Although fewer paper checks are being issued now than in the past, old-fashioned paper checks remain the “go-to” payment method for many individuals and organizations. While checks may be convenient and familiar, fraud is a persistent problem. According to the Federal Reserve Bank of Boston, the total losses from check fraud were estimated at $24 billion in 2023, nearly double the amount from five years earlier.

These schemes are on the rise, partly because check theft is an easy, low-tech crime to pull off. Plus, there’s still a sizeable pool of potential victims. Dishonest individuals and organized crime networks often steal checks from residential mailboxes and public mail drop boxes.

Recent Statistics

A recent government report from the Financial Crimes Enforcement Network (FinCEN) highlighted common ways checks stolen from U.S. mail were used to commit fraud:

• 20% were fraudulently signed and deposited,
• 44% were altered and then deposited, and
• 26% were utilized as templates to create counterfeit checks.

The FinCEN report revealed over $688 million in suspicious activity linked to checks in just six months. In addition to direct financial losses, check fraud can adversely impact credit scores and business goodwill, as well as result in bank fees and payment delays.

Nip Check Fraud in the Bud

After a check has been stolen, the thief may continue to conduct fraudulent transactions until theft has been detected. So, it pays to prevent fraud from happening in the first place. Consider the following seven preventive measures:

1. Stop writing checks. Replace checks with alternative payment methods, including debit and credit cards, wire and Automated Clearing House (ACH) transfers, and third-party electronic payment services, such as PayPal, Venmo and Zelle. These options have security measures in place to prevent criminal activity.

2. Use your bank’s fraud prevention tools. Banks provide customers with many solutions to combat payment fraud. Visit your local branch or contact your relationship manager for customized fraud-prevention advice.

3. Respond quickly to alerts or calls from your bank. Many banks offer fraud alert services that notify you of suspicious account activity, such as transactions over a certain dollar threshold. Make sure to update your contact information with the bank. Businesses should also train employees who are designated as points of contact to understand the importance of responding quickly.

4. Reconcile accounts regularly. It’s essential to verify the legitimacy of transactions posted to your account as often as possible. Most banks offer online banking tools and apps that allow you to view check images as soon as they post to your account. Use these tools to verify the payee, amount and account paid. Notify your bank promptly when you suspect fraudulent activity. Acting quickly maximizes the assistance your bank can provide and lowers your out-of-pocket costs.

5. Use security ink. Check fraud often involves altering legitimate checks. Criminals can easily erase regular ink using common household products, such as bleach and nail polish remover. Security ink is hard to erase, making it more difficult for criminals to compromise your checks.

6. Secure your checks. While check fraud often involves third parties, it can also be committed by family, friends and employees. Store blank checks in a locked cabinet. Businesses should also limit employees’ ability to reorder checks.

7. Shred old checks and statements. Destroying old financial records can prevent sensitive information from being used to engage in check fraud or any other payment fraud

Awareness Is Key

While opportunity is fueling check fraud schemes, knowledge and vigilance can help individuals and businesses reduce their risks. Alternative payment methods are the first line of defense against check theft, but that’s not a realistic solution for every situation. So, implementing additional security measures is crucial for those who still write and accept paper checks.

We’re thrilled to be part of the Fairfield University Career Fair today, connecting with the next generation of bright minds!

If you’re a passionate accounting major or just curious about the dynamic world of public accounting, stop by our booth to learn more about our amazing team and how we’re helping clients succeed every day!

Members of our team spent the morning at the Quinnipiac University Business Career Fair. Marcos and Victoria had the opportunity to meet and share their knowledge with future accountants and auditors.

Marcos is quite familiar with the experience as he interned for BHCB this past busy season and was asked to join us full time once his internship was completed.

Taking Money Out of Your IRA

If you withdraw money from a traditional IRA before age 59½, you’ll generally owe income tax plus a 10% penalty on the amount. But there are exceptions, including if you withdraw the money to cover certain higher education costs or to buy a home (first-time homebuyer expenses up to $10,000). You can usually make penalty-free IRA withdrawals when you have or adopt a child ($5,000 limit per child), in the event of a financial emergency ($1,000 limit per year) and to help with disaster recovery costs ($22,000 limit). Those who become disabled and domestic violence victims ($10,000 limit), among others, also may qualify.

Document Your Donations Right Away

Did your summer chore list leave you with boxes of items to donate to local charities? Not only is it generous to donate, but you might end up with tax savings as well (if you itemize deductions on your tax return). You’ll need to secure proper documentation from the qualified charities you donate to. Noncash donations of less than $250 must be supported by a receipt, showing your name, address, date of donation and detailed descriptions of the items. For donations valued at $250 to $500 you must also obtain a “contemporaneous written acknowledgement” from the charity. Click here for more details, including documentation needed for higher value donations.

