The Equifax Breach and You

Security

 Be Proactive

Earlier this year, hackers were able to breach the security of Equifax, one of the three national credit reporting agencies. More than 143 million Americans — nearly half the country — were exposed to the attack, and may have had their personal information stolen, including names, birthdates, and Social Security and driver’s license numbers.
Equifax is still determining exactly whose data has been exposed. While you wait to find out, it’s worth taking a few proactive steps to make sure your info isn’t misused by hackers.
Bullet Point Start checking. Visit Equifax’s website at www.equifaxsecurity2017.com and enter your last name and last six digits of your Social Security number. The site will tell you whether it’s likely or not your data has been exposed, and put you on a list to get more information. You can also sign up for a year’s worth of free credit monitoring.
Bullet Point Watch your statements. Start checking your credit card statements, and pay special attention to cards you don’t use often. The initial reports from the breach were that hackers may have been making charges on underused cards.
Bullet Point Check your credit reports. You can look for suspicious items on your reports, such as new accounts being opened in your name, at all three credit report agencies: Equifax, Experian and TransUnion. Free annual reports are available at www.annualcreditreport.com.
Bullet Point Freeze your credit. If you suspect you may become a victim of identity theft, you can place a credit freeze on your profile at each of the three credit reporting agencies. This stops new accounts from being opened in your name. Note that you’ll have to unfreeze your accounts if you want to apply for new loans or make your credit accessible for things such as job applications.
Bullet Point File your taxes early. One of the most common ways identity thieves use your information is to try to claim a tax refund with your data. This was the most common scam in 2016, according to the Better Business Bureau. If you file your tax return as early as possible, you shut down this opportunity for any would-be thieves.

Contractor or Employee?

Company benefits

Knowing the difference is important

Is a worker an independent contractor or an employee? This seemingly simple question is often the contentious subject of IRS audits. As an employer, getting this wrong could cost you plenty in the way of Social Security, Medicare, and other employment-related taxes. Here is what you need to know.

 The basics…

 

As the worker. If you are a contractor and not considered an employee you must:

Bullet Point Employee Pay self-employment taxes (Social Security and Medicare-related taxes)
Bullet Point Employee Make estimated federal and state tax payments.
Bullet Point Employee Handle your own benefits, insurance and bookkeeping.

As the employer. You must ensure your employee versus independent contractor determination is correct. Getting this wrong in the eyes of the IRS can lead to:

Bullet Point Employer Payment and penalties related to Social Security and Medicare taxes.
Bullet Point Employer Payment of possible overtime including penalties for a contractor reclassified as an employee.
Bullet Point Employer Legal obligation to pay for benefits.

Things to consider

When the IRS recharacterizes an independent contractor as an employee they look at the business relationship between the employer and the worker. The IRS focuses on the degree of control exercised by the employer over the work done and they assess the worker’s independence. Here are some guidelines:

Bullet Point Consider The more the employer has the right to control the work (when, how and where the work is done), the more likely the worker is an employee.
Bullet Point Consider The more the financial relationship is controlled by the employer the more likely the relationship will be seen as an employee and not an independent contractor. To clarify this, an independent contractor should have a contract, have multiple customers, invoice the company for work done, and handle financial matters in a professional manner.
Bullet Point Consider The more businesslike the arrangement the more likely you have an independent contractor relationship.

While there are no hard-set rules, the more reasonable your basis for classification and the more consistently it is applied, the more likely an independent contractor classification will not be challenged.

Know Your Rights When Debt Collectors Call

Past due noticeAt some point you may be on the receiving end of a debt collection phone call. It could happen any time you are behind on paying your bills, or if there is an error in billing. In the U.S. there are strict rules in place that forbid any kind of harassment. If you know your rights, you can deal with debt collection with minimum hassle. Here are some suggestions.

 

Bullet Point Phone Ask for non-threatening transparency. When a debt collector calls, they must be transparent about who they are. The magic words they must utter are: “This is an attempt to collect a debt, and any information obtained will be used for that purpose.” In addition, debt collectors cannot use abusive or threatening language, or threaten you with fines or jail time. The most a debt collector can truthfully threaten you with is that failure to pay will harm your credit rating, or that they may sue you in a civil court to extract payment.
Bullet Point Rules Know the contact rules. Debt collectors may not contact you outside of “normal” hours, which are between 8 a.m. and 9 p.m. local time. They may try to call you at work, but they must stop if you tell them that you cannot receive calls there. Debt collectors may not talk to anyone else about your debt (other than your attorney, if you have one). They may try contacting other people, such as relatives, neighbors or employers, but it must be solely for the purpose of trying to find out your phone number, address or where you work.
Bullet Point Action Take action. If you believe the debt is in error in whole or in part, you can send a dispute letter to the collection agency within 30 days of first contact. Ask the collector for their mailing address and let them know you are filing a dispute. They will have to cease all collection activities until they send you legal documentation verifying the debt.
Bullet Point Stop Tell them to stop. And, whether you dispute the debt or not, at any time you can send a “cease letter” to the collection agency telling them to stop making contact. You don’t need to provide a specific reason. They will have to stop contact after this point, though they may still decide to pursue legal options in civil court.

