personal finance tips

6 FAQs About 529 College Savings Plans

College is a large expense and one worth planning for, especially if you want your future college graduate to start their lives with minimal debt. One common way to prepare for such an expense is to open a 529 college savings plan.

Photo by Ruijia Wang on Unsplash

Photo by Ruijia Wang on Unsplash

What is a 529 plan?

College savings 529 plans are state-sponsored savings accounts that offer both tax and financial aid benefits.

What states run a 529 program?  

Almost every state has a 529 program, each with different perks and benefits. You can pick based on perks and you don’t need to live in the state you opened the account in.

You can look at 529 plan options using this tool from

What are the two types of college 529 plans?

There are two types of 529 plans, they are:

  • College savings plans – This plan is similar to a Roth 401k or Roth IRA by allowing you to contribute after-tax income in the form of mutual funds and other types of investments. There are a number of investment options to choose from and the 529 account will go up and down and value according to those investment choices. The money is this account is available for tuition, books, and often housing.

  • College prepaid tuition-  This plan can be used to pre-pay all or part of the costs of an in-state public college education. Sometimes, they can be converted for use at private or out-of-state colleges.

What are the perks of using a 529 savings plan?

Each state provides slightly different incentives for its 529 programs. But some of the overall benefits include:

  • Large income tax breaks (for federal and often state taxes)

  • The donor stays in control of the account until its use

  • They’re low maintenance

When can you start them?

You can start one of these savings plans at any time. Most 529 programs are “set it and forget it” meaning the investments come straight out of your paycheck or bank account.

Where can I learn more about college 529 plans?

There are a lot of online resources for comparing and ranking different 529 programs. You can reference one of these, or reach out to your friendly neighborhood tax professionals. We can help you select the best option for you.

*Contact us here*

5 Common Mistakes When Applying For Financial Aid


Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

Given the astronomical cost of college, even well-off parents should consider applying for financial aid. A single misstep, however, can harm your child’s eligibility. Here are five common mistakes to avoid:

1. Presuming you don’t qualify. It’s difficult to predict whether you’ll qualify for aid, so apply even if you think your net worth is too high. Keep in mind that, generally, the value of your principal residence or any qualified retirement assets isn’t included in your net worth for financial aid purposes.

2. Filing the wrong forms. Most colleges and universities, and many states, require you to submit the Free Application for Federal Student Aid (FAFSA) for need-based aid. Some schools also require it for merit-based aid. In addition, a number of institutions require the CSS/Financial Aid PROFILE®, and specific types of aid may have their own paperwork requirements.

3. Missing deadlines. Filing deadlines vary by state and institution, so note the requirements for each school to which your child applies. Some schools provide financial aid to eligible students on a first-come, first-served basis until funding runs out, so the earlier you apply, the better. This may require you to complete your income tax return early.

4. Picking favorites. The FAFSA allows you to designate up to 10 schools with which your application will be shared. Some families list these schools in order of preference, but there’s a risk that schools may use this information against you. Schools at the top of the list may conclude that they can offer less aid because your child is eager to attend. To avoid this result, consider listing schools in alphabetical order.

5. Mistaking who’s responsible. If you’re divorced or separated, the FAFSA should be completed by the parent with whom your child lived for the majority of the 12-month period ending on the date the application is filed. This is true regardless of which parent claims the child as a dependent on his or her tax return.

The rule provides a significant planning opportunity if one spouse is substantially wealthier than the other. For example, if the child lives with the less affluent spouse for 183 days and with the other spouse for 182 days, the less affluent spouse would file the FAFSA, improving eligibility for financial aid.

These are just a few examples of financial aid pitfalls. Let us help you navigate the process and explore other ways to finance college.

Retirement investing through the decades

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate


Investing to grow your retirement savings is a long-term project. The earlier you begin, the better, thanks to compounding interest.

You don’t have to worry about saving a lot at first. It’s all about forming a plan you can stick to.

Here are suggestions for retirement planning through the decades.

