V9 — Issue 3

As our population ages, seniors increasingly become targets for a variety of scams. These fraudulent schemes can have devastating financial and emotional impacts on older adults, who may be more vulnerable due to factors such as isolation, cognitive decline, or simply a trusting nature. The Internal Revenue Service (IRS) has been proactive in issuing warnings and providing guidance to help protect seniors from these threats. This article will delve into the nature of scams targeting seniors, what to be on guard for, awareness and protection strategies, IRS advice, and steps to take if one falls victim to a scam.

Understanding the Threats – Scammers employ a range of tactics to deceive seniors, often posing as representatives from government agencies, familiar businesses, or charities. The IRS, in its news release IR-2024-164, highlights the rising threat of impersonation scams targeting older adults. These fraudsters use fear and deceit to exploit their victims, often pressuring them into making immediate payments through unconventional methods such as gift cards or wire transfers.

Common Scams Targeting Seniors

• Impersonation of Known Entities: Fraudsters often pose as representatives from government agencies like the IRS, Social Security Administration, or Medicare. By spoofing caller IDs, they can deceive victims into believing they are receiving legitimate communications. These scammers may claim that the victim owes money, is due a refund, or needs to verify personal information.
• Claims of Problems or Prizes: Scammers frequently fabricate urgent scenarios, such as outstanding debts or promises of significant prize winnings. Victims may be falsely informed that they owe the IRS money, are owed a tax refund, need to verify accounts, or must pay fees to claim non-existent lottery winnings.
• Pressure for Immediate Action: These deceitful actors create a sense of urgency, demanding that victims take immediate action without allowing time for reflection. Common tactics include threats of arrest, deportation, license suspension, or computer viruses to coerce quick compliance.
• Specified Payment Methods: To complicate traceability, scammers insist on unconventional payment methods, including cryptocurrency, wire transfers, payment apps, or gift cards. They often require victims to provide sensitive information like gift card numbers.

Awareness and Protection Strategies

Awareness is the first line of defense against scams. Seniors and their caregivers should be educated about the common tactics used by scammers and the red flags to watch for. Tips for Seniors:

• Verify the Source: Always verify the identity of the person or organization contacting you. If you receive a call, email, or text message claiming to be from the IRS or another government agency, do not provide any personal information. Instead, contact the agency directly using a verified phone number or website.
• Be Skeptical of Unsolicited Communications: Be cautious of unsolicited communications, especially those that request personal information or immediate payment. Legitimate organizations will not ask for sensitive information through unsecured channels.
• Do Not Rush: Scammers often create a sense of urgency to pressure victims into making hasty decisions. Take your time to verify the legitimacy of the request and consult with a trusted family member or friend before taking any action.
• Use Secure Payment Methods: Avoid making payments through unconventional methods like gift cards, wire transfers, or cryptocurrency. Legitimate organizations will not request payment using these procedures.

• Monitor Financial Accounts: Regularly monitor your bank and credit card statements for any unauthorized transactions. Report any suspicious activity to your financial institution immediately.

Tips for Caregivers

• Educate and Communicate: Regularly discuss potential scams with the seniors in your care. Ensure they understand the common tactics used by scammers and encourage them to reach out to you if they receive any suspicious communications.
• Set Up Protections: Help seniors set up protections such as fraud alerts on their credit reports and two-factor authentication on their online accounts.
• Monitor Communications: If possible, monitor the mail, phone calls, and emails that the senior receives. This can help identify potential scams before any damage is done.
• Encourage Reporting: Encourage seniors to report any suspicious activity to the appropriate authorities. Reporting scams can help prevent others from falling victim to the same schemes.

IRS Advice and Resources – The IRS has been actively engaged in efforts to protect taxpayers, including seniors, from scams and identity theft. The Security Summit partnership between the IRS, state tax agencies, and the nation’s tax professional community has been working since 2015 to combat these threats. Remember that:

• The IRS will never demand immediate payment via prepaid debit cards, gift cards or wire transfers. Typically, if taxes are owed, the IRS will send a bill by mail first.

• The IRS will never threaten to involve local police or other law enforcement agencies.
• The IRS will never demand payment without allowing opportunities to dispute or appeal.

• The IRS will never request credit, debit or gift card numbers over the phone.

