Tips to Protect Yourself From Tax Scams

Tax Scam warning signs

Too many people downplay the threat of identity theft because it hasn’t been witnessed or experienced firsthand. This false sense of security can leave you exposed, especially during tax season. Here are some tips to keep your identity safe from scammers:

 

  1. Be naturally suspicious. Understand that there are people out there trying to get your information, and others willing to pay for it. With that knowledge, be suspicious of anyone asking for personal information — especially your Social Security number (SSN). Even when a known vendor asks for your SSN, ask what they will be using it for and refuse most requests unless you deem it necessary.
  2. File your tax return as soon as possible. A popular tax scam is to file a fake tax return and deposit the refund into the thief’s account, all before you get the chance to file your own return. You close the door on scammers once your tax return is filed with the IRS.
  3. Shred (don’t just crumple) your documents. Get in the habit of shredding all paperwork before it’s thrown out to keep personal information from falling into the wrong hands. If you don’t own a shredder, contact your bank or other local community services as they often offer free shredding services on specific days.
  4. Keep your Social Security card safe. Only carry your Social Security card with you when it’s needed for a specific purpose. Your wallet or purse is not a good permanent spot for your card. Any criminal would have a treasure trove of personal data if it were to get lost or stolen along with your driver’s license and credit cards.
  5. Periodically check your credit reports. The three major collection agencies (Experian, Equifax and TransUnion) are legally required to provide you with a free credit report each year. Take advantage of this service and review the reports. Correct any errors and use this report to monitor your accounts for any potential identity theft.

Be smart when handling your personal information. Don’t get caught off guard by identity theft, especially by being careless. If you think you are a victim of a tax scam, alert the IRS right away and go to identitytheft.gov for more information.

How to Raise a Financially Savvy Child

Babies holding moneyIf you have children (or grandchildren) you have an opportunity to give them a jump-start on their journey to becoming financially responsible adults. While teaching your child about money and finances is easier when you start early, it’s never too late to impart your wisdom. Here are some age-relevant suggestions to help develop a financially savvy young adult:
  • Preschool – Start by using bills and coins to teach them what the value of each is worth. Even if you don’t get into the exact values, explain that a quarter is worth more than a dime and a dollar is worth more than a quarter. From there, explain that buying things at the store comes down to a choice based on how much money you have (you can’t buy every toy you see!). Also, get them a piggy bank to start saving coins and small bills.
  • Grade school – Consider starting an allowance and developing a simple spending plan. Teach them how to read price tags and do comparison-shopping. Open a savings account to replace the piggy bank and teach them about interest and the importance of regular saving. Have them participate in family financial discussions about major purchases, vacations and other simple money decisions.
  • Middle school – Start connecting work with earning money. Start simple with babysitting, mowing lawns or walking dogs. Open a checking account and transition the simple spending plan into a budget to save funds to make larger purchases. If you have not already done so, it is a good time to introduce the importance of donating money to church or charity.
  • High school – Explain the job application and interview process. Work with them to get a part-time job to start building work experience. Add additional expense responsibility by transferring direct responsibility for things like gas, lunches and expenses for going out with friends. Introduce investing by explaining stocks, mutual funds, CDs and IRAs. Talk about financial mistakes and how to deal with them when they happen — try to use some of your real-life examples. If college is the goal after high school, include them in the financial planning decisions.
  • College – Teach them about borrowing money and all its future implications. Explain how credit cards can be a good companion to a budget, but warn of the dangers of mismanagement or not paying the bill in full each month. Discuss the importance of their credit score and how it affects future plans like buying a house. Talk about retirement savings and the importance of building their retirement account.

Knowing about money — how to earn it, use it, invest it and share it — is a valuable life skill. Simply talking with your children about its importance is often not enough. Find simple, age specific ways to build their financial IQ. A financially savvy child will hopefully lead to a financially wise adult.

Staying Organized Before and After Tax Time

File folder

Organizing your tax records not only makes filing your tax return easier, it also helps you find the financial documents you need throughout the year. Whether you’ve already filed your tax return or are about to, here are some tips to get organized.

