Don’t Be A Victim!

tax theftIn today’s technology driven world, the unfortunate reality is that cyber breaches will happen. The Internal Revenue Service recently announced that cybercriminals gained access to personal data from more than 700,000 taxpayer accounts in 2015. A majority of the information is taken from the IRS database, but hackers are beginning to use aggressive and threatening phone calls or emails impersonating IRS agents to gain information directly from taxpayers. It’s important to know how to protect yourself from these unsolicited phone calls and emails and what to do if your information has been compromised.


The IRS, and many states, are now encouraging tax returns to be electronically filed. Many people believe by electronically filing, they are more susceptible to having their information compromised. This is not accurate. These cybercriminals are attacking the IRS online application called “Get Transcript.” This application allows for taxpayers to obtain prior-year tax return information. Whether a taxpayer files electronically or not, each taxpayer has the ability to pull this type of transcript. By accessing prior year tax data, cybercriminals are able to file false returns with more accuracy, making it harder for the IRS and states to detect. The IRS estimated that the government paid out about $5.8 billion in fraudulent refunds to these cybercriminals in 2013.


If the IRS detects that a suspicious return has been filed, they will send a letter to the taxpayer asking to verify certain information. However, most taxpayers become aware of suspicious activity when they try to electronically file their return. The IRS will reject any return immediately if their database shows a duplicate filing for any Social Security number (SSN). This is an advantage of electronically filing versus paper filing. If a taxpayer’s return is rejected and suspects fraudulent activity has occurred, the IRS recommends paper filing your return and attaching a completed Form 14039, Identity Theft Affidavit. Going forward, the IRS would offer free credit protection and issue a specific identification number to use with the filing of future tax returns.


While fraudulent returns are out of taxpayers’ control, taxpayers are able to limit the personal information they release. Scammers have started using phone calls, emails and text messages impersonating IRS agents to gain information directly from taxpayers.  These scammers use the IRS name, logo and fake websites to try and steal money and information.


The IRS has seen an approximate 400 percent surge in phishing and malware incidents so far in the 2016 tax season. The phishing schemes cover a wide variety of topics including, information related to refunds, filing status, confirming personal information, ordering transcripts and verifying PIN information. Some of their emails will include links that carry malware which can infect taxpayers’ computers and allow criminals to access personal information.  If a taxpayer happens to receive a suspicious email, the IRS asks taxpayers to forward the email immediately to


The impersonated telephone scammers are typically aggressive and want the taxpayer to act immediately. The scammers will ask taxpayers to pay their tax over the phone or even ask for personal information if a refund is due. These scammers will also leave voicemail messages asking for an urgent callback. If a taxpayer is suspicious about a phone call, they should hang up immediately. The IRS asks that the taxpayer contact TIGTA immediately using their “IRS Impersonation Sam Reporting” webpage or by calling 800-366-4484.

Here are several tips that will help avoid these scams:


The IRS will NOT:

  • Call and demand immediate payment. The IRS will not call about payments without first sending a bill or notice in the mail.
  • Demand tax payments and not allow taxpayers to ask questions or appeal the amount owed.
  • Require a taxpayer to pay an outstanding payment using credit or debit cards.
  • Ask for debit or credit card numbers over the phone.
  • Threaten to bring in local police or other agencies to arrest the taxpayer if they do not pay.
  • Threaten taxpayers with a lawsuit.
  • Initiate correspondence with taxpayers using email or text message.


Here at DWM, we advise our clients and other taxpayers to get their CPA, or tax professional, involved immediately with any correspondence from the IRS, especially ones involving tax-related identity theft. Corresponding with the IRS can seem overwhelming, so get help. For those clients that self-prepare their returns, we ask that you let us know if you receive any notices or suspect suspicious activity involving your tax information. We’ll do everything we can to help you not become a victim.

Planning for the Yearend

20151117 SW blog picWith Paul Ryan being elected as the new House Speaker on October 29, 2015, many are looking ahead to the possible “once-in-a-generation” tax overhaul. Ryan is considered by many as one of Congress’ most distinguished and ardent tax experts. Before becoming House Speaker, Ryan served as the chair of the House Ways and Means Committee where he spent time laying the foundation for an ambitious rewrite of the tax code. Although many of Ryan’s ideas have fallen short in the past, he now carries the weight to push a new tax reform to the next level. With time running out in 2015 and the presidential election happening at the end of 2016, the likeliness of a major tax overhaul could occur in the early stages of the next presidency.

While it’s fun to entertain the idea of a new tax code, we all know how difficult it is for the government to pass any bill these days. With that being said, it’s imperative that you, the taxpayer, remain in the present and focus on tax planning for the current year. Even without the major tax legislation headlines for 2015, it’s still a good idea to know the changes that may take place. If Congress moves as they did last year, the decision on which tax provisions are extended could occur as late as the last week of December. Luckily, most of the major tax changes occurred in 2013, so any last minute decisions to extend some of the current provisions shouldn’t cause a major “sticker-shock” for 2015.

