Are you Being Scammed by the IRS?

Is the IRS trying to scam you? No.  But there are many people pretending to be the IRS, and yes, they are trying to scam you.  We have written about this topic before, but over the past few weeks, there have been several fraudulent emails circulating that claim to be from the IRS.  These are called phishing scams, and in this case it is when you get an email that looks like it is from the IRS but is actually a scam intended to get your personal information.  We are particularly concerned because some of our clients and even some people in our office have recently received false emails. So we thought we would cover this again to make sure our readers do not fall victim to any of these scams.

Photo provided by o5com via flickr.com

Generally, what happens with one of these email scams is you receive an email that looks like it is from the IRS.  It has the IRS logo and claims that you have or might have a refund due to you.  It will ask you to click on a link to claim this refund.  If you click on the link, it will take you to a page that asks you to put in your personal information such as your Social Security number for verification purposes or your bank information so your refund can be direct deposited.  This is a very serious scam and there are thousands of them out there.  Also, these emails might also have dangerous viruses that can ruin your computer.

Here is what you need to know–The IRS NEVER sends emails.  Nope, not ever.  On the IRS website it states: “The IRS does not initiate taxpayer communications through email.”  So the IRS NEVER contacts anyone by email.  ( I hope you are noticing all these bolded “NEVERs”) If you get an email the IRS asks you to do the following:

  1. Do not reply
  2. Do not open any attachments
  3. Do not click on any links
  4. Forward the email as is to phishing@irs.gov
  5. After you forward the email delete it

These are instruction directly from the IRS.  Also if you receive an unsolicited fax from the IRS, it should also be reported.  For more information about IRS phishing scams go to www.irs.gov and click on “report phishing.”

When it comes to the IRS you have to be in the know.  Check out our website www.avoidbeingaudited.com.  We have tons of free–easy to understand–information to help you understand how the IRS works and how to save money on your taxes.

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Deducting Intangible Assets with Amortization

What is amortization?  Many people have heard the word, but most don’t know what it is.  Basically, amortization is depreciation of intangible assets.  But let’s break this down a little bit more by using an example.

Photo provided by twicepix via flickr.com

Let’s say you buy an established restaurant for $200,000.  For that amount you get the equipment, the furnishings, the decor, the dishes, the name, the clientele, the recipes, and the reputation.  The equipment, furniture, décor, and dishes are called tangible.  They are things you can physically touch and have specific value.  These things are depreciated on your tax return, which means you deduct the cost of these items a little bit each year, usually for 3 to 7 years.

But what about the rest of the stuff you paid for – the name, the clients, the recipes, and the reputation?  These items are intangible, so they are amortized.  But how do you know the value of these items? The amortization value on these items is the difference between the value of depreciable items and what you purchased the business for.  This amount will be deducted a little each year usually for 15 to 20 years.  Why so long?

Well, things like equipment and furniture need to be replaced usually every 3 to 7 years, so most businesses have continuing deductions over the years as they upgrade and replace them.  The things that qualify for amortization are onetime purchases, so the IRS feels that it should be stretched out over more years.

Amortization can be complicated and confusing and usually your tax preparer can help you.  But it is important to have enough of an understanding to be able to give your tax preparer the right information.

For more information about amortization and depreciation and how the two work and to learn more about other tax deductions you may qualify for, visit avoidbeingaudited.com.  We have some great audio resources to help you with amortization and many other tax saving strategies.

How to Set up Limited Liability Companies (LLCs)

What is an LLC and how do you know it is right for you?  An LLC is a limited liability company and it can be used to structure a business.  It is a newer entity.  The first LLCs were started in Wyoming in 1969.  You might not think that is new, but considering corporations have been around in the USA since before our country began, an LLC is new.

LLCs by themselves have no value.  There are no IRS rules about the taxation of an LLC, so if you set one up for a business, it will be taxed as a sole proprietor.  Also, if you don’t have a good operating agreement, the LLC offers no liability protection.

Photo provided by fsse8info via flickr.com

Let me give you an example of what happens when an LLC is not set up properly.  Our firm has a client that put their welding business into an LLC before coming to us.  We asked them, “Why did you choose a LLC for your business?”

They replied, “Our neighbor said I should.”

We then asked, “Is your neighbor an attorney or CPA?”

They said, “No, he is a plumber.”

We decided to investigate further, and asked them how they set their LLC up.  We queried, “Did you have an attorney or someone like that set it up for you?”

They replied, “No, I just went online and filed it.”

“Oh, do you have an operating agreement?” We asked

And they replied, “No, what is that?”

Then we asked, “Did you get a Federal ID Number?”

“No, do I need one?”

We won’t bore you with the rest of the conversation, but we will tell you that this is a common conversation we have with people.  This client took the advice of their neighbor and tried to save money by doing it themselves.  The result was that they had no liability protection or tax benefits.  They might as well have done nothing.

There is good news though.  After we helped this client set up their LLC properly, it became a great entity for them, and it can be for you too.  When an LLC is set up correctly, it can offer great liability protection. This requires that there be two or more members and that you have a good operating agreement.  There are also ways of creating money saving tax benefits.

For more information about LLCs and how to set them up properly and to learn more about other tax deductions you may qualify for, visit our website and learn more about our audio CD set that can teach you all about choosing the right business entity as well as other essential financial advice for your business.

The Importance of Licensing Your Business

If you are considering starting your own business, there is a lot to think about especially when it comes to making sure you are following all the government’s rules for licensing.  A long time ago all you had to do was put up sign and open the door.  Whether you did photography or repair work, you could start a business, and it was simple.  However, with all the government regulations existing today, it is vital to make sure you know what licensing is necessary for your business before you hang up that sign or start advertizing.

Photo provided by Wonderlane via flickr.com

The purpose of licensing is to make sure businesses are conducting themselves in a way that will not be harmful to people, animals, or the environment.  So as you start your business, if you think about the things that would make your business safe, it will help give you an idea of what kinds of agencies will be looking at you.

There are some big consequences if you do not license your business correctly.  One is that you can receive some hefty penalties from different government agencies.  A second has to do with reserving your company’s name.  If you don’t reserve/register it and someone else does, they can sue you for using their name.  There can also be tax consequences to not being licensed. If you don’t have a license, the IRS can consider what you are doing a hobby and disallow your expenses while requiring you to claim the income. The most important thing is to do your homework and make sure you are licensed correctly.

So how do you know where to start? Each business is different. Some businesses may just need a city license, while others may require passing a test or inspection.  Between the city, county, state, federal government, and Department of Professional Licensing, it can get very complicated. To help you get started, we would recommend:

  1. Going to the Secretary of State for your particular state.  The best way to find this is to do an Internet search for your particular state’s Secretary of State office.  For example, you could Google “Ohio Secretary of State” if you happen to live in Ohio.
  2. Find out what your particular city requires for licensing.  You can usually do this on your city’s website or by going into your city’s building.
  3. Some trades/businesses require special licensing.  For example, truck drivers and building framers are required to have a special license because of the services they perform.  To find out if your trade requires a special license, visit your state’s Department of Commerce.

If all this seems like too much of a bother, you can hire someone to help you.  Our Soulence office offers assistance in this area.  If you are looking for more business help, you can check out our CD set.  In this set we tell you all about how to maximize your business and personal tax savings.  Check it out here.