Today I Might Be Crazy

Today I might be crazy. I signed up for the 2017 CrossFit Games. I have only been participating in CrossFit since last July, I am not a top athlete, I am not highly competitive, I have no hope of making it to the regional games for my age group, I will have to scale almost every movement and I will not even rank highly in my gym. So, why sign up and participate?  Because, without hurdles to overcome or goals to achieve life becomes complacent. It’s lose track of where you are heading based on where you wanted to go in the first place.

This morning’s MET-CON at “the box” was a cardio killer, our trainer said it was the hardest of the week because the first Games workout is on Friday. Yikes, that’s coming up fast.  I’ll be the first to say, I’m probably not ready, but will I ever be? Each week for the next 5 everyone participating in the games will compete at their box with the same workout and then log our results. The top scores will move on to additional events until the elite from across the country (maybe the world?) will gather this summer to compete in the finals.

If there isn’t hope of any substantial outcome, why compete? I decided to compete because I made a commitment last July to give CrossFit a one year opportunity to see what it could do for me. I made the commitment, so I will give it 100% until the end of my evaluation period. If that means pushing myself to do more than I thought I could than that is what I will do. I’m already stronger than I’ve ever been. But, I can do more.

I could workout at the local gym or in my home. Would I push myself as hard? No, absolutely not. Unless you have crazy determination and focus, it’s important to seek outside guidance to move beyond where you are today. The best will always tell you they have had a coach or a mentor and they wouldn’t have gotten where they are without their guidance.

In my practice, I push clients to set goals, break them into small bites and develop timelines toward completion. Unfortunately, I don’t receive much feedback that the clients are taking advantage of power of goal setting. Dr. Gail Matthews, a psychology professor at Dominican University in California, did a study on goal-setting with 267 participants. She found that you are 42 percent more likely to achieve your goals just by writing them down.

So why not write them down? My uneducated guess is a fear of failure. But, if you wrote down a goal, be it financial, lifestyle, personal growth, career, health, etc. and did anything toward achieving the goal, wouldn’t you be further toward the end than if you didn’t take any action? How is that failure? It’s not, you should praise yourself for the progress you’ve made. Then, reassess the goal, redefine the interim steps and recalculate the goal date.

Forbes reports a remarkable study about goal-setting carried out in the Harvard MBA Program. Harvard’s graduate students were asked if they have set clear, written goals for their futures, as well as if they have made specific plans to transform their fantasies into realities. The result of the study was only 3 percent of the students had written goals and plans to accomplish them, 13 percent had goals in their minds but haven’t written them anywhere and 84 percent had no goals at all. Think for a moment which group you belong to. After 10 years, the same group of students were interviewed again and the conclusion of the study was totally astonishing. The 13 percent of the class who had goals, but did not write them down, earned twice the amount of the 84 percent who had no goals. The 3 percent who had written goals were earning, on average, 10 times as much as the other 97 percent of the class combined. People who don’t write down their goals tend to fail easier than the ones who have plans.

So, what does competing in the CrossFit Games have to do with financial planning? Absolutely nothing, for someone at my level. But it has everything to do with living my best life. What commitments will you make to live your best life? Will you write them down? Will you share them with your financial planner, life-coach, mentor, trainer so you have your own personal cheerleader in your corner?

Education Savings Vehicles

As the new year begins, so does the annual season of college acceptances and rejections. Many outbound high school seniors may soon find themselves holding a single sheet of paper with shaking hands and bated breath, eyes fervently scanning for the only detail that truly matters: Did they get in? In today’s hyper-competitive environment, being accepted into college is still an accomplishment worthy of celebration. Like most celebrations, however, the fun ends once the bill comes.

Since 1980, the median cost of college tuition has increased by nearly 260%. In the same timeframe, other consumer goods saw a price increase of 120%. This disparity between the cost of college and other common expenses illustrates a much larger issue: for many Americans, college is simply unaffordable. Besides taking out student loans, what recourse is available to students? Is there anything a student can do to make the money they put toward tuition work harder for them?

Thankfully, there are a few options. Federal and state governments have established special, tax-advantaged savings vehicles designed to pay for qualified higher education expenses. Two of the most common education savings plans, the Coverdell ESA and 529 college savings plans, offer federally tax-free distributions when used for qualified education expenses. Considering the similarities between Coverdell ESAs and 529 plans, it can be difficult to identify their differences and the advantages each plan has over the other.

