Rehearsing for Retirement

Try living as a “retiree” for a month or two before you commit to leaving your career.

Imagine if you could preview your retirement in advance. In a sense, you can. Financially and mentally, you can “rehearse” for the third act of your life while still enjoying the second.

Pretend you are retired for a month or two. Take two steps to act out your rehearsal – one having to do with your budget, the other with your expectations.

Draw up a retirement budget & live on it for one, two or three months. Make a list of essential expenses (groceries, gas, utilities, mortgage, medicines), and then a list of discretionary expenses (movie tickets, dinners out, spa treatments, what have you). This may reveal that you can live handily on less than what you currently spend each month.1

Next, list your income sources for retirement. They might include Social Security benefits (depending on when you want to claim them), IRA Required Minimum Distributions, pension checks, dividends, freelance or consulting payments, or other revenue streams. Investment income is also in the mix here, so check with a financial professional to determine a withdrawal rate off of those accounts that you can safely maintain through your retirement – it might be 3%, 3.5%, or even 4%. When you have your list, stack the projected total income up against your essential expenses and see how much you have left over.2

Try living off of that level of monthly income for a month or more while you are still working. If it covers your necessary monthly expenses and not much else, then some adjustments in your retirement strategy might be needed – a housing change, a change in your retirement date.

See how it feels to retire. Before you conclude your career, try to arrange some “previews” of your retirement lifestyle. If you want to serve your community, volunteer avidly for a month or two to get a taste of what daily volunteer work is like. If you see yourself traveling enthusiastically at the start of retirement, take a dream vacation or even a couple of consecutive trips (if your schedule allows) to see how they truly fit into your financial picture.

Your “rehearsal” need not be last-minute. If you think you will retire at 65, you could try doing this at 63 or 60 (or even before then). The earlier you attempt it, the more time you have to alter your retirement plan if needed.

What else should you consider as you rehearse? Besides income, expenses, and the day-to-day retirement experience, there are a few other factors to gauge.

How much cash do you have on hand? Starting retirement with a strong cash position provides you with some insulation if you happen to retire during a market downturn. The possibility of a bear market coinciding with your entry into retirement may make you want to revisit your portfolio allocations as well.

Take a second look at your projected monthly income. Will it be consistent? If it will vary, you will want to address that. If you are in line for a pension, you will face a major, likely irrevocable financial decision: should it be single life, or joint-and-survivor? The latter option would reduce your pension income in retirement but give your spouse 50% or more of your pension payments after you die. Your employer might also offer you a lump-sum pension buyout; if that turns out to be the case, you will have to decide if the lump sum constitutes the better deal versus a lifelong income stream.3

How about your entry into Medicare? You may enroll in it at medicare.gov within a 6-month window of your 65th birthday (that is, beginning three months prior to your birthday month and ending three months after it). If you sign up before your birthday, you will be covered beginning on the first day of your birthday month. Sign up following your 65th birthday, and you may have to wait up to six months for coverage.3

If you plan to stay on the job after 65, sign up for Medicare Part A anyway (the part that pays for hospital care) within the usual 6-month window. It will not cost you anything to do so, and sometimes Part A makes up for shortcomings in employer-sponsored health plans. You can enroll in Part B and other Medicare component parts later – within eight months of your retirement, to be precise. You will want to pay attention to that 8-month deadline, as your premiums will jump 10% for every 12-month period afterward that you refrain from enrolling.3

Rehearsing for retirement can be very insightful. Some new retirees leave work abruptly only to have their financial and lifestyle assumptions jarred. As you want to make a smooth retirement transition to a future that corresponds to your expectations, test-driving your retirement before it begins is only wise.

Citations.

