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Preventing Credit Card Fraud

What is credit card fraud?
Credit card fraud occurs any time your credit card account is used without your knowledge or permission. Credit card fraud costs cardholders and issuers hundreds of millions of dollars every year. Closely related to credit card fraud is "identity theft," which is addressed in our separate topic discussion, Coping with Identity Theft. While it is easy to become the victim of credit card fraud, there are many simple ways to protect yourself against this loss. Some of these are outlined below.

Tip: The Fair and Accurate Credit Transactions Act of 2003 (FACTA) provides consumers with an arsenal of weapons to fight fraud and identity theft. For example, you can ask the credit bureaus to truncate your Social Security number on any disclosures they send to you, including your credit report. Additionally, creditors and businesses must take other steps to protect consumers against fraud and identity theft. For example, merchants can only print the last five digits of your credit card or debit card number on electronically generated receipts.

How can you protect yourself from credit card fraud?

Keep track of your card
The first step in protecting yourself is to know where your credit card is at all times. Try carrying your money in one pocket and your credit cards in another, so a thief won't steal both at once. Keep your eye on your card during transactions, and be sure the clerk returns it at the end of the transaction. Don't loan your card to anyone or reveal your personal identification number (PIN).

Take some low-tech precautions
Retail stores and other businesses that accept credit cards are prohibited by law from asking to see additional identification. This can actually make things easier for anyone fraudulently using your card. Immediately sign the back of a new card, and use permanent ink. A thief may be inhibited by the need to forge your signature. Make the activation call the company requires, because that protects you against liability and may give you additional information. Keep your PIN separate from your card.

Handle your personal identification number (PIN) with care
Your PIN is an important protection for your card. Select one that is easy to remember, but not easy to guess. Don't use your house number, your license plate, your birthday, or part of your Social Security number. Don't write the number on your card or carry it somewhere in your wallet. Don't share your PIN with anyone, including family members.

Consider using a credit card protection service
Having your wallet or purse stolen can be a nightmare. To save yourself the worry of calling every single issuer whose card you carry, you can pay a small fee to a protection service that will notify your credit card companies for you. Some of these protection companies will also pay any liability you incur after you notify them, and they will wire you money if you request it.

Caution: You'll be paying monthly for this protection service, so think about whether you really need it. Also, the service will only be as good as the information you give them. If you change cards, add cards, or lose more cards than you realized, the service won't be worth the money you spend on it.

Tip: Make a list of your cards, their numbers, and the toll-free number to report loss or theft. Keep this list in a safe place--not in your wallet or purse. If you lose your wallet or purse and aren't able to notify your card issuers, you'll be liable for a portion of any illegally made charges.

Protect your card number as carefully as you protect your card
A thief may steal your card itself, but is even more likely to steal your card number. A dishonest clerk or telemarketer, for example, can copy your credit card number. A thief can also find your number on discarded receipts or carbons and use the information to shop by phone, mail, or Internet. Instead of stuffing your receipts in your glove compartment, keep them in a safe place at home so your number is protected. Never write the number on the outside of envelopes or on postcards.

What do card issuers do to prevent fraud?
You may feel that it's you against the pickpocket, but card companies have an incentive to back you up. In most situations, the card issuers bear the responsibility for illegally incurred charges. Many credit cards now have holograms or photos for identity protection. They may also carry "neural networks," which track your spending habits, the geographical area where you usually shop, and what your typical price range is. That's why travel card companies advertise that they call their customers if their credit cards show unusual activity.

How secure is shopping by phone?
Phone and catalogue shopping are very popular, especially during the holiday season. Phone shopping is generally safe and convenient, as long as you've initiated the call. If someone claims to be calling from a catalogue company, get their number and call them back to be sure the call is legitimate.

Cybershopping: The newest arena for fraud
Cybershopping is the ultimate home shopping experience. Click a button and buy a discounted best seller or new CD. If you're going to shop on-line, there are basic ways to protect your credit information.