Qualified tuition programs, commonly called 529 plans, are education savings vehicles established by states or state agencies, and can only be applied without penalty to qualified postsecondary institutions. 529 plans enjoy tax-free distributions for qualified education expenses. Qualified expenses for 529 plans include room and board, expenses for special needs services, and the purchase of any computer or peripheral equipment used primarily during the years a beneficiary is enrolled. This grants a much wider variety of uses at the college level. Some states, like Michigan, also offer fairly sizeable state income tax deductions for qualifying contributions. While 529 plans have no annual contribution limit, total plan balances are limited by an amount set by each state. It is also worth noting that contributions are considered gifts, and are thus subject to the annual gift tax exclusion. This means contributions are generally tax-free when total gifts between the contributor and the recipient are less than $14,000 for the year, but may be taxed if in excess.

A Coverdell ESA, or CESA, is a custodial account designed to pay the qualified education expenses of a designated beneficiary. It can be opened at most financial institutions in the United States for a beneficiary under the age of 18, or any beneficiary with special needs. Qualified education expenses for a CESA are expenses required for enrollment or attendance of a qualifying elementary, secondary, or postsecondary school. This ability to use a CESA at an elementary or secondary school provides a distinct advantage over 529 plans. CESAs typically also have more investment options than 529 plans, at a lower expense ratio. That’s about where the advantages over a 529 plan end, though. CESAs are subject to a $2,000 annual contribution limit, which is gradually reduced to $0 after a certain income threshold.

Coverdell ESAs and 529 plans each have their own distinct uses. For more information on the intricacies of each plan, and how best to fund education in your unique situation, contact your financial professional.

Hobby or Business?

Today’s federal tax code is incredibly complex. Itemized deductions, Alternative Minimum Tax, and seemingly trivial distinctions can make navigating even the most basic individual return hazardous. Unfortunately, with the steep fines and penalties that the IRS assesses against errors and omissions, one small mistake can prove costly.

One of the most common mistakes that individual taxpayers make is in how they classify their extracurricular activities. From woodworking to photography, whether you classify your activity as a business or a hobby can have a dramatic effect on your tax liability. Thankfully, in an effort to ease some of the confusion surrounding this subject, the IRS has released a series of basic questions designed to help taxpayers correctly classify their activities. They mostly address profitability or intention to make a profit, and are as follows:

  • Does the time and effort put into the activity indicate an intention to make a profit?
  • Does the taxpayer depend on income from the activity?
  • If there are losses, are they due to circumstances beyond the taxpayer’s control, or did they occur in the start-up phase of the business?
  • Has the taxpayer changed methods of operation to improve profitability?
  • Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
  • Has the taxpayer made a profit in similar activities in the past?
  • Does the activity make a profit in some years?
  • Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?

While the results of this test aren’t definitive, if you answer most of these questions affirmatively you might be running a business.

More quantifiably, the IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five years, including the current year. It’s also worth pointing out that an expense must be both ordinary and necessary to be considered legitimate for either classification.

Why does it matter?

You might be asking “If the line between a hobby and self-employment is so blurry, does it even matter how I classify it?” The answer, of course, is that it does matter. A lot.

To start, hobby expenses are reported on Schedule A as itemized deductions, while expenses from self-employment are reported on Schedule C. This means that someone with few other itemizable expenses may not see any benefit from reporting hobby expenses, while the same person could save thousands from self-employment expenses. Most hobby expenses are also considered miscellaneous deductions, and are subject to the 2% Adjusted Gross Income floor.

Another significant difference is that hobby expenses may only be deducted up to the extent of hobby income, and any loss in excess cannot be used to offset other income. Self-employment losses, on the other hand, can be used to reduce total income on a 1040. This results in a lower AGI, and a lower tax liability overall.

It should also be noted that, regardless of how you classify your income, you must report it. Failure to report income, hobby or otherwise, can result in fines, interest, and even criminal penalties.

For more information on the distinction between a hobby and a business, contact a paid tax professional.

Healthcare Marketplace and the Premium Tax Credit

With the deadline to enroll in a health insurance plan through the Marketplace tomorrow (December 15), this is your last chance to see if you should be covered through the Marketplace. “The Marketplace” refers to each state’s price comparison website for subsidized health insurance, and was established by the Affordable Care Act.

