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 Outdated systems leave the door open for unscrupulous hackers to grab valuable data, some of which can be used later to commit other crimes, such as wire fraud and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.

Are You About to Be a Ransomware Victim?

Did you know that cyber scammers check you out before launching a ransomware attack? Absolutely. Scammers are in business, too. They want to increase the chances that you’ll be a ransomware victim who is worth their time. Plus, they want to see if they can access your systems without detection. 

So, how do you know if a scammer is checking out whether you are ripe for the picking? A Sophos News article by Peter Mackenzie, The Realities of Ransomware: Five Signs You’re About to be Attacked, outlines how scammers leave a detectable trail and ways to protect your systems from being held for ransom. Mr. Mackenzie’s article shares valuable tips, tools, and methods. I encourage you to read it https://bit.ly/2PFuhnX.

Here’s some evidence of an imminent ransomware attack from Mr. Mackenzie:

  1. Unusual Behavioral

A periodic scan of your network’s file history can detect repeating patterns or other indicators of malicious activity on your systems. It could be nothing to worry about, but anything that looks unusual is probably worth checking out. Even if detected malware has been removed, scammers could still be conducting harmful operations on your network.

  1. Scanner Snooping

Scammers often gain system access by using phishing or social engineering schemes with authorized users. They can capture credentials for users with administrative rights because it gives them more access. Once in, they can install a network scanner to find files with valuable information, such as bank accounts and tax IDs.

  1. Neutralized Security

Scammers that manage to compromise admin rights often try to disable your security software to swing open the door to your systems even wider. Several tools are available to force the removal of your security software. These tools have legitimate purposes, but they can be used by criminals to leave your systems vulnerable.

  1. Embedded Tools

In addition to installing a scanner, scammers can embed keystroke readers to capture logon credentials. Capturing keystrokes allows access to your systems, some of which could store financial and confidential identity information. Other tools can be used to extract data and lists of usernames and passwords for use or sale.
Cyber scammers could be checking you out to assess your value as a ransomware victim, and to determine the likelihood of being detected. Want to know how to determine if your systems have been infected with scanners or malware, making them vulnerable? Read Peter Mackenzie’s article in Sophos News, The Realities of Ransomware: Five Signs You’re About to be Attacked at https://bit.ly/2PFuhnX to find out.

Getting Help to File Your Taxes

If you requested an extension to file your 2020 income taxes, the final due date is coming up in just a few weeks, on October 15th. That date sounded a long way off back in April or May when you extended. My, how time flies when you’re having fun…or when you are procrastinating. 

Maybe you were putting off your tax filing because you had questions, or because your situation was more complicated than before. Is it too late to get help to file your taxes? No! Finding a tax preparer isn’t too hard. There are many to choose from. The challenge is finding someone who is knowledgeable, experienced, and dependable. Taxes are personal, so you also want someone with whom you feel comfortable confiding your financial details.

How do you find that elusive experienced and dependable confidant to prepare and file your income tax returns? Well, you can ask friends, hit the Internet, or head to the local tax preparation office. Ideally, you should interview two or three recommended tax preparers to feel confident that she or he is qualified to accurately prepare your income tax return, and that you feel comfortable interacting with her or him.

Use these three interview questions to get help to file your taxes:

  • How Do You Keep Up with Tax Law Changes?

Tax laws are constantly changing. Think about all the recent updates due to COVID-19, on top of the 2017 Tax Cuts and Jobs Act that contained sweeping changes. Your tax preparer should keep up with all those changes, so you don’t have to. A qualified tax person will describe attending conferences, webinars, or other methods to stay current.

  • What Experience and Credentials Do You Have?

Tax preparation is an unregulated industry where anyone can participate, so asking about years of experience, training and education is essential. Preparers with professional credentials, such as a CPA or Enrolled Agent (EA), are required to complete annual continuing education requirements and follow ethical and professional standards. 

  • How Do You Communicate with your Clients?

Does the tax preparer meet regularly with clients? Is she or he available to you if a tax-related question or issue comes up? Make sure you feel comfortable with the tax preparer’s style, manner, and process. If not, keep looking. You’ll be sharing a lot of personal information so you must be comfortable.

