The Financial Insider

An Economic and Investment Update


Taxpayer Bill of Rights

In June 2014 the IRS adopted a “Taxpayer Bill of Rights.” According to the IRS, the document provides the nation's taxpayers with a better understanding of their rights that are already embedded in the tax code, including the right to confidentiality, the right to retain representation, and the right to chal­lenge the agency's position.

Modeled on the U.S. Constitution's Bill of Rights, the Taxpayer Bill of Rights brings together 10 broad categories of rights scat­tered throughout the tax code. Thus, it builds on previous efforts to identify and specify these rights, making them more visible and easier for taxpayers to call upon when needed. Although the Taxpayer Bill of Rights is not legally enforceable, the IRS has said taxpayers can rely on it with confidence, as the rights listed are already statutorily guaranteed.


 The Taxpayer Bill of Rights contains the following 10 provisions:

1) The Right to Be Informed.

2) The Right to Quality Service.

3) The Right to Pay No More than the Correct Amount of Tax.

4) The Right to Challenge the IRS's Position and Be Heard. (This means that taxpay­ers have the right to raise objections and provide additional documentation in re­sponse to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a re­sponse if the IRS does not agree with their position.)

5) The Right to Appeal an IRS Decision in an Independent Forum. (This means that taxpayers are entitled to the following: a fair and impartial administrative appeal of most IRS decisions, including many penal­ties; the right to receive a written response regarding an Office of Appeals' decision; and the right to take their cases to court.)

6) The Right to Finality. (This means that taxpayers have the right to know the maximum amount of time they have to challenge the IRS's position and the maxi­mum amount of time the IRS has to audit a particular tax year or collect a tax debt, and they have the right to know when the IRS has finished an audit.)

7) The Right to Privacy.

8) The Right to Confidentiality.

9) The Right to Retain Representation. (This means that taxpayers have the right to re­tain an authorized representative of their choice to represent them in their dealings with the IRS, and the right to seek assis­tance from a Low Income Taxpayer Clinic if they cannot afford representation.)

10) The Right to a Fair and Just Tax System. (This means that taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information in a timely fashion. And they have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulties or if the IRS has not resolved their tax issues properly and in a timely manner through its normal channels.)

The IRS said it released the document following extensive discussions with the Taxpayer Advocate Service, an independent office within the IRS that represents the inter­ests of U.S. taxpayers. Adopting a Taxpayer Bill of Rights has been a goal of National Taxpayer Advocate Nina E. Olson since 2007, and it was listed as the Advocate's top priority in her most recent annual report to Congress.

Commenting on the adoption of the rights, Olson noted that a survey by the Taxpayer Advocate Service in 2012 found that only 46% of U.S. taxpayers believed they had rights in relation to the IRS, and only 11% knew what those rights were.

“Congress has passed multiple pieces of legislation with the title of ‘Taxpayer Bill of Rights,'” Olson said. “However, taxpayer surveys conducted by my office have found that most taxpayers do not believe they have rights before the IRS and even fewer can name their rights. I believe the list of core taxpayer rights the IRS is announcing today will help taxpayers better understand their rights in dealing with the tax system.”

Olson and IRS Commissioner at that time John A. Koskinen added that they would continue to seek a formal enactment of tax­payer rights by Congress. Koskinen further emphasized that the document would be used to support his continuing advocacy for budgetary resources for the IRS to fulfill its commitments to protect taxpayers.

The IRS reported that starting in 2014 a printed version of the document will appear in Publication 1, “Your Rights as a Taxpayer,” which will be sent to taxpayers when they receive IRS notices on issues ranging from audits to collection, and the rights will also be publicly visible on and in all IRS facilities. Publication 1 is available in Eng­lish, Spanish, Chinese, Korean, Russian, and Vietnamese.

Your Financial Affairs: What Your Children Should Know

Many parents may find it uncomfortable, or even believe it is unnecessary, to inform their children about personal finance matters. Yet, communicating openly with your family members can help to reassure them about your financial and health care wishes. This may also ease the decision-making pro­cess for your family in many important areas.

As time goes by, informing your children of financial, estate, and medical arrangements that could affect the entire family helps ev­eryone prepare and plan for the future. This does not need to include detailed facts and figures; however, you may want to consider sharing the following information with your adult children:

 • Life Insurance. Life insurance is typically purchased to provide a death benefit to help cover final expenses, estate taxes, outstand­ing mortgages, other liabilities, and lost income. Knowledge of the existence and location of life insurance policies can be of the utmost importance to children when settling their parents' finances in a timely manner.