An important part of planning each year is to make sure the tax strategies used in the prior years are still effective. Taxpayers saw as much as 14-18% increase in tax, even with consistent income, since the 2013 laws were enacted. A majority of the increase was related to the increase in tax rates, increase in capital gains tax, phase outs of deductions and addition of the 3.8% Medicare surtax on net investment income. There are strategies such as grouping related passive activities, deferring income and accelerating expenses, shifting income to children – especially if you own your own business, examining the entity structure of your business and minimizing the effects of Alternative Minimum Tax that can help reduce your tax liability. If these strategies are not already in place, it’s important for you to bring some of these ideas to your CPA.

Being that healthcare insurance is an item that affects each and every one of us, it’s important to understand a few of the tax law changes that affect this topic. These changes won’t necessarily have a large impact on reducing your tax liability for the upcoming filing season, but they can affect planning and eliminate penalties. While you may or may not understand the thoughts behind Obamacare, it’s important to know the penalties being enforced for not having health insurance. The penalties last year were fairly insignificant – greater of $95 per person or 1% of household income. Moving forward the penalties are becoming more substantial. The penalties for 2015 and 2016 are the greater of $325 per person or 2% of household income and $695 or 2.5% of household income, respectively. There may not be a way out of paying the penalty for 2015, but it’s advised to look into the exchange market if necessary for 2016. Another area you may be familiar with is a Flexible Spending Account. These accounts allow taxpayers to contribute pre-tax dollars to pay for health care expenses. Traditionally these accounts were “use it or lose it” plans. As of 2013, these plans allowed you to roll over $500 to the next year. Starting in 2015, the laws have changed again in regards to these accounts. If you have an FSA and decide to roll over an amount, you will be ineligible to participate in a Health Savings Account (HSA) for the year into which the amount was rolled over. Many employers offer both FSA and HSA plans if you elect a high-deductible insurance plan. Be mindful of this new change so you can maximize the pre-tax savings gained from contributing to an HSA.

The tax changes and strategies mentioned above are just a few of the important items you should be aware of when looking at year-end tax strategies. With every taxpayer being unique, tax planning should be done on an individual basis. We encourage our clients to schedule an appointment with their CPA each November or December to review their projection. There may still be strategies available that can save 2015 taxes and need implementation by December 31st. For our clients who prepare their own returns, DWM would be happy to help them with this before year-end. It’s always a good financial plan to know what to expect when April 15th rolls around.

P.S. Please join us in welcoming Sam Winkler, CPA, to our DWM team. Sam joined us last week from Dixon Hughes Goodman LLP, in Charleston. Sam, wife Lauren and their twelve-week old son, Will, live in Mt. Pleasant. Sam will be heading up our tax and estate planning area for all DWM clients as well as adding value in all aspects of our wealth management services. Welcome aboard, Sam!

Strategies to Stretch Your Nest Egg

cash as nest for eggsOne of the most emailed NYT articles in the last week has been Tara Siegel Bernard’s “6 Strategies to Extend Savings Without Working Longer.” We thought today we would take a look at her six suggestions and critique them.

Ms. Bernard’s suggestions:

Practice Living on Less. This is a great strategy to consider. Over the years, we’ve reviewed the finances of hundreds of clients and prospects. It’s amazing to see how little some spend, even when they could spend more. Of course, then there are others that spend vast sums of money and still seem to need more money to be happy. And, of course, there are lots of Goldilocks situations, whose spending seems “just right,” providing all they need to do all the things they want to do in a cost efficient manner, without wasting money.

Maximize Social Security. This is another very important strategy. Many couples are scheduled to receive over $1 million in social security benefits in their lifetimes. And, handled properly, they might increase that by 15 to 20%. Social security is a fairly complicated maze of rules. We use a software to investigate scenarios for clients to illustrate the impact of planning strategies. Of course, the 800 pound gorilla in the room is when the social security system will change. It’s a hot current topic, even in Presidential debates. Some proposals would raise retirement age, suspend COLAs, and limit or eliminate social security for those with retirement income and assets above a certain amount. Therefore, the analysis of maximizing social security needs to be reviewed while looking at possible changes to social security potentially impacting couples with significant anticipated retirement income and/or assets.

Reduce Taxes. Another very important strategy. Like the first two, this just doesn’t happen; it requires planning. Again, there are lots of different planning ideas if income declines at retirement time. These may include possible Roth conversions, deductible rental losses, starting a consulting business and making sure your investments are allocated tax-efficiently. It’s a good idea to review your income taxes at least twice a year. Once early in the year when your returns are being prepared, and again in the late summer or early fall. Your wealth manager may have an idea or two for you and/or your CPA to consider at both times of year.

Get a Reverse Mortgage. Home equity is a huge asset for many. And, more and more people are “aging in place.” We’ve been modeling “reverse mortgages” for clients using our MoneyGuidePro software for years. One approach is a standby reverse mortgage, where borrowers obtain a line of credit to be used as needed. A reverse mortgage doesn’t have to be paid back until the borrower dies or moves out of the house.