Your 20s: Open a 401(k) and IRA

You will likely land your first job in your 20s and can begin saving money for retirement. But before doing so, make sure you have enough cash to pay for three to six months’ worth of living expenses, in case an emergency arises. If you set up a retirement account and then withdraw from it to pay for emergency expenses, you may be subject to taxes and a penalty payment.

Once you have emergency savings, start funding a 401(k) if your employer offers one, especially if the company matches some of your contributions. If you turn down the option to contribute to a 401(k) plan that matches, you’re essentially giving away free money. In 2017, you can contribute up to $18,000 in a 401(k).

You also can open an individual retirement account, or IRA. In 2017, you can contribute up to $5,500.

If you can’t save enough to maintain both a 401(k) and an IRA, go for the 401(k) because contributions are automatic, pretax and subject to matching.

Your 30s: Consider a Roth, adjust asset mix

If you open an IRA in your 20s or 30s, you’ll want to consider a Roth IRA. Unlike a regular IRA, you don’t receive a tax deduction for contributions to a Roth. But when you withdraw money from a Roth IRA during retirement, it’s all tax-free. The money you withdraw from a regular IRA is taxed as regular income.

So if your tax rate is likely to be higher when you withdraw money from your IRA than it is now, you’re better off with a Roth IRA.

When it comes to allocating your retirement investments, try to put at least 60 percent in stocks during your 20s and 30s. But it all boils down to your risk tolerance. If you are unwilling to stomach losses, don’t put everything in stocks. The worst thing you can do is buy stocks and then sell them for a big loss.

Your 40s: Stay focused on the long run

Many people purchase homes in their 30s and 40s. It’s important to remember that your house is not part of your retirement plan, says Mick Heyman, an independent financial adviser in San Diego.

“I haven’t seen too many times that somebody buys a great home, sells it at 60 and then lives off the profits,” he says. So don’t spend so much money on a home that you can’t afford to save for your retirement as well.

You also must be realistic in providing for your children. Don’t spend so excessively on your kids that you neglect your retirement savings goals. That may even mean putting retirement plans ahead of your children’s college. Tuition payments can come from many sources, but retirement funds will have to come largely from the parents.

Your 50s: Capitalize on catch-ups

The 50s are the peak earning years for most people, so it’s even more critical to save. The government gives you some assistance, allowing increased contributions to IRAs and 401(k)s through “catch-up provisions.”

For IRAs, people 50 and older can contribute an extra $1,000 this year — $6,500 in total.

For 401(k) plans, participants 50 and older can put in an extra $6,000 — $24,000 in total.

If you have children who are now out of the house, you might have enough money to finance those catch-up payments.

Your 50s are a good time to opt for more safety in your asset allocation, experts say.

“Somewhere in your 40s and 50s, you want to transfer to more conservative stocks, and make sure you aren’t all in stocks,” Heyman says. “Start having 20 to 30 percent in bonds.” He also recommends orienting your stock holdings toward dividend-paying blue chips. They offer safety and income payments that you’ll appreciate during retirement.

Your 60s: Plan an income strategy

This is the decade in which you may well retire, which means you’ll begin withdrawing from your retirement funds.

The traditional rule of thumb is that you can cash out about 4 percent of your portfolio in each year of retirement. But with low interest rates limiting the amount of income your portfolio will generate, 3 percent may be more appropriate now.

Ideally, you should have two years’ worth of living expenses in cash to avoid having to dump your investments when markets are weak.

Adjust your asset allocation so that bonds account for a larger part of your portfolio, given your need for safety and income.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Retirement Planning Means Peace of Mind in Boca Raton

Herman Boca Blog

Boca Raton offers beautiful beaches, world-class shopping, amazing restaurants and warm weather all year round, what’s not to love? That’s why, when thousands of Americans retire every year, many move to sunnier climates in Florida to enjoy the relaxation that comes with retirement. In a fluctuating economy, however, retirement planning doesn’t end on your last day of work. The expert team at Herman & Company CPA’s, PC offers unparalleled planning services to make your retirement even easier. For our clients enjoying sun and sand in Boca Raton, Florida, the team at Herman & Company CPA’s, PC provides integral support to ensure the relaxation and peace of mind that you deserve.

Retirement planning for Boca Raton

Herman & Company CPA’s, PC offers accounting services for both retirees and those planning for retirement. Wise retirement planning is all about preparation and taking stock of your portfolio! We have a well-deserved reputation for saving clients money and looking to the future to ensure optimal returns every year. As trusted financial advisors, we work with our clients to create individualized strategies to safeguard their portfolios. We take pride in navigating the complex world of taxes to save our clients time, money and undue stress.

Bright futures for Florida retirees

How you manage your investments and savings will determine the quality of your lifestyle after your retire. However, these decisions don’t need to be made alone; with offices in New York and Florida, Herman & Company CPA’s, PC is committed to helping our clients afford a lifetime of financial stability. With our personalized touch, advanced accounting tools, and up-to-date knowledge of economic trends and policy changes, we help our clients protect their savings and investments.

Retirement planning should be easy, but the complicated world of financial policy can cause unnecessary stresses and lost savings. With over thirty years of experience, the team at Herman & Company CPA’s, PC has successfully guided hundreds of clients through annual taxes and wise financial planning decisions, always with the same mission: to provide our clients with personalized support and financial stability. 

5 Tips For Holiday Shopping On A Budget

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

Shopping Blog Photo

The holiday season is upon us!  Avoid putting yourself in debt this holiday season by getting organized and developing a budget.  Here are 5 tips for holiday shopping that will keep you within a budget.

  1. Make A List

It’s always a good idea to create your shopping list ahead of time.  Write down who you are shopping for, what your budget will allow per person, and what you expect to buy.  Having an idea of what you’re looking for prevents impulse buying, and it’s a major time saver. Plus, you don’t want to forget to buy a present for little Timmy, whether he’s been naughty or nice this year.

  1. Develop a Budget

Take a look at your bank account and determine a realistic budget for yourself.  Once you have decided what you can afford to spend this holiday season, stick to your budget!  If you plan to spend $20 on a gift, only spend $20.  It’s easy to say, “What’s one of two more dollars?”  But if you spend a few more dollars on each person that money adds up and your budget has completely gone out the window.

  1. Shop With Debit Cards/Cash Instead of Credit Cards

Leave your credit cards at home and use cash or debit cards.  With a credit card it’s easy to just swipe now and worry about how to pay later.  Inevitably you’ll spend more than you intended and will be blindsided at the end of the month.  Using cash or debit cards forces you to be aware of how much you have left in your account and will help you stick to your budget.  Plus, you will avoid paying interest on your credit card bill.  The National Retail Federation predicts that the average American will spend $805 this holiday season.  If you charged all $805 to your credit card and only paid the $25 minimum monthly payment with an average annual percentage rate (APR) of 18% it would take you 45 months to payoff.  Over the course of those months, you would end up paying $1,107.70 instead of $805, meaning you paid an unnecessary $302.70 in interest. Definitely not worth it.

  1. Shop Early

Try to get your holiday shopping done as early as possible. Not only will you beat the chaos of the holiday rush but the extra time will allow you to shop wisely.  By giving yourself plenty of time to shop you get the luxury to compare prices and find deals on what you’re looking for.  Last minute shoppers are left with no choice but to buy regardless of the price.  Plan ahead so you don’t run out of time or money!

  1. Beware of “Deals” and “Sales”

Retailers are excellent at enticing shoppers and painting the picture of a “great deal.” While Black Friday and Cyber Monday sales may seem appealing (especially to a bargain hunter!) they don’t always save you the most money.  Retailers have been known to inflate original prices to make discounts seem larger than they really are.  They also make their sales seem like a one-time only deal but in reality offer the same discounts throughout the year. Don’t be fooled.

Follow these five helpful tips and give yourself the gift of enjoying the holiday season debt-free!

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.


5 Financial Areas That May Need Some Spring Cleaning

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Forbes

With the first day of spring right around the corner, this is often a time for much needed spring cleaning. That goes for your finances too! Here are some areas in your financial life that might need some cleaning up:

paperwork1) Your credit report.