Key IRS Recommendations

• Know the IRS Communication Methods: The IRS will never initiate contact with taxpayers by email, text message, or social media to request personal or financial information. Initial contact is typically made through a mailed letter.
• Questions or Concerns About Your Taxes: Contact your tax professional.
• Report Scams: If you receive a suspicious communication claiming to be from the IRS, report it to the IRS at phishing@irs.gov. You can also report scams to the Federal Trade Commission (FTC) at www.ftc.gov/complaint.
• Protect Personal Information: Be cautious about sharing personal information. The IRS advises taxpayers to use strong passwords, secure their devices, and be wary of phishing attempts.
• Seek Professional Help: If you believe your identity has been compromised, contact this office immediately. The IRS has special provisions for victims of identity theft to protect their tax filings.

What to Do if Scammed – Despite all precautions, scams can still happen. If you or a loved one falls victim to a scam, it’s important to act quickly to minimize the damage. Immediate steps to take:

• Stop Communication: Cease all communication with the scammer immediately. Do not provide any further personal information or make any additional payments.
• Report the Scam: Report the scam to the appropriate authorities. This includes the IRS, the FTC, and your local law enforcement. Reporting the scam can help authorities track down the perpetrators and prevent others from being victimized.
• Contact Financial Institutions: Notify your bank, credit card companies, and any other financial institutions involved. They can help you monitor your accounts for fraudulent activity and take steps to protect your assets.
• Place Fraud Alerts: Place a fraud alert on your credit reports with the major credit bureaus (Equifax, Experian, and TransUnion). This can help prevent further identity theft.
• Review Credit Reports: Obtain and review your credit reports for any unauthorized accounts or activities. You are entitled to a free credit report from each of the major credit bureaus once a year through www.annualcreditreport.com. You may even want to put a freeze on your credit, which will help prevent fraudsters from opening credit accounts in your name or accessing your credit reports. To do so you’ll need to contact the three major consumer credit bureaus. The drawback to doing so is the inconvenience of contacting the credit bureaus again if you need to lift the freeze on your credit card(s).
• Secure Personal Information: Change passwords and security questions on your online accounts. Consider using a password manager to create and store strong, unique passwords.

Long-Term Steps

• Monitor Accounts: Continue to monitor your financial accounts and credit reports regularly for any signs of fraudulent activity.
• Educate Yourself: Stay informed about the latest scams and fraud prevention strategies. The IRS and other organizations regularly update their websites with new information and resources.
• Seek Support: Falling victim to a scam can be emotionally distressing. Seek support from family, friends, or professional counselors if needed.
• Legal Assistance: In some cases, it may be necessary to seek legal assistance to resolve issues related to identity theft or financial fraud.

Scams targeting seniors are a growing concern, but with awareness and proactive measures, older adults can be protected from these threats. By staying informed, verifying communications, and taking swift action, when necessary, seniors and their caregivers can safeguard against fraud and ensure financial security.

Remember, if you or a loved one is ever in doubt about a communication or request, it’s always better to be safe than sorry. Reach out to trusted family members, friends, or professionals for advice and support. Together, we can create a safer environment for our seniors and help them enjoy their golden years without the fear of falling victim to scams.

In the realm of taxes, understanding who is required to pay self-employment tax and who is exempt is crucial for individuals navigating their financial responsibilities. Whereas employees have Social Security and Medicare taxes withheld from wages–often referred to as FICA taxes– individuals who work for themselves are subject to self-employment (SE) tax, which they pay in lieu of the Social Security and Medicare taxes employees pay via payroll withholding. Employees and employers share the employee’s liability, while self-employed individuals pay both the employer and employee liability.

Understanding Self-Employment Tax – Before diving into the specifics of who must pay self-employment tax, it’s essential to understand what it entails. Self-employment tax is governed by the Self-Employment Contributions Act (SECA), under which individuals who earn income directly from their business activities, rather than as employees, are required to contribute to Social Security and Medicare. This tax is calculated as a percentage of net earnings from self-employment.

For 2024, the self-employment tax rate is 15.3%, comprised of 12.4% for Social Security contributions on the first $168,600 of net earnings and 2.9% for Medicare contributions on all net earnings. Unlike employees, who share these tax responsibilities with their employers, self-employed individuals bear the full burden. An additional Medicare tax of 0.9% of net self-employment income applies for those with SE income above the following thresholds: $250,000 married joint, $125,000 married separate and $200,000 all others 

Who is Required to Pay Self-Employment Tax? – Generally the following are subject to self-employment tax:

• Sole Proprietors and Independent Contractors – Individuals operating their businesses or offering services as sole proprietors or independent contractors are required to pay self-employment tax on their net earnings if they exceed $400 in a tax year.
• Partners in a Partnership – Members of a partnership that conducts a trade or business are subject to self-employment tax on their share of the partnership’s income.
• Members of a Limited Liability Company (LLC) – Depending on the election made by the LLC, members may be treated as sole proprietors or partners for tax purposes and thus be required to pay self-employment tax on their share of the LLC’s profits.
• Clerics – A cleric is required to pay self-employment tax on income from services as a minister unless the individual has taken a vow of poverty. The following are examples of common situations related to the self-employment income of clerics:
  • W-2 Income – from the Church is subject to income tax, and self-employment tax. It’s important to note that the church does not withhold FICA taxes for this income.
  • Self-employment Income – Clerics who do not work for a specific church or who receive income for presiding over weddings, funerals, etc., have non-employee income that is taxable and subject to self-employment tax, based on the net profit from the self-employment activity.
  • Schedule C – This is the IRS form on which clerics report their SE income, which can be offset by associated expenses, resulting in the net profit that’s subject to SE taxes.
  • Most clerics receive a Housing (Parsonage) Allowance from the church they work for. To the extent allowed by law, this income is not subject to income tax but is subject to self-employment tax.

Who is Exempt from Paying Self-Employment Tax? – While the scope of self-employment tax is broad, there are specific exemptions and special cases:

• Employees: Individuals who work as employees and receive a W-2 form are not subject to self-employment tax on their wages, as their employers withhold Social Security and Medicare taxes throughout the year that the employer pays over to the government.
• Rental Income: Generally, income derived from renting out property is not subject to self-employment tax unless the individual is engaged in a rental business that provides services for the convenience of tenants.  This generally includes rents paid in crop shares.
• Limited Partners: Limited partners in a partnership may be exempt from self-employment tax on certain income distributions, as their involvement in the business is typically passive, i.e., more in the nature of an investment.
• Certain Business Owners: Owners of corporations, including S corporations, may not be subject to self-employment tax on their share of the corporation’s profits, though they must pay themselves reasonable compensation subject to the FICA employment taxes.
• Commissions Allowed by the Probate Court – Commissions (fees) allowed to nonprofessional fiduciaries (such as an estate executor or trustee) by a probate court under local law generally aren’t considered self-employment earnings. However, if the fees relate to active participation in the operation of the estate’s business, or the management of an estate that required extensive management activities over a long period of time, the fees would be SE income to the extent they represents a special payment for operating the business. 
• Termination Payments of Former Insurance Salespeople – The law provides that net earnings from self-employment don’t include any amounts received from an insurance company for services performed by an individual as an insurance salesperson for the company if certain conditions are met.
• Religious Exemptions – Ministers, Christian Science practitioners, and members of religious orders who have taken a vow of poverty may get an exemption from self-employment tax on their earnings if certain requirements are met.  To get the exemption, Form 4361 must be filed with the IRS.

Retired clergy receiving parsonage or rental allowances are not subject to self-employment tax. 

• Notary Public – The fees for the services of a notary public are exempt from the self-employment tax.
• Nonresident Aliens – Nonresident aliens engaged in a trade or business within the United States may be subject to self-employment tax, with specific exemptions based on tax treaties.
• Miscellaneous Income from an Occasional Act or Transaction – Income from an occasional act or transaction, absent proof of efforts to continue those acts or transactions on a regular basis, isn’t income from self-employment subject to the SE tax.  An example is a nonprofessional fiduciary who manages the estate of a relative or friend.  However, professional fiduciaries are subject to self-employment tax

Special Situations

• Self-employment Tax Deduction – Self-employed individuals can deduct half of their self-employment tax when calculating their adjusted gross income, providing some relief. The purpose of this deduction is to make up for the self-employed person having to pay both sides of the Social Security and Medicare taxes. However, this is not a deduction on the individual’s business form, such as Schedule C. It is deductible whether the individual itemizes their deductions or claims the standard deduction.
• Optional Methods – There are two methods – one for farmers and another for nonfarmers – that can be used when net self-employment earnings are less than $400 and paying SE tax isn’t required.  Use of these methods allows a taxpayer to continue accruing credit toward their Social Security coverage in years when profits are small (or even when there is a loss). Using the optional method may also allow the individual to qualify for the earned income credit and certain other credits, or to receive a larger credit. These individuals are subject to special rules for self-employment tax, with different thresholds and rates applying to their net earnings.

Understanding the intricacies of self-employment tax is vital for anyone earning income outside of traditional employment. While the responsibility to pay rests on many self-employed individuals, exemptions and special cases exist. 

Contact our office with questions regarding self-employment tax and how it may apply in your specific circumstances.

September 2024 Individual Due Dates

September 1 – 2024 Fall and 2025 Tax Planning 

Tax Planning Contact this office to schedule a consultation appointment.