Buy an Annuity. We don’t agree with Ms. Bernard on this one. You’ve read our blogs on annuities in the past. Annuities really appeal to folks for their simplicity and the idea that they get a “payment for life.” Here’s the problem: an annuity locks up your money and pretty much pays you back your principal plus a tiny (usually 2% or less per year) return. Can you imagine what happens if interest rates rise to double digits (like 35 years ago) and all of your money is now coming back at low fixed rates and you can’t get out of your contract? Here’s a better solution: build your own “liquid” annuity by creating a diversified investment portfolio from which you draw monthly amounts. And, this can be done without the huge commissions, costs and inflexibility of an annuity.

Radically Downsize. We don’t see this as an appropriate strategy for our clients. In Ms. Bernard’s example, she has a couple selling their farm in Essex, NY and moving to the Philippines, where they could afford to live on $2,000 a month. While their monthly overhead has been reduced, in my opinion, they are incurring a huge “cost” of moving away from family and friends at a very important time of life. If Ms. Bernard had eliminated the word “radically,” I would have agreed with her that this is a strategy to consider. Many couples should consider downsizing or right-sizing in retirement. Equity developed from this process could provide funding for other goals they might want.

Overall, I do commend the article by Ms. Bernard. She outlined some really good strategies and we’ve been recommending for decades. What she doesn’t suggest though is a strategy perhaps more important than her six:

Start your Long-Term Planning Early. Start in your 20s and early 30s to identify your needs, wants and wishes. Calculate what you might need over your lifetime. Develop a plan to get you there. Start saving, even if it’s a small amount, early on. And monitor your plan at least annually and update as you go. Don’t wait until you are on the brink of retirement to ask: “How do I stretch my nest egg?” Rather, as a young person, ask: “How soon can I achieve financial independence?” If you can, work with a wealth manager to help you objectively do this. At DWM, long-term planning is one of our major strengths and passions, for clients of all ages.

It’s December: Time to Save Money on Taxes

Time to save“You can always extend April 15th (filing date) but you can’t extend December 31st (end of the year).” That’s a favorite saying of many CPAs I know. It’s the reason it is so important to work with your CPA and look at your tax situation in December, make decisions and implement those items that have to be done before we all start singing  “Auld Lang Syne.” You may still be able to lower your 2013 tax bill.

Yes, the top 1% of taxpayers will be hit by much of this year’s tax increases, but those people with adjusted gross income (“AGI”) between $150,000 and $500,000 may also be hit. Some key changes are the net investment income tax (“NIIT”) and the personal exemption phase-out (“PEP”).

NIIT came about as part of the health-care overhaul. The tax is an additional 3.8% on the net investment income of most couples with AGI over $250,000. PEP has returned after a three year absence and can limit itemized deductions and exemptions. PEP can effectively add a 1% or more surcharge to taxpayers.

Taxes have, again, gotten more complicated. You really need to start by looking at your potential tax bill, including a check of AMT. We encourage you to work with your CPA and take advantage of their experience, their knowledge of your situation and their software to make these calculations and provide input as to the impact of potential strategies.

Some of the tax items that should be reviewed before year-end:

  • Payment of real estate, income and sales taxes by year-end or not
  • Health Savings Account contributions
  • Purchase of equipment for a business- Section 179 write-offs are scheduled to be phased back substantially in 2014
  • Charitable contributions- cash and/or appreciated securities
  • Required Minimum Distribution from your IRA (if over 70 ½)
  • Roth Conversion- all or part of your IRAs
  • Energy Credits
  • Electric Vehicles
  • Teachers’ Deduction for Certain Expenses
  • Contributions to Retirement Plans and IRAs (in some cases, plans need to have been established by 10/1/13 and in some cases contributions can be made in 2014).
  • Contribution to a non-deductible IRA and then conversion  to Roth (“Back-door Roth”)
  • Capital gains and losses- you may want to harvest losses or harvest gains, depending on your circumstances
  • Make lifetime and/or annual gifts.  Couples can give $28,000 in 2014 to each donee using their annual gift amount.
  • Maximize medical and miscellaneous deductions

A number of the above are set to expire on 12/31/13. Last chance.

We would like to put in a “plug” to consider Roth conversions. As you know, retirement accounts and IRAs are generally funded with pre-tax dollars and grow without tax. However, the IRS is your silent partner on these. They get their tax when the funds are distributed, either during your life or your beneficiaries’ lives. A taxpayer can convert an IRA or part of an IRA to a Roth and pay the tax due then. From that point forward, the Roth account grows without tax and without a requirement for regular distributions at age 70 ½ and beyond. It can become a wonderful legacy for the family and/or a great tax-free investment vehicle for an investor. We have a number of clients who annually convert an amount from their IRA to their Roth and build the Roth account. Of course, this strategy is not for everyone, but it should be considered at year-end.

So, between all the holiday festivities in December, you’ve got some homework to do. Get with your CPA and review your 2013 taxes and see if you can lower them. And, if you have questions about Roth accounts or conversions, give us a call.