Category Archives: Financial Literacy

How not to fall for Phishy IRS calls and other Scams

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These days, nearly all of us get calls, e-mails and text messages trying to gain access to our finances.  You have probably seen or heard of the call “from Amazon” about a new iPhone order, the call “from Social Security” indicating that your number has been suspended, which requires your immediate action with someone on the phone, the e-mail with a “voicemail message” attached for you to click on to hear, and the e-mail with an “invoice” for you to approve.  There are many more forms and styles, and more keep coming.

This post focuses on the calls purporting to be from the IRS, and the purpose of this post is to help make you more wary so you do not fall victim to any of these scams. 

The IRS recently posted its dirty dozen for 2021, a list of scams that focuses on Pandemic-related scams, like unemployment claims, but also fake charities, urgently seeking donations, and offer in compromise scams, claiming to have ways to reduce your taxes owed.  There are other scams that target elderly or people for whom English is a second language.  And some scams offer to file conservation easements and improper business credit claims for you.   

Calls “from the IRS”

The call insisting that you owe the IRS and need to pay is a scan that has been around for some time.  The IRS website, and the recorded message when you are on hold contacting the IRS, says:

  • The IRS won’t initiate contact by phone, email, text or social media asking for Social Security numbers or other personal or financial information. 
  • The IRS generally first contacts people by mail – not by phone – about unpaid taxes.
  • The IRS may attempt to reach individuals by telephone but will not insist on payment using an iTunes card, gift card, prepaid debit card, money order or wire transfer.
  • The IRS will never request personal or financial information by e-mail, text or social media.

Furthermore, the IRS will ask you to confirm your identity before discussing any tax matters with you. 

Protect your tax filings

To help insure that no one can file under your social security number, the IRS suggests obtaining an ID PIN for filing your tax returns.  The PIN is now available to all taxpayers; you include it when you file your tax returns so that the IRS can verify that it is you filing.  This prevents others from filing bogus refund claims under your social security number. 

You can also include your driver’s license when filing, so the IRS and state revenue departments can verify that it is you filing, not an imposter. 

Be Vigilant

To protect your finances, you need to be vigilant.  Before you answer the phone, what does the caller ID say?  Is it a legit company or “unknown”?  Before you respond to an e-mail, does the address look like a real customer service company site or something random?  Is the grammar or content in the call or message off?  If it seems off, it probably is. 

Usually, you can find safe and easy ways to confirm the information in question by placing your own call or logging onto the related website online, rather than responding directly. 

The IRS recommends setting up multi-factor identification to access your financial information.   The IRS suggests more steps here:

  • Using anti-virus software and set it for automatic updates. Anti-virus software scans existing files and drives on computers – and mobile phones – to protect from malware.
  • Using a firewall to shield digital devices from external attacks.
  • Using backup software/services to protect data. Making a copy of files can be crucial, especially if the user becomes a victim of a ransomware attack.
  • Using drive encryption to secure computer locations where sensitive files are stored.  Encryption makes data on the files unreadable to unauthorized users.
  • Creating and securing Virtual Private Networks. A VPN provides a secure, encrypted tunnel to transmit data between a remote user via the Internet and the company network. Search for “Best VPNs” to find a legitimate vendor; major technology sites often provide lists of top services.

Conclusion

If something smells “phishy,” it probably is.  So be cautious, even suspicious of interaction asking for personal and financial information.  Set up two-factor verification and an IRS PIN.  And let me know if you have questions or concerns.  I will try to help.

How to stay safe after the Equifax data breach

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(as also appeared online at IRIS.xyz)

Equifax disclosed last week that the personal financial information of up to 143 million users had been exposed in a massive hack last July. This represents roughly two-thirds of all credit card holders, so you may be affected.

The delay in disclosing is troubling, and the hack raises questions about oversight of the credit bureaus and even about the impact on their management. We can see the impact on investors: the Equifax share price has dropped over 20%

While we can discuss these issues and more, the priority is shoring up your personal credit.

Impact

Was your data taken? There are links from Equifax, Norton and others where you can attempt to determine the impact on you personally. However, these sites seem to default to “you may be affected,” even if you put in bogus information.

The good news is that Equifax has responded to consumer pressure to make certain services free.

Act now

You will want to act as soon as possible to keep your financial information safe.

