How to Build Your Financial House From the Foundation Up
Author name
If you’re a fan of home improvement shows, you know how this goes: The clients, usually a couple hoping to build, buy or renovate a home, are mostly focused on the aesthetics — the kitchen countertops, the bathroom tile, the light fixtures, the wainscoting.
But, of course, there’s more to designing a home than picking the flooring or the fixtures. Without a strong foundation, sturdy walls and a dependable roof, the couple’s beautiful house won’t hold up well against the elements, age and other risk factors during the years their family lives there. Their real estate agent or contractor often has to remind them about what’s really important as they move forward.
But, of course, there’s more to designing a home than picking the flooring or the fixtures. Without a strong foundation, sturdy walls and a dependable roof, the couple’s beautiful house won’t hold up well against the elements, age and other risk factors during the years their family lives there. Their real estate agent or contractor often has to remind them about what’s really important as they move forward.
And I have to say, I get where those pros are coming from every time — because the same holds true for building a family’s financial house. (Though I’ve yet to see an entire television network devoted to designing a financial portfolio.)
If you’re working with a financial adviser, you may have heard him or her refer to drawing up a “blueprint” for reaching your financial goals. And that’s an apt description. When you’re building your fiscal house, you’ll want to be sure you have a detailed plan that includes every aspect of your financial future and the methods and materials you’ll be using to help get you to your objectives.
Your financial portfolio — the collection of assets you’ll use to create a safe and comfortable future — should be allocated and managed in a way that helps you weather economic downturns, market volatility, fluctuating interest rates, rising inflation, risks that come with aging and other changes in your life.
Creating the blueprint for your financial house
What should your financial blueprint look like? It will be different for everyone. But a secure fiscal house will have the same basic characteristics as a well-built home.
A strong foundation
Your most stable assets typically will form the foundation of your financial portfolio. Although no investment is without risk, these are generally assets you can count on to stay solid — and provide a reliable income — when the economy or your personal finances take a hit or feel shaky. Some examples include:
Savings and certificates of deposit (CDs), which are protected by the Federal Deposit Insurance Corp. (FDIC)
Government bonds, which are backed by the U.S. Department of the Treasury
Fixed and fixed index annuities that are protected by a reputable insurance company.
Sturdy walls
The “walls” of your fiscal house should be sturdy — but because they can be repaired or rebuilt more easily than the foundation, these assets don’t have to be quite as invulnerable. Investments at this level can add value to your portfolio (by providing income, income protection and diversification), but they also may be exposed to moderate risk, so there’s some potential for growth. A few examples include:
Corporate and municipal bonds
Conservative dividend investments
Private real estate investment trusts (REITs)
A dependable roof
Of course, you want your roof to hold up against whatever the elements might throw at it. But if it is damaged, you likely can fix or replace it without the whole house falling in — as long as the lower levels are built to last. The roof of your fiscal house represents the investments that carry the highest risk you can tolerate (both financially and emotionally). And they can help you grow your money for the future. These assets might include:
Stocks
Mutual funds
Exchange-traded funds (ETFs)
Variable annuities
Where to start
Of course, every individual and family has different needs — and every financial plan will (or should, at least) be a little bit different to accommodate those needs. But if you’re looking for a good starting point, you may want to use the “Rule of 100” to determine how your assets should be allocated when building your fiscal house. That means taking the number 100, subtracting your age and using the difference to determine the percentage of your money you want to invest in riskier assets to maximize growth.
If, for instance, you’re 45 and in no rush to retire, you might feel comfortable investing 55% of your portfolio in stocks or ETFs. You’ll get the growth you’re looking for, but should you lose money in a market downturn, you’ll still have several years to recover.
But if you’re closer to retirement — let’s say 65 — you may want to limit the risk in your portfolio to 35% or less. You still can benefit from some growth, but with less time to recover from a market decline, you may choose to play it a bit safer.
