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Archive for December, 2012

‘Password’ Remains the Worst Password to Use

December 26th, 2012

Although the world of technology is perpetually changing, one thing remains the same: A lot of people use terrible passwords.


Splashdata, a security software developer, recently released its annual top 25 list of the most common account passwords on the Internet.

Here’s the full list and how it compares to last year’s:
1. password (unchanged)
2. 123456 (unchanged)
3. 12345678 (unchanged)
4. abc123 (up one)
5. qwerty (down one)
6. monkey (unchanged)
7. letmein (up one)
8. dragon (up two)
9. 111111 (up three)
10. baseball (up one)
11. iloveyou (up two)
12. trustno1 (down three)
13. 1234567 (down six)
14. sunshine (up one)
15. master (down one)
16. 123123 (up four)
17. welcome (new)
18. shadow (up one)
19. ashley (down three)
20. football (up five)
21. jesus (new)
22. michael (up two)
23. ninja (new)
24. mustang (new)
25. password1 (new)

Tax Preparers Must Renew Their PTINs and Those Required to Take the RTRP Test Should Schedule It As Soon As Possible

December 21st, 2012

The Internal Revenue Service today reminded professional tax return preparers to renew their Preparer Tax Identification Numbers (PTINs) if they plan to prepare returns in 2013. Current PTINs expire Dec. 31, 2012.

 

Anyone who prepares or helps prepare all or substantially all of a federal tax return, claim for refund or other federal forms for compensation must have a valid PTIN. All enrolled agents also must have a PTIN. Tax professionals can obtain or renew their PTINs at www.irs.gov/ptin.

Preparers who need to take a competency test are encouraged to schedule an appointment while they are renewing their PTIN. The registered tax return preparer (RTRP) test can be scheduled up to six months in advance, depending on the location. Select “next steps and additional requirements” within your online PTIN account to schedule the RTRP test.

The other option available to those required to test is the Special Enrollment Exam which is a three-part test to become an enrolled agent (EA). Enrolled agent status is the highest credential the IRS awards. More information is available at www.irs.gov/taxpros/agents.

The online PTIN system has been substantially upgraded. Those renewing their PTINs can complete the process in about 15 minutes. The renewal fee is $63. Tools are available to assist any preparers who have forgotten their user name, password or email address.

New tax return preparers who are obtaining a first-time PTIN must create an online PTIN account as a first step and then follow directions to obtain a PTIN. Their fee is $64.25.

All preparers are encouraged to ensure entry of accurate information so the IRS can properly determine test requirements. Enrolled agents, certified public accountants and attorneys should carefully enter information about their professional credentials. Preparers who do not prepare any Form 1040 series returns or who are supervised in certain firms must self-certify that they are exempt from the testing requirement. A supervised preparer is one who is employed by a law or accounting firm at least 80 percent owned by attorneys, CPAs or EAs who is supervised by an attorney, CPA or EA who reviews and signs the returns they prepare.

RTRPs and RTRP candidates also must self-certify that they have completed or will complete the required 15 hours of continuing education courses.

The annual registration and renewal requirement is part of the IRS’s ongoing effort to enhance the tax preparer profession and improve services to taxpayers.

Enrolled agents, certified public accountants and attorneys already have passed exams and maintain professional education requirements. Tax return preparers who are not enrolled agents, certified public accountants or attorneys must pass the RTRP test or the Special Enrollment Exam by Dec. 31, 2013.

The IRS recently created the new credential – registered tax return preparer. Individuals in this category must meet the RTRP testing and CE requirements. So far, there are more than 48,000 preparers who have earned RTRP certificates. There also has been an increase in the number of people taking the enrolled agent exam.

Starting Jan. 1, 2014, only registered tax return
preparers, enrolled agents, CPAs and attorneys will be authorized to prepare and sign federal individual returns.

There are currently 739,000 tax preparers with 2012 PTINs. Approximately 350,000 of them are subject to the new testing and CE requirements.

Courtesy of the Internal Revenue Service.

