5:00 p.m. we always bring that he to. have a great holiday. gerri: hello, everybody, i'm gerri willis. welcome to a special edition of "the willis report." over the next hour we're bringing awe users guide to taxes as 2013 wraps up. we'll be drilling down on all the changes and telling you what you need to know with some concrete strategies. for a look what to do to make sure you don't pay more than you should, i'm joined by dominic sevila, president of personal wealth advisors. dominic, great to have you herek >> thank you. gerri: before we get intou solutions, let's talk very briefly, broadly, big changes

coming. people will be surprised. >> people will be shocked. a lot having to do with obamacare. ancillary tax, limit on certain type of deduction. all will hit you hard april 15th next year. most people flying under the radar will be in for a rude awakening. gerri: a lot of people, they're running taxes ahead of time trying to figure out what the bite is going to be, before the end of the year, before with you know what you're facing. what we're hearing more and more people will pay 50% of their income, or more in taxes. that means 1 out of every $2 to the taxman. >> when you start adding new york, a high tax state, it can easily get into that kind oo range. the key you have a couple weeks left. a couple moves can pay for holiday presents. if nothing, maybe a vacation. take a little time out of your schedule and focus in on some of this stuff. gerri: start with income. you say you want to reduce

income on 2013 schedule. >> like normal people you set your four owe one confident, 403 b, 3% of my income, 6% income. that is autopilot. you wake up on january 1st. you get the w 2, i put away 6,000, $7,000. you can put away $17,500 if you're end 50 years. 17,000, 500. most people don't get to the number. go to the hr. increase amount ofhr withholdin. year-end bonus, dump it into the 401(k), make it deferred.a iref you're over 50, that's me,y not you, gerri, $23,000, disappears on w2. gerri: this is money you save for yourself pretax. another thing you do, look, thss, that big bonus you're giving me, can we just delay it a couple weeks? >> in some cases you have the

flexibility but in some cases not. if you don't ask you don't know. if you're in sales, do you booku the sale this year or wait until after. gerri: what if i'm a small business person and i'm sending out bills, checks to people, do i do that or not do that? >> you can send them out but most small businesses operate on cash basis, meaning when you get paid. if you deposit check ond december 31st, it is thiser year. wait until january 2nd, next year. as advisor, we get calls every day, i had one today, i need $30,000 from my ira. if i send it now that is 30,000 of taxable income this year. if i send january 2nd, flows into the following tax year. give it thought we do. gerri: realize a thought. people are sitting on worthless stock what should they do. >> this is one of my biggest pet peeves. we look at statement, holding garbage..om from 1999. the accountant doesn't know it is on your statement.

the 1099 they get, the 1099-b does not show a position that has not been sold. you have to tell your accountant, cpa you own the worthless stock, if it is still worth a dollar, sell it. realize the loss. the government will give a tax benefit back. gerri: deductions, this ise important you're losing a lot of tee ducks next year.impo yourt may not know it. >> first is medical deduction. last year was 7.5% adjusted gross income. that was hurdle you had to jump over. obamacare comes along, 10%. gerri: really penalizing people. >> you can't make that one up. having said it look what expenses you paid so far this year. travel back and forth to the doctor. prescriptions. gerri: that counts? >> insurance. part b on social security. add them all up, if you're close to the 10% numbers pay the doctors in advance, pay the dentist in advance. get the expenses out because the hurdle starts all over again january 1st.

gerri: now, you know, talking about charitable giving. now you've sort of sent all my money everywhere. i don't have cash for charitable giving. >> what do: i do? >> hear the commercials, and on radio or tv, donate the old car, donate an old boat, furniture, clothing. reporting on this is a little more complicated. >> it is tricky. >> make sure the institution you're dealing with, the charitable institution is legit. they give you proper forms. donate property and get a tax benefit. appreciate stock. you can donate property t doesn't have to be cash. gerri: one of the things you say that is so meaningful to the people in the new york area you take a deduction on some of the losses -- >> this is huge one, in 2012 and again in 2013. sandy hit in the fall. so a lot of people did not know what their loss was from thep hurricane. so aotny kind of property casua loss, hurricane, tornadoes fire, car accident, again we have a 10% hurdle we have to jump over.