• Other Insurance. Be sure to inform children of other insurance policies that you may have, including health, disability income, and long-term care insurance. If you're age 65 or older, make sure your children have basic understanding of Medicare coverage and are aware of any health insurance poli­cies that exceed Medicare coverage. Older adults can greatly benefit when their chil­dren understand and follow appropriate procedures, as well as submit any necessary forms on deadline.

• Wills. Preparing a will allows you to avoid leaving the disposition of your estate up to your particular state and its probate laws. To help ensure that your assets are distributed according to your wishes, both you and your spouse should prepare wills, review them regularly, and make necessary updates as circumstances change.

• Although specific contents can be kept private, it is important to disclose the exis­tence and location of wills to several family members or a trusted legal advisor. Keep in mind that bank safe-deposit boxes may be temporarily sealed at death, so you may want to choose an alternate location for this key document. For example, the original will may be left with your legal advisor for safekeeping.

• Trusts. Trusts can help protect your estate from unnecessary taxation or misman­agement. Make sure to discuss pertinent terms with those who will be involved. As children reach adulthood, it is common for parents to select a responsible son or daughter to act as trustee in the event of the parents' death.

• Living Will. This document specifies your preferences regarding the administering or withholding of life-sustaining medical treatment. Under many state statutes, a patient must be considered “terminal,” “permanently unconscious,” or in a “persis­tent vegetative state” before life support can be withdrawn. Be sure to provide copies of living wills to anyone who may be involved with the health care of you or your spouse, and keep the originals in a safe, readily ac­cessible place.

• Health Care Proxy. This legal document allows you to appoint a person to act as an agent on your behalf to make medical deci­sions, should you become incapacitated. It is important to file a copy of the health care proxy with your primary doctor and your hospital, if possible. In addition, be sure that the individual appointed as your agent retains a copy.

• Durable Power of Attorney. With a du­rable power of attorney, an individual or financial institution may act as an agent to oversee your legal and financial affairs, even if you become incapacitated. Grown children need to be informed of the steps that have been taken to ensure the compe­tent direction of your finances, should the need arise. However, their actual involve­ment in your financial matters may be limited, according to your wishes. A power of attorney automatically terminates upon the death of the principal.

• Assets and Debts. It can be beneficial for your children to know that you have com­piled a list of your assets and debts, even if you choose not to show them the list. An asset list updated regularly may include information on your bank accounts, real estate holdings, pension payments, an­nuities, business agreements, brokerage accounts, boats, cars, artwork, collectibles, jewelry, or other valuables, and insurance policies. A debt list may include informa­tion on your current mortgages, consumer indebtedness, personal loans, and business obligations. For both lists, be sure to iden­tify where the paperwork and associated files for each item can be found.

Initially, preparing these lists and the as­sociated documentation may seem like an overwhelming task. However, once com­pleted, both you and your adult children may experience a sense of relief in the knowledge that thoughtful planning was discussed and implemented according to your wishes.

Leaving a Legacy

For millions of Americans, “charity begins at home.” Many have decided to make a difference by donating money to local religious, educational, social, or cultural organizations. In addition to the immense satisfaction that comes from giving to others, charitable giving can provide tax benefits for the donor and his or her heirs when done as part of an overall estate plan.

Charitable Gifts of Life Insurance

Gifts of life insurance have unique advan­tages, including the following:

• The proceeds are generally received income- and estate-tax free by the charity.

• Under certain circumstances, the proceeds may pass to the charity outside the will, avoiding probate proceedings.

• In combination with a wealth replacement trust, assets may be kept intact for the do­nor's family, as described below.

Gifts of life insurance can be made in one of two ways:

• The insured is the owner of the policy, and the charity is the beneficiary. This arrangement is used when an insured/donor wishes to retain control over the insurance policy. Because the insured owns the policy at death, the death benefit will be included in his or her estate for tax purposes, but it will be 100% deductible, since it is payable to a charity. However, premiums are not income tax deductible.

• The charity is owner and beneficiary. Unlike the situation in which the insured retains ownership, the premiums are considered a charitable gift and may be income tax deductible to the donor ac­cording to Internal Revenue Service (IRS) guidelines.

