Child ID Theft a growing problem

Child ID theft is growing problem

They’re told not to play with matches. They’re warned not to talk to strangers. But this is one crime it’s tough to protect them from. Children are the newest victims of identity fraud — and sometimes, they don’t even know they’ve been exploited. “Think of them as a tabula rasa. There is nothing more delicious to an identity thief or scammer than to get a Social Security number and information for a child,” said Adam Levin, the author of “Swiped” and the chairman and founder of the identity protection and breach recovery firm IDT911. “In some cases, you can have a 15-year or more run where no one’s looking.” Thieves steal their Social Security numbers or cobble together information from seemingly innocent social media profiles, school rosters and other sources of juicily useful tidbits including dates of birth, locations and parents’ names, to put together believable profiles, a practice called synthetic identity theft. About 1.3 million kids are affected annually and 50% are younger than 6, according to Robert Chappell Jr., a 30-year law-enforcement veteran and author of the book “Child Identity Theft: What Every Parent Needs to Know.” At least one study showed child credit and Social Security numbers abused at a rate 51 times greater than the adult population. A handful of scammers will hunt through cemeteries for children’s graves in an effort to find leads for old or dormant Social Security numbers, a new riff on the so-called “Day of the Jackal” scam, which refers to a 1970s-era movie that featured a bad guy creating a fake identity. “There are so many different opportunities, school programs where Social Security numbers are unfortunately given away like rose petals flung in the wind. As a result, they’re out there and vulnerable,” Levin said. “Identity thieves are patient, persistent and creative. Any particle of information they can find and use to find other pieces of info, build a mosaic until they create whoever they wish to create.” The luckier kiddie victims find out about having had their identities compromised, though they discover it only by accident. For example, debt collectors call their homes or pre-approved credit cards start arriving by mail or their parents’ tax return is rejected due to an already-claimed dependent. For others, the news hits out of nowhere, like when they’re applying for some form of credit, such as their first Visa or MasterCard. At that point, years of damage have blackened their credit history. Last week, Shon Shurter found out his 16-year-old daughter’s identity was compromised. (The Free Press does not name children who are victims of crime.) The Columbus, Neb., father suspected something was up when his 25-year-old adopted son got a letter in the mail from an online payday loan company about owing money — which he’d never borrowed. Shurter grew worried about his two minor children, the teen and an 8-year-old son. He called one of the three credit reporting agencies and was told the little boy’s credit was fine. When the customer service representative looked into this daughter’s file, the tone of the conversation changed. That’s when Shurter said he knew it was bad. “At first, my heart sank. I’m pissed and I’m going to do something,” the 46-year-old said, recalling how he felt in that moment. The trouble had started days after her birthday. Shurter has no plans to tell the 11th-grader what’s happened to her, though she is likely to find out soon. “It’s my job as a father to protect my children and I’m angry, too, and I want to fix it and I can’t fix it. I’m in limbo. I’m unable to do anything,” he said. “This will affect my daughter’s ability to get a student loan for college or to get a car after high school or to get her own cell phone. It will affect her for the rest of her life.” He’s begun the process of filing a police report, alerting credit agencies and contacting creditors. Cleaning up the mess can take years, if the damage is extensive. —freep.com

Should you make a “charitable IRA rollover” in 2016?

Last year a break valued by many charitably inclined retirees was made permanent: the charitable IRA rollover. If you’re age 70½ or older, you can make direct contributions — up to $100,000 annually — from your IRA to qualified charitable organizations without owing any income tax on the distributions.

Satisfy your RMD

A charitable IRA rollover can be used to satisfy required minimum distributions (RMDs). You must begin to take annual RMDs from your traditional IRAs in the year in which you reach age 70½. If you don’t comply, you can owe a penalty equal to 50% of the amount you should have withdrawn but didn’t. (An RMD deferral is allowed for the initial year, but you’ll have to take two RMDs the next year.)

So if you don’t need the RMD for your living expenses, a charitable IRA rollover can be a great way to comply with the RMD requirement without triggering the tax liability that would occur if the RMD were paid out to you.

