Happy Thanksgiving!

Wishing everyone a happy Thanksgiving!  I am very thankful for my wonderful clients who have chosen me as their advisor to assist them in their business ventures and to navigate the ever changing tax code!

Hybrid, Conventional, Prius, Pious, Oh My!

Last chance to get a tax credit on the purchase of a Honda Civic hybrid. The current tax credit of $525 is expiring by December 31 of this year. This reflects a phase out because Honda met its sale of 60,000 of these in the third quarter of 2007. Many other models of hybrids have not met the quota and thus still qualify for a larger and, for now, ongoing credit. Unfortunately the credit on the Toyota Prius, because of its popularity, ended last year. A friend of mine said awhile back that Toyota should have named it the “Pious” rather than Prius. I have to admit that made me chuckle a little. Financially, purchasing a hybrid is a poor decision. It would take 10 years in most cases to recoup the price premium with fuel savings, even with the tax credit. Also, the current falling fuel prices increase the disparity even more. Now, if you are purchasing the vehicle for environmental cred, then that is a different story. You place a high value on the car and don't mind paying the premium because you are helping the environment. However, I remember reading somewhere that the battery disposal poses its own environmental issue, but I am not sure how valid that claim is. I haven't done enough research on the subject. I know lots and lots of folks who own Priuses and they all love their cars. I have yet to ride in one, but they all say that they are roomier than you would expect for a small car. A lot of people who enjoy their conventional trucks and SUVs will have a difficult time buying into that philosophy, as long as it is still cost effective to purchase those vehicles. They want to pay as little as possible for a vehicle large enough to haul the family and gear. We have the freedom to decide what kind of vehicle works for us in our individual situations. The government does not dictate (yet) what type of vehicle we drive. SUV and truck sales dropped and hybrid and small car sales soared during the gas crunch, but it will be interesting to see if that trend reverses with the recent fall in fuel prices.

Deducting a Swimming Pool

Here is an interesting tax case concerning some folks who tried to deduct their swimming pool as a business expense and the outcome.  I must say that I am not surprised that someone attempted this.  The husband is a former IRS agent who should have known better.  People come up with the strangest arguments to justify deductions, and this case serves as a warning to anyone trying to be creative in a similar way on his/her tax return.

Medicare Bailout

Could Medicare be the next big bailout looming on the horizon in the next decade or so?  I am reading an article in the latest Today's CPA which is the monthly publication of the Texas Society of Certified Public Accountants.  This article proposes that definite possibility.  Medicare and Medicaid comprised only 1% of government spending in 1966.  Today these two programs are 20% of all government spending!  What makes this increase most alarming is the fact that more and more baby boomers are adding to the ranks of Medicare - potentially 10K of them everyday for the upcoming 2o years.  Right now, there are 4 workers to every beneficiary.  In 20 years there will be 2.3 workers to each Medicare beneficiary.  Lawmakers need to address this soon, obviously, but it is one of those things that none of them want to touch with a 10 foot pole because of the risk of losing votes....especially baby boomer votes because of the tough decisions that need to be made.  I just think about all my young millennial friends and family who are entering the workforce or will be soon and are going to have to pay for all this.  The burdens that we are putting on future generations...

Sneak Peek at QuickBooks 2009

I just completed my ProAdvisor certification for QuickBooks 2009 and here are some enhancements you can look forward to if you are deciding whether to purchase or upgrade to this latest version:

1)QuickBooks Messenger – QuickBooks has entered the realm of IM. You can chat with your coworkers while within the same data file.

2)Live Community – Opens to the right when you start the program. It shows a run of forum questions and allows you to enter questions of your own.

3) Multi User Enhancements - A top complaint I get from clients about QuickBooks is the fact that you must be in single user mode for many tasks. QuickBooks has now enabled some tasks, such as making a back-up, in multi user mode.

4) Multicurrency Feature – This one makes sense because even small companies are doing more and more international business. A quirk about this feature is that you cannot utilize foreign currency with existing customer and vendor records. You must set up those customers and vendors as new records in order to start them with transactions in foreign currency. This is because all the prior transactions for the "old" customer/vendor were recorded in the home currency before multicurrency was enabled and any new transactions under the "new" customer/vendor will be recorded as foreign currency.

5) Enhancements to Online Banking – I have found online banking within QuickBooks to be hit or miss. In many cases, it is just easier to enter transactions manually than to struggle with downloading and and entering/matching transactions from within online banking. Perhaps they have fixed some of the issues in the new version.

6) Company Snapshot Screen – I think that QuickBooks may have copied this from Peachtree because I noticed that Peachtree 2008 has a similar feature. This is a screen that gives you a “snapshot” of your business with an income and expense trend graph, account balances, a listing of customers who owe, vendors to pay, and reminders.

7) Create a Website - The ability to easily create your own website FREE through Intuit online services. The free trial is for 30 days and then it is just $4.99/month after that to maintain.

8) External Accountant User – When an Accountant user is designated, automatic permissions are set up that are similar to the Administrator's permissions. A couple of differences are that the Accountant does not have permission to view sensitive customer information such as credit card numbers and this user is the only one with access to the Client Data Review feature in the Pro, Premier, and Enterprise versions. I am really looking forward to using the Client Data Review because I think it will be a huge time saver and make it much easier to locate and correct errors in the books.

9) Intuit Statement Writer - Unfortunately this feature is only available in the Accountant's Premier edition and Enterprise edition. It links QuickBooks data with Excel so that us accountants can produce top notch customized financials for our clients. When the data in QuickBooks changes it automatically updates the linked financial statement in Excel.

I have to hand it to QuickBooks...they DO listen to feedback from accountants and customers and implement those suggestions into future program versions. For a one stop shop accounting program, it really is the best thing out there at a reasonable price.

Time For Year End Tax Planning!

The end of the year is fast approaching. Don't let April 15 be a SURