Many Americans have been focused on their own finances over the past several months. But don’t neglect helping those closest to you with their finances as well, especially aging parents. Here are some questions to ask your parents to help them sort through their financial picture.
Have you decided when you’ll start taking Social Security benefits? If your parents have not started taking Social Security, a discussion in this area will help both of you. Generally, Baby Boomers can receive their full amount of benefits at age 66, but benefits increase gradually if they wait longer, reaching the peak at age 70. Conversely, if your parents intend to retire early, they may wish to start receiving reduced benefits as soon as age 62. To add more complexity, a spouse can take retirement benefits from their partner’s work history. Often a rule of thumb is if you expect to live past 80, consider delaying when you first receive benefits, if you can afford to do so.
Do you have a durable power of attorney? If you need to act on behalf of your parents regarding financial matters, you will need a power of attorney. Without this document in place, you’ll have to go to court to get guardianship of your parents in order to access their financial accounts.
Is there an executor? Who is responsible for going through everything when necessary? You don’t really need to know who it is, just that there is someone in place with a potential backup executor if the primary executor is unwilling or unable to help.
Where do you keep financial records? Does someone, other than your parents, know where financial documents and information are kept? This includes bank account numbers along with usernames and passwords for websites.
Who are key advisors? The executor will need the names and contact information for each member on your parents’ team of trusted advisors. Ideally your parents have introduced their executor to each of the members of their team.
How are you planning to pay for long-term care? One of the main financial concerns is the possibility of paying exorbitant amounts for long-term care in a nursing home or with stay-at-home assistance that will drain all your parents’ assets. Traditionally, this was handled by long-term care insurance to absorb at least some of the cost. Unfortunately, these policies are now very expensive. But there are other ideas that can help, including certain tax advantaged insurance policies and establishing a trust to shield assets from nursing home costs (subject to certain restrictions for Medicaid assistance).
Do trusts need to be created or updated? Although there are numerous types of trusts, each with a various purpose, your parents may use a trust to preserve assets for their heirs. They are also used to avoid probate. An irrevocable trust can fully protect assets, but your parents must give up all control over their assets. In contrast, a revocable trust can be modified (where your parents can still change beneficiaries), but offers less protection.
Remember, your goal is not to pry into your parents’ finances, but to help ensure a plan is in place. And as an added benefit, many of the questions outlined here are great to apply to your own situation!
Countries and citizens around the world are banding together to defeat the coronavirus. While your attention is concentrated on protecting your family, friends and community, identity thieves are seeing an opportunity to swipe your confidential information.
Very few things in life create a higher degree of stress and hassle than having your Social Security Number (SSN) stolen, especially during a pandemic like we are now experiencing. This is because, unlike other forms of ID, the SSN is virtually permanent. While most instances of SSN theft are outside your control, there are some things that you can do to minimize the risk of this ever happening to you.
Never carry your card. Place your SSN card in a safe place. This place is NEVER your wallet or purse. Only take the card with you when you need it, then return it immediately to your designated safe place.
Know who needs it. As identity theft becomes more common, there are fewer people or organizations who really need to know your Social Security number. Here is a list of entities who still need your SSN:
The government. Federal and state governments use this number to track your earnings for retirement benefits and to ensure you pay proper taxes.
Your employer. The SSN is used to track your wages and withholdings. It is also used as proof of citizenship and to contribute to your Social Security and Medicare accounts.
Certain financial institutions. Your SSN is used by various financial institutions to prove citizenship, open bank accounts, provide loans and establish other forms of credit.
Know who really does not need it. Many other vendors may ask for your Social Security number, but having it is not an essential requirement. The most common requests come from health care providers and insurance companies. But the request for your number may come from anyone who wishes to collect an unpaid bill. When asked on a form for your number, leave it blank. Challenge the provider if it is requested.
Destroy and distort. Shred any documents that have your SSN listed. When providing copies of your tax return to anyone, distort or cover your SSN. Remember your entire SSN could appear on the top of each page of Form 1040, although that is becoming less common. If the government requests your SSN on a check payment, only place the last four digits on the check, while pre-filling the first five digits with x’s.
Keep your scammer alert on high. Never give out your SSN over the phone or via e-mail. Do not even confirm your SSN to someone who happens to read it back to you on the phone. If this happens to you, file a police report and report the theft to the IRS and Federal Trade Commission.
Proactively check for use. Periodically check your credit reports for potential use of your SSN. If suspicious activity is found, have the credit agencies place a fraud alert on your account. Remember, everyone is entitled to a free credit report once a year. Multiple businesses can provide you with your free credit report.
Replacing a stolen SSN is not only hard to do, it can create hardships. You will need to re-establish your credit history, re-assign your SSN benefits history, and realign your tax records. Your best defense is to stop the theft before it happens.