Additional benefits

You might be able to achieve a similar tax result from taking the RMD payout and then contributing that amount to charity. But it’s more complex because you must report the RMD as income and then take an itemized deduction for the donation. This has two more possible downsides:

• The reported RMD income might increase your income to the point that you’re pushed into a higher tax bracket, certain additional taxes are triggered and/or the benefits of certain tax breaks are reduced or eliminated. It could even cause Social Security payments to become taxable or increase income-based Medicare premiums and prescription drug charges.

• If your donation would equal a large portion of your income for the year, your deduction might be reduced due to the percentage-of-income limit. You generally can’t deduct cash donations that exceed 50% of your adjusted gross income for the year. (Lower limits apply to donations of long-term appreciated securities or made to private foundations.) You can carry forward the excess up to five years, but if you make large donations every year, that won’t help you.

A charitable IRA rollover avoids these potential negative tax consequences.
Have questions about charitable IRA rollovers or other giving strategies? Please contact us. We can help you create a giving plan that will meet your charitable goals and maximize your tax savings.

© 2016

Prevent expense account padding with the right policies

Ask employees whether padding expense account reports is wrong and just about everyone will say “yes.” Yet inflated expenses continue to cost businesses thousands of dollars annually. For this reason, every company must establish the right policies to stop it.

How it works

To stop expense padding, you need to know how it works. Expense inflation — where an employee exaggerates the amount of the actual cost of a meal or cab ride and pockets the change — may be the most common expense-padding method.

But cheaters are also capable of inventing expenses and submitting fake documentation to support them or requesting multiple reimbursements by submitting the same receipt more than once. And watch out for mischaracterized expenses. In such schemes, employees provide legitimate documentation for non-business-related expenses, such as treating friends to a night out on the town, and characterize them as “business development” costs.

What to do

To prevent fraud, as well as simply handle expense reporting in a more accurate manner, you’ve got to establish and fine tune effective policies and processes. For example, if you’re still relying on paper reports, switching to an electronic reporting system may make it harder for employees to cheat. Your processes need to scrutinize expense reports and supporting documentation for:

• Inconsistencies,

• Miscalculations, and

• Receipt doctoring.

In addition, set limits such as requiring employees to fly coach class, stay in moderately priced hotels and adhere to a daily meal expense allowance. Also, specify the types of supporting documents you’ll accept — for example, original receipts, but not credit-card statements.

If expense padding becomes widespread, or its perpetrators are particularly devious, you may need to hire a fraud expert to conduct a thorough investigation. This will include examining expense records, interviewing suspect employees and gathering evidence. Be prepared to terminate — and perhaps prosecute — guilty parties.

Stop the bleeding

Don’t let employees bleed your business dry with fraudulent paper cuts. Please contact us for help reviewing your expense reporting system and identifying ways to strengthen it.

© 2016

HSAs

Proposed changes to Health Savings Accounts (HSAs). Currently, expenses paid for over-the-counter medicine (other than insulin) don’t qualify as medical expenses under HSAs, flexible spending arrangements, and Archer Medical Savings Accounts unless an item is prescribed by a physician. Under a bill approved by the U.S. House of Representatives, nonprescription medicines like allergy medication, aspirin, or pain relievers could be purchased using pretax dollars. The bill would also make other changes to HSAs and medical / health insurance tax breaks.

There’s still time for homeowners to save with green tax credits

The income tax credit for certain energy-efficient home improvements and equipment purchases was extended through 2016 by the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act). So, you still have time to save both energy and taxes by making these eco-friendly investments.

What qualifies

The credit is for expenses related to your principal residence. It equals 10% of certain qualified improvement expenses plus 100% of certain other qualified equipment expenses, subject to a maximum overall credit of $500, which is reduced by any credits claimed in earlier years. (Because of this reduction, many people who previously claimed the credit will be ineligible for any further credits in 2016.)

