Identity Theft: What To Do If You’ve Been Ripped Off

Last week’s post dealt with preventing identity theft. This is especially true for the holidays, as cyber thieves just love to take advantage of the increased debit and credit card transactions that occur during the busy shopping season.

Amateur identity thieves will sometimes rifle through people’s trash, hoping to come across discarded bank statements or other forms with account numbers or other sensitive information printed on them.

Sometimes, you won’t know you’re a victim of identity theft until months or years after the fact. You go to use your credit card, or to file your taxes, only to find that someone else has already done so under your name. A quick check of your credit report shows a random loan under your name, or the IRS insists your tax return has already been processed and your refund sent.

Those are dead giveaways. Here’s what to do if you discover you’ve been a victim of identity theft:

  • Contact the affected party. For example, if someone cleaned out your bank account or opened an account  under your name, contact the back or credit card company immediately. Complete all the steps necessary to report the fraudulent transaction or account. Do this as soon as you realize you’ve been ripped off.
  • Review all of your credit reports. You are entitled to one free copy from each credit reporting agency per year. Review each report for fraudulent activity. File a written dispute for each fraudulent account. Place a fraud alert on all three credit reports; you’ll be notified if anyone attempts to open an account or take out a loan in your name. You can contact the credit reporting agencies by phone or mail.
  • File a police report and identity theft affidavit through the Federal Trade Commission (FTC). Many banks, mortgage companies and other entities will require this information in order for you to file a report with them.
  • Notify government agencies such as the Social Security Administration and the IRS. When tax time rolls around you may be asked to provide additional information to verify your identity, but the extra due diligence will be worth it in the long run.
  • Continue to monitor your credit reports, loans, and bank accounts. Some banks and credit reporting agencies offer credit monitoring services in exchange for a monthly fee, or you can monitor your accounts yourself. Either way, monitor your accounts often. Once someone has your personal information, they will continue to use it as much as they can. It’s not uncommon for identity theft syndicates to swipe consumer information, only to use it for themselves or to sell it to other entities.

Safeguarding your personal information is a must year-round, but especially during the holiday season. Never disclose your PIN or bank account number to anyone. Never write down your PIN where it can easily be found, such as in your wallet or even in your phone.

Act quickly if you’ve been a victim of identity theft. Notify your bank, credit reporting agencies, mortgage company and other entities. Fill out a police report and an FTC affidavit. Don’t wait. Untangling identity theft can take time, and you want time on your side.

By taking a proactive approach to safeguarding your personal information, you’re less likely to be targeted by identity thieves. If you are one of the unlucky ones who has been targeted, you have the information you need to take action quickly.

  Stay safe out there.

Protect Your Identity This Holiday Season

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It seems that no sooner do we finish chowing down on Thanksgiving, it’s time to shop. Black Friday, Small Business Saturday, and Cyber Monday are days in which retailers hope to boost their profits and bring in shoppers eager for a holiday deal.

Retailers aren’t the only ones who are enjoying the peak shopping season, however. Identity thieves and hacking syndicates look to the holiday season as their busy season, too. Major breaches such as the Target data breach in 2014 reminded us that identity thieves are no longer wannabe hackers hoping to get a few social security numbers; they’re now major syndicates who use sophisticated methods for obtaining our sensitive information.

Here are a few reminders for protecting your sensitive financial and personal information as you head out for some holiday shopping:

Shred any documents that contain your personal information such as bank statements, utility bills, credit card bills. Less sophisticated identity thieves will dumpster dive for documents that contain financial and personal information. If it has your name on it, shred it.

If you receive an email, phone call or text requesting your personal information, don’t respond. Identity thieves now rely on phishing, vishing, and smishing to trick unsuspecting consumers into handing over their personal information. The email, phone call or text will instruct you to click on your “bank’s” link and to fill out an online form. Don’t fall for it. 

Scammers posing as the IRS will also resort to the same tactics. When in doubt, call the bank or IRS directly yourself.

Never give your credit card number over the phone unless you are placing a telephone order yourself.  If you receive a phone call from a charity soliciting donations over the phone, better safe than sorry and hang up. If you can’t resist the tug on your heartstrings, tell the caller you’ll be more than happy to donate once you receive further information from them in the mail. Follow up on a site such as Charity Navigator to verify if the agency is legitimate before handing over a donation.

