Every individual should be on the lookout for financial scams of any type, as they are clearly prevalent in contemporary society. Unscrupulous actors like to develop schemes that sound valid in presentation, but are actually just fronts for theft and other forms of deception intended to steal assets from an unsuspecting victim who does not recognize and understand their tactics.

The actors have no problem even imitating government agencies such as the Internal Revenue Service if they can con anyone into believing their deception and gain access to money. The goal is to steal anything that can be stolen, ranging from financial assets to personal identification information that can be used to fraud other individuals or businesses. This kind of illegal activity is more common than most people realize, and it is always a good decision to take some time to learn how to spot these criminals. Here are a few reminders regarding IRS tax scams.

Phone Contact Policy

Many of us have received a phone call where the person claims to be from the IRS or the Department of Justice and you need to immediately pay up or they will be at your door to make an arrest. The IRS rarely contacts a taxpayer by telephone. It can happen, but not by standard policy. Instead, the IRS will send a contact letter first, also known as a “notice letter,” and it will typically inform the taxpayer of issues with their tax account or tax return.

In addition, the IRS never sends emails or text messages. When the IRS does call, it is typically a courtesy call of sorts, and they will never demand immediate delinquent payments. In fact, IRS agents CANNOT take payment over the phone. Any payment to the IRS must be mailed to the address provided by the Service. IRS notifications are formal and all taxpayers have rights to challenge issues with their account and to appeal decisions made by the IRS or to the US Tax Court. In fact, the IRS has a “Taxpayer Bill of Rights” ( known as Publication 1) that can be downloaded here. The service often includes this publication when mailing taxpayers notices on changes to your account, request for audit, demands for payment, and intent to levy or lien the taxpayer.

“Phishing” Scams

Another problem is receiving an email contact from a fake IRS agent or tax preparer. This is also referred to as a “phishing” scam. The sender requests specific sensitive information such as your social security number, bank account number, credit card information and so on. The sender’s intent is to use this information for illegal purposes. Even opening the email or clicking on any hyperlinked website in the email could trigger a malware program that will scour your computer for any exposed identification information, including passwords to financial accounts in some instances.

These scams can actually be more problematic than fake preparer claims or demands for immediate payments. The damage that can be done to the victim and their financial status can be extensive, including credit rating damage, embezzlement of personal assets, and ongoing identity theft as the culprit acts continually in assuming the victim’s identity. This can actually happen in a variety of ways, and it is always a good personal practice to mark spam in your email accounts and dump the notices daily because of potential malware concerns.

Scams Happen Throughout the Year

Tax scams are not necessarily season-specific, although the typical taxpayer associates taxes with the first part of the year. Many business operators pay taxes quarterly and are in regular contact with the IRS. Be aware of this activity at any point in time, and never provide any information without documented validation from the contacting party. The best response is to hang up on the caller and contact the local police department immediately, including if the caller claims to be a tax advocacy group requesting pertinent personal information such as a Social Security number. In addition, the IRS aims to inform taxpayers about these scams and contains many resources on its website.

Never Respond to a “Ghost” Preparer Contact

Some telephone contacts regarding IRS claims are conducted by fake tax preparers. They may sound nice at first, but the ultimate goal is often to secure personal information that can be used for various nefarious activities. The pattern for the ghost preparer is to not sign the return, making it appear the taxpayer has prepared the document personally, and then charge an upfront fee for the preparation the preparer refuses to sign. All certified tax preparers are issued official identification numbers, also known as a TPIN, and all prepared returns must be signed by the preparer and their TPIN number included on the form EVEN IF YOU DO NOT PAY FOR THE SERVICE.

Fake tax preparers often:

• Charge a fee with no receipt
• Enter false information to increase a tax return value
• Divert direct deposits to a personal account

This could result in the taxpayer being responsible for a false tax filing as well as being swindled out of any valid tax return, leaving the “ghost” preparer with the assets and no valid form of identification associated with the case. Hang up anytime a tax preparer calls unsolicited and then call the authorities immediately, including filing an IRS ghost tax preparer report Form 14157. The government takes these claims very seriously, and they welcome your help in stopping this practice.

