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MONTHLY TAX NEWSLETTERAugust 2014
Yikes! I got the call.
As we wrote in an article from our May 2014 newsletter, identity theft in connection with federal tax filings is on the rise. One specific fraud involves people receiving phone calls from scammers posing as IRS agents and then being aggressively instructed to wire money directly to the scammer to pay off a fictitious tax debt.
Here is a transcript of the automated voicemail message left on my home phone last month by someone trying to commit this fraud on me:
You received this message. I need you or your retained attorney to return this call. The issue at hand is extremely time sensitive. I'm officer Hannah Gray from the Internal Revenue Service and the hot line to my position is 415-251-9813. I repeat, it's 415-251-9813. Don't disregard this message and return this call before we take any legal allegation against you. Goodbye and take care.
If I weren't aware that this scam existed, my initial reaction would have been to call the number left by the scammer as soon as possible. But remember, the IRS does not send e-mails or make phone calls like these to taxpayers. Instead, the IRS is continually warning taxpayers about scams like this; including the following press release issued last Halloween:
IRS Warns of Pervasive Telephone Scam
The Internal Revenue Service today warned consumers about a sophisticated phone
scam targeting taxpayers, including recent immigrants, throughout the country.
Other characteristics of this scam include:
If you get a phone call from someone claiming to be from the IRS, here’s what you should do:
Taxpayers should be aware that there are other unrelated scams (such as a lottery sweepstakes) and solicitations (such as debt relief) that fraudulently claim to be from the IRS.
encourages taxpayers to be vigilant against phone and email scams that use the
IRS as a lure. The IRS does not initiate contact with taxpayers by email to
request personal or financial information. This includes any type of electronic
communication, such as text messages and social media channels. The IRS also
does not ask for PINs, passwords or similar confidential access information for
credit card, bank or other financial accounts. Recipients should not open any
attachments or click on any links contained in the message. Instead, forward the
We've received quite a few questions recently about the federal income tax credit available to people who purchase electric cars. The maximum tax credit is currently $7,500, and there appear to be 24 manufacturers who produce electric cars at this time.
The good news is that there is no income limitation for this $7,500 tax credit. Plus. you can still claim this credit even if you are subject to the dreaded Alternative Minimum Tax. According to the IRS, here is a list of the auto manufacturers who produce electric cars, along with a link that lists the tax credits allowed for each of their models:
Index to Manufacturers
(Last Reviewed or Updated: 23-Jun-2014)
200K Car Limit
Like with the Hybrid Car Tax Credit, this credit will begin to phase-out on some of the more popular models. To level the playing field for each manufacturer, the allowable tax credit starts to disappear for a manufacturer once they sell 200,000 plug-in electric vehicles, as follows:
As we discussed in our August 2006 Newsletter, the phase-out of the Hybrid Vehicle Tax Credit began once a manufacturer sold 60,000 vehicles. The popularity of the Toyota and Lexus hybrids caused the credit for their models to begin to be phased-out almost immediately. With cumulative sales of the Nissan leaf at 64,782 and the Ford electric cars at 30,374 , there is no reason to believe that this credit will be phased-out any time soon for any of the brands.
If you purchase an electric car, use the Form 8936, Qualified Pug-in Electric Drive Motor Vehicle Credit to claim this valuable tax credit as part of your federal tax filing.
As a doctor, you have a bright red target painted on your back with a big dollar sign in the bull’s eye. Everybody wants a piece of you. While there’s nothing you can do to keep them from suing you, you have plenty of options when it comes to protecting yourself.
At work, you have malpractice insurance. But what can you do about a liability you might incur throughout the course of your life outside your profession?
If you crash your car into someone, your auto insurance will cover you. If someone trips and falls on your property, your homeowner’s insurance covers that. But what if something really bad happens? What if the defense—and the damages—are substantially more than the limits on your policies?
You can pay the costs out of pocket if you have the resources. But if you don’t, the person who sues you may attach your future earnings to satisfy the liability.