Unsecured information sent over the Internet can be intercepted. If you decide to buy on-line, your browser should invite you to download a secure program, such as secured hypertext transfer protocol (SHTP) or a Secure Sockets Layer (SSL), for transmitting credit information. Even if the program takes several minutes to download, the inconvenience is far better than taking a chance on having your card number intercepted. Without a Web browser that complies with industry standards for security, your credit information will be available to anyone with the skills to find it.

Here are some other tips:

  • Buy from reputable stores and sellers.
  • Look for third-party seals of approvals, such as Better Business Bureau Online and Trustee.
  • Make sure the site uses encryption. Look for an "s" after "http" in the address. There should also be a tiny closed padlock in the address bar, or lower right-hand corner of the window.
  • Use a browser filter that warns you of suspicious sites.

 

This article was provided by Forefield and distributed by Lawrence Sprung.

Tax Planning for the Self-Employed

Self-employment is the opportunity to be your own boss, to come and go as you please, and oh yes, to establish a lifelong bond with your accountant. If you're self-employed, you'll need to pay your own FICA taxes and take charge of your own retirement plan, among other things. Here are some planning tips.

Understand self-employment tax and how it's calculated
As a starting point, make sure that you understand (and comply with) your federal tax responsibilities. The federal government uses self-employment tax to fund Social Security and Medicare benefits. You must pay this tax if you have more than a minimal amount of self-employment income. If you file a Schedule C as a sole proprietor, independent contractor, or statutory employee, the net profit listed on your Schedule C (or Schedule C-EZ) is self-employment income and must be included on Schedule SE, which is filed with your federal Form 1040. Schedule SE is used both to calculate self-employment tax and to report the amount of tax owed. For more information, see IRS Publication 533.

Make your estimated tax payments on time to avoid penalties
Employees generally have income tax, Social Security tax, and Medicare tax withheld from their paychecks. But if you're self-employed, it's likely that no one is withholding federal and state taxes from your income. As a result, you'll need to make quarterly estimated tax payments on your own (using IRS Form 1040-ES) to cover your federal income tax and self-employment tax liability. You may have to make state estimated tax payments, as well. If you don't make estimated tax payments, you may be subject to penalties, interest, and a big tax bill at the end of the year. For more information about estimated tax, see IRS Publication 505.

If you have employees, you'll have additional periodic tax responsibilities. You'll have to pay federal employment taxes and report certain information. Stay on top of your responsibilities and see IRS Publication 15 for details.

Employ family members to save taxes
Hiring a family member to work for your business can create tax savings for you; in effect, you shift business income to your relative. Your business can take a deduction for reasonable compensation paid to an employee, which in turn reduces the amount of taxable business income that flows through to you. Be aware, though, that the IRS can question compensation paid to a family member if the amount doesn't seem reasonable, considering the services actually performed. Also, when hiring a family member who's a minor, be sure that your business complies with child labor laws.

As a business owner, you're responsible for paying FICA (Social Security and Medicare) taxes on wages paid to your employees. The payment of these taxes will be a deductible business expense for tax purposes. However, if your business is a sole proprietorship and you hire your child who is under age 18, the wages that you pay your child won't be subject to FICA taxes.

As is the case with wages paid to all employees, wages paid to family members are subject to withholding of federal income and employment taxes, as well as certain taxes in some states.

Establish an employer-sponsored retirement plan for tax (and nontax) reasons
Because you're self-employed, you'll need to take care of your own retirement needs. You can do this by establishing an employer-sponsored retirement plan, which can provide you with a number of tax and nontax benefits. With such a plan, your business may be allowed an immediate federal income tax deduction for funding the plan. You can also generally place pretax dollars into a retirement account to grow tax deferred until withdrawal. You may want to use one of the following types of retirement plans:

  • Keogh plan
  • Simplified employee pension (SEP)
  • SIMPLE IRA
  • SIMPLE 401(k)
  • Individual (or "solo") 401(k)


The type of retirement plan that your business should establish depends on your specific circumstances. Explore all of your options and consider the complexity of each plan. And bear in mind that if your business has employees, you may have to provide coverage for them as well. For more information about your retirement plan options, consult a tax professional or see IRS Publication 560.

