Identity Theft, Tax Fraud and ID Protection PINs
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By: Steven Brewer, CPA
We hear every day that another cyberattack has exposed thousands of pieces of personal data. Just recently, it has come to light that millions of us have had our personal data, including social security numbers, exposed by a cyberattack on National Public Data.
Identity theft takes many different forms. One of the most troubling is when someone uses your personal data to file a tax return. They will file false information using your name and social security number to obtain credits and refunds that are sent to them. There is a way for you to prevent this from happening.
The Internal Revenue Service instituted a program for Identity Protection PINs. These are a series of six-digit numbers assigned to you each year. Each year, you will receive a new PIN so you must give this to your preparer to be able to file your return. You must include this PIN when you e-file your tax return to identify that YOU are filing the return. If a return is filed without the PIN, then the return is rejected.
When you set up the PIN program with the IRS, you also will set up an online account with the IRS. That account will allow you to see your records with the IRS, what has been filed, what the results are, etc. This is very helpful if you ever have a question about what the IRS has. It also will help your tax preparer. When you have an online account, the tax preparer can send you a Power of Attorney form to the account for you to e-sign. The Power of Attorney form is needed for the tax preparer to receive information from the IRS on you if there is ever a problem that you ask the preparer to help you with.
To obtain information on the Identity Theft PIN, go wot https://www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin. Only you can obtain the PIN. No preparer or other third party can do this so if someone is telling you they can get one for “turn and run the other direction”.
You do have the option to opt out of the program unless you are a confirmed victim of identity theft. If so, you cannot opt out.
So, for your piece of mind and to stop the “bad guys” from getting into your taxes, get your PIN today.
Many taxpayers don’t feel the need to keep home improvement records, thinking the potential gain when they sell their home will never exceed the amount of the tax code’s exclusion for home gains explained as follows. Under the current version of the tax code, you are allowed to exclude from your income up to $250,000 ($500,000 for married couples) of gain from the sale of your primary residence if you owned and lived in it for at least 2 years (24 months) of the 5 years before the sale. You also cannot have previously taken a home-sale exclusion within the 2 years immediately preceding the sale. There is no limit on the number of times you can use the exclusion if you meet these time requirements; however, extenuating circumstances can reduce the amount of the exclusion. The home-sale gain exclusion only applies to your main home, not to a second home or a rental property. As noted above, you must have used and owned the home for 2 out of the 5 years immediately preceding the sale. The years don’t have to be consecutive or the closest to the sale date. Vacations, short absences, and short rental periods do not reduce the use period. If you are married, to qualify for the $500,000 exclusion, both you and your spouse must have used the home for 2 out of the 5 years prior to the sale, but only one of you needs to meet the ownership requirement. When only one spouse in a married couple qualifies, the maximum exclusion is limited to $250,000 instead of $500,000. If you don’t meet the ownership and use requirements, there are some situations in which a prorated exclusion amount may be possible. An example of this situation would be if you were required to sell the home because of extenuating circumstances, such as a job-related move, a health crisis or other unforeseen events. Another rule extends the 5-year period to account for the deployment of military members and certain other government employees. Please call this office if you have not met the 2 out of 5 rule to see if you qualify for a reduced exclusion. But what if your home sale gain is more than the home sale exclusion? Then it is in your best interests to have kept home improvement records, since the costs of improvements can be added to your purchase price of the home to be used in determining the gain. So keeping the receipts for the improvements, even if only in a folder or a shoe box, may be useful in the future when you sell your home. Here are some situations when having home improvement records could save taxes: The home is owned for a long period of time, and the combination of appreciation in value due to inflation and improvements exceeds the exclusion amount. The home is converted to a rental property, and the cost and improvements of the home are needed to establish the depreciable basis of the property. The home is converted to a second residence, and the exclusion might not apply to the sale. You suffer a casualty loss and retain the home after making repairs. The home is sold before meeting the 2-year use and ownership requirements. The home only qualifies for a reduced exclusion because the home is sold before meeting the 2-year use and ownership requirements. One spouse retains the home after a divorce and is only entitled to a $250,000 exclusion instead of the $500,000 exclusion available to married couples. There are future tax law changes that could affect the exclusion amounts. Everyone hates to keep records but consider the consequences if you have a gain and a portion of it cannot be excluded. You will be hit with capital gains (CG), and there is a good chance the CG tax rate will be higher than normal simply because the gain pushed you into a higher CG tax bracket. Before deciding not to keep records, carefully consider the potential of having a gain more than the exclusion amount. Home improvements include just about anything that will increase the value of the home, from big ticket items like remodeling a kitchen, adding another room or a swimming pool, and landscaping to smaller items like ceiling fans. But there are some home improvements that cannot be included in the cost of home improvements, or may be only partly included. Examples are items which qualify for tax credits such as home solar, home energy efficient improvements or those that qualify for a tax deduction such as handicap improvements. In addition, the costs of general maintenance or repairs, such as fixing leaks, painting (interior or exterior), and replacing broken hardware do not count as improvements. If you have questions related to the home gain exclusion or questions about how keeping home improvement records might directly affect you, please give this office a call.