10% of adjusted gross income. anything above that is tax deductible. gerri: it is a little break there. you will get a little break particularly if you had big losses. >> clients on long island, hundred ofk thousands of dollars of losses. these were legit, documented, appraisal, whole nine yards.en huge tax savings. a huge benefit in 2013. gerri: rich edson joins me from d.c. rich, what tax breaks are we talking about here? in gerri, they're not discussing them or not going to discuss them at least before end of next year before they expire. 55 specialized tax breaks areth expiring this year. 24 over the next 10 years. nearly a trillionr dollars in preferences. congress usually extends them before the year-end. that is why they're called extenders. among the 55 expiring on new year's day, credit for plug-in electric vehicles. new energy efficient homes. teachers that spend money on school supplies. depreciation for certain race horses and motorsports

entertainment complexes. expensing for film and tv production. and forum producers in puerto rico and virgin islands. along with dozens of other complex specific tax preferences. congressional s leaders say lawmakers skip town for the year without extending this breaks. one analyst says congress may finally resolve these preferences next year with tax reform. s.form >> i think the chairman of the,k particularly the chairman of the house ways and means committee, mr. camp, has looked as these extenders and by not extending these extenders at end of this year, some 55, that it gives him leverage to encourage and to make his members focus on tax reform next year. but if it doesn't come to pass, i think again we'll go back to those popular provision,se particularly the r&d tax credit would likely be one that would be extended sometime in the future even without tax reform next year. >> which means as businesses invest early next year they may

not know if they get a tax deduction for it until the end of next year. that is especially true with the research and veriment tax credit.ru a numbere of businesses in townx calling for that one to be extended. gerri? gerri: rich, thanks. extending the extenders, only congress could come up with language like this. no wonder they have a 6% approval rating. thaaks for coming on tonight. great to have you. >> thanks. gerri: our users guide to taxes continues next with a look at state and local taxes and more of our look for what is new for 2014. stay with us.

gerri: major changes coming soon that could have a big impact on your next tax return. this year with the new tax law changes, your tax obligation could be more than astounding

50%. so we're here to help you out. all this hour we're letting you know what you should do about the tax rate increases and inform you of any other gotchas you may need to know about. joining uins now, joseph perry, the firmwide partner in charge of tax and business services at marcum. thanks for coming in. >> thanks for having me. gerri: you guys having a year-end tax guide and you've been putting some of your clients through a simulation to see what they might owe come april.at it is not pretty, is it? >> it is not pretty. we sampled 1200 of our clientspl anedd took their taxes for 2012 and layered the changes. gerri: on top. >> for changes in 2013 and it didn't sound like a big increase. it was a 7% increase. if you took changes in the rates. gerri: that is sound big to me. >> the surprise was the amount it was. gerri: how much was it? >> it was a quarter of a gebilliondollars. a quarter of a billion dollars. gerri:. you're talking your clientst only not talking about the worlde worl here. >> our clients. gerri: that is crazy.

>> a sample of marcum es a. gerri: pick through the changes and i can't people to understand what is going on. with we have a brand spanking new income tax bracket. tell bus that. >>ll the new tax bracket startst 39.6%. so 39.6% kicks in for taxpayers taover 450,000 or 500. f that's an increase from 35%.th and that'sat a huge increase. gerri: that's a big increase. talk about the medicare tax. that is new tax increase of 0.9%. tell us about that. >> the increase relates to earned income. that is on wages, okay? that is oni: top of thee. social security increase that you had in the beginning of the year which is a 2% increase. many people were surprised on that. gerri:ase yeah. >> so now you have thatmany additional. gerri:ur ouch, double ouch. triple ouch. >> also on non-income related to investments such as interest, dividends and capital gains. you have a 3.8% tax. effectively for federal