Take full advantage of all business deductions to lower taxable income
Because deductions lower your taxable income, you should make sure that your business is taking advantage of any business deductions to which it is entitled. You may be able to deduct a variety of business expenses, including rent or home office expenses, and the costs of office equipment, furniture, supplies, and utilities. To be deductible, business expenses must be both ordinary (common and accepted in your trade or business) and necessary (appropriate and helpful for your trade or business). If your expenses are incurred partly for business purposes and partly for personal purposes, you can deduct only the business-related portion.

If you're concerned about lowering your taxable income this year, consider the following possibilities:

  • Deduct the business expenses associated with your motor vehicle, using either the standard mileage allowance or your actual business-related vehicle expenses to calculate your deduction
  • Buy supplies for your business late this year that you would normally order early next year
  • Purchase depreciable business equipment, furnishings, and vehicles this year
  • Deduct the appropriate portion of business meals, travel, and entertainment expenses
  • Write off any bad business debts

Self-employed taxpayers who use the cash method of accounting have the most flexibility to maneuver at year-end. See a tax specialist for more information.

Deduct health-care related expenses
If you qualify, you may be able to benefit from the self-employed health insurance deduction, which would enable you to deduct up to 100 percent of the cost of health insurance that you provide for yourself, your spouse, and your dependents. This deduction is taken on the front of your federal Form 1040 (i.e., "above-the-line") when computing your adjusted gross income, so it's available whether you itemize or not.

Contributions you make to a health savings account (HSA) are also deductible "above-the-line." An HSA is a tax-exempt trust or custodial account you can establish in conjunction with a high-deductible health plan to set aside tax-free funds for health-care expenses.

This article was provided by Forefield and distributed by Lawrence Sprung.

Health-Care Reform: How Does It Affect Businesses?

In March of 2010, President Obama signed two pieces of legislation into law, implementing the most pervasive health-care reform since Medicare. Many of the reforms that relate to business and employers don't take effect until 2014. Here are some of the important highlights of health-care reform from the perspective of employers and businesses.

Health insurance not required but encouraged
Contrary to popular belief, health-care reform does not actually require all employers to offer health insurance to their employees. Instead, the new reforms use financial penalties to encourage employers to offer affordable health insurance coverage. Specifically, beginning in 2014, employers who have at least 50 full-time employees, and do not offer health insurance, may be assessed a fee of $2,000 for each full-time employee (excluding the first 30 employees) if at least 1 employee is receiving a premium credit. (A premium credit can be used by eligible individuals and families who purchase health insurance through state-based exchanges to reduce the premium cost.)

Even employers who do offer coverage may face a fee if at least 1 full-time employee is receiving a premium credit. The fee is either $3,000 per employee receiving the credit or $2,000 for each full-time employee, whichever total is less. Employers with fewer than 50 full-time employees are exempt from these fees. But, employers with 200 or more employees must automatically enroll employees in health insurance plans offered by the employer. The employee may voluntarily opt out of the employer's plan.

In addition, employers that offer employee health insurance must offer a free choice voucher to employees who elect to enroll in a state-based American Health Benefit Exchange plan. The value of the voucher is equal to the amount the employer would have paid to cover the employee under the employer's plan. Employees may enroll in an Exchange plan if the employee's income is less than 400% of the Federal Poverty Level (FPL) and the employee's cost to participate in the employer's plan is between 8% and 9.8% of the employee's income. The voucher can be used to offset the employee's cost to participate in the Exchange plan.

Employer incentives
As an incentive for small businesses to offer employee health insurance, from 2010 to 2013, employers with 25 or fewer full-time employees with average annual wages less than $50,000 may be eligible for a tax credit of up to 35% of the employer's total premium cost. Beginning in 2014, small businesses that buy insurance through state Exchanges for their employees may receive a credit of up to 50%. In either case, the credit decreases as the number of employees and average annual wage increases.

By 2014, in an effort to promote wellness and decrease health insurance costs, employers will be able to offer employees rewards, such as premium discounts and added benefits, for participating in wellness programs and meeting certain health-related standards. The value of the rewards can equal as much as 30% of the cost of coverage and may even reach 50% in some cases.

