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  • 3 Signs You May be a Victim of Tax-Related Fraud

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    The following is a guest post from ID theft expert Brian Lapidus, chief operating officer of Kroll’s Fraud Solutions.

    3 SIGNS YOU MAY BE A VICTIM OF TAX-RELATED FRAUD

    1. You are unable to file your return electronically, because a prior return included your SSN.

    Take Action:

    Submit your return by paper and include proof of SSN ownership (i.e., a registered letter from the Social Security Administration).

    2. You have received a W2 or 1099 form from a company with whom you have never been employed nor had a financial relationship.

    Take action:

    Contact the company in question by phone, with a follow-up letter, to request a corrected W2 or 1099, maintaining call notes and copies of all related documentation. If receipt of document was not due to an error by reporting company, file a police report.

    Maintain records until you receive a notice from the IRS.

    3. You received a notice from the IRS advising you of unclaimed wages or income.

    Take action:

    Contact the assigned IRS agent listed on the notification. He/she will work with you to ensure that you are not held liable for any fraud-related or errant wages/earnings.

    If you do not notify the IRS of a dispute, the IRS will assume the reporting is accurate. As a result, the wages/income will be processed and the IRS will send you a bill. Continued failure to notify the IRS can result in wage garnishment or tax levies.

    Follow all instructions and provide all information or documentation to the assigned IRS agent, as requested.

    Human accountant vs. Tax prep software

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    Judging from comments I’ve gotten when I’ve mentioned my accountant, I’m not the only one who wonders whether paying a substantial fee to have another human prepare my tax returns is worth it, especially in this day and age of tax prep software. Gina over at Lifehacker wondered the same thing. Only this year she used both to do a side by side comparison.

    It turns out that TurboTax came up with a smaller total of tax owed, but her accountant caught a mistake by one of her employers that TurboTax didn’t (apparently it didn’t affect the amount owed, though). And she doesn’t know yet why TurboTax reached a different result.

    The best thing about Gina’s report, at least for me, was this sentence:

    There are always questions inside TurboTax that you respond to with just a tinge of doubt, and just a few of those can mount into a larger sense of uncertainty.

    It’s precisely this feeling that causes me to pay between $500 and $1000 to have my tax returns prepared for me. (Did that number make you cringe? Me too. I haven’t received my bill for this year yet, and I’m praying it’s on the lower end of that range.)

    So I guess whether you should hire a human accountant comes down, at least to some degree, to your risk tolerance. Mine is fairly low – primarily because of the potential consequences (all of my hair would probably turn white if I received an audit notice and I wasn’t sure I’d done everything right). So I’ll stick with an accountant for the foreseeable future.

    What about you? Do you think it’s worth paying an accountant?

    Calculating my non-cash charitable contributions – and trying something new in 2008

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    I am nearly done with the tax organizer that our accountant sent us. There are only two things left to do, and I am waiting to hear back from our accountant before I do one of them. I’m dreading the other thing, however – namely, calculating our non-cash charitable contributions.

    I’ve written before about how I log every item donated before it goes into a bag and out the door. Unfortunately, knowing what I donated and putting a dollar value on it are not the same thing. And over the course of a year, we donate hundreds, if not thousands, of items. I have a long list of shirts, pants, books, kitchen goods, and other items that we donated throughout the year. Now I have to give everything a fair market value, and add it all up. Ugh!

    An anonymous comment on last year’s post recommended DeductionTraQ, a free service for tracking donations. It apparently uses eBay sales prices to determine FMV. I’m going to give it a try for 2008 – I’m hoping it will be a gift to my future self (i.e., the self who will be in exactly the same position one year from today).

    In the meantime, I have no choice but to go through all the receipts and lists and draw up a list for our accountant (some of it is done, otherwise I would try DeductionTraQ right now). The good news is, we donated more than ever this year, so we’ll be getting a nice deduction when it’s all done.

    An open plea to the neighbors who ended up with our mail: please return it, pronto!

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    I feel bad for J.D. of Get Rich Slowly – a couple of days ago, someone stole some mail from his mailbox. Unfortunately, I can relate only too well to how he’s feeling. You see, sometime last week, our mail carrier put our tax organizer package sent by our accountant in one of neighbor’s mailboxes.

    At least, I’m surmising that’s what happened to the package (I’ll call it a package but it’s really a thick envelope). I know it was sent out on the 5th and that it hasn’t arrived yet. I’ve double checked with our accountant to make sure they sent it to the right address. Our mailbox is in a communal area, and apparently the mail hasn’t been delivered by our regular carrier lately since there have been lots of envelopes left out for the rightful addressee.

