Corporate Transparency Act (CTA) Enjoined and Stay Issued

Beneficial Ownership Interest (BOI) Reporting is now on hold.

In an early November article, I wrote about the CTA and how BOI (Beneficial Ownership Interest) reporting was required by many entities by January 1, 2025.

A court ruling last week found the CTA unconstitutional, paving the way for an appeal by the Department of Justice and FinCEN.

In a statement issued by FinCEN over the weekend, FinCEN announced that it will comply with the order issued by the District Court in the Texas Top Cop Shop case “so long as it is in effect.” Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be liable if they fail to do so “while the preliminary injunction remains in effect.”

FinCEN also disclosed that the Department of Justice filed a Notice of Appeal on December 5, 2024, and reminded the public that voluntary compliance with the CTA reporting requirements can continue.

We do not know what will happen on appeal, although we think it’s unlikely that the initial required filing date for January 1, 2025, will stand. Similarly, the filing deadlines applicable to newly formed reporting companies are also on hold while the injunction is applicable.

However, if you formed a new company and the reporting deadline was imminent when the stay was issued, it is probably prudent to ensure that you have all the information necessary to file a BOI immediately if the injunction is lifted with no change in requirements, in case additional time to file is not granted. FinCEN’s seeming emphasis on the fact that enforcement of the CTA is stayed “so long as the order is in effect” may indicate that the government does not intend to grant additional time to file.

Thus, for instance, it is possible that if a decision to lift or vacate the injunction is made on or after January 2, 2025, all reporting companies with a January 1 reporting deadline would need to file immediately. Although it does seem likely that additional time to file would be granted upon the possible lifting of the stay, it may well be that such additional time may not be lengthy, given that existing reporting companies have had almost an entire year to report before the preliminary injunction is granted.

As such, until and unless FinCEN indicates that an extension of time to file will be granted, it is prudent that all information necessary for reporting is gathered and ready to file if you do not wish to file voluntarily by your original deadline.

The decision about whether to file voluntarily may be a difficult one. On one hand, it ensures that if the injunction is vacated and there is a need to file quickly, you will already be in compliance. On the other, many may not want their information submitted to the government if there is no requirement to do so (and some may not want to pay for professional help to file their BOI report(s).)

If you are unsure what to do, please check with your entity’s attorney or CPA for the latest information about your situation if you have not yet filed a BOI report and are required to do so by the CTA.

Source: InterActive Legal

Essential Year-End Tax Planning Tips for 2024

Tax planning becomes essential for individuals and businesses as the year ends. Proactively managing your finances before the calendar flips to 2025 can help minimize your tax burden and set you up for a financially secure new year.

Many clients submit their information yearly to have us optimize their 2024 and future years’ taxes. Proactively estimating and making side-by-side multi-year tax projections has permanently saved some clients thousands of dollars in taxes.

Here are some things to consider as you weigh potential tax moves between now and the end of the year.

1. Consider deferring income to next year

The old rule used to be “defer income.” The new rule is “time income.”

Consider opportunities to defer income to 2025, especially if you may be in a lower tax bracket next year.

For example, you may be able to defer a year-end bonus or delay the collection of business debts, rent, and payments for services. Doing so may enable you to postpone tax payments on the income until next year.

If you have the option to sell real property on a land contract rather than an outright sale, that can spread your tax liability over several years and be subject to a lower long-term capital gain rate (which could be as low as 0%.) On the other hand, if you’re concerned about future tax rate hikes, an outright sale or opting out of the installment method for a land contract sale can ease the uncertainty that you’ll pay higher rates on the deferred income.

If your top tax rate in 2024 is lower than what you expect in 2025 (say, because you are retiring or because of significant gains or a big raise or bonus expected in 2025), it might make sense to accelerate income instead of deferring it.

Be mindful of accelerating or bunching income, which can potentially 1) increase the taxability of social security income, 2) increase Medicare premiums, 3) raise your long-term capital gains rate from 0% to 20%, or 4) decrease your ACA health insurance premium credit.

2. Time your deductions

Once again, the old rule used to be “accelerate deductions.” The new rule is “time deductions.”

If appropriate, look for opportunities to accelerate deductions into the current tax year, especially if your tax rate will be higher this year than next.

If you own a business and are in a high tax bracket, consider accelerating business equipment purchases and electing up to a full expense deduction (via bonus depreciation or Section 179 expensing.)

If you itemize deductions, making payments for deductible expenses such as qualifying interest, state, and local taxes (to the extent they don’t already exceed $10,000), and medical expenses before the end of the year (instead of paying them in early 2025) could make a difference on your 2024 return.

For taxpayers who typically itemize their deductions, the strategy of “bunching” deductions can significantly impact them. Instead of spreading charitable contributions, medical expenses, and other deductible costs across multiple years, consider consolidating them into one year. By “bunching” these deductions, you may exceed the standard deduction threshold and maximize your itemized deductions for the year.

For example, if you typically donate $2,000 annually to charity but are not receiving a tax benefit because you are utilizing the standard deduction, consider making multiple years of contributions in 2024. This could help you exceed the standard deduction amount, allowing you to itemize your deductions and providing more tax benefits (see below.)

For those with significant medical expenses, it’s important to note that only the portion of medical expenses exceeding 7.5% of your adjusted gross income (AGI) can be deducted. If you’re close to reaching that threshold, consider scheduling medical procedures, doctor visits, or purchasing necessary medical equipment before the year ends. Remember that medical expenses are only deductible in the year they are paid, so timing matters.

3. Make deductible charitable contributions

Making charitable donations can reduce your taxable income while supporting causes that matter to you.

If you itemize deductions on your federal income tax return, you can generally deduct charitable contributions, but the deduction is limited to 60%, 50%, 30%, or 20% of your adjusted gross income, depending on the type of property you give and the type of organization to which you contribute. Excess amounts can be carried over for up to five years.

You can use checks or credit cards to make year-end contributions even if the check does not clear until shortly after year-end or the credit card bill does not have to be paid until next year.

As you consider year-end charitable giving, there are a few strategies to keep in mind:

• Qualified Charitable Distributions (QCDs): If you’re 70½ or older, you can direct up to $105,000 (2024 limit) from your IRA to a charity as a QCD. This donation counts toward your required minimum distribution (RMD) and is excluded from your taxable income (and can reduce the taxation of social security income.) QCDs cannot be counted as deductible charitable donations.

• Donor-Advised Funds (DAFs): DAFs allow you to make a significant charitable contribution in 2024 and receive the tax deduction now while deciding which charities to support over the next several years. This is a strategy to help with the bunching of itemized deductions described earlier.

• Appreciated Stock Donations: Donating appreciated stocks that have been held for over one year instead of cash generally provides a double benefit. It allows you to avoid paying capital gains tax on the appreciation while receiving a charitable deduction equal to the investment’s fair market value.

4. Bump up withholding to cover a tax shortfall

If it looks as though you will owe federal income tax for the year, consider increasing your withholding on Form W-4 for the remainder of the year to cover the shortfall. Time may be limited for employees to request a Form W-4 change and for their employers to implement it in 2024.

The most significant advantage in doing so is that withholding is considered to have been paid evenly throughout the year instead of when the dollars are taken from your paycheck. This approach can help you avoid or reduce possible underpayment of estimated tax penalties.

Those taking distributions from their IRAs can also request that up to 100% of the distribution be paid toward federal and state income tax withholding to help avoid underpayment of estimated tax penalties.

These increased withholding strategies can compensate for low or missing quarterly estimated tax payments.

5. Save more for retirement

Deductible contributions to a traditional IRA and pretax contributions to an employer-sponsored retirement plan such as a 401(k) can reduce your 2024 taxable income. Consider doing so if you still need to contribute up to the maximum amount allowed.

For 2024, you can contribute up to $23,000 to a 401(k) plan ($30,500 if you’re age 50 or older) and up to $7,000 to traditional and Roth IRAs combined ($8,000 if you’re age 50 or older). The window to make 2024 employee contributions to an employer plan generally closes at the end of the year, while you have until April 15, 2025, to make 2024 IRA contributions.

Various income limitations exist for eligibility to make traditional and Roth IRA contributions. Regardless of your income, however, you can make a non-deductible IRA contribution. Such a contribution can be subsequently converted to a Roth IRA at little or no tax cost for many (this is known by many as the “back-door” Roth.) If a Roth IRA conversion doesn’t make sense, the non-deductible contribution adds cost basis to your traditional IRA, reducing future taxation of IRA distributions or Roth conversions. Note that Roth contributions are not deductible and Roth-qualified distributions are not taxable.