It’s been estimated that 70% of credit reports have errors on them. It’s bad enough to suffer from your own mistakes. You don’t want to suffer from someone else’s too. Every 12 months, you can order free copies of each of your three credit reports at (be sure to use this official site because there are a lot of copy cats out there that aren’t actually free) and dispute any incorrect items you may find that could be hurting your score.

There are a couple of other strategies you can use to remove delinquent debts from your credit report as well. One is a “pay for delete,” in which you try to settle the debt in exchange for them removing it from your credit report. If the debt was already paid or settled, you can ask for a goodwill deletion, which is pretty much what it sounds like. Also be aware that unpaid or delinquent accounts will automatically fall off of your credit report afterabout 7 years so you might just be able to wait some of them out.

Repairing your credit is one of the fastest ways to boost your credit score, which can reduce your interest rates and insurance premiums and even improve your chances of landing a new job. You can look for other ways to increase your score for free on sites like Credit Karmaand Credit Sesame. Both sites also offer free credit monitoring so you’ll be alerted in case anything happens to your credit in the future.

2) Your spending.

If you’ve never tracked your spending, you may be shocked to discover where your money has been going. You can start by looking at the last 3 months of your bank and credit card statements and recording your expenses on a worksheet like this. The only problem is that you won’t be able to see where your cash went so for each cash transaction going forward, you might want to keep the receipt or write it down. You can also decide to only use cash for one type of expense like eating out or just make cash spending it’s own miscellaneous category.

Once you know your expenses, you can look for opportunities to save money. Some may be easy like getting rid of subscriptions to magazines you don’t read or switching to lower cost insurance policies or cell phone plans. (You may be surprised to see how even small savings like bringing coffee or lunch to work can add up over time.) Others may require making some sacrifices to free up money towards expenses or goalsthat are more important to you. The important thing is to make sure that your spending matches your priorities.

3) Your retirement accounts.

Do you still have money at retirement plans from previous jobs? If so, it could be a good idea to consolidate them in an IRA or your current employer’s plan. Rolling them into an IRA could provide you more options in how you invest the money and even how you use it since IRAs can be used penalty-free for things like education expenses and up to $10k for a first-time home purchase. Rolling them into your current employer’s plan can make it easier to manage, especially if your plan provides free investment help or guidance, and can allow you to borrow from it if necessary.

That being said, there are a few reasons why you might not want to roll over the money. One is if your former plan offers a unique investment option that you’d like to invest in but can’t otherwise access. For example, some plans offer discounted mutual funds or stable value funds with relatively high interest rates. Another is if you have appreciated company stock since you can pay a lower taxon the gain by transferring the shares directly out of the plan when you retire. But other than these fairly rare situations, it may make sense to just roll the money over.

4) Your investments.

Even if all of your money is in one account, it could be haphazardly spread out in multiple investments. While this may look “diversified” the disorganization can actually mask problems like having too much or too little of your portfolio in certain types of investments or paying too much in fees. I’ve seen people with multiple overlapping funds that all invest in the same thing.

To keep things as simple as possible, you can put everything in an “asset allocation fund” like a balanced fund or a target date fund that gradually becomes more conservative as you get closer to retirement. Because these funds are fully diversified with a mix of stocks, bonds, and perhaps other investments, they can be a “ one stop shop.” Just make sure the fund matches your risk toleranceand doesn’t charge excessive fees.

If you want a more customized portfolio, see if your account has access to investment tools like Financial Engine’s Personal Online Advisor, which is offered at no additional cost in many employees’ retirement plans. There are also a whole host of “robo-advisors” that can manage your investments at a much lower cost than a traditional financial advisor. Some like Wisebanyanand Charles Schwab's new Intelligent Portfolios™ program don’t even charge a fee at all.

If you prefer a human touch or have a more complex situation, you might want to hire an investment advisor. To avoid conflicts of interest, look for a fee-only advisor that doesn’t sell investments for a commission. In particular, you can find independent advisors that charge hourly fees at the Garrett Planning Network, monthly fees at the XY Planning Network (they specialize in Gen X and Gen Y clients), and annual retainers at the Alliance of Comprehensive Planners(most will also do your taxes).