Individuals with health insurance through an employer can probably stop reading here. For those without access to an employer-sponsored plan, however, purchasing a plan through the Marketplace is usually the next best option. In fact, with the ACA assessing a Shared Responsibility penalty against those without minimum essential coverage, purchasing insurance through the marketplace can prove cheaper than going uninsured.

Insurance purchased through the Marketplace may potentially be subsidized. Applicants whose household incomes fall between 100% and 400% of the federal poverty line, as depicted here, may qualify for the Premium Tax Credit or Advanced Premium Tax Credit. The PTC is a refundable credit designed to offset the cost of obtaining minimum essential coverage for lower-income applicants. It can be claimed when filing a federal tax return for any applicant who meets the income requirement, as well as several others. The Advanced Premium Tax Credit applies this tax credit on a monthly basis, directly offsetting the price of premiums. Anyone who reasonably estimates that they will meet the requirements of the Premium Tax Credit may apply for the Advanced credit when they apply for coverage.

Other eligibility requirements of the Premium Tax Credit include:

  • You or a family member must be enrolled in health insurance coverage through the Marketplace for one or more months during the year.
  • During this time, the individual cannot be eligible for coverage outside the Marketplace, including Medicare or Medicaid.
  • You are between 100% and 400% of the Federal Poverty Line for your household size.
  • You are not filing Married Filing Separately (excluding certain victims of domestic abuse or spousal abandonment.)
  • You cannot be claimed as a dependent by another person. Even if another other person could claim you, but chooses not to, you are ineligible for the PTC.

If you are unsure if you will be within the necessary income range, but think you could be, sign up through Talk with your financial advisor about ways to increase or decrease your income to be eligible for the credit.

For more details on PTC eligibility, visit the IRS website here

Income-Driven Student Loan Repayment Plans

As discussed in a previous blog post, federal student loans are eligible for a number of income-driven repayment plans. These plans can lower initial payments, ease the burden of interest, and even forgive all outstanding debt after a certain period of time.

The four income-driven plans that most federal student loans qualify for are the ICR, IBR, PAYE, and REPAYE plans. These plans set a monthly income-based payment amount, which is unaffected by the balance of the loan. After a certain number of years, called the Repayment Period, any remaining loan balance is forgiven. At that point, the forgiven balance is taxed as income.

To learn more about each income-based repayment plan, click on their name below.

Income-Contingent Repayment Plan (ICR)

This is the easiest income-driven repayment plan to qualify for, but often provides the least benefit. In this plan, the payment amount is set to the lesser of 20% of discretionary income or what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted for income. Any borrower with eligible federal student loans may make payments under this plan.
Repayment Period: 25 years

Income-Based Repayment Plan (IBR)

To qualify for the IBR plan, the payment you would be required to make must be less than what you would pay under the Standard Repayment Plan with a 10-year repayment period. If the payment is more than this amount, you won’t benefit from using an income-based repayment plan. The payment amount is set to 10% of discretionary income if you are a new borrower on or after July 1, 2014, or 15% otherwise.* This monthly payment will never be more than the 10-year Standard Plan amount.
Repayment Period: 20 years if you are a new borrower on or after July 1, 2014, otherwise 25 years
*For the IBR plan, you are a new borrower if you had no outstanding Direct or FEEL Loans when you received a Direct Loan on or after July 1, 2014.

Pay As You Earn Repayment Plan (PAYE)

To qualify for this plan you must meet the same eligibility requirement as the IBR plan, must be a new borrower as of October 1, 2007, and must have received a disbursement of a Direct Loan on or after October 1, 2011. Payments are set to 10% of your discretionary income, and are capped by the 10-year Standard Repayment Amount.
Repayment Period: 20 years

Revised Pay As You Earn Repayment Plan (REPAYE)

The newest income-based repayment plan, REPAYE, is often the most beneficial. Any borrower with eligible federal student loans may make payments under this plan, and the payment amount is set to 10% of your discretionary income. This makes REPAYE a good option for those seeking loan forgiveness under the PSLF program.
Repayment Period: 20 years if all loans you are repaying were for undergraduate study, otherwise 25 years

To determine which repayment plan is best for you, or if you have any questions about a specific plan, contact your loan servicer.