purposes, 39.6%, layering 3.% and 9%, you're over 44% just on federal as you mentioned. >> we're not evena there.lr we're not done talking aboutve taxes. >> absolutely not. looks like they continue to raise them. that doesn't even account for -- gerri: let me take you somewhert so one of the big things that is happening, personal exemption is being phased at higher income levels. we're losing, they're phasing out a bunch deduction we're used to getting.t walk through some a of this. >> itemized deduction phased out over certain limitation which is 300,000 for married taxpayers. you have itemized deduction thaw claim. real estate taxes, mortgage interest, charitable cntributions. 3% over that threshold will be limited. you will not be able to get the deduction anymore. gerri: so, look, people are going to be shocked. i think there will be an uprising when people get theirin arms around how much this is t changing. risk, not justthe for people earning 400,000. a lot of this starts at 200,000

for taxpayers who file a singles and 250,000 for married couples filing jointly. so the pain starts at that threshold and only gets worse. >> i yes. in fact if you have two professionals especially inofes new york or metropolitan areaur where the cost of living is high you will be at that threshold before you know it. 200,000. you may not have the appropriate planning. gerri: right. >> we've been, we've been really, really, working with our clients in order to plan and project what the tax will be in the next year. gerri: that brings me tol something that you b mentioned t the top of this segment that it think bears repeating here. you really need to run numbers now best end of the year to see if there is anything you can do to less this tax bite and get your brain in the game. this is a big change for a lot of people. a lot of people are really going to get stuck, get hit. they will be surprised what they find with this. >> i think when they're surprised too, you have theur ability through withholding and making estimated payments to pay

in prior year's liability to avoid penalties. i think when your tax return's due in april, they will be surprised what's owed. the concern is, in april. gerri: right. >> what will happen to the economy ? the effect that is it could have, people, have to have the wherewithal and if they didn't have the appropriate planning, where will they get the moneye from?nn many people live paycheck to pay check. they will have to look to investments to liquidate which chy not be with the best time with rise of the stock, the -- gerri: interest rates? >> stock market. it really becomes important for people to plan now so they can have cash wherewithal to -- gerri: do you think this will have economic effect. >> absolutely. gerri: people will be yanking money out of stocks. i:ey will be yanking money out of savings. looking under every pillow cushion they can find to find dough to pay this tax bill? >> yes. that will take effect in april. people will see that. and, that trickle-down effect will hopefully be able to have

people work effectively so that way they can minimize tax in subsequent years. gerrr: it is just soy funny because a lot of this is because of obamacare, because the affordable care act and like somebody tweeted us the other day recently what they said to us, was, i liked obamacare. i just didn't reallied i was paying for it. that is what will happen to a lot of people. thanks for coming on the show. great job. thank you, joe. >> thanks. gerri: next, changes in state income and sales taxes. plus we look at the one place where you might simply ask for a tax break and get it. ♪

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gerri: our hour long users guide to taxes looking at your state and local tax bills coming up in 60 seconds.

>> gerri: we're back on our users guide to taxes with changes coming to your state and local taxes. we're listing them out for you plus we're taking aalook at one place where you might be able to get a tax break. no kidding. only place, probably, property taxes. let's get down to it. i'm pleased to join by the budget and regulatory policy director for americans for pol taxation or tax reform, sorry. i just renamed the organization. >> quite a bit different, gerri. >> we have the vice president of nationalxp taxpayers associatio. we'll get to you both. not much of this is good, i got to tell you.