It’s not too late to get help to file your 2020 income tax returns. Even if you’re in a rush, make sure you ask the three interview questions necessary to get an experienced and dependable confidant to prepare and file your income tax returns. More tips and tools for getting tax help are on the IRS has a website at https://www.irs.gov/tax-professionals/choosing-a-tax-professional.

Managing Nonprofit Finances

Managing household or business finances directly impacts your and your family’s future. Managing nonprofit finances is just as impactful, with one big difference. Household and business finances involve your funds. Nonprofit finances consist of other people’s funds – contributions entrusted to the nonprofit by community members and other donors.

Managing nonprofit finances involves fiduciary responsibility for donor funds, which boils down to treating entrusted funds with due care, and only using funds to support the nonprofit’s mission. Effectively managing finances is one way that a nonprofit fulfills its fiduciary responsibility.

So, what does “effectively managing” mean? It starts with these three fundamentals:

  1. Actual vs. Budgeted Performance

Every month, the nonprofit’s year-to-date actual financial performance should be compared to the budget. Variances between budgeted and actual performance should be explained, especially for key income and program expense categories. Identify why variances are occurring and take remedial action, as needed. For example, assess the potential for overreliance on one individual funding source, indicating the need to diversify.

  1. Cash Flow

A monthly review of checking and money market account balances should be performed to determine whether cash reserves are adequate. The cash reserves target should be based on the amount needed to cover operating expenses without any funds coming in and without liquidating any investments. Another method to assess the nonprofit’s cash flow health is to assess unrestricted net assets vs. total liabilities.

  1. Long Term View

At least once a year, nonprofits should assess whether the financial aspects of long-term financial objectives are being met. Long-term financial objectives are often reflected in the strategic plan, the annual budget, and in Investment Policy and Board Resolutions. If established financial objectives are not on track to be met within the defined time frame, remedial action should be taken.

Managing nonprofit finances means fulfilling the fiduciary responsibility for the contributions entrusted to the nonprofit by community members and other donors. That boils down to treating entrusted funds with due care, and only using funds to support the nonprofit’s mission. Starting with the three fundamentals – year-to-date performance, cash flow, and long-term view – helps nonprofits keep promises to donors and make solid financial decisions.

Education Tax Benefits

Millions of workers lost their jobs during the pandemic. Some others quit their jobs. The stress and change brought by COVID-19 made them reflect on their careers and ponder how they want to spend the rest of their working years. Whether they quit or not, thousands of adults have been preparing for new career opportunities by enrolling in education of one type or another: college, professional certifications, graduate school, etc.

Investing in education to meet new challenges is a smart move. But it can be expensive. Good news – there are two education tax benefits available to eligible taxpayers that can reduce those out-of-pocket education expenses. The IRS has all the details here at their website https://www.irs.gov/newsroom/tax-benefits-for-education-information-center. It’s a lot to read, so here are a couple of highlights:

  • Education Tax Credits

An education credit, either the American Opportunity Tax Credit or the Lifetime Learning Credit, helps to defray the cost of higher education with a dollar-for-dollar federal tax liability reduction. The credit is refundable, so it can reduce your tax below zero. To take the tax credit, you, your spouse, or your dependent must incur and pay qualified expenses for higher education at an eligible education institution. Qualified expenses include tuition, fees, and other related expense for an eligible student required for enrollment or attendance.

  • Student Loan Interest Deduction

Generally, personal interest is not deductible, other than for a home mortgage. However, if your modified adjusted gross income (MAGI) is less than $85,000 ($170,000 if filing a joint return), there is a special deduction allowed for paying interest on a student loan used for qualified higher education expenses. The student loan interest deduction can reduce the amount of your income subject to tax by up to $2,500. The amount of actual tax savings will depend on your marginal income tax bracket.

Stressful times, like the pandemic, often make people reflect on the course of their lives, including their career. That reflection can lead to enrolling in additional training or education. If you are deciding whether to invest in education, due to COVID-19 or another reason, you need to know the overall cost. Two education tax benefits can, depending on your situation, reduce your federal income tax liability and defray your out-of-pocket education expenses. 

Want more details? Check out the IRS website at https://www.irs.gov/newsroom/tax-benefits-for-education-information-center.