Tax Scams & Schemes; Keep Your Umbrella Handy

Tax Scams & Schemes; Keep Your Umbrella Handy

by rwilczek on Jan 22, 2019

Taxes, Scams, Tax Scams, Schemes, Tax Schemes, gifting IRA, umbrella policy, insurance, umbrella

December greetings.

Please read the 1st article and try to help family members avoid tax scams and schemes.  If you are over 70 ½ the 3rd article may be of interest. 

Have a good safe month and year-end. 

Rita

 

Tax Scams & Schemes

The “dirty dozen” favored by criminals & cheats.

 

Provided by Rita Wilczek

 

Year after year, criminals try to scam certain taxpayers. Year after year, certain taxpayers resort to schemes in an effort to put one over on the Internal Revenue Service (I.R.S.). These cons occur year-round, not just during tax season. In response to their frequency, the I.R.S. has listed the 12 biggest offenses – scams that you should recognize, schemes that warrant penalties and/or punishment.

   

Phishing. If you get an unsolicited email claiming to be from the I.R.S., it is a scam. The I.R.S. never reaches out via email, regardless of the situation. If such an email lands in your inbox, forward it to phishing@irs.gov. You should also be careful with sending personal information, including payroll or other financial information, via an email or website.1,2

 

Phone scams. Each year, criminals call taxpayers and allege that said taxpayers owe money to the I.R.S. The Treasury Inspector General for Tax Administration says that over the last five years, 12,000 victims have been identified, resulting in a cumulative loss of more than $63 million. Visual tricks can lend authenticity to the ruse: the caller ID may show a toll-free number. The caller may mention a phony I.R.S. employee badge number. New spins are constantly emerging, including threats of arrest, and even deportation.1,2

 

Identity theft. The I.R.S. warns that identity theft is a constant concern, but not just online. Thieves can steal your mail or rifle through your trash. While the I.R.S. has made headway in terms of identifying such scams when related to tax returns, and plays an active role in identifying lawbreakers, the best defense that remains is caution when your identity and information are concerned.1,2

 

Return preparer fraud. Almost 60% of American taxpayers use a professional tax preparer. Unfortunately, among the many honest professionals, there are also some con artists out there who aim to rip off personal information and grab phantom refunds, so be careful when making a selection.1,2

 

Fake charities. Some taxpayers claim that they are gathering funds for hurricane victims, an overseas relief effort, an outreach ministry, and so on. Be on the lookout for organizations that are using phony names to appear as legitimate charities. A specious charity may ask you for cash donations and/or your Social Security Number and banking information before offering a receipt.1,2

 

Inflated refund claims. In this scenario, the scammers do prepare and file 1040s, but they charge big fees up front or claim an exorbitant portion of your refund. The I.R.S. specifically warns against signing a blank return as well as preparers who charge based on the amount of your tax refund.1,2

 

Excessive claims for business credits. In their findings, the I.R.S. specifically notes abuses of the fuel tax credit and research credit. If you or your tax preparer claim these credits without meeting the correct requirements, you could be in for a nasty penalty.1,2

 

Falsely padding deductions on returns. Some taxpayers exaggerate or falsify deductions and expenses in pursuit of the Earned Income Tax Credit, the Child Tax Credit, and other federal tax perks. Resist the temptation to pad the numbers and avoid working with unscrupulous tax professionals who pressure you to do the same.1,2

 

Falsifying income to claim credits. Some credits, like the Earned Income Tax Credit, require higher incomes. You are responsible for what appears on your return, so a boosted income can lead to big penalties, interest, and back taxes.1,2

 

Frivolous tax arguments. There are seminar speakers and books claiming that federal taxes are illegal and unconstitutional and that Americans only have an implied obligation to pay them. These and other arguments crop up occasionally when people owe back taxes, and at present, they carry little weight in the courts and before the I.R.S. There’s also a $5,000 penalty for filing a frivolous tax return, so these fantasies are best ignored.1,2

 

Abusive tax shelters. If it sounds too good to be true, it usually is, and that’s especially true of complicated tax avoidance schemes, which attempt to hide assets through a web of pass-through companies. The I.R.S. suggests that a second opinion from another financial professional might help you avoid making a big mistake.1,2

 

Offshore tax avoidance. Not all taxpayers adequately report offshore income, and if you don’t, you are a lawbreaker, according to the I.R.S. You could be prosecuted or contend with fines and penalties.1,2

 

Watch out for these ploys – ultimately, you are the first defense against a scam that could cause you to run afoul of tax law.

             

Rita Wilczek may be reached at 952-542-8911 or rwilczek@hirep.net

www.ritawilczek.com

  

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

   

Citations.

1 - irs.gov/newsroom/irs-wraps-up-dirty-dozen-list-of-tax-scams-for-2018-encourages-taxpayers-to-remain-vigilant [3/22/18]

2 - forbes.com/sites/kellyphillipserb/2018/03/22/irs-warns-on-dirty-dozen-tax-scams/ [3/22/18]

 

Keep Your Umbrella Handy

Have a home-based business? Have a teen driver? Consider umbrella insurance.

 

Provided by Rita Wilczek

   

In 2017, the U.S. had a record 11.5 million millionaires, up from 10.8 million in the previous year. An increase in personal wealth may bring greater financial flexibility; it may also bring greater liability. Individuals with high net worth, or those who are perceived to have high net worth, may be more likely to be sued. If that's not concerning enough, personal injury claims can often reach into the millions.1

 

Umbrella liability insurance is designed to put an extra layer of protection between your assets and a potential lawsuit. It provides coverage over and above existing automobile and homeowners insurance limits.

