Educating the Masses to Help You Save On Taxes � tax season

As the Fiscal Cliff debate ends and new laws are passed, the IRS warns taxpayers of the inevitable delays in the 2012 tax season.  The IRS stated on its website in early January 2013 that it will not accept any individual returns until January 30, 2013 and have released a statement on January 29, 2013 that they remain on track to open tax season on January 30. To make matters more difficult, the IRS has not extended the tax season past April 15, 2013 despite its imposed late tax season start. 

Individuals and businesses will have additional delays if they have any of the following deductions on their return:

• Depreciation
• Residential Energy Credit
• General Business Credits
• Fuel Credits
• Work Opportunity Credits
• Energy Efficient Credits
• Alternative Motor Vehicle Credit
• Plug-in Electric Drive Motor Vehicle Credit
• Passive Activity Loss Limitations
• Adoption Expenses
• Education credits will be available to file in mid-February

Businesses and individuals with specific forms (noted above) will not be able to file until late February or March because the agency needs time to update and test its systems which has included extensive form and processing changes.  There has been no news or update on an exact date that they will begin accepting these returns. 

IRS WARNS OF TAX REFUND DELAYS

In an article written on January 26, 2013, the IRS warned that tax refunds could be delayed an extra week.  The additional week delay is blamed on “fine-tuning” IRS systems to adjust for new fraud safeguards that they have put into place and should only affect early filers.  The usual 10 to 21 business days to receive your refund is expected as in prior years once the fine-tuning is completed.  The IRS has developed a new tacking system that allows filers to see exactly what stage of the review process their return is in which will be available 24 hours after a tax return is electronically submitted and 4 week after the submission of a paper return.

Contact Fredrick James Today to schedule a Tax Forecast that can help you prepare yourself for what lies ahead.

Visit us at FredrickJames.com. We serve clients throughout the world through our virtual office. Read more about our virtual office. If you have any questions or need assistance with your accounting, payroll or taxes please Contact us Today!

Now that the 2012 Presidential Election is over, you’ve surely heard the next big news: “The Fiscal Cliff”. What the heck is a Fiscal Cliff? It’s a pet name that our Federal Reserve chairman, Ben Bernanke, came up with to describe a set of circumstances that are due to occur on January 1, 2013.

What is this “cliff”, anyway?

The cliff is not just one thing, it’s the combination of several things that economists assure us will send the country into another recession in the first half of 2013 if congress doesn’t make some changes during the month of December. Unfortunately, they’re really stuck in the middle here. The primary pieces of this crumbling cliff are the expiring Bush-era tax cuts, a big government spending cut, and a big Medicaid payment spending cut. All of these things have their pros and cons. Of course, the big “pro” is that letting the old tax cuts expire (I refuse to call this a “tax increase”, because that’s not really what it is at this point… it’s merely the expiration of a set of tax cuts that were intended to be temporary) brings in more tax revenue, and coupled with the reduced spending could make a dent in our federal budget deficit. This is just what our budget that everyone has been screaming about needs! Of course, the flip side is that nobody wants to be the one to pay for any of that… and in our current economy, most people can’t afford to.

The “cliff” refers to the fact that this is all scheduled to happen at the same time, and the Congressional Budget Office estimates that is will cost the Federal Government over $600 billion in 2013. So, do we stop all of these changes and accept another half-trillion dollars worth of debt and a budget that’s even further from balanced than it was last year? Or do we perhaps make some new tax cuts and ease the spending cuts in an effort to spare the economy? Tough choices, to be sure.

What is likely to happen?

We can’t say for sure what Congress will do during the month of December, but it’s not likely that they’ll risk letting our economy take another big dive if they can avoid it. The wise course of action would be some degree of compromise, however. Something between what is set to automatically happen under existing laws, and outright repeal of all of those laws.

President Obama’s desire seems to be to allow the Bush tax cuts to continue, but with an exception for those who earn over $250,000. This would allow the middle class to “keep spending”, thereby not crimping the economy, but also would provide a little more revenue to help with our budget deficit.

Another idea that has been presented both by Democrats and Republicans in one form or another is to put a cap on tax deductions. President Obama proposed capping them at 28%, and the Republicans have been flirting with a dollar-amount cap of $35,000. In either case, this would have a similar effect to limiting the tax cuts to those with income under $250,000. That is, higher income earners will pay more taxes next year.

