THOMAS, HEAD & GREISEN, PcCERTIFIED PUBLIC ACCOUNTANTS

Kevin E. Bransan, CPAJohn A. Letourneau, CPADebra K. Mason, CPA/CFF, CFEErich R. Larnirand, CPACindy L. Hulquist, CPA

Ronald E. Greisen, CPA/ABWCFF

2012 February 2012

Top Tips Every Taxpayer Should Know about Identity Theft

Dear Clients & Friends:

Identity theft often starts outside of the taxadministration system when someone’spersonal information is unfortunately stolen orlost. Identity thieves may then use a taxpayers’identity to fraudulently file a tax return and claima refund. In other cases, the identity thief usesthe taxpayer’s personal information in order toget a job. The legitimate taxpayer may beunaware that anything has happened until theyfile their return later in the filing season and it isdiscovered that two returns have been filedusing the same Social Security number.

Here are the top 13 things the IRS wants you toknow about identity theft so you can avoidbecoming the victim of identity thief.

The IRS does not initiate contact withtaxpayers by email to request personal orfinancial information. The IRS does notsend emails stating you are beingelectronically audited or that you are gettinga refund.

2. If you receive a scam e-mail claiming to befrom the IRS, forward it to the IRS atphishincK~Jrs.gov.

3. Identity thieves get your personalinformation by many different means,including:

Stealing your wallet or purse.Posing as someone who needsinformation about you through a phonecall or email.

¯ Looking through your trash for personalinformation.

¯ Accessing information you provide to anunsecured Internet site.

If you discover a website that claims to bethe IRS but does not begin with’www.irs.gov,’ forward that link to the IRS atDhishinq(~jrs.clov.

To learn how to identify a secure website,visit the Federal Trade Commission atwww.on.quardonline..qov/tools/reco,qnize-secure-site-using-ssl.aspx.

If your Social Security number is stolen,another individual may use it to get a job.That person’s employer may report incomeearned by them to the IRS using your SocialSecurity number, thus making it appear thatyou did not report all of your income on yourtax return. When this occurs, you shouldcontact the IRS to show that the income isnot yours. Your record will be updated toreflect only your information. You will alsobe asked to submit substantiatingdocumentation to authenticate yourself.That information will be used to minimizethis occurrence in future years.

Your identity may have been stolen if aletter from the IRS indicates more than onetax return was filed for you or the letterstates you received wages from anemployer you don’t know. If you receivesuch a letter from the iRS, leading you tobelieve your identity has been stolen,

T.(907) 272-1571 F.(907) 277 2639 I 1400 West Benson Blvd. Suite 400, Anchorage, Alaska 99503 I www.thgcpa.com

respond immediately to the name, addressor phone number on the IRS notice.

If your tax records are not currently affectedby identity theft, but you believe you may beat risk due to a lost wallet, questionablecredit card activity, or credit report, youneed to provide the IRS with proof of youridentity. You should submit a copy of yourvalid government-issued identification -such as a Social Security card, driver’slicense, or passport - along with a copy of apolice report and/or a completed IRS Form14039, Identity Theft Affidavit, which shouldbe faxed to the IRS at 978-684-4542.Please be sure to write clearly. As anoption, you can also contact the IRS IdentityProtection Specialized Unit, toll-free at 800-908-4490. You should also follow FTCguidance for reporting identity theft atwww. ftc.,q ov/idtheft.

Show your Social Security card to youremployer when you start a job or to yourfinancial institution for tax reportingpurposes. Do not routinely carry your cardor other documents that display your SocialSecurity number.

10. For more information about identity theft -including information about how to reportidentity theft, phishing and relatedfraudulent activity - visit the IRS IdentityTheft and Your Tax Records Page, whichyou can find by searching "Identity Theft" onthe IRS.gov home page.