Don’t forget ongoing maintenance
Making occasional upgrades and repairs can be an important part of maintaining your home’s value. And the same holds true for your portfolio. It can be helpful to reevaluate your investments and investing strategies at least once a year to be sure your plan stays aligned with your goals.
Over time, asset allocations may shift based on market performance, and you may need to rebalance your portfolio. You also may find that your tolerance for risk has changed, and a little remodeling is necessary. Or, if you realize your original design just isn’t functional for your family, you may want to seek a second opinion or go for a complete renovation.
You don’t have to look hard to find an example of why it’s so critical to design and maintain your fiscal house for the long haul.
Just a few short years ago, pretty much everyone’s financial portfolio was doing well thanks to an 11-year bull market. Then in March 2020, the COVID crisis rolled in and caught everyone off guard. And we all got a good reminder of how important it is to build a fiscal house that holds up against the storms we can predict — and those we can’t.
Is your fiscal house move-in ready?
One thing we’ve all learned from watching home improvement shows is that doing it yourself isn’t always the best way to go.
Similarly, some parts of investing may be doable on your own — and even fun. And you should have plenty of input into what you want from your plan.
But you’ll likely find it makes sense to work with a pro when you’re drawing up your overall financial blueprint — or making any big choices or changes. Mistakes and oversights can be costly, especially when you’re closing in on retirement. You’ll need a portfolio that’s carefully planned to keep you secure for the many years ahead.
Kim Franke-Folstad contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
Kurt Supe, John Culpepper and Brian Quick offer securities through cfd Investments, Inc., Registered Broker/Dealer, Member FINRA &SIPC, 2704 South Goyer Road, Kokomo, IN 46902, 765-453-9600. Kurt Supe, Andrew Drufke and Brian Quick offer advisory services through Creative Financial Designs, Inc., Registered Investment Adviser. Creative Financial Group is a separate and unaffiliated company. The CFD Companies do not provide legal or tax advice.
Credit: ANDREW DRUFKE
On July 10, 2023, I walked out of my old office for the last time. Upon my departure, I gave up a lot of my identity. I spent eight years with the firm and was one of four owners. I lost some relationships. No, I didn’t lose friends or leave on bad terms, but I walked away from the thing that connected us and the daily social interaction it facilitated. I said goodbye to the daily structure. And, oh yeah, I gave up a nice paycheck. No matter how much money you have in the bank, how well prepared you may be, that’s scary. And while I wasn’t retiring, almost every retiree faces these same challenges. Below are a few strategies to help you sleep better at night in your first few years of retirement. 1. Retire “to” not “from.” I drove from my old office to my new one. I didn’t stop at home. I didn’t stop for coffee. I don’t even think I listened to the radio. And I wouldn’t advise this. I encourage my clients to take some time to breathe. Do the home projects you’ve been putting off for 30 years. Spend time with your grandkids. Take that trip. When I arrived at my new office, I had my new identity, much the same as my old. Professionally, I am a financial planner, an owner and an entrepreneur. The gig economy has made it much easier to work when you want, how you want, in the industry you are passionate about. The most important thing about retiring “to” something is that you know who you are. Remember: “Retired” says only what you don’t do. Make sure you know what you do do. Now, I know you’re asking, “How does this make things less scary?” Two reasons. First, being busy inherently reduces stress. Second, many of the things that people retire to pay something. Probably not what you’re used to, but they take stress off your portfolio, and your shoulders, between retirement and Social Security. 2. Cash is king. Not in an investment sense and not forever. I often encourage retirees to have a year’s worth of expected expenses in the bank, including any one-time, big-ticket items. That’s much more than the three to six months you’d read about in a personal finance textbook. It’s really uncomfortable to watch your checking account deplete without the bi-weekly refills. One strategy that may help is to hold that year’s worth of expenses in a savings or money market account that deposits the exact amount of your old paycheck into your checking account every two weeks. 3. Have a financial plan. Think of your financial plan as your gas gauge. It will tell you how far you can go without running out. Ideally, you have many more miles than you plan to drive. A proper financial plan will also address cash flow, risk management, investments and estate and tax planning. However, the core thing you want your financial plan to tell you is this: “You’re going to be OK.” That will certainly help you sleep at night. If you want reaffirmation of your plan, you can check your numbers for free here. 4. Have an appropriate asset allocation. Your investments are the actual gas in the tank. Cerulli Associates and other financial firms have long documented the difference between “investment” returns and “investor” returns. The latter typically are much lower than the former because we are human beings. We buy at highs and sell at lows. Vanguard’s Advisor’s Alpha study highlighted behavioral coaching as the most valuable service financial advisers provide. Much of this panic selling is due to having a portfolio that made much more sense in your 30s than it does in your 60s. Weekly, I come across Baby Boomers who have more risk in their portfolio than I do. I am 37. A subsequent article will serve as a guide to find your appropriate asset allocation. In the meantime, you can use this free tool to gauge how much risk you’re comfortable with. 5. Have an income plan. Throughout your working career, if you’re an employee, you have an income plan. It’s your paycheck, and it’s probably as steady as your job. In the last 15 years, I can count on my two hands the number of pre-retirees who have an income plan for the next chapter. The financial plan tells you how much you can spend every year. The income plan tells you where it’s going to come from every month. When I started my own firm, I knew that I had two years of runway, literally making no money, before I would run out. My financial plan told me that. Where I would draw excess money for expenses was part of my income plan. Fortunately, things ramped up quickly, and there were only a few months where this was necessary, but the fact that I had a plan meant I could sleep soundly. Credit: Kiplinger.com
The Internal Revenue Service is warning taxpayers about bad tax information on social media that can lure honest taxpayers with bad advice, potentially leading to identity theft and tax problems. Social media can routinely circulate inaccurate or misleading tax information, where people on TikTok and other social media platforms share wildly inaccurate tax advice. Some involve urging people to misuse common tax documents like Form W-2, or more obscure ones like Form 8944 involving a technical e-file form not commonly used by tax payers. Both schemes encourage people to submit false, inaccurate information in hopes of getting a refund. The IRS warns people not to fall for these scams. Taxpayers who knowingly file fraudulent tax returns potentially face significant civil and criminal penalties. “Social media is an easy way for scammers and others to try encouraging people to pur sue some really bad ideas, and that includes ways to magically increase your tax refund,” said IRS Commissioner Danny Werfel. “There are many ways to get good tax information, including @irsnews on social media and from trusted tax professionals. But people should be careful with who they’re following on social media for tax advice. Unlike hacks to fix a leaky kitchen sink or creative makeup tips, people shouldn’t rely on made-up ways on social media to patch up their tax return and boost their refund.” Social media: Not the ideal place for solid tax advice. Social media can connect people and information from all over the globe. Unfortunately, sometimes people provide bad advice that can lure good taxpayers into trouble. The IRS warns taxpayers to be wary of trusting internet advice, whether it’s a fraudulent tactic promoted by scammers or it’s a patently false tax-related scheme trending across popular social media platforms. While some producers of misleading content are driven by criminal profit motives, others are simply trying to gain attention and clicks. They will post anything, no matter how wrong or outlandish, if it garners more attention. The IRS is aware of various filing season hashtags and social media topics leading to inaccurate and potentially fraudulent information. The central theme of these examples involves people trying to use legitimate tax forms for the wrong reason. Here are just two of the recent schemes circulating online: Fraudulent advice on Form W-2. This scheme, circulating on social media, encourages people to use tax software