“There are so many entities who need to check your credit: when you’re renting an apartment, getting insurance, a new cell phone, utilities,” Liz Weston, a financial planner and columnist at NerdWallet, told BuzzFeed News. “But at this point the breach is so great” that taking measures to safeguard your identity is worth it. She recommends instituting credit freezes.

Equifax free service – sign up on line for the complimentary service being provided by Equifax, which provides the following:

  • three-bureau credit file monitoring with alerts,
  • credit report lock,
  • scanning of suspicious sites for use of your social security number,
  • Equifax credit reporting, and
  • $1 million identity theft insurance covering certain out-of-pocket expenses.

Monitor your cards – review your monthly credit card, bank and loan statements for suspicious activity. You have a right to free credit reports so obtain them and review for unauthorized activity.

Also, watch for unexpected calls or mail, such as debt collectors or people posing as IRS agents, because these may be signs that your information may be in the hands of thieves.

Credit freeze – request a freeze on your credit from all three agencies: Equifax, TransUnion, and Experian. Equifax will not charge you but the others will.

Requesting a credit freeze prevents thieves from using your identity to get loans or credit cards in your name, even if your personal information was compromised by the hack. You essentially pay to bar each of three credit reporting agencies — Equifax, TransUnion, and Experian — from providing a credit report without both your explicit permission and a personal identification number (PIN) that temporarily lifts the freeze. (Freezes do not affect financial institutions or companies you have an existing relationship with, only new ones.)

Make sure to place the freeze with all three bureaus and to keep your PINs for unlocking the freezes in a safe place.

“A credit freeze with only one bureau is incomplete protection,” Mike Litt, the consumer program advocate at the US Public Interest Research Group, a consumer group, said. Consumer experts recommended getting a freeze with all three agencies.

There are companies such as LifeLock that provide bundled services. If cost is not an object, that may be the best course of action. Here is the Lifelock response on Equifax.

Fraud alert – if you are certain that your information has been taken, place alert all three credit bureau websites. You can access the TransUnion site here. Some protection is free, but their premium package costs $9.95

If you are the subject of identity theft, there are many resources now that help you report and recover. The Federal Trade Commission website can help devise a recovery plan to implement.

PINs and passwords – the passwords and PINs you use could be the next issue. You may want to change what you use now and update annually, if not more often.

Updates – Equifax continues to provide updates on the status of the hack and their response.

And news sites continue to report on the hack – see this NY Times article.

Summary

There are many steps to take, and the information taken may not be used for some time. So, you will want to take some if not all the steps outlined above. If you have trouble doing so, or if you have questions, let us know.

And for more reading, the Better Business Bureau is one resource for tips on avoiding scams. And, the FTC is a good resource for identity theft.

Good luck and stay safe!

7 things to do when starting a business to avoid nasty surprises

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(also seen online at IRIS.xyz)

The only thing that hurts more than paying an income tax is not having to pay an income tax. Thomas Dewar

When you decide to start a business, taxes may be the last thing you think about. However, not realizing that you owe the self-employment tax as well as income taxes can lead to a nasty surprise when you file your taxes. This post is aimed at avoiding that costly surprise.

But, before we discuss the self-employment tax, there are other important steps to take when you become self-employed. Here are the 7 things to do after you start your own business to avoid nasty surprises:

Avoid nasty surprises – set up bookkeeping, form your entity, get licensed, buy insurance, and pay taxes

Bookkeeping – set up bookkeeping using software like QuickBooks (either online or on your laptop). You don’t want to be scrambling to find receipts at tax time or not be able to tell somebody if you are making money or not.

You can save time by downloading from your bank and credit card companies. If you set up things well, all income and every expense will be properly categorized for your profit and loss statement, or P&L. The P&L and balance sheet help you monitor your business to see how well you are doing and are essential for preparing your tax returns. The balance sheet will also come in handy if you need to apply for financing.

For all these steps, you may want to hire an accountant or speak to an attorney.

Entity – for many small businesses, being a sole proprietor is appropriate. You avoid paying corporate excise taxes and filing annual reports. However, if you have partners, you may want to form a partnership, corporation or LLC (details on choosing are beyond the scope of this post).

If your business involves risks that could lead to law suits, form a corporation or LLC to shelter your personal assets from liabilities of the business that insurance may not cover. Make sure that any actions you take for the business are in your capacity as an officer or manager – i.e., never sign personally.

Remember, you may want to consult with an attorney.