IRS Offers Tips for Year-End Giving

December 19th, 2012

Individuals and businesses making contributions to charity should keep in mind some key tax provisions that have taken effect in recent years, especially those affecting donations of clothing and household items and monetary donations.

Rules for Clothing and Household Items

To be deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances and linens.

Guidelines for Monetary Donations

To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.

Reminders

To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:

  • Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2012 count for 2012.
    This is true even if the credit card bill isn’t paid until 2013. Also, checks count for 2012 as long as they are mailed in 2012.
  • Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. Exempt Organization Select Check, a searchable online database available on IRS.gov, lists most organizations that are qualified to receive deductible      contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in the database.
  • For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2012 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
  • For all donations of property, including clothing and household items, get from the charity, if possible, a receipt thatincludes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
  • The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the      organization and attached to the donor’s tax return.
  • If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
  • And, as always it’s important to keep good records and receipts.

    Courtesy of the Internal Revenue Service.

Criminal Law

December 18th, 2012

A firearm is presumed to be a weapon readily capable of lethal use without proof that the gun was loaded.

Williams v. State, No. 92250.

Plan Now to Get Full Benefit of Saver’s Credit; Tax Credit Helps Low- and Moderate-Income Workers Save for Retirement

December 13th, 2012

WASHINGTON — Low- and moderate-income workers can take steps now to save for retirement and earn a special tax credit in 2012 and the years ahead, according to the Internal Revenue Service.

The saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to IRAs and to 401(k) plans and similar workplace retirement programs. Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.

Eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2012 tax return. People have until April 15, 2013, to set up a new individual retirement arrangement or add money to an existing IRA and still get credit for 2012. However, elective deferrals (contributions) must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees. Employees who are unable to set aside money for this year may want to schedule their 2013 contributions soon so their employer can begin withholding them in January.

The saver’s credit can be claimed by:

  • Married couples filing jointly with incomes up to $57,500 in 2012 or $59,000 in 2013;
  • Heads of Household with incomes up to $43,125 in 2012 or $44,250 in 2013; and
  • Married individuals filing separately and singles with incomes up to $28,750 in 2012 or $29,500 in 2013.

Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. Though the maximum saver’s credit is $1,000, $2,000 for married couples, the IRS cautioned that it is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers.

A taxpayer’s credit amount is based on his or her filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. Form 8880 is used to claim the saver’s credit, and its instructions have details on figuring the credit correctly.

In tax-year 2010, the most recent year for which complete figures are available, saver’s credits totaling just over $1 billion were claimed on more than 6.1 million individual income tax returns. Saver’s credits claimed on these returns averaged $204 for joint filers, $165 for heads of household and $122 for single filers.

The saver’s credit supplements other tax benefits available to people who set money aside for retirement. For example, most workers may deduct their contributions to a traditional IRA. Though Roth IRA contributions are not deductible, qualifying withdrawals, usually after retirement, are tax-free. Normally, contributions to 401(k) and similar workplace plans are not taxed until withdrawn.

Other special rules that apply to the saver’s credit include the following:

  • Eligible taxpayers must be at least 18 years of age.
  • Anyone claimed as a dependent on someone else’s return cannot take the credit.
  • A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.

Certain retirement plan distributions reduce the contribution amount used to figure the credit. For 2012, this rule applies to distributions received after 2009 and before the due date, including extensions, of the 2012 return. Form 8880 and its instructions have details on making this computation.

Begun in 2002 as a temporary provision, the saver’s credit was made a permanent part of the tax code in legislation enacted in 2006. To help preserve the value of the credit, income limits are now adjusted annually to keep pace with inflation. More information about the credit is on IRS.gov.

Courtesy of the Internal Revenue Service.

Construction Law

December 12th, 2012

To answer the question of whether a subcontractor is an independent contractor, the relationships must be analyzed by the application of well-known employment law principles. Further, the mere breach of a contract does not provide a basis for tort liability. If an act or omission constitutes a tort, then liability exists in tort law regardless of the existence of a contract. Skabu, et al. v. Regency Contraction Co., Inc., No. 97934 (Mo. App. E.D., October 2, 2012), Cunningham, J.