5) Your legal documents.

Many people are afraid to get rid of old tax documents but according to the IRS, the longest you may ever need to keep tax documents is 7 years. (Yes, you can finally clean out that old filing cabinet.) Just be sure to get those documents shredded or you may find yourself back to cleaning up your credit report again.

You should also check the beneficiary designations on any retirement accounts or life insurance policies you have because those designations trump any subsequent documents you may have created. That means if your ex-spouse is listed as the beneficiary on your IRA but your will leaves everything to your current spouse, your ex is still getting that IRA when you pass away. These beneficiary designations also allow you to avoid the time and cost of probate. Fortunately, you can generally add beneficiaries to bank accounts by asking for a POD (payable on death) form and to brokerage accounts with a TOD (transfer on death) form. Some states will even let you add beneficiaries to real estate and vehicles.

Finally, check to make sure that youhave an updated will, durable power of attorney, advance health care directive, and possibly a trust. If not, see if your employer has a benefit that lets you draft these documents for free or at a discount. In any case, you can create and store a health care directive at MyDirectives.comat no cost.

None of these areas may feel as urgent as a dirty toilet or a kitchen floor that needs scrubbing so they can be even easier to procrastinate, but the impact of neglecting them can be much greater. That’s exactly why we need to set a date to take care of them. After all, isn’t that what spring cleaning is all about?

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

The First 5 Things You Should Do If (WHEN!) You Win The Lottery

Lottery TicketWhen local Westchester resident Kevin Buchanan, a construction work from Yonkers, bought a $20 scratch off ticket on Christmas morning he wasn’t expecting to win $5 million dollars! Deciding to take the lump sum payment, Buchanan ended up taking home $3.2 million dollars. Merry Christmas to him!

Buchanan has been very down to earth about his big win: he has decided to pay some bills, buy a home and splurge on a Cadillac Escalade. Early retirement? Not for this family man, he’ll keep on working.

The first 5 things you should do when you win the lottery:

1.      Take a deep breath and do not rush to make ANY decisions regarding this new found money. There must be many thoughts going through your head, many of which will be imprudent and financially unwise. Yes you should have some fun now with a portion of your winnings, but don’t rush to make huge life changing decisions with the bulk of winnings without a well thought-out plan.

2.      Meet with a CPA to understand tax ramifications of taking a lump sum now or a payout from the lottery over time. Get some advice on future planning, including estate planning so your family is provided for.

3.      Meet with an attorney to make sure your will is up to date and provides for your family according to your wishes.

4.      Find a trusted financial advisor. Your attorney and CPA may be good sources of referrals. Interview three different advisors before selecting one. This is important as you want your new found money to work for you.

5.      Realize how fortunate you are to be in this position. Find some causes close to your heart that you can make a difference for.

We at Herman & Co, CPA wish Kevin and his family the best and are proud to see he is making the smart choices and not fleeing these winter storms to hole up on some tropical beach….yet.

Contact Paul Herman at (914) 400-0300 for a free 30 minute no obligation consultation about your individual or business needs.

Standard Mileage Rates for 2015

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation! 

2015 Mileage Rates & Employer Health Insurance Reimbursements

Rather than keeping track of the actual cost of operating a vehicle, employees and self-employed taxpayers can use a standard mileage rate to compute their deduction related to using a vehicle for business. Likewise, standard mileage rates are available for computing the deduction when a vehicle is used for charitable, medical or moving purposes.

The 2015 standard mileage rates for use of a vehicle are 57.5 cents per mile for business miles (up from 56 cents per mile in 2014), 23 cents per mile for medical or moving purposes, and 14 cents per mile for rendering gratuitous services to a charitable organization.

The business standard mileage rate is considerably higher than the charitable and medical/moving rates because it contains a depreciation component. No depreciation is allowed for the charitable or medical/moving use of a vehicle.