Speaking of Roth Conversions, if you expect your tax rate to be higher in future years, or you’re in a low tax bracket in 2024, converting some or all your traditional (pre-tax) IRA or 401(k) funds into a Roth IRA in 2024 may be beneficial. While this conversion triggers taxes now, it can reduce future tax liabilities, as qualified withdrawals from a Roth IRA are tax-free.

Owners of small businesses with retirement plans may have until the due date of their tax returns (plus extensions) to make some retirement plan contributions. Check with your tax advisor for your particular small-business retirement plan.

Some small business retirement plans must be set up by 12/31/2024 to allow for a deduction for the 2024 tax year.

If you have a small business, check with your tax advisor to ensure your retirement plan deductions are correctly balanced with the qualified business income deduction, assuming your small business is eligible.

6. Take required minimum distributions

If you are 73 or older, you generally must take required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans (special rules may apply if you’re still working and participating in your employer’s retirement plan.)

If you reach 73 in 2024, you must begin taking minimum distributions from your retirement accounts (traditional IRAs, 401(k)s, etc.) by April 1, 2025. However, delaying the 2024 RMD until 2025 will require you to include both the 2024 and 2025 RMDs into 2025 income.

You must make the withdrawals by the required date—the end of the year for most individuals. The penalty for failing to do so is substantial: 25% of any amount you failed to distribute as required (10% if corrected promptly).

In 2024, the IRS finalized somewhat complicated regulations relating to RMDs from inherited IRAs after December 31, 2019.

In general, under the SECURE Act, unless an exception applies, the entire balance of a traditional or Roth IRA must be fully distributed by the end of the 10^th year after the year of death.

In addition, depending on the age of the original IRA owner, heirs must take an RMD every year until the 10^th year, when the remaining account balance must be distributed. These rules require careful and sometimes complex, multi-year planning for large inherited IRAs, so it’s essential to consult your tax advisor.

Review your accounts to ensure you’ve met your RMD requirement for the year, and if applicable, consider making charitable contributions through a QCD.

7. Weigh year-end investment moves

I often tell folks, “You should not let the tax tail wag the investment dog.” That means that you shouldn’t let tax considerations drive your investment decisions.

With that in mind, lower-income taxpayers may be subject to a 0% long-term capital gains rate for up to about $47K of taxable income for single filers and $94K for joint filers. For “kids” under 26, up to $2,600 of long-term capital gains are taxed at 0% if filed on their own tax returns (not filed with parents’ returns.)

Regardless, it’s worth considering the tax implications of any year-end investment moves that you make. For example, if you have realized net capital gains from selling securities at a profit, you might avoid being taxed on some or all those gains by selling losing positions (also known as tax loss harvesting.)

Any capital losses over and above your capital gains can offset up to $3,000 of ordinary income ($1,500 if your filing status is married filing separately) or be carried forward to reduce your taxes in future years.

Wash sale rules prevent investors from selling an investment at a loss and re-purchasing the same or substantially similar security within 30 days in any of their or spouse’s accounts (including retirement accounts). Doing so invalidates the loss for the current year, and the loss deduction is suspended until the new security is ultimately sold. If you wait 31 days to repurchase the same (or substantially similar security), the wash sale rules do not apply.

Digital assets like Bitcoin are not subject to wash sales rules, so there’s no harm in harvesting a loss and then immediately re-purchasing the same digital asset if desired.

8. Contribute to 529 Education Savings Plans

If you’re planning to save for education expenses, the end of the year is an excellent time to consider contributions to a 529 education savings plan. There is no federal tax deduction for 529 plan contributions, but the account grows tax-free if the funds are used for qualifying educational purposes.

Many states offer a limited tax deduction or credit for 529 plan contributions (some states even allow for a deduction for a 529 plan rollover from another state’s 529 plan.) In many states, contributing to a 529 plan you don’t own (say for a sibling, grandkid, nephew, niece, cousin, or friend) also allows for a state tax deduction.

There’s a five-year “super-funding” strategy for those needing to accelerate their college funding. This strategy allows you to contribute up to five years’ worth of gifts to a 529 plan in a year ($90,000 for individuals, $180,000 for married couples). A gift tax return must be filed, but it may not be taxable if this is the only gift made to that person in the current year. This can be a great way to accelerate your child’s education savings.

With the ability to 1) fund private K-12 education, 2) repay some student loans up to $10,000, and 3) rollover some leftover 529 plan funds to a Roth IRA after college graduation, worries about overfunding a 529 education savings plan are far less than they used to be.

