Record Year for Data Breaches

Breaking a record is often cause for celebration. But not when that record is the number of data breaches in one year. As recently reported in Fortune Magazine, the number of reported data breaches so far in 2021 has already surpassed the total for all of 2020. Reported breaches this year are on track to break the record set in 2017. Good reason to pop a cork, but not on a bottle of champagne.

Chris Morris’ article at https://fortune.com/2021/10/06/data-breach-2021-2020-total-hacks/ is based on statistics reported by the Identity Theft Research Center (ITRC). It’s a fascinating read, and scary, too. ITRC statistics only include data breaches that are disclosed by the victim. The report points out that data breach disclosures are down, indicating that more breaches are occurring than are reported.

The other scary aspect of the ITRC report is that the successful tactics used by cybercriminals exploit the same old vulnerabilities – failing to install system updates and patches. Outdated systems leave the door open for unscrupulous hackers to grab valuable data, some of which can be used later to commit other crimes, such as wire fraud and ransomware attacks.

Here are six tips to avoid becoming an ITRC statistic:

  • Keep software systems up to date and use a good anti-virus program.
  • Examine the email address and URLs in all correspondence to detect a scammer mimicking a legitimate site or email address.
  • Ignore text messages, emails, or phone calls asking you to update or verify your account information and go to the company’s website to see if something needs your attention.
  • Never open unexpected attachments until verifying the sender’s email address and use virus scan before opening any document.
  • Scrutinize all electronic requests for a payment or fund transfers.
  • Be extra suspicious of any message that urges immediate action.

We all dream of breaking a record, popping that champagne cork, and showering the cheering crowd with bubbly. Those bubbles will burst if that record is for the highest year of reported data breaches since 2017. As the article in Fortune tells us, we’re there. Data breaches that lead to monetary loss and ransomware attacks reported so far in 2021 have already exceeded those reported in all of 2020.

Don’t want to be an ITRC statistic or a victim of wire fraud and ransomware attacks? It’s hard to be 100% on anything but following the six tips to avoid a breach can help protect your systems from unscrupulous hackers who want to grab your valuable data.

Check Tax Withholding Now to Avoid Expensive Surprises

It’s hard to believe that we are already into the last quarter of the 2021 calendar year. Time for sweaters, pumpkin spice, and income tax withholding reviews. Yes, income tax withholding. Checking your tax withholding before year-end can save you an expensive surprise when you file your 2021 income tax returns. 

The IRS, states, and the District of Columbia expect you to pay your tax obligation as your income is received. Failing to pay the minimum required tax amount can result in an underpayment penalty and interest on the unpaid balance. Alternatively, overpaying on your tax liability means giving the tax agencies an interest-free loan of your money. Who wants to do that? Knowing about that big refund in advance gives you an opportunity to reduce your tax withholding and get some extra money in your paycheck.

Even if you didn’t get a large refund or pay an underpayment penalty for 2020, it’s advisable to review your tax withholding now. Tax law changes related to COVID-19 were enacted for 2020 and 2021 that could impact your tax situation. Plus, life can bring changes to individual financial situations that could impact your tax filing status or how the rules apply to you. Examples include change in marital status, birth or adoption of a new child, a home purchase, and the impact of a major disaster.

The IRS Tax Withholding Estimator (available in English and Spanish) makes it easier for everyone to have the right amount of tax withheld. The tool offers workers, as well as retirees, self-employed individuals and other taxpayers, a user-friendly, step-by-step way to effectively tailor the amount of income tax they have withheld from wages and pension payments. In other cases, such as for self-employed individuals, taxpayers can see if they should change their last planned estimated tax payment for 2021.

In between getting out the holiday sweaters and watching football, the last quarter of the 2021 calendar year is the perfect time to check on your income tax withholding. It could save you an expensive surprise when you file your 2021 income tax returns or provide an opportunity to get some extra holiday shopping money in your last few paychecks. 

Want more information about taxes, estimated taxes, and tax withholding? The IRS has it for you at https://www.irs.gov/newsroom/give-tax-withholding-a-fresh-look-as-2021-year-end-nears.