Employers who provide insurance for retired employees who are over age 55, but not yet eligible for Medicare, may receive reimbursement for 80% of retiree claims between $15,000 and $90,000. This temporary reinsurance program begins in 2010 and is available until 2014. On the other hand, employers who currently receive a tax deduction for Medicare Part D drug subsidy payments will see that deduction eliminated in 2013.

Small businesses with up to 100 employees may be able to purchase health insurance through state-based Small Business Health Options Program (SHOP) Exchanges by 2014. The Exchanges will offer at least four benefit categories of plans based on covering an increasing percentage of benefit costs.

This article was provided by Forefield and distributed by Lawrence Sprung.

Health-Care Reform: High-Income Individuals Face New Medicare-Related Taxes in 2013

The recently enacted health-care reform legislation includes new Medicare-related taxes. These new taxes take effect in 2013, and target high-income individuals and families. While additional details and clarifications will become available between now and 2013, here's what you need to know.

New additional Medicare payroll tax
If you receive a paycheck, you probably have some familiarity with the Federal Insurance Contributions Act (FICA) employment tax; at the very least, you've probably seen the tax deducted on your paystub. The old age, survivors, and disability insurance (“OASDI”) portion of this FICA tax is equal to 6.2% of covered wages (up to $106,800 in 2010). The hospital insurance or HI portion of the tax (commonly referred to as the Medicare payroll tax) is equal to 1.45% of covered wages, and is not subject to a wage cap. FICA tax is assessed on both employers and employees (that is, an employer is subject to the 6.2% OASDI tax and the 1.45% HI tax, and each employee is subject to the 6.2% OASDI tax and the 1.45% HI tax on wages as well), with employers responsible for collecting and remitting the employees' portions of the tax.

Self-employed individuals are responsible for paying an amount equivalent to the combined employer and employee rates on net self-employment income (12.4% OASDI tax on net self-employment income up to the taxable wage base, and 2.9% HI tax on all net self-employment income), but are able to take a deduction for one-half of self-employment taxes paid.

Beginning in 2013, the new health reform legislation increases the hospital insurance (HI) tax on high-wage individuals by 0.9% (to 2.35%). Who's subject to the additional tax? If you're married and file a joint federal income tax return, the additional HI tax will apply to the extent that the combined wages of you and your spouse exceed $250,000. If you're married but file a separate return, the additional tax will apply to wages that exceed $125,000. For everyone else, the threshold is $200,000 of wages. So, in 2013, a single individual with wages of $230,000 will owe HI tax at a rate of 1.45% on the first $200,000 of wages, and HI tax at a rate of 2.35% on the remaining $30,000 of wages for the year.

Employers will be responsible for collecting and remitting the additional tax on wages that exceed $200,000. (Employers will not factor in the wages of a married employee's spouse.) You'll be responsible for the additional tax if the amount withheld from your wages is insufficient. The employer portion of the HI tax remains unchanged (at 1.45%).

If you're self-employed, the additional 0.9% tax applies to self-employment income that exceeds the dollar amounts above (reduced, though, by any wages subject to FICA tax). If you're self-employed, you won't be able to deduct any portion of the additional tax.

New Medicare contribution tax on unearned income
Beginning in 2013, a new 3.8% Medicare contribution tax will be imposed on the unearned income of high-income individuals (the new tax is also imposed on estates and trusts, although slightly different rules apply). The tax is equal to 3.8% of the lesser of:

Your net investment income (generally, net income from interest, dividends, annuities, royalties and rents, and capital gains, as well as income from a business that is considered a passive activity or a business that trades financial instruments or commodities), or
Your modified adjusted gross income (basically, your adjusted gross income increased by any foreign earned income exclusion) that exceeds $200,000 ($250,000 if married filing a joint federal income tax return, $125,000 if married filing a separate return).
So, effectively, you're only subject to the additional 3.8% tax if your adjusted gross income exceeds the dollar thresholds listed above. It's worth noting that interest on tax-exempt bonds, veterans' benefits, and excluded gain from the sale of a principal residence that are excluded from gross income are not considered net investment income for purposes of the additional tax. Qualified retirement plan and IRA distributions are also not considered investment income.