The Take-away

All we can tell you for sure is that if you earn more than $250,000 per year, you’ll probably be paying significantly more taxes next year. And even if you earn less, you’ll probably still be paying more in some form or another, though likely not as much. We live in interesting times.

Contact Fredrick James Today to schedule a Tax Forecast that can help you prepare yourself for what lies ahead.

Visit us at FredrickJames.com. We serve clients throughout the world through our virtual office. Read more about our virtual office. If you have any questions or need assistance with your accounting, payroll or taxes please Contact us Today!

The IRS published a bulletin this week warning us all to not fall victim to fake “phishing” emails claiming to be from the IRS and requesting personal information. But, like most announcements of this nature, they didn’t go far enough into explaining how to identify these fake emails. Identity theft, and/or attempted identity theft via spoofed email or websites has become a HUGE problem in today’s increasingly digital society. So, our IT guy volunteered to provide some brief education for you.

Why the heck is it called “phishing”?

Obviously, it’s a play on “fishing”, but why the phunny spelling? The answer actually dates back to the early 70′s when the term “phreaking” was coined in reference to “phone freaks”, the tech-savvy adventurers and theives who were hacking into the phone system. This subculture eventually became “computer hackers”, and when they started attacking email and trying to collect personal info, the term “phishing” was born!

There’s also a really good alternative music band called Phish. This has nothing to do with them!

What are their methods?

Unfortunately, their methods change as quickly as we come up with ways to hinder them. But, if you approach EVERY email in your inbox and every link in an untrusted email or website as a THREAT, you’ll go a long way towards keeping your personal information safe. Rest assured, “the enemy” knows you. More than you might expect. You can get an email that is addresses you by name that appears to be from someone you know at first glance. Or you can get an email that appears to be from a government agency, financial institution or other business… and they can be very convincing fakes! But, you can still protect yourself by being skeptical and applying a little logic.

How did they get your name and your friend’s name and connect them together? Someone, somewhere was careless and got their computer infected with malware that is either emailing directly from their computer using their contacts, or has sent their contacts list back to the phisher. This doesn’t have to be YOUR mistake! It could be the friend or business that the email appears to be from that got hacked. Or, it could be a mutual acquaintance that has both of your names and email addresses. The point is… it happens. Just because an email is addressed specifically to YOU by name is no indication that it is legitimate.

What if I open a phishing email?

Generally, merely opening and reading an email is harmless. However, formatted emails that include linked ads could include malicious scripts that could infect your computer with malware or a virus. Be sure to protect your computer from this sort of attack with a virus scanner that includes real-time malware/phishing protection and keep it current! With good virus/malware protection in place, the risk of reading an email is extremely low.

But, don’t get carried away! There’s a difference between “reading” and “clicking”. Most of the danger of these phishing emails lies in getting you to believe that they are legitimate emails, and getting you to either reply to the email with sensitive information, or to click a link to a website that will either ask for such information, or again try to install some sort of malware onto your computer. Don’t click ANYTHING that you’re not sure of, and don’t REPLY to anything that you’re not sure of. And, of course, never, EVER open an attached file unless you specifically requested it and you trust the sender.

How can you identify fraudulent email?

There are sneaky ways around some of these, which you can only block by adopting a strict “trust no one” policy. But, most “phishing” email is pretty straightforward and low-tech. Start by looking at the email address. If the email claims to be from your buddy Joe and you know his email address is “sparkyjoe@something.something”… but the email address this email is from is “43x9victor@yahoo.cn”… you don’t need to look any further, it’s fake!

If you can’t tell by the email address (and we’ll get more into what to look for), look at the links in the email. Don’t CLICK them, just look at them. Be aware that HTML allows us to mask a link with any text of our choosing, so just because it LOOKS like a valid link at a glance doesn’t mean that it is. To see the real link (in most cases), simply hover your mouse pointer over the link and depending on what you’re reading mail with, the address will appear somewhere (usually either in a status bar at the bottom of the screen, or in a bubble next to your mouse pointer). Learn to do this and get in the habit of doing it. KNOW where that links takes you before you click it.