Tax Options for Your LLC

New tax clients and workshop participants who own a business often ask about their taxes when they have formed an LLC. My answer is, “It depends.” I realize that is not a satisfying response, but unless I know more about the business and its ownership, I cannot provide an accurate reply. It’s often the case that correctly answering tax questions depends a lot on your circumstances. 

Here’s why. An LLC is a state-defined limited liability legal business structure. Business owners often form an LLC to protect their personal assets in case their business is sued. How an LLC operates for tax purposes has some default provisions and other options that primarily depend on the number of business owners.

An LLC can file business income taxes in one of three different ways:

  • Sole Proprietorship

An individual business owner that has not incorporated is, by default, a Sole Proprietor. Sole Proprietors report income and expenses on a separate form filed with the owner’s individual income tax return, IRS Schedule C, “Profit or Loss from Business.” Net business profits are subject to income tax and the employer and employee portions of Medicare and Social Security taxes (i.e., 15.3% of net business profit).

  • Partnership

Two or more individuals in business together without incorporating are, by default, a Partnership. Partnerships are considered a separate tax entity and are required to file a separate income tax return, IRS Form 1065, “U.S. Return of Partnership Income.” Partners receive an IRS Form K-1 for each one’s pro rata share of non-wage income and expenses, based on the operating agreement (a MUST). 

  • Subchapter S Corporation

Qualifying businesses can take the Subchapter-S election and avoid the double taxation of a C Corp. A number of rules apply to see if a business owner(s) qualifies. Sub-S Corps are considered a separate tax entity and are required to file a separate income tax return, IRS Form 1120S, “U.S. Income Tax Return for an S corporation.” Shareholders receive an IRS Form K-1 for their share of non-wage income and expenses, based on the operating agreement (again, a MUST). Owner/employees earn wages and get a W-2.

Determining how your LLC operates for tax purposes is not easy. It depends on the circumstances and many rules apply. Need more information? The IRS has you covered, as usual. Check out their tax information, tools and resources for business and self-employed individuals at https://www.irs.gov/businesses.

Tax Collector or Scam Artist?

For years, the IRS and law enforcement have warned taxpayers about scam artists posing as revenue agents. Imposters call and threaten whoever answers with arrest for past-due income taxes. Warnings from law enforcement tell taxpayers to hang up and report the call to the IRS and the Federal Trade Commission (FTC). However, the next time you get a call about past-due taxes, it could be legitimate. 

Here’s why you might not want to hang up on a call about past-due taxes. Beginning Thursday, Sept. 23, 2021, some taxpayers with unpaid tax bills started to get calls from one of three private agencies contracted by the IRS to help with collection efforts. Four facts you need to know before you decide whether to hang up on that caller:

  • The IRS always notifies taxpayers in writing multiple times before transferring their account to a private collection agency, or PCA. The IRS also sends a letter to the taxpayer informing them that their account was assigned to a PCA and giving the name and contact information for the PCA. Following IRS notification, the PCA will send its own letter to the taxpayer confirming the account transfer. 
  • Help with collection efforts is not new for the IRS. The program was established in 2016, as authorized under federal law. At that time, the agency contracted with several agencies to collect certain unpaid tax debts on the government’s behalf. Persistent understaffing, compounded by the pandemic, made it necessary to use private collections as an option to pursue past due income taxes. 
  • The three Private Debt Collection agencies contracted by the IRS are CBE Group, Inc., Coast Professional, Inc., and ConServ. All private collectors will identify themselves as contractors collecting taxes on behalf of the IRS. For taxpayer protection, collection agencies employees must follow the provisions of the Fair Debt Collection Practices Act, must be courteous, and must respect taxpayer rights.
  • Private firms are not authorized to take enforcement actions against taxpayers, like IRS employees can do. The private firms are only authorized to discuss payment options with taxpayers, including setting up payment agreements. All tax payments must be made directly to the IRS, never to the private firm or anyone besides the IRS or the U.S. Treasury.

Despite warnings about scam artists posing as revenue agents, some calls about past due taxes are legitimate. The IRS recently contracted with three private collection agencies to help them out, so it might not be the IRS calling. You’ll want to remember the four facts explained above to determine if that caller is a valid tax collector or a scam artist, so you don’t hang up when you should stay on the line.