11. IRS impersonation schemes flourish duringtax season and can take the form of e-mail,phone websites, even tweets. Scammersmay also use a phone or fax to reach theirvictims. If you receive a paper letter ornotice via mail claiming to be the IRS butyou suspect it is a scam, contact the IRS at

12.

13.

http://www.irs.,qov/contact/index.html to

determine if it is a legitimate IRS notice orletter. If it is a legitimate IRS notice or letter,reply if needed. If the caller or party thatsent the paper letter is not legitimate,contact the Treasury Inspector General forTax Administration at 1-800-366-4484. Youmay also fax the notice/letter you received,plus any related or supporting information toTIGTA. Note that this is not a toll-free FAXnumber 1-202-927-7018.

While preparing your tax return forelectronic filing, make sure to use a strongpassword to protect the data file. Once yourreturn has been e-filed, burn the file to a CDor flash drive and remove the personalinformation from your hard drive. Store theCD or flash drive in a safe place, such as alock box or safe. If working with anaccountant, you should ask them whatmeasures they take to protect yourinformation.

If you have information about the identitythief that impacted your personalinformation negatively, file an onlinecomplaint with the Internet Crime ComplaintCenter (IC3) at www.ice.,qov. The IC3 givesvictims of cyber crime a convenient andeasy-to-use reporting mechanism that alertsauthorities of suspected criminal or civilviolations. IC3 sends every complaint to oneor move law enforcement or regulatoryagencies that have jurisdiction over thematter.

If you have any questions about what measureswe take to protect your information, pleasecontact our office.

Members of Western Association of Accounting Firms

Associate Offices in: Boise, Chico, Denver, Eugene, Fresno, Klamath Falls, LaJolla, Medford, Ogden, Oroville, Ca,Pasadena, Phoenix, P~easanton, Per[land, Rancho Cucamonga, Redding, San Francisco, San Jose, San Mateo, and Sea[~le

THOMAS, HEAD & GREISENo c

Failure to use head of household (HOH)filing status is a common tax filing mistake.HOH status is preferable to single or marriedfiling separately status because the tax ratebrackets are more favorable (except for the 35%single bracket) and the standard deduction islarger.

If you are not eligible to file jointly or as aqualified surviving spouse, HOH filing statusmay be the best alternative to minimize yourfederal income tax liability. To qualify as aHOH, each tax year you must--

1. Be unmarried or considered unmarried forthis purpose if married on the last day of thetax year;

2. Not be a surviving spouse;3. Not be a nonresident alien at any time

during the tax year;4. Maintain a household as his home (i.e.,

provide over half of the costs) that is theprinciple place of abode for more than halfof the tax year of (a) a qualifying child, butnot if the child is married and files a jointreturn or (b) a dependent relative for whoman exemption can be claimed; or

5. Maintain a household that constitutes theprincipal home of your mother or father ifyou can claim an exemption for such parent(can be separate from your home).

Head of Household FilingStatus

The expenses ofmaintaining the homeinclude propertytaxes, insurance,mortgage interest pay-ments, rent, utilities,maintenance, andproviding food on thepremises. HousehoIdexpenses (i.e., expenses for the mutual benefitof the occupants of the household) do not in-clude expenses for clothing, education, medicaIcare, vacations, life insurance, or transportation.

Example: Qualifying child is married.Carl is unmarried and his 22-year-olddaughter and her husband are living withhim. She and her husband are full-timestudents and do not provide more than halfof their support. Carl is providing more thanhalf of the cost of ma’mtglffmg his household.If Carl’s daughter and her husband do notfile a joint return, Carl may claim head ofhousehold status with his daughter as thequalifying child.

Please contact us if you would like to discussHOH filing status.

The information contained in this newsletter was not intended or written to be used andcannot be used for the purpose of (1) avoiding tax-related penalties prescribed by the InternalRevenue Code or (2) promoting or marketing any tax-related matter addressed herein.