1 – bankrate.com/financing/retirement/take-a-retirement-test-drive/ [12/13/13]

2 – blogs.wsj.com/experts/2014/12/05/how-to-practice-retirement-before-you-retire/ [12/5/14]

3 – time.com/money/3615581/test-drive-retirement/ [2/9/15]

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Albert Aizin, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Hughes, Northrop Grumman, Qwest, Chevron, Raytheon, ExxonMobil, Verizon, Glaxosmithkline, Merck, Pfizer, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Albert Aizin is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

 

Monte Carlo Analysis

When you sit down with a financial professional to update your retirement plan, you may encounter a Monte Carlo simulation, a financial forecasting method that has become more prevalent in the last few years. Monte Carlo financial simulations project and illustrate the probability that you’ll reach your financial goals, and might help you make a more informed investment decision.

Estimating investment returns

All financial forecasts must account for variables like inflation rates and investment returns. The catch is that these variables have to be estimated, and the estimate used is key to a forecast’s results. For example, a forecast that assumes stocks will earn an average of 4% each year for the next 20 years will differ significantly from a forecast that assumes an average annual return of 8% over the same period. Estimating investment returns is particularly difficult. For example, the volatility of stock returns can make short-term projections almost meaningless. Multiple factors influence investment returns, including events such as natural disasters and terrorist attacks, which are unpredictable. So, it’s important to understand how different forecasting methods handle uncertainty.

Basic forecasting methods

Straight-line forecasting methods assume a constant value for the projection period. For example, a straight-line forecast might show that a portfolio worth $116,000 today would have a future value of approximately $250,000 if the portfolio grows by an annual compounded return of 8% for the next 10 years. This projection is helpful, but it has a flaw: In the real world, returns aren’t typically that consistent from year to year.

Forecasting methods that utilize “scenarios” provide a range of possible outcomes. Continuing with the 10-year example above, a “best-case scenario” might assume that your portfolio will grow by an average 10% annual return and reach $300,000. The “most-likely scenario” might assume an 8% return (for a $250,000 value), and the “worst-case scenario” might use 4%, resulting in roughly $171,000. Scenarios give you a better idea of the range of possible outcomes. However, they aren’t precise in estimating the likelihood of any specific result. Forecasts that use Monte Carlo analysis are based on computer-generated simulations. You may be familiar with simulations in other areas; for example, local weather forecasts are typically based on a computer analysis of national and regional weather data. Similarly, Monte Carlo financial simulations rely on computer models to replicate the behavior of economic variables, financial markets, and different investment asset classes.

Why is a Monte Carlo simulation useful?

In contrast to more basic forecasting methods, a Monte Carlo simulation is designed to account for volatility, especially the volatility of investment returns. It enables you to see a spectrum of thousands of possible outcomes, taking into account not only the many variables involved, but also the range of potential values for each of those variables. By attempting to replicate the uncertainty of the real world, a Monte Carlo simulation can provide a detailed illustration of how likely it is that a given investment strategy might meet your needs. For example, when it comes to retirement planning, a Monte Carlo simulation can help you answer specific questions, such as:

  • Given a certain set of assumptions, what is the probability that you will run out of funds before age 85?
  • If that probability is unacceptably high, how much additional money would you need to invest each year to decrease the probability to 10%?

The mechanics of a Monte Carlo simulation

A Monte Carlo simulation typically involves hundreds or thousands of individual forecasts or “iterations,” based on data that you provide (e.g., your portfolio, timeframes, and financial goals). Each iteration draws a result based on the historical performance of each investment class included in the simulation. Each asset class–small-cap stocks, corporate bonds, etc.–has an average (or mean) return for a given period. Standard deviation measures the statistical variation of the returns of that asset class around its average for that period. A higher standard deviation implies greater volatility. The returns for stocks have a higher standard deviation than the returns for U.S. Treasury bonds.

There are various types of Monte Carlo methods, but each generates a forecast that reflects varying patterns of returns. Software modeling stock returns, for example, might produce a series of annual returns such as the following: Year 1: -7%; Year 2: -9%; Year 3: +16%, and so on. For a 10-year projection, a Monte Carlo simulation will produce a series of 10 randomly generated returns–one for each year in the forecast. A separate series of random returns is generated for each iteration in the simulation and multiple combined iterations are considered a simulation. A graph of a Monte Carlo simulation might appear as a series of statistical “bands” around a calculated average.