To apply for an income-driven repayment plan, you must submit an Income-Driven Repayment Plan Request. This can be obtained from your loan servicer, or submitted online at

Public Service Loan Forgiveness Program (PSLF)
A final consideration concerning repayment plans is the Public Service Loan Forgiveness Program. PSLF only applies to full-time employees of certain public service employers, but can forgive all remaining loan balance in as little as 10 years. Unlike the other income-driven repayment plans, any balance forgiven under PSLF is not taxed as income.

This program stipulates that any qualified employee who has made 120 qualified, monthly payments toward a qualifying loan will have the remining balance on their eligible loans forgiven tax-free. These 120 payments must be under one of the above plans, the 10-year Standard Repayment Plan, or a similar Direct Loan repayment plan with a monthly payment at least equal to those of the 10-year Standard Plan.

Public service sectors that qualify for this program include military, public schools, any federal, state, local, or tribal agency, law enforcement, public safety, and not-for-profit tax-exempt 501(c)(3) organizations. For a comprehensive list of government agencies and departments, visit


Summary of Advisor Compensation Methods

While many financial service professionals refer to themselves as “financial advisors”, the financial advisor designation is actually a very broad category. Within the field of personal financial advising there are three main subsects, each with their own method of compensation and, subsequently, their own planning methods.

1. Registered Investment Advisors: The first category of financial advisors, RIAs, manage a client’s portfolio in order to optimize returns and profits. They are also, notably, the only type of financial advisor with a fiduciary responsibility to their clients. This means that they are the only type of advisor that has to put the client’s financial needs before their own. If they are Fee-Only advisors it is a constant, legal obligation.

2. Stock Brokers: Stock brokers, sometimes called “broker dealers”, are similar to RIAs but have no fiduciary responsibility. This means that, when choosing between two products for their client, they may choose the product that gives them a higher commission rather than the one that is better for their client.

3. Insurance Agents: The third type of financial advisor, insurance agents, take a much less holistic approach to financial planning. They focus on the insurance aspect of personal finances, and are very commission-driven. While this does not necessarily mean that they will sell a client suboptimal products, their decisions may be influenced by what offers them a higher commission.

Method of planner compensation should be a major factor in determining which type of financial advisor is best for you. While no method of compensation is inherently better or worse for the client, certain types of compensation may encourage advisors to make decisions for personal gain, rather than the sake of the client’s best interests.

Fee-Only: A Fee-Only compensation plan works exactly as it sounds. The advisor is compensated with an initial or periodic fees, and receives no other forms of fees or commissions. This fee is usually paid prior to services rendered, to ensure truly impartial advice is given.

Fee-Based: While they may sound similar, and both receive initial fees from the client, Fee-Only and Fee-Based compensation schedules have one stark difference. While Fee-Only advisors maintain their status as a fiduciary at all times, Fee-Based advisors can “pick and choose” when they must put the client’s interests ahead of their own. This means that a Fee-Based advisor can collect their fee from a client, and later make a decision based on what allows them to collect a higher commission.

Commission: A commission plan, where an advisor receives payments from companies and organizations for selling their products to clients, is the form of compensation most often used by Stock Brokers and Insurance Agents. If you have ever gotten the feeling that a financial representative was trying to sell you something, it is likely that they are paid on commission. While this doesn’t necessarily mean that the product is low quality, it does encourage these advisors to sell clients the product which offers them the higher commission, rather than the best product for the client’s unique situation.

The Positive Today

We wake this morning to a new day, one that has had the world markets tumbling overnight at the news of our US President elect. I write this before the markets in the US open, already aware of a 5% drop in value. When the market opens at 9:30 a.m. EST, the markets will probably continue their downslide.

It may be tempting, but the event of a presidential election is not an event that should cause panic. Nor is it an event that should trigger impulse decisions. If anything, a downturn in the market provides us with opportunities.

Today, and probably for a few days or more to come will be a good time to sell off holdings in taxable accounts that are at a capital loss; thereby creating a tax benefit for, potentially, years to come. You remember the old adage, “buy low, sell high?” The next few days will bring us opportunities to buy low.

Historically, volatility in the market displayed around a presidential election does not last long. Historically, the markets do rise. I expect no different following this election. How far will the down go down? When will the up begin to go back up? Well, my magic crystal ball gives me no answers today. What it tells me is that now is a good time to take advantage of the opportunities provided.

