Fraze & Company, CPAs

07/30/2025

Curious about what’s ahead for interest rates in 2025? Read our opinion on the Federal Reserve’s potential rate cuts. Interest rates influence many aspects of your finances, including how much you pay or earn on loans and investments. Knowing how interest rates move can help you make smarter decisions to save on taxes. For example, if you have a mortgage or student loan, the interest you pay may be tax-deductible, so locking in a lower interest rate can reduce your taxable income. On the investment side, interest earned on some accounts is taxable, while on others it might be tax-free. By understanding rates and how they impact your borrowing costs and investment returns, you can strategically plan to minimize your tax burden and maximize your savings.
Here is the link:
https://www.linkedin.com/posts/marvinafraze_implementation-note-issued-july-30-2025-activity-7356414531809562624-ZZz0?utm_source=share&utm_medium=member_desktop&rcm=ACoAADgVdQwBJ7GkV-3IsAdvTnUPhZzlWJ3i9C8

, , ,

03/05/2025

"Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes"
Judge Learned Hand expresses the idea that individuals have the legal right to arrange their finances in such a way that minimizes their tax liabilities. It emphasizes that there's no legal or patriotic obligation to pay more taxes than the law requires. Essentially, it supports the legitimacy of using lawful means (like deductions, credits, and other tax strategies) to reduce one's tax burden. The idea is that while paying taxes is a legal duty, maximizing tax payments is not a requirement.

,

12/25/2024

🎄✨ Merry Christmas and Happy New Year! ✨🎄
As we celebrate this joyous season, we want to express our heartfelt gratitude to our clients, colleagues, and community. Your trust and support mean the world to us.

From all of us at Fraze CPA, we wish you a holiday season filled with peace, joy, and prosperity. Here’s to a bright and successful 2025!

07/04/2024

🎆 Happy Independence Day! 🎆

Today’s all about freedom, and we at Fraze CPA just want to say a huge thanks to everyone in our community, our loyal clients, and our amazing partners. Your support means the world to us.

Here's to a day filled with good memories and an even better future. Thanks for being with us on this journey. Enjoy the fireworks and stay safe this Fourth of July!

, , , ,

Happy Independence Day

06/23/2024

The IRS has announced a new phase in their review of Employee Retention Credit (ERC) claims, with a focus on weeding out improper filings. Following an extensive review, the IRS is set to deny tens of thousands of high-risk ERC claims, while beginning additional processing for lower-risk claims. This effort aims to protect legitimate taxpayers and small businesses. Here are some key takeaways:
* High-risk claims, showing clear signs of being erroneous, will be denied.
* Lower-risk claims will be processed cautiously to ensure legitimate payouts.
* Compliance efforts have already surpassed $2 billion, with ongoing audits and criminal investigations.
The IRS will maintain a moratorium on new ERC claims submitted after September 14, 2023, and consult with Congress on potential legislative actions.
, , , ,

Update for ERTC moratorium. IRS said 10%-20% will be denied, 10%-20% will be approved, remainder are still being evaluated.

06/21/2024

In his insightful article "To Find Winning Stocks, Investors Often Focus on the Laggards. They Shouldn’t." from the Wall Street Journal, Ken Shreve emphasizes the advantages of focusing on stocks that demonstrate strong relative strength (RS) for superior investment returns. The article highlights how RS can identify top-performing stocks with robust earnings and sales growth, guiding investors towards more reliable and rewarding opportunities. However, there are three main drawbacks to relying on RS, which can lead to significant losses:

Potential Overvaluation: Stocks with high RS can be overvalued. For example, Nvidia had a strong RS rating in late 2021 but experienced a significant drop in early 2022 due to market correction and valuation concerns, leading to substantial losses for investors who bought at the peak. The stock, despite its high relative strength, was caught in a broader market sell-off, highlighting the risk of buying into overvalued stocks.

Short-Term Volatility: Stocks with high RS can be volatile. Tesla exhibited high RS throughout 2020 and 2021, but its stock experienced sharp fluctuations, especially during market corrections, causing short-term investors to incur losses. The volatility was driven by both market sentiment and sector-specific news, demonstrating that high RS stocks can still be susceptible to significant price swings.

Market Conditions Dependency: RS ratings can be heavily influenced by overall market trends. During the dot-com bubble, many tech stocks had high RS ratings but plummeted during the market crash, causing significant losses for investors who relied solely on RS. This period saw many high-flying tech stocks with impressive RS ratings lose nearly all their value, reminding investors of the risks associated with market-wide downturns.

Despite these cons, I believe that focusing on relative strength is a more reliable and rewarding investment strategy compared to chasing laggards. The evidence is clear: strength begets more strength.

