Friday, September 30, 2016

7 Ways to Tell If That IRS Tax Collections Call Is Fake


 A new IRS program set to take effect next spring may make it harder to tell which of those dubious phone calls many people get about outstanding tax bills are actually fake.
The agency announced this week that it’s hired four private debt-collection firms to search America’s couch cushions for overdue federal taxes: ConServe, based in Fairport, New York; Pioneer, based in Horseheads, New York; Performant, based in Livermore, California; and CBE Group, based in Cedar Falls, Iowa. The IRS says the four contractors will mostly get old, overdue accounts or accounts it doesn’t have the manpower to pursue.
One problem, however, is that taxpayers are up to their eyeballs in tax-collection scams and could easily mistake legitimate calls for yet another criminal trying to sucker them.
This year, the IRS reported it has already seen a 400% increase in phishing schemes. And in March, the Treasury Inspector General for Tax Administration, which oversees IRS activities, said it’s received over a million reports of phone scams involving fake tax collectors since October 2013. Over 5,500 people collectively have lost about $29 million, it said.
The IRS is aware of the problem — it keeps a dedicated, ongoing list of scams on its website. In May, for example, it warned taxpayers about phone calls regarding a bogus “federal student tax,” and in August it reported that IRS impersonators were demanding tax payments on iTunes cards and other gift cards.
Now that some debt-collection calls will actually have the IRS’ blessing, how will you be able to tell the real ones from the fakes? Here are seven red flags.


Under the new program, the IRS will first mail you a written notice that it’s turning your account over to a private collection agency. Then, one of the four collection agencies will send you a letter confirming the transfer. That agency is the only one that should be calling.


The contracted agencies aren’t allowed to accept payment on the IRS’ behalf. They also aren’t allowed to ask for payment on a prepaid debit card. Instead, they should send you to if you want to see your electronic payment options; checks should always be made payable to the U.S. Treasury and sent directly to the IRS, not the collection agency.


The IRS won’t assign your account to a private collection agency if you’ve already got an installment agreement going. Likewise, if you have or are negotiating an offer in compromise with the IRS, legitimate debt collectors shouldn’t be calling you.


The IRS won’t turn over accounts involving taxpayers who are deployed in combat zones or who are in presidentially declared disaster areas and are requesting relief from collection. If that describes you, and one of the IRS’ contracted collection agencies gets your case by mistake, it’s supposed to return it to the IRS. (That doesn’t mean you’re off the hook; it means the IRS will pursue payment itself.)


People who have died or are minors may have outstanding tax liabilities, but their accounts won’t be going to private collection agencies, according to the IRS.


The IRS’ private collection agencies have to keep their hands off cases involving tax-related identity theft, litigation, examinations, criminal investigations, levies, appeals or innocent spouse classifications — for those going through a divorce or other problems in their marriage.


The private collection agencies have to abide by the Fair Debt Collection Practices Act, which means they can’t swear at you, threaten you with violence or harm, call in the middle of the night or lie about what you owe, among other things. Though the IRS is using the law to ensure contracted debt collectors respect taxpayers, another agency — the Consumer Financial Protection Bureau — might say good luck with that. It gets more complaints about debt-collection companies than any other financial product or service.

Thursday, September 29, 2016

10 Reasons You Need a Taxable Investment Account

Mostly everyone reading this article is contributing to at least one retirement account, at least if you are employed or own a business. Some retirement accounts allow you a current income tax deduction or a tax-deferred account contribution (IRA's, 401k's, 403b's, 457b's, and defined benefit plans). When you begin taking distributions from these accounts, you will pay income taxes at your top marginal tax rate.

Hopefully that day will not come before retirement and (even more hopefully), our politicians will see to it that you are in a lower tax bracket during retirement. (Of course, as we've seen in the 2016 election cycle, nothing is predictable about politicians.) Other retirement accounts, chiefly Roth IRAs, don't allow a current deduction, but are totally tax free when you are ready to begin taking distributions at age 59.5.