Example: Let’s say a Monte Carlo simulation performs 1,000 iterations using your current retirement assumptions and investment strategy. Of those 1,000 iterations, 600 indicate that your assumptions will result in a successful outcome; 400 iterations indicate you will fall short of your goal. The simulation suggests you would have a 60% chance of meeting your goal.

Pros and cons of Monte Carlo

A Monte Carlo simulation illustrates how your future finances might look based on the assumptions you provide. Though a projection might show a very high probability that you may reach your financial goals, it can’t guarantee that outcome. However, a Monte Carlo simulation can illustrate how changes to your plan could affect your odds of achieving your goals. Combined with periodic progress reviews and plan updates, Monte Carlo forecasts could help you make better-informed investment decisions.

Important: The projections or other information generated by Monte Carlo analysis tools regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Results may vary with each use and over time.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Albert Aizin, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Raytheon, ExxonMobil, Hughes, Northrop Grumman, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Albert Aizin is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

Paying the Bills: Potential Sources of Retirement Income.

Planning your retirement income is like putting together a puzzle with many different pieces. One of the first steps in the process is to identify all potential income sources and estimate how much you can expect each one to provide.

Social Security

According to the Social Security Administration (SSA), almost 9 of 10 people aged 65 or older receive Social Security benefits. However, most retirees also rely on other sources of income.

For a rough estimate of the annual benefit to which you would be entitled at various retirement ages, you can use the calculator on the Social Security website, http://www.ssa.gov. Your Social Security retirement benefit is calculated using a formula that takes into account your 35 highest earnings years. How much you receive ultimately depends on a number of factors, including when you start taking benefits. You can begin doing so as early as age 62. However, your benefit may be 20% to 30% less than if you waited until full retirement age (65 to 67, depending on the year you were born). Benefits increase each year that you delay taking benefits until you reach age 70.

As you’re planning, remember that the question of how Social Security will meet its long-term obligations to both baby boomers and later generations has become a hot topic of discussion. Concerns about the system’s solvency indicate that there’s likely to be a change in how those benefits are funded, administered, and/or taxed over the next 20 or 30 years. That may introduce additional uncertainty about Social Security’s role as part of your overall long-term retirement income picture, and put additional emphasis on other potential income sources.

Pensions

If you are entitled to receive a traditional pension, you’re lucky; fewer Americans are covered by them every year. Be aware that even if you expect pension payments, many companies are changing their plan provisions. Ask your employer if your pension will increase with inflation, and if so, how that increase is calculated.

Your pension will most likely be offered as either a single or a joint and survivor annuity. A single annuity provides benefits until the worker’s death; a joint and survivor annuity provides reduced benefits that last until the survivor’s death. The law requires married couples to take a joint and survivor annuity unless the spouse signs away those rights. Consider rejecting it only if the surviving spouse will have income that equals at least 75% of the current joint income. Be sure to fully plan your retirement budget before you make this decision.

Work or other income-producing activities

Many retirees plan to work for at least a while in their retirement years at part-time work, a fulfilling second career, or consulting or freelance assignments. Obviously, while you’re continuing to earn, you’ll rely less on your savings, leaving more to accumulate for the future. Work also may provide access to affordable health care.

Be aware that if you’re receiving Social Security benefits before you reach your full retirement age, earned income may affect the amount of your benefit payments until you do reach full retirement age.

If you’re covered by a pension plan, you may be able to retire, then seek work elsewhere. This way, you might be able to receive both your new salary and your pension benefit from your previous employer at the same time. Also, some employers have begun to offer phased retirement programs, which allow you to receive all or part of your pension benefit once you’ve reached retirement age, while you continue to work part-time for the same employer.

Other possible resources include rental property income and royalties from existing assets, such as intellectual property.

Retirement savings/investments

Until now, you may have been saving through retirement accounts such as IRAs, 401(k)s, or other tax-advantaged plans, as well as in taxable accounts. Your challenge now is to convert your savings into ongoing income. There are many ways to do that, including periodic withdrawals, choosing an annuity if available, increasing your allocation to income-generating investments, or using some combination. Make sure you understand the tax consequences before you act.