Contact the IRS Following Suspicious Activity

It is always good to understand and follow the requested protocol when being targeted for a tax scam. The Internal Revenue Service suggests:

• Hang up immediately after recording the caller ID number
• Report any information to the Tax Inspector General at the IRS
• Report the incident additionally to the Federal Trade Commission

Contacted individuals should also remember to review their tax account at IRS.gov and call the agency at 800-829-1040 when any discrepancy is found. Always remember that the IRS has a specific protocol when tax collections could be an issue, and it is a legal process that allows all taxpayers an opportunity to appeal any delinquent tax notification or assessment. The government understands that mistakes are made from time to time, and they actually want the record straight as much as the taxpayer.

And always remember to share your experience on social media platforms to help prevent this activity from being extended to other victims. For more tips on dealing with tax scams, visit this IRS tip page and always be on the lookout for tax scams. Also, remember to NEVER email your personal identification information. Email is not secure and should never contain social security numbers, bank account numbers, credit card numbers, driver’s license numbers and so on.

Taxpayers using a vehicle for business-related travel need to understand how they may claim vehicle travel expenses. They can either claim a deduction based on allowable business mileage during the year (Standard Mileage) or claim the business use percentage of actual vehicle expense during the year (Actual Expenses). The Internal Revenue Service makes your first-year deduction decision by only allowing you to use the standard mileage method. However, you may want to switch methods in the second and subsequent years.

Claiming Standard Mileage Expense

While some business tax deductions can be detailed and complicated, using the standard mileage deduction is rather easy. The Internal Revenue Service publishes the standard mileage rate each year. This rate is then applied to your business miles for the year to compute your mileage deduction.

The IRS standard mileage rate for 2019 is as follows:

• 58 cents per mile for standard use
• 20 cents per mile for use for medical or qualifying moving purposes
• 14 cents per mile when used in a charitable cause

It is important to note that the standard mileage rate includes fuel, maintenance, repairs, insurance, and licenses so you cannot deduct these expenses in addition to using the standard mileage rate. You can still deduct tolls and parking.

Deducting Actual Expenses

Many taxpayers may want to use the actual expense method instead of the standard mileage method. Under the actual expense method, you first divide your total annual business miles by the vehicle’s total annual miles to determine your business use percentage. You then multiply your actual expense during the year by the business use percentage to determine your deductible expense. Actual expenses include:

• Either lease payments or depreciation if you purchased the vehicle
• Fuel
• Vehicle repairs and servicing
• Tire purchases
• Insurance premiums
• Taxes and licenses

Documentation Requirements

The IRS requires you to document your business miles and to produce a mileage log and actual expense receipts during an audit. The mileage log rule applies whether you use the standard mileage method or claim actual expense. If you fail to keep a log, the IRS will deny your vehicle-related expense. Your log should include the starting address and the address traveled to, the miles and the business purpose. You should also keep oil change records to document your vehicle’s odometer reading.

Always remember that complying with tax law is important.  Tax agencies can deny a deduction if they find that the taxpayer overstated a deduction or failed to produce requested records to document a deduction. You also need to timely file and pay all taxes.

The preceding is solely intended for informational purposes and is not intended as legal advice.  It is important for business owners to consult with an experienced tax attorney or Certified Public Accountant.  Contact our office if you would like to further discuss your taxes.

So you’ve decided to open your own business. Making the decision is the first step. Now you need to figure out how to form your business.

You’ll have to address everything from your business name to how your operation will be set up, i.e., sole proprietorship, limited liability company or corporation. Your choice will have differing legal and tax ramifications.

That’s why it’s important to contact a qualified business and tax attorney who can explain the legal and tax differences for each business type.

1. Naming Your Business
   When choosing a business name, the first step is to go to the Secretary of State business records in the state where the business will operate to find out if the name is available. Next, do some research with the federal patent and trademark office to confirm the name is not registered. Finally, search a domain name registry to see if the URL name you want to use for your website is available.
2. Forming Your Business
   There are several options for forming your business. For the purposes of this blog, we will only discuss the following:
• Sole Proprietorship: If you form your business by simply registering a tradename or fictitious name then you are operating as a sole proprietorship. This means that your business is not legally separated from you. Thus, your company’s creditors can make claims against your personal assets.