Held: Reversed. The court of appeals held that the terms subcontractor and independent contractors are not synonymous.
In general, a subcontractor is defined as “one who is awarded a portion of an existing contract by a contractor.” An independent contractor is “one who is entrusted to undertake a specific project but who is free to do the assigned work and to choose the method for accomplishing it.” A person can meet the definition of a subcontractor, but if that person is subject to control of his employer, he would not be an independent contractor.

To determine whether a subcontractor is an independent contractor or what the court called an employee, the court said that the analysis involves established employment law. Employees and independent contractors are distinguished primarily on the basis of the amount of control the alleged employer has over them. Some of the factors to consider are (1) the extent of control by agreement the employer may exercise over the details of the work, (2) whether the person employed is engaged in a distinct occupation, (3) the local practice of whether the work is done under the direction of the employer, or without supervision, (4) the skill required in the particular occupation, (5) whether the employer or the workman supplies the instrumentalities, tools, and place of work, (6) whether work is part of the employer’s regular business, (7) whether the method of payment is by time or the job, and (8) whether the parties believe they are creating an independent contractor or employee relationship.

As to whether the allegations of negligence were appropriate, the court of appeals said a mere breach of contract does not provide a basis for liability in a tort. On the other hand, regardless of the existence of a contract, if the act or omission constitutes a tort, then tort liability exists. If the conduct is not a tort, then a breach of contract will not create tort liability. The question then is whether the alleged conduct constitutes a tort.

IRS Offers Tax Tips for “The Season of Giving”

December 6th, 2012

December is traditionally a month for giving generously to charities, friends and family. But it’s also a time that can have a major impact on the tax return you’ll file in the New Year. Here are some “Season of Giving” tips from the IRS covering everything from charity donations to refund planning:

  • Contribute to Qualified Charities. If you plan to take an itemized charitable deduction on your 2012 tax return, your donation must go to a qualified charity by Dec. 31. Ask the charity about its tax-exempt status. You can also visit IRS.gov and use the Exempt Organizations Select Check tool to check if your favorite charity is a qualified charity. Donations charged to a credit card by Dec. 31 are deductible for 2012, even if you pay the bill in 2013. A gift by check also counts for 2012 as long as you mail it in December. Gifts given to individuals, whether to friends, family or strangers, are not deductible.
  • What You Can Deduct.  You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified charity. Special rules apply to several types of donated property, including clothing or household items, cars and boats.
  • Keep Records of All Donations.  You need to keep a record of any donations you deduct, regardless of the amount. You must have a written record of all cash contributions to claim a deduction. This may include a cancelled check, bank or credit card statement or payroll deduction record. You can also ask the charity for a written statement that shows the charity’s name, contribution date and amount.
  • Gather Records in a Safe Place. As long as you’re gathering those records for your charitable contributions, it’s a good time to start rounding up documents you will need to file your tax return in 2013. This includes receipts, canceled checks and other documents that support income or deductions you will claim on your tax return. Be sure to store them in a safe place so you can easily access them later when you file your tax return.
  • Plan Ahead for Major Purchases. If you are making major purchases during the holiday season, don’t base them solely on the expectation of receiving your tax refund before the bills arrive. Many factors can impact the timing of a tax refund. The IRS issues most refunds in less than 21 days after receiving a tax return. However, if your tax return requires additional review, it may take longer to receive your refund.

Courtesy of The Internal Revenue Service.

COSTLY DEBT SETTLEMENT SCHEMES PREY ON THE MOST DEBT-BURDENED CONSUMERS STRUGGLING TO RECOVER FROM ECONOMIC DOWNTURN

December 4th, 2012

What a Half Million Unwary Consumers Don’t Know:  Schemes Only Work for 1 in 10 Who Pay for Them; Consumer Alert:  Debt Settlement Programs Seen as “#1 Threat to America’s Most Indebted Consumers.”

As few as one in 10 unwary consumers who are lured into so-called “debt settlement” schemes actually end up debt free in the promised period of time, making the risky schemes the No. 1 threat facing America’s most deeply indebted Americans, according to a major new consumer alert issued today by the nonprofit National Association of Consumer Bankruptcy Attorneys (NACBA).

