Author Archives: LarsonFinancial

Avoiding the Growing Problem of Tax ID Theft Scams

Some taxpayers will have to wait longer than usual to receive their tax refunds due to increased measures by the IRS and state tax authorities to catch tax fraud. These organizations are also partnering with tax preparation companies to share information about suspicious tax returns so that they can detect the fraud as it happens. Some states have even requested that employers distribute their W2 forms earlier so data is available to verify the legitimacy of tax returns that were filed early.

These measures are designed to combat the growing issue of tax refund fraud. In 2013, the IRS mistakenly paid out $5.2 billion worth of refunds to identity thieves, and H&R Block estimates that the number of refunds stolen through fraudulent e-filing has roughly doubled since then.1 This past filing season, the IRS detected and stopped nearly 3 million fraudulent returns before they were processed, an increase of roughly 30% from the year before according to testimony given to the Senate Finance Committee.2 It is no surprise that tax-related identity theft is now the most common complaint filed to the Federal Trade Commission, making up roughly a third of all complaints submitted to the FTC according to the Arizona Republic.

Financial Management in Healthcare

Tax refunds are an easy target for thieves. All they need to file a false return is a name, Social Security number and date of birth. Since these scams often revolve around electronic filing, there is no paper trail leading back to the person committing the scam and it can be repeated over and over again at very little cost. Continue reading for suggestions on how to avoid being victimized by this scam, and how to detect whether a fraudulent tax return has been filed on your behalf.

Infographic: Protect Your Refund and Your Identity

Keeping Confidential Information Safe

The easiest way to avoid being a victim of refund fraud is to simply file your return as early as possible. Once the IRS processes a return with your social security number it will reject any duplicates. Other precautions such as receiving your tax forms via e-delivery and ensuring your wi-fi network is secure can greatly reduce your odds of falling prey to this kind of theft.

The IRS is also doing their part to verify taxpayer information and make it more difficult for thieves to steal refunds. They are now monitoring over 20 new data elements on each tax return to reduce fraudulent returns. The measures include reviewing the transmission of electronically-filed tax returns, including any improper or repetitive use of Internet Protocol numbers. The IRS will also be taking additional measures to verify email addresses, with tactics similar to the confirmation methods banks are currently using.

Taxpayers in Florida, Georgia and Washington, D.C. can participate in a pilot program where they establish a six-digit PIN to add an additional layer of protection to their account, even if they haven’t yet been a victim of identity theft. Other steps you can take to minimize risk include changing the password every year on the account you use to file, only giving personal information online to encrypted websites with an “https” address and using computer security software that includes an electronic firewall, virus protection and file encryption.

How to Detect and Report Phony Tax Returns

Typically, victims of taxpayer ID theft and refund fraud learn about their predicament when their tax return is rejected because ID theft criminals filed first. When the real taxpayers file, their refunds are not paid until the IRS resolves their individual case. Resolving this dispute can quickly become a paperwork nightmare for the legitimate filer. Other red flags include receiving a notice from the IRS or Department of Revenue stating that you received wages from an employer unknown to you, or if collection actions are being taken against you for a year which you did not file a tax return or owe money.

If you suspect you are a victim, it is important to respond immediately to any IRS notice and comply with their instructions. Next, you will want to file an FTC complaint and contact one of the three credit bureaus to place a fraud alert on your account. Be sure to close any financial accounts opened without your permission since your identity was compromised. Finally, you should complete IRS Form 14039, Identity Theft Affidavit to formally notify them about the theft as stated in the IRS Taxpayer Guide to Identity Theft.

Just recently, the IRS started letting taxpayers who have had fraudulent tax returns filed and accepted in their name request a copy of the fake return. Victims receive redacted copies of the forms, but the documents should still include enough details to help taxpayers figure out how much of their personal information was stolen. To receive a copy of the return, taxpayers need to write a letter to the IRS providing their name, address, social security number and proof of identity (such as a copy of a driver’s license). The IRS will acknowledge requests within 30 days and respond within 90 days.