Time’s Almost Up to File Your Extended Return!

If you requested an extension to file your tax return after the original April 15, 2024, due date, you probably know that the new deadline is coming up soon on Oct. 15. If you have the information you need, you may want to file now, the IRS says.

There’s no advantage to waiting, and last-minute filing may lead to worry. If you’re concerned about paying any tax owed, the IRS offers short- and long-term payment plans, as well as installment agreements, to taxpayers who qualify. It’s important to act quickly if you owe because any amount that was due April 15 accrues interest until the balance is paid. As soon as possible, gather your 2023 tax year records and contact the office for a tax preparation appointment or to ask questions you may have.

Tax Credit Help with Dependent Care Costs

If you incur daycare expenses for children or other dependents, you may qualify for a tax credit. The Child and Dependent Care Credit is available for expenses that allow you or your spouse to work or actively seek work. If eligible, you may be eligible to claim up to 35% of your expenses. The credit can’t exceed $3,000 for one qualifying person, or $6,000 for two or more persons, and a percentage applies based on your income. Suppose you pay your mother to watch your children during the day. Does that count towards a credit? Yes, if your mother isn’t your dependent. You can also pay other relatives to watch your kids, but conditions apply. Click here for more information.

An Idea for Lowering your 2024 Tax Bill

With the year more than half over, now’s the time to consider ways to lower your 2024 tax bill. If you own or are a beneficiary of an IRA and you’re at least 70½, here’s one option: Make donations of up to $100,000 to IRS-approved charities directly from your IRA (or $200,000 for a married couple where both spouses meet the age requirement).

These qualified charitable distributions (QCDs) can fulfill your annual required minimum distribution if applicable. You can’t take a charitable deduction for a QCD, but the donated amount is removed from your taxable income, which may preserve your eligibility for other tax breaks. QCDs also offer other tax advantages. Contact us to learn more.

On Monday, members of our team attended the annual Mechanical Contractors Association of Connecticut (MCAC) Golf Outing at Chippanee Golf Club in Bristol, CT. Proceeds from the event help fund scholarships for college-bound children of MCAC member contractors and Local 777 union members. We’re proud to support such a great cause!

From left to right: Wendy Cole (spouse of managing partner, Dennis Cole) Kimberly Stofko, Ryan Parent & Jennifer Schempp.

The Internal Revenue Service has announced tax relief for individuals and businesses in Connecticut and New York impacted by the severe storms and flooding that began on August 18, 2024. In addition to flooding, several communities in western Connecticut were affected by landslides and mudslides.

Eligible taxpayers now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

For more information: https://www.irs.gov/newsroom/irs-provides-relief-to-victims-of-severe-storms-and-flooding-in-connecticut-and-new-york-various-deadlines-postponed-to-feb-3-2025?fbclid=IwY2xjawF09iRleHRuA2FlbQIxMAABHar5Kr5agqIBJSAvE5GXY8bFWhpLIa6j0HGjX6u8FKyi8CVIM3ja24FzPA_aem_BlRwTHzrxEYuInpwc0JJ4w

Last week, Partner Jennifer Schempp and Supervisor Haley Kaercher from our audit department spent the day at Boys & Girls Village in Milford, where they recently completed an audit of the organization’s 401(k) plan.

For over 80 years, Boys & Girls Village has been one of Connecticut’s leading non-profit providers of behavioral, educational, vocational, and permanency planning services for at-risk youth and their families. In collaboration with the State’s Court Support Services Division, they run programs designed to keep youth out of detention centers and guide them toward successful pathways to adulthood. Their state-of-the-art facility includes a vocational learning center featuring a modern culinary kitchen, a car lift, and a 3D printer, all designed to help older youth develop essential life skills. For more information, please visit the Boys & Girls Village website at https://www.bgvillage.org/

When you got married, you knew it was for “better or worse.” But you might not know about laws that hold you responsible if your spouse cheats on a tax return.

Married couples filing jointly should be aware that:

• You are both responsible for tax, interest and penalties — even after a divorce or the death of a spouse.
• The IRS may hold you responsible for all the tax due even if there is a divorce decree stating that your ex-spouse is accountable for previous joint returns.
• You can be liable for tax even if none of the income on a tax return is attributed to you. 

To illustrate how the law works, let’s say you have a wage-earning job and your spouse is self-employed. You file joint tax returns.