Don’t let social distancing get in the way of your personal and professional relationships
Keeping up with your friends and maintaining professional relationships is a challenge as most in-person activities have come screeching to a halt. Drive-by birthday parties, video happy hours and pre-recorded commencement speeches are the new normal.
Despite social distancing guidelines, here are some tips to stay connected.
Embrace digital communication. Whether you were ready for it or not, face-to-face contact has been replaced with video screens, headphones and microphones. For many, this introduces a whole host of new variables. To hold a simple conversation, you need a solid internet connection and reliable equipment just to hear and see each other. Take time to learn best practices for the different communication apps like Zoom, Skype and Teams. In addition, give yourself some time before a scheduled meeting or digital hangout to work out all the kinks before others join.
Up your social media game. For all its faults, social media is very good at connecting people. With more time and less entertainment options, people are spending a lot of time scrolling through their feeds. Don’t just be an observer, figure out a way that works for you to get connected. Even if you aren’t interested in posting a bunch of pictures, try to find an old friend and check in to see how they are doing. On the professional side, use this time to create or update your profile on professional networking sites. Being more visible can help create future professional and business connections.
Make a habit of checking in. This is good advice for any time, but it’s especially important now. Uncertain times bring out different emotions for people that can be unexpected. Checking in on friends and loved ones can provide a positive boost for you and them. Whether you want an opinion from someone you trust or just wish to touch base, a simple conversation can go a long way. Create an appointment on your calendar to have a check-in time with your key friends, family and cohorts at least quarterly.
Practice engaged listening. With everyone being affected by COVID-19 in one way or another, small talk may seem trivial. However, don’t be afraid to engage in a conversation, be authentic and ask purposeful questions. Spend more time listening than talking and use your contact time to nurture and strengthen your relationships. In other words, don’t just connect when you need something.
Even though the mediums of connecting have changed, the importance of human relationships remains. Take the time to develop your listening skills in this new environment so you can continue to invest in and grow your network.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
Numerous new laws provide economic relief to individuals and businesses hardest hit by this year’s pandemic. This much-needed financial assistance, however, comes with a few strings attached.
Here are three potential surprises if you use the available economic relief packages:
Getting a tax bill for unemployment benefits. While the $1,200 economic impact payments most Americans received does not have to be reported as taxable income on your 2020 tax return, there is currently no such luck with unemployment benefits. In addition to paying federal taxes on your unemployment compensation, more than half of states also impose a tax on unemployment benefits.
What you need to do: See if your unemployment compensation check withholds a portion of your pay for taxes. Even if your check does have withholding for income tax purposes, the withholding amount may not be enough. If possible, talk to your state unemployment office and try to get withholding amounts revised.
Paying estimated tax payments. If you normally receive a paycheck from your employer, you may have never needed to write a check to the IRS to pay estimated future taxes. Your employer withholds your taxes from your paychecks and sends it to the IRS for you. If you’re collecting unemployment benefits, however, you may be required to pay tax on the unemployment benefits received during the first six months of 2020 by July 15, 2020.
What you need to do: Estimate the amount of tax you owe for all sources of income, then compare that number with the amount of money withheld from your income to pay these taxes. If necessary, send in quarterly estimated tax payments to the U.S. Treasury and, in some cases, state revenue departments. This must be done each quarter with the next payment due July 15. You may need to send money in on September 15, 2020 and January 15, 2021 as well.
Reporting emergency distributions from retirement accounts: You may withdraw up to $100,000 in 2020 from various retirement accounts to help cover pandemic-related emergency expenses without incurring penalties. While you will not be required to pay an early withdrawal penalty, you will still be subject to income tax when filing your 2020 tax return.
What you need to do: If you plan to withdraw funds from your retirement account, reserve enough of the money to pay the tax! The amount you reserve depends on your potential tax situation so call for a tax review before taking money out of the account.
Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, you may be able to take money out of a qualified plan, like a 401(k), or an IRA, with favorable tax consequences. But should you do it? You might view withdrawing money from a retirement account as a last resort.
Background
Among other changes in the CARES Act relating to qualified plans and IRAs, a participant can withdraw up to $100,000 of funds without paying the usual 10% tax penalty on distributions before age 59½. Plus, you can take as long as three years to pay the resulting tax bill, spread out evenly over the three years. If you repay the full amount within three years, you owe no tax.
To qualify for this program, you or your spouse must be diagnosed with COVID-19 or experience adverse financial consequences due to the virus such as being laid off, having work hours reduced or being quarantined or furloughed.
What are the pitfalls?
There are several reasons why you may want to avoid taking money out of your retirement accounts unless it’s an absolute emergency:
You’re diluting your retirement savings. Although the money comes in handy now, you’re chipping away at your nest egg and forfeiting growth. For example, if you withdraw the maximum amount of $100,000 that would have earned 6% annually tax-deferred for ten years, the value would have been $179,000.