  • Now is a good time to consider and write down your goals for the next six to twelve months.
  • Now is a good time to realize that only you are in-charge of your future.
  • Now is a good time to remember that you are in control of how you respond to everyday challenges.
  • Now is a good time to remember that you are in control of how you treat all life around you.

Your smile and kindness are yours to share. Today make lemonade out of market lemons. Take a moment to breathe and center yourself; find your positive spirit and pass along positive kindness.

At Harbor Light Planning, we do not believe in market timing, nor do we have discretion over client assets. We do not trade without your knowledge and approval. If you would like to take advantage of the tax and buying opportunities handed to us today, please contact your financial advisor. They should be able to provide recommendations based upon current capital gains/loss reports in your taxable accounts and provide recommendation on buying opportunities available with cash in your accounts (taxable and otherwise).

Managing your Student Loans

Student loan debt is quickly becoming the fastest-growing epidemic in American economics. The national student loan debt totals $1.3 trillion, grows at a rate of $3,000 per second, and shows no signs of slowing. Student loans are unwieldy, issued at interest rates that should be confined to Orwellian satire, and are one of the only forms of personal debt that cannot be discharged in a Chapter 13 bankruptcy. Even aside from seemingly endless monthly payments that can consume a sizeable portion of a recent graduate’s salary, student loans can plague a borrower’s credit score for years after they graduate. So, in a culture where an increasing emphasis on postsecondary education makes student loans seem like a necessary evil, what can a prospective student do to avoid being swallowed by their debts?


As is often the case, the first step in managing student loan debt is to do your research. An estimated 65% of high-debt student loan borrowers don’t understand the terms of their loans, leaving them susceptible to massive interest accruals and nightmarish credit spirals. In fact, according to a 2015 Government Accountability Office report, about 70% of those who have defaulted on their federal student loans had incomes low enough to qualify for an income-driven repayment plan. Almost all federal loans are eligible to qualify for these plans, which can reduce initial payments, ease the burden of interest, or even forgive all outstanding debt after a certain period of time. For those not already versed in the intricacies of loan debt, though, it can be hard to find a plan to fit their needs. Thankfully, in a field where a lack of knowledge can be dangerously expensive, there are a few simple tips to keep in mind when deciding how to deal with student loans.

Whenever possible, it is better to take out a federal loan than a private loan. Federal loans have fixed interest rates around 3.76%, are eligible for interest subsidies, and can qualify for any one of many repayment plans. Private loans, on the other hand, have variable interest rates averaging 9-12%, which can potentially increase over the life of the loan. Private debtors have no obligation to offer repayment plans, and often require payments to start immediately after the loan is signed. Essentially, private loans are more expensive, less forgiving, and completely unsubsidized.

Once you have student loans, the next step is to consider consolidation. Consolidating multiple federal loans into one loan agreement can simplify the repayment schedule, lower monthly payments by extending the repayment period, and qualify loans for new payment plans. Consolidation also often allows variable interest rate federal loans to be combined into a fixed rate agreement. This may seem fantastic, but there are some downsides. While an extended repayment plan may ease the immediate financial burden, it will likely increase total interest payments over the life of the loan. You may also lose any discounts or benefits associated with the original loans, which could have potentially saved thousands of dollars. Consolidation is also permanent, so if you are only seeking short-term relief in a time of financial trouble, deferment or forbearance may be better options. Finally, under no circumstances should private and federal loans ever be consolidated; since private loans cannot be federally subsidized, the consolidated loan will be ineligible as well.


The last point to consider is whether or not to make prepayments on a student loan in times of financial surplus. Following the Higher Education Opportunity Act of 2008, it became illegal to charge any sort of penalty on the prepayment of a federal loan. It also established that any borrower has the right to make a prepayment against their outstanding principal, rather than simply making an early payment for the following month. This means they can make a payment on the principal of a loan, reducing the amount of interest accrued, with no immediate drawback. Of course, it isn’t always that simple. While it is usually a good idea to make a prepayment in times of true excess, making an early payment with money that is then needed for other expenses can be disastrous. In a worst-case scenario, hastily prepaying an existing loan can force a borrower to take out another loan in order to pay for other expenses.

In the world of student loans, one misstep can have serious financial consequences for years to come. Without proper debt management techniques and an adequate understanding of its terms, even the smallest student loan can grow into an unmanageable beast. However, with the right mindset, thorough research, and a willingness to make sacrifices, that beast can be tamed.

