Tax Refund Scams

By
June Adams
January 31, 2022
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Tax-related fraud and identity theft have continued to grow, with millions of people becoming targets. Scammers need little more than your Social Security number and other general information to file a fraudulent tax return and hijack your tax refund. Taxpayers typically don’t discover the fraud until they attempt to file their own returns, which is why it's essential to file taxes as soon as possible. At the same time, you may want to confirm the appropriate timing with your tax professional. Although 1099s are due by the end of January, custodians may correct 1099s throughout February. If drastic changes happen to a 1099 after you file your taxes, the change can severely impact the amount you owe.

 

Here are some helpful ways to prevent your SSN from being compromised:

  • If you have been a victim of identity theft, complete  IRS form 14039, identity theft affidavit.
  • Respond immediately to any IRS issued notice once you verify the authenticity of the notice. You can do so by calling the IRS directly at 800-908-4490 or setting up your  online account.
  • Get an Identity Protection PIN: a 6-digit number that prevents someone else from filing a tax return using your Social Security number or individual taxpayer identification number. Only you and the IRS know the IP PIN.

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By
Mike Loo, MBA
June 21, 2018

Regardless of where it comes from, getting an unexpected chunk of change usually makes for a pretty good day, week, or even year. But if you aren’t intentional about what you do with your extra cash, you could follow in the footsteps of many lottery winners who squander their winnings and end up unhappy and broke.1  Even if the gift you receive isn’t a significant amount, you’d be amazed at how some smart planning can make a big difference down the road. Let’s look at some ways you can you use your raise, refund, or windfall to get ahead financially.

  1. Pay Off Debt

Big debt, small debt, it doesn’t matter. Debt is debt. Start with high-interest debt and work your way down. Did you know that the average American household carries over $16,000 in credit card debt and pays an average of $1,292 in interest annually?2  Sure, using your extra influx of money to reduce debt isn’t as fun as going on a trip, but think of the satisfaction you’ll feel when you see your balance decrease, knowing that you are saving yourself thousands of dollars in interest in the long run.

  1. Beefing Up Your Retirement Savings

Even if you diligently contribute to a 401(k) or IRA, chances are you aren’t maxing out those accounts. Let’s say you receive a $3,120 tax refund, the average amount according to the IRS.3  You then deposit that $3,120 in an IRA and see a 7% rate of return annually. In 20 years, you will have earned approximately $8,000 on that investment due to compound interest. Let’s go a bit further. If you invest your tax refund every year for 20 years, your retirement savings could see a boost of almost $150,000! If you’ve received a raise, use some of it to increase your contribution percentage right away. That way, you won’t get used to living with that extra money and it puts you ahead for the future.

  1. Invest In Education

Most of us dream of our kids going to a great school and getting a solid foundation for their future career, but have you considered how much of an investment it will take to get them to that point? The numbers can be daunting. These days, a high school graduate can expect to pay upwards of $200,000 for an undergraduate degree at a top school4 and over $10,000 each year for in-state tuition alone at a public institution.5  The costs will vary depending on room and board and other educational costs, but either way, it’s a lot of money.

One option is to open a 529 account with your tax refund and, once again, let compound interest help you get ahead. Not only will your investment pave the way for your child’s future, but it could also give you a tax break.

  1. Build Your Emergency Fund

An emergency fund provides you with a cushion for those times when life gives you lemons. If you don’t have readily available savings, something as simple as an unexpected car repair or medical bill could derail your finances. Or, if you know you have a large purchase or a life milestone approaching, such as welcoming a baby into your family, having an emergency fund will help you avoid digging into long-term savings or going into debt to cover costs. You can’t put a price on the peace of mind that an emergency fund will give you, so think about investing some of your tax refund to boost your short-term savings.

  1. Be Generous

Giving your tax refund away may not help you get ahead, but it could make a lasting impact on someone else’s life. Find a charity or cause that is close to your heart and pay it forward. Your gift could also help you when the next tax season rolls around. Just make sure to get a receipt for your contribution and itemize your deductions.

Have You Received Some Extra Cash?

It’s okay to treat yourself when you find yourself with excess income, but don’t splurge just because the money is there. Make a list of your financial priorities and then map out how your additional money could give your financial future a boost. If you would like guidance on how to use your raise, refund, or windfall, call my office at (949) 221-8105 x 2128 or email me at michael.loo@lpl.com.

By
David McDonough
September 23, 2019

For many young adults, college is the first time they are independently managing their own money. It can be a time marked with excitement and new opportunities, or anxiety and worry. Financial skills built at this time can have long-lasting benefits. Likewise, money mistakes made now will carry on into their future. That is why about 70 percent of college students worry about their finances[i]. However, with the right skills and habits, this can be a great time to lay a strong foundation for their future financial independence.

The first financial decision that most college students encounter are student loans. Before taking out student loans, make sure to explore other financial aid options, such as scholarships and tuition assistance from participating employers. Also, don’t forget the option of going to local community colleges for the first couple of years. If student loans are an option, it is best to resist the temptation to take the maximum amount one qualifies for. Instead, borrow only what is needed. This will help in the long run. College is an investment, and students need to be sure that their rate of return is worth it.

It is imperative that young people know how to budget, but unfortunately, that’s largely not the case. In fact, 43 percent of college students don’t track their spending[ii]. This is particularly crucial for those who have student loans. You can help your young people early by introducing them to the concept of budgeting well before you’re packing them up for college. A budget is not simply an account of where one’s money goes. It aids in making decisions, establishing financial priorities, and staying aware of how your money is working for you. Please always remind your college students that the less they spend now, the more they’ll be able to move forward in the future.

Another common first for college students is the first credit card. Credit cards are a good tool to establish small lines of credit, but monthly balances should always be paid off immediately. Not only does this avoid late fees, but it also avoids interest building on purchases. Also, protecting personal information is imperative. Students need to constantly be aware of who they are giving their information to and what is being charged to their account.

College is a busy time full of “firsts”. These experiences can have long-reaching consequences. Help your college students prepare a solid foundation to their financial independence by providing them with the proper education and tools for a bright financial future.

[i] https://news.osu.edu/70-percent-of-college-students-stressed-about-finances/

[ii] https://www.affordablecollegesonline.org/college-resource-center/student-guide-to-budgeting/

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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