Use judgement when donating to a door-to-door collector or a storefront collector. While there’s nothing wrong with handing over some cash if the  spirit should move you, be leery of an organization that insist on donations via credit card or electronic transfer.

Next time: What you need to do if you’re the victim of identity theft.

Will Student Loans Affect Your Credit Score?

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According to the Wall Street Journal, the average college grad in the class of 2015 will be $35,000 in debt on average. For many students, student loans are the only option for financing their college education when other options (Pell Grants, school-based awards) fall short in covering college-related expenses. If you’re among the millions of college grads with a student loan balance,  you might have questions regarding your credit rating and student loans. Here’s the rundown:

Student loan debt is regarded as “good debt”...when payments are made on time. “Good debt” is seen as a loan or expenditure that will ultimately increase value in the long run. Other examples include mortgages and business loans. These are all seen as debt that was accrued in order to provide a valuable asset to society  either in terms of a higher-paying job, starting a business, or creating long-term residence in a community (mortgage loans).

At the same time, if you were to run up $35,000 in credit card debt, the credit rating agencies wouldn’t hold that debt in the same positive light as your student debt.

By maintaining your good standing in your student loan payments, you could potentially qualify for other forms of credit later on.

The consequences of falling behind on your student loan payments (or failing to pay them altogether) are far-reaching. You overall credit rating will suffer, making it harder for you to qualify for a car loan or mortgage. If you are able to qualify, you’ll be charged a higher interest rate or additional fees. A low credit rating or credit score will also affect your ability to rent a home or apartment; you could end up paying a higher deposit than a tenant with a higher credit rating.

There are also tax  consequences to defaulting on your student loan payments. Since most student loans are issued by the government, the government lender has the right to seize your tax refunds until the loan is brought current.

If you’re having trouble making your student loan payments, don’t wait until the loan goes into default. Contact your student loan servicer to see if you qualify for a forbearance (temporary suspension of your student loan payments) or an alternate payment plan. Be persistent and enlist a student loan advocate if you need to.

Staying current on your student loan payments can have a positive impact on your credit rating. You’ll have an easier time qualifying for other loan products such as car loans as long as you can make payments on the additional debt. Unlike credit card debt, student loans are regarded as “good debt” and are held in higher regard by the credit rating agencies.

Defaulting on a student loan payment can have far reaching consequences, from being denied additional loans to paying higher interest rates and rental deposits.

Additionally, any tax refunds can be seized as payment of your past due student loan debt, which can be bad news if you’re anticipating a sizable tax refund.

By understanding the impact of student loan debt on your credit rating and the consequences of late or defaulted payment, you’ll be in a better position to take charge of your financial future and to take action should you fall behind on your payments.

 

Make The Most of Your Holiday Side Gig With These Tax Tips

Thanksgiving marks the official start of the holiday season. Friends, family, food, and those awkward office parties. Taking on a side gig or seasonal job can help you offset the expense of traveling over the holiday and picking up gifts for friends and loved ones. With any luck, that side gig can also turn into a year-round means of earning additional money to cover expenses or to finally start that savings account. Here are some tax tips to keep in mind to help you make the most of your seasonal job:

Keep track of tip income. One great way to earn some extra cash is to pick up some shifts as a bartender, server, or as an on-demand driver for Uber or Lyft. You’ll not only score some extra cash but also some tips in the process.

Before you get that first tip, set up a spreadsheet on an app or in a program such as Excel. You’ll need to keep careful track of your tips since the IRS requires you to report them as part of your gross income at the end of the year.

Watch for self-employment taxes. If you decide to work for yourself, be sure to take self-employment taxes into consideration when setting your rates.  If you earn more than $400.00 in self-employment income, you’ll need to pay self-employment taxes. You’ll need to set aside 15.3 percent of your earnings to cover your self-employment tax.

Likewise, if you freelance for an employer, you’ll be classified as an independent contractor. For example, if you decide to do airport runs on behalf of Lyft or Uber, you’ll be working as an independent contractor since the company won’t be deducting payroll taxes from your pay. Same rule applies as if you were working for clients: you’ll need to pay self-employment taxes on earnings over $400.00.