If the donor gives an existing policy to a char­ity, the fair market value of the policy (generally, its full cash value) is allowable as an income tax deduction. The tax consequences of future premium payments for the gifted policy would be the same as the situation described above, in which the charity is both owner and beneficiary.

Charitable Remainder Trusts

If the prospective charitable donor is seeking a way to increase income, reduce estate and income taxes, avoid taxes on gains, and make a significant charitable contribution without reducing his or her family's inheritance, a charitable remainder trust (CRT) or a wealth replacement trust may be appropriate. A CRT can allow an individual to make a gift to a char­ity while retaining a current income interest in the gifted asset during his or her lifetime.

In general, it may be best to fund a CRT with an asset that, if sold outside the trust, would produce substantial long-term capital gains tax. After the trust is executed, the donor may transfer this appreciated, low- or non-income-producing asset to the CRT. The CRT can then sell the asset and provide the donor an income for life, for a term of years, or for joint lives. Upon the death of the donor or the donor's named non-charitable-income beneficiary, the remaining trust assets will pass to the charity. Here are some of the benefits of this strategy:

• When the trust is created, the donor may get a current income tax deduction based on the present value of the future amount passing to the charity.

• No tax on the gain is paid by the trust when it sells the asset, since the trust is exempt from such tax.

• The donor may get increased income, since the trust may invest in assets paying a higher rate of return than the contributed asset was producing, and the trust may have more to invest, since it doesn't pay tax on the gain.

• Estate taxes are reduced, since the asset placed in the trust has been removed from the estate.

After the donor's death, the remaining assets in the trust pass to the charity, not to the donor's heirs. However, the tax savings produced by the charitable donation and the income generated by the trust can be used to pay premiums on a life insurance policy owned by an irrevocable life insurance trust (ILIT)—sometimes known as a “wealth replacement” trust. The life insur­ance policy in this trust replaces the value of the assets that pass to the charity in the CRT. Since the life insurance is purchased and owned by the irrevocable trust, the proceeds are free of income tax, as well as estate tax.

There are a variety of charitable giving tools and techniques that can provide generous donors with certain tax benefits. For specific guidance, consult your qualified tax and legal professionals.

When the Going Gets Tough: Cultivating Resilience

Building and sustaining a business is not a task for the faint of heart. As anyone who has launched a business from the ground up knows, transforming an idea into a successful enterprise requires not only technical know-how, but also a steadfast willingness to work hard and weather the setbacks that inevitably come with establishing a new business in a competitive marketplace.

But when the going gets really tough, how do you maintain your ener­gy and optimism? While most of us are born with some ability to cope with adversity, resilience is also a skill that can be learned and cultivated. By con­sidering in advance how you would recover from an adverse change in circumstances, you can prepare your­self to bounce back quickly from even the most challeng­ing situations.

While there are some practical steps you can take to protect yourself from potential setbacks, such as having sufficient insurance and savings, problems may arise for which no protection is available, such as an abrupt downturn in the market or the unexpected loss of a major client or key employee. By approaching these unanticipated setbacks with the right attitude, you may be able to address the problem more competently and more quickly.

Keep in mind that resilience does not necessarily mean going it alone. By building your personal and professional networks, you ensure that you have trusted allies who can provide encouragement and advice when problems arise. While friends and family members can be an invaluable source of sup­port in a crisis, they may not understand all the issues you face in your business. By joining industry organizations and getting to know other people working in your field, you create a support network of professionals you can consult when weighing how best to handle specific problems related to your business. An experienced mentor can also provide insight and encouragement.

However, just talking about problems does not resolve them. You must be prepared to take whatever action is necessary to meet the challenges ahead. Start by making a detailed list of possible ways to address a problem, and then assess pros and cons of each. If, for example, market conditions have changed, revisit your business plan and adjust your goals to the new environment. Rather than becoming discouraged because you are un­able to meet your original goals, set your sights on hitting new targets. Don't be afraid to consider unconventional strategies, such as partnering or bartering with other businesses, or branching out into a seemingly unrelated business area. Simply by doing what you can each day to improve your situation, you may find that you are gaining positive momentum that can help propel you forward, despite obstacles.

If current circumstances cannot be eas­ily changed, strive to accept the situation. Some problems, such as a downturn in your particular market, could remedy themselves with time. If work is slow, consider taking breaks to travel, get outside, or spend time with family or friends. Catch up on sleep, get more exercise, improve your diet, or clean out your closets at home. Focusing on your overall well-being—and getting some distance from the business-related issues you have been focusing on so intensely—can generate a much-needed shift in perspective and provide new insights into solving some seemingly insurmountable problems.