If a debt collection agency is not following these rules, report them. Start with your state’s attorney general office, and consider filing a complaint with the U.S. Federal Trade Commission and the Consumer Financial Protection Bureau as well.

Zombie Billing: Automatic Payments Have a Life of Their Own

Zombie billing image

The turn it on and forget it nature of automatic payments can create “zombie billing” cycles that go on without being reviewed or challenged, even after the product or service you pay for is no longer of value.

Here are some ideas to keep this from happening to you.

 

Bullet Point Create a list. Make a list of the companies you authorize to use automatic bill payment. Include the account number each company uses, as well as payment amounts and frequency. When there’s a change in a card or bank account, you can consult the list to find the companies you need to notify.
Bullet Point Watch for fees. Make sure the bill-payment system you’re using is low-cost or no-cost. Some companies will charge you a fee for automatic payments. If your biller wants to charge you, pay them with a traditional check. Consider consolidating all your automatic payments within one bill-paying service. Your bank may even offer online bill payment with no fee.
Bullet Point Review underlying bills. Automated billing usually means you’re not getting paper copies of your bill. If you’re not receiving a physical copy, changes to your service may go unnoticed. If possible, opt to continue receiving email or paper billing statements. Review statements monthly to verify that your payment has not changed and there are no additional fees or errors.
Bullet Point Drop underused services. Periodically review all automatic payments. Drop products and services that are no longer of value.

Automatic billing is meant to simplify your life, but if you allow it to turn into zombie billing, it will have the opposite effect. Take care to review your accounts and statements to protect yourself and keep your finances under your control.

Do-It-Yourself Identity Theft Protection

Credit Score Ingredients

Identity theft is a growing problem in the United States, and dozens of companies offering various forms of identity theft protection have sprung up to combat it. Unfortunately, these services often do little to actually protect people’s identities, according to a study released by the U.S. Government Accountability Office (GAO).

Both the GAO study and consumer protection organizations like The Identity Theft Council point out that consumers have more effective, low-cost methods to protect themselves from identity theft. Here are some of their tips:

 

Bullet Point Monitor your own credit. You can get a free credit report from each of the three credit reporting agencies once a year at www.annualcreditreport.com. You can stagger your request from each agency so that you can check your credit history for any suspicious new account openings every four months.

In addition, one of the most effective things only you can do yourself is to scan your monthly credit card and bank account statements. If you see any irregularities, contact the financial institution at once and let them know if you believe any charges are the result of identity theft.

Bullet Point Place a fraud alert. You can place a free fraud alert on your identity if you believe you’ve become vulnerable for any reason, either because you lost your wallet, had your home or car broken into, or had your information stolen online. All you have to do is call any of the three credit reporting agencies (Equifax 1-888-766-0008; Experian 1-888-397-3742; or TransUnion 1-800-680-7289) and they will notify the other two.

Placing a fraud alert lasts for 90 days. Any credit provider will have to take extra steps to verify the identity of any person who tries to use your credit and open new accounts. It can be renewed for free every 90 days.

Bullet Point Freeze your credit. If you aren’t going to be applying for new credit for a while, one of the most effective things you can do to combat identity theft is to put a temporary freeze on your credit. You’ll have to call each of the three credit reporting agencies and may be required to pay a small fee ($5 to $10 each) to freeze your account, after which no one will be able to access your credit to open new accounts. It won’t affect your credit rating or your ability to use your existing accounts.

Keep in mind that while this shuts down other people from accessing your credit, it also stops you from opening new accounts. It typically takes three days for the agencies to unfreeze your accounts, so keep that in mind if you want to apply for new credit, or need to allow a potential new employer to access your credit report as part of a background check.

Bullet Point Do your taxes early. One of the most common kinds of identity theft is when people use a stolen Social Security number and other personal information to file a fraudulent tax return in the hope of snatching a refund. Your best defense is to simply file your return as soon as possible. Once the IRS receives your return, it shuts the door on potential identity thieves.

IRS Announces Annual Tax Scams

Tax ScamsEach year the IRS announces a list of the “Dirty Dozen Tax Scams” its agents encounter most frequently. Highlighted here are seven of the most common.