taxes are going up everywhere. mattie, start with the blue state tax increases. what is going on in california? >> right. well it is not all bad but something obviously going to be bad we're looking at california and its fiscal picture this last year, california has the most progressive personal income tax code in the nation. they have only made it worse. what we're looking at an income tax hike, sales tax hike. gerri: wow. >> in total, 6 billion-dollars tax hike on california taxpayers. gerri: i'm taking california ono my move to list, off my move-to list. >> absolutely. gerri: minnesota.ge what is going on there? >> minnesota, $2 billion in tax increases. seteresting when we're looking at midwest, the really great dichotomy states going in the wrong direction and states going in the right direction. states like wisconsin where the governor on taxes and unfunded liabilities and pension problems. you have states like minnesota, illinois, take the opposite direction and raise taxesdire filling holes without budget

reforms. gerri: to complete the whole idea, illinois raised income taxes from 3% to 5%. increased state corporate tax. >> yeah. gerri: unfunded pension liability is $100 billion. they're doing really well. massachusetts having problems as well. i have to tell you, you look at these numbers, and pete, to you, all i see are increases in thess blue states. these are states that absolutely are going to be more expensive to live in. how do you think taxpayers are going to react? >> i think they're going to react with anger. and part of the problem of course is that in many of these states, california being an exception, people don't necessarily have the tools available to them to mount a't c statewide tax revolt. you know only half of the states s america have the power granted to their citizens to initiate ballot measures that can rein in taxes. only half of that half really have a strong power where people can utilize it to change the way

taxes are levied and limit theie growth in the future. so the opportunities are difficult at the state level. many times they go to the local level now. gerri: all right. t you know, interesting, mattie, maryland, there is now a millionaire's tax increase from 5.5%, to 6.25%. this is the president's fight. we'll make the rich people pay. they're not paying enough. they need to pay more. is this going to catch on? >> well, we'll see. marylander is an entirely different beast, they have not only a millionaire's tax hike, they have a sales tax hike, gas tax hike. theyve have a tax on rain watern maryland. gerri: what? what? >> they have a tax on depending how big your roof is on your house the rain running off of it apparently is taxable and ability to flush the toilet and septics tanks. gerri: making my head hurt. >> if you live in the d.c. area, don't move to maryland. district might be better for

auguste that is saying something. pete, i want to talk about property taxes. >> yes. gerri: we took a look at some numbers. second quarter, u.s. property tax collections were $374 billion. that is one quarter. think about that. that is a lot of money. people are still facing sky-hig property taxes even though prices on their hopes have gone down. whatic can theyes h do? what can they do to the cut the bill? >> pretty incredible. between 2010 and 2011 that is 1 ly point which property tax collections fell off by all of 1.3%. why? because mostwi properties are overassessed. experts say somewhere between 30 and 60% of the them are overassessed of the. gerri: wow. >> three things you can do.an number one avail yourself of existing property tax relief oograms f you're over 56 or a veteran or disabled or have moderate income, chances are there is some kind of a relief program available tore you. sany times they're funded at the

state level through the state income tax return filing process. so you've got to look out for your property tax relief when you're filing your income taxes. gerri: you know, the beauty of ta this, and maybe, mattie, you can speak to this as well, you can protest this. it is not a big deal. it takes some work. you have to look up some material with your local property tax record. get the assessment. see what your assessment looks like. compare it to the properties in the neighborhood. if you're paying a lot more, if you're paying 10% more you can appeal. you will probably have a goodou case. mattie is that a good thing to do? >> yeah, i think it is and if you take that analogy and expand it to the entire united states you look and see what people are doing and how they're voting when it comes to the tax burdens. half the states in this country are red states, controlled both at legislature and governors mansion by republicans. 25 states have red states. 19 states cut cutting taxes past two years.