Some of the factors you’ll need to consider when planning how to tap your retirement savings include:

  • How much you can afford to withdraw each year without exhausting your nest egg. You’ll need to take into account not only your projected expenses and other income sources, but also your asset allocation, your life expectancy, and whether you expect to use both principal and income, or income alone.
  • The order in which you will tap various accounts. Tax considerations can affect which account you should use first, and which you should defer using.
  • How you’ll deal with required minimum distributions (RMDs) from certain tax-advantaged accounts. After age 70½, if you withdraw less than your RMD, you’ll pay a penalty tax equal to 50% of the amount you failed to withdraw.

Some investments, such as certain types of annuities, are designed to provide a guaranteed monthly income (subject to the claims-paying ability of the issuer). Others may pay an amount that varies periodically, depending on how your investments perform. You also can choose to balance your investment choices to provide some of both types of income.

Inheritance

One widely cited study by economists John Havens and Paul Schervish forecasts that by 2052, at least $41 trillion will have been transferred from World War II’s Greatest Generation to their descendants. (Source: “Why the $41 Trillion Wealth Transfer Is Still Valid.”) An inheritance, whether anticipated or in hand, brings special challenges. If a potential inheritance has an impact on your anticipated retirement income, you might be able to help your parents investigate estate planning tools that can minimize the impact of taxes on their estate. Your retirement income also may be affected by whether you hope to leave an inheritance for your loved ones. If you do, you may benefit from specialized financial planning advice that can integrate your income needs with a future bequest.

Equity in your home or business

If you have built up substantial home equity, you may be able to tap it as a source of retirement income. Selling your home, then downsizing or buying in a lower-cost region, and investing that freed-up cash to produce income or to be used as needed is one possibility. Another is a reverse mortgage, which allows you to continue to live in your home while borrowing against its value. That loan and any accumulated interest is eventually repaid by the last surviving borrower when he or she eventually sells the home, permanently vacates the property, or dies. (However, you need to carefully consider the risks and costs before borrowing. A useful publication titled “Reverse Mortgages: Avoiding a Reversal of Fortune” is available online from the Financial Industry Regulatory Authority.)

If you’re hoping to convert an existing business into retirement income, you may benefit from careful financial planning to minimize the tax impact of a sale. Also, if you have partners, you’ll likely need to make sure you have a buy-sell agreement that specifies what will happen to the business when you retire and how you’ll be compensated for your interest.

With an expert to help you identify and analyze all your potential sources of retirement income, you may discover you have more options than you realize.

According to the Social Security Administration, more than 70% of Americans choose to take early Social Security benefits rather than wait until full retirement age.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Albert Aizin, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Bank of America, Alcatel-Lucent, Qwest, Chevron, Hughes, Northrop Grumman, Glaxosmithkline, Merck, Pfizer, Raytheon, ExxonMobil, Verizon or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Albert Aizin is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

Which Financial Documents Should You Keep On File? … and for how long?

You might be surprised how many people have financial documents scattered all over the house – on the kitchen table, underneath old newspapers, in the hall closet, in the basement. If this describes your financial “filing system,” you may have a tough time keeping tabs on your financial life.

Organization will help you, your advisors … and even your heirs. If you’ve got a meeting scheduled with an accountant, financial consultant, mortgage lender or insurance agent, spare yourself a last-minute scavenger hunt. Take an hour or two to put things in good order. If nothing else, do it for your heirs. When you pass, they will be contending with emotions and won’t want to search through your house for this or that piece of paper.

One large file cabinet may suffice. You might prefer a few storage boxes, or stackable units sold at your local big-box retailer. Whatever you choose, here is what should go inside:

Investment statements. Organize them by type: IRA statements, 401(k) statements, mutual fund statements. The annual statements are the ones that really matter; you may decide to forego filing the quarterlies or monthlies.

