4 Things Tax Preparers Need to Know in 2016

January 19 marks the start of tax season this year, and all tax preparers should be aware of these new changes and standards made by the IRS as they enter this busy time:

1. Identity theft

The IRS announced a new procedure for preventing identity theft and related fraud. Their focus was on better identifying taxpayers as well as protecting shared information.

You can read the full report from the IRS website, but a few noteworthy points include: 

• There are now an additional 20 data elements that can provide better identity validation on 2016 tax returns
• These new guidelines will dynamically change as criminals find new methods to commit fraud
• This new data will all be submitted to both the IRS and States to be used in algorithms and filters to authenticate identities and to lay the framework of future security and scheme prevention in the tax ecosystem 

What does this mean for your clients? According to Bank Rate, “IRS Commissioner John Koskinen says the added security measures shouldn't be a sea change for filers. However, the new process is likely to slow the IRS' processing of returns, and that could mean some delays in issuing refunds.”

2. Tax penalties on the uninsured 

Any client who was not insured this past year will likely have to pay a fine as a result of the Affordable Care Act. The penalty payment varies from person to person, but if your client was uninsured for more than three months they will very likely have to pay up.

3. Fantasy Football is Now Taxable Hobby Income

This massive business was recently declared as a gambling enterprise in a few states, including New York and Illinois. 

According to the IRS, this means fantasy football income is taxable hobby income, and it will change how your clients are able to make deductions.  

4. Protecting Data is More Important Than Ever

“We face a common enemy, and we share a common goal: to safeguard taxpayers and their personal data.” 

- The IRS

Since tax preparers work with sensitive, confidential information, they should ensure they have plenty of procedures in place for handling information securely. However, according to the National Association of Tax Professionals, more than half of the tax preparers polled were unaware of potential hacking threats, and only 15% were insured against cyber threats.

Most tax preparers had never even formed procedures for preventing or recovering from these potential risks. According to CPA Practice Advisor, “even the firms that have excellent insurance coverage may find that these policies cover their facilities, their key professionals and their practices – but not their data.”

The IRS recommends:

1. state of the art security software to protect against the latest threats
2. procedures in place to educate new hires on the inherent risks to taxpayer data
3. strong, separate passwords for all programs
4. secure wireless connection (We also recommend using a VPN if accessing any files over insecure wifi)
5. store all physical documents in a secure, environmentally protected area
6. backup taxpayer data frequently on multiple backup devices such as CDs or DVDs and encrypted hard drives and store backups in physically secure locations.

It is actually required by federal law to ensure the confidentiality of your client’s information if you prepare their taxes. Make sure that you have secure backups and procedures in place to prevent compromising your client’s information.

Of course, there were many other changes made in the past year, but the above are perhaps the most significant.