Examples of improvement investments potentially eligible for the 10% of expense credit include:

• Insulation systems that reduce heat loss or gain,

• Metal and asphalt roofs with heat-reduction components that meet Energy Star requirements, and

• Exterior windows (including skylights) and doors that meet Energy Star requirements. These expenditures are subject to a separate $200 credit cap.

Examples of equipment investments potentially eligible for the 100% of expense credit include:

• Qualified central air conditioners; electric heat pumps; electric heat pump water heaters; water heaters that run on natural gas, propane, or oil; and biomass fuel stoves used for heating or hot water, which are subject to a separate $300 credit cap.

• Qualified furnaces and hot water boilers that run on natural gas, propane or oil, which are subject to a separate $150 credit cap.

• Qualified main air circulating fans used in natural gas, propane and oil furnaces, which are subject to a separate $50 credit cap.

Manufacturer certifications required

When claiming the credit, you must keep with your tax records a certification from the manufacturer that the product qualifies. The certification may be found on the product packaging or the manufacturer’s website. Additional rules and limits apply. For more information about these and other green tax breaks for individuals, contact us.

© 2016

HSA + HDHP = Your ideal benefits strategy?

Health Savings Accounts (HSAs) were created as a tax-favored framework to provide health care benefits mainly for small to midsize businesses and the self-employed. So, assuming your company falls into one of these categories, have you considered the strategy of using these accounts with a high-deductible health plan (HDHP)?

Tax benefits

The tax benefits of HSAs are quite favorable and substantial. Eligible individuals can make tax-deductible (as an adjustment to AGI) contributions into HSA accounts. The funds in the account may be invested (somewhat like an IRA), so there’s an opportunity for growth. The earnings inside the HSA are free from federal income tax, and funds withdrawn to pay eligible health care costs are tax-free.

An HSA is a tax-exempt trust or custodial account established exclusively for paying qualified medical expenses of the participant who, for the months for which contributions are made to an HSA, is covered under an HDHP. Consequently, an HSA isn’t insurance; it’s an account, which must be opened with a bank, brokerage firm, or other provider (typically an insurance company). It’s therefore different from a Flexible Spending Account in that it involves an outside provider serving as a custodian or trustee.

Dollar limits

The 2016 maximum contribution and deduction for individual self-only coverage under a high-deductible plan is $3,350, while the comparable amount for family coverage is $6,750. Individuals age 55 or older by the end of 2016 are allowed additional contributions and deductions of $1,000. However, when an individual enrolls in Medicare, contributions cannot be made to an HSA.

For 2016, an HDHP is defined as a health plan with an annual deductible that is not less than $1,300 for self-only coverage and $2,600 for family coverage, and the annual out-of-pocket expenses (including deductibles and co-payments, but not premiums) must not exceed $6,550 for self-only coverage or $13,100 for family coverage.

Worthy of consideration

An HSA with an HDHP is, of course, but one benefits strategy of many. But it’s worth considering. Please call us for help determining whether it would be the right move for your company this year or perhaps in 2017.

© 2016

The Day After...

Many clients, friends and acquaintances have asked me over the years, "Are you going to take some time off after April 15th," "Are you going to take a long vacation when this is over," "Are you going to close the office for a week or two after the deadline?"

My response has been pretty consistent, "no, it will be business as usual after the 15th."

And it will.  This was my 20th year of preparing tax returns.  The first year, I did six returns.  This year, when all is said and done, the number will be somewhere around 775.  This, by far, was the best year ever.  For many reasons, but primarily, the communication in our office was better and the planning was better.

Many do not realize that "tax season" starts in an accounting firm in November.  You see, we can't just hang a sign, bring in a couple of cases of paper and say we're ready.  The small firm has to make sure the right team members are in place, make sure the supplies are in house, make sure the software is loaded and running properly.  During November, the appointment calendar is built to allow for as many contingencies and preparation time as possible.

Around the first of December, we start getting phone calls from some of our clients, mostly business clients, wanting to discuss year-end tax planning.  We start cleaning up transactions for our accounting clients to get the Income Statements and Balance Sheets "tax ready." We continue to prepare payrolls every week, still doing state sales tax every month, but we all know, "it's coming." Talk about the elephant in the room!