September 10 – Report Tips to Employer

If you are an employee who works for tips and received more than $20 in tips during August, you are required to report them to your employer on IRS Form 4070 no later than September 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 8 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.

September 16 – Estimated Tax Payment Due

The third installment of 2024 individual estimated taxes is due. Our tax system is a “pay-as-you-earn” system. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the “pay-as-you-earn” requirement. These include:

• Payroll withholding for employees;
• Pension withholding for retirees; and 
• Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding.

When a taxpayer fails to prepay a safe harbor (minimum) amount, they can be subject to the underpayment penalty. This penalty is equal to the federal short-term rate plus 3 percentage points, and the penalty is computed on a quarter-by-quarter basis.

Federal tax law does provide ways to avoid the underpayment penalty. If the underpayment is less than $1,000 (the de minimis amount), no penalty is assessed. In addition, the law provides “safe harbor” prepayments. There are two safe harbors:

• The first safe harbor is based on the tax owed in the current year. If your payments equal or exceed 90% of what is owed in the current year, you can escape a penalty.
  
  
• The second safe harbor is based on the tax owed in the immediately preceding tax year. This safe harbor is generally 100% of the prior year’s tax liability. However, for taxpayers whose AGI exceeds $150,000 ($75,000 for married taxpayers filing separately), the prior year’s safe harbor is 110%.

Example: Suppose your tax for the year is $10,000 and your prepayments total $5,600. The result is that you owe an additional $4,400 on your tax return. To find out if you owe a penalty, see if you meet the first safe harbor exception. Since 90% of $10,000 is $9,000, your prepayments fell short of the mark. You can’t avoid the penalty under this exception.

However, in the above example, the safe harbor may still apply. Assume your prior year’s tax was $5,000. Since you prepaid $5,600, which is greater than 110% of the prior year’s tax (110% = $5,500), you qualify for this safe harbor and can escape the penalty.

This example underscores the importance of making sure your prepayments are adequate, especially if you have a large increase in income. This is common when there is a large gain from the sale of stocks, sale of property, when large bonuses are paid, when a taxpayer retires, etc. Timely payment of each required estimated tax installment is also a requirement to meet the safe harbor exception to the penalty. If you have questions regarding your safe harbor estimates, please call this office as soon as possible.

CAUTION: Some state de minimis amounts and safe harbor estimate rules are different than those for the Federal estimates. Please call this office for particular state safe harbor rules.

Weekends & Holidays:

If a due date falls on a Saturday, Sunday or legal holiday, the due date is automatically extended until the next business day that is not itself a legal holiday. 

Disaster Area Extensions:

Please note that when a geographical area is designated as a disaster area, due dates will be extended. For more information whether an area has been designated a disaster area and the filing extension dates visit the following websites:

FEMA: https://www.fema.gov/disaster/declarations
IRS: https://www.irs.gov/newsroom/tax-relief-in-disaster-situations

September 2024 Business Due Dates

September 16 – S Corporations

File a 2023 calendar year income tax return (Form 1120-S) and pay any tax due. This due date applies only if you requested an automatic 6-month extension. Provide each shareholder with a copy of their Schedule K-1 (Form 1120-S) or a substitute Schedule K-1 and, if applicable, Schedule K-3 (Form 1120-S) or substitute Schedule K-3 (Form 1120-S).

September 16 – Corporations 

Deposit the third installment of estimated income tax for 2023 calendar year

September 16 – Social Security, Medicare and withheld income tax

If the monthly deposit rule applies, deposit the tax for payments in August.

September 16 – Nonpayroll Withholding

If the monthly deposit rule applies, deposit the tax for payments in August.

September 16 – Partnerships

File a 2023 calendar year return (Form 1065). This due date applies only if you were given an additional 5-month extension. Provide each partner with a copy of K-1 (Form 1065) or a substitute Schedule K-1.

September 30 – Fiduciaries of Estates and Trusts

File a 2023 calendar year return (Form 1041). This due date applies only if you were given an extension of 5 1/2 months. If applicable, provide each beneficiary with a copy of K-1 (Form 1041) or a substitute Schedule K-1.

Weekends & Holidays:

If a due date falls on a Saturday, Sunday or legal holiday, the due date is automatically extended until the next business day that is not itself a legal holiday. 

Disaster Area Extensions:

Please note that when a geographical area is designated as a disaster area, due dates will be extended. For more information whether an area has been designated a disaster area and the filing extension dates visit the following websites:

FEMA: https://www.fema.gov/disaster/declarations
IRS: https://www.irs.gov/newsroom/tax-relief-in-disaster-situations