Tax fraud attacks are constantly evolving to stay a step ahead of the fraud filters designed to identify and stop false returns. Government bodies and tax preparation companies have been working together to develop processes for sharing information that can be used to authenticate a taxpayer’s information. Even with these increased measures, most people can anticipate receiving their refunds in the typical three weeks or less time frame. Those who choose to file electronically and utilize direct deposit will likely receive their refund even sooner than that.

Have Questions?

This article is for informational purposes only and should not be construed as tax advice. Advisory services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, member FINRA/SIPC.
Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide tax advice or services. Please consult the appropriate professional regarding your tax planning needs.
  1. Dan Kadlec “This Is the Best Way to Protect Against Soaring Tax Refund Fraud” (January 2016). http://time.com/money/4181191/protect-against-soaring-tax-refund-fraud/
  2. Kevin McCoy “IRS Seeks Taxpayer Help Battling Tax Refund Fraud” (November 2015). http://www.usatoday.com/story/money/2015/11/19/irs-awareness-campaign-identity-theft/76045778/

Three Questions to Ask Yourself When Buying a Home

For many, buying a home is one of the largest purchases they’ll make. It’s a substantial life event and taking on a mortgage is a large responsibility—not to mention the costs of maintenance around the house, projects, updates, etc. Here are three questions to ask yourself before you commit to buying a new home.

  • Am I sure this is my long-term employer? Many residents and fellows headed into practice think they should immediately buy a home. In my experience, unless there are extenuating circumstances, renting allows you to be sure you are happy with your new employer and won’t need to move. Renting for 6 months also allows you to get used to the city and the neighborhood—especially if you are unfamiliar—to make sure you know where you want to buy.
  • Is the mortgage reasonable, given other competing goals? Lenders will typically approve a doctor for a large mortgage and realtors will often show a doctor larger and more expensive homes. While the large, expensive home in the exclusive neighborhood may be the right fit for you, make sure the mortgage, property taxes and/or neighborhood fees won’t put you in a situation where you may feel or literally be house poor.
  • Is the home in an area that may impact resale value? I have a client who bought a home in an area of Houston that was impacted by a hurricane and subsequent flooding. While the client’s home did not take on water, the garage flooded and many of the homes in the area are now boarded up, making the neighborhood even less appealing, so the client is unable to sell the home and is moving to another area of the country. A hurricane is definitely an extreme; however, there are other factors that could impact your ability to sell. Is your home too close to a freeway, a waste treatment facility, etc.? Before you buy, visit the home at different times of the day and drive around the neighborhood to make sure there is nothing that stands out as a possible detractor to a future sale.

Buying a home isn’t a decision to be taken lightly. Be sure about your employer, the terms of the mortgage and the location of the home before you decide to dive in.

Is a new home on your radar? Let’s talk through the best course of action for your unique situation.

Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.

Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal or tax advice or services. Please consult the appropriate professional regarding your legal or tax planning needs.

The views and opinions expressed in this article are those of the author, are for educational purposes only and do not necessarily reflect the official policy or position of Larson Financial Group, LLC or any of its affiliates.

Formulating an Estate Plan with Minimal Taxes and Fees

Holidays are right around the corner, and soon families will be sharing meals and exchanging gifts across multiple generations. These gatherings prompt many to evaluate the status of their estate and their family’s broader legacy. It’s all too easy to procrastinate on estate planning decisions with the reasoning that there is ample time to take action down the road. The truth is that we never know how much time we have left.

Estate planning is the process of deciding for yourself, ahead of time, what you want to happen in the event of an untimely death, disability or health emergency. As the popular saying goes, you can’t take it (wealth) with you when you die. When it comes to what you’ll leave behind, there are basically three options for who will receive it: individual heirs, charities or Uncle Sam. Without comprehensive estate planning, you could inadvertently be naming the IRS or a creditor as your primary beneficiary.