Whatever your difficulties, do not over­look the assets you have acquired. Take the time to appreciate the strengths within your organization. Even if you have downsized your workforce in response to the economy, remind your remaining employees how the company can continue to be competitive, despite the challenges in the marketplace. If you demonstrate a steadfast willingness to work hard and weather the inevitable ups and downs with energy, optimism, and resilience, your staff may also do the same. Together, you can work toward the success of the business.

Non-Working Spouses and Roth IRAs

For many married couples, retirement planning has become not only a personal responsibility but a financial necessity. Since Americans are living longer, retirement fund­ing may need to span several decades beyond the normal retirement age. When you consider the escalating costs of health care, the uncer­tainty of Social Security and Medicare, and the pace of inflation, it is more important than ever to explore tax-advantaged saving options that can fit into you and your spouse's over­all financial plan for retirement. Let's take a closer look at some of the benefits of a Roth Individual Retirement Account (IRA).

Roth IRA contributions are made on an after-tax basis from earned income only, and no income tax is due when distributions are taken. Distributions from a Roth IRA are free of income taxes after the account has existed for five years and you have reached age 59½. If you take withdrawals prior to age 59½, you may be subject to a 10% Federal income tax penalty. However, certain situations qualify as exceptions, such as early withdrawals for qualified education expenses or first-time homebuyer expenses.

In addition to tax-free withdrawals, a Roth IRA has two other important features: 1) There are no Internal Revenue Service (IRS) restrictions on when you must begin taking withdrawals (e.g., age 70½ with traditional IRAs), and 2) You can continue to contribute to a Roth beyond age 70½ if you have earned income. Over the long term, this can lead to the potential for additional savings, especially if you plan to work past age 70½, or if you have other sources of retirement income and do not expect to rely heavily on your Roth IRA.

Who Is Eligible?

While earned income is one of the require­ments for opening up a Roth IRA, a married couple with only one income may open and contribute to a Roth IRA under certain guide­lines. The Roth IRA eligibility rule allows mar­ried couples to make contributions, as long as at least one spouse has taxable earned income from working and a joint tax return is filed. Under the IRS provision for married taxpayers filing jointly in 2019 with one earned income, and who have $12,000 in modified adjustable gross income (MAGI) or more, you and your non-working spouse can each contribute the maximum amount of $6,000, or $7,000 (if you are both age 50 or older and have at least $14,000 in MAGI) to a Roth IRA.

When a joint tax return is filed, the IRS regards a married couple's income as joint income, even with a non-working spouse. A married couple's total income is considered to equally belong to each spouse. Since both of you are joint recipients of the total income earned, you are both eligible to open a Roth IRA in your own names. You can each contrib­ute up to the maximum contribution limit of $6,000 (or $7,000, if 50 or over) in 2019.

Income Limits

The Roth IRA income limits for a married couple filing a joint tax return with both spouses earning taxable income are the same for a married one-income couple fil­ing jointly. The adjustable gross income (AGI) limit for maximum contributions is $193,000 or less for joint filers in 2019. If joint fil­ers earn between $193,000 and $203,000, the allowed contribution amount is phased out per IRS guidelines.

The Roth IRA is a retirement savings vehicle that may offer multiple advantages for one-in­come married taxpayers, includ­ing tax-free distributions with no age restrictions. Be sure to consult your qualified financial and tax professionals to determine what is appropriate for your unique circumstances.

Keep Your Homeowners Coverage Up-To-Date

When you sign up for a homeowners or condominium owners insurance policy, you take the first step in protecting what may be one of your largest assets. It is important to be knowledgeable about the appropriate amount of coverage needed and the extent of the coverage provided by your insurance contract.

The homeowners policy is a package that covers your dwelling, other structures on the premises, unscheduled personal property on and away from the premises, loss of use, personal liability coverage, and the medical coverage of others.

Nearly all insurance companies require that your policy be issued for at least 80% of the replacement cost of your home. Failure to maintain proper coverage may result in shar­ing in a partial loss as a penalty.

The correct amount of coverage is deter­mined at the time the policy is written. Then it is your responsibility to be sure your policy continues to provide appropriate protection. Most insurers will increase your coverage by a certain percentage each year to keep pace with inflation. However, it is important for you to periodically review your homeowners coverage and make any necessary changes that result from inflation in your area and adjust for additions or improvements made to your home.

