Kulzick Associates, PA
Client Update - July 5, 2000
This newsletter contains:
Financial Strategies
Beware of online stock scams
Death and taxes: A legislative update
Social Security benefit deadline is July 31st
What's New In Taxes
When can you use your IRA funds penalty free?
Business: Benefit plan returns revised; deadline extended
Major tax deadlines for July
Smart Business
How to deal with overdue accounts receivable
News From Us
Check out our web site
Note for AOL users
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Stock scam artists are slithering out of boiler rooms and onto the Internet in increasing numbers. Once in cyberspace, they can reach huge pools of potential victims at a relatively low cost.
One of the most common Internet stocks frauds is a tactic called "pump and dump." In the scheme's simplest form, con artists buy a block of cheap or worthless stock and hype it on the Internet with lies and misrepresentations. The hype starts a buying frenzy, which inflates the stock's price far beyond its value. The promoters sell their shares at the peak of the frenzy, making a handsome profit. As the price recedes to normal, the investors are left holding stock worth next to nothing.
Bad investments can be hyped on the Internet in any of the following ways:
* Promoters buy e-mail address lists (often for less than one-tenth of a cent per name) and send fraudulent sale pitches to everyone on the lists.
* Using various aliases, promoters tell grandiose lies about their stocks in chat rooms and post phony tips on message boards.
* Some schemers create promotional web pages, complete with fake press releases. The pages may include links to legitimate web sites to provide an aura of credibility.
* Con artists may even create their own online newsletters, or pay other online newsletters to publish glowing reports about the stock.
Although the Securities and Exchange Commission (SEC) and other regulators are policing the Net more closely, most of their efforts are concentrated during the day. Many online hustlers simply work later to avoid unwanted attention. With the extension of electronic trading hours, a stock can be pumped and dumped in the course of an evening.
Although pump and dump is the most popular Internet stock fraud, it's not the only one. Sometimes a stock being hyped may not exist at all. In exchange for their money, investors receive worthless pieces of paper -- or absolutely nothing.
For safety's sake, get more information before acting on any "hot" stock tip. Seek a second opinion or take time to do additional research. If the promoter insists there's no time to investigate, walk away. You've almost surely uncovered a scam.
In you are an attorney and require expert assistance on a fraud matter, Kulzick Associates provides a variety of consultant and expert witness services. For more information, check out our web site for attorneys.
Death & Taxes: A legislative update
As the value of homes and retirement accounts grows, more and more middle class taxpayers are becoming concerned about estate taxes. Even with the exemption from estate taxes gradually increasing to $1 million by 2006, the number of estate tax returns showing a tax liability is rising. Between 1987 and 1998, the number of taxable estates has more than doubled.
Congress is debating changes in the estate tax, and though no bill currently under discussion is likely to become law, you should stay aware of developments in this area.
Republicans are proposing a phasing out of estate and gift taxes, leading to a full repeal in 2010. Democrats favor reducing current estate and gift tax rates 20% across the board, so that rates would start at 29.6% and run to 44%. Their proposal would increase the current $1.3 million exemption for family farms and businesses to $2 million, and it would immediately increase the general exemption amount to $1.1 million.
Your own estate planning should be done with the awareness that some changes in the law may occur this year or next.
Social security benefit deadline is July 31
July 31, 2000, is an important deadline that could affect you if you're over 65 and still working.
In April, President Clinton signed a bill repealing the social security earnings limit for individuals aged 65 through 69. The repeal was retroactive to January 1, 2000. Those whose 2000 social security benefits were reduced under the prior earnings limit automatically received checks giving them full benefits back to the first of the year.
If you qualified for social security in 2000 but didn't apply because of the earnings limit, you won't receive retroactive benefits unless you apply for social security by July 31, 2000.
For more details or assistance, contact your local Social Security Administration office.
When can you use your IRA funds penalty-free?
Individual retirement accounts have long provided taxpayers with an excellent vehicle for retirement savings. Even though the principal focus of IRAs is to fund retirement, tax rules allow penalty-free IRA withdrawals for several purposes other than retirement. Of course, "penalty-free" is not the same as "tax-free." Also, the tax rules are different for traditional IRAs and Roth IRAs.
Traditional IRAs have been available for many years, and many have been funded with annual tax-deductible contributions. Other traditional IRAs represent untaxed rollovers from retirement plans, such as 401(k) accounts. Traditional IRAs are designed to shelter funds from taxation until the account owner begins taking withdrawals. Roth IRAs, on the other hand, are funded with after-tax contributions, but earnings grow tax-free. Retirement withdrawals from Roth IRAs are tax-free.