Capital Gains and LossesTechnically, almost everything you own and

use for personal, pleasure, or investmentpurposes is a capital asset. Capital assets

include, but are~ not limited to,

homes, householdfurnishings, stocks,bonds, and mutualfunds. When acapital asset issold, the differencebetween the amountyou paid (your basis)

and the amount you sold it for is generally acapital gain or loss.

Here are some important facts about capitalgains and losses:

¯ You must report all capital gains on yourfederal tax return. For most taxpayers, thesegenerally include a primary residence (subjectto significant gain exclusions), stocks, bonds,and mutual funds.

¯ You may deduct capitallosses only on investmentproperty (e.g., stocks and mutual funds), not onproperty held for personal use (e.g., homes andfurnishings).

Capital gains and losses are classified as long-term or short-term, depending on how longyou hold the property before you sell it. If youhold it for more than one year, your capital gainor loss is long-term. If you hold it for one yearor less, your capital gain or loss is short-term.

The tax rates that apply to long-term capitalgains are generally lower than the tax rates thatapply to short-term capital gains and wages.

If your capital losses exceed your capital gains,the excess can be deducted on your tax returnand used to reduce other income, such aswages, up to an annual limit of $3,000, or $1,500if you are married filing separately.

If your total net capital loss is more than theannual limit on capital loss deductions, youcan carry over the unused part and treat it asif you incurred it in the following year. O

The Unearned IncomeMedicare Contribution

Beginning in 2013, taxpayers withmodified adjusted gross income (MAGI)over $200,000 ($250,000 for a joint return or$125,000 for married filing separate) will besub)ect to a 3.8% surtax called the UnearnedIncome Medicare Contribution (UIMC) on netinvestment income. Specifically, the tax equals3.8% of the lesser of~

1. Net investment income (generally interest,dividends, royalties, rents, and certain capitalgains), or

2. The excess of MAGI over $200,000 ($250,000for a joint return or $125,000 for married filingseparate).

To limit exposure to this new 3.8% surtax onunearned income, taxpayers who may beimpacted by the UIMC could consider selling,exchanging, or gifting some of their highly-appreciated capital assets prior to 2013. O

Avoid Gift Treatment forLarge Medical Expenses

~-~he annual exclusion for gifts remains at.K $13,000 for 2012. This limit applies to the

total of all gifts, including birthday and holidaygifts, made to the same individual during theyean However, any payment made directly tothe medical care provider (e.g., doctor, hospital,

etc.) is not subject to the gift tax and, therefore,is not included in the $13,000 limit.

So, when paying large medical bills for par-ents or persons other than dependent minorchildren, taxpayers should make the paymentdirectly to the medical service provider. Don’tgive the funds to the parent or other individualfirst and have them pay the doctor or hospital.By doing so, you have made a gift to that per-son, subject to the $13,000 limit. ~

Most of the income we receive is taxable,but certain types of income are only

partially taxed or not taxed at all. The followingare some of the more common types of incomethat individuals receive and an indication ofhow they are treated for federal income taxpurposes.

Adoption Expense Reimbursements: Taxpay-ers adopting a child can exclude from taxableincome adoption expenses paid by theiremployer under the employer’s adoptionassistance program. The exclusion is limitedto a maximum amount, and also by adjustedgross income.

Alimony: Payments properly classified asalimony must generally be included in taxableincome by the recipient.

Cash Rebates: Cash rebates from a dealer ormanufacturer on an item you purchase arenot taxable income. However, the basis of theproperty must be reduced by the amount of therebate.

Child Support Payments: Child support pay-ments are generally not taxable to the recipient.

Gambling Winnings: You must includegambling winnings in income. If you itemizeyour deductions, you can deduct gamblinglosses you had during the year, but only up tothe amount of your winnings.

Taxable or Nontaxable

basis in the property.If the payments aremore than your ad-justed basis, you willrealize a taxable gain.

Income?