Open Your Umbrella
To protect yourself, what you really need is something like malpractice insurance for everyday living. In fact, there is a special form of property and casualty insurance that’s layered on top of your homeowner’s and automobile insurance policies. Since it covers liability “above and beyond” that afforded by your base layers, it’s known as “umbrella” insurance.
This “excess liability insurance policy” sits on top of your other coverage and picks up the liability where the base layers leave off. It can pay for your legal defense and cover the damages up to the limits of the policy.
For example, let’s say you are implicated in a motor vehicle accident and found liable for a bodily injury claim totaling $1,500,000. If your auto policy’s liability limit is $500,000 and you did not have an umbrella policy, you would be expected to meet the remainder of that claim ($1 million) yourself. However, if you had a $1,000,000 umbrella policy layered on top of your auto coverage, you would be adequately protected since your base policy would pay the first $500,000 and the umbrella policy would cover the rest of the claim.
Umbrella insurance may also protect you from losses not covered by basic liability insurance. It often covers damages for unusual occurrences including personal injury losses due to libel, slander, wrongful eviction, false arrest, and invasion of privacy. Your umbrella liability policy might also pay for damages incurred in situations where coverage from auto and homeowner’s insurance might not apply, as may be the case when you are traveling.
In addition, an umbrella policy might pay a proportionate share of a claim even if your basic liability insurance policy cannot pay its portion, either because you failed to comply with the conditions of the base policy or because the base layer insurer has become insolvent.
Be aware that umbrella policies usually do not protect you against damages you cause intentionally, liability that you accept contractually, liability related to planes, boats and other “toys” (which should be covered under other policies) or damages arising out of business or professional pursuits (which is usually covered by your malpractice insurance).
Big Risks, Little Premiums
If all this talk about millions of dollars makes you think, “this insurance must be expensive…” guess again. The perils covered by umbrella insurance are as rare as they are catastrophic, and the premium reflects this fact. The average $1 million umbrella policy comes with an annual premium ranging from $300 to $500, while a $5 million policy might cost you $600 to $700 per year, or about two dollars a day. If you have a weak credit history, a bad driving record, or teenage drivers in your household, you may pay a little more.
While paying the premium is easy, knowing how much coverage to get is the hard part since it’s not an exact science. The best practice here is to get somewhere between $1 million in umbrella coverage (obeying the “something is better than nothing” principle) and as much as your insurer will allow (which conforms to the principle of least regret).
Getting enough insurance to cover all your assets plus another $500,000 for legal defense seems like the happy medium. For example, a physician with a net worth of $2 million might opt for $2.5 million in coverage. As you make your decision, you might also consider factors such as how often you have guests in your home, how many miles you drive and whether your kids are likely to cause you to incur liability.
The best place to start shopping for coverage is with the insurance companies who currently cover your autos and your home since these policies are prerequisites for coverage.
When you set up your coverage, make sure there’s no gap between the top limit of your base layer coverage and the bottom limit of your umbrella policy. For example, if you have a $300,000 liability limit on your home, you might find yourself out of pocket for $200,000 when you incur a $1.5 million liability and also have $1 million in coverage from your umbrella policy. The first $300,000 would be paid by your base layer, then you would pay the next $200,000 and your umbrella would pay the remainder of the claim. A little diligence in the process can save you a bundle.
As a doctor, you already know people think you’ve got deep pockets. By putting a cheap but vital second layer of coverage on top of your base layers, you can show them the money if your legal team can’t show them to the exits first.
About the Authors
Lawrence B. Keller, CFP®, CLU®, ChFC®, RHU®, LUTCF is the founder of Physician Financial Services. Based in New York, he offers income protection and wealth accumulation strategies for physicians nationwide. Contact him at (800) 481-6447 or LKeller@physicianfinancialservices.com.
W. Ben Utley, CFP®, is an attending advisor with Physician Family Financial Advisors, a fee-only financial planning firm helping physicians throughout the U.S. to make a plan and get on track with saving for college and invest for retirement. Visit PhysicianFamily.com.
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