News & Updates

Scammers sometimes use stolen Social Security numbers to file fraudulent tax returns and collect refunds. To prevent this, the IRS scans every tax return for signs of fraud. If the system finds a suspicious tax return, the IRS reviews the return and sends a letter to the taxpayer letting them know about the potential ID theft. The IRS won't process the suspicious tax return until the taxpayer responds to the letter.

The IRS may send these identify fraud letters to taxpayers:

• Letter 5071C, Potential Identity Theft with Online Option: This tells the taxpayer to use an online tool to verify their identity and tax return information. If the taxpayer didn't file, they can let the IRS know with the online tool.
• Letter 4883C, Potential Identity Theft: This tells the taxpayer to call the IRS to verify their identity and tax return information. If the taxpayer didn't file, they can call the Taxpayer Protection Program hotline number on the letter.
• Letter 5747C, Potential Identity Theft In Person Appointment: This tells the taxpayer to verify their identity and tax return information in person at a local Taxpayer Assistance Center. If the taxpayer didn't file, they can call the Taxpayer Protection Program hotline number on the letter.
• Letter 5447C, Potential Identity Theft Outside the U.S.: This tells the taxpayer to use an online tool or to call the IRS to verify their identity and tax return information. If the taxpayer didn't file, they can let the IRS know with the online tool.

Taxpayers should follow the steps in the letter

The identity theft letter will tell the taxpayer the steps they need to take. Taxpayers should follow those steps to resolve the matter with the IRS.

Victims of identity theft can find more resources on reporting and recovering from ID theft with the Federal Trade Commission: IdentityTheft.gov.

If the taxpayer received an IRS identity theft letter, they don't need to file an identity theft affidavit

If taxpayers need to give the IRS a heads up that they're a victim of identity theft or that they think they may be a victim, they can file Form 14039, Identity Theft Affidavit. If a taxpayer has already received an IRS letter about identity theft, they don't need to file an affidavit.

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Good news for small business owners — improvements to IRS phone service and online options are coming as a result of the Inflation Reduction Act. These customer service upgrades will make it easier and more convenient to file online and respond to notices.

Here's what small business taxpayers can expect to see in the near future.

Expanded online service tools

Before next filing season, the IRS will launch Business Online Accounts designed with small business taxpayers in mind. Small businesses can use their online account to:

• See tax information, and schedule and track payments
• Access business tax transcripts in an easy-to-read format

The IRS will add more features to Business Online Account through 2024.

More ways to respond to notices and file documents

The IRS recently launched an online portal for businesses to file Form 1099 series information returns electronically. Businesses used to have to submit these forms by mail.

Later this summer, small business owners will be able to respond to certain notices online such as LTR0143C, Signature Missing. The IRS will continue to improve and expand these features.

By 2024, small business owners will be able to respond to correction of self-employment income, employment-related identity theft notifications and dozens of other online notices. The IRS will also update the notices with clear instructions on what taxpayers need to do.

Simplified, mobile-friendly forms

Small business owners who file their own taxes will save time with new simplified tax forms. The IRS will improve tax forms that small businesses use most frequently including Forms 940, 941 and 944. The updated forms will be mobile-friendly and available in multiple languages.

Improved processing times and faster refunds

Small business taxpayers will save money, see improved processing times and get faster refunds as the IRS:

• Automates paper-based processes
• Makes more forms available online
• Stays on track to scan millions of tax returns in 2023

Some of the forms that the IRS plans to make available online include popular forms such as Forms 1040 and 941.

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Homeowners who make improvements like replacing old doors and windows, installing solar panels or upgrading a hot water heater may qualify for home energy tax credits. They should know what these credits can do for them – and be careful of exaggerated claims companies trying to get their business may make.

There are two tax credits to help defray costs for homeowners making energy efficient improvements to their primary or secondary residence. In some cases, renters may also be able to claim specific costs. Landlords can't use these credits for improvements made to any homes they rent out.

Energy Efficient Home Improvement Credit

Taxpayers can claim the Energy Efficient Home Improvement Credit only for improvements, additions or renovations to an existing home. It doesn't apply to newly constructed homes. Qualifying costs may include:

• Exterior doors, windows, skylights and insulation materials.
• Central air conditioners, water heaters, furnaces, boilers and heat pumps.
• Biomass stoves and boilers.
• Home energy audits.