In addition to deductions based on the business standard mileage rate, taxpayers may deduct the parking fees and tolls attributable to the business use of an automobile, as well as interest expense relating to the purchase of the automobile and state and local personal property taxes. However, employees using a vehicle to perform services as an employee cannot deduct interest expense related to that vehicle. Also, if the vehicle is operated less than 100% for business purposes, the taxpayer must allocate the business and non-business portion of the allowable taxes and interest deduction.

Employer Reimbursements of Individual Health Insurance Policies

For plan years beginning after 2013, the Affordable Care Act (ACA) institutes so-called market reform provisions that place a whole host of new restrictions on group health plans. The penalty for violating the market reform restrictions is a punitive $100-per-day, per-employee penalty; or $36,500 per employee, per year. With a limited exception, these new market reform provisions significantly restrict an employer’s ability to reimburse employees for premiums paid on individual health insurance policies, referred to as employer payment arrangements.

Employer payment arrangements

Under employer payment arrangements, the employer reimburses employees for premiums they pay on their individual health insurance policies (or the employer sometimes pays the premium on behalf of the employee). As long as the employer (1) makes the reimbursement under a qualified medical reimbursement plan and (2) verifies that the reimbursement was spent only for insurance coverage, the premium reimbursement is excludable from the employee’s taxable income. These arrangements have long been popular with small employers who want to offer health insurance but are unwilling or unable to purchase group health coverage.

Unfortunately, according to the IRS and Department of Labor (DOL), group health plans can’t be integrated with individual market policies to meet the new market reform provisions. Furthermore, according to the DOL, an employer that reimburses employees for individual policies (on a pretax or after-tax basis) has established a group health plan because the arrangement’s purpose is to provide medical care to its employees. Therefore, reimbursing employees for premiums paid on individual policies violates the market reform provisions, potentially subjecting the employer to a $100 per-day, per-employee ($36,500 per year, per employee) penalty.

Limited exception for one-employee plans. The market reform provisions do not apply to group health plans that have only one participating employee. Therefore, it is still allowable to provide an employer payment arrangement that covers only one employee. Note, however, that nondiscrimination rules require that essentially all full-time employees must participate in the plan

Bottom line. While still technically allowed under the tax code, employer payment arrangements, other than arrangements covering only one employee, are no longer a viable alternative.


What should you do if you still have an employer payment plan?

First of all, don’t panic. You are not alone. The impact of the market reform provisions to these plans has come as a great surprise to many small business employers, not to mention the tax practitioner community, and we believe there is reasonable cause to keep the penalty from applying for earlier payments. However, it is important to discontinue making payments under the plan and rescind any written documents. Also, any reimbursements made after 2013 should be classified as taxable wages.

Acceptable alternatives

Because of the ACA market reform requirements, employers are basically precluded from subsidizing or reimbursing employees for individual health insurance policies if there is more than one employee participating in the plan. Employers can, however, continue to do any of the following:

· Provide a tax-free fringe benefit by purchasing an ACA-approved employer-sponsored group health plan. Small employers with 50 or fewer employees can provide a group health plan through the Small Business Health Options Plan (SHOP) Marketplace. A cafeteria plan can be set up for pretax funding of the employee portion of the premium.

· Increase the employee’s taxable wages to provide funds that the employee may use to pay for individual insurance policies. However, the employer cannot require that the funds be used to pay for insurance — it must be the employee’s decision to do so (or not). The employer can claim a deduction for the wages paid. The wages are taxable to the employee, but the employee can claim the premiums as an itemized deduction subject to the 10%-of-AGI limit (7.5% if age 65 or older).

If you have any questions, please give us a call.

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Beware tax ID thieves

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation! 

By BankRate

We made it through the first week of tax filing season 2015. Unfortunately, during those days some folks’ tax information likely was stolen and used to file fraudulent tax returns.

Tax identity theft is a major and growing problem for taxpayers and the Internal Revenue Service alike.© John T Takai/

Taxpayers suffer when they go to file their returns and learn that a crook already has used their Social Security number to claim a fraudulent refund. They must wait for the IRS to determine that they are the legitimate taxpayers before they can get their rightful refund.