folks are looking at economic environments and saying this is what we want from your governments. look at blue states like california and illinois. these are states where 13 or so states of the country are controlled entirely by democrats. 10 of those states increased taxes over past 10 years. you can see trend if you're ae h taxpayer, trying to gauge your economic environment. maybe move accordingly according to your interests. gerri: well, more and more people are doing that. you know, pete, you and i have talked extensively what is going on at the federal level with income taxes and taxes of all sorts. i think people are going to be making that choice. i think people will be look forge low tax states. do you agree? >> yeah, they have to vote with their feet and appeals process for property taxes of course is one way that you can lower your individual bill but you can't necessarily control b policy-makers who just want to keep raising tax rates in that way. sometimes if the initiative rani referendumme process won't affod

you away out, if you can't form a effective local taxpayer group that can drive these rates down and you have to flee. that is what is happening. most of the populations of small business owners and people fed up with taxes are moving from the north and the east to thevi south and the west. generally stopping before they hit t california. but, those states are benefiting from economic growth and new opportunities. gerri: well i love your guys attitude. you want to us take the world by storm. mattie, pete, thanks for coming on. great job. >> my pleasure. take care. gerri: all right. with so many of us facing such a huge state and local tax burden we thought we would highlight some cities doing things right. the states with the lowest taxes. this is the top five. jacksonville, florida. residents don't pay any state or local income tax. the annual bill for families earning 150,000 a year is less than 6500 bucks. the state does have a 6% sales tax.

number four, fargo, north dakota, just like the movie. this city has an incredibly low tax burden for lower income families with a tax bill for those earning 25 grand, just over $2200. >> >> number three, houston, texas. a family earning 150,000 a year pays less than 5% of its annual income in taxes. the city has one of the highest property tax rates at $2.50 per every 100 bucks in property value. number two, anchorage, alaska, the city's median income is the highest in the nation bue has the second lowest taxes. the number one city with lowest taxes, cheyenne, wyoming. go there. family earning $150,000 a year has a tax burden of 3%. taxes next toecond lowest birmingham, alabama. that's a good city too. the cities with the highest taxes,ma bridgeport, connecticu. don't go to philly my friend. coming up we've got some

charity recommendations for you this holiday season, including ones you should stay away from. plus the taxman himself, grover norquist is why he is fed up with the irs this year and why next year could be even worse. this is the quicksilver cash back card om capital one. it's not the "juggle a bunch of rotating categories" card. it's not the "sign up for rewards each qrter" card. it's the no-games, no-messing-'round, no-earning-limit-having, do-i-look-like-i'm-joking, turbo-boosting, heavyweit-champion- of-the-world cash back card. thiss the quicksilver cash back card from capital one. unlimited 1.5% cash back on every purchase, everywhere, every single day. now tell me, what's in your wallet?

gerri: welcome back to our hour long users guide to taxes. we're turning to the irs. we'll tell you what nobody else will about the new agency and role it will play in the coming year. joining us photographer norquist -- grover norquist, president of americans for tax reform. great to have you here. we'll talk irs in a second. i want to get you comments from speaker of the house john boehner who was pretty criticals of your organization and some others. here is what heti had to say say recently. >> they pushed us into this fight to defund obamacare and to

shut down the government. most of you know my members know, that wasn't exactly the strategy i had in mind but if you will recall the day he have about the government reopened one of the people, at one of these groups stood up and said v well we never really throughout it would work. are you kidding me? gerri: what do you say to that? >> well, look, we're moving forward on protecting the sequester and just for the record, he wasn't criticizing my group. we didn't endorse the defund only strategy. but, what boehner's put together and the deal that was just put through the house protects the sequester for the next decade. what people i think were not aware of is that there was very real pressure on the sequester from some republican appropriators and some of the defense t hawks who want to sped more money on defense. so the sequester is now good for a decade.

stronger than it was before, and most important, we replaced the spending cuts, spending increases of two years, with permanent spending cuts through entitlements. >> here is a rough synopsis what this budget protostele does. total federal spending at 3.5 trillion. caps government spending levels. reduces deficit. here are big picture numbers for you to take a look at on this budget. and i got to tell you, grover, it is interesting, i got to think there is so much complaining on budget on both b sides of the aisle iet might be the right t tonic right now. >> what it does do allow to us focus on obamacare for the next several months and get ready for the 2014 election. so it has that advantage. gerri: all right. let's talk about obamacare for a second because look, here's what i think. you pay a ton of attention to taxes. i believe that when americans start getting their tax bill for 2013 next april, there will be so some very long faces.s,