Next year, you get divorced and a year later, the IRS audits your tax return. Your ex-spouse is nowhere to be found and auditors determine that he or she didn’t report all the income from the business.

What Could Happen?

You are generally liable for paying the tax due, plus interest and any penalties. Your wages can be seized by the IRS even if you paid every penny owed on your share of the family income.

Fortunately, there may be a way to get off the hook. In some situations, the tax law provides “innocent spouse” relief if you can prove:

• There is a substantial understatement of tax attributable to the grossly erroneous items of your spouse or ex-spouse.
• The hidden income belonged to your ex-spouse and you didn’t benefit from it.
• You didn’t know or have reason to know about the understatement.
• It would be inequitable to hold you liable.

Be aware that the IRS is required to notify an ex-spouse that relief has been requested so that he or she can elect to participate. There are no exceptions, even for victims of domestic violence.

Advice: Don’t count on innocent spouse relief if you know your spouse is cheating on tax returns. The IRS often denies relief.

Consider filing separate tax returns — especially if you’re in the process of a divorce. It could save you a bundle in the future. For more information about your situation, consult with your tax adviser.

BHCB would like to wish everyone a Happy Labor Day weekend. Both offices will be closed on Monday September 2nd in observance of Labor Day.

If you requested an extension for your 2023 federal income tax return, you have until six months from the original due date — October 15, 2024, to be exact — to wrap things up. This extra time may give you the opportunity to lower your overall tax bill and possibly increase a refund. Here are 10 potential tax breaks for individual taxpayers, including self-employed workers, to consider. 

1. Family Tax Credits

Families may be eligible for several tax breaks under current tax law. Common examples are:  

Child tax credit. Parents can claim the child tax credit for kids under age 17. On 2023 returns, the credit is $2,000 for each child if your modified adjusted gross income (MAGI) is $200,000 or less for single filers ($400,000 for couples who file jointly).

Dependent care credit. This credit is available if you incur qualified expenses so that you (and your spouse, if married) can work or actively look for work. It’s generally 20% of the first $3,000 of expenses for one child ($6,000 for two or more children).

Adoption credit. For 2023, you can claim a maximum credit of $15,950 for qualified expenses incurred to adopt an eligible child. This credit is phased out for high-income taxpayers beginning at $239,230 of 2023 MAGI.

2. Charitable Gifts

If you donated money or property to qualified charities last year, you may be eligible for charitable deductions within generous limits. However, you must itemize deductions — rather than take the standard deduction — to claim charitable contributions.

The deduction for cash or cash-equivalents is limited to 60% of adjusted gross income (AGI). For gifts of property, a 30%-of-AGI threshold applies. However, there’s an upside: If you donated appreciated property that you owned for longer than one year, the deduction is equal to its fair market value, not its cost.

To qualify for this itemized deduction, you must observe strict recordkeeping rules. Make sure you have the appropriate documentation to back up your claims.

3. Home Energy Credits

If certain requirements are met, you can claim the following nonrefundable tax credits for qualified residential energy-saving expenses on your 2023 return:

Energy-efficient home improvement credit. This credit is equal to 30% of the cost of energy-efficient installations — such as exterior doors, windows and skylights; insulation; and central air conditioning — up to a maximum limit of $1,200. Other special limits may apply to specific items.

Residential clean energy credit. For investments in energy improvements for your main home — including solar, wind, geothermal, fuel cells or battery storage equipment — you can claim a credit for 30% of the cost. The clean energy equipment must meet government standards.

4. QBI Deduction

The qualified business income (QBI) deduction may benefit self-employed individuals and owners of pass-through business entities, including S corporations, partnerships and limited liability companies (LLCs). The deduction is generally equal to 20% of the taxpayer’s QBI, which is defined as the net amount of qualified items of income, gain, deduction and loss connected with the conduct of a U.S. business. However, QBI doesn’t include certain investment items, reasonable compensation paid to an owner for services rendered to the business, or any guaranteed payments to a partner or LLC member treated as a partner for services rendered to the partnership or LLC.

Additional limits can begin to apply if taxable income for the year exceeds the applicable threshold. For 2023, the applicable threshold is $182,100 ($364,200 for married couples who file jointly).

One such limit is that the QBI deduction generally isn’t available for income from “specified service businesses.” This covers most people who provide personal services to the public, ranging from physicians to plumbers and pest control experts. (However, engineers and architects are specifically exempt from the special limitation.)

5. Higher Education Credits

Eligible parents can generally claim one of the following higher education credits for their children in school:

American Opportunity Tax credit (AOTC). The maximum AOTC is $2,500 per student. For example, if you have two kids in college, the maximum credit is $5,000 per year.