In summary, year-end tax planning is a valuable opportunity to control your finances and reduce your taxable income for the year. Reviewing your financial situation, consulting with your tax advisor, and implementing these year-end strategies will ensure that you enter 2025 knowing you’ve made proactive decisions to optimize your tax savings.

Don't hesitate to contact us if you would like to discuss a tax plan that fully utilizes all available strategies.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first. If you are not a client, an initial consultation is complimentary, and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client and your financial plan and investment objectives are different.

Understanding Beneficial Ownership Information (BOI) Reporting Requirements

Starting January 1, 2024, many businesses and non-business entities must comply with the Corporate Transparency Act (CTA). The CTA was enacted into law as part of the National Defense Act for Fiscal Year 2021. It requires disclosing certain entities' beneficial ownership information (BOI) for people who own or control a company.

It is anticipated that 32.6 million businesses will be required to comply with this reporting requirement. The BOI reporting requirement intends to help U.S. law enforcement combat money laundering and the financing of terrorism and other illicit activity.

The CTA is not part of the tax code. Instead, it is part of the Bank Secrecy Act, a set of federal laws that require record-keeping and report filing on certain types of financial transactions. Under the CTA, BOI reports will not be filed with the IRS but with the Financial Crimes Enforcement Network (FinCEN), another Department of the Treasury agency.

Most business entities with fewer than 20 full-time employees and less than $5 million in sales or gross receipts (as reported on federal tax returns) will likely be required to complete the BOI disclosure.

Below is some preliminary information for you to consider as you approach the implementation period for this new reporting requirement. This information is meant to be general in nature. It should not be applied to your specific facts and circumstances without consultation with competent legal counsel or another retained professional adviser.

What entities are required to comply with the CTA’s BOI reporting requirement?

Entities organized both in the U.S. and outside the U.S. may be subject to the CTA’s reporting requirements. Domestic companies required to report include corporations, limited liability companies (LLCs), limited partnerships, or any similar entity created by filing a document with a secretary of state or any similar office under the law of a state or Indian tribe. This may even include seemingly innocuous entities such as trusts and estates (including trustees and beneficiaries), homeowner’s associations (HOA), and HOA board members.

Domestic entities not created by filing a document with a secretary of state or similar office are not required to report under the CTA. These are entities formed by other means, like sole proprietorships, family planning trusts, employee retirement plan trusts, or general partnerships/joint ventures, and are likely not required to file a BOI report.

Foreign companies required to report under the CTA include corporations, LLCs, or any similar entity formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by filing a document with a secretary of state or similar office.

Are there any exemptions from the filing requirements?

There are 23 categories of exemptions. Among the exemptions are publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities, and certain inactive entities. Please note that these are not blanket exemptions, and many of these entities are already heavily regulated by the government and thus have already disclosed their BOI to a government authority.

In addition, certain “large operating entities” are exempt from filing. To qualify for this exemption, the company must:

1. Employ more than 20 people in the United States and

2. Have reported gross revenue (or sales) of over $5M on the prior year’s tax return; and

3. Be physically present in the U.S.

Who is a beneficial owner?

Any individual who, directly or indirectly, either:

• Exercises “substantial control” over a reporting company, or

• Owns or controls at least 25 percent of the ownership interests of a reporting company

An individual has substantial control of a reporting company if they direct, determine, or exercise substantial influence over its important decisions. This includes any senior officers of the reporting company, regardless of formal title or if they have no ownership interest in the reporting company.

The detailed CTA regulations define “substantial control” and “ownership interest” further.

If, after reading the guidance about which entities are required to comply with the BOI requirements, you’re not sure if you should file, there is little harm in filing the BOI. You may, however, wish to consult with an attorney on this.

When must companies file?

Different filing timeframes apply depending on when an entity is registered/formed or if the beneficial owner’s information changes.

• New entities (created/registered in 2024) — must file within 90 days of creation/registration

• New entities (created/registered after 12/31/2024) — must file within 30 days

• Existing entities (created/registered before 1/1/24) — must file by 1/1/25

• Reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports — must file within 30 days

Entities dissolved or terminated during 2024 may still be obligated to file a BOI.

FinCEN has issued five notices extending the filing deadlines for certain reporting companies to submit BOI reports in response to Hurricanes Milton, Helene, Debby, Beryl, and Francine.

What sort of information is required to be reported?

