Many retirees are unfortunately becoming victims of tax fraud and scams. These scams not only steal their hard-earned retirement savings, but they can also leave them with a surprising tax bill.
A recent report by the U.S. Senate Special Committee on Aging, chaired by Senator Bob Casey (D-Pa), revealed this troubling trend. The report found cases of retirees in several states, including Pennsylvania, Ohio, Florida, Utah, and California, who lost their retirement savings to fraudsters. These victims then faced owing taxes on the stolen money.
Senator Casey believes that changes made to the tax code in 2017, through the Tax Cuts and Jobs Act (TCJA), are partly to blame for this double blow to retirees. The report argues that limitations on the theft loss tax deduction make it harder for scam victims to recoup their losses financially. Senator Casey called for these changes to be reversed, stating that the government should be helping scam victims, not adding to their burden by taxing their stolen savings.
We will delve deeper into the details of this issue and explore potential solutions in the following sections of this blog.
Beware: Scammers Targeting Retirement Savings and Leaving Victims With Hefty Tax Bills
A new report sheds light on a disturbing trend: scammers targeting retirees’ hard-earned savings. These scams not only result in financial devastation but also leave victims with unexpected tax burdens.
The report features real-life stories of retirees who fell prey to these schemes. One such case involves Larry, a retiree from Pennsylvania. Larry was contacted by a scammer impersonating a Social Security Administration official. Over a month, the scammer convinced Larry that his Social Security number was compromised and his retirement funds were in danger. Frightened and misled, Larry withdrew a staggering $765,000 from his retirement accounts.
The scammer then pressured Larry to invest the money in cryptocurrency, which turned out to be a complete fraud. Larry lost all his savings. To make matters worse, the IRS later hit him with a tax bill of over $220,000 on the withdrawn funds. Larry is quoted in the report, expressing his deep regret and the immense financial and emotional toll this scam has taken on him and his family.
This is just one example. The report highlights similar stories of other retirees who have been targeted and scammed out of their savings. These incidents underscore the importance of awareness and vigilance when it comes to protecting your retirement nest egg.
Stealing Your Tax Break: Theft Deductions on Hold
The ability to deduct theft losses from your taxes has been around for a long time, but recent changes have made it more difficult. In the past, you could deduct the value of stolen personal belongings from your income taxes. However, since 2018, things have been different.
The Tax Cuts and Jobs Act (TCJA) limited the theft deduction for individuals. Currently, and until 2025, you can only claim a theft deduction for personal items if the theft happened during a federally declared disaster. This means that if your car gets stolen from your driveway, you generally cannot deduct the loss on your taxes.
There is some good news, though. Theft losses related to business activities or scams can still be deducted under certain circumstances. You can find more information about this in IRS Publication 547. Additionally, some states still allow theft deductions on your state income taxes.
While federal tax laws have made it harder to deduct theft losses, lawmakers are looking at ways to help scam victims. Senator Casey has spoken out about the need to protect people who have been defrauded, and there are proposals in Congress to restore the theft deduction. However, due to the current political climate, it’s unlikely that any changes will be made before the upcoming election.
The issue of theft and scams remains a serious problem. According to the Federal Trade Commission (FTC), Americans lost a staggering $10 billion to fraud in 2023, with over 2.6 million incidents reported. Older adults, those aged 60 and over, were found to have lost more money on average compared to other age groups.
Don’t Be Fooled by Retirement Scams
While saving diligently for retirement, the last thing you want is for someone to steal your hard-earned money. Unfortunately, scammers target people nearing retirement, preying on their financial anxieties and dreams of a secure future. But by being aware of their tricks, you can significantly reduce your risk of falling victim.
1. Scammers Get Personal: Be wary of anyone who already knows details about your finances, like your bank or the amount you have saved. Legitimate financial institutions won’t call you out of the blue with this kind of information.
2. Tech Trickery: Phishing scams can be very convincing. Don’t trust pop-up messages on your computer claiming a security breach in your retirement account. Always log in directly to your account to verify any issues.
3. Fake Officials: Scammers often impersonate government officials, like the IRS, to pressure you into transferring money or making risky investments. Remember, real government agencies won’t contact you through unsolicited emails, text messages, or social media. They will always use official channels for communication.
4. Spot Phishing Attempts: Never give out personal information or click on links in suspicious emails or texts, especially those claiming to be from tax agencies or threatening legal action. The IRS, for example, will never request your information through these channels. If you’re unsure, reach out to the official agency directly using a trusted phone number or website.
Bottom Line
If you suspect you have been scammed or a victim of tax fraud, don’t hesitate to seek professional help. A tax attorney or qualified tax professional like John Geantasio can advise you on managing any potential tax liabilities that may arise from a scam. By taking action quickly, you can minimize the damage and start rebuilding your retirement savings.
Frequently Asked Questions:
Ques. What to do if an elderly person is getting scammed?
Ans. If you suspect that an elderly person is being targeted by scammers, it’s crucial to take immediate action. Start by talking to them about the situation and expressing your concerns. Encourage them to stop all communication with the scammers and report the incident to the authorities, such as the Federal Trade Commission (FTC) or local law enforcement. Additionally, consider seeking professional assistance from reputable financial advisors or legal experts who can offer guidance on protecting their assets and preventing further exploitation.
Ques. How can we protect the elderly from fraud?
Ans. Protecting the elderly from fraud requires a proactive approach. Encourage them to stay informed about common scams targeting seniors and to be cautious when sharing personal or financial information, especially over the phone or online. Consider setting up safeguards such as caller ID, spam filters, and fraud alerts on their accounts. It’s also essential to foster open communication and provide ongoing support to help them recognize and avoid potential scams.
Ques. How can seniors protect themselves from online fraud?
Ans. Seniors can take several steps to protect themselves from online fraud. This includes using strong, unique passwords for their accounts and enabling two-factor authentication whenever possible. They should also be cautious when clicking on links or downloading attachments from unknown sources and regularly update their devices and software to guard against security vulnerabilities. Additionally, seniors should be wary of unsolicited emails, messages, or requests for personal information and avoid sharing sensitive data unless they are certain of the recipient’s legitimacy.
Ques. What to do if a vulnerable person is being scammed?
Ans. If you suspect that a vulnerable person, such as someone with cognitive impairments or limited financial literacy, is being scammed, it’s essential to intervene promptly. Start by gathering evidence of the scam and then reach out to trusted family members, caregivers, or professionals who can provide support and guidance. Consider involving adult protective services or legal authorities if necessary to ensure the individual’s safety and well-being. It’s crucial to act swiftly and decisively to mitigate any potential harm and prevent further exploitation.
Ques. What are some of the most common tax fraud schemes?
Ans. Tax fraud schemes come in various forms, but some of the most common include identity theft, where fraudsters use stolen personal information to file fraudulent tax returns and claim refunds. Another prevalent scheme involves phishing scams, where individuals receive fake emails or calls pretending to be from the IRS or tax authorities, requesting sensitive information or payment. Additionally, fraudulent tax preparers may promise inflated refunds or engage in deceptive practices to cheat taxpayers. To protect against tax fraud, it’s essential to file tax returns promptly, safeguard personal information, and verify the credentials of tax professionals. Seeking assistance from reputable tax advisors, such as
John Geantasion CPA LLC and team specializes in providing comprehensive tax services and can assist clients in safeguarding their financial interests against fraud and scams. With our expertise and personalized approach, we strive to empower individuals, including seniors and vulnerable populations, to make informed decisions and protect their assets. Contact us today to learn more about our services and how we can help you safeguard your financial well-being.