High RS ratings have consistently pointed to stocks with strong underlying performance metrics, such as robust earnings and sales growth. By focusing on these strong performers, investors can align themselves with the market's momentum rather than betting on a rebound that may never come. relative strength is not without its pitfalls, its ability to highlight strong stocks with potential for continued growth makes it a valuable tool in any investor's toolkit. Understanding the nuances and being aware of the potential risks can help investors make more informed decisions and potentially avoid the common traps associated with high RS stocks.

Shreve, K. (2024, June 6). To find winning stocks, investors often focus on the laggards. They shouldn’t. The Wall Street Journal. https://www.wsj.com/articles/to-find-winning-stocks-investors-often-focus-on-the-laggards-they-shouldnt , ,

Here some drawbacks of RSs which can lead to significant losses

06/21/2024

Tax Implications of the Fed’s Interest Rate Decision
The Federal Reserve's recent decision to maintain its benchmark rate between 5.25% and 5.5% not only impacts interest rates for savers but also has significant tax implications. Here's what you need to know:

With high-yield savings accounts and certificates of deposit (CDs) still offering over 5% interest, it’s crucial for savers to understand how these earnings are taxed. Interest earned from savings accounts, CDs, and money market funds is considered taxable income. This means that as interest rates remain elevated, so too could your tax liability.

Historically, periods of high interest rates have resulted in increased taxable income for savers. For example, in the early 1980s, high interest rates led to substantial interest earnings, which subsequently increased tax bills. Conversely, after the 2008 financial crisis, low rates meant lower taxable interest income for savers.

Currently, the Fed's strategy to combat inflation by maintaining high rates means savers might see substantial interest income. This could push some individuals into higher tax brackets, affecting overall tax liability. As the Federal Reserve indicates that rate cuts might not happen until mid-September at the earliest, savers should plan for continued high interest income and associated taxes.

To mitigate the tax impact, consider tax-advantaged accounts such as Roth IRAs or Health Savings Accounts (HSAs), where interest can grow tax-free or tax-deferred. Additionally, Treasury securities, which are exempt from state and local taxes, might be a strategic choice for those looking to minimize tax liability.

When choosing financial institutions for savings, smaller or online banks and credit unions often provide higher rates to attract deposits. Ensure your chosen institution is FDIC or NCUA insured for deposit safety. Be aware of account terms, such as limits on high-yield amounts or hidden fees.

Planning is key to managing the tax implications of high-interest earnings. Understanding how these earnings will affect your specific tax situation and explore strategies to minimize your tax burden.

, ,

Savings rates may have peaked, but savers can still earn 5% or more on their cash

06/19/2024

The IRS has recently frozen numerous refunds due to the discovery of potentially fraudulent claims. Thousands of taxpayers have mistakenly filed for tax credits such as the Fuel Tax Credit, the Sick and Family Leave Credit, and credits related to household employment taxes—credits for which they are not eligible. Misinformation and scams are largely propagated through social media and untrustworthy tax preparers. These sources often mislead taxpayers into believing they qualify for these specialized credits, resulting in incorrect claims. For those affected, this means delayed refunds and a possible requirement to file amended returns. More seriously, it could lead to financial penalties, audits, or even criminal charges for those who knowingly submitted false claims.Stay informed and vigilant to protect yourself from common tax scams and misinformation!
, ,

The IRS has recently frozen numerous refunds due to the discovery of potentially fraudulent claims.

06/19/2024

FTC Takes Action Against Adobe for Allegedly Deceptive Subscription Practices

The Federal Trade Commission (FTC) announced it will take action against Adobe and two of its executives, Maninder Sawhney and David Wadhwani, for allegedly hiding an early termination fee in their most popular subscription plan and making it difficult for consumers to cancel. Adobe plans to refute these claims in court, stating they prioritize customer experience and transparency in their subscription agreements. The FTC's complaint, filed by the Department of Justice, claims Adobe misled consumers by preselecting the annual paid monthly option on their website without clearly disclosing the significant early termination fee, which is 50% of the remaining monthly payments if canceled within the first year. Consumers had lodged complaints with the FTC and Better Business Bureau regarding these fees.

In a similar precedent, the FTC previously took action against DirecTV in 2015 for deceptive advertising and marketing practices related to their subscription plans. The FTC alleged that DirecTV failed to clearly disclose the terms of its discounted 12-month programming package, which required consumers to commit to a 24-month contract with significant early cancellation fees. DirecTV settled the case by agreeing to pay $3.95 million in civil penalties and to revise its marketing practices to ensure clearer disclosure of terms and fees.

This precedent highlights the FTC's ongoing commitment to protecting consumers from hidden fees and ensuring transparency in subscription agreements. The action against Adobe follows this tradition of holding companies accountable for deceptive practices that can trap consumers into unfavorable contracts.

The ongoing legal battle and potential penalties could negatively impact Adobe's stock performance, as investors might react to the uncertainty and potential financial liabilities. If the FTC's claims are upheld, Adobe may face significant fines and be forced to alter its subscription practices, which could affect its revenue and profitability in the long term.