people will be very upset. insiders are even telling me they expect americans to start moving to low-tax states because the impact will be so horrendous. as we know, a lot of this is obamacare taxes. what is the burden of obamacare for americans and their taxes? >> well, there are 20 differentf taxes in obamacare.amac there are 47 new jobs for the irs in obamacare. some of them just keeping track of stuff. you're going to have to present documentation about what kind of insurance you have and prove that you have it. so the irs will be doing a lot of information-gathering for obamacare but also 20 taxes. 2 those penalties for bad people who don't buy their obamacare health insurance.nce. pay their fees, taxes, penalty through the irs e as well as everything from the tanning tax to the tax on good, health care plans that some

people spend a lot of time to build up. gerri: huge, huge, taxes on investment income coming. >> oh, yes. gerri: taxes on regular old fashioned income coming. particularly people who are wealthier. i got to tell you, this is theyo agency to do that? let's look at some recent irs scandals. the money they spent on conferences. $50 million, fraudulent tax refund going to people all over the planet much. hey target the tea party. the list goes on and on. in this particular graphic you can certainly see everything that happened, some of this is just in the last few months alone. grover, is the irs prepared to take on many so of these responsibilities particularly ones you outlined with obamacare? >> it is not clear they are because they have been telling you, some of the harrassment of n'litical groups was sheer incompetence. they weren't doing it on purpose. incompetence as a defense does

not make you feel real good moving forward. i o served on commission in restructuring the irs in 1990s under clinton. they had same kind of politically targeted abuses of the irs that we looked a then that we're seeing now. they're back at it again. now they will have more of your data in hands of people who want to punish people who had tea party in their titles or conservatives. they thought didn'th agree with obama's political goals. now they're going to have a whole bunch more data and ability perhaps to get their hand through that data into health care stuff? i mean, there ought to be a separation of church and state and irs and everything else. gerri: what you mean by that is that the people who are analyzing our tax forms shouldn't be enforcing the law e in other arenas and that is exactly what will be happening. >> or o playing politics. gerri: it could be a recipe for disaster, do you agree?

>> i think it is a recipe for disaster. it could be a heavily politicized recipe for disaster in addition to sheer incompetence. gerri: grover, thanks for coming on the show tonight. wee appreciate your time. >> good to be with you. gerri: when we come back, we'll tell you how to avoid an end of the year tax trap when it cops to your investments. next we answer the question, how do you do that? we have advice making sure you make right decisions when it comes to charitable giving. (announcer) scottrade knows our clients trade andnvest their own way. with scottrade's smart text, i can quickly understand my charts, and spend more time trading. their quick trade bar lets my account follow me online so i can react in real-time. plus, my local scottrade office is there to help. because they know don't trade like everybody.

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gerri: as you open up your hearts and wallets this holiday season, new charity scams are targeting your bank account. fraudsters are not only ones targeting givers.

worst charities take in more than they give out. we have the president and ceo of charity navigator joins me now with answers. you say this time of year 40% of the dollars go to charities come in the front door and have to be careful obviously how you give because the fraudsters are out there too. big questions about crowd funding charities.ions tell us about that. >> it is $100 billion, that 40%. phenomenal amount of money. mo crowd funding is where people come together and there's a issue -- gerri: on the web. and you want to, it is a disaster. it might be a classroom that you want to help. sometimes they're good if they have a track record and been around fory a few years but inin disasters and certain situations they crop up.in they have no track record. people will use something like that for very bad purposes, basically to line their pockets. tough be really careful. the rule is, look for a track record, not something that you never heard of. gerri: the reality is with some of these scams that pop up, well