When it comes to your IRA or 401(k), is it wise to retain your Form 8606s (which report nondeductible contributions to traditional IRAs), your Form 5498s (the “Fair Market Value Information” statements that your IRA custodian sends you each May), and your Form 1099-Rs (which report IRA income distributions).1

In addition, you will want to retain any record of your original investment in a fund or a stock. (This will help you determine capital gains or losses. Your annual statement will show you the dividend or capital gains distribution.)

Bank statements. If you have any fear of being audited, keep the last three years’ worth of them on file. You may question whether the paper trail has to be that long, but under certain circumstances (lawsuit, divorce, past debts) it may be wise to keep more than three years of statements on file.

Credit card statements. These are less necessary to have around than many people think, but you might want to keep any statements detailing tax-related purchases for up to seven years.

Mortgage documents, mortgage statements and HELOC statements. As a rule, keep mortgage statements for the ownership period of the property plus seven years. As for your mortgage documents, you may wish to keep them for the ownership period of the property plus ten years (though your county recorder’s office likely has copies).

Your annual Social Security benefits statement. Keep the most recent one, as it shows your earnings record from the day you started working. Please note, however: if you see an error, you will want to have your W-2 or tax return for the particular year on hand to help Social Security correct it.2

Federal and state tax returns. The IRS wants you to hang onto your returns until the period of limitations runs out – that is, the time frame in which you can claim a credit or refund. Keep three years of federal (and state) tax records on hand, and up to seven years to be really safe. Tax records pertaining to real property or “real assets” should be kept for as long as you own the asset (and for at least seven years after you sell, exchange or liquidate it).3

Payroll statements. What if you own a business or are self-employed? Retain your payroll statements for seven years or longer, just in case the IRS comes knocking.

Employee benefits statements. Does your company issue these to you annually or quarterly? Keep at least the most recent year-end statement on file.

Insurances. Life, disability, health, auto, home … you want the policies on file, and you want policy information on hand for the life of the policy plus three years.

Medical records and health insurance. The consensus says you should keep these documents around for five years after the surgery or the end of treatment. If you think you can claim medical expenses on your federal return, keep them for seven years.

Warranties. You only need them until they expire. When they expire, toss them.

Utility bills. Do you need to keep these around for more than a month? No, you really don’t. Check last month’s statement against this month’s, then get rid of last month’s bill.

If this seems like too much paper to file, buy a sheet-fed scanner. If you want to get really sophisticated, you can buy one of these and use it to put financial records on your computer. You might want to have the hard copies on file just in case your hard drive and/or your flash drive go awry.

Citations.

1 – foxbusiness.com/personal-finance/2014/10/02/how-long-should-keep-my-tax-records/ [10/2/14]

2 – ssa.gov/pubs/EN-05-10081.pdf [9/13]

3 – irs.gov/Businesses/Small-Businesses-&-Self-Employed/How-long-should-I-keep-records [1/27/15]

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Verizon, Bank of America, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of  Albert Aizin, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

Albert Aizin is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com

The Top 12 Tax Frauds

A look at the IRS “dirty dozen” list.

Have you heard of the “dirty dozen?” Each year, the IRS lists the top 12 recurring federal tax offenses – frauds, cheats, feints and schemes that ethically challenged taxpayers, tax preparers and crooks try to perpetrate. Watch for these scams in all seasons, not just tax season.

Identity theft. Casually discarded or displayed personal information is an open invitation to criminals. Even when we are vigilant, multiple firewalls and strong passwords can fail to protect us. The Government Accountability Office says fraudsters stole $5.8 billion in false refunds in 2013 and the Treasury Inspector General Tax Administration thinks the losses will hit $21 billion next year. The IRS says it is “making progress” fighting this problem.1

Criminals posing as “tax professionals.” Each year, roughly 60% of taxpayers get help with their 1040s at tax preparation businesses. As the IRS notes, nearly all of these businesses are legitimate. Exceptions do exist, however. Sometimes a fraudster will rent a storefront with a mission of collecting SSNs and other personal information pursuant to claiming phony refunds.2