Cover your possible tax bill. If you plan on working more than one side gig this holiday season, you may end up owing more tax than you originally estimated. The IRS requires you to report all income from all sources as part of your gross income for the year. If your employer is deducting payroll taxes from each of your checks, make sure they are deducting the right amount of taxes from each check.

If you’re working for a large organization,  check with the payroll department and adjust the withholding allowance on your W4 form if necessary.

Picking up a holiday side gig can help you offset those additional holiday expenses, but keep these tips in mind to avoid sticker shock on tax day. By recording all of your tip income, allowing for self-employment tax, and having the correct amount deducted from each employer paycheck, you’ll be face tax day with no last minute surprises…and additional money in your pocket.

 

Self-Employment Tax Tips

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Working as a freelancer had its advantages: more control over your time and who you work for. No time clocks or strict dress codes. No need to fill out a triplicate form to request a half day off for that doctor’s appointment. In other words, lots of perks.

Self-employment or freelancing also has its downsides, whether you run a business with employees or are a sole proprietor. For one thing, there’s no payroll department to deduct taxes on your behalf, so it is up to you to deduct and pay your own taxes on time each year.

First, the basics…

Self-employment taxes represent the Social Security and Medicare taxes that are normally deducted from a worker’s paycheck. The employer pays half, and the employee has the other half deducted from their check each pay period. The employer submits both parts each quarter, and these are the taxes that fund the Medicare and Social Security that workers typically draw from when they reach retirement age.

If you’re self-employed, however, you’ll be responsible for both parts. In essence, you’ll be paying twice what your employer deducted from your paycheck each payday.

The IRS calculates your Social Security and Medicare taxes by using a fixed percentage based on your net income (income after expenses are deducted). Let’s suppose your net self-employment income for the year was $10,000.00. Your self-employment tax would be $1530.00 or 15.3 percent of $10,000.00.

You’ll state this amount when preparing your taxes using Schedule SE.

How to pay self-employment tax:

  • Complete Form 1040, and attach Schedule C “Profit and Loss from Business” along with the Schedule SE.
  • Remit your payment along with Form 1040-V (payment voucher) and include a check or money order along with the voucher.
  • Mail the return to the address specified on the voucher.

If the thought of paying a lump sum each year leaves you cold, you could pay estimated taxes each quarter instead. You’ll send in 1/4 of your total tax liability each quarter. The IRS has more information on how to calculate your estimated taxes.

While there are many advantages to self-employment, the tax aspect can be a headache if you’re caught unprepared. By understanding the basics of self-employment tax, you’ll be in a better position to determine whether this is something you can deal with on your own, or if you’d benefit from consulting with a tax pro, especially during your first year of self-employment.

Either way, self-employment offers a level of freedom and flexibility typically not found with a 9-5, so if you’re in a position to strike out on your own, do so!

Just don’t forget about those pesky self-employment taxes.

What’s The Difference Between a Tax Credit and a Tax Deduction?

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If you’re relatively new to filing taxes each year, chances are you’ve heard some terms that may seem interchangeable in the beginning. Two of the most commonly confused terms are “tax credit” and “tax deduction.” Here’s a look at both terms and how they’re different from one another.

Tax Credit

Unlike tax deductions (or “write-offs” as they’re common known), a tax credit doesn’t reduce your overall taxable income. It reduces your overall tax liability instead.

There are two types of tax credits: refundable and non-refundable. A refundable tax credit is one that will both reduce your overall tax liability and be returned to you in the form of a refund. The Earned Income Tax Credit (EITC) is an example of a refundable tax credit, and is available to you if you meet IRS income guidelines. Here’s how it works:

  • Let’s suppose you owe $2,000.00 in taxes. At the same time, you’re eligible for $3,500.00 in EITC. You’ll end up owing no tax at all once the credit is applied, and you’ll also receive the difference of $1500.00 as a refund.

On the other hand, a nonrefundable tax credit will only reduce your overall tax liability. A good example is the Child Tax Credit. If you qualify you can deduct a maximum of $2000.00 from your tax bill, but you will not receive a refund.