to manually fill out Form W-2, Wage and Tax Statement, and include false income information. In this W-2 scheme, scam artists suggest people make up large income and withholding figures, as well as the employer its coming from. Scam artists then instruct people to file the bogus tax return electronically in hopes of getting a substantial refund—sometimes as much as five figures—due to the large amount of withholding. There are two other variations of the W-2 scheme. Both involve misusing Form W-2 wage information in hopes of generating a larger refund: • Fraudulent Form 7202: This scheme involves encouraging people to use Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, to claim a credit based on income earned as an employee and not as a self-employed individual. These credits were available for self-employed individuals for 2020 and 2021 during the pandemic; they are not available for 2023 tax returns. • Fraudulent Schedule H: Another scheme encourages people to invent fictional household employees and then file Schedule H (Form 1040), Household Employment Taxes, to claim a refund based on false sick and family medical leave wages they never paid. The IRS is actively watching for this scheme. In addition, the IRS works with payroll companies and large employers—as well as the Social Security Administration—to verify W-2 information. Form 8944 scheme. Another example of bad advice circulating on social media involves Form 8944, Preparer e-file Hardship Waiver Request. Wildly inaccurate claims made about this form include its use by taxpayers to receive a refund from the IRS, even if the taxpayer has a balance due. This is false information. Form 8944 is for tax professional use only. While Form 8944 is a legitimate IRS tax form, it is intended for tax return preparers who are requesting a waiver so they can file tax returns on paper instead of electronically. It is not a form the average taxpayer can use to avoid tax bills. Taxpayers who intentionally file forms with false or fraudulent information can face serious consequences, including potentially civil and criminal penalties, like criminal prosecution for filing a false tax return and a frivolous return penalty of $5,000. How taxpayers can verify information. The best place for taxpayers to learn how to properly use tax forms, and to accurately follow social media channels related to taxes, is to go to IRS.gov. • IRS.gov has a forms repository with legitimate and detailed instructions for taxpayers on how to fill out the forms properly. • Use IRS.gov to find the official IRS social media accounts, or other government sites, to fact check information. Report fraud. The IRS encourages people to report individuals who promote improper and abusive tax schemes, as well as tax return preparers who deliberately prepare im proper returns. To report an abusive tax scheme or a tax return preparer, people should use the online Form 14242, Report Suspected Abusive Tax Promotions or Preparers, or mail or fax a completed Form 14242 and any supporting material to the IRS Lead Development Center in the Office of Promoter Investigations. Center in the Office of Promoter Investigations. Mail: Internal Revenue Service Lead Development Center Stop MS5040 24000 Avila Road Laguna Niguel, CA 92677-3405 Fax: 877-477-9135 Alternatively, taxpayers and tax practitioners may send the information to the IRS Whistleblower Office for possible monetary award. Credit: TheTaxBook.com Cross References: IR-2024-98
For thousands of years, human civilizations have been collecting taxes, in one form or another. From grain to beards to rubber balls, governments always found new ways to collect their due. Every April in the United States, predictable signs of spring appear: budding flowers, chirping birds, and … taxes. They may be as certain as death, but taxes aren’t a recent phenomenon; they date back thousands of years. Over the centuries, different governments all over the world have levied taxes on everything from urine to facial hair—and officials accepted payments of beers, beds, and even broomsticks. These payments went to fund government projects and services—from the pyramids of Giza to the legions of Rome. FIRST TAXES Taxation has existed for so long, it even predates coin money. Taxes could be applied to almost everything and might be paid with almost anything. In ancient Mesopotamia, this flexibility led to some rather bizarre ways to pay. For instance, the tax on burying a body in a grave was “seven kegs of beer, 420 loaves, two bushels of barley, a wool cloak, a goat, and a bed, presumably for the corpse,” according to Oklahoma State historian Tonia Sharlach. “Circa 2000-1800 B.C., there is a