Lifetime Learning credit (LLC). The maximum LLC is $2,000 per family. So, if you have two kids in college, the maximum credit is limited to $2,000 per year.

The AOTC is generally preferable to the LLC if you have more than one child. However, unlike the AOTC, the LLC is available for more than four years of study.

Important: Both credits are phased out based on MAGI. For 2023, the phaseout ranges are:

• $80,000 to $90,000 for single taxpayers and heads of households, and
• $160,000 to $180,000 for married couples who file jointly.  

Married couples who file separately aren’t eligible for either credit.

6. Section 1031 Like-Kind Exchanges

An owner of commercial or investment real estate can exchange like-kind properties without paying any current tax, except to the extent any “boot” is received. For example, you might have sold an apartment building in 2023 in return for a warehouse or raw land, without owing tax on the gain from the sale on your 2023 return. But to qualify for the favorable tax treatment, you must meet the following timing requirements:

• The replacement property must be identified or received within 45 days of transferring legal ownership of the relinquished property, and
• The title to the replacement property must be transferred to you within the earlier of 180 days or your tax return due date, plus extensions, for the tax year of the transfer.

So, filing an extension may have provided you with extra time to complete a tax-deferred exchange.

7. Medical Deductions

Taxpayers who itemize may deduct unreimbursed medical expenses above 7.5% of AGI. For instance, if you incurred $10,000 in qualified medical expenses in 2023 and your AGI is $100,000, you can write off $2,500 of your medical expenses ($10,000 minus 7.5% of $100,000).

Filing for an extension gives you additional time to check for deductible expenses that may have fallen through the cracks. Unearthing extra expenses may help you exceed the threshold for 2023, but you’ll need to have the appropriate documentation to support your claims.

8. Home Office Deductions

If you’re self-employed, you may qualify for home office deductions. To qualify for this break, you must regularly and exclusively use part of your home as your principal place of business or a place where you normally deal with patients, customers or clients. You may even qualify if you do the books at home and your main “work” occurs at other sites. For example, a landscaper or an interior designer may be eligible for this deduction.

Generally, you can deduct your direct home office expenses, plus a portion of your indirect expenses for the entire home based on the percentage of business use of the home. Examples of indirect expenses are utilities, mortgage interest, property taxes, repairs and insurance premiums. Alternatively, you can elect a simplified method using $5 per square foot of office space up to a maximum of $1,500.

Important: Under the current tax rules, employees aren’t allowed to claim the home office deduction, even if their employers require them to work remotely. The Tax Cuts and Jobs Act suspended miscellaneous itemized deductions, including unreimbursed employee business expenses, through 2025.

9. EV Credits

Starting in 2023, the tax credit for purchasing new electric vehicles (EVs) and hybrids for domestic use is revised. Under the Inflation Reduction Act, the credit may be up to $7,500.

To qualify for the credit under the updated guidance, you must:

• Buy it for your own use, not for resale, and
• Use it primarily in the United States.

In addition, your MAGI can’t exceed:

• $300,000 for married couples filing jointly,
• $225,000 for heads of households, or
• $150,000 for all other filers.

The credit can’t be claimed for passenger vehicles costing more than $55,000, or $80,000 for vans, sports utility vehicles and pickup trucks. For the first time ever, purchasers of used EVs may qualify for a credit of up to $4,000, limited to 30% of the cost. But lessors still can’t claim any credit.

To qualify, the vehicle must be powered by batteries made with materials that are sourced from the United States or one of its free trade partners. Partial credits may be allowed. While the prior threshold of 200,000 vehicles per manufacturer has been repealed, the vehicle still must appear on the IRS approved list.

10. Installment Sales

Under the installment sale method, you can defer tax on the sale of real estate if you receive payments over two or more years. Briefly stated, the tax that’s due from any gain is proportional to the income received for the tax year — though ordinary gain from certain depreciation recapture is recognized in the year of sale, even if no cash is received.

This tax treatment is automatic. However, once you’ve reviewed your situation, you may find that it’s beneficial to pay all the tax in 2023. For instance, you may have incurred a substantial loss from your S corporation to absorb the taxable income. Or you might expect to be subject to higher tax rates in future years. In those situations, you may elect out of installment sale treatment by the tax filing extension date.

Ready, Set, File

The October 15 deadline for filing extended 2023 returns will be here before you know it. Contact your tax advisor to discuss your options and to file a timely return. These 10 breaks are just the tip of the iceberg. Your tax pro may suggest additional ideas for ways to lower your tax obligation for the last tax year and beyond.