    Normally, I wouldn’t worry so much, but the package apparently contains one document that lists our social security numbers. I’m not sure why the accountant sent the package to our house since they have our PO Box on file too. Of course, as I’ve mentioned, we haven’t been impressed by the woman who took over from our last accountant. It’s looking more and more like we’ll be looking for someone else to handle our accounting matters for us next year.

    In the meantime, I want to say to the neighbors who ended up with our mail:

    I don’t want to believe that one of our neighbors would commit identity theft. I want to believe that you’ve simply thrown your mail into a pile and not sorted through it yet, and haven’t realized that you’re sitting on something important to us. Please return the package to us, unopened, so that I don’t have to worry for eternity that our social security numbers are out there for some enterprising unethical thief to have wreak havoc with. Let me also say, in the nicest way possible, that if you do decide to engage in criminal behavior with the information in that package, I will do everything I can to see that you are prosecuted and sent to jail. So please, just return the *$(& package!

    Update: I’m feeling a little foolish now. The package postmarked February 5 arrived today, several hours after I published this post. I don’t understand why it takes the USPS 10 days to deliver something from Santa Monica, but I’m very relieved to know that our social security numbers aren’t compromised. Whew!

    Preparing for tax season

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    As I’ve mentioned previously, we hired an accountant to do our taxes for the first time last year. I wasn’t sure what to expect, but I wasn’t exactly surprised to receive a thick workbook that required me to fill in almost all of the information that would go on our 1040. Part of me thought, “Why I am paying someone to fill out my 1040 when I’m doing so much of the work myself?!” But another part of me was happy to have the peace of mind that came from knowing a professional was going to see everything, and I reminded myself (as FMF has pointed out) that making my accountant’s job easier reduces the amount I have to pay him.

    I learned last year that filling out the worksheet was a little different from doing my own taxes, since I had to send in supporting documents, even if they weren’t documents that needed to be sent to the IRS. In the past, I simply accumulated tax-related documents in a manila folder in my filing cabinet, then sorted through them as I prepared my 1040. This worked fine since I didn’t need to send in many supporting documents and I just kept a pile of papers to one side as I worked. But for some reason, this no longer worked for me last year, when I had to make copies of some documents but not others. I resolved to find a better system for tracking my 2007 documents to make my life easier when the worksheet arrived in 2008.

    I’m expecting that worksheet any day now, so we’ll see if my new system works better. I’ll report back after I’ve finished the worksheet, but in the meantime, I want to share what I did:

    I re-purposed a multi-compartment file folder like this one.Then I labeled the pockets as follows:

    • Income – This includes pay stubs, 1099s, and other forms related to income.
    • Medical – I don’t expect to be able to deduct medical expenses (it’s such a high threshold) but I keep documents related to my medical flexible spending account here.
    • Childcare – I keep all documentation relating to childcare here, including documents related to my dependent care flexible spending account.
    • Charity – All receipts for charitable donations go here.
    • Other deductions – Documentation relating our mortgage, property taxes, etc., go here.

    These categories roughly correspond to how the worksheet is organized, so my plan is to fill out the information for one category, make copies of the necessary documents, and then move on to the next section. This should enable me to complete the worksheet faster than I did last year, and in a way that’s more conducive to interruptions since I have so few blocks of time. I recall that last year, I would get frustrated at having to set the worksheet aside because I would have to re-orient myself to the jumbled documents when I came back to it.

    I’ve been tempted to acquire another file folder to organize this year’s documents that have already started coming in, but for the time being, I’m holding off. I’m hopeful that I’ll be able to complete the worksheet before the end of February, at which time I can transfer the documents to a manila folder in my filing cabinet and move the 2008 documents into the compartmented folder.

    Question for readers: How do you organize your tax-related documents?

    How do you find an accountant?

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    I’ve mentioned previously that we hired an accountant to do our taxes last year, and we were pretty happy with him (let’s call him Harvey). Harvey had been my in-laws’ accountant for many years, and I trusted my father-in-law’s judgment in this regard, so it was an easy decision to have him do our taxes last year.

    However, Harvey retired at the end of last year, though I didn’t find out until last week. Our account was transferred to another accountant in the firm, but I’m not thrilled by the fact that the only reason I found out about the retirement and transfer was because I called to make an appointment with Harvey. My father-in-law, whose taxes are a lot more involved than ours, says the new accountant (let’s call her Susan) seems well-qualified and he’s going to give her a year or so to prove herself. And since I’m not really interested in searching for a new accountant this tax season, we’ll just stay with her as well.

    But I’ve been wondering what we’ll do if we’re not happy with Susan, which seems a real possibility considering that I’m not pleased with how she and the firm handled the transfer of our account. Word of mouth and referrals is my favorite way to find new professionals. I have one friend who’s been with her accountant for years, so I can ask her for a referral. I could also ask our estate planning attorney.

    Hopefully, things will work out with Susan, but just in case they don’t:

    How do you find a new accountant?