Wednesday, June 29, 2011

Tax Scams Making the Rounds Again

Apparently, scammers hope that taxpayers have a short memory.
The EFTPS scam that was making the rounds last fall is gaining steam again. This time, the email has been tweaked a little bit to make it look more authentic. The email looks something like this:

The plain text version reads like this:
Your Tax payment (ID: 30749894123088), recently from your checking account was canceled by the The Electronic Federal Tax Payment System.
Rejected Tax transferTax Transaction ID: 30749894123088
Reason for rejection See details in the report below
FederalTax Transaction Report tax_report_30749894123088.pdf.exe (self-extracting archive, Adobe PDF)
Internal Revenue Service, Metro Plex 1, 8401 Corporate Drive, Suite 300, Landover, MD  20785
The subject headings used in emails are  “Federal Tax transaction canceled”, “Federal Tax transfer rejected” and “Rejected Federal Tax payment.” The source of the email, however, varies from a Russian, Ukraine and Dutch email accounts, not the IRS, despite the address claiming to be from “”
The email contains a link which will, it claim, download as a pdf.
This is a scam. Do not click on the link. You can simply delete the email of you can send it to for investigation.
The link likely contains a virus that could infects your computer or direct you to a bogus form or site posing as a genuine IRS form or Web site in order to steal your identity or otherwise access your financial information. A nearly identical scam which was targeting small business accounts last year was linked to the Zeus family. The link actually did take you to the IRS web site but along the way, a version of Zeus (a trojan horse) was installed on your computer in order to intercept your online banking transaction data.
The most current scam appears to target personal tax accounts. The purpose is likely similar: to obtain personal and financial information used by the scammers to commit identity theft. That information can be used to empty bank accounts, run up charges on the credit cards, apply for loans and file fraudulent tax returns in the name of the taxpayer seeking a refund.
The IRS maintains a list of schemes, including phishing efforts tied to the Making Work Pay Credit, on its web site.
Remember that the IRS will never send an unsolicited e-mail about your tax account or tax matters. If you have questions about your tax account, do not reply to an unsolicited e-mail. Rather, contact your tax professional or call the IRS directly at 1.800.829.1040.

Tuesday, June 28, 2011

For Some Reason, the Amish Have a Problem With Filing Their Taxes Electronically

When the New York State Department of Taxation and Finance decided to require all sales-tax returns to be filed electronically, no one checked first with the Amish of the upstate counties of Jefferson, Lewis, and St. Lawrence.

"While those without access to Internet can request an exemption, something got lost in translation," writes Brian Amaral of the Watertown Daily Times. "According to interviews with members of the community and those who interact with them, a handful of Amish -- furniture builders and shopkeepers, mostly -- have received letters warning them that they face a $50 penalty for every return not electronically filed."
Department spokeswoman Susan Burns said in an email to Amaral that "the department is mandating the electronic filing to cut down on bank processing costs and to reduce errors in sales tax returns" and "the department would be 'judicious' in levying fines against the Amish."
"Our expectation was that businesses with concerns about complying would call the
Taxpayer Contact Center," she wrote. "According to the TCC, if someone called and indicated that they did not have a computer or broadband and they did not use a preparer, they were advised that they were not mandated to comply. This would most likely have covered the Amish."

Right, so, uh...what say you gals fire up the  modem
 and download the latest version of TurboTax?
But, Amaral notes, "most north country Amish will not use a telephone," much less a Mac or PC -- though they, like everyone else, cannot, will not, pass up a good bargain:
 So, how did this all happen?
Karen Johnson-Weiner, a SUNY Potsdam anthropology professor who has studied the Amish, says, "People drawing up the procedures just never thought about" the Amish living in the area.
The Amish community has dealt with similar issues before.
In 2008, a group of Amish farmers in
Michigan sued the USDA and the Michigan Department of Agriculture over the National Animal Identification System, an electronic RFID tracking initiative with the purpose of reducing disease in livestock.
Well, this didn't go over too smoothly with plaintiffs Joe Golimbieski, Robert Keyworth, Glen Mast, Andrew Schneider, and Roseanne Wyant.
Court papers attested that Golimbeski, Keyworth, et al maintained religious beliefs that forbade the "use of a numbering system for their premises and/or an electronic numbering system for their animals" because this constituted "some form of a 'mark of the beast' and/or represents an infringement of their 'dominion over cattle and all living things' in violation of their fundamental religious beliefs."
In July of 2009, a federal court ruled in favor of the State of Michigan and the USDA, deciding that, while the Amish's beasts must be numbered, branding, tattooing, or non-electric tagging were acceptable alternatives to RFID chips.

Monday, June 27, 2011

A 6-Step Guide to Figuring Out When You Can Afford to Retire

How do you know when you can afford to retire? That's the big question most people ask as they approach their retirement years. The best answer: when you've done the math and the numbers work out. The trouble is, most people just guess at how much money they need to retire -- and they usually guess way too low.
It's time to crunch the numbers to see if your retirement income will cover your living expenses for the rest of your life, no matter how long you live and no matter what happens in the economy. It's a tall order, but nevertheless, that's what you need to do.
Let's start by planning how you'll balance the magic formula for retirement security:
I > E
Income > Expenses
To get started, you'll need to choose the age at which you want to retire, taking into account your life expectancy and what you hope to do in retirement. You'll also need to consider your spouse's life expectancy, if you're married.
Now it's time to see how your projected income measures up to your projected expenses at your desired retirement age. After you do the math, if your retirement income falls below your expenses, you'll need to make some adjustments and keep crunching the numbers until you've determined when you can really afford to retire. You may need the assistance of a professional financial advisor to get it all figured out.
The first three steps in estimating your retirement income involve adding up three things -- your retirement income from Social Security; the income you generate from your IRAs, 401(k), and other retirement savings; and your pension income, if you've earned this type of benefit. Estimating your living expenses is the fourth step. Make sure you've provided for your spouse or partner after you're gone -- that's the fifth step. And the sixth and final step involves the inevitable bargaining and negotiating with yourself to make the numbers work. Most likely that will involve continuing to work and/or taking a close look at your living expenses to see how you can shave them in order to be able to afford to retire.
When estimating your retirement income and expenses, you might want to use an online retirement calculator. Alternatively, you may want to use your own spreadsheet or work with a professional retirement planner.
First, let's address each source of income, starting with Social Security:
Step 1: Estimate Social Security Income
You'll need to decide the age you want to start receiving Social Security benefits and then estimate the amount of your monthly income at that age. If you're married, you and your spouse will need to decide when to start your spouse's income and estimate how much it will be as well.
You might decide to start your Social Security income and/or your spouse's income at a date later than your desired retirement age. If you decide to do this, you'll need other sources of income to replace the Social Security benefits you're deferring. You might need to work part time to fill this gap or draw additional amounts from your retirement savings.
Now it's time to determine how much income you'll generate from your IRAs, 401(k), and other retirement savings.
Step 2: Determine Income from Your Retirement Savings
You'll need to estimate the amount of retirement income your IRAs, 401(k), and other retirement savings vehicles will generate for you. To do this, you'll first have to determine the total amount of your retirement savings from which you'll be generating retirement income.
Start with the inventory of your retirement savings from all sources. Then you'll need to make some adjustments:
• If you anticipate that you'll sell your house and realize a profit, and you want to use these gains to generate retirement income, add to your retirement savings the gain you expect to realize, after considering taxes and sales expenses.
• Subtract from your retirement savings any investment accounts you'll dedicate to paying for long-term care expenses.
• Subtract from your retirement savings the estimated total amounts you need to make up for any Social Security income that you defer, as described in the previous step.
• Subtract any amounts that you plan to set aside for unforeseen emergencies.
• If you expect a lump sum payment from a pension plan, add this amount to your retirement savings.
• Add any amounts that you expect to save between now and your desired retirement age.
• Add any expected growth in your investments that you expect between now and your desired retirement age. If your desired retirement age is less than five years from now, I prefer to assume you won't realize any future growth. This is just to be safe, given the current low interest rates and the volatility in stock investments. If you want to assume you'll have future investment earnings, however, make sure the growth rate you use is realistic given the types of investments you use. And use more than one assumed rate of return to see the range of possibilities -- a pessimistic rate, an expected rate, and an optimistic rate.
Now you've got the total amount of retirement savings that you'll use to generate the retirement income you'll need to cover your living expenses.
Next, you'll need to select one of three methods -- or a combination of the methods -- to generate lifetime income from retirement savings. Once you've done this, estimate how much income you'll receive under the method or methods that make sense for you. The amount of retirement income your savings can generate will vary widely, depending on the method you use.
This points to a common flaw with most online retirement planning calculators: They won't let you specify the method you want to use to generate retirement income from retirement savings. In fact, many calculators choose the method for you or assume you'll draw as much as needed to meet your living expenses.
Here's one way around this flaw: Many calculators let you input "other" sources of retirement income. In this case, you can estimate the amount of income you expect to receive from your retirement savings and then input this amount into the "other" category.
Once you've run the numbers, if you find you don't generate the amount of income you need, you might want to revisit your choice of method for generating retirement income, and then do the math again.