Companies must report the following information:

1. The full name of the reporting company

2. Any trade name or doing business as (DBA) name

3. Business address, state or Tribal jurisdiction of formation

4. IRS taxpayer identification number (TIN).

Additionally, information on the entity’s beneficial owners and, for newly created entities, the company applicants is required. This information includes the name, birth date, address, and unique identifying number, as well as issuing jurisdiction from an acceptable identification document (e.g., a driver’s license or passport) and an image of such document.

TIP: To decrease the administrative burden, convince each beneficial owner to obtain a unique identifier number from the FinCen website. A unique identifier number is similar to a TSA Pre-Check Number—an applied-for identifier consolidating all the applicant's personal information in one place to expedite the filing and subsequent amendment processes.

What is the Cost of Filing and Risk of Non-compliance

There is no fee for filing the BOI report, which can only be filed online.

Penalties for willfully not complying with the BOI reporting requirement can result in criminal and civil penalties of $591 per day and up to $10,000 with up to two years of jail time. For more information about the CTA, visit Beneficial Ownership Information.

Beware of BOI Fraudulent Scams

FinCEN has learned of fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the CTA.

These fraudulent scams may include:

• Correspondence referencing a “Form 4022” or “Form 5102” is fraudulent. FinCEN does not have a “Form 4022” or a “Form 5102.” Do not send BOI to anyone by completing these forms. Beware of other non-existent forms.

• Correspondence or other documents referencing a “US Business Regulations Dept.” This correspondence is fraudulent; there is no government entity by this name.

Please be on the lookout for anything that may indicate that the correspondence you receive is fraudulent. For example, be cautious of any of the following:

• Correspondence requesting payment. There is NO fee to file BOI directly with FinCEN. FinCEN does NOT send correspondence requesting payment to file BOI. Do not send money in response to any mailing regarding filing your beneficial ownership information report that claims to be from FinCEN or another government agency.

• Correspondence that asks the recipient to click on a suspicious URL or to scan a suspicious QR code. Those e-mails or letters could be fraudulent. Do not click suspicious links or attachments or scan any suspicious QR codes.

• Correspondence regarding penalties. FinCEN does NOT send initial correspondence regarding CTA penalties via e-mail or phone. Do not submit payments via phone, mail, or websites; these requests/directions are fraudulent.

As always, use caution when you receive correspondence from an unknown party. Verify the sender. Never give anyone personal information, including beneficial ownership, unless you know and trust the other party.

For more information, FinCEN has prepared Frequently Asked Questions (FAQs) in response to inquiries about the Beneficial Ownership Information Reporting Rule and Beneficial Ownership Information Access and Safeguards Rule.

Most people can probably file their own BOI without help from an attorney or CPA, both of whom may be available to help for a fee.

The more difficult questions may be whether BOI reporting is required or if you are considered a beneficial owner. That might require a legal review of the entity creation documents or the articles of incorporation filed with the secretary of state. Only a qualified attorney can express a legal opinion of whether a BOI filing is required after reviewing the entity's creation documents.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client, an initial consultation is complimentary, and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client and your financial plan and investment objectives are different.

Protecting Yourself When Your Data is in Danger

It’s been exactly one year since I published my article “Protecting Yourself from the Latest Cyber Scams.” It’s time to update that article, given that not a week goes by without hearing about another corporate data breach, which makes our personal data and information available for anyone to see or exploit.

National Public Data, a consumer data broker, confirmed last week that a hacker had targeted the company in December 2023, "with potential leaks of specific data in April 2024 and summer 2024.” (1)

Other reports indicate that this leaked data had already been found on the dark web and could include millions of Americans' names, addresses, phone numbers, and Social Security numbers. (2)

A data breach of this magnitude is especially worrisome and is the latest in a string of major data breaches this year. (3)

If you're wondering what you can do to help protect yourself against the growing threat of identity theft and related scams, here are some steps to consider.

Consider Fraud Alerts and Credit Freezes

One way to reduce your risk after a data breach is to place a fraud alert or a credit freeze on your credit report. Both are free tools that can help you prevent fraud but work somewhat differently.

A fraud alert is a notice placed on your credit report that warns potential creditors that your identity has been compromised. It allows them to check your credit but requires them to take extra steps to verify your identity before issuing new credit in your name.  You can place a fraud alert by contacting one of the three major credit bureaus (Equifax, Experian, and TransUnion), and that agency will notify the others. An initial alert will last for one year but can be extended to seven years if you have become an actual, rather than potential, victim of fraud.