Available online at http://www.nacba.org, the NACBA consumer alert notes:  “Already struggling with home foreclosures, harsh bank and credit card fees, and other major financial challenges, America’s most deeply indebted consumers are now falling victim to a major new threat:   so-called ‘debt settlement’ schemes that promise to make clients ’debt free’ in a relatively short period of time.  Unfortunately, most consumers who pursue debt settlement services find themselves facing not relief but even steeper financial losses. Even the industry acknowledges – though not in its ever-present radio and online advertising – that debt settlement schemes fail to work for about two thirds of clients. Federal and state officials put the debt-settlement success rate even lower – at about one in 10 cases – meaning that the vast majority of unwary and uninformed consumers end up with more red ink, not the promised debt-free outcome.”

The private debt-settlement industry remains robust.  More than 500,000 Americans with approximately $15 billion of debt are currently enrolled in debt settlement programs, according to industry estimates.  And there is room for further growth:   One in 8 U.S. households has more than $10,000 in credit card debt.

Durham, NC bankruptcy attorney Ed Boltz, NACBA Board member and incoming NACBA president, said:   “Based on what bankruptcy attorneys are seeing across the nation, we believe that debt settlement schemes are the number one problem facing America’s most deeply indebted consumers today. Bombarded with slick radio and Web advertising falsely promising a smooth road to being debt free in a short period of time, these companies prey on the most desperate victims of the economic downturn.   These particularly vulnerable consumers usually end up getting sued, stuck with outrageous fees, more deeply in debt, and far worse off in terms of their credit score.”
Earlier this year, NACBA focused national attention on the “student debt bomb,” which then was identified as the fastest growing consumer debt problem being handled by consumer bankruptcy attorneys.

Richard Thompson, a Rialto, California, retiree and victim of a debt settlement scheme, said:    “I was told they could settle my $89,000 in debts for a total of $39,000 if I made payments of $1,800 for 22 months.  I was contacted about a chance to settle $15,000 debt for $6,000 but my debt-settlement company ignored the offer.   In fact, I paid them a total of $25,200 as they kept on ignoring settlement offers from creditors.  I thought they were taking care of me by bringing my debt down, but all they were doing was taking my money.   I ended up with $25,000 more in debt than I started out with.   Before I retired I worked 25 years as a manager, now I have had to go back to work as a part-time security guard to help make ends meet.”

Bankruptcy attorney Trisha Connors, a NACBA member from Glen Rock, New Jersey who has testified before the New Jersey Law Revision Commission on debt settlement abuses, said:   “Over the last three years, I have worked with 12 different for-profit debt settlement companies and over 25 clients who came to me after their debt settlement program failed to serve them.  The results with each client were the same:  exorbitant fees being paid, settlement (at best) of one small credit card debt, and mounting late fees and penalty interest charges on the unsettled debts.  When clients informed the debt settlement companies of their desire to exit the program, the firms kept all or most of the accumulated savings for debt reduction as ‘fees.’  Every person I dealt with who had been current on their debts prior to contacting a debt settlement program told me that the sales representative told him the only way to be successful in the program is to stop paying credit card bills.”

Ellen Harnick, senior policy counsel, Center for Responsible Lending, said:   “Debt settlement companies require clients to default on their debts before they will negotiate.  This adds late fees and penalty interest to their debt and frequently results in the client being sued by creditors.  Since only a tiny proportion of debts are actually settled by these companies, clients are typically left worse off than they were when they started.”