Tax Deductions

A tax deduction works differently in that it will reduce the taxable income you’ll need to report. Typical deductions include student loan interest, self-employment tax, child support, and moving expenses. Most people without kids will use the standard deduction, which is adjusted each year.

Tax deductions are subtracted from your gross income, which in turn lowers the income figure you’ll need to report on your tax forms. Here’s some math to demonstrate how it works:

  • Your total income: $30,000.00
  • The standard deduction: $6300.00 (if you’re single; see this chart for other filing statuses.)
  • Total taxable income: $23,700.00 ($30,000.00-$6300.00=$23,700.00)

You’ll only have to pay tax based on income of $23,300.00 instead of the original amount of $30,000.00 as seen in this example. Your outcome may vary depending on whether you choose to itemize your deductions, or take the standard deduction. You can’t do both, unfortunately.

Tax credits and tax deductions each have a different effect on your taxes. By understanding the differences between them, you’ll be better equipped to prepare your tax and understand your tax liability for a given year.

Essential Tax Tips For First-time Landlords

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If you recently became a landlord with your first rental property, chances are you have questions regarding handling rental-related taxes. Although you should always check with a qualified tax pro during your first year as a landlord, there are some tax basics you should become familiar with.

Most of the tax deductions are related to the normal operation of a rental. Here are some of the deductible items:

  • Repairs: The costs of repairs can only be deducted if they were performed to restore the property to its original condition. Some examples would be replacing locks, repairing leaky pipes, fixing broken windows or window locks.
  • Home office: This one can get complicated, as the IRS has a strict definition of “home office.” What this means is you’ll be able to take the deduction only if you have a dedicated space in your home for regular and exclusive home office use. In other words, if you take your laptop into the bedroom to balance receipts, bill vendors and conduct other rental-related business, you cannot take the home office deduction for your bedroom.
  • Mileage: The IRS offers landlords the opportunity to either deduct specific expenses (cost of gas, car maintenance) related to driving to and from the property or to property-related legal disputes, or taking the standard mileage deduction that’s offered each year.
  • Depreciation: This can catch you off guard, especially if this is your first year as a landlord. You can deduct the cost of repairs. At the same time, you can’t deduct the cost of any improvements made to the property. According to the IRS, a repair is considered an improvement when it adds value to the property, rather than restoring it to its original condition.  In this case, the costs must be deducted slowly over a period of years, also known as depreciating those costs. If you are fortunate enough to sell the property for more than its present value, you will need to “recapture” some of the depreciation you deducted earlier. This might lead to a higher tax bill in some cases, depending on your overall financial picture for the year.

While becoming a landlord for the first time can be rewarding, there are tax issues involved that could throw you for a loop if you’re unprepared. Always consult with a tax pro at some point during the tax year to make sure you’re on the right track. Keep organized records and receipts for any rental-related expenses, including court costs in case you needed to evict a tenant.

By keeping careful records and checking in with a tax pro, you’ll get your role as a landlord off to a solid start for the present year and for years to come.

 

 

 

 

 

Will A Tax Extension Increase My Chances of An Audit?

A tax extension grants you an additional six months to file your taxes. You’ll have more time to gather your documentation, file your forms and enlist  a tax pro if necessary.

Filing an extension doesn’t increase your audit risk. Depending on your return, filing an extension may actually lower your audit risk, especially if you take the extra time to double-check all the information you provide on your return. Most audits stem from incomplete, inaccurate or missing information on tax returns.

At the same time, an extension could increase your overall tax liability. If you’re not able to pay your tax bill by April 15, you’ll begin to accrue interest and penalties on the balance until it is paid in full. If you find your tax bill to be beyond your reach, you do have the option of consulting with a tax advisor who can inform you of your options and possibly negotiate with the IRS on your behalf.

If you suspect you can’t file by the April 15 deadline, it’s still a good idea to estimate how much you’ll owe in taxes and to pay the balance on or before the April 15 deadline. You won’t have to hassle with late fees or penalties and you can concentrate on filing for your extension and gathering the needed documentation so you can file your return before the extension expires.

No one likes the thought of facing an audit, but you most likely won’t face an increased audit risk if you file an extension. While you’ll face late fees and penalties on your tax bill if you don’t pay by the April 15 deadline, an extension in and of itself won’t trigger an audit.