Next we'll determine how much you'll get from traditional pensions. You can skip this step if you know you haven't earned a pension benefit from your employer and move on to step four, estimating your retirement living expenses.
Step 3: Calculate Your Income From Traditional Pensions
If you've participated in a traditional pension plan, you'll want to get estimates of your monthly income at your desired retirement date. You can do this either through an online pension estimator provided by your plan's administrator, or by asking your HR department.
If you're married or have a life partner, make sure you get estimates for a joint and survivor annuity. I prefer 100 percent, 75 percent, or 66-2/3 percent survivor annuities, which continue these percentages of your initial retirement income to your spouse after your death. I would probably avoid 50 percent joint and survivor annuities, simply because the living expenses for one person are usually much more than 50 percent of the living expenses for two people.
You might be eligible for a lump sum payment instead of a lifetime monthly income. Normally I prefer drawing a monthly retirement income, since you don't know how long you'll live. If you take the lump sum, then you'll need to add the lump sum to your total retirement savings when determining how to generate retirement income, as discussed in the previous step.
Now that you've estimated your three sources of retirement income, you're ready to estimate your living expenses.
Step 4. Estimate Your Retirement Living Expenses
You'll want to add up all your retirement living expenses -- your regular monthly living expenses, plus any expenses you don't pay on a monthly basis, such as insurance premiums, taxes, and gifts. Include your housing expenses, your costs for medical insurance premiums and out-of-pocket expenses, and any premiums for long term care insurance.
It's inevitable that your living expenses will change throughout your retirement. For example, at some point you might pay off the mortgage on your house. And your medical expenses will be different before and after age 65, the eligibility age for Medicare.
Some people also think they'll spend more money in their early years of retirement, when they're active and more likely to travel. That could be, but your living expenses could also increase in your later years, as you incur more costs for medical and long term care.
If you feel that your living expenses might change significantly during your retirement, you might want to factor that into your retirement planning. Some retirement planning calculators let you estimate how your expenses will change in retirement, or they might allow you to separately identify required living expenses vs. discretionary expenses.
And of course, you can expect that many of your living costs will increase for inflation. The best way to address inflation is to make sure your sources of retirement income increase for inflation as well. Social Security is already indexed for inflation, which is one important reason you should maximize your Social Security income. In addition, I recommend that you set up the income you'll receive from your retirement savings so this income will increase for inflation as well.
Most traditional pensions aren't increased for inflation; if you'll have significant income from a fixed pension, one way to address inflation is to spend just 75 percent of your pension income during your first year of retirement. Then invest the remainder in a special inflation reserve account. In the second year, increase the amount you spend from your pension by two to three percent to account for inflation, and invest the remainder in your inflation account. Continue doing this until you're spending your entire pension; then each year thereafter, start drawing from your inflation reserve to make up for inflation.
Managing your living expenses is the most common technique people use to be able to retire. This is one way to make adjustments in your situation to make the numbers work. The bottom line: You should focus on buying only what you truly need and what truly makes you happy.
Now it's time to consider your spouse or partner in your planning. You can skip this step if this doesn't apply to you.
Step 5: Take Your Spouse or Partner Into Account
If you're married or in a serious commitment, you'll need to consider your spouse or partner in your retirement planning. Married women can expect to have a period of widowhood of 5-10 years at the end of their lives, since men tend to marry women who are a few years younger and women typically outlive men by a few years. It's critical that you consider this inevitable situation when planning for retirement.
All the decisions and calculations that you made in the previous steps will be impacted by the steps you take when considering your spouse or partner, such as:
• Where you'll live and what you hope to do when you're retired
• When to start Social Security
• How to use your retirement savings to generate retirement income
• The form of payment you elect for a traditional pension, if that applies to you
• Your strategy to address long term care expenses
• Your estimated living expenses, including housing and medical expenses
It's best to involve your spouse or partner in your planning, so that he or she can provide input and be familiar with the plans. And when it comes to planning, two heads are better than one!
Finally, you're ready for the inevitable: Bargaining with yourself to make the numbers work.
Step 6: How to Make the Numbers Work
It's often the case that the first time you go through these steps, your income won't quite cover your projected expenses, so you'll need to make some adjustments and do the math again. Here are some common strategies -- while easier said than done, these are nevertheless things you can control:
• Retire later
• Work part time
• Fine-tune your living expenses
• Share housing to dramatically reduce your living expenses
• Move to a cheaper part of the country
• Use a different method of generating retirement income from your retirement savings
All of the above is a lot of work, but it's well worth the effort. The people who do best in retirement are those who planned for it. Remember, you're planning for a period of your life that can last 20, 30, even 40 years. It's inevitable that it will take a lot of time to do your homework and do the math to come up with a plan that works for you.
Good luck!