Get licenses, file annual reports and pay local taxes – certain businesses require a license to operate. Most entities are required to file annual reports. And, your city may impose taxes on the personal property in your business. Be sure to find out so you don’t owe penalties for failing to file and pay.

Buy health and other insurance – in addition to liability insurance, you will want to obtain health insurance if you are no longer working for another employer. You may get favorable treatment for this expense on your income taxes. You can also purchase insurance to cover damage to equipment, loss of data, identity theft and so on.

File payroll taxes – if you hire people to work for you and pay them over $600 per quarter in any year, you need to report the compensation. If they are independent contractors, you file a form 1099 with the IRS. If they are employees, you file a W-2 with the Social Security Administration. You also provide these forms to your people for the income tax filings.

You may need to withhold and remit FICA and Medicare taxes. Also, your employees may request that you withhold and remit federal and state income taxes (unless you live in a state that does not impose income taxes). Failure to withhold and pay to the IRS and state can lead to serious penalties.

Pay your income tax – one big shock for many who start a business is how much they owe in taxes. When you received a paycheck, you probably did not focus much on the fact that your employer withholds federal and state income taxes and FICA and Medicare taxes. And, you never had a chance to spend what was withheld.

However, when you run your own business, you have full access to the pre-tax income, so you must diligently allocate funds ahead of time so that you don’t come up short at text time. To avoid owing interest on the taxes due, you make estimated tax payments each quarter to the IRS and state.

Pay the self-employment tax – when you were an employee, your employer withheld FICA and Medicare taxes from your paychecks. The employer also contributed FICA and Medicare taxes on your behalf

When you become self-employed, you are responsible for both the employee and employer amounts. This tax is based on your net self-employment income

A lot to remember, right?

Maybe, but knowing and planning is far better than trying to scrape together money in April to cover taxes you did not expect.

Good luck with your new business!

In future posts, we will examine partnering with others, assessing your profitability, rules on deducting expenses, and entry into the real estate market.

“Simplify your finances? No; “Gain control, understand your finances?” Yes

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After reading a recent article in Kiplinger’s Finance Magazine  on simplifying your finances, I wondered if your personal finances can really be made simple.  While many of us may hope so, I am not sure that “simple” is best.

However, gaining control of your finances and gaining a better understanding do make sense.

clutter-286975_1920 Okay, that does need to be simplified!

Here are some ways that help you gain control that may also “simplify” your life:

Cash management and Debt management

Set up automatic payments with vendors so they use your bank or credit card, or set up payments using your bank website.

  • If the payments are regular, and of similar amounts, you save time and can plan on the withdrawals.
  • However, if you change banks, sorting and resetting auto-pay at the new bank can be a major headache. Similarly, if you change credit cards, you need to update information with all vendors.

You can also automate tracking of your spending by using websites like Mint or Personalcapital.  Or, you can use Quicken or QuickBooks software from Intuit to track your bank and credit card accounts.  You can download from your bank and credit card websites into the program and then review to analyze your cash flow and spending.

Setting up direct deposit for payroll into your checking is great.  You can also split part so it goes to savings or even have some go to your investment accounts.  You will then need to follow up to invest the cash that accumulates, but having money set aside saves it from being spent, and adds to your investments

Investing

Kiplinger’s recommended consolidating retirement accounts to avoid low balance fees.  It also makes updating beneficiary designations easier.

While avoiding fees makes sense, am not sure that putting all investments into a single retirement account does.  You cannot do this if you have Roth and pre-tax accounts like a 401(k) plan, and you probably should not do it if you have contributory IRA and 401(k) accounts that are subject to different tax rules.

Kiplinger’s also recommended using one broker for your taxable accounts.  This makes more sense, in that you have a higher balance which should mean lower fees and more attention from the broker.  However, I prefer using exchange traded funds, or ETFs, and avoiding most broker fees, which means essentially no attention from a broker.

One article said that your investment plan should be to “sign up and forget it.”  While avoiding investment pitfalls like second-guessing yourself out of panic when a fund goes down is good, I do think you need to review and rebalance your investments once a year.

Another article recommended using an “all in one” fund for investing.  Now, this really troubles me.  If your sole goal is retirement, then an age-targeted fund could make sense.  But, if you are saving for goals with different time horizons, this is a bad idea.