It may be bad timing. Experts say it is difficult to time the markets in the current volatile environment. If you sell some holdings right now, you may be locking in losses that would miss the recovery in the next few months or years.
You still owe income tax. Income tax is due unless you replace the full amount within three years. Also, depending on your situation, you could end up paying tax at higher rates than you would in your retirement years.
Better options might exist. Arranging a hardship loan from your 401(k) might be a better alternative for your situation. You avoid the taxable event of the withdrawal and you pay back yourself with interest. Other options include refinancing a mortgage with lower interest rates, taking advantage of payment relief from mortgage, rent or student loan payments or deferred credit card billing.
While it is an option, retirement plan withdrawals are not always the best choice. Think through all scenarios before withdrawing from retirement funds to cover emergency expenses.
Avalanche of new remote workers creates latest playground for hackers
Hackers have found their new playground amid the increased use of video conferencing during the coronavirus pandemic: Zoombombing!
Zoombombing defined
Named for the company Zoom, the unfortunate first high-profile victim of this phenomena, Zoombombing occurs when internet trolls hack video conference meetings and join as uninvited attendees. After infiltrating a meeting, the hackers then have their fun, doing everything from performing harmless pranks to posting sexually explicit content.
Ideas to keep your meetings private
You can protect yourself, your friends and your company while using popular video conferencing tools with these tips.
Monitor meeting attendance. Designate an employee to monitor the attendees of your video conferencing meetings. By assigning a moderator (host), attendees can be removed or dismissed.
Create a waiting room for new attendees. Most conferencing platforms have a feature called a waiting room. When this feature is enabled, each user who connects to your meeting is put in a queue. The meeting host then approves each person waiting in the queue for admission to the meeting.
Turn off screen sharing for everyone but the meeting host. A favorite Zoombomber prank is to hack into a meeting, share their screen and then draw something really funny or inappropriate. Consider only allowing the meeting host to share a screen and to give permissions to others who subsequently want to share a screen.
Password protect your meetings. As a meeting organizer, you can also choose to password-protect your meetings. Don’t forget to distribute the password to all attendees prior to the meeting.
Carefully choose your video conferencing service. With many different companies offering video conferencing services, it can be difficult to find which company features the best security measures. Take the time to do your homework to find the platform that’s right for your business.
The recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act provides individuals and businesses significant financial relief from the financial strain caused by the coronavirus epidemic.
Here is a snapshot of the unemployment benefits section of the bill and how it affects individuals and businesses.
Who qualifies to receive unemployment benefits? In addition to full-time workers who are laid off or furloughed, the Act provides individuals who are not already eligible for state and federal unemployment programs, including self-employed individuals and part-time workers, a set amount of unemployment compensation.
How much will I receive? There are two different components to the new law’s unemployment benefits:
Each worker will receive unemployment benefits based on the state in which they work, and
In addition to their state unemployment benefits, each worker will receive an additional $600 per week from the federal government.
How will benefits for self-employed workers be calculated? Benefits for self-employed workers are calculated based on previous income and are also eligible for up to an additional $600 per week. Part-time workers are also eligible.
How long will the state unemployment payments last? The CARES Act provides eligible workers with an additional 13 weeks of unemployment benefits. Most states already provide 26 weeks of benefits, bringing the total number of weeks that someone is eligible for benefits to 39.
How long will the federal payments of $600 last? The federal payment of $600 per week will continue through July 31, 2020.
How do I apply for unemployment benefits? You must apply for unemployment benefits through your state unemployment office. Most state applications can now be filled out online. Workers who normally don’t qualify for unemployment benefits, such as self-employed individuals, need to monitor their state’s unemployment office website to find out when they can apply, as many states need to update their computer systems to reflect every type of worker who is eligible to collect unemployment benefits under the CARES Act.
What to do now
If you have not already done so, you must file for unemployment with your state as soon as possible. State offices and websites are being slammed, so the sooner you get in the queue the better for you and your loved ones. And remember, these benefits now apply to self-employed and part-time employees.
Coronavirus uncertainty abounds. Thankfully, by monitoring tax changes on your behalf, we can work together to navigate the right path for you and your family. Here is a round-up of tax-related laws and information to help with tax planning for 2020.
Early distribution penalty waived The 10% early distribution penalty on up to $100,000 of retirement withdrawals for coronavirus-related reasons is waived during 2020. New tax rules allow tax liabilities on these distributions to be paid over a three-year period. So if you need the funds, you won’t see your tax bill skyrocket in one year. Even better, you can return these distributions back into your retirement account over a three-year period and not be subject to the annual contribution limits. Action: This could be a great way to handle emergency payments until you receive a stimulus check, unemployment payments, or a pending small business loan.
