Welcome, fall! Pumpkin spice lattes aren’t the only thing you should be focusing on this season. Keep your tax plan in mind as you get closer to the end of the year. In this issue you’ll find articles to help you do so, including tips on what to do if you get an IRS letter in the mail. There’s also a list of ways to help older adults avoid scams. And a few key reasons why you should never skip the fine print when agreeing to terms and conditions. Finally, there is some good information regarding the liquidation of securities and/or retirement savings.
Call if you would like to discuss how this information relates to you. If you know someone who can benefit from this newsletter, feel free to send it to them.This month
- September 2
- Labor Day
- September 16
- 3rd quarter estimated tax due
- Filing deadline for 2018 S corp and partnership returns that received extension
- October 1
- SIMPLE IRA plan establishment due
In this issue:
- The IRS Is Not Always Right
- Help Older Adults Stand Up Against Scams
- Why You Need to Read the Fine Print
- Consider the Tax BEFORE You SellMultiple tax rates hold the key
The IRS Is Not Always Right
A letter in the mailbox with the IRS as the return address is sure to raise your blood pressure. Here are some tips for handling the situation if this happens to you:
- Stay calm. Try not to overreact to the correspondence. They are often in error. This is easier said than done, but remember the IRS sends out millions of notices each year. The vast majority of them correct simple oversights or common filing errors.
- Open the envelope. You would be surprised at how often people are so stressed by receiving a letter from the IRS that they cannot bear to open the envelope. If you fall into this category, try to remember that the first step in making the problem go away is to simply open the correspondence.
- Carefully review the letter. Understand exactly what the IRS thinks needs to be changed and determine whether or not you agree with its findings. Unfortunately, the IRS rarely sends correspondence to correct an oversight in your favor, but its assessment of your situation is often wrong.
- Respond timely. The correspondence should be very clear about what action the IRS believes you should take and within what timeframe. Delays in responses could generate penalties and additional interest payments.
- Get help. You are not alone. Getting assistance from someone who deals with this all the time makes going through the process much smoother.
- Correct the IRS error. Once the problem is understood, a clearly written response with copies of documentation will cure most of these IRS correspondence errors. Often the error is due to the inability of the IRS computers to conduct a simple reporting match. Pointing the information out on your tax return might be all it takes to solve the problem.
- Use certified mail. Any responses to the IRS should be sent via certified mail. This will provide proof of your timely correspondence. Lost mail can lead to delays, penalties and additional interest on your tax bill.
- Don’t assume it will go away. Until a definitive confirmation that the problem has been resolved is received, you need to assume the IRS still thinks you owe the money. If no correspondence confirming the correction is received, a written follow-up will be required.
Help Older Adults Stand Up Against Scams
The Consumer Financial Protection Bureau recently reported in financial exploitation cases that older adults lost an average of $34,200. Unfortunately, these funds are often never recovered. You can ensure this doesn’t happen by learning more about scams and how to protect yourself. Here are some tips:
- Recognize the scams.The best way to protect yourself from a scam is to understand what they look and sound like. Here are a few key elements to look for when identifying a scam:
- You are promised a great offer or benefits
- You are forced to make quick decisions
- You are pressured to provide financial and/or personal information
- You are threatened
Did you know? IRS impersonation scams are the No. 1 scam targeting older adults, according to the Treasury Inspector General for Tax Administration, with more than 2.4 million Americans targeted.
- Know why you are a target.You and other older adults may be targeted because you own a home, and have retirement savings and exceptional credit — a treasure trove for con artists to pillage. Scammers take advantage of trusting older adults because they’re less likely to say no and sometimes have cognitive issues that affect decision-making skills. In other cases, family members and non-related caregivers may have easier access to their funds, making them more susceptible to theft.
- Keep your personal and financial information safe. Keep your bank information, Social Security card and other finances stored somewhere secure in your home. Think twice about what you are sharing on Facebook, and don’t give out your Social Security or account numbers without vetting the person or company asking you for it. Con artists find useful information on social media sites about your family members and then pretend to be a relative who asks for money, or they could directly ask you for sensitive information over the phone or via email.
- Hang up if you feel uncomfortable. Don’t worry about being impolite if someone on the phone is pressuring you into sharing sensitive information. Hang up. If the call comes from a company you trust, you can call back and ask for the department that handles your account to determine if the call is for a legitimate reason.
- Turn down unsolicited offers. If you receive a call or an in-person visit from someone you don’t know selling you a product or service you didn’t request, turn it down or tell them you’ll decide at a later time. If the service or product interests you, conduct independent research on three suppliers. Proactively contact all three and determine the best offer. Include a trusted family member in the decision-making process. Doing this can effectively eliminate most scams.
