat to taxpayers, but variations of the IRS impersonation scam continue year-round and they tend to peak when scammers find prime opportunities to strike.

The Treasury Inspector General for Tax Administration (TIGTA) reports they have become aware of over 12,716 victims who have collectively paid over $63 million as a result of phone scams since October 2013.

Here are some things the scammers often do, but the IRS will not do. Taxpayers should remember that any one of these is a tell-tale sign of a scam.

The IRS Will Never:

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail a bill to any taxpayer who owes taxes.
  • Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
  • Demand that taxes be paid without giving taxpayers the opportunity to question or appeal the amount owed.
  • Ask for credit or debit card numbers over the phone.
  • Call you about an unexpected refund.

For Taxpayers Who Don’t Owe Taxes or Don’t Think They Do:

For Those Who Owe Taxes or Think They Do:

Stay alert to scams that use the IRS as a lure. Tax scams can happen any time of year, not just at tax time. For more information visit Tax Scams and Consumer Alerts on

Taxpayers have a set of fundamental rights they should be aware of when dealing with the IRS. These are the Taxpayer Bill of Rights. Explore these rights and the agency’s obligations to protect them on

The 2018 Tax Reform Act

After months of discussion and back-and-forth between the House and Senate, we finally have a Tax Bill, which takes effect January 1, 2018. (NOTE: As of this time, the states DO NOT conform to this Tax Reform bill, so you will need to make adjustments between your federal and state returns) Here is a quick summary, along with some of my tax tips:

  1. Tax Brackets and Tax Rates: Both have been reduced across the board. There are 7 tax rates, ranging from 10% to 37%, with the highest brackets going to single taxpayers’ taxable income of over $500K and Married taxpayers over $600K.
  2. Alternative Minimum Tax (AMT): Exemption amounts have been increased to $70,300 (Single) and $109,400 (Married filing jointly), with the phaseout thresholds increased to $500K (Single) and $1 million (Married).
  3. Estate Tax Exemption: Doubled to $11,200,000.
  4. Standard Deduction: Almost doubled in 2018, to $24K (married jointly), $18K (Head of Household), $12K (Single). It’s increased by $1,600 if over 65, blind or disabled. TIP: If this increase will eliminate the need to Itemize your deductions in 2018, you may want to prepay such items, like Charity, property taxes, etc., in 2017, so that you can maximize your deductions.
  5. Personal and Dependent Exemptions: Eliminated
  6. Child Tax Credit: Will double to $2,000 per qualifying child under 17 years of age. Plus, the phaseout more than doubles to adjusted gross incomes of more than $400K (Married) and $200K (Single). That means many more taxpayers will benefit from this credit. For other dependents who are not qualifying children, the credit is $500.
  7. Student Loan Interest Deduction: Basically unchanged.
  8. Education Credit: No change, but you will still need a Form 1098-T to claim it.
  9. Section 529 Education Plans: Up to $10K distribution per beneficiary can be used for tuition for public, private elementary, secondary school.
  10. Student Loan Cancellation of Debt: If the cancellation is due to death or disability, the income is excluded.
  11. Teacher Expenses: Still has the above-line $250 deduction (indexed for inflation). See my tips below if you incur expenses greater than the $250.
  12. Moving Expenses: Eliminated, except in the case of a member of the Armed Forces moving pursuant to a military order. Tip: You may want to negotiate getting these reimbursed by the new employer.
  13. Alimony: Beginning with new divorces in 2019, such payments are no longer deductible and not taxable to the recipient.
  14. Itemized Deductions: Where there is discussion and confusion:
    1. State and Local taxes (i.e., state income tax and property taxes and DMV license fees): Can deduct up to $10K beginning 2018. Tip: pay your second property tax installment now, as well as your Jan 15, 2018 estimate state income tax installment.
    2. Foreign Real Property Taxes are no longer deductible.
    3. Medical Expenses exceeding 7.5% are deductible. In 2019, that goes to 10%. Tip: If you have a high-deductible health plan, consider getting a Health Savings Account (HSA). Contributions (to certain limits) are fully deductible and reduce your adjusted gross income, and you can take distributions to pay unreimbursed medical costs.
    4. Charitable Contributions: Continue to be deductible, with the 50% of income limitation now increased to 60%.
    5. Mortgage Interest on both a first and second home are deductible, with the debt cap at $750K of debt. The $1 million cap is grandfathered for loans prior to Dec 15, 2017. However, Home Equity Loans or HELOCs are not deductible, unless used to purchase or improve rental property. (Note: I’m waiting for clarification on if there is any grandfathering on this)
    6. Casualty Losses: Not deductible unless due to a federal disaster. Tip: Always check on for a list of what they are deeming disaster areas.
    7. Gambling Losses: Only deductible to the extent of the income, but you can now include other expenses incurred in the gambling income, such as travel expenses to/from the casino. Tip: Track your expenses and keep receipts.
    8. Employee Business Expenses: Eliminated beginning 2018. Tip: If your job entails out-of-pocket expenses, you may want to negotiate being reimbursed for your out-of-pocket expenses. Since your employer will get a tax cut with this plan, as well as still be able to deduct these reimbursements, I would think that there would be more of those negotiations. Tip for teachers: Unreimbursed classroom supplies (exceeding the $250), like crayons, Kleenex, pencils, etc. can be separated out and deducted as Charitable Contributions (which will continue to be deductible after 2017) as long as you get a donation acknowledgment from your school. Now is the time to set this up with your school!
    9. All Misc. Itemized Deductions subject to the 2% floor eliminated.
  15. Affordable Care Act: The individual mandate is repealed beginning 2019.
  16. Corporations: The highest tax rate for corporations is reduced to 21% beginning 2018.
  17. Pass-Through Companies: This includes S Corporations, Partnerships, Trusts/estates and sole proprietorships, which are allowed to deduct 20% of business-related income as a deduction to reduce taxable income. It doesn’t reduce income subject to Self-Employment tax, and there are some restrictions for service businesses. This deduction phases out for joint filers with income between $315K-$415K.
  18. Domestic Production Activities Deduction (DPAD): Repealed beginning 2018.
  19. Like-Kind Exchanges: : Limited to Real property.
  20. Net Operating Losses: The 2-year Carryback is repealed except in the farming business.
  21. Section 179 Expensing: Increased to $1 million. The $25K SUV limitation stays the same. The definition of qualified real property eligible for this Section 179 expensing has been expanded to include roofs, heating and A/C, security systems.
  22. Bonus Depreciation: Now available to used property as well as new.
  23. Vehicle Depreciation: The cap placed on depreciation write-offs for business vehicles is increased.
  24. Entertainment Expenses: While business meals continue to be 50% deductible, no deduction is allowed for activities generally considered to be entertainment or recreation. This also includes membership dues. In addition, the 100% meals deduction for employer-provided meals for employer’s convenience is now reduced to 50%.
  25. If you have employees and provide paid family and medical leave, you get a credit of 12.5% of wages paid to qualifying employees.