Bullet Point Creating fake income. It has come to the attention of the IRS that some taxpayers are creating false income for the sole purpose of obtaining tax credits like the Earned Income Tax Credit. This false income can be in the form of a fake 1099-MISC or fictitious self-employment income. The penalties for this type of fraud can be severe.
Bullet Point Falsely padding deductions. Creating deductions and inflating dollar amounts of legitimate deductions is now on the IRS Dirty Dozen list. While it may seem a little thing to stretch the amounts, the increased reporting received by the IRS makes it easier for them to see these inflated deductions.
 Bullet Point Excessive business credits. This scam focuses on two commonly misused business credits: the fuel credit and the research credit. The fuel credit is usually only available for off-street vehicle use (typically for farming). While the research credit may seem straightforward, there are stringent qualifications and reporting requirements. Prior to using either of these credits, you should ask for a review of your situation.
Bullet Point Fake charities. After major disasters, many charitable givers are scammed into making donations to fake charities. This makes donations to them nondeductible. To protect against this, prior to donating funds make sure the charity is both legitimate and deemed a qualified charity by the IRS. Here is a link to the IRS tool to confirm charitable organizations. IRS Exempt Organizations List Check
Bullet Point Identity Theft. Identity theft tops the Dirty Dozen list every year. Thankfully, the IRS takes precautionary measures to curtail this out-of-control problem. In addition to limiting the number of direct deposits it will make to any single account, the IRS is working with states and tax preparation software vendors to put more controls in place. This includes some states requiring drivers license numbers on their tax forms, delays in early processing of tax refunds, internal tracking within software programs, and continual checking for heavy filing activity.
Bullet Point Phone scams. Phone calls from thieves representing themselves as IRS agents continue to get more sophisticated. The caller ID may show as coming from the IRS and the scam may involve numerous phone calls instead of a single contact. These thieves often have some of your personal information and try to intimidate their victims with threats of jail time, deportation or license revocation. Remember, never give information over the phone to someone claiming to be from the IRS.
Bullet Point Phishing. This recurring scam involves receiving fake emails and websites that look like the real deal. The IRS will not send you billing information or refund information via email. Do not click on any email link received from the IRS unless you requested it. Remember the IRS does not initiate contact through emails.

Reminder: It is Tax Scam Season Too

hidden person

Imagine you receive a call from an IRS agent who says you owe back taxes and threatens to arrest you if you don’t immediately make a payment over the phone.

Thousands of Americans faced this situation in 2016, though the people on the other end of their phone lines weren’t actually from the IRS. They were scam artists calling across the world from Mumbai, India. Their aggressive intimidation of U.S. taxpayers brought in $150,000 a day until police cracked down on their call center.

Amazingly, con artists impersonating IRS agents were involved in a quarter of all the consumer fraud incidents reported to the Better Business Bureau last year, making it by far the most common financial scam. With the new tax-filing season underway, now is the time to be especially vigilant.

Top scams of 2016 graphic

The threatening approach used in Mumbai is just one variety of IRS scam. Another involved sending emails from fake IRS addresses telling taxpayers that due to a mistake they were owed larger refunds. According to the email, all they had to do was provide their bank information and prepay the tax due on the larger refund. Once they made the prepayment, both the scammer and their supposed refund disappeared.

See through any IRS scam

By following a few guidelines you can see through any IRS scam:

Bullet Point Digital communication is a big no. The IRS will never initiate contact with you via email, text message or social media, nor will they request personal or financial information over those channels. If you do get an email communication purporting to be from the IRS don’t click on any links or open any attachments. Instead, forward the email to phishing@irs.gov.
Bullet Point Mail first. The first contact from the real IRS will be through the mail. If you get a letter from the IRS that is unexpected or suspicious, it should have a form or notice number searchable on the IRS website, www.irs.gov. Compare what you find there with what you received. If it doesn’t look right, you can call the IRS help desk at 1-800-829-1040 to question it.
Bullet Point  Never pay by phone. A legitimate IRS agent will never make a call to demand immediate payment of a bill or ask you to provide your debit or credit card information over the phone. If you are suspicious, ask for the employee’s name, badge number and phone number. A real IRS agent won’t hesitate to provide this information. You can then politely end the call and dial the IRS at 1-800-366-4484 to confirm the person’s identity.

 

Know Your Audit Risk

Audit Risk

Nearly every taxpayer can imagine a worst-case scenario where they run afoul of the IRS and are selected for an audit. Here are a few areas that tend to get unwanted audit attention and ideas to help you stay prepared.

Your audit risk is (probably) low. The first thing to remember is that the risk of having your tax return examined by the IRS is probably very low. The IRS audits less than 1 in 100 returns. If you are among the roughly 95 percent of Americans who make less than $200,000 a year, your chance of being audited is closer to 1 in 200. Audit chances rise dramatically the higher your income is above $200,000, according to the IRS annual Data Book.

Areas that get attention

Bullet Point Missing something. Aside from your income level, one of the biggest red flags for the IRS is a missing or incorrect tax form. Assume a copy of every official tax form you get also goes to the IRS.