IRAs were designed to be retirement accounts; therefore, "early withdrawals," which are generally defined as distributions taken before age 59-1/2, may be subject to a 10 percent tax penalty. (In the case of Roth IRAs, the account must also have been open for five years.) The penalty is in addition to income tax on previously untaxed balances. For traditional IRAs, an early withdrawal may trigger the 10 percent penalty plus regular income tax on the total amount of the withdrawal. An early withdrawal from a Roth IRA may trigger a penalty and regular income tax on the accumulated earnings in the account.
Tax rules define several circumstances in which early withdrawals are not subject to penalty, but still will be subject to regular tax. These rules apply to both traditional and Roth IRAs.
For example, taxpayers can avoid a penalty if they use IRA withdrawals to pay "qualified" higher education costs. These costs can be attributable to the taxpayer, the taxpayer’s spouse, children, or grandchildren. "Qualified" first-time homebuyers also may make penalty-free withdrawals to pay certain home acquisition costs.
Still other rules provide penalty-free withdrawals to pay deductible medical expenses. Unemployed individuals may make penalty-free withdrawals to purchase health insurance. Other penalty exceptions apply to "IRA annuities," which represent a planned sequence of withdrawals, and to withdrawals caused by the death or disability of an IRA owner.
As with all tax rules, those governing IRA withdrawals are complex and unforgiving. Be sure to give us a call before you tap into your IRAs for any reason.
Business: Benefit plan returns revised; deadline extended
The annual returns that must be filed for employee benefit plans (Form 5500 series) have been completely revised in order to use computer scanning and electronic filing technologies.
Also, these forms will no longer be filed with the IRS; instead they are to be submitted to the Pension and Welfare Benefits Administration.
To make the changeover easier for filers, a two-and-a-half month "transition extension" of the filing deadline has been granted for certain filers. If Form 5500 would be due on or before July 31, 2000, the due date for filing has been extended to October 16, 2000.
Filers whose regular due date is after July 31 will be required to file Form 5558 if they wish to obtain an extension.
* July 17 - Deadline for filing extended 1999 calendar-year partnership returns.
* July 31 - Due date for filing retirement or employee benefit plan returns (5500 series) for plans on a calendar year. (See Business above.)
* August 15 - Due date for individual tax returns (1040) with an extension.
Note: Businesses are required to make federal and state tax deposits on dates determined by various factors that differ from business to business. For information on the tax deadlines that apply to your business, contact our office.
How to deal with overdue accounts receivable
Collecting overdue accounts receivable is more an art than a science. Half the problem can be alleviated with proper procedures up-front, such as customer screening, written proposals, and credit checks.
Once an account becomes delinquent, you have some decisions to make. Some customers should be handled differently from others. A long-time client who suddenly stops paying may have a problem which can be worked out while maintaining your relationship. Conversely, a new client who turns delinquent may require action, which could jeopardize your relationship.
Collection steps should include demand letters and follow-up telephone calls. Document the results of each step. This will prove beneficial in the event legal action becomes necessary.
If your collection efforts fail, you have the option of writing off the account or using a collection agency or an attorney. There are pros and cons to each option.
Collection Agency. A collection agency should have a good reputation. The agency should provide you with references, have adequate bond protection, and maintain a separate trust account for each of its clients. An appropriate fee could range from twenty to twenty-five percent of the funds collected. A lower fee may indicate the agency is only interested in collecting easier accounts.
Your Attorney. Larger accounts may be turned over to your attorney. An experienced attorney may be able to collect even the most difficult accounts or be able to collect them more quickly. Many firms work on a contingent fee basis but may require a down payment for out-of-pocket costs.
Some accounts you simply will not collect. Know when to write them off and move on. You may even get some tax benefit from the write-off.
We've maintained a free information site on the web since 1997. There are currently over 140 pages containing a wide variety of useful information. You can access either through indexes or through a "search" function. To check it out, click here.
If you are using AOL, you will need to access the internet in order to use the links in this newsletter or access our website. Unlike every other service, AOL remains a separate, proprietary system that is not part of the internet. However, recent customer and government demands have forced AOL to provide access links between their system and the internet.
To access the internet from the AOL proprietary system, you must either be using version 5 of AOL's browser (earlier versions cannot directly access the internet) OR go to AOL, link to the internet, minimize your AOL browser, and then bring up and use either Microsoft's Internet Explorer or Netscape's Navigator. These are the browsers everyone else uses and both are free. You can download them from Microsoft or Netscape. If you are using any ISP except for AOL, you are already accessing the internet and should have no problems.
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© Copyright 2000 Raymond S. Kulzick. All rights reserved. 000705.
This publication provides business, financial planning, and/or tax information to our clients. All material is for general information only and should not be acted upon without seeking appropriate professional assistance.