Friday, June 24, 2011

How does the IRS determine a taxpayer's ability to pay on delinquent taxes?

For most people, it's a given that taxes need to be paid, and they need to be paid on a timely basis. However, knowing something unfortunately does not equate into consistently being able to do it.
This is certainly true when it comes to the arena of federal tax obligations. Taxpayers, despite their best intentions, find themselves in the toothless position of staring down the wrong end of April 15. For some, owing each year on their taxes, coupled with an inability to pay, puts them in a pyramiding and powerless position.
The IRS, not some third party tax resolution firm, can help you. The IRS has a separate division devoted to the collection of delinquent tax. Yes, their job is to pursue enforcement against willful non-payers, but they are tasked with the primary duty to help you understand why you owe, assist you with a payment agreement, and make certain you do not owe again in the future.
To that end, the IRS uses various expense standards to outline what a taxpayer's payment ability is. Once an individual owes a large sum of money, or if they make clear that they cannot pay anything at all toward even a smaller balance due, in most circumstances, the IRS will ask you a series of questions regarding your income and expenses. This is done to help determine the amount you can pay.
These standards are based on the Bureau of Labor Statistics, which are comprised of data gathered from, among other places, the national census and Consumer Expenditure Surveys. The IRS does not establish these standards.
The following information concerning IRS expense standards can be found at (Sorry to disappoint, but no secrets being given out here.)
The IRS breaks down expenses into those that are considered necessary, and those that are conditional, or unnecessary. Some expenses could be both, depending on the circumstances. Necessary expenses, by definition, are those that provide for a taxpayer's or their family's health and welfare, or are directly used for the production of income.
Necessary expenses are further categorized into National Standards and Local Standards. National Standards are those expenses that are established for all taxpayers, no matter what state they are in. Local Standards are adjusted, based on your locality.
National Standards
There are three main National Standards: Food, Clothing, Miscellaneous is one. Out-of Pocket Health Care is the other. Transportation Ownership costs is the third.
Food and Clothing
This category of expenses covers a taxpayer's food, both in-house and dining out, clothing, including dry-cleaning, housekeeping supplies such as cleaning, lawn and garden supplies, and all personal care products and services.
The IRS is not going to break down the minutiae of exactly how much a person spends on shampoo, bird seed, bologna, paper towels, etc. Taxpayers are allowed a monthly amount, based on their family size, without questioning the amounts they actually spend. If the amount claimed ismore than the total allowed by the National Standards, the taxpayer must provide documentation to substantiate that the extra expenses are necessary.
As an example, for a family of four, the IRS currently allows $1,377 for the above expenses, per month.
Out-of-Pocket Health Care
The IRS determines out-of-pocket health care expenses based on Medical Expenditure Panel Surveys. Health insurance is not covered under this, since the amount paid varies from family to family and is not governed by a traceable standard.
Out-of-pocket health care expenses include medical services, prescription drugs, and medical supplies such as eye glasses, contact lenses, asthma inhalers, etc. Doctor visits and co-pays are included, as are all current medical bills that you are actually paying on yourself. Elective procedures such as plastic surgery or elective dental work are generally not allowed.
Similar to the Food & Clothing category, taxpayers and their dependents are allowed the standard amount monthly on a per person basis, without questioning the amounts they actually spend. If the amount claimed is more than the total allowed by the health care standards, the taxpayer must provide documentation to substantiate the overage.
As a standard, the IRS allows $60 per person for out-of-pocket medical for each person under 65. For those 65 and older, the amount allocated is $144 per person, whether you spend that much or not.
Transportation Ownership
The IRS outlines amounts for two vehicles. If a taxpayer is married, both he and his spouse are allowed to take a vehicle ownership expense. The IRS currently allows up to $496 per month per vehicle, for a total of $992.
Luxury cars and those with monthly payments over the standards will not be allowed. You will be given the standard only.
Local Standards
Local Standards are broken down into two sub-categories as well: Housing and Utility Expenses, and Transportation Operation Expenses.
Housing and Utilities
The housing and utilities standards change based on your state. The standards vary per county and family size. Expenses are for housing and utilities on a taxpayer's primary place of residence only.
Housing and utility expenses include mortgage or rent, property taxes, homeowners or renters insurance, maintenance, repairs, gas, electric, water, heating oil, garbage collection, telephone and cell phone.
The IRS will allow you the actual amount you spend on these items, up to the maximum allowable local standard as determined by your state and county. Extravagant homes, hefty mortgages and expensive utilities, such as top-tier cable packages, will not be allowed. You will be given the maximum standard. Any excess expense over the Local Standard is not allowed in lieu of your federal tax debt obligation.
Transportation Operation
In addition to Ownership Costs, a taxpayer is allowed Operating Costs, for up to two vehicles, based on regional and metropolitan areas. Operation costs include gas, insurance, parking, tolls, license and registration fees, and general maintenance.
You will be allowed the actual amounts spent, up to the Local Standard amount. If you prove that you must spend more because the expense factors into you or your family's health and welfare or production of income, the excess can generally be allowed.
If you have no lease or car loan payment, the amount allowed for Ownership Costs will be $0. In place of that, you will be allowed an amount of $182 per month for public transportation cost, whether you actually expend that much or not.
As with all the other expenses, if you pay more each month for public transportation, you first must prove it's necessary, and then you must establish you are actually paying it.
Bottom line? The IRS will take a look at your net monthly income, subtract out the above expenses, and then the remainder is the expectation as to what your monthly payment ability is.

Geithner: Taxes on ‘Small Business’ Must Rise So Government Doesn’t ‘Shrink’

Treasury Secretary Tim Geithner
Treasury Secretary Timothy Geithner told the House Small Business Committee on Wednesday that the Obama administration believes taxes on small business must increase so the administration does not have to “shrink the overall size of government programs.”  “Overwhelmingly, the businesses back home and across the country continue to tell us that regulation, lack of access to capital, taxation, fear of taxation, and just the overwhelming uncertainties that our businesses face is keeping them from hiring,” Ellmers told Geithner. “They just simply cannot.” She then challenged Geithner on the administration’s tax plan.
“Looking into the future, you are supporting the idea of taxation, increasing taxes on those who make $250,000 or more. Those are our business owners,” said Ellmers.
Geithner initially responded by saying that the administration’s planned tax increase would hit “three percent of your small businesses.”
Ellmers then said: “Sixty-four percent of jobs that are created in this country are for small business.”
Geithner conceded the point, but then suggested the administration’s planned tax increase on small businesses would be “good for growth.”
“No, that's right. I agree with that,” said Geithner. “But just to put it in perspective, it's important to recognize why are we doing this. You know, our deficits are 10 percent of GDP, higher than they've been since any time in the postwar period really. We have a big hole to dig out of, and we have to figure out how to do that in a way that's balanced, good for growth, fair to people as a whole.”
Geithner, continuing, argued that if the administration did not extract a trillion dollars in new revenue from its plan to increase taxes on people earning more than $250,000, including small businesses, the government would in effect “finance” what he called a “tax benefit” for those people.
“We're not doing it because we want to do it, we're doing it because if we don't do it, then, again, I have to go out and borrow a trillion dollars over the next 10 years to finance those tax benefits for the top 2 percent, and I don't think I can justify doing that,” said Geithner.
Not only that, he argued, but cutting spending by as much as the “modest change in revenue” (i.e. $1 trillion) the administration expects from raising taxes on small business would likely have more of a “negative economic impact” than the tax increases themselves would.
“And if we were to cut spending by that magnitude to do it, you'd be putting a huge additional burden on the economy, probably greater negative economic impact than that modest change in revenue,” said Geithner.
When Ellmers finally told Geithner that “the point is we need jobs,” he responded that the administration felt it had “no alternative” but to raise taxes on small businesses because otherwise “you have to shrink the overall size of government programs”—including federal education spending.
“We're not doing it because we want to do it, we're doing it because we see no alternative to a balanced approach to reduce our fiscal deficits,” said Geithner.
“If you don't touch revenues and you leave in place the tax cuts for the top 2 percent that were put in place by President Bush, if you leave those in place and you're trying to bring our deficits down over time, then you have to do exceptionally deep cuts in benefits for middle-class Americans and you have to shrink the overall size of government programs, things like education, to levels that we could not accept as a country,” said Geithner.
“So to do a balanced approach to reduce our deficits you have to make modest changes in revenues,” he said. “There's no realistic opportunity to do alternatives to doing that.”
According to historical budget tables published by the White House Office of Management and Budget, federal spending has climbed from $2.89 trillion in 2008—the year President Obama took office—to $3.82 trillion this year, an increase of approximately $930 billion.
Meanwhile, according to the National Center for Educational Statistics, although federal education spending in inflation-adjusted dollars has jumped from $71.64  billion in 1995—when Bill Clinton was president--to $163.07 billion in 2009—when Barack Obama was president—federal spending still accounted for only 8.2 percent of spending for public primary and secondary education in America in the 2007-2008 school year. Historically and presently in the United States, local and state governments have  funded the cost of public education.