In addition to highlighting the stories of three victims of debt settlement schemes, the NACBA consumer alert notes the following:
•    There is now across-the-board agreement on the danger that debt settlement schemes pose to consumers.  The Better Business Bureau has designated debt settlement as an “inherently problematic business.”  Similarly, the New York City Department of Consumer Affairs called debt settlement “the single greatest consumer fraud of the year.” Across the country, the U.S. Government Accountability Office (GAO),  the Federal Trade Commission, 41 state attorneys general,  consumer and legal services entities, and consumer bankruptcy attorneys have all uncovered substantial evidence of abuses by a wide range of debt settlement companies.
•    Debt settlement schemes encourage consumers to default on their debts.  Because creditors frequently will not negotiate reduced balances with consumers who are still current on their bills, debt settlement companies often instruct their clients to stop making monthly payments, explaining that they will negotiate a settlement with funds the client has paid in lieu of their monthly debt repayments.  Once the client defaults, he or she faces fines, penalties, higher interest rates, and are subjected to increasingly aggressive debt-collection efforts including litigation and wage garnishment. Consequently, consumers often find themselves worse off than when the process of debt settlement began:  They are deeper in debt, with their credit scores severely harmed.
•    “Self help” may be the best answer for smaller debt burdens.   If you have just a single debt that you are having trouble paying (such as a single credit card debt) and you have cash on hand that can be used to settle the debt, you may be able to negotiate favorable settlement terms with the creditor yourself.  Creditors typically require anywhere from 25 to 70 percent on the dollar to settle a debt so you will need that much cash for a successful offer.  Be sure to get an explicit written document from the creditor spelling out the terms of the debt settlement and relieving you of any future liability.  Also be prepared to pay income taxes on any of the forgiven debt.
•    Nonprofit credit counseling agencies can help, but must be vetted carefully.  If, like most people, you owe multiple creditors and do not have the cash on hand to settle those debts, you may want to consult a non-profit credit counseling agency to see if there is a way for you to get out of debt.  But make sure to check it out first: Just because an organization says it’s a “nonprofit” there is no guarantee that its services are free, affordable or even legitimate.  Some credit counseling organizations charge high fees (which may not be obvious initially) or urge consumers to make “voluntary” contributions that may lead to more debt. The federal government maintains a list of government-approved credit counseling organizations, by state, at www.usdoj.gov/ust.  If a credit counseling organization says it is “government approved,” check them out first.
•   Bankruptcy will be an option for some consumers.  Bankruptcy is a legal proceeding that offers a fresh start for people who face financial difficulty and can’t repay their debts.  If you are facing foreclosure, repossession of your car, wage garnishment, utility shut-off or other debt collection activity, bankruptcy may be the only option available for stopping those actions.  There are two primary types of personal bankruptcy:  Chapter 7 and Chapter 13.  Chapter 13 allows people with a stable income to keep property, such as a house or car, which they may otherwise lose through foreclosure or repossession.  In a Chapter 13 proceeding, the bankruptcy court approves a repayment plan that allows you to pay your debts during a three to five year period.  After you have made all the payments under the plan, you receive a discharge of all or most remaining debts.  For tax purposes, a person filing for bankruptcy is considered insolvent and the forgiven debt is not considered income.  Chapter 7 also eliminates most debts without tax consequences, and without any loss of property in over 90 percent of cases.  To learn more about bankruptcy and whether it makes sense for you, go to http://www.nacba.org/Home/AttorneyFinderV2.aspx.
NACBA urges consumers to steer clear of any companies that:
•    Make promises that unsecured debts can be paid off for pennies on the dollar. There is no guarantee that any creditor will accept partial payment of a legitimate debt. Your best bet is to contact the creditor directly as soon as you have problems making payments.
•    Require substantial monthly service fees and demand payment of a percentage of what they’ve supposedly saved you. Most debt settlement companies charge hefty fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee– a percentage of the money you’ve allegedly saved.
•    Tell you to stop making payments or to stop communicating with your creditors. If you stop making payments on a credit card or other debts, expect late fees and interest to be added to the amount you owe each month. If you exceed your credit limit, expect additional fees and charges to be added. Your credit score will also suffer as a result of not making payments.
•    Suggest that there is only a small likelihood that you will be sued by creditors.  In fact, this is a likely outcome.  Signing up with a debt settlement company makes it more likely that creditors will accelerate collection efforts against you.  Creditors have the right to sue you to recover the money you owe. And sometimes when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home.
•    State that they can remove accurate negative information from your credit report. No company or person can remove negative information from your credit report that is accurate and timely.

Courtesy of National Association of Consumer Bankruptcy Attorneys.