WHERE’S YOUR W-2?
W-2 tax forms will arrive by mid- to late January. Active-duty Marines can get theirs online at myPay starting Jan. 16, and soldiers, sailors and airmen can get them on myPay starting Jan. 24, according to the Defense Finance and Accounting Service. For a complete list, including mailing dates, see www.dfas.mil.
With the start of a new year, our thoughts invariably turn to taxes.
Many troops and families head to the nearest tax preparer as soon as they get their W-2s, hungry for that refund — maybe to pay some Christmas bills.
Before you do that, the Internal Revenue Service has some warnings and tips for you.
Even when somebody else prepares your tax return for you, you are liable for what's on that document, said Kenneth Hines, director of operations, policy and support for IRS Criminal Investigation.
"At the end of the day, if you received a big refund and you weren't entitled to it, you do have to pay it back," he said.
Even if it was someone else's fraud, deception or error, you're often responsible for paying back the money and could be hit with interest charges, fines and penalties.
Some tax preparers and tax prep companies guarantee their work and will pay penalties and interest if the error is theirs. Some offer additional protections. For example, when an H&R Block preparer completes your return, you can buy an "extended service plan" for $35. If you owe additional taxes because of an H&R Block error, they'll pay up to $5,500. If you're audited, an H&R Block agent will accompany you or represent you.
The majority of tax preparers are honest and competent. But some aren't, the IRS says.
Tax scams generally are designed to accomplish one of three things: fraudulently minimize or wipe out the taxes you owe; obtain a refund to which you are not legally entitled; or make you believe you don't have to file, said Daniel Wardlaw, spokesman for IRS Criminal Investigation's Seattle field office.
"They either understate income or overstate deductions, expenses or exemptions — or both," Wardlaw said.
Generally, there are two types of tax-preparation scammers: those who want to split refunds with the taxpayer, sometimes by charging a percentage of the refund as a fee; and those who increase their own business by getting bigger refunds for taxpayers using illegal means.
Don't make these mistakes
The IRS is implementing higher standards for tax preparers and taking steps to investigate and prosecute those who break the law. In the meantime, you can take steps to protect yourself.
"Don't just follow the crowd because everybody's getting big refunds," said Hines, an Air Force veteran.
IRS officials point to the case of Fredrick Seton, a retired Navy chief petty officer in Marysville, Wash. Seton, a tax preparer with many military clients, was charged with tax fraud, and now his clients will have to face the music with the IRS, too.
According to the prosecutors' sentencing memorandum, Seton and his clients reported that during tax season, cars carrying military personnel would line up outside his house to have their tax returns prepared based on rumors that he could get them larger refunds or minimize their payments. Seton charged from $50 to $100 for each tax return he completed.
"Seton admitted that the enlistees looked up to him as both a veteran and a tax preparer," prosecutors stated. Prosecutors alleged Seton knowingly prepared at least 205 false returns for more than 100 taxpayers, primarily military personnel, in tax years 2005, 2006 and 2007.
They alleged he was fabricating extra business expenses and other deductions to help his clients avoid paying taxes.
In June, Seton pleaded guilty to one count of willfully aiding and assisting in the preparation of materially false tax returns. He was sentenced in November to six months in prison and a year of supervised release, and was ordered to pay $159,710 in restitution to the government.
That amount will be reduced by any amount the IRS receives from the affected taxpayers, who now must face audits as the IRS attempts to recover the refunds — "resulting in turmoil and instability in their financial lives at a time when most cannot afford it," prosecutors said.
How to make smart choices
Hines notes that some troops may not realize that free, reputable tax preparation services are available to them through legal assistance offices on base, which are familiar with tax laws pertaining to military personnel, and through other military channels such as Military OneSource.
For those having their taxes done, Hines recommends you:
Watch out for the sales pitch. Be wary if someone promises to get you bigger refunds. "That person may be a snake-oil salesman," Hines said. "If they say they will get you the total amount allowable by law, they're being more authentic."
Ask about fees up front. The fee should never be based on a percentage of the refund. That's a red flag that the preparer is trying to illegitimately increase the refund. It should be a flat fee. And if the preparer tries to increase the fee later because you're getting a bigger refund, that's a red flag, too.
Check their work. Go through the return line by line after it is prepared, before you sign it. Tax preparers can make mistakes, too. If write-offs and tax credits are listed that you don't understand, ask about them. If you still don't understand, ask another question. If you're still unsure, check with the tax preparation office on base, or call Military OneSource to be put in touch with an expert.
It's true that a lot of credits are available to the military, but make sure you fit the entitlement criteria, Hines said.
Don't lie. Some fraud is easy to spot. For example, if the preparer is trying to get you to claim a dependent wife and child who don't exist just to reduce the taxes, don't do it.
Never sign a blank tax return. You can't check a tax preparer's work if you sign the return while it's blank.
Beware of a secretive preparer. Trust your gut. If you have doubts about your tax return, tell the preparer you're going to take it to the legal assistance office or a friend who is an accountant. "They may say, ‘A lot of people don't know about this,' or ‘The government doesn't want you to know about it,' " Hines said. That's not a valid argument.
Check your moral compass. If you feel you can't tell your supervisor, commander or parents what you're about to do, "maybe you shouldn't do it," Hines said.