Thursday, June 23, 2011

IRS Increases Mileage Rate to 55.5 Cents per Mile

WASHINGTON — The Internal Revenue Service today announced an increase in the optional standard mileage rates for the final six months of 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.
The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011, as set forth in Revenue Procedure 2010-51.
In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2011. The IRS normally updates the mileage rates once a year in the fall for the next calendar year.
"This year's increased gas prices are having a major impact on individual Americans. The IRS is adjusting the standard mileage rates to better reflect the recent increase in gas prices," said IRS Commissioner Doug Shulman. "We are taking this step so the reimbursement rate will be fair to taxpayers."
While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.
The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.
The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.
The new rates are contained in Announcement 2011-40 on the optional standard mileage rates.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
Mileage Rate Changes
Rates 1/1 through 6/30/11 
  Rates 7/1 through 12/31/11 

Wednesday, June 22, 2011

After Death, You May Leave Money to Your Pets

I’m sure to the shock of some of our readers, individuals are allowed to leave money, property, and other belongs to their pets after they pass away.  Just this month, West Virginia passed a law allowing individuals to leave money to their pets in trusts which are created to “provide for the care of an animal alive during the grantor’s lifetime. The trust terminates upon the death of the animal or, if the trust was created to provide for the care of more than one animal alive during the grantor’s lifetime, upon the death of the last surviving animal.”  West Virginia is not alone in creating trusts like this one; it is the 45th state to pass such a law, along with Washington D.C.
One of the most famous cases involving an inheritance being left to an animal was Leona Helmsley’s trust for her dog, Trouble.  When Helmsley passed away in 2007, she left $12 million of her estate to Trouble. A judge later reduced the amount to $2 million.
Though Trouble’s $12 million fortune may seem excessive to some, two other dogs have fortunes that far outshine Trouble’s. A German dog named Gunther IV received $130 million after his owner’s death. Miss Charlie Brown, a cocker spaniel from South Dakota will receive $130 million when her mining magnate owner passes away.
Unfortunately, Trouble passed away recently.  Trouble’s life of luxury is over.  The remainder of Trouble’s inheritance will now go to the Leona M. and Harry B. Helmsley Charitable Trust.

Man Received Wrong Tax Refund from IRS, Faces Jail

Man Received Wrong Tax Refund from IRS, Faces Jail
Los Angeles (June 20, 2011)
By Accounting Today Staff
A man who mistakenly had another taxpayer's refund of $110,000 deposited in his bank account by the Internal Revenue Service could be facing jail time for not reporting the error.
Stephen Reginald McDow, 34, of Laguna Beach, Calif., was charged last week with one felony count of theft of lost property, with a sentencing enhancement for taking property over $65,000. If convicted, he faces up to four years in state prison, according to the Orange County District Attorney’s Office. McDow was arrested June 14 by the Santa Ana Police Department.
In August 2010, a taxpayer referred to by prosecutors as Michelle D. electronically filed her 2009 federal income tax returns with the expectation of a $110,000 tax refund from the federal government. She filed her taxes with the request that her refund be directly deposited into a numbered bank account.

In December 2010, after months of waiting for her tax refund, she asked her accountant to check on the status of the return. They learned that $110,000 had been deposited in September into the bank account requested on her tax return, but she then discovered that she had inadvertently provided a Citibank bank account number that had been closed in 2004. That account number was later re-assigned to another bank customer, McDow.
At the request of Michelle D. and Citibank, McDow called her attorney on Feb. 28, 2011, and provided an email address. He subsequently received a letter from her attorney indicating that the $110,000 erroneously deposited into his account was a tax refund belonging to Michelle D. He also received instructions on how to transfer the money to the rightful owner.
However, on March 6, McDow allegedly emailed the attorney to say that he had already spent most of the $110,000 to pay for a car loan, student loan and foreclosure debt. He has been accused of immediately spending the money, knowing it did not belong to him.
Michelle D. mailed a certified letter on March 16 to McDow with instructions for returning her money. He allegedly failed to respond to her and ignored several further attempts to get her money back. After unsuccessfully attempting to contact McDow, Michelle D. reported the theft to the police, who investigated the case and arrested him. Deputy District Attorney Matt Lockhart of the Major Fraud Unit is prosecuting the case.

Monday, June 20, 2011

If the IRS sends you a notice via e-mail, the IRS didn't send it.

If the IRS sends you a notice via e-mail, the IRS didn't send it.