Scholarships andFellowships: De-gree candidates canexclude amountsreceived as scholarships or fellowships fromtaxable income. However, amounts received forroom and board generally do not qualify forexclusion.

Utility Rebates: If you participate in an electricutility’s energy conservation program, youmay receive a rate reduction or a refundablecredit towards the purchase of electricity. Theamount of the rate reduction or nonrefundablecredit is not includable in taxable income.

Worker’s Compensation Benefits: Amountsreceived by an employee as compensationunder state or federal worker’s compensationacts for personal injuries or sicM~ess incurredon the job are not generally taxable, unless theamounts received offset previously deductedmedical expenses.

Life Insurance: Life insurance proceeds youreceive as a beneficiary because of an insuredperson’s death generally are not taxable.However, if you surrender a life insurancepolicy for cash, any proceeds received in excessof the premiums paid for the policy are taxable.

These are some common forms of incomequestions that may arise regarding inclusion orexclusion for federal tax purposes. Please con-tact us if you have questions regarding incomeclassification or any other tax compliance orplanning issue.

Lotteries and Raffles: Winnings from lotteriesand raffles are gambling winnings (see above).In addition to cash winnings, the fair marketvalue of noncash prizes is considered to betaxable income.

Noncash Income: Taxable income may bereceived in a form other than cash. A goodexample of this is bartering income whereproperty or services are exchanged.

Property Damage: Payments you received forproperty damage are not taxable if thepayments are not more than your adjusted

Selecting a C Corporation’s Tax Year(Continued from Page 4.)b. on whatever date that day of the week falls

nearest to the last day of the calendar month (e.g.,the Monday closest to the end of July).

Observation: If the first method is used, the taxyear can end up to six days before the end of thecalendar month the year ends. If the second meth-od is used, the fiscal year can end as many as threedays before or after the end of the month. ~

Selecting a CCorporation’s Tax Year

~’usinesses that operate as C corporations~ ~?have substantial flexibility when selecting

a tax yean However,businesses that operateas partnerships orS corporations arerestricted by law intheir choice of a taxyean Once selected,a tax year generallymust be maintained

until the business is required or elects (with IRSpermission, if necessary) to change it.

There are two types of tax years:

a. Calendar Tax Year. A calendar tax year is aperiod of 12 consecutive months beginningJanuary ist and ending December 31sk

b. Fiscal Tax Year. A fiscal tax year is a period of12 consecutive months ending on the last dayof any month other than December, or a 52-53week period that ends on a specific day of theweek occurring either in the last week or nearestthe last day of a specific month.

If there is no reason for choosing a specific year-end for financial reporting, eligible businessesshould consider a fiscal year if their own naturalbusiness suggests it. Many businesses have a

cycle, so that certain times of the year are lessbusy than others. If available, manufacturers,for example, often choose a tax year corre-sponding to their natural business cycle, whichgenerally ends just after the highest annualsales period for the business. Year-end financialstatements that reflect the natural business yearwill generally present a more liquid positiondue to lower inventories and the sales peak justexperienced.

A business that operates as a C corporationestablishes an annual period as its calendar orfiscal tax year by (a) maintaining books andrecords on the same basis, and (b) filing theinitial tax return based on that period. If booksand records are not maintained to establish afiscal year, the corporation will use a calendartax yean A C corporation must adopt a tax yearby the due date (not including extensions) ofthe return for the corporation’s first tax year.The initial return cannot include more than 12months, but may include fewer, resulting in ashort year.

A 52-53 week fiscal tax year is an annual pe-riod that varies from 52 to 53 weeks. Any neweligible C corporation that maintains its booksand records on a 52-53 week year-end canadopt a 52-53 week year for tax purposes. Thetax year always ends on the same day of theweek, and always ends--

a. on whatever date that day of the week lastoccurs in a calendar month (e.g., the lastMonday in July), or

(Continued on Page 3.)

Busb~ess A h’l t is

regarding tile subject

rained hcrcin, please

applies in your specific

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