Fake email addresses and links will quickly identify 95% of all phishing emails that you’ll get. They’re painfully obvious if you just take 10 seconds to look. But, as mentioned in the opening paragraph, even I still haven’t sufficiently told you how to identify a faked email or website address!

How to verify real addresses

The reason this is so rarely explained well is that IT professionals and other web-savvy people know all this stuff. It’s very basic and second nature to us, so we don’t think to explain it any more than you’d think to tell someone to sharpen a pencil before they try to write with it. But, in this age, there are no “qualifications” for getting on the Internet. In fact, everyone is just “expected” to be online… but not everyone has had the benefit of any sort of formal training. And with software being designed to be so easy to use, you don’t really NEED to know much… until you’re trying to verify legitimate addresses to avoid being a phish!

So, let’s examine both website addresses (they are also called URL’s or “universal resource locators”) and email addresses and get familiar with their parts. Both email and website addresses share the same major component, the domain name. We’ll start there.

A domain name in its simplest form is something like “google.com”. It’s an alphanumeric identifier (can’t begin with a number, but can include numbers) followed by a dot and a “top level domain” (TLD) identifier, such as “.com” or “.net”. With a few exceptions (such as “.mil”, “.gov”, and “.edu” and certain country-specific TLD’s), anybody can buy any domain name that another entity does not already own. This is one of the simplest ways that a domain can be “spoofed” to the untrained eye. The fake address could be something like “google.co” rather than “google.com”. We don’t see “.co” much in the US, but it’s the TLD assigned to the country of Colombia. Perfectly valid domain name… but if Google were to send legitimate email to a customer in the US, it would come from “google.com”! So, a domain name that has “google” (or whatever you’re dealing with) in it is not enough. You need to look at the TLD and see that it is legitimate.

You also need to understand that in addition to the base “domain name” and the “top level domain”, a domain can have any number of “sub-domains”, the additional identifiers to the left of the domain name. And that’s fine, you could get an email from something like “mail32.google.com” or be sent to “maps.google.com” and that would be legitimate. The main domain is “google.com”, and nobody can fake a subdomain against that. What you need to watch out for are surreptitious subdomains that are NOT related to the correct root domain. If the address was “google.xxx.com”, then it would be a subdomain of “xxx.com”, which is obviously NOT “google.com”. Don’t forget that there is no limit to how many subdomain levels there can be. So, they can get sneaky and give you something like “google.com.stealyoidentity.net”… which would give you “google.com” at a glance, but if you read the whole thing, you see that the root domain is again NOT “google.com”.

Phishers get REALLY sneaky with this sort of thing. They may have a domain name of “paymentprocessing.com” and put “chase” in front of it as a subdomain. The unsuspecting phish might think “chase.paymentprocessing.com” was a legitimate domain for Chase credit card services… but you’re now wise to that, aren’t you? You know that’s not correct, but that something like “paymentprocessing.chase.com” would be.

The remaining parts of a website address or URL are the “protocol”, which is at the very beginning and will normally be “http” (for a standard web page) or “https” (for a secure web page). That is followed by some standard punctuation, a colon and two backslashes. Between there and the next backslash (if present) is the domain name (including TLD and subdomains). And after that is a folder path and filename, which you don’t need to concern yourself with. (they can be simple and logical… or long and complex, and either can be legitimate)

A couple more things

The “from” address on an email is very easy to spoof. You could do this yourself with Outlook or whatever you’re using to manage your mail. Same with the “reply to” address. You could send an email “from” anyone, “to” anyone, with a “reply to” anyone. But, if you think about what a phishing email is trying to do… they may spoof the from address to make you think they’re someone else, but if they want to receive your reply, they’re going to put THEIR email address in the reply-to field. So, if you have any inclination to reply to an email, CHECK the address that you are replying to using what you learned above and a little common sense. Does this reply-to address make sense? Most businesses that have a website will have email addresses that use the same domain name. Smaller businesses sometimes won’t… but if you’re not sure, call them! Or check their website or their business card. Be sure you’re corresponding with who you think you are.

Lastly, the best thing you can do is simply NOT click links in emails. Got an email from your Visa card company telling you to click this link to go check something? Don’t trust it. You know what their website address is. Open a browser and TYPE IT IN. That way you know without question (assuming you have good virus and malware protection and your browser hasn’t been hijacked) exactly what website you’re going to and who is on the receiving end of your username, password and other sensitive information.