June 17, 2011

A client forwards this e-mail:

It's a scam, of course. The IRS does not send notices via e-mail. If you have a refund coming, they'll just send you a check. If you get anything like this, delete it, and don't click any of the links; the link will either try to collect your bank information to loot your account, or it will dump a bunch of malware on your computer

Saturday, June 18, 2011

The Foggy Road to a Better 401(k) Plan

The Foggy Road to a Better 401(k) Plan

It generally isn’t easy to make improvements to your 401(k) plan. If you work for a large employer, there are often people in human resources with their own ideas about what the investment choices should be and how everyone should share in the costs. And there may be a committee, too, that helps govern things.
Then again, the stakes are often a little lower. Larger employers, thanks to plans that are stuffed with thousands of workers’ life savings, tend to have better investment choices and lower costs. Smaller employers, with little leverage and few or no assets, routinely end up with expensive plans and lousy investment choices.
And then there’s Alan Wenker, the controller for Feed Products North, a small company in Maplewood, Minn., that sells minerals to animal feed mills. Armed with a pretty good understanding of the markets, he still spent an entire decade engaged in stop-and-start efforts to find a better plan for himself and the 25 or so colleagues he has today.
Yes, you read that right. Ten years. It should not take that long, and the marketplace for retirement plans for smaller employers has improved a bit since Mr. Wenker set out on his quest.
Still, anyone at a smaller employer who would like to cut costs in half while also improving the investment choices, as he did, would be wise to consider the hurdles he had to clear and the obstacles in his way.
So why are all the details so important ? Most people starting their careers now will spend 45 years trying to save enough so they can stop working someday. But if the investments and fees inside of your 401(k) or similar fund average, say, 1 percent of your assets each year instead of 0.25 percent, the difference can cost over $100,000 by the time those 45 years are up.
And that’s just the fees side. Most actively managed mutual funds, which try to pick investments that will do better than an index of similar securities, often don’t actually outperform that index over long periods of time. Even so, many employers, either out of ignorance or blind faith, don’t provide a full menu of index funds inside their retirement plans.
Alan Wenker was only beginning to understand all this in 2000, when he went to work for Feed Products North. He’s 47 years old now, but he’d spent the bulk of his adulthood paying off his student loans and hadn’t paid much attention to the details of the 401(k) plan he had access to at a previous job.
His new company had no plan at all in 2000, so he decided to start one. And he took the path of least resistance, signing up for the 401(k) plan that his company’s payroll processor, ADP, offered. When Feed Products North switched to Paychex a couple of years later, Mr. Wenker moved the plan as well.
All along, however, his opinions about investing were evolving. He’d read Andrew Tobias’s book “The Only Investment Guide You’ll Ever Need” and became a fan of the public radio show now called “Marketplace Money.”
As Mr. Wenker became more aware of the importance of diversification and low costs, he said he realized that his Paychex plan had no index funds and was costing him and his colleagues about 2 percent of their balances each year. (Paul Davidson, director of product management at Paychex, said the company had done some research and discovered that the high costs resulted from Mr. Wenker getting assistance from an outside broker. Mr. Wenker countered that his Paychex representative had urged him to use a broker but that no broker even called him for two years to help with the plan until he urged Paychex to intervene.)
After his realization, Mr. Wenker started shopping around, even picking up the phone when the cold callers rang. “But you always end up at the same place that you already are,” he said. “which is a set of mutual funds and a nice guy with a glossy brochure. But the funds are essentially all the same. They tend to have higher expenses, because they have to pay for the guy in the suit with the glossy brochures.”
As Mr. Wenker got wise to the sales pitches, he often found himself dumbfounded. “I once had a stockbroker nearly yell at me that there was no such thing as a no-load mutual fund,” he said, referring to the front-end and other fees that mutual fund companies sometimes charge and that the broker was insisting were mandatory. “I stared at him in utter disbelief. There are people that believe that humans and dinosaurs walked the earth at the same time. So I can’t convince you to believe something you don’t want to.”
Why such ignorance? Jessica Weiner, who spent years working at insurance companies that pitched plans to small businesses before starting a consulting group called the Value Quotient, has an explanation. “One of the realities you have in the smaller market is that the brokers who get involved with a plan are typically benefits experts,” she said. “I call them incidental brokers.”
As in, 401(k)s are incidental to them. An afterthought. Where they really make their money is pushing health, life and other insurance, especially policies aimed at senior executives and company owners.
At one point in his search, Mr. Wenker thought to call Vanguard, since it had the broadest selection of index funds and the lowest costs at the time. But Vanguard does not administer 401(k) plans for small companies.
Here is what is supposed to happen today if someone like Mr. Wenker calls Vanguard, according to Gerry Mullane, a principal in the company’s institutional investor group: The representative should refer the caller to a local financial planner or smaller administrator who can help set up a retirement plan that includes Vanguard funds.
Mr. Wenker did not receive a referral when he called several years ago, so he continued his hunt. “Maybe I should have called Vanguard back 25 times until I understood it completely,” he said. “But that’s not all I have to do. A sense of practicality jumps in there as well.”
And therein lies one of the biggest challenges for anyone like him. If you run the finance operation of a small company, you have hundreds of tasks to take care of. Fixing a middling 401(k) plan is something you end up doing on your own time, if you can even make the time when you’re also a father, as Mr. Wenker is.
His breakthrough came in 2008, when he stumbled upon an article about Dimensional Fund Advisors, a mutual fund company that does not attempt to pick stocks but constructs its low-cost portfolios in a way that often ends up outperforming index funds by a bit.
Mr. Wenker called the company for help. Generally, it only lets people invest in its funds only through financial advisers. So it put him in touch with Stephen Varley in Minneapolis, and within a year, Mr. Wenker and his colleagues had a new plan with better funds, personalized advice and an overall cost that was more than 50 percent less than what they had been paying before.
Tales like these don’t always have happy endings. The company owner may be a friend or a relative of the person making money by servicing your retirement plan. Or you may have delusional colleagues in charge of the retirement plan who think they can pick market-beating investments with their third arms when they’re not doing their day jobs.
But if you’re like Mr. Wenker, whose boss let him make the call, there are some options available now that can help. Many, in fact, are cheaper than using funds from Dimensional Fund Advisors while also paying for a financial adviser’s time.
I’d start with administrators like Employee Fiduciary, the Online 401(k) and Invest n Retire. They should all be able to provide a plan with low-cost mutual funds or other investments. The ShareBuilder 401(k) plans are also worth a look, as is Charles Schwab’s new initiative to set up plans that include only exchange-traded funds.
If those five don’t work for you, or if you ultimately decide, as Mr. Wenker did, that you want a professional adviser on call, you can phone Vanguard at 1-800-841-7999 and ask for the referral that Mr. Wenker didn’t get several years ago. Dimensional offers referrals, too.
This sort of pursuit will require a bit of baseline knowledge on your part. If you don’t have a head for numbers or lack confidence in your analytical skills, draft someone who does and reel in other allies if you can.
“You have to be a nerd like me to even care about this,” Mr. Wenker said. “For me, it was a labor of love.”
And if it isn’t love for you? Just think about the $100,000 you stand to lose and see if that inspires your inner nerd.