Your homeowners policy also provides protection for the contents of your home. It's a good idea to keep an inventory of personal property in a safe deposit box so that, in the event of a loss, you won't have a problem listing the items to be replaced. The contents portion of your policy has specific limitations on items such as money, jewelry, furs, silver­ware, artwork, and securities. Be certain to refer to your policy for a full description of the limitations. In some instances, you can buy additional coverage if the basic coverage is insufficient.

When selecting coverage, evaluate the dif­ferent policy forms. You can choose between a basic broad form policy that protects you against a list of named perils such as fire, hail, lightning, wind, explosion, and vandalism or an all-risk policy that protects you against all losses except those specifically excluded in the policy. The exceptions include: damage by birds or insects; wear and tear; landslide and earthquake; cracking from settling; flood and surface water; and damage by domestic animals or rodents.

You may wish to consider a higher policy deductible and elect to purchase the slightly more expensive all-risk contract with the premium saved.

In addition to protecting your property against serious loss to the physical structure, your homeowners policy may also provide protection for legal liability in varying amounts.

In view of sizable legal awards that can potentially be granted, you may wish to protect yourself even further with a personal umbrella policy.

As you assess your coverage require­ments, keep a sharp lookout for ways to you're your premiums. By installing smoke detectors, fire extinguishers, deadbolt locks, or a central alarm system, you can reduce your costs by a reasonable amount. Evaluate your coverage limits periodically and make changes when appropriate. When it comes to your home, keeping up-to-date on your insurance coverage may be more important than “keeping up with the Joneses”.

Protecting Your Financial Information Online

More consumers are conducting financial transactions online and may become vulnerable to tracking, hacking, identity theft, phishing scams, and other cyberspace risks. While nothing can guarantee complete safety on the Internet, understanding how to protect your privacy can help minimize your exposure to risk.

Here are some ways to safeguard your information:

Read privacy policies. Before conducting any financial transactions online, carefully read the privacy policies of each institution that you plan to do business with to find out how secure your financial information is. If you do not understand the legal jargon, email or call customer service to request a simplified explanation of the privacy policy.

Avoid using weak PINS and passwords. When deciding PINS, passwords, and other log-in information, avoid using your mother's maiden name, your birth date, the last four digits of your Social Security number, or your phone number. Avoid other obvious choices, like a series of consecutive numbers or your home town. Also, do not use the same PINS and passwords on multiple sites.

Look for secured web pages. Use only se­cure browsers when shopping online to safe­guard your transactions during transmission. There are two general indicators of a secured web page. First, check that the web page URL begins with “https.” Most URLs begin with “http;” the “s” at the end indicates that the site password will be encrypted before being sent to a third-party server. Second, look for a “lock” icon in the window of the browser. (It will not be in the web page display area.) You can double-click on this icon to read details of the site's security policy. Be cautious about providing your financial information to web­sites that are unfamiliar. Larger companies and well-known websites have developed policies to protect the rights and financial information of their customers. So, resist the temptation of providing personal information to unknown companies.

Keep your operating system up-to-date. High-priority updates are critical to the secu­rity and reliability of your computer, and offer the latest protection against malicious online activities. When your computer prompts you to conduct an update, do it as soon as possible.

Update antivirus software and spyware. Keep both your antivirus and your spyware programs updated regularly.

Keep your firewall turned on. A firewall helps protect your computer from hackers who might try to delete information, crash your computer, or steal your passwords or credit card numbers. Make sure your firewall is always on.

Do your homework. To learn more tips for securing your com­puter and protecting your private information when conducting financial transactions online, visit, www.onguar­, or

In addition, the Federal Trade Commission (FTC) works on behalf of consumers to prevent fraudulent, deceptive, and unfair practices in the marketplace. To file a complaint or to obtain more information, visit or call 1-877-FTC-HELP (1-877-382-4357).

As the Internet continues to evolve, new risks, along with ad­ditional protective measures, will be revealed. However, it is up to you to safeguard your financial informa­tion online through education and awareness.


The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax, legal, or financial advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax coun­sel. Neither the information presented nor any opinion expressed constitutes a representation by us or a solicitation of the purchase or sale of any securities. This newsletter is written and published by LIBERTY PUBLISHING, INC., BEVERLY, MA COPYRIGHT 2019.