 

For example, imagine your teenage child borrows your car and gets in an accident and the other driver is seriously injured. The accident results in a lawsuit and a $1 million judgment against you. If your car insurance policy has a liability limit of $500,000, that much should be covered. If you have additional umbrella liability coverage, your policy can be designed to kick in and cover the rest. Without umbrella coverage, you may be responsible for paying the other $500,000 out of pocket, which could mean liquidating assets, losing the equity in your home, or having your wages garnished.

 

Umbrella liability insurance is usually sold in increments of $1 million and generally costs just a few hundred dollars a year. It typically covers a broad range of scenarios, including bodily injuries, property damage caused by you or a member of your household, libel, slander, false arrest, and defamation of character.

 

Deciding whether liability coverage is right for you may be a question of lifestyle. You might want to consider obtaining a policy if you:

 

* Entertain frequently and serve your guests alcohol

* Operate a business out of your home

* Give interviews that may be published

* Employ uninsured workers on your property

* Drive a large number of miles or have teenage drivers

* Live in a manner that gives the appearance of wealth

* Have a dog, especially if the breed is known to be aggressive

* Own jet skis, a boat, motorcycles, or snowmobiles

 

 

Even if you don’t yet have a tent in the millionaire camp, you may want to consider the benefits of liability insurance. After all, you don’t have to be a millionaire to be sued for a million dollars. Anyone who is carefully building a financial portfolio most likely wants to limit their exposure to risk. In these cases, umbrella liability can be a fairly inexpensive way to help shelter current assets and future income from the unexpected.
  
            

Rita Wilczek may be reached at 952-542-8911 or rwilczek@hirep.net

www.ritawilczek.com

  

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 - cnbc.com/2018/03/21/us-added-700000-new-millionaires-in-2017.html [3/22/18]

 

Making a Charitable Gift from Your IRA

Follow the rules, and you might get a big federal tax break.

 

Provided by Rita Wilczek

   

Is your annual IRA withdrawal a bother? If you are an affluent retiree, that might be the case. The income is always nice, but the taxes that come with it? Not so much.

      

If only you could satisfy your yearly IRA withdrawal requirement minus the attached taxes. Guess what: there might be a way.

    

If you gift traditional IRA assets to charity, you could see some big tax savings. The Internal Revenue Service calls this a Qualified Charitable Distribution (QCD), and you may want to explore its potential. Some criteria must be met: you need to be at least 70½ years old in the year of the donation, the donation must take the form of a direct transfer of assets from the IRA custodian to the charity, and the charity must be “qualified” in the eyes of the I.R.S. Any 501(c)(3) non-profit organization meets the I.R.S. qualification, as do houses of worship.1

 

The amount you gift can be applied toward your Required Minimum Distribution (RMD) for the year, and you may exclude it from your taxable income. If you are retired and well-to-do, a charitable IRA gift could be a highly tax-efficient move.1,2

 

Just how much could you save? That depends on two factors: how much you gift, and your federal income tax bracket. As an example, say you are in the 35% federal income tax bracket, and you donate $40,000 from your traditional IRA to a 501(c)(3) non-profit organization. That $40,000 will be gone from your taxable income, and the donation will cut your federal tax bill for the year by $14,000 (as 35% of $40,000 is $14,000). Yes, the savings could be significant.2

     

You can donate as much as $100,000 to a qualified charity this way in a single year. That limit is per IRA owner; if you are married, and you and your spouse both have traditional IRAs, you can each donate up to $100,000.1,2 

 

What about the fine print? There is plenty of that, and it is all worth reading. You may be curious if you can make a QCD from a SIMPLE or SEP-IRA; the answer is no. You can make a QCD from a Roth IRA, but there is little point in it: Roth IRA withdrawals are commonly tax-free.1

     

Regarding the asset transfer, the critical detail is that you cannot touch the money. The distribution must be payable directly to the non-profit organization or charity, not to you. (Income tax does not need to be withheld from the distribution since the amount withdrawn will not count as taxable income.) In addition, your tax preparer must identify the distribution as a QCD on your federal tax return. This is crucial and must not be overlooked, because the custodian of your IRA will probably report your QCD as a normal IRA distribution.2

 

If you itemizeyour deductions, you should know that a charitable IRA gift does not count as a deductible charitable contribution. (That would amount to a double tax break.) Of course, fewer taxpayers have incentive to itemize now, since the standard deduction is so large, thanks to the Tax Cuts & Jobs Act.1,2   

      

If you want to make a charitable IRA gift, start the process before the year ends. If you try to make the gift in late December, your IRA custodian might not be able to move fast enough for you, and the asset transfer may occur later than you would like (i.e., after December 31). Talk with a tax or financial professional before the year ends, so that you can plan a charitable IRA donation with some time to spare. 

                

Rita Wilczek may be reached at 952-542-8911 or rwilczek@hirep.net

www.ritawilczek.com

  

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

     

Citations.

1 - thebalance.com/qualified-charitable-distributions-3192883 [1/15/18]

2 - marketwatch.com/story/how-retirees-can-save-on-charitable-donations-under-the-new-tax-bill-2018-03-02 [3/2/18]

 

Check the background of this investment professional on FINRA's BrokerCheck.