What if you’ve been “phished”?

If you detected the scam before revealing any personal information, you don’t really need to do anything. Just delete the email and carry on. Resist the urge to reply to it and say nasty things about the sender’s ancestry, all that does is give them confirmation that they at least have a valid email address… which is actually worth money to them.  If you really feel the need to take action, if it’s an email spoofed from a friend, you can tell them so that they can scan for problems, and you could broadcast to all of your mutual friends that one of THEM could have a problem. If it’s commercial, find the email address to the fraud department of the business that the email is spoofing and forward it to them so that they can either take action, or at least be aware of what’s going on.

If you’ve managed to fall for a phishing scheme, you need to try to limit your exposure as much as possible. What information did you give them? User name and password for your bank account? Better change that password pronto! And call the bank to let them know that there was a possible breach so that they can flag your account for close scrutiny. Do you use the same password for anything else? (shame on you if you do!) If so, be sure to change those other passwords, too.

If you went beyond that and leaked credit card numbers, you may need to call and have a new card number issued. If you gave away your SSN… you’re just going to have to be on the lookout for fraudulent activity, check your credit report frequently. (you should be checking it annually, anyway)

If all you gave away was contact info, like your address, email address and phone number, that’s not such a big deal, somebody already has that anyway. You’ll probably get a little more junk mail, or spam email, or maybe phone solicitation. You probably won’t notice a difference, since we all get so much of that, anyway.

Further reading

If this article didn’t sufficiently bore you, you can read:

What the IRS has to say about Suspicious Emails and Identity Theft
The “How Stuff Works” entry on Phishing
FCC’s information about Identity Theft

(BTW, you should not even trust US! Look at each of the links above. Verify them. You should see correct domain names… “irs.gov”, “howstuffworks.com”, “ftc.gov”. You are your own best line of defense! Know what you’re clicking before you click it!)

Big tax changes are on the horizon, do you know what to expect? Whether our new president is Republican or Democratic, there WILL be changes, and your tax liability WILL increase for the 2012 tax year. But, how much?

Tax Forecasting

We try to keep our blog articles informative, not too “preachy” and not overly “pitchy”, but this is one that we just have to tell you is well worth doing! You need the expertise of a tax professional who keeps current on all of the latest tax code changes, as well as changes that are on the horizon. With our help, you can know how much your tax liability will be, and you’ll know early enough that you can make significant financial changes BEFORE the end of 2012 that can have a favorable impact and reduce the amount that you will owe! We call it Tax Forecasting.

What is Tax Forecasting

Tax Forecasting involves estimating your income and expenses for the remainder of the year, applying our knowledge of how to file your taxes to gain the greatest benefits, and making recommendations of actions that you can take that can greatly impact your tax liability.

Don’t Wait!

For Tax Forecasting to be an effective tool to reduce your taxes, you need to get started now! We recommend requesting your Tax Forecast by mid-November so that we can complete it in time for you to react and put our advice to work to save you tax dollars before the end of the year.

Contact Fredrick James Today to learn more about our Tax Forecasting service to help you save money on your taxes.

Visit us at FredrickJames.com. We serve clients throughout the world through our virtual office. Read more about our virtual office. If you have any questions or need assistance with your accounting, payroll or taxes please Contact us Today!

We all heard or heard about Bill Clinton’s speech at the 2012 Democratic National Convention and his powerful statement that ARITHMETIC is what we need to use to balance the budget and combat the national debt. Once again, being accountants, we were intrigued by this notion! We know how to do arithmetic, so let’s see what it’s REALLY going to take to bail us out of this mess.

How much more income do we need?

If you read our previous blog about the budget deficit, you’ll see where we made the broad assumption that most government programs are necessary, and that on average, we can’t reduce the expense side of the federal budget by more than 10%. This leaves us with a budget deficit of 38%, or about .95 Trillion dollars. Let’s simplify that and call it a trillion. Our government needs to generate $1 Trillion dollars MORE income per year just to make ends meet. That doesn’t even reduce the national debt, it just keeps it from growing.

How much income does “The 1%” earn?