Having a sizeable Roth IRA is a good estate planning move because the IRS does not require you to begin emptying your Roth over your lifetime, as you are required to do with traditional retirement accounts. This allows you to leave a tax-free "gift" to your heirs if you choose not to spend it all during your lifetime. But what we often overlook is that a retirement account doesn't have to be blessed by the IRS to be used for retirement. In fact, I believe that taxable retirement accounts are ignored because we are so focused on "authentic" (IRS-approved) retirement accounts. Everybody should supplement their savings with a taxable retirement account, in my opinion. That may sound like heresy from a CPA, but please hear me out. First of all, what do I mean by a "taxable retirement account"? All I'm referring to is a plain old investment portfolio that is not linked to any government regulations and that you are building for retirement. Sounds kind of boring but I am a big believer that the more boring your finances are, the more money you tend to have. Some of the benefits of a taxable retirement account are:

1. You have complete liberty over investments. You can use any fund family you desire, with any expense ratios, and any fund manager. In other words, you are not limited to the deal your employer made with your 401k provider.

 2. You have complete flexibility over your account. You can take money out before age 59.5 without penalty, you can add more than $18k per year to your portfolio, and you don't have to account to anyone but yourself  if you need to use the money in your account for any reason.

3. You can pledge your portfolio as collateral for a loan.

 4. You don't have to begin emptying your taxable account when you turn age 70

 5. You have "basis" in your account - when you take money out, you pay taxes only on the growth.

6. You pay a top tax rate of 20% on long-term capital gains and qualified dividends (from stock held for at least one year). This is about half of the current top tax bracket of 39.6% and over half if you take an early distribution and pay a 10% penalty for early withdrawal.

7. You get to write off capital losses in the account.

8. You can use income from the account to offset an unused investment interest deduction

9. Your heirs get a stepped-up basis if they inherit the account from you.

10. Your heirs don't have to begin taking withdrawals from the account when they inherit it from you. Of course, taxable accounts can be problematic: money invested is not protected in the event of a lawsuit and you get basis instead of a tax deduction. That must be considered in the context of your goals and insurance protection in place. 

 Am I saying that having a taxable account is your top priority when saving for retirement? Not at all, but it may be near the top, depending upon where you are on your financial journey and the integration of tax planning with your short- and long-term financial goals. A taxable retirement account can be the perfect filler to some of the gaps in your tax and retirement planning strategy. Be sure to discuss incorporating one into your financial plans the next time you meet with your financial planner. 

Wednesday, September 28, 2016

Seek expert advice for dealing with inheritances

Inheritances received after the passing of a loved one have important estate, financial, and tax planning implications for the beneficiary.

Inherited Individual Retirement Accounts (IRA’s) are subject to specific rules on taxable and non-taxable distributions that depend on a multitude of factors. Things such as the relationship between you and the person who left you the IRA, their age, the type of IRA, whether the person was already receiving distributions from the IRA, whether you were named as a beneficiary or inherited the IRA under a Will, how many beneficiaries are named, and several other factors — some of which are time sensitive. Additionally, you may find that many of the distribution penalties and restrictions that apply to a traditional IRA also apply to an inherited IRA. 

Experts advise meeting with a trusted adviser to discuss your options before making any decisions. Given the complexity specific to inherited IRA’s and the multiple factors that could influence your tax liability and other penalties, you are wise to seek an expert opinion before making any withdrawals. We suggest consulting a local estate planning attorney, financial planner or Certified Public Accountant (CPA) to discuss your specific circumstances.

Tuesday, September 27, 2016

Beware of Fake IRS Tax Bill Notices

IRS Special Edition Tax Tip 2016-13,

The Internal Revenue Service and its Security Summit partners are warning taxpayers and tax professionals of fake IRS tax bills related to the Affordable Care Act.

The IRS has received numerous reports of scammers sending a fraudulent version of a notice - labeled CP2000 - for tax year 2015. The issue has been reported to the Treasury Inspector General for Tax Administration for investigation.

This scam may arrive by email, as an attachment, or by mail.  It has many signs of being a fake:
  • The CP2000 notices appear to be issued from an Austin, Texas address;
  • The letter says the issue is related to the Affordable Care Act and requests information regarding 2014 coverage;
  • The payment voucher lists the letter number as 105C;
  • Requests checks made out to I.R.S. and sent to the "Austin Processing Center" at a post office box.

IRS impersonation scams take many forms: threatening phone calls, phishing emails and demanding letters.  Learn more at Reporting Phishing and Online Scams


An authentic CP2000 notice is used when income reported from third-party sources, such as an employer, does not match the income reported on the tax return.  Unlike the fake, it provides extensive instructions to taxpayers about what to do if they agree or disagree that additional tax is owed.  A real notice requests that checks be made out to "United States Treasury".
If you have questions, feel free to contact us!