- Use direct deposit. You can avoid having your checks stolen when you arrange for your checks to be directly deposited into your bank account. Ask your bank to show you how.
- Speak up if you think you’re a scam victim. There’s no need to feel embarrassed or ashamed if you think you’ve been scammed. Instead, let people know right away.
- Call your bank and/or credit card companies.
- Reset your account passwords.
- Call the police to report stolen property.
- Submit a consumer complaint using the FTC consumer Complaint Assistant.
- Report the scam by calling the United States Senate Special Committee on Aging Fraud Hotline at 1-855-303-9470.
- If you suspect elder abuse is also involved, contact adult protective services.
Why You Need to Read the Fine Print
According to a recent Deloitte survey, 91 percent of people agree to terms and conditions without reading the legal agreement. While reading through the legally complex language may be slow and painful, it’s more important than you think. Here are four reasons why reading entire legal agreements make sense:
- You miss a major technicality.Many agreements have an exit penalty that requires you to pay for a period of time after you terminate an agreement. Others automatically renew your agreement for a year with exit penalties unless you tell them in writing you do not wish to renew prior to a key date. In a recent example of missing a legal technicality, eight teachers claimed the Department of Education (DOE) mishandled a debt forgiveness program that promised to reduce student loans after 10 years of public service. In most of the cases, the teacher’s application was denied because, according to the DOE, they were in the wrong type of loan or payment program.
- You give something away. With extensive agreement documents (PayPal’s user agreement is over 50 pages long!), it’s easy for a company to add language that grants itself rights to something that’s yours. Here are some examples:
- Your identity. Companies like Facebook grant itself rights to use your likeness and personal information for targeted advertising unless you catch the clause and take action.
- Your work. If you create a presentation using some online tools, the agreement might allow the site to use the presentation without your permission.
- Your location. Most navigation software tracks your location even when not using their application. The same is true with most newer vehicles.The only way to catch these tracking rights is to read the clause in the agreement.
- You’re not comfortable with the risks. Data breaches are occurring more often and are hard to prevent. To reduce their exposure to litigation, businesses are continuing to add language to agreements to protect themselves. Your job, as the consumer, is to know these risks when signing up for a new service. The more personal information you provide, the more important it is to understand your legal recourse if the supplier of your service is hacked.
- You miss something good. Reading an agreement to the end may pay off. A woman in Georgia won $10,000 just by reading her travel insurance agreement. The company, Squaremouth, had a Pays to Read program that awarded a cash prize to the first person to read the clause with a cash prize. For most people, it’s more likely you’ll find additional benefits that come with the agreement or laugh at some humor injected by the company. Here is an example from social media company, Tumblr: “You have to be at least 13 years old to use Tumblr. We’re serious: it’s a hard rule, based on U.S. federal and state legislation. “But I’m, like, 12.9 years old!” you plead. Nope, sorry. If you’re younger than 13, don’t use Tumblr. Ask your parents for a Playstation 4, or try books.“
Consider the Tax BEFORE You Sell
Multiple tax rates hold the key
In times of market volatility or when a financial need arises, it is only natural to consider selling some investments. Understanding the tax consequences is key to making an informed and planned decision. Here is what you need to know BEFORE you sell:
As the above tax rate chart suggests, understanding the tax consequence of selling an investment can be complicated. Your tax obligation could be subject to no tax or up to 37 percent plus an additional 3.8 percent for the net investment income tax. Here are some ideas to consider:
Within retirement accounts
- Generally not taxable. Selling investments within your retirement accounts is not usually a taxable event. The potential tax event occurs when you take the funds out of your account either by a withdrawal or occasionally as a rollover into another account.
- Follow the account rules. Each of your retirement accounts has its own set of rules. If you follow them, you can avoid early withdrawal penalties. Following the holding period rules within Roth accounts can also make your withdrawals tax-free.
Gains and losses outside of retirement accounts
- Losses. Your losses are first used to offset any investment gains. Any excess losses can offset your ordinary income up to $3,000 per year. So the benefit of losses can be worth next to nothing or up to 37 percent if it offsets ordinary income.
- Non-investment losses. Unfortunately, individuals may not offset losses on the sale of non-investment property. So if you sell a car and make money, you need to report the gain. If you sell the car and lose money, there is no deductible loss unless it is part of a business transaction.
- Long-term better than short-term. Holding an investment for longer than one year is key if you want to minimize your tax obligation. Short-term gains are taxed the same as wages.
Remember your investment decisions can often have quite different tax consequences. The best suggestion is to seek advice BEFORE you sell.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
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