Friday, June 17, 2011

How to Turn Your Vacation Into a Tax Deduction

Vacation budgets are down, and IRS audits are up. But that doesn't mean combining a family vacation with business travel is a bad idea -- just that you have to be careful and do it right.
One option for reducing your travel budget, especially if you travel for work, is to let Uncle Sam pick up part of the tab by deducting part or all of your trip. Since some travel costs can be deducted as business expenses, there's nothing wrong with writing them off: It's why many professional organizations host their annual conferences at tourist hotspots.
You may be able to write off the cost of a trip to look for work, too.
Here are the rules you need to know:
Deductible travel while looking for work
For those who don't travel for work, you might be able to deduct the cost of travel if you're looking for work, even if you don't land the job. But the primary purpose of the trip must be to look for work, and it has to be the same line of work you're currently doing. Here's how the IRS puts it:
"You may deduct travel expenses, including meals and lodging, you had in looking for a new job in your present trade or business. You may not deduct these expenses if you had them while looking for work in a new trade or business or while looking for work for the first time. If you are unemployed and there is a substantial break between the time of your past work and looking for new work, you may not deduct these expenses, even if the new work is in the same trade or business as your previous work."
Deductible business expenses when combining personal and business travel
The rules for travel-related tax deductions are complicated. If you want to avoid a trip to Audit City, check these tips along with your baggage:
1. Getting there. If the trip is primarily for business and within the U.S., the cost of your transportation is fully deductible both ways. If it's international, the trip has to be at least 75 percent business in order to write off your plane ticket. (Less than that and you can only deduct the percentage related to business.)
2. Cruises have special rules. To be deductible, a business-related cruise has to be aboard a ship registered in the U.S. and avoiding foreign ports. You can only deduct up to $2,000 a year regardless of the length or frequency of travel, and you have to file a detailed written statement with the tax return.
3. Overstay is OK but not covered. You don't have to work all day, party all night, and leave when your business is done. A few extra days on either end of the business purpose won't disqualify you for deductions. Just make sure the primary purpose of the trip is business, you have documentation, and you don't deduct any expenses related to the recreational part.
4. Fitting in the family. You can't deduct expenses for anyone who isn't involved in the business of the trip -- so unless they're employees, the trick is to find overlap with what you would have to pay for yourself anyway. For instance, if you drive everyone in one car (yours or a rental), your deductible transportation got the entire family to the destination. And if everyone shares a single hotel room, it's deductible too. Any fees for added occupants or an upgrade to a larger room to accommodate the family, however, aren't covered.
5. Eat out at half price. While on deductible business trips, your meals and those of your business associates are deductible at 50 cents on the dollar.
6. Fixing other fees. Any kind of travel tends to rack up several incidental costs -- taxi fares, Internet access fees, phone calls, tips, laundry charges. If these are in any way business-related, you can write them off -- including seminar and conference fees.
7. Track everything. This is an area of the law rife with abuse. Which means increased odds of the IRS asking you to justify your deductions. So if you travel for business, keep meticulous records: not just receipts, but anything that helps prove your business purpose -- itineraries, agendas, programs, and the like.
8. Be reasonable. The IRS can call foul on extravagant expenses. So, unless it's typical in your business, don't rent a Rolls or take a penthouse at the Ritz. Expenses should be "reasonable based on the facts and circumstances."
Bottom line? If you like the idea of budget travel, learn what's tax deductible and let tax savings pay for part of the trip. While this is an area that can invite scrutiny, don't ever shy away from taking deductions you're entitled to. But don't be careless: Don't claim a vacation was a "business trip" just because you kept up with work emails or popped into a branch office in Orlando on the way to Disney.
The IRS is clear: "The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip." If you want to dig through the details, here's some reading for the plane: IRS Publication 463: Travel, Entertainment, Gift and Car Expenses.