Home Equity Lines of Credit

Following the 2008 housing market crash, many Americans are wary of any loan collateralized against their homes. While this is an understandable concern for some, many Americans would actually benefit from acquiring a Home Equity Line of Credit for use in times of financial need. Providing a quick, relatively large cash pool, HELOCs tend to outperform credit card loans in terms of debt management when utilized properly.

To understand the potential benefits of HELOCs, it is important to note how they differ from typical mortgages. Home Equity Lines of Credit are, as the name suggests, lines of credit rather than loans. This means that there is a maximum allowable loan, often no minimum draw, and interest is only paid on money borrowed. If you do not end up drawing against the line of credit, you do not pay any interest expense. Most HELOC’s have a variable interest rate, rather than the fixed rate of a typical mortgage. This rate is tied to the market interest rate, which can mean trouble if interest rates rise. Finally, if the money is used for home repairs and upgrades, the interest accrued on it is tax deductible.


That is not to say that a HELOC is right for everybody. They have some of the same closing costs as a first mortgage (application and appraisal fees, attorney’s fees, etc.) which can add up quickly. This means that HELOCs are probably not right for anyone unable to make a fairly large initial payment, or who are seeking to borrow a relatively small amount of money. They are also a bad choice for anyone who cannot afford for interest rates to rise, or who does not expect to be able to keep up with their monthly payments. In a worst case scenario, the issuer of the HELOC can force the homeowner to foreclose on their home if they borrow too much and fail to pay it back.

Debt consolidation is also a terrible reason to take out a HELOC, especially without a strict debt management plan. While the idea of debt consolidation may appeal to many borrowers, the true change needed to reduce debt is usually behavioral. Without a strict behavioral plan for reducing debt, paying off other loans with a HELOC does nothing to lessen the burden; it only shifts it. Furthermore, if the existing debts are not related to the acquisition or maintenance of the home, the HELOC interest paid may even lose its tax-deductible status. For more information on the deductibility of HELOC interest, consult a tax preparer.


For anyone else, however, especially those looking to take out a loan to do maintenance on their house, a HELOC might be perfect. Since the credit uses your home as collateral, the initial interest rate is usually much lower than the rate on a typical credit card. A HELOC that is arranged in a time of prosperity can also serve as an emergency backup fund if a homeowner’s financial situation takes a serious turn for the worse. By opening a HELOC when their credit score is high, a homeowner can usually receive a low initial interest rate. They can then borrow at that rate later if they need emergency funds, rather than borrowing at outlandishly high credit card interest rates. While the rate is variable, and will likely be adjusted upwards in a time of financial struggle, there are periodic and lifetime caps on how high it can increase.

Protecting Your Identity

In this digital age, scams are a dime a dozen. Angry phone calls from the IRS, threatening emails from the FBI, and thousands of similar frauds resulted in over $15 billion being stolen from 13.1 million Americans in 2015 alone. Gone are the days of the Nigerian prince emailing you in broken English that he just needs your banking info to wire you millions of dollars. Today’s scams are well-crafted, believable, and prey on the fear and sentiment of their victims. The real problem, however, is that these scams are like a virus. They multiply and evolve quicker than the authorities can track them, resulting in millions of preventable identity thefts simply slipping through the cracks. Considering how many of these scams are out there, over the phone and online, fighting them may seem like a losing battle. Thankfully, by educating yourself and your loved ones, you can prevent yourselves from falling victim to many of these frauds.

While there are more variations of even the basic scams than authorities could ever hope to track, many of them adhere to similar themes. By recognizing the following basic types of scams, you will be better equipped to recognize their variations.

Grandparent Scam

In this situation, an elderly person will receive a call from someone claiming to be a friend or relative in need of money. This “grandchild” may have just gotten into a car crash, or have a flat tire in a bad neighborhood, or may even claim to be in a foreign jail in need of bail. They ask the grandparent to send them some money right away and, not wanting to let down their grandchild, the grandparent obliges.

How to Avoid this: If you or a loved one receives a call like this, it is likely that the scammer will stress the need to send money immediately. They may also beg you to not to contact their parents, as they would be furious to hear they are in trouble. The best way to avoid this scam is to contact the parents anyway, and see if the story holds any water. The vast majority of the time, the parents will be able to confirm the call was a scam. (“What are you talking about? John isn’t in Mexico, I just saw him!)