record of a guy who paid with 18,880 brooms and six logs,” Sharlach adds. Creative accounting of in-kind payments helped some cheat the tax man as well. “In another case, a man claimed he had no possessions whatsoever except extremely heavy millstones. So he made the tax man carry them off as his tax payment.” PHARAOHS' TAX PREPARATION Ancient Egypt was one of the first civilizations to have an organized tax system. It was developed around 3000 B.C., soon after Lower Egypt and Upper Egypt were unified by Narmer, Egypt’s first pharaoh. Egypt’s early rulers took a very personal interest in taxes. They would travel around the country with an entourage to assess their subjects’ possessions—oil, beer, ceramics, cattle, and crops—and then collect the taxes on them. The annual event became known as the Shemsu Hor, or Following of Horus. During the Old Kingdom, taxes raised enough revenue to build grand civic projects, like the pyramids at Giza. Ancient Egypt’s taxation system evolved over its 3,000-year history, becoming more sophisticated with time. In the New Kingdom (1539-1075 B.C.), government officials figured out a way to tax people on what they had earned before they’d even earned it, thanks to an invention called the nilometer. This device was used to calculate the water level of the Nile during its annual flood. Taxes would be less if the water level was too low, foretelling a drought and dying crops. Healthy water levels meant a healthy harvest, which meant higher taxes. TAX AMNESTY IN ANCIENT INDIA In India's Mauryan Empire (ca 321-185 B.C.) an annual competition of ideas was held—with the winner receiving tax amnesty. “The government solicited ideas from citizens on how to solve government problems,” Sharlach explains. “If your solution was chosen and implemented, you received a tax exemption for the rest of your life.” The Greek traveler and writer Megasthenes (ca 350-290 B.C.) gave an astonished account of the practice in his book Indica. Like most tax reform efforts, the system was far from perfect, Sharlach notes. “The problem is that nobody would have any incentive to ever solve more than one problem.” RENDER URINE UNTO CAESAR The Roman emperor Vespasian (r. A.D. 69-79) may not be a household name like Augustus or Marcus Aurelius, but he brought stability to the empire during a turbulent time—partly through an innovative tax on people’s pee. Ammonia was a valuable commodity in ancient Rome. It could clean dirt and grease from clothing. Tanners used it to make leather. Farmers used it as fertilizer. And people even used it to whiten their teeth. All this ammonia was derived from human urine, much of it gathered from Rome’s public restrooms. And like all valuable products, the government figured out how to tax it. Some wealthy Romans, including Vespasian’s own son Titus, objected to the urine tax. According to historian Suetonius (writing around A.D. 120), Titus told his father he found the tax revolting, to which Vespasian replied, “Pecunia non olet,” or “Money does not stink.” ITEMIZATIONS FOR AZTECS At its height in the 15th and 16th centuries, the Aztec Empire was wealthy and powerful, thanks to taxation. Historian Michael E. Smith has studied its tax collection system and found it to be remarkably complex, with different kinds of items collected at different levels of government. All taxes made their way to the Aztec central governing body, the Triple Alliance. There they kept meticulous records of who had sent what. Many of these records survive today. The most famous are found in the Matrícula de Tributos, a colorful illustrated registry filled with pictographs showing exactly how many jaguar skins, precious stones, corn, cocoa, rubber balls, gold bars, honey, salt, and textiles the government collected each tax season. RUSSIA’S FASHION TAX Widespread use of coins and currency had a leveling effect on taxation systems, but rulers were not above applying some taxation muscle to achieve their ends. In 1698, Russian reformer Peter the Great sought to make Russia resemble “modern” nations in western Europe whose clean, close shaves Peter equated with modernization. After he returned to Russia, the tsar instituted a beard tax on his citizens, who favored beards. Any Russian man who wished to grow a beard had to pay a tax—peasants paid a small fee while nobles and merchants could pay as much as a hundred rubles. Men who had paid the tax were also required to carry beard tokens wherever they went to prove that they'd paid their taxes for the privilege. Peter the Great’s beard tax did not last. Catherine the Great repealed it in 1772. Source: National Geographic By: Editors of National Geographic
Want more information?