A credit freeze (sometimes called a security freeze) may also help protect you if you suspect your personal information was stolen, but it's more stringent. Once you have a credit freeze in place, potential creditors won't be able to access your credit report or credit score (there are some exceptions.) This helps prevent identity thieves from opening fraudulent accounts in your name. You must contact each of the three major credit reporting agencies to request a credit freeze. The credit freeze will stay in place until you decide to lift it, which you must do at least temporarily before applying for credit.

Following each credit bureau's instructions, you can set up a fraud alert or credit freeze online, by phone, or by mail. This may also be an excellent time to request a free credit report to check recent credit activity. Here are the three major credit bureaus' website addresses and phone numbers:

·       Equifax at Equifax.com 888-298-0045

·       Experian at Experian.com 888-397-3742

·       TransUnion at Transunion.com 800-916-8800

Monitor Your Personal and Financial Information and Implement Technology Controls

·       If you need extended support, consider subscribing to a credit monitoring service. These services come at a cost, but they may bundle credit report monitoring, credit report locks, scans of the dark web, help recovering from identity theft, and insurance.

·       Periodically review your credit reports to spot suspicious activity. You can receive free weekly online reports from all three credit bureaus at the official site, annualcreditreport.com.

·       Sign up for alerts for your bank, financial, and credit card accounts. These alerts notify you when an unusual transaction occurs, or someone has signed into your account. Check your accounts frequently and review your statements monthly.

·       Pick strong passwords that are different for each account and change them periodically. For an extra layer of protection, use a password manager that generates strong, unique passwords you control through a single master password.

·       Enable multifactor authentication when offered. For example, in addition to providing a password, you may be required to enter a code sent to your phone or email, answer a security question, use a physical security key, or sign in using a facial or fingerprint scan.

·       Keep your device and security software up to date. Operating system and software updates may include security fixes. Turning on automatic updates is an easy way to do this.

·       Add security software to your smartphones and tablets, just like your computer or laptop.

·       Beware of phishing (e-mail), vishing (phone), and smishing (SMS) attempts from scammers who want to obtain passwords or financial information. Always maintain a healthy dose of skepticism.

·       Be cautious if you receive a link or attachment in your email or via social media. Don’t click on it until you verify it's legitimate.

·       Warnings of overdue invoices, failed delivery attempts, and order confirmations in e-mails and texts look surprisingly genuine these days. Overseas scammers are now adept at using spelling and grammar checkers, so those old tell-tale signs may no longer exist.

·       Leave unsolicited/unknown phone calls to voicemail and double-check phone numbers, even if they appear familiar or appear to originate from a company you usually do business with. Cloning and spoofing of known and “safe” caller ID information is commonplace, so you can’t always trust it.

·       With artificial intelligence, voice replication software, and deep fakes, you can’t always trust what you hear or see. A tiny snippet of your voice, picture, or video on the web (or from a phone call) can be exploited to allow imposters to create near-perfect replicas of your voice, your loved ones’ voice, or video images and trick you into acting quickly out of fear.

·       Beware of humans or robocalls looking for a simple “yes” or “no” answer to a seemingly innocent question. They may attempt to steal your voice “print” to use in future scams they have planned.

Human Controls & Constant Vigilance

Be aware that after a significant data breach, scammers may step up impersonation attempts, even if they don't have access to stolen data. That might be an impersonation of a loved one in distress (or perhaps hurt) or a government official.

In all cases, they prey upon your fear and your natural inclination to act irrationally while you’re fearful. They may demand you to send money or gift cards, or they’ll share your personal information on the dark web. Chances are, if they have it, it’s already on the web, and they’ll probably share it with others even if you pay up.

For example, someone allegedly from the Social Security Administration or IRS might contact you and ask you to verify your Social Security number or provide or update your personal information. However, government agencies will never email you or call you to ask for this information. Don't respond, and promptly contact the appropriate government agency to report an identity theft attempt.

Whenever a stranger contacts you with a request for money, make it a personal practice to allow yourself 5-10 minutes to think about what’s happening before acting. Be especially skeptical if they advise you not to discuss the matter with a spouse or loved one.

If your data has been compromised or your computer has been hacked, they may offer to help you avoid or recover from identity theft or help secure your computer. They’ll do neither and only try to get you to pay up. Never believe or accept their offers of help, even if they say they’re from Norton Security, Microsoft, or Apple. By dangling information about you that few people know (harvested perhaps by hacking into your e-mail account), they convince you they’re legitimate (they’re not) and scare you into acting or paying up.