Wack, C. (2024, June 17). FTC to take action against Adobe, executives for hidden fees. The Wall Street Journal. https://www.wsj.com/business/ftc-to-take-action-against-adobe-executives-for-hidden-fees-a4842417?mod=investing_news_article_pos4

, ,

The Federal Trade Commission alleges Adobe and its executives hid an early termination fee for its most popular subscription plan and made it difficult for consumers to cancel their subscriptions.

06/16/2024

This Father’s Day, we celebrate you and all the special moments you create with your families. May your day be filled with joy, relaxation, and the recognition you truly deserve.

Enjoy your special day with your loved ones!

The Fraze CPAs Team

Enjoy your special day with your loved ones!

06/14/2024

While many business owners can gauge their business's performance without consulting financial statements, understanding financial ratios can provide deeper insights. Financial ratios represent numerical relationships between figures on income statements and balance sheets, offering valuable information about liquidity, turnover, debt, and profitability.
The current ratio measures if a company can meet its short-term obligations. This ratio helps determine if your business has enough resources to pay its debts over the next year. A current ratio above 1 indicates that the business can cover its short-term liabilities with its short-term assets, which is a sign of good financial health. Monitoring this ratio can help a business avoid liquidity problems. For example, if a business has $50,000 in current assets and $30,000 in current liabilities, its current ratio is 1.67 ($50,000 ÷ $30,000), indicating it can comfortably meet its short-term obligations.
Gross profit margin shows the profit available to cover operating expenses. This ratio measures how much profit remains after accounting for the cost of goods sold. A higher gross profit margin indicates that a business is efficiently producing its goods. Small businesses can use this ratio to assess pricing strategies and control production costs. If the margin is decreasing, it may indicate rising costs or the need to review pricing. For example, if a business has $200,000 in sales and $120,000 in the cost of goods sold, its gross profit is $80,000. The gross profit margin is 40% ($80,000 ÷ $200,000), showing the percentage of sales revenue remaining after covering production costs.
Net profit margin reveals the profit earned per sales dollar after all expenses. This ratio shows the percentage of revenue that remains as profit after all expenses are deducted. A healthy net profit margin means the business is effectively managing its expenses relative to its sales. Small businesses can use this ratio to evaluate overall profitability and operational efficiency. Consistently monitoring this ratio helps in making informed decisions about cost management and revenue enhancement strategies. For example, if a business has $200,000 in sales and $30,000 in net income, its net profit margin is 15% ($30,000 ÷ $200,000), indicating that 15% of the revenue remains as profit after all expenses.

How's business? Most business owners can answer that question without consulting a financial statement. But what if someone asks about "retu

06/13/2024

Second Home in Illinois: Investment or Tax Burden: With Illinois experiencing significant property tax increases, owning homes in multiple states has become an attractive option for many residents. However, careful planning and meticulous record-keeping are crucial to avoid state tax complications. Illinois, a high-tax state, often requires proof that a second home in a lower-tax state is genuinely intended as a primary domicile to prevent tax evasion. Establishing a domicile involves meeting specific criteria, including spending more than half the year in the desired state, updating legal documents, and maintaining detailed records. Proper preparation can demonstrate a legitimate domicile change and avoid costly audits.
If an Illinois resident establishes domicile in a lower-tax state, such as Florida, they could potentially save significantly on state income taxes. Florida does not have a state income tax, while Illinois has a flat state income tax rate of 4.95% as of 2024. For example, a high-net-worth individual earning $1 million annually could save $49,500 per year by changing their domicile to Florida.
Illinois has stringent rules to determine if someone has truly changed their domicile. The case of Matter of Newcomb, 192 N.Y. 238 (1908), while a New York case, has been cited in Illinois for its thoroughness in examining domicile status. This means maintaining detailed records such as updated driver's licenses, voter registration, and spending more than half the year in the new domicile state. If an Illinois resident claims Florida as their domicile but fails to update their legal documents and spend sufficient time in Florida, Illinois may still consider them a resident for tax purposes, leading to dual state taxation.
Illinois has become more aggressive in auditing individuals who claim to have changed domicile to a lower-tax state. The case of Cain v. Hamer, 2014 IL App (4th) 130407 demonstrates the state's efforts to retain tax revenue from individuals claiming domicile elsewhere. In this case, the taxpayers failed to convince the Illinois Department of Revenue that they had moved their domicile to Texas, resulting in back taxes and penalties.
By understanding and adhering to these requirements, individuals can better navigate the complexities of state tax laws and potentially avoid costly audits and dual taxation.
Illinois' property tax system can be a significant burden. As property taxes continue to rise, homeowners may find themselves paying disproportionately high amounts, particularly in areas with strong real estate markets. This situation can turn owning property in Illinois into a financial trap, where the cost of maintaining a home outstrips the benefits of ownership. , ,