During the holidays, we try to take some extra time off, as we are well aware, after January 2, its "hold on for the ride until April 15th."  So it begins.  January, we have the heavy lifting.  We have year end reports to get out for our accounting clients; we have all the payroll reports to get out including W-2's, 1099's, quarterly and annual payroll reports; sales tax returns; and the phone starts ringing. The appointment calendar starts filling, tax appointments begin, returns start being dropped off, completed and e-filed.

By the time all the W-2's and 1099's are finished, we are in full tilt tax season, starting to take late night appointments, working all day Saturdays, sneaking in on Sunday afternoons trying to get either caught up from the week before or a head start on the next week.

February is pure tax returns while corporate and partnership returns start to come in.  Those are due on March 15th. By the time the second week of March is upon us, we are pushing out those returns and finalizing any extensions that need to be filed.  Afterwards, its a mad dash to the individual deadline of April 15th.  By this point, its working every Saturday, taking appointments until 9:00 at night, e-filing the day's returns until done, going home, eating dinner and falling asleep in the recliner while watching the late news.  The next morning the alarm goes off at 6 and it all begins again.

By the time the actual deadline is upon us, we are beginning to relax.  Generally, along about April 5th or so, we stop taking tax appointments, and shortly thereafter, we go into extension mode. Anything dropped off after a certain date, we do our best to get out by the deadline, but the client knows, that in all likelihood, its going to be an extension.

Our office has a standing policy in that we do not have appointments or do tax returns on April 15th. Never have, never will.  The reason is simple.  If you start taking appointments and/or doing returns on the 15th, you will never get the extensions filed.  By 5:00 or so, we're done.

The morning after is a mixture of emotions.  There's euphoria, there's a certain anticipation, and there's a touch of depression.  Some may find the last one odd, but to understand this emotion, think of a motor race like a NASCAR race or the Indy 500 or something.

In November, we start our engines and start the season.  As the days get "X-ed" off the calendar, we are finalizing our plans, checking our systems, and making sure our "pit-crew" is in place and well-prepared.  We start bringing in supplies (don't forget the snacks in the kitchen!), and we start running our trial laps to make sure everything is a go.  We have had our equipment tuned up, the toner cartridges are full, and forms are in place, and we're ready to go after the holidays.  Our practice laps are becoming more and more intense as we approach the green flag, then the race is on. The further into the season we get, the faster and harder we're going, the phone is ringing off the hook, the e-mail inboxes are overflowing and the tax returns to be completed are piling up.  The throttle is at full speed and there's no turning back.  By the time you reach the finish line, and the checkered flag drops on April 15th, you've given it all you had, you've solved as many issues as you could, and you've finished the season.

But, unlike a NASCAR race, an accounting firm doesn't have that victory lap or two that allows the engine to cool down, the wheels to slow down, the donuts in the infield.  Rather, an accounting firm comes to a sudden and abrupt halt.  Imagine a car going full tilt and hitting a concrete wall.  The phones stop ringing, the clients stop coming in, the overwhelmed feelings are gone.  The excitement is gone.

So, for the next couple of weeks we will assess ourselves...what did we do better than last year? Where did we fall short?  What can we do better next year? How can we communicate better with our clients?  It is a constant state of improvement from year to year...whether it be scheduling, or systems, or equipment improvements.

In closing, I have been asked several times, "Frank, why do you put yourself through this year after year..." and quite honestly, there are those times when I ask myself the same thing.  But, I can't think of another profession I would want to be in.  As many know, I started this career somewhat late in life after having lived in the world of retail management for over 19 years.  Compared to that world of constant 10-12 hour days, everyday, the accounting world is a walk in the park!

But, really, where else can I provide a service, get to work with a great team, and have the one-on-one contact with the public that I enjoyed while in retail?  Yes, it's hard work, yes, it's intense, but I wouldn't trade it for anything.

Thank you so much to our office team and our faithful clients who continue to trust us year after year. To those new to our firm this year, welcome.  We look forward to many years of working with you.