Hang up or shut down your computer immediately, and take the time to think about your next steps. Contact your closest tech geek to help you determine if your computer or e-mail account has been compromised and to sweep it for possible malware. Change your e-mail password immediately and turn on multi-factor authentication.

If you believe a loved one is in trouble, call them directly before doing anything (like sending money or even answering seemingly innocent questions) to confirm if they’re OK independently. Setting up a safe word or phrase with loved ones in advance can save you from heartache and a lighter wallet.

For more information about how to report and recover from identity theft, visit the Federal Trade Commission's website IdentityTheft.gov.

If you suspect fraud, you can file a complaint with the Federal Trade Commission at reportfraud.ftc.gov.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client, an initial consultation is complimentary, and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client and your financial plan and investment objectives are different.

(1) National Public Data, August 2024

 (2) KrebsonSecurity.com, August 15, 2024

(3) Identity Theft Resource Center, 2024

What’s Going on in the Markets August 6, 2024

With the lazy, hazy days of summer come the doldrums in the stock markets—or so everyone thought.

July went out with a bang as the market rally broadened significantly to include small-caps and mid-caps, while the red-hot technology stocks took a breather. Sure, the S&P 500 index was only up 1%, but the small caps were up 11%, the mid-caps were up 7%, and even the bonds were up 3%.

But since then, if July was the lion, August has been the bear. The S&P 500 index is down 5% in just three August trading days, the small caps have given back almost 10%, and the tech-heavy NASDAQ 100 has slid 7.5%. In the digital age, markets move fast.

Now, mind you, the S&P 500 is still up about 15% over the last 12 months (and up 9.5% year-to-date), but every 10-12 months, we should expect a 5%- 9% pullback in the markets. We had a 5.3% pullback in April, but the last time we saw a pullback of this size ended last October. The markets have been remarkably calm over the past year, and we went 356 trading days without a 2% daily pullback in the S&P 500 index. That may be why this pullback feels so jarring.

Pundits and the media will posit several reasons for the pullback, such as:

·       The Federal Reserve is on the cusp of making a policy mistake by keeping interest rates higher for longer and is pushing the country into a recession.

·       The July monthly jobs report, which was out on Friday, spooked traders and investors as it came in much lighter than expected, and the unemployment rate ticked up. This fanned the fears that a recession was on the way (there’s always a recession on the way; the trick is knowing when we’re in one.)

·       Over the weekend, news broke that legendary investor Warren Buffet sold half of his stake in Apple during the past quarter and is stockpiling cash.

·       The possibility of a bigger, more freely spending government—regardless of party—is giving traders fits. The markets crave certainty, and summertime offers little of it in election years.

·       Escalating tensions in the Middle East.

·       The unwinding of a long-running Japanese Yen carry trade, in which traders sold the Yen and invested it in higher-paying countries and other opportunities for months if not years. Now, that trade is unwinding and directly affects the world’s stock markets.

You can cite any of the above reasons for the selloff, but the selling will stop when the fear that’s getting the better of so many traders and investors goes away. But certainty about the election is about three months away. Absent a market crash, any possibility of a short-term interest rate cut is about 45 days away. So, buckle up, meanwhile.

In our client portfolios, we’ve been getting defensive by taking some money off the table for weeks now. We are hedged with money market cash earning 5%, Treasury Bills, bonds, inverse funds, and options sold against our positions. We’re prepared to get more defensive if things get worse, but this is a time to look for quality stocks and funds that were too expensive about a week ago. We did some shopping for some clients last week.

We’ve had a fantastic start to the year, and historically, an election year tends to be volatile from the summer into September/October. Once the overhang from the election uncertainty is gone, the market should resume its uptrend by the end of the year.

In short, as I’ve repeated before, the secret to success in accumulating wealth is not to get scared out of your positions. It’s never about completely avoiding risk in the markets but reducing risk. If you’re losing sleep over your investments, consider reducing your exposure or contact us to help determine if you’re overly invested.

Meanwhile, try and stay cool!

If you would like to review your current investment portfolio or discuss any other retirement, tax, or financial planning matters, please don’t hesitate to contact us at 734-447-5305 or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first. If you are not a client, an initial consultation is complimentary, and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client and your financial plan and investment objectives are different.