IRS/FBI Phone Call

This type of fraud is quickly becoming one of the most popular, and likely the most successful. This scam occurs when a victim receives a call from an unfamiliar number, but the Caller ID says “FBI” or “IRS”. Confused as to why the federal government is calling them, they pick up, only to be told that they owe thousands of dollars to the government. If the Caller ID says FBI, the money is for an old warrant that they have apparently been dodging for months. If the “IRS” is calling, they owe a massive penalty on a prior year’s tax return. The victim is kept on the defensive for the entirety of the call, as the scammer makes credible-sounding threats to arrest the victim or their family. Then, once the victim is thoroughly frightened, the “government official” offers a way out. For a warrant cancellation fee of a few thousand dollars, or by paying the tax penalty owed, they can make the whole situation go away. It seems odd that they want the money wired to a PayPal account via a prepaid card, but because they are on the defensive, and because the caller ID lent credibility to the scam, the victim doesn’t question it.

How to Avoid this: The most important point to remember is that the IRS or FBI will never call you demanding payment. Even if you did owe an outrageous amount in tax penalties, the IRS wouldn’t contact you by phone. Similarly, it is highly unlikely that the FBI would ever call about a warrant, and they certainly wouldn’t ask for a cancellation payment. Beyond that, it’s useful to remember that a Caller ID can be spoofed fairly easily. Scammers can buy entire strings of phone numbers from VoIP services like magicJack, and program their ID to read any way they want.

Sweepstakes Scam

This is a fairly old scam, but is still very prevalent today. Known colloquially as the “Jamaican lottery scam”, this scam is thought to be solely responsible for $300 million in theft per year. To start, a (likely senior) citizen will receive a call claiming that they have won the Jamaican lottery, or a new car, or some other form of sweepstake. Even if the victim protests that they never entered such a lottery, the scammer will claim that someone must have entered on their behalf. To claim their prize, the victim only has to send a few hundred dollars by prepaid credit card, in order to cover processing fees or taxes. Once the money is received, the scammers will only demand more and more money.

A variant of the FBI Phone Call may also occur alongside this scam. If a would-be victim vehemently refuses to send money, and declares that they believe the sweepstake to be a scam, the initial scammer will stop calling. Then, a few days later, the victim will receive a call from someone claiming to be from the FBI or Homeland Security. The “government official” will claim that they are investigating the phony sweepstake, and need personal or banking information in order to file a report. In reality, of course, it is merely an associate of the original scammer on the line.

How to Avoid this: As with other scams over the phone, the simplest way to avoid falling victim to these Jamaican scammers is to refuse to send anyone money by wire transfer or prepaid credit card. These operations can be quite extensive, even including professional-grade websites about the sweepstakes. No matter how alluring the payoff may be, keep in mind that nobody is actually giving away money for free.

Sweetheart Scam

This is another scam that typically targets men and women over the age of 60, and has been described as “breaking a victim’s heart as well as their bank”. In this situation, someone claiming to be a young man or woman will contact an elderly victim. They chat about little things and, over the course of days or weeks, begin to develop a romantic relationship. After a while, they say that they want to come visit the victim in person. Sometimes, the victim may even suggest a visit themselves. Tragically, the scammer is in some sort of money trouble, and won’t be able to visit until they have paid of their debts. The victim, in the throes of new love, offers to pay if it will let them meet in person. The scammer agrees, and is never heard from again once the money is sent.

How to Avoid this: The fundamental flaw of this scam is that the scammer probably isn’t actually a thirty-year old Brazilian supermodel. Oftentimes, a cursory Google search will prove that your new online lover doesn’t actually exist, or that the pictures they have been sending are the top search result for “Attractive Young Brazilian”. It can also help to think critically about how realistic the circumstances that led to your meeting were, or to tell your family about your new partner. Family will often be much more critical about a new contact than the love-struck victim. And, when all else fails, follow the golden rule: Don’t wire money to someone you have never met in real life.

If the worst still happens, and you believe you may be the victim of identity theft, take the following actions:

1. Place a fraud alert on your credit report, cancel your credit card (if necessary), and get copies of your credit report.
2. Report identity theft to the FTC.
3. File a report with your local police department. A local department may be hesitant to take such a case, but they are legally obligated to and may be crucial in getting it to the appropriate authorities.
4. Visit to determine if any further actions should be taken.