Required minimum distributions (RMDs) waived for 2020 Required minimum distributions (RMDs) in the year 2020 for various retirement plans is suspended. The corresponding 50% penalty associated with not taking an RMD is also suspended in 2020.Action: Taking out distributions when the market takes a tumble can hurt retirement income for many years. This change allows you to wait to let the value in your retirement account rebound before you withdraw funds.
IRS installment agreement suspension The IRS is suspending payments of all amounts due from April 1 through July 15, 2020. If you do not pay your IRS installment payment during this time your installment agreement will not be in default. Interest will continue to accrue on these installment agreements. Action: Being on the bad side of the IRS is never fun. If you currently have an IRS installment agreement, look to take advantage of this delay.
Offers-in-compromise The IRS will allow you until July 15, 2020 to provide additional requested information for any pending offers-in-compromise (OIC) and will not close out the OIC during this time without your consent. The IRS is also suspending any payments due under an OIC until July 15, 2020.
Enforcement activities suspended? Not so fast…The filing and enforcement of liens and levies will generally be suspended. However, IRS Revenue Officers will continue to pursue high income non-filers and initiate other actions when warranted.
No new audits The IRS will not initiate new audits during this time, but will act to protect the statute of limitations.
Student loan debt is a hot topic and for good reason. Managing the burden that comes during repayment is very difficult. Fortunately, there are ways to get some relief while taking advantage of timely tax breaks at the same time. Here are four ways to help lessen the strain of repaying your student loans.
Deduct your student loan interest. The IRS allows you to deduct up to $2,500 in student loan interest payments on your tax return each year. The great thing about this deduction is you can take it even if you don’t itemize! Each loan provider should issue you a Form 1098-E if you pay over $600 in interest for the year. If you pay less than that, and you don’t receive a Form 1098-E, save your monthly statements as back up for the interest you pay. Even if you are still in school, and you are making interest payments, you are eligible for the deduction.
Exclude cancelled debt as income. In most cases the IRS considers cancelled debt as income. However, the IRS recently announced that students would not have to report cancelled student loans as income in the following situations:
The school closed when you were attending, or shortly after you attended.
The school actions are contradictory to applicable laws.
You are a part of a successful legal settlement against the school.
If you receive a Form 1099-C for cancelled student loan debt, conduct research to determine if one of these exclusions applies to your situation.
Refinance to lower your payments. Are you making two or more different student loan payments every month? Refinancing multiple accounts into one loan can lower your effective interest rate and your monthly payment. You can also lower your monthly payment by taking an existing loan and refinancing over a greater number of years.
Plan for tuition costs. Utilizing student loans to finance your education is a necessity for many people. However, you can cut down on future payments with early savings. For example, parents and grandparents can create 529 college savings plans. And as soon as you start earning income, earmark a portion of every paycheck for college. Grants and scholarships are another way to reduce tuition costs, so start researching early.
College debt can seem daunting. But by combining a long-term plan while taking advantage of tax benefits, the mountain of debt can become a manageable hill.
Are you one of the now 33% of Americans who work as either an independent contractor or freelancer?
If you answered yes, you are now a participant in the gig economy, a modern term for an economy characterized by workers who earn money through short-term contracts or freelance work.
Succeeding as an independent contractor can be challenging because it requires understanding a different set key success factors than being a full-time employee. Here are some tips on developing your skill set as an independent contractor and where to turn to if you need help.
Contract for companies with generous payment terms. The formula for companies to pay its contract workers varies from business to business. Investigate a company’s policy for paying its contract workers to make sure it’s what you’re expecting. Remember, cash is king!
Market your services by creating an online portfolio. If being a contract worker is your full-time job, you’ll need to always be looking for your next gig. One great way to market yourself to prospective businesses is to create an online portfolio that showcases the work you can perform. You can choose to build a website using a do-it-yourself service or hire a developer to create a custom website.
Stick to budget. As a full-time employee, you know the exact date you’ll receive your paychecks and usually the exact dollar amount. As a participant in the gig economy, however, you could earn a bunch of money in one month and hardly any money the following month. Prepare a financial budget so you can use income earned during your good months to cover costs during low income months.
Stay one step ahead of the IRS. Paying taxes is now your responsibility. Participating in the gig economy requires more knowledge about how to meet your tax obligations. So ask for professional help. Plus use other tools at your disposal. For instance, the IRS Gig Economy Tax Center gives guidance on how to figure out what you may owe the IRS. The website is https://www.irs.gov/businesses/gig-economy-tax-center.
Get advice from others. Working primarily by yourself can leave you isolated from fellow workers. Join a local group of self-employed workers that meets on a regular basis to network and learn what other workers are doing to be successful.
Remember you are not alone. The complex nature of tax obligations for contractors can easily be navigated with professional help.