The amount of the credit taxpayers can take is a percentage of the total improvement expenses in the year of installation:

• 2022: 30%, up to a lifetime maximum of $500.
• 2023 through 2032: 30%, up to a maximum of $1,200 annually. Biomass stoves and boilers have a separate annual credit limit of $2,000 annually with no lifetime limit.

Residential Clean Energy Credit

Taxpayers can also claim the Residential Clean Energy Credit for qualifying costs for either an existing home or a newly constructed home. Qualifying costs may include:

• Solar, wind and geothermal power generation equipment.
• Solar water heaters.
• Fuel cells.
• Battery storage.

The amount of the credit taxpayers can take is a percentage of the total improvement expenses in the year of installation:

• 2022 to 2032: 30%, no annual maximum or lifetime limit.
• 2033: 26%, no annual maximum or lifetime limit.
• 2034: 22%, no annual maximum or lifetime limit.

To claim these credits, taxpayers should file Form 5695, Residential Energy Credits, with their tax return.

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Rebuilding after a natural disaster can be overwhelming. Important documents like financial information and tax records are often destroyed in a disaster, and reconstructing these records is important for applying to federal assistance and insurance reimbursement. IRS.gov has the information disaster victims need, including disaster-related filing extensions and information about tax relief.

These IRS.gov webpages have tax-related disaster relief information:

• Reconstructing Records After a Natural Disaster or Casualty Loss: This webpage helps who need to reconstruct their financial records after a disaster. This may be essential for properly documenting a tax-deductible loss, supporting various tax-related transactions or getting federal assistance or insurance reimbursement.

• Tax Relief in Disaster Situations: This page features links to resources that walk people through information that will help them after a disaster. It also links to local news releases and frequently asked questions.

• IRS News From Around the Nation: This page rounds up news about local areas, including disaster relief and tax provisions that affect certain states.

• Frequently Asked Questions for disaster victims: This resource links to pages with answers to questions that victims may have. Each page highlights a specific topic to help people after a disaster.

These IRS publications can also help taxpayers:

• Publication 3067, IRS Disaster Assistance - Federally Declared DisasterPDF provides information to individuals and businesses affected by a federally declared disaster. It also covers the assistance available to disaster victims.

• Publication 584, Casualty, Disaster and Theft Loss Workbook helps individual taxpayers figure their loss on personal-use property in the event of a disaster, casualty or theft.

• Publication 584-B, Business Casualty, Disaster, and Theft Loss Workbook helps businesses figure their loss on business and income-producing property in the event of a disaster, casualty or theft.

• Publication 547, Casualties, Disasters and Thefts explains the tax treatment of casualties, thefts and losses on deposits.

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Sometimes the line between having a hobby and running a business can be confusing, but knowing the difference is important because hobbies and businesses are treated differently when it's time to file a tax return. The biggest difference between the two is that businesses operate to make a profit while hobbies are for pleasure or recreation.

Whether someone is having fun with a hobby or running a business, if they accept more than $600 for goods and services using online marketplaces or payment apps, they could receive a Form 1099-K. Profits from the sale of goods, including personal items, and services is taxable income that must be reported on tax returns.

There are a few other things people should consider when deciding whether their project is a hobby or business. No single thing is the deciding factor. Taxpayers should review all of the factors to make a good decision.

How taxpayers can decide if it's a hobby or business

These questions can help taxpayers decide whether they have a hobby or business:

• Do they carry out the activity in a businesslike manner and keep complete and accurate books and records?
  
• Does the time and effort they put into the activity show they intend to make a profit?
  
• Does the activity make a profit in some years – if so, how much profit does it make?
  
• Can they expect to make a future profit from the appreciation of the assets used in the activity?
  
• Do they depend on income from the activity for their livelihood?
  
• Are any losses due to circumstances beyond their control or are the losses normal for the startup phase of their type of business?
  
• Do they change their methods of operation to improve profitability?
  
• Do the taxpayer and their advisors have the knowledge needed to carry out the activity as a successful business?

Whether taxpayers have a hobby or run a business, good record keeping is always key when it's time to file taxes.

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