Just remember to provide all the requested information on both your extension request and your tax return, and double-check your figures for accuracy before filing your return. In terms of audit risk, it’s much better to have an accurate extended return than an incomplete or inaccurate return filed quickly on April 15.

3 Ways To Use Your Tax Refund

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If you’re anticipating a large tax refund during tax season, congratulations! You’ll be getting some tax-free funds to spend any way you choose. Although the tough economy has made it difficult for Americans to establish savings accounts, a sizeable tax refund could be the perfect start to a savings program. Here are three options to consider:

Replenish or Establish a Savings Account

If the recession or a job loss have wiped out your savings account, consider applying your tax refund to replenish it. While it may be tempting to spend your refund on the latest electronic system or a vacation, it’s a wiser move to put it into savings. The extra funds could come in handy should there be sudden job loss, unexpected car repairs, or an illness that exceeds your paid time off from work.

Financial planners typically will recommend building up three months’ worth of expenses in an emergency fund. Although that goal is out of reach for many people, even a reserve fund of one month’s expenses can help. The goal is to create a buffer between you and the financial hardship that can come with unexpected expenses or illness.

Pay Down Debt

If you’re weighed down by credit card debt or student loans, now might the be the time to start chipping away at those debts. Start off with the account that carries the highest interest rate, and work your way down to the lower interest rate accounts. Any payment you can make above and beyond the minimum payment will help to reduce your credit balances in the long run. A tax refund windfall might be just what you need to start seeing your credit balances head in the right direction.

Think About Investing

Even though long-term investing is reserved for future goals such as retirement, it’s never too early to start. If you receive a sizeable tax refund, now is the time to think about beginning an investment program if you haven’t done so already. Your tax refund could work for you long-term if you divert it to a 401(k) account or IRA.

You’ll not only be stashing money for the future, but you will also start to earn interest on that money over time. In addition, you’ll be able to take advantage of the IRA tax deduction to continue to build your investment portfolio. Every little bit helps toward your future goals, whether its retirement, home ownership, or sending your kids to college one day.

If you are anticipating a large refund this year, it may be tempting to spend it on a vacation or other “fun” items after paying for necessities. However, establishing or replenishing your savings account, paying down existing debt and/or starting a long-term investment program are all options that allow your money to work for you in the long run.

Tax Tips For First-Time Filers

Filing taxes for the first time can be confusing, especially if you were included on your parents’ tax returns before this year. Here are some tips to make the process easier for you:

  • Clarify your dependency status. If you made very little money or are a full-time student receiving financial support from your parents,  they can still claim you as a dependent on their return. In that case, you won’t need to file your own return. Check with your parents before you file your first return.
  • Get organized. If you’ll be filing your own return this year, you’ll need either your W2 form from your employer, or your 1099 if you’re an independent contractor. Your clients will issue you a 1099 form if you earned over $600.00 from them.
  • Gather all of your forms. In addition to your W2 or 1099 forms, you’ll also need you student loan interest statement, receipts for any medical/dental expenses, copies of utility bills and business-related expense receipts (if you work from home), and the 1098-I form issued by your bank for any account interest that may have accrued during the tax year.
  • Know your deductions. If this is your first time filing independently of your parents, you can still qualify for tax deductions such as the standardized deduction or the Earned Income Tax Credit (EITC) deduction, for example.
  • Choose how you wish to file. Many first-timers have their tax returns prepared and filed by a tax pro the first time out. You can either use the same tax professional as your parents, or you can locate a reputable tax filing company right in your local community. You may also file the forms by snail mail; many essential tax forms and instruction booklets are available at the local library or online. If you elect to file your returns online, there are many reputable online tax sites.
  • File on time. The IRS starts accepting tax returns beginning the second or third week of January, all the way until April 15th. Returns filed after April 15th will be considered past due, so it’s in your interest to file on time. If you file past the April 15th deadline, you could end up paying a late penalty.

Filing your returns the first time out can be confusing if you’re not prepared in advance. Gather all the needed records and form, and decide which tax filing method works best for you. No one really looks forward to filing their taxes, but it can be much less of a hassle once you understand the basic process and keep accurate records.

Regardless of how you choose to file, be sure to file on time to avoid late filing penalties and fees.