We’ve heard all the talk about “The 1%” and how they need to step up, and there may be some truth to that. But, that’s not the complete solution. There are probably a lot of ways to calculate who the top 1% of US taxpayers are. Adjusted gross income is an easy method… of course, it includes all of the income adjustments and it’s not a real measure of income. Based on 2009 figures CNN estimates the actual income of taxpayers in the top 1% of adjusted gross income ($343,927 AGI) to be an average of $960,000.  With inflation from 2009 to 2012, let’s call that a nice round $1 Million. And there are about 1.4 million US households that fit that bill. So, their total income = $1,400,000,000,000 or $1.4 Trillion. That’s not adjusted gross income, though. Rest assured that no matter what, there will be deductions to reduce that income by at least 50% (about 64% was the average for 2009). So, let’s say best case (for the government), 50% of that is taxable. That gives AGI for “The 1%” at a total of $700 Billion.

How much additional income can we get from “The 1%”?

So, how much tax does “The 1%” pay? Well, the highest tax rate since 2003 has been 35%. So, let’s just say we double that. Sound like too much? From 1936 through 1980, our highest tax rate was between 70% and 94%! The good ol’ days of the 1950′s? 91-92%. (source) So, an additional 35% tax on the $700 Billion AGI of “The 1%” gives us at most an additional $245 Billion. A tidy sum, and a nice start, but only about 1/4 of what we need to clear the deficit.

Just to be clear, we’re not suggesting that a family with a $1M income has to live on a mere $300k… That family is currently paying somewhere around $126k of taxes on their $360k of adjusted gross income. Limiting some deductions and doubling the tax rate could have them paying $350k of a $500k adjusted gross income, an actual tax rate of 35%, leaving them with $650k of their income.

Where will we get the remaining $755 Billion in required income?

Well, if we’re willing to double the tax rate of The 1%, perhaps we could do the same with The 99%? A little reverse calculation from the budgeted $1.165 Trillion in personal income taxes and $237 Billion in corporate income taxes tells us that if we raised the tax rate for EVERYONE across the board (the 1%, the 99%, and every business out there), we would not need to raise taxes by 100%. We’d only have to raise them by about 72% to reach our goal of $1 Trillion to balance the budget.

But, we still need to pay off the National Debt!

Great, we’ve balanced the budget. Now what do we do about that debt? We don’t want to just continue paying interest on it forever, assuming that’s even an option. We have $11.5 Trillion in debt! Let’s pretend it’s a mortgage. It would be reasonable to repay a mortgage in 30 years. So, let’s pay it off over 30 years. Interest is already accounted for (and we’ll ignore the fact that the amount of interest will decrease as the balance goes down), so we just need to pay an equal portion of the balance each year. That’s $383 Billion per year that we need, on top of the $1 Trillion that we need to balance the budget for a total of… $1.38 Trillion dollars.

And, if we raised taxes across the board for all tax payers (1%, 99%, businesses and all), that would require an increase of about 98.5%. Might as well call it 100%.

In Summary

The above rambling arithmetic shows that

• Raising taxes on the 1% alone will NOT solve our deficit problem.
• Raising taxes on EVERYONE by an average of 72% would balance the budget.
• Raising taxes on EVERYONE by an average of 98.5% would balance the budget and pay off the National Debt in 30 years.

That’s what it’s going to take, folks! Talk of tax cuts at this point in time is just so much political smoke. It would be irresponsible to cut taxes for ANY group right now. And it’s pointless to point fingers and talk about who’s fault it is that we’re in this situation, the simple fact is, WE ARE! We have to fix it. It won’t be easy.

Realistically, if we are going to do the ARITHMETIC and get out of this financial mess, everybody is going to have to pay higher taxes and constantly hold the government accountable for its spending.  It is really sad that our younger working generations will eventually have to work harder than ever, live a minimal lifestyle and possibly have no retirement to pay for the mistakes that simple ARITHMETIC would have solved.

Contact Fredrick James Today to learn more about how you can reduce YOUR budget deficit in the face of federal taxes that are surely on the rise.

Visit us at FredrickJames.com. We serve clients throughout the world through our virtual office. Read more about our virtual office. If you have any questions or need assistance with your accounting, payroll or taxes please Contact us Today!