Together, these two new Medicare-related taxes are expected to provide a major source of revenue to finance other parts of health-care reform. The Joint Committee on Taxation projects that the combined revenue attributable to these two new taxes will exceed $210 billion over the ten-year period ending in 2019 (Source: Joint Committee on Taxation, Publication JCX-17-10, March 20, 2010).

This article was provided by Forefield and distributed by Lawrence Sprung.

Long-Term Care Insurance (LTCI)

What is long-term care insurance (LTCI)?
Long-term care insurance (LTCI) is a contractual arrangement that pays a selected dollar amount per day for a selected period of time for skilled, intermediate, or custodial care in nursing homes and other settings (such as home health care). Because Medicare and other forms of health insurance do not pay for custodial care, many nursing home residents have only three alternatives for paying their nursing home bills: their own assets (cash, investments), Medicaid, and LTCI. For information about Medicare and other government programs that cover only a limited amount of long-term care expenses, see Coordination with Government Benefits. For details about Medicaid, see Long-term Care Insurance (LTCI) as a Medicaid Planning Tool.

In general, long-term care refers to a broad range of medical and personal services designed to provide ongoing care for people with chronic disabilities who have lost the ability to function independently. The need for this care arises when physical or mental impairments prevent one from performing certain basic activities, such as feeding, bathing, dressing, transferring, and toileting--activities known as ADLs ("activities of daily living"). For more information about these activities, see Long-term Care Insurance (LTCI) Provisions. For details about places where you might receive long-term care, see Types of Long-term Care. For information about different kinds of LTCI policies and places where you might purchase them, see Types of Long-term Care Policies.

Long-term care may be divided into three levels:

  • Skilled care--continuous "around-the-clock" care designed to treat a medical condition. This care is ordered by a physician and performed by skilled medical personnel, such as registered nurses or professional therapists. A treatment plan is created, and it is usually contemplated that the patient will recover at some point.
  • Intermediate care--intermittent nursing and rehabilitative care provided by registered nurses, licensed practical nurses, and nurse's aides under the supervision of a physician.
  • Custodial care--care designed to help one perform the activities of daily living (such as bathing, eating, and dressing). It can be provided by someone without professional medical skills, but is supervised by a physician.

How is it useful as a protection planning tool?
The risk of contracting a chronic debilitating illness (and the resulting catastrophic medical bills incurred) is considered by many to be one type of risk best passed on to an insurance company through the purchase of a LTCI policy.

A number of factors can increase your risk of requiring long-term care in the future. Naturally, your health status affects your likelihood of incurring a long stay in a nursing home. Indeed, people with chronic or degenerative medical conditions (such as rheumatoid arthritis, Alzheimer's disease, or Parkinson's disease) are more likely than the average person to require long-term nursing home care. And because women usually outlive the men in their lives, women stand a greater chance of requiring long-term nursing home care. However, if you already have a primary caregiver (like a spouse or child), your likelihood of needing a long stay in a nursing home will be less, particularly if you're a man. Because the cost of long-term care can be astronomical and may exhaust your life savings, purchasing LTCI should be considered as part of your overall asset protection strategy.

Example(s): Sue is a 75-year-old widow with two children, John and Jill. Sue owns her condominium apartment and has $200,000 in liquid assets. After enjoying independence much of her life, Sue suffered a stroke and now needs help with such things as bathing, dressing, and eating. John and Jill look into home health care and discover that it will cost $1,500 per week (or $78,000 per year). The money that Sue had hoped to pass on to her children will instead be spent on expenses that may otherwise have been covered by an LTCI policy.

How much does it cost?
Although purchasing LTCI seems to be the easy answer to the problem of escalating long-term care costs, the premiums for LTCI can be, depending on benefit levels selected, quite expensive.