  The income and expenses from your business must be included on your personal tax return using a Schedule C and you’ll have to pay income tax and self-employment tax on all your annual business earnings.

• Limited Liability Company or LLC: An LLC is a legal entity separate from its owner. The owners of an LLC are called members. Unlike sole proprietors, creditors of the business, in most cases, can’t make claims against a member’s personal assets.

  If the LLC has one member, it is taxed the same as a sole proprietorship. If there are two or more members, it will be taxed as a partnership and an annual partnership tax return must be filed. Members of an LLC can choose to have the business taxed as a corporation or S Corporation. Like sole proprietors, the members of an LLC that is taxed as a partnership are considered to be self-employed; therefore they don’t get W-2 wages.

• Corporation: Like the LLC, a corporation is a legal entity separate from its owners. Its owners are called shareholders. The creditors of the corporation, in most cases, cannot make claims against the shareholder’s personal assets.

  A corporation, no matter its size, must follow the corporate recordkeeping formalities set forth in the statute of the state where incorporated. These include holding annual shareholder meetings, electing a board of directors and corporate officers, keeping detailed records of meetings and providing annual financial reports to shareholders.

  A corporation files its own tax return and pays the taxes imposed on its income. The shareholders can be employees and receive W-2 wages or they can be paid dividends.

• S Corporation: The S Corporation is an election that is filed with the Internal Revenue Service. The S Corp election is only available to small businesses. The election can be made by an LLC or a corporation. There are both advantages and disadvantages to making this election.

How you choose to organize your business will vary based on individual needs, goals and tax implications. It’s possible to begin your business as an LLC and later legally reorganize the business into a corporation and/or elect a different type of tax treatment. Your attorney can assist you in deciding what works best for you.

Note: The above is not intended to be legal or tax advice. You should always contact an attorney and tax professional before making decisions that affect your business,

Simply put, a contract is any written or spoken agreement between two or more parties designed to produce a legally enforceable outcome. If you own a business, you should use a written contract for anyone you are doing business with, such as vendors, employees and consultants.

While a contract sounds simple, that’s not the case. Drafting a contract on your own is a sure fire way to guarantee legal problems in the future. Not convinced? Consider the following:

1. The Laws In Every State Are Different

   The rules governing contracts vary from state to state. If you draw up a contract that does not comply with the laws of the state where you are doing business, you may find that the contract will not be enforced as you expected.

2. Essential Elements Can Easily Be Omitted

   Every contract must have an “offer,” an “acceptance” and some form of “consideration.” That’s just the tip of the iceberg. There should also be clauses for selecting the state laws that govern enforcement of the contract and for indemnifying a party for certain acts of the other party. The clauses drafted into the contract are key components that need to be determined with the advice of an attorney.

3. Termination

   Every contract should include a plan for terminating the relationship. For example, will it be terminated by agreement of the parties or does it terminate automatically? Should renewal terms be included in the contract? What happens if it terminates due to breach of the contract terms? Will compensation be due? Those are just a few of the many questions you will need to discuss with your attorney when drawing up a contract.

4. Breach of Contract

   If a breach of the contract should occur, you may want to include terms that allow the breaching party to “cure” the breach before taking legal action. If the breach is such that it becomes necessary to take legal action, it will likely be expensive to litigate. Thus, it may be important to talk to your attorney about perhaps including a mediation or arbitration clause.

5. Protecting Your Assets

   If your company deals with proprietary information or is developing a new product, it is important to include non-compete and confidentiality clauses. If these clauses are not present, an employee or contractor could use your hard work to assist another company to develop a similar product or start a competing business.

These are just a few of the considerations involved when drawing up a contract. While it may initially seem cheaper to go it alone, legal disputes are costly and can easily exceed any upfront costs you will pay by seeking the advice of an attorney licensed in your state.

For more information on writing a business contract contact us today for a free consultation!