I will be posting more information as it comes, but now is a good time to meet with your tax professional and lay out some strategies for 2018 and beyond!


Real Estate Investing – Who, What, Where, When…

As many of you know, I love, love, love real estate! In addition to the wealth-building aspects, there are great tax benefits to owning real estate (and who better to know that than the “Big Bear Tax Lady”?). A few of my musings:

If you can own your primary residence, then go for it. If your AFTER-TAX mortgage payment and property taxes are equal to or less than your monthly rent, why line a landlord’s pocket when you can “pay yourself” by building your own equity (or net worth) every month? What do I mean by “after-tax?” Since mortgage interest and property taxes are tax-deductible, you will probably pay less in income taxes throughout the year than if you were renting. When calculating the rent versus mortgage payment, you must reduce the mortgage payment by the difference in the income taxes to come up with a true monthly amount. Definitely worth a phone call or visit with your tax professional!

When purchasing your primary residence, buy what you can afford, keeping in mind the possibility for appreciation, as well as rental desirability (should you decide to move and then rent out your place). People tend to get wrapped up in having to have the “best of everything” when they buy that first home and extend themselves with high-end flooring, furniture, etc. You’re better off buying the 2-bedroom condo with basic amenities versus the totally decked-out 1-bedroom. Think of what will give you the best bang for your buck in the long run. You can always upgrade later when you have the cash.

For investment property, you have a lot of options. If you want to “fix and flip,” you want to look at the hot markets like San Diego, Seattle, etc. The high prices will not make those areas good for rentals, but if you know what you’re doing, they are good fix/flip markets. Those hot markets might be attractive for vacation rentals (like Airbnb), so I wouldn’t totally discount them, especially if you can find a property at a bargain. Do your research!

For rental investments, I like the “bread and butter” areas where the home prices are low, and you have a good tenant base. Don’t limit yourself to your own location. Do your research on the area that interests you. Find a good property manager FIRST, as well as a good realtor (hopefully in the same company) and run your numbers before you buy. I’m feeling really bullish about the Midwest and the Southeast right now. Manufacturing is making a comeback, and factories are being built in those areas. These employees are going to need a place to live….