Unwarranted or excessive refunds. Annually, some taxpayers and tax preparers claim refunds that are embellished or wholly unjustified. A preparer may tout that it will get you a big refund but then claim a percentage of it. Worse yet, they may ask you to sign a blank return.2

Phishing. This is tax fraud via email. A scammer will send a message mimicking communication from the IRS or the Electronic Federal Tax Payment System (EFTPS). If you get an email like that, forward it to phishing@irs.gov. Neither the IRS nor the EFTPS has a policy of initiating contact with taxpayers through email.2

Threatening calls. Crooks will sometimes target elders or immigrants with phone scams, pretending to be the IRS or another federal agency. (Sometimes even the caller ID will suggest this.) They will assert that the other party owes thousands in back taxes. The only solution, they contend, is immediate payment through a pre-loaded debit card or a money order. The caller may even know the last four digits of their Social Security Number or volunteer what is supposedly an IRS employee badge number to make the con more believable. A follow-up call from “the DMV” or “the police” may be next. Such behavior can be reported to the Treasury Inspector General for Tax Administration at (800) 366-4484 or the IRS at (800) 829-1040.3

Sham charities. An old wisecrack says that you can make a lot of money running a non-profit organization. A specious charity may ask you for cash, your SSN, your banking information and more. If anything seems fishy, ask for visual proof of the organization’s tax-exempt status, and check it out further at irs.gov using the Exempt Organizations Select Check search box.2

Tax shelter schemes. Tax evasion is different from legal tax avoidance. Some unprincipled tax and estate “consultants” seem to confuse the two, much to the chagrin of their clients who run afoul of the IRS. Watch out for aggressively marketed “tax shelters” that seem too good to be true or sketchily detailed.2

Hiding taxable income. How many taxpayers file fraudulent 1099s? Enough for this ploy to make the IRS top 12 list for 2015. Any hint of bogus documentation to cut taxes or boost refunds becomes especially egregious when a paid preparer attempts it.2

Inventing income that was never earned to get credits. The IRS notes that some of the shadier tax prep services sometimes convince clients to try this. It is fairly easy to disprove.2

Stashing taxable income or money offshore. In recent years, the IRS has scrutinized taxpayers with undeclared foreign bank accounts and the financial organizations that have offered them. Its Offshore Voluntary Disclosure Program (OVDP) encourages taxpayers to quietly disclose such accounts and become compliant with IRS rules.2

Claiming unwarranted fuel tax credits. Few taxpayers can legitimately claim these, yet some try thanks to urging from third-party preparers. Most taxpayers don’t own farms, mining or fishing businesses or companies whose vehicles operate mostly on local roads.2

Frivolous arguments against income tax. Assorted seminar speakers and books claim that federal taxes are unconstitutional and that Americans have only an implied obligation to pay them. These arguments carry little weight in the courts and before the IRS. The IRS imposes a $5,000 fine for filing a frivolous return, and Section 1 of the Internal Revenue Code imposes income tax on all Americans, specifically 26 U.S.C. § 1 and 26 U.S.C. § 1(a). IRC Section 6072 establishes April 15 as the annual federal tax deadline.2,4

One thing to remember in light of this list: you are legally responsible for the content input into your 1040 form, even if a third party prepares it.2

Citations.

1 – blog.credit.com/2015/03/the-solution-to-tax-id-theft-is-an-unpopular-one-slower-refunds-110478/ [3/5/15]

2 – irs.gov/uac/Newsroom/IRS-Completes-the-Dirty-Dozen-Tax-Scams-for-2015 [2/12/15]

3 – cleveland.com/business/index.ssf/2015/01/nearly_3000_people_in_us_have.html [1/23/15]

4 – docs.law.gwu.edu/facweb/jsiegel/Personal/taxes/JustNoLaw.htm [3/13/15]

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Albert Aizin, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Glaxosmithkline, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Verizon, Bank of America, Merck, Pfizer, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Albert Aizin is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.