Go with the flow (of your tax return)

Try organizing your records in the same order as they are required to fill out your 1040 individual tax return. Here are common categories and items to be collected in each:

Two Income. Copies of W-2s, 1099s, Social Security statements, interest income and investment income.
Three Charitable donations. Charitable donation receipts, separated by cash and noncash contributions. Include a copy of your charitable activity mileage log, if you have one.
Three Medical and dental. All documents related to medical expenses. You may also include a note calculating your medical deduction threshold (which is 7.5 percent of your adjusted gross income during 2017 and 2018).
Two Other itemized deductions. All proof of other itemized deductions, including state and local tax statements, mortgage interest, casualty and theft losses, unreimbursed business expenses and other miscellaneous itemized deductions. Note that miscellaneous itemized deductions are eliminated after the 2017 tax year, but keep all records for this tax season on file.
Three Business and hobby activity. Keep separate records for each hobby and business activity. Include records of related investments, expenses and mileage logs.
Three Education. Records of all education expenses for tuition, fees and materials (such as books or music instruments).
Three Investments. Records of investments in tax-advantaged retirement accounts, as well as contributions to investable accounts such as health savings accounts (HSAs) and 529 education savings plans. Also include records of capital gains and losses, particularly for tax-loss harvesting purposes.
Three Odds and ends. Put all the miscellaneous receipts that don’t fit anywhere else into this file. Depending on your situation, you may be able to get tax breaks for a variety of expenses.

Bonus tips:

Two How long should you keep your records? For tax filings, the IRS requires you to keep your records on hand for at least three years after you file. Some states require you to keep records longer than that and the federal government can ask you to keep records for six years if you understate your income.
Three Keep track by going digital. If keeping track of your tax records year after year sounds like a chore, at least things are easier in the digital age. You can scan your paper records and keep them digitally, but remember to keep your records backed up and secure from identity theft.
Three Make a checklist. If you’re still waiting for some tax forms to arrive, go back to last year’s return and make a checklist of all the forms you received. Add items for any new accounts or vendors you added since then and check off the forms as they arrive.
As always, should you have any questions or concerns regarding your situation please feel free to call.

 

 

Taxes and Virtual Currencies

Virtual Currencies

What you need to know

Virtual currencies are all the rage lately. Here are some tax consequences you must know if you decide to dip your toe in that world.

The IRS is paying close attention

The first thing to know is that the IRS is scrutinizing virtual currency transactions, so if you live in the U.S. you’ll have to report your transactions in Bitcoins and the like. Despite some early misconceptions, virtual currency transactions can be traced back to their owners by governments and other cyber sleuths.

If you decide to use or hold virtual currencies, carefully report and pay tax on your transactions. Act as if you are going to be audited, because if you don’t, you just might be!

It’s property, not money

Note that the IRS doesn’t treat Bitcoin or other virtual currencies as money. Instead, they are considered property. That means that if you are paid in Bitcoin, you will have to report it as income based on its fair market value on the date you received it.

And, if you sell Bitcoin, you have to pay tax on your gain using the cost (basis) of when you received it. The IRS has said that if Bitcoin is held as a capital asset, like a stock or a bond, then you would pay capital gains tax. Otherwise, if it is not held as a capital asset (for example if it is treated as inventory that you intend to sell to customers), it would be taxed as ordinary income.

Example: Craig Crypto bought a single Bitcoin on Dec. 29, 2016 for $967. After holding it as an investment (capital asset) for more than a year, Craig sold his Bitcoin for $14,492. He reports and pays 15 percent tax as a capital gain on his profit of $13,525.

Be aware of the risk

In addition to the increased oversight by the IRS, virtual currencies are at risk of virtual theft with no recourse to a government agency like the Federal Deposit Insurance Corporation, which insures U.S. bank balances.

If you need help with any tax questions related to virtual currency transactions, don’t hesitate to call.

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