10 Things You Should Know About Your IRA

10 Things You Should Know About Your IRA

Individual retirement accounts held an estimated $4.7 trillion in 2010, which is just over a quarter of all retirement assets in the United States. Some 49 million Americans had at least part of their nest egg stashed in an IRA last year. How well you choose IRA investments and minimize taxes using these accounts will play a big role in how prepared you are for retirement. Here are 10 things you should know about your IRA.
1. Delay or pre-pay your taxes
Traditional IRAs allow you to defer paying taxes on up to $5,000 of retirement savings, or $6,000 if you are age 50 or older. Upon withdrawal, regular income tax is due on your savings and the interest. Roth IRA contributions are made with after-tax dollars and withdrawals in retirement from accounts that are at least five years old, including the earnings, are tax-free. Investing in both types of retirement accounts can add tax diversification and flexibility to your portfolio.
2. Later contribution deadline than 401(k)s
While you generally must make contributions to employer-based retirement accounts by December 31, you have until the date you file your taxes to make IRA deposits. If you make a contribution to an IRA between January 1 and your tax deadline, you should tell the financial institution which year the contribution is for. You can file a tax return claiming a traditional IRA deduction before the deposit is actually made, but the contribution should be in the account by the due date of your return.
3. Most IRA money is rolled over from 401(k)s
More than 10 times as many dollars are added to IRAs through rollovers than through direct contributions, according to an Employee Benefit Research Institute analysis of 14.1 million accounts containing $732.9 billion in 2008. Depending on their age, retirement savers can contribute up to $5,000 or $6,000 annually to an IRA, but there is no limit on the amount that can be rolled over to an IRA from a 401(k) or other retirement account after a job change or upon retirement. The average rollover amount was $74,785 in 2008, compared with an average individual contribution of $3,666.
4. Older age for retirement withdrawals
Workers who leave their jobs at age 55 or later (or age 50 for public safety employees) can take penalty-free 401(k) withdrawals at age 55. If retirees roll that money into an IRA, they will have to wait until age 59 1/2 to avoid the penalty. "If someone is 56 and they are retiring, they should roll over the part of the 401(k) they are not going to foreseeably need in the next few years and leave in the 401(k) what you need in the next few years," says David Hultstrom, a certified financial planner and president of Financial Architects in Woodstock, Ga.
5. Penalty-free early withdrawals allowed
There are several ways to avoid paying the 10-percent tax for taking withdrawals before age 59 1/2. You can take penalty-free early withdrawals if you have unreimbursed medical expenses that are more than 7.5 percent of your adjusted gross income, use the withdrawal to pay for health insurance after losing your job, become disabled, or are a military reservist ordered to active duty. You can also use the money to pay for higher education expenses or a first home purchase up to $10,000 ($20,000 for couples) without incurring extra charges. Setting up equal annuity payments from the IRA over your life expectancy or over the joint life expectancies of you and your spouse can also allow you to avoid the 10 percent tax.
6. You are responsible for shifting your investments
Almost half (46 percent) of IRA assets are invested in the stock market. The most popular IRA investments are equity mutual funds and individual stocks (39 percent), cash (22 percent), bonds (14 percent), and balanced funds (12 percent), according to EBRI research. Individuals must choose their own investments and are responsible for shifting those assets appropriately as they approach retirement. "Those who are younger and in the accumulation stage are more likely to be invested in equities," says Craig Copeland, a senior research associate at the Employee Benefit Research Institute and author of the report. "Older investors and those with bigger account balances are diversifying across many assets and focused on the preservation of income."
7. Roth option increasing in popularity
The $100,000 income limit for converting a traditional IRA to a Roth IRA was eliminated in 2010. Since then, there has been a surge in Roth IRA conversions. Many financial institutions, including Fidelity Investments, Vanguard, and Bank of America, reported four- and five-fold increases in the number of Roth IRA conversions executed in 2010. Vanguard, for example, completed more than 170,000 Roth conversions from the beginning of 2010 through December 16, up 550 percent from 2009. Retirement savers must pay income tax on the amount converted from a traditional IRA to a Roth IRA, but withdrawals will be tax-free in retirement. "You are paying upfront to remove the uncertainty of what future tax rates will do to your savings," says IRA expert Ed Slott, founder of and author of "Stay Rich for Life!: Growing & Protecting Your Money in Turbulent Times."
8. Withdrawals are required
You cannot shield money from taxes in a traditional IRA indefinitely. Distributions become required after age 70 1/2. Those who fail to withdraw the correct amount must pay a 50-percent excise tax on the amount not distributed as required. You must take your first required distribution from your IRA by April 1 of the year after you reach age 70 1/2. But in subsequent years, annual distributions are required by December 31. If you delay your first distribution until April, you will need to take two withdrawals in the same year, which could impact your income-tax rate. "For some people, two in the same year might be enough to throw them into a higher tax bracket," says Hultstrom. Withdrawals from Roth IRAs are not required in retirement.
9. Costs matter
Retirement savers using IRAs sometimes pay higher fees than those with a 401(k) because individuals no longer have the group's bargaining power to obtain lower-cost investment products and tend to make high-cost investment choices, according to a 2009 Government Accountability Office report. Pay attention to the fees and costs of each investment option and switch into similar low-cost investments when possible. "A 1 percent difference in fees over a lifetime makes a really big difference," says Slott.
10. Special perks for high and low income savers
Retirement savers age 70 1/2 or older who are in the fortunate position of not needing the money in their IRA can avoid paying income tax on their required minimum distribution of up to $100,000 by donating it to a charity by Dec. 31, 2011. To qualify for the tax exemption, the IRA trustee must make the distribution directly to a qualified charity. Low-income workers who save for retirement may be able to claim a tax credit. If your modified adjusted gross income is less than $28,250 ($56,500 for couples) in 2011 and you contribute to an IRA or 401(k), you may be able to claim the saver's credit. This nonrefundable credit is worth up to $1,000 for individuals and $2,000 for couples.