If you use an age-targeted fund, do your homework on the funds.  For example, if the fund plans to suddenly shift to bonds when you retire, that will not serve you well because you are likely to have several decades for which you will need the growth from stocks.

Protecting your information

Having a master password for access to all your other passwords reminds me of the joke about the student who repeatedly distilled his notes down, first to an outline, then to note cards, and finally to one word.  How did he do on the day of the exam?  He forgot the word.

Nonetheless, having passwords is clearly important so having a way to manage them is as well.  Check out this recent review of apps for managing your passwords PC Magazine Best Password Managers for 2015.  You can manage the passwords yourself by creating a document that you save as a PDF and then encrypt.  But don’t forget the password you used for the PDF!

Store files in one place

We did a post on using cloud storage when you do not need originals.  Here is another site to check out:  Shoeboxed

Credit cards

In addition to downloading transactions as noted above, you can track your credit score and credit history by using sites like Credit Karma

Estate planning

For insurance purposes, and for your estate plan, having a record of possessions, you can list all your property using sites like Know your stuff home inventory.

Conclusion?

There are ways to gain better understanding of your finances that also make your finances simpler.  But setting simplification as your primary goal risks distorting your finances – too simple may be a bad result.

P.S. Our sister website, www.wokemoney.com, encourages you to gain a better understanding of your finances so you can handle your own planning.  Let me know what you think.

Young people, don’t let this happen to you. Plan for retirement now!

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Young people, a.k.a. “Millennials,” have the time horizon that should allow them to save well, and thus avoid the need to save much more in later years. Otherwise, they will end up like those now nearing retirement that Theresa Ghilarducci describes in her 2012 article on retirement:

Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts. The specter of downward mobility in retirement is a looming reality for both middle- and higher-income workers. Almost half of middle-class workers, 49 percent, will be poor or near poor in retirement, living on a food budget of about $5 a day. See Our Ridiculous Approach to Retirement.

Acting now is crucial, but what do you do?

Step 1 – As a Millennial, accept that you need to start saving now and commit to acting. For encouragement, remember that:

The 35-year-old would need to boost her contribution rate to 9 percent to achieve the same result as the 25-year-old starter who was saving 6 percent. (from Retirment Saving for Young People) See You can Ignore Most Financial Planning Rules.

Step 2 – Identify how much you need to save by using a retirement calculator. There are many calculators you can use – see what we listed in The results from retirement calculations on different websites vary. Why?

Step 3 – Follow this hierarchy for how to set up accounts for your savings:

Start with your employer plan, 401(k), 403(b) or if you are self-employed, SEP-IRA. The contributions you make to a 401(k) or 403(b) are made from payroll deductions, so you never get a chance to spend this money. The deductions reduce your taxable income now, so the government is effectively helping you to save. Also, the amounts invested grow “tax sheltered,” meaning that you pay no tax on any interest, dividends and capital gains. However, when you retire and withdraw from the plan, you are taxed on that amount as regular income.

If you save more, use a Roth IRA next. Set up an auto debit from your checking to fund your Roth IRA, so contributing works like payroll deductions. The amount contributed to a Roth IRA is not deductible, but amounts withdrawn at retirement are not subject to income tax. The amounts invested grow tax sheltered.

Finally, if you still need to save more, set up a “taxable account,” meaning an account with no tax sheltering benefit. You can use auto-debit to add to this account.

Note: for the Roth IRA, you must qualify and have earned income from which to make contributions to the account. Also note that, for any of these tax sheltered plans, withdrawing funds before age 59½ may subject you to a 10% penalty in addition to income taxes, so do not fund any plan when you expect to need withdraw the money before retirement.

Step 4 – Invest. And when you invest, stick to the plan you set in place (this cannot be over-emphasized). The time to retirement is decades away so you can afford to take risks, some of which will take many years to pay off. If you panic and sell, you only lock in a loss; but if you weather the ups and downs, you will be far ahead. (see Don’t Let This Happen to You, Plan for Retirement Now)

Creating an asset allocation, where you diversify among stocks, bonds, real estate and cash. Include large cap, mid-cap and small-cap stocks, as well as international stocks. You man also include invest in real estate investment trusts (“REITs”) and hard assets. You can use exchange traded funds (“ETFs”). The low fees of ETFs leave more invested to grow, compared to high fee and load funds.

If you on-going advice, you may want to check out alternatives such as LearnVest and the new Future Advisor website.