Action: Create a list of all your expected tax forms. Check them off as you start to receive them over the next month or so. Immediately review the forms for accuracy. These include W-2s, 1099s, 1095s, 1098Ts and more.

Bullet Point Excessive deductions. Your risk of an audit increases when your tax return shows unusually high-value itemized deductions, such as charitable donations or losses from theft.

Action: A legitimate deduction should always be taken. If your itemized deductions are high, make sure your proof of these deductions is well documented.

Bullet Point Large charitable donations. Your chances of an audit increase if you take large deductions for donations to charity, especially “noncash” donations of property with unclear value.Action: Always remember to file a Form 8283 for any donation above $500 in value. If you are donating anything at that value or higher, it may be worth paying for an appraisal of the value of the property so you can defend your deduction.
Bullet Point Disparities with your ex. Your tax return may as well have a red siren attached to it if you and an ex-spouse are not on the same page on claiming dependents, child support or alimony.Action: Ensure you and your ex-spouse are consistent in how tax items are treated on your separate returns. If you have had problems with this in the past, a quick phone call could save headaches for both of you.
Bullet Point Business activity. IRS agents have a keen eye for small business reporting, typically done on a Schedule C. In particular, the agency is quick to review claimed business activities they perceive as being hobbies.Action: Maintain detailed business accounts and record significant time spent on your business activity in order to demonstrate both professionalism and a profit motivation.

Private Agencies to Start Collecting for IRS

Change Your Password

What you need to know

In late 2015 Congress required the IRS to turn over uncollected taxes it is no longer pursuing to outside collection agencies. The agencies are now selected and in early 2017 they will begin their collection efforts. This will impact all of us. Here is what you need to know.

Alert icon Turn up your scam alert. Rest assured the IRS identity scam epidemic is going to hit a new high as these scam artists now will try to impersonate collection agencies. Never pay a collection agency directly for any tax owed. Always send any payments directly to the IRS. If you do not think you owe money to the IRS, ask for help.
Agencies icon Four agencies have been authorized. Only four collection agencies have been authorized to collect unpaid taxes for the IRS. They are:
Conserve Fairport,
New York
Pioneer Horseheads,
New York
Performant Livemore,
California
CBE Group Cedar Falls,
Iowa
Notice icon You will receive written notice…twice. Before an outside agency calls you, the IRS will send two written notices to you and your representative about the transfer of the bill to an outside collection agency. Without these notices, you must assume any contact with a collection agency saying they represent the IRS is a scam.
Payment icon No payment to the agency. These collection agencies may not receive direct payment. You will be asked to use the IRS online payment system or to send your payment into the IRS. Payment is to be made to the U.S. Treasury and not to the collection agency.

Unfortunately, these agencies are going to begin their collection process right in the middle of this year’s tax filing season. So be prepared now and ask for help if you may be impacted by this change within the IRS.

Want to Deduct an Event Ticket?

Event stadium

Things to consider

As an employee, can you ever deduct the cost of a sporting event or other ticket on your expense report? Surprisingly, the answer can be yes, but only if you know and abide by the rules.

The accountable plan

If your employer uses accountable plan rules for reimbursing expenses, the IRS will not only provide the ability for you to be reimbursed by your employer for your qualified expenses, it will also allow your employer to deduct the expense on their corporate tax return. To be a qualified expense, three rules must be met:

Number 1 Expenses must be related to the duties and responsibilities of the employee for their employer.
Number 2 The expenses must be properly substantiated in a timely manner. This is usually within 30 to 60 days.
Number 3 Any excess reimbursements to the employee must be returned to the employer.

Applying the rules

To apply these expense deduction rules to a sporting event:

Checkmark There must be a business purpose for attending the event and
Checkmark an employee must accompany a prospective customer, a current customer or supplier to the event.

If you apply these rules, your employer can usually deduct 50% of the ticket cost and related expenses.

What can go wrong?

As you can imagine, the IRS looks closely at those who deduct entertainment as a qualified business expense. Here are some things to watch for:

Caution No customer or supplier is in attendance. Make sure you attend the event with your customer or the tickets are deemed a gift.
Caution The environment does not provide for a quiet place to conduct business. Do not try to deduct concert tickets or sporting events if you do not first meet in a quiet place prior to or after the event to conduct your business affairs.
Caution Over-charging the ticket price. You may only deduct the price of a ticket that is generally available to the public.
Caution Bringing friends. Generally you can include a spouse in the event, but other family members or unrelated guests can raise red flags.

As you can imagine, this area of expense deductibility is often the focus for the IRS during a review. If in doubt, please ask for help and clarification on the deductibility of this type of entertainment expense.

As always, should you have any questions or concerns regarding your situation please feel free to call.