On the IRS side, the tax agency must implement more filing system changes to try to catch the crooks. When the tax ID theft does occur, it must spend extra time with the victims to help them get the refunds they, not the criminals, are due.

The IRS has focused more resources in recent years on clearing up tax identity theft cases, and resolution times are improving. But any delay is incredibly frustrating for folks expecting a tax refund.

“Scams can be sophisticated and take many forms. We urge people to protect themselves and use caution when viewing e-mails, receiving telephone calls or getting advice on tax issues,” says IRS Commissioner John Koskinen.

Take steps to stop ID thieves

The commissioner is right. The best way to combat tax identity theft is to avoid becoming a victim in the first place.

With the growth of telephone and email phishing scams, don’t give your personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.

Additionally, to protect yourself from tax identity theft, the IRS recommends that you:

  • Don’t carry your Social Security card or any documents that include your Social Security number or Individual Taxpayer Identification Number, or ITIN.
  • Don’t give a business your Social Security number just because they ask. Give it only when required.
  • Check your credit report and Social Security Administration earnings statement annually.
  • Secure personal information in your home, both physically and digitally. This includes adding firewalls and anti-spam and anti-virus software to your personal computer. Update computer security patches and periodically change passwords for your Internet accounts.

Resolving tax ID theft

Despite individual taxpayer efforts, tax identity thieves still manage to get their hands on personal data and use it to file fake returns. When that happens, the IRS issues identity protection personal identification numbers, or IP PINs, to the real filers.

Each IP PIN is a unique, six-digit number that is assigned annually to identity theft victims whose cases are resolved so they can use the PIN to file their federal tax return. To date, the IRS has issued approximately 1.5 million IP PINs.

This year, the IRS is continuing its IP PIN pilot program that allows taxpayers who filed tax returns last year from Florida, Georgia or the District of Columbia to opt in to the IP PIN program.

The IRS also is offering approximately 1.7 million more taxpayers to opt in to the IP PIN program. In these optional IP PIN cases, the IRS has identified indications of identity theft on the taxpayers’ accounts.

Such efforts help, but it’s better for everyone except the crooks if you don’t fall prey to tax ID thieves. So take extra care this filing season and protect your tax data and your refund.

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.


Details of the President’s State of the Union Tax Proposals

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation! 

President Barack Obama used Tuesday’s State of the Union address to announce that he will propose tax increases for higher-income individuals and provide tax relief for middle-class taxpayers. Ahead of the speech, the White House provided details of what the president plans to propose, which it characterized as simplifying the Internal Revenue Code, eliminating loopholes, and helping “middle class families get ahead and grow the economy.”


Specific proposals on the president’s wish list include:

  • Eliminate the step-up in basis for assets that are transferred at death, treating transfers at death as realization events for capital gains tax purposes;
  • Raise the top tax rate on capital gains and dividends to 28%, which would be imposed on taxpayers with incomes over about $500,000;
  • Impose a 7-basis-point fee on the liabilities of large financial institutions to discourage “excessive borrowing”;
  • Create a $500 second-earner tax credit for families in which both spouses work (5% of the first $10,000 of the lower-earning spouse’s income; credit would phase out for couples with incomes between $120,000 and $210,000);
  • Modify various child care tax incentives, including increasing the earned income tax credit (EITC) for childless taxpayers, increasing the EITC phaseout level, making permanent EITC increases that are scheduled to expire after 2017, tripling the maximum child and dependent care credit and making the income cutoff $120,000, and eliminating child care flexible spending accounts;
  • Consolidate and expand education tax benefits, including making the American opportunity tax credit permanent and folding the lifetime learning credit into it, increase the refundable portion to $1,500, and make it available to more students; and
  • Reform retirement tax incentives, including automatically enrolling workers in IRAs, requiring employers to allow more part-time workers to participate in their retirement plans, and providing a cap of about $3.4 million in an IRA.

The White House did not provide a timeline for when legislation embodying these proposals would be introduced. Since both houses of Congress are now controlled by Republicans, any proposal by the president will face a steep uphill climb.

Article: The Tax Advisor

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