they're not even scams, some donations are given after a majore problem, after a shootin, after a school shooting, you find that the money is just not getting there quick enough and that is your frustration. >> right. gerri: not just the scams you're looking for, sometimes bad administration, right? >> yes. that is the othera frustration and why these sites are becoming popular because of a problem how long it sometimes takes to gett the money to people who need it. there hhsth to be some balance h strike between speed andas makig sure that it's a really valid charity. it's a difficult choice often to find the best. gerri: we're covering red flags tonight. i want to go through the list of worst charities in america. you can help us see why these charities are problematic.itie childrens can charity fund. what is wrong with that charityh >> unfortunately a tremendous amount of money basically nots b going to help anybody and it is going to fund-raising. in fact, in all of the cases here, that is the basic theme. gerri: wishing well, shiloh, police protected, united breast

cancer foundation. in a lot of cases what you and i found, we talked about it i before,s telemarketers. some little organizationew somewhere hire as hugely expensive telemarketer and all the money goes to them. >> virtually all or tremendous amount of money, when people find out how much it is they feel ripped off. these are real scams. sometimes people running the charity are involved in the scam. sometimes they're just ignorant and they sign a contract andsign have no clue.e gerri: doesn't make a difference. >> either way it rips off the public. the other thing you see with e ese bad charities it is again the themes are, looking for places where they really tug at the heart of america. so it is the police. it's the children with cancer. these kind of issues that people want so much to support.f it is such a tragedy that these kind of organizations -- gerri: i just want to mention your website. you go out and you track this down. you sniff this out. charity navigator.org, correct? >> yes. gerri: great website. rates charities.

you find out all the information you want there. ken, thanks for coming on. great job. >> my pleasure. gerri: still to come, the irs claims to be cracking down on fraud but it is a little too late according to a new report. a warning for individual investors in those high dividend stocks you may hold. why there could be a tax trap set to go off in 2014. [ male announcer ] this store knows how to handle a saturday crowd. ♪ [ male announcer ] the parking lot helps by letting us know who's comg. the carts keep everyone on the right track. the power tools iroduce themselves. all the bits and bulbs keep themselves stocked. and the doors even handle the checkout so we can work on that thing that's stuck in the thing. [ female announcer ] today, cisco is connecting the internet of everything. so everyone goes home happy.

gerri: investors beware a tax trap for mutual funds is set to go off at the end of the year. details in two minutes. stay with us.

gerri: you will want to listen to this. s is is a heads up to small investors. a tax trap is set at year's end

at that could change the way you invest. our panel of experts is here with answers. jamie cox, harris financialmm group. dan schaefer, ceo of schaefer asset management and author of, profiting in economic storms ana author ofnd the book you can neo be too rich, alan heft. you're in distributions for mutual fund could get ugly for some people. what could we expect? >> if you tried to buy a mutual fund before they make directions or ex dividends or after distributions you pay tax on earnings from the fund that took place during the previous year back tooo january 1st. so if you were an investor, you couldn't take advantage and fund could be down and have a capital gain distribution. gerri: ouch. what is your advice to people? some people are out there trying to buy funds. you certainly wouldn't want to buy one of these fund right now and then take that tax hit when you haven't owned it the entire year. >> right. first off i yf you buy a fund right before the record date you're essentially buyingy

yourself a tax liability. gerri, avoid the problem all together. stick with exchange traded fund or index fund. for the most part exchange traded fund because you get rid of this problem all together. you control the taxes, not some fund manager out there. you don'ton have to worry about crazy ex dividend record dates. make it easy. stick with the index or etfs. gerri: that isf possibility. jamie, if i put this into some innd of retirement fund, tax shelter, i don't have to worry about it, right? >> you have ira, roth ira, t,1(k), any of those mutual funds capital gains distributions are not a factor. in addition, gerri, there are two types of capital gain distributions, long term and shortain term. this really hasn't been a issue. for investors generally for the last couple of years because of 2008-2009 crisis. there were all these carry forward losses but this year, actually there are, all those carry forward losses have been exhausted and there will be some capital gains. gerri: mutual fund are postings on own websites or telling you directly. keep an eye out for that, myy.