I’ve been asked about investing overseas, say Eastern Europe, to help diversify one’s real estate portfolio. While learning about that market is on my To-Do list, I’m a bit of a newbie there, and still need to do more research. You really need to research that market, the country’s landlord/tenant laws and find a team you can REALLY trust. Stay tuned!

And finally, when should you get into the market? I like to be counter-cyclical– when the masses are buying, going crazy and out-bidding the other, I’m very careful and back off and quietly save my money and secure funding. When the masses are dumping their properties, foreclosures are high, and people are walking away, that’s when I think of buying. The challenge is in determining “how high is high” and if we’re in a bubble market. In addition, foreign investors and the house-hacking/sharing market (i.e., Airbnb, etc.) trend is driving real estate prices up higher in those already hot markets, so for now, there is no end in sight.

Once you have that rental property, make sure you track all your expenses (including mileage). I advise my clients to keep separate credit cards and bank accounts for their rentals, making tax preparation a lot cleaner. Plus, you don’t want to miss those deductions!

Good luck and happy investing!



The “Gig” and Sharing Economy Are Here To Stay

As more and more of my clients are joining the “Gig” and sharing economy, I attended an amazing seminar by William Rogers, of ASCEND Business Advisory out of San Diego.

A “Gig” worker is also known as a “contingent worker” or “freelancer.” You may be working on a 6-month project (or “gig”) for a company, and then move on to another gig with another company. This group comprises about 40% of the current workforce. Ironically, I remember attending a Tom Peters seminar back in the early 90’s and learning that the future will be the “era of the freelance professional.”

The “Sharing” economy is one of the largest part of this gig trend, and it includes ridesharing (Uber, Lyft, Via, etc) and property sharing (Airbnb, VRBO, Flipkey, etc). It’s a pretty simple concept actually– basically taking an under-utilized asset and re-purposing it to fulfill an existing market, whether it be a residence, a vehicle, spare time, commercial space, etc. For example, NYC-based “Spacious” takes under-utilized restaurant spaces (when a restaurant is closed during the day) and “converts” them into work spaces for telecommuters, entrepreneurs and “gig” workers.

If you drive for Uber or Lyft, chances are you are an independent contractor and will receive a Form 1099 (in some cases, you may be a W-2 employee, but that’s not the norm). You need to track your vehicle expenses (mileage, gas, repairs, tolls, insurance, etc), as well as supplies and cell phone expenses. Since no income taxes are withheld, and you are also liable for Social Security and Medicare taxes, you should also make quarterly tax payments.

Property sharing, like Airbnb, can be a little tricky tax-wise: are you running it like a hotel/motel business (Schedule C business) , or a real estate rental (Schedule E)? First of all, if you rent your property less than 15 days a year, you do not even need to report the income, as it’s not taxable. If you received a Form 1099 for rental income less than the 15 days, you then need to report the income on the Schedule E, but offset it on Line 19 as exempt income.

If you rent your property more than the 15 days per year, then you need to figure the number of personal use days, as well as calculate the “average rental period” during the year. If the average rental period is 7 days or less, the activity is treated as a BUSINESS (Schedule C) and not a rental (Schedule E). IF the average rental period is over 7 days, you can consider it a rental– unless significant personal services are provided (for example, you make the guests breakfast, give them a tour, etc.).

The property sharing trend brings with it considerable local issues– such as Transient Occupancy Tax, property zoning, etc. Airbnb does NOT collect TOT taxes on all of its properties, so make sure you get all that information prior to renting out part of your home.

Another part of the sharing economy is “Crowdfunding.” It consists of “Peer-to-Peer Lending” (Lending Club), Personal Fundraising (“GoFundMe”), or project or business funding (Kickstarter, Indiegogo). The tax treatments for these items vary, depending on if the funding is donation-based, reward-based or equity/debt-based.

If your funding is a loan, the interest may be deductible if the loan is secured by real estate. If it’s a business loan, you may be able to deduct the interest as a business expense.

For personal fundraising via GoFundMe, if the monies received are a GIFT, and nothing is received in exchange for that gift, then it’s not considered taxable income. The donor can give a gift of up to $14K without having to file a gift tax return. If it’s over that amount, it’s the donor’s filing responsibility, not the recipient. The recipient may receive a Form 1099K, which must be reported on the tax return as tax-exempt income.

If you donate to a charity using GoFundMe, make sure it has the “Certified Charity” badge, or the donation will NOT be deductible. Also, if you are fundraising for a project on one of the crowdfunding websites (GoFundMe, Kickstarter, etc) and are offering a reward (say a gift card or a copy of your book, etc), then the proceeds ARE TAXABLE income to you– regardless of the value of the reward!

This sharing economy is only going to expand, so if you’re joining this trend, always make sure you check with your tax preparer so there are no surprises at tax time!