Monday, September 26, 2016

8 Must-Do Financial Tasks Before the End of the Year


With only one quarter left in 2016, it's about time to begin thinking about year-end planning strategies. While you still have a few more months, keep in mind that nearly all of the strategies that can reduce taxable income must be complete by Dec. 31. These eight tips can help you avoid leaving money on the table.

Contribute to a health savings account. If you have a high deductible health plan, an HSA can help you pay for medical expenses and reduce your taxable income through pre-tax contributions. When the funds are used for qualifying medical expenses the earnings won't be taxed. Although you aren't required to use all of the funds annually, HSAs offer investment options, allowing your pre-tax contributions to grow tax-free.

Annual HSA contribution limits for 2016 (under age 55) are $3,350 for an individual and $6,750 for a family. Consult the IRS guidelines for details.

Use your flexible spending account. Flexible spending accounts are similar to HSAs but differ in a few key ways. Medical FSAs can help offset qualifying medical expenses with pre-tax contributions. Unlike HSAs, FSAs must generally be depleted during the calendar year or your contributions will be forfeited. FSAs do not have investment options but also do not require participants to have a high deductible health plan.

The dependent care FSA is a unique benefit not available in HSAs. Qualified dependents are typically your children younger than 13. The expenses must be incurred to enable you (and a spouse, if married) to work, look for work, or enroll in school full time. If so, babysitters, summer day camp, and after-school programs could be reimbursable. Annual contribution limits for 2016 are $2,550 for the health FSA and $5,000 for dependent care if married filing jointly. Consult the IRS guidelines for full details.

Maximize contributions to a tax-advantaged retirement plan. Reduce your taxable income while saving for retirement. For participants of employer-sponsored retirement plans like a 401(k) or a 403(b), you may contribute up to $18,000 in 2016. Individuals older than 50 may make an additional catch-up contribution of $6,000.

If you can't afford to contribute the full amount, try to contribute enough to get the full employer match. Also consider annual increases to contributions by 1 percent or more. While anyone may contribute to a traditional IRA, there are income limitations on who may deduct their contributions, which depend on marital status and if you (and your spouse if applicable) are covered by a retirement plan at work. You have until April 15, 2017, to make additions to an IRA for the 2016 tax year. To determine your eligibility, review the IRS guidelines.

Rebalance your portfolio. The underlying asset classes in a portfolio rarely perform in the same manner – some may experience strong growth while others could remain flat or negative. Portfolios are constructed with this in mind, to diversify the risk and create an asset allocation consistent with the investor's risk tolerance. As the various asset classes experience different growth levels, rebalancing may be required to revert to the original asset allocation. Rebalancing isn't always necessary and there may be costs to doing so. In a taxable account, selling securities you've held for less than a year will result in short-term capital gains taxes.

Consider working with your financial advisor beforehand to avoid unintended consequences. For example, mutual funds issue their capital gains distributions in fourth quarter based on the year's trading. You could find yourself owing capital gains taxes on those distributions despite just purchasing the position.

Use tax-loss harvesting. Tax-loss harvesting involves selling underperforming securities in a taxable account and buying similar replacement securities to take the loss in the current year. If, after netting short-term and long-term gains/losses against each other, a loss results, the loss can be used to offset taxable income in the current year or carried forward if over the $3,000 maximum. Whenever possible, tax-loss harvesting should be done in conjunction with portfolio rebalancing to minimize the potential for unintended tax consequences, wash sales, and additional trading fees.

Consider a Roth IRA conversion. There are income limitations on regular contributions to a Roth IRA. However, these restrictions do not apply to Roth IRA conversions which are available to all earners once a year. For many reasons, individuals choose to roll their old 401(k) out of a former employer's retirement plan. Among the options for the retirement funds is a conversion to a Roth IRA. With a Roth IRA you will pay income taxes now and won't owe any tax on qualified distributions later. However, a Roth conversion doesn't always make sense. You'll need sufficient non-retirement funds to pay the tax due on the converted dollars and believe you're in a lower tax bracket today than you will be in retirement.

Roth IRAs can be a powerful tax-diversification tool, but only if executed as part of a larger financial strategy. A one-time Roth IRA conversion may have little impact if it only represents a small portion of your retirement assets. Like the other strategies outlined in this article, consult a financial advisor and tax professional first.