(812)-883-6938
906 W. Mulberry St
P.O. Box 225
Salem, Indiana 47167
Latest news
On July 10, 2023, I walked out of my old office for the last time. Upon my departure, I gave up a lot of my identity. I spent eight years with the firm and was one of four owners. I lost some relationships. No, I didn’t lose friends or leave on bad terms, but I walked away from the thing that connected us and the daily social interaction it facilitated. I said goodbye to the daily structure. And, oh yeah, I gave up a nice paycheck. No matter how much money you have in the bank, how well prepared you may be, that’s scary. And while I wasn’t retiring, almost every retiree faces these same challenges. Below are a few strategies to help you sleep better at night in your first few years of retirement. 1. Retire “to” not “from.” I drove from my old office to my new one. I didn’t stop at home. I didn’t stop for coffee. I don’t even think I listened to the radio. And I wouldn’t advise this. I encourage my clients to take some time to breathe. Do the home projects you’ve been putting off for 30 years. Spend time with your grandkids. Take that trip. When I arrived at my new office, I had my new identity, much the same as my old. Professionally, I am a financial planner, an owner and an entrepreneur. The gig economy has made it much easier to work when you want, how you want, in the industry you are passionate about. The most important thing about retiring “to” something is that you know who you are. Remember: “Retired” says only what you don’t do. Make sure you know what you do do. Now, I know you’re asking, “How does this make things less scary?” Two reasons. First, being busy inherently reduces stress. Second, many of the things that people retire to pay something. Probably not what you’re used to, but they take stress off your portfolio, and your shoulders, between retirement and Social Security. 2. Cash is king. Not in an investment sense and not forever. I often encourage retirees to have a year’s worth of expected expenses in the bank, including any one-time, big-ticket items. That’s much more than the three to six months you’d read about in a personal finance textbook. It’s really uncomfortable to watch your checking account deplete without the bi-weekly refills. One strategy that may help is to hold that year’s worth of expenses in a savings or money market account that deposits the exact amount of your old paycheck into your checking account every two weeks. 3. Have a financial plan. Think of your financial plan as your gas gauge. It will tell you how far you can go without running out. Ideally, you have many more miles than you plan to drive. A proper financial plan will also address cash flow, risk management, investments and estate and tax planning. However, the core thing you want your financial plan to tell you is this: “You’re going to be OK.” That will certainly help you sleep at night. If you want reaffirmation of your plan, you can check your numbers for free here. 4. Have an appropriate asset allocation. Your investments are the actual gas in the tank. Cerulli Associates and other financial firms have long documented the difference between “investment” returns and “investor” returns. The latter typically are much lower than the former because we are human beings. We buy at highs and sell at lows. Vanguard’s Advisor’s Alpha study highlighted behavioral coaching as the most valuable service financial advisers provide. Much of this panic selling is due to having a portfolio that made much more sense in your 30s than it does in your 60s. Weekly, I come across Baby Boomers who have more risk in their portfolio than I do. I am 37. A subsequent article will serve as a guide to find your appropriate asset allocation. In the meantime, you can use this free tool to gauge how much risk you’re comfortable with. 5. Have an income plan. Throughout your working career, if you’re an employee, you have an income plan. It’s your paycheck, and it’s probably as steady as your job. In the last 15 years, I can count on my two hands the number of pre-retirees who have an income plan for the next chapter. The financial plan tells you how much you can spend every year. The income plan tells you where it’s going to come from every month. When I started my own firm, I knew that I had two years of runway, literally making no money, before I would run out. My financial plan told me that. Where I would draw excess money for expenses was part of my income plan. Fortunately, things ramped up quickly, and there were only a few months where this was necessary, but the fact that I had a plan meant I could sleep soundly. Credit: Kiplinger.com