With the signing of the One Big Beautiful Bill Act (OBBBA) many of the environmental credits that were in place and set to expire sometime in the future have now been moved up in their expiration dates. Below is a list of the credits set to expire and when they are to expire. Expiring after September 30, 2025 • Previously Owned Clean Vehicle Credit • Clean Vehicle Credit • Qualified Commercial Clean Vehicle Credit • Alternative Fuel Vehicle Refueling Property Credit To claim credit before the expiration date, you must purchase/install and have title to the property. Expiring after December 31, 2025 • Energy Efficient Home Improvement Credit • Solar Energy Credit • New Home Energy Efficient Home Credit To claim credit before the expiration date, the property must be installed, be functional and if necessary, approved by local agencies before the expiration date. If you have any questions about any of these credits, please contact your tax advisor or call us to discuss.
Hiring for the summer?
That’s exciting—until the IRS gets involved. While onboarding interns or part-time help sounds simple enough, summer hiring is one of the most common ways small business owners get tripped up on payroll, compliance, and classification. And yes, even a single misstep—like putting a W-2 employee on a 1099 “just for the summer”—can cost you big. Let’s Clear This Up: Not Everyone’s a Contractor You’re not alone if you’ve ever said: “We’re just paying them a flat rate—it’s easier that way.”
“They’re only here for 10 weeks.”
“They’re a student; it’s not really a job-job.” Here’s the hard truth:
If you control when, where, and how someone works—you’re probably supposed to issue a W-2. The IRS doesn’t care if it’s part-time, seasonal, freelance, or “just a favor.” If they look like an employee, they are one—and they want to see payroll taxes, not contractor payments. Need the official word? See IRS guidelines on worker classification Interns? Yes, They Usually Count Too. Many businesses think unpaid internships are a gray area. But unless it’s tied to a formal educational program with no expectation of compensation, the Department of Labor may classify your intern as an employee. That means: Minimum wage laws apply You may owe payroll taxes Workers’ comp coverage could be required Rule of thumb: If they’re contributing to your business, they probably need to be on payroll. Don’t Miss Out on This: The Work Opportunity Tax Credit (WOTC) Here’s some good news: If you’re hiring people from certain target groups—like veterans, long-term unemployed, or summer youth employees—you might qualify for the WOTC, which can reduce your federal income tax liability by up to $2,400 per qualifying hire. But: You have to apply before hiring The paperwork needs to be filed with your state agency Most businesses never realize they’re eligible More info? Explore the WOTC program here Other Things to Nail Down (Before Your First Payday) Set up correct federal and state withholding Ensure you have an active payroll system (manual payments often miss required filings) Collect and retain Form I-9s and W-4s Check if local labor laws require sick leave or additional reporting for part-time workers Know if you need to pay overtime—even if it’s “just for the summer” The Bottom Line: Don’t Wing Payroll We get it—your focus is on growing your business, keeping clients happy, and getting help in the door. But ignoring payroll compliance (even for “just a few weeks”) can lead to: Penalties for misclassification Missed tax credits State audits Unhappy former employees filing claims you didn’t see coming Need a Hand Sorting It Out? Call Us Before You Hire We’ve helped hundreds of small business owners set up summer payroll the right way—without overcomplicating things or drowning in red tape. If you’re planning to bring on part-time, seasonal, or intern help in the next few weeks, let’s talk.
We’ll help you stay compliant, minimize tax risk, and maybe even find some credits you didn’t know existed. Contact our office before you run that first paycheck—we’ll help you do it right from the start.