Give back. If you itemize deductions on your tax return you may be eligible for a charitable deduction. Making a sizable contribution? Consider donating appreciated securities instead of cash. Appreciated securities in a brokerage account can be donated directly to a charity. You can receive a deduction for the full fair market value on the date of the gift while avoiding capital gains taxes. Talk to your financial advisor for details.

Watch the timing of 529 plan distributions. To avoid a portion of your 529 plan funds being accidentally classified as a non-qualified distribution and potentially subject to income tax and a penalty, make sure to carefully plan the timing of withdrawals. For example, if you withdraw money from a 529 plan in December, but don't pay the tuition bill until January, a portion of the funds may be considered a non-qualified distribution if the total 529 plan withdrawals for the year exceeded the qualified higher education expenses paid.

As you compare distributions to expenses, remember not to double count the American Opportunity Tax Credit/Lifetime Learning Credit and don't include any expenses covered by tax-free scholarships in your calculations.

Some of these strategies may take longer than others to research and execute. Getting a head start can help ensure you don't miss out on any planning opportunities or chances to put some more cash back in your pocket.

Saturday, September 24, 2016

How to Pick the Right Retirement Date

Make sure your retirement date doesn't cause you to leave money on the table. Here's what to consider:
Employer 401(k) matches and bonuses. Most employers match contributions throughout the year, says Carol Sladek, head of work-life consulting at Aon Hewitt, but a few make a single contribution in December. Profit-sharing and bonuses are generally awarded at year-end. If you're due a cash payment, set your retirement date accordingly.

Unused vacation. At most companies, vacation days accrue over the course of a year. To get paid for any days you didn’t use, retire at the end of the year; otherwise, you may not be compensated for those days. If your employer is one of the few that still allots your full vacation at the beginning of the year and lets you take it at any time, ask your benefits manager whether you’ll be fully compensated by retiring after January 1.
Medical benefits. Be sure to use all the money you’ve contributed to your medical flexible spending account before you leave the company; otherwise, you’ll lose it. While you’re still on employer group coverage, take care of doctor visits and necessary medical procedures.

Thursday, September 22, 2016

Most People Need Not Worry About Estate Taxes

Welcome news: As of 2016, if you die with less than $5.45 million in assets — or $10.9 million if you’re married — your estate won’t owe federal estate tax.
Surprised? Most people are. As a financial planner, I come across many people who list avoiding estate tax as a top priority in their financial plan. But in reality, very few people accumulate enough wealth to make federal estate tax an issue.

Small minority hit with tax

Some people might be concerned about estate tax because the federal exemption amount used to be much lower. As recently as 2008, it was $2 million. In 2001, it was $675,000.
But since the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act passed in 2010, the estate tax exemption has been $5 million and higher. The amount increases each year to adjust for inflation.
The top estate tax bracket is 40%, so this high exemption amount saves a lot of people a lot of money. In fact, according to the Tax Policy Center, only 5,300 estates were expected to be taxable in 2015. That is, out of the 2.6 million people who were expected to die last year, only 1 out of every 495 was projected to have a taxable estate.
What’s more, you can also make tax-free gifts of up to $14,000 to any number of persons each year. And you can leave an unlimited amount of assets to your spouse or a charity without triggering federal estate tax.
If you will die with enough assets to have a taxable estate, rest assured that there are many loopholes, strategies and estate planning tools you can use to shelter your wealth. That’s a topic for another article.

The need for estate planning

So does all of this mean that you don’t need an estate plan? Absolutely not. I would argue that virtually everyone needs some elements of an estate plan, such as an advanced health care directive and a durable power of attorney.
Most people should also have at least a basic will to establish what will happen with their minor children and assets when they die.
Keep in mind that estate tax rules might be changing: Presidential candidates Hillary Clinton and Donald Trump have proposed changes, and a new IRS proposal could raise estate taxes for wealthy business owners.
Keep in mind, too, that you may have a state estate tax: Currently, 15 states and the District of Columbia do. However, all of them have an exemption amount and maximum tax rates that are far lower than the federal rate of 40%. New Jersey has the lowest exemption amount ($675,000), and Washington has the highest maximum estate tax rate (20%).
When it comes to estate planning, tax isn’t the key thing for most people to worry about — it’s making sure the other elements of your estate plan are in order.