The Internal Revenue Service is warning taxpayers about bad tax information on social media that can lure honest taxpayers with bad advice, potentially leading to identity theft and tax problems. Social media can routinely circulate inaccurate or misleading tax information, where people on TikTok and other social media platforms share wildly inaccurate tax advice. Some involve urging people to misuse common tax documents like Form W-2, or more obscure ones like Form 8944 involving a technical e-file form not commonly used by tax payers. Both schemes encourage people to submit false, inaccurate information in hopes of getting a refund. The IRS warns people not to fall for these scams. Taxpayers who knowingly file fraudulent tax returns potentially face significant civil and criminal penalties. “Social media is an easy way for scammers and others to try encouraging people to pur sue some really bad ideas, and that includes ways to magically increase your tax refund,” said IRS Commissioner Danny Werfel. “There are many ways to get good tax information, including @irsnews on social media and from trusted tax professionals. But people should be careful with who they’re following on social media for tax advice. Unlike hacks to fix a leaky kitchen sink or creative makeup tips, people shouldn’t rely on made-up ways on social media to patch up their tax return and boost their refund.” Social media: Not the ideal place for solid tax advice. Social media can connect people and information from all over the globe. Unfortunately, sometimes people provide bad advice that can lure good taxpayers into trouble. The IRS warns taxpayers to be wary of trusting internet advice, whether it’s a fraudulent tactic promoted by scammers or it’s a patently false tax-related scheme trending across popular social media platforms. While some producers of misleading content are driven by criminal profit motives, others are simply trying to gain attention and clicks. They will post anything, no matter how wrong or outlandish, if it garners more attention. The IRS is aware of various filing season hashtags and social media topics leading to inaccurate and potentially fraudulent information. The central theme of these examples involves people trying to use legitimate tax forms for the wrong reason. Here are just two of the recent schemes circulating online: Fraudulent advice on Form W-2. This scheme, circulating on social media, encourages people to use tax software to manually fill out Form W-2, Wage and Tax Statement, and include false income information. In this W-2 scheme, scam artists suggest people make up large income and withholding figures, as well as the employer its coming from. Scam artists then instruct people to file the bogus tax return electronically in hopes of getting a substantial refund—sometimes as much as five figures—due to the large amount of withholding. There are two other variations of the W-2 scheme. Both involve misusing Form W-2 wage information in hopes of generating a larger refund: • Fraudulent Form 7202: This scheme involves encouraging people to use Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, to claim a credit based on income earned as an employee and not as a self-employed individual. These credits were available for self-employed individuals for 2020 and 2021 during the pandemic; they are not available for 2023 tax returns. • Fraudulent Schedule H: Another scheme encourages people to invent fictional household employees and then file Schedule H (Form 1040), Household Employment Taxes, to claim a refund based on false sick and family medical leave wages they never paid. The IRS is actively watching for this scheme. In addition, the IRS works with payroll companies and large employers—as well as the Social Security Administration—to verify W-2 information. Form 8944 scheme. Another example of bad advice circulating on social media involves Form 8944, Preparer e-file Hardship Waiver Request. Wildly inaccurate claims made about this form include its use by taxpayers to receive a refund from the IRS, even if the taxpayer has a balance due. This is false information. Form 8944 is for tax professional use only. While Form 8944 is a legitimate IRS tax form, it is intended for tax return preparers who are requesting a waiver so they can file tax returns on paper instead of electronically. It is not a form the average taxpayer can use to avoid tax bills. Taxpayers who intentionally file forms with false or fraudulent information can face serious consequences, including potentially civil and criminal penalties, like criminal prosecution for filing a false tax return and a frivolous return penalty of $5,000. How taxpayers can verify information. The best place for taxpayers to learn how to properly use tax forms, and to accurately follow social media channels related to taxes, is to go to IRS.gov. • IRS.gov has a forms repository with legitimate and detailed instructions for taxpayers on how to fill out the forms properly. • Use IRS.gov to find the official IRS social media accounts, or other government sites, to fact check information. Report fraud. The IRS encourages people to report individuals who promote improper and abusive tax schemes, as well as tax return preparers who deliberately prepare im proper returns. To report an abusive tax scheme or a tax return preparer, people should use the online Form 14242, Report Suspected Abusive Tax Promotions or Preparers, or mail or fax a completed Form 14242 and any supporting material to the IRS Lead Development Center in the Office of Promoter Investigations. Center in the Office of Promoter Investigations. Mail: Internal Revenue Service Lead Development Center Stop MS5040 24000 Avila Road Laguna Niguel, CA 92677-3405 Fax: 877-477-9135 Alternatively, taxpayers and tax practitioners may send the information to the IRS Whistleblower Office for possible monetary award. Credit: TheTaxBook.com Cross References: IR-2024-98