Your yearly premium for an LTCI policy depends on a number of considerations, including your age when you purchase the policy, your health, the length of the coverage period (for instance, three years, five years, or lifetime benefits), the amount of the daily benefit provided, and whether you purchase inflation protection. When buying an LTCI policy, you must also consider not only whether you can afford to pay the premiums now but also whether you'll be able to continue paying premiums in the future, when your income may be substantially decreased. For more information about the cost of LTCI and examples regarding how Medicare and Medigap may help defray some of the costs, see Coordination with Government Benefits.

Who should purchase LTCI?
During the "golden years," when income typically declines, the purchase of LTCI should be carefully considered. People with significant discretionary income and substantial resources to protect for spouses, children, and other loved ones should seriously consider purchasing LTCI. Individuals with modest resources (e.g., less than $50,000 net worth) may find the premiums unaffordable, and may qualify for Medicaid by spending down their assets and/or engaging in a little Medicaid planning.

How much coverage is enough?
Insurance protects against an event that might happen in the future. Therefore, buying enough protection is important, but affordability must also be considered. In terms of cost, you need to consider the amount of the daily benefit you want to purchase and also the length of the benefit period.

  • Daily benefit--Most policies will let you choose your amount of coverage, typically running anywhere from $40 to $150 or more per day. Of course, the greater the daily benefit and the longer the benefit period, the more the policy will cost. Also, note that the cost of nursing home care varies greatly from one metropolitan area to another, so you need to know where you'll be living out the remainder of your years. Certainly, it wouldn't make sense to purchase a policy with a daily benefit of $40 if the average daily cost of nursing homes in your area is $250 per day--unless, of course, you have substantial resources and plan to use some of your own income to pay for care. Consumers should generally buy enough coverage to cover 50 to 100 percent of nursing home costs. If you don't plan on using your own income to supplement, you should buy enough insurance to cover 100 percent of the nursing home costs.
  • Length of benefit period--When purchasing LTCI, you'll be asked to select a benefit period. Benefit periods generally range from one to six years, with some policies offering a lifetime benefit. You'll want to choose the longest benefit period you can afford. If you can't afford a lifetime benefit, consider choosing a benefit period that coordinates with the look-back period for Medicaid (five years). For more information about ineligibility periods, see Look-Back Period for Medicaid.


Tip: The Deficit Reduction Act of 2005 gave all states the option of enacting long-term care partnership programs that combine private LTCI with Medicaid coverage. Partnership programs enable individuals to pay for long-term care and preserve some of their wealth. Although state programs vary, individuals who purchase partnership-approved LTCI policies, then exhaust policy benefits on long-term care services, will generally qualify for Medicaid without having to first spend down all or part of their assets (assuming they meet income and other eligibility requirements). Although partnership programs are currently available in just a few states, it's likely that many more states will offer them in the future.

How do you compare policies and providers?
Unfortunately, LTCI policies are not standardized. Provisions contained in policies vary greatly, and premiums charged vary as well. Therefore, you should compare policies to obtain the best amount and combination of benefits for your premium dollars.

  • To compare policies, you should obtain sample policies and "Outlines of Coverage" from each carrier you are considering. The Outline of Coverage summarizes the policy's benefits and highlights the policy's important features. You need to read the policies carefully, ensuring that you understand each provision. There are a number of factors you should be concerned about, such as inflation protection, a full range of care (including home health care), exclusions for pre-existing conditions, and the amount of the daily benefit provided. For a description of the types of provisions typically contained in an LTCI contract, see Long-term Care Insurance (LTCI) Provisions.
  • To compare providers, you should check out the financial strength of the companies by reviewing their A. M. Best Company's ratings along with the opinions of other rating services. You can also review the company's financial statements. For more information, see Comparing and Replacing Long-term Care Insurance (LTCI) Policies.

What are the tax ramifications?
If you purchase a "qualified" LTCI policy, part (or all) of the premiums you pay pursuant to the contract may be deductible on your federal income tax return. LTCI polices issued after January 1, 1997, must meet certain federal standards to be considered qualified. However, LTCI policies issued prior to January 1, 1997, that met the long-term care insurance requirements of the state in which the contract was issued are automatically considered qualified. For more information, see Taxation and Long-term Care Insurance (LTCI).

This article was provided by Forefield and distributed by Lawrence Sprung.

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