Passing Your Legacy to the Next Generation

Estate planning is about more than just passing your assets on to the next generation. Estate planning gives you an opportunity to pass your legacy and values on to the next generation. Customizing the inheritances for your beneficiaries allows you to set goals for them and use your assets for motivation to achieve those goals, while still providing them for their health, education, and maintenance in reasonable comfort. If you have a sizeable estate or are worried your heirs won’t be wise with your money, you will be able to appoint a trustee to distribute your wealth in accordance with the terms of the trust. In addition to incorporating your family values into your estate plan, trusts can also provide strong asset protection of the funds for your children.

The appropriate estate planning strategies for your situation will depend on your objectives, state of residence, assets and several other factors. Effective estate planning will account for tax considerations and asset protection objectives to ensure that it is cohesive with the rest of your financial plan.

Physician Financial Advisor

Complex strategies and constantly-evolving estate tax law can make the process of formulating an estate plan seem daunting. However, cutting corners or procrastinating can be a costly mistake for you and your heirs. In times of grief, one of the best possible parting gifts you can leave your loved ones is the sense of security that comes with having a well thought-out estate plan.

Minimizing Estate Planning Taxes

There are some assets that can pass to your beneficiaries without a Will or a Trust. Some accounts such as retirement funds, annuities and life insurance policies let owners name beneficiaries for that particular asset. These beneficiary designations are a non-probate transfer, meaning they avoid the court, but the values of these accounts are still part of your taxable estate. Specialized trusts to remove these assets from your taxable estate are part of a comprehensive estate plan, and will serve to minimize the estate tax impact on the beneficiaries.

If you have a Revocable Living Trust as part of your estate plan, it may be the beneficiary or owner of any of the types of accounts listed above, so all of your assets will be distributed according to those customized distribution patterns.

It is recommended that you review your estate plan after any major life changes such as marriage, disability, the birth or adoption of children, divorce, the serious illness of a beneficiary, or a substantial increase or decrease in the size of your estate.

The funds in your 401(k) or traditional IRA will be subject to income tax unless it is passed to a spouse, or “stretched out” using special provisions in a trust. You can avoid leaving your beneficiaries with that tax bill by gradually converting traditional IRA accounts to Roth IRA accounts that have tax-free distributions. Since the amount converted will be taxable on your income taxes, the goal is to limit each year’s conversion so that you don’t cross over into a higher tax bracket.

Finally, one of the best ways to ensure your money stays in the family is simply to give it to heirs while you’re still alive. The IRS allows individuals to give up to $14,000 per person per year in gifts tax-free. If you’re worried about your estate being taxable, these gifts can bring its value down. Another way to reduce your estate value is through charitable contributions during your life, which can also be tax deductible, or through using charitable trusts. Certain charitable trusts allow you to retain an income stream from the assets you remove from your estate, and at death the money passes to the charity you choose.

Minimizing Estate Planning Costs

Many have attempted to draft their own estate planning documents with the help of software or a website. However, drafting wills and other estate planning documents without the oversight of an attorney can lead to mistakes that will be costly down the road. When seeking the advice of an attorney, remember that the cheapest option isn’t always the best. A skilled estate planning attorney may charge a higher price, but end up saving you money in the long run.

Make an effort to be prepared and decisive when meeting with an estate planning attorney. Before your first meeting, ask your attorney what documents and information you need to bring to your meeting. Similar to the way you might ask a patient the same questions from visit to visit, an attorney might repeatedly inquire about your financial situation to stay aware of changing circumstances. Keeping your physician financial advisor in the loop is also a good idea, so the attorney and financial advisor can coordinate your estate, retirement, and investment planning. The less time your attorney needs to spend gathering information, the less money you’ll ultimately end up spending.

Have Questions?

This article has been provided for informational purposes only and is not intended to be, nor should it be considered legal advice. Consult an appropriate legal professional regarding current laws and application to your particular situation. You should not make any decisions about any legal matter without first consulting with an attorney. This article is not intended to create, and receipt does not constitute an attorney-client relationship.