friends. it could get ugly. we've see un tremendous gains in the market. look at s&p 500, up 23% this year. the dow is up almost 20, the nas up 30.5%. dan to you, it will be a big tax hit out there. >> yes. we had quite a bit of gain not just this year but some stocks could be held as for four years. gerri: that is just fund. buying individual stocks in some kind of a brokerage account you have. maybe you sold some. maybe you changed up. >> right. gerri: you could be facing a very big tax? >> only if you sold the stocks. but you're right, if it is non-qualified plan, not an ira or sheltered account you will have a tax gain. depending how long you head the position, it would be short-term gain or ordinary income taxes or could be a long-term gain which is lower tax debending on income. gerri: jamie, dan, alan, thanks for coming on. great advice. we'll be right back. [ bagpipes and drums playing over ]

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>> from our fox business studios in new york, here again is gerri willis. gerri: so, tax refund identity is a growing epidemic. according to a recent report the irs paid nearly $4 billion in$4m tax refunds toil identity thiev. isx the way the irs hands out tx refunds the real problem? withth more on this rich copa, o of wealth health. start and talk about the fraud first so people understand the story. it was out last week. this is a big concern. the federal government is sending money overseas. >> it's a big concern. the problem is that refund are asked for so early on. there is miss match of some thee filings. gerri: let'sssage talk about the fraud itself first, so people understand that story. >> right. the problem with e-filing and so many people free with giving social security numbers out it is easy for thieves to take a social security number and fictitiously make up a tax

return and get refund routed to them because you con electronically debit any bank account, even a debit card you can buy at a drugstore because it has routing number on it there is no verification of name on that account to the debit card. gerri: wow, wow. break this down, 655 tax refund go to single address in lithuania, right? 343 refunds to a address in shanghai. federal taxpayer dollars going overseas because the irs incorrectly believes these people are owed massive refunds. you say this is possible because the irs doesn't check. they wait for the w-2 to come in. that seems absolutely crazy, rich. >> i do too. part of the problem there are two parallel systems. irs is verifying information. but they're verifying information sent to the

social security administration. w-2s and 1099s are to bes sent out t to employees, vendor, et cetera, by january 31st. however, they're not filed with the social security administration until february 2th. so there is lack of time. taxpayers want refund. you shouldn't fet refund or you wouldn't be in the situation. if you want the refund get it filed by mid-january.fi we're talking aboutle later, february 4th. and so there is this lagvi time between the filing and getting the returns filed and refunded early which is easier now with electronic filing versus when that information is verifiable. gerri: the bad guys figured all of this out. they know how to finesse the system and get money they're not owed because the government isn't checking. the government is sending arnme check. the government isnt skiendingnga check before they even know you deserve the money. se >>nd absolutely and they need te makefo better systems and need o have systems either parallel one another so timely filing, january 31st for both or february 2th for both. someone will be unhappy with

that. taxpayers don't want to wait until february 2th when the information iser verifiables tot the refund back. gerri: maybe we should. >> i agree. we should. we need to get better processes in place. we're all paying for this. that is lot of money going overseas. once it is gone you're not getting getting that money back. >> that is great point. crazy story. i had no idea the way they did things. explains a lot whatt is going n irs. >> one thingat after another. gerri: send out the check and we'll check latetory make sure once the check is owed. >> it is too late. once it passed your shoulder you're not getting that money back. gerri: rich, thanks for coming on. appreciate your time. that is it for tonight's "willis report." thanks for joining us. enjoy the rest of your holiday. don't forget to dvr the show if you can't catch us live. have a great night.

lou: the affordable care act was supposed to be president obama's signature achievement. now it is threatening to sink his entire second term. i'm lou dobbs. lou: hello, everybody. president obama is struggling and not just because of his disasterous health care law. he is also dealing with an unprecedented crisis of credibility. failed legislative battles, fractured foreign policy and revolts within his own party. the tending call problems with -- technical problems with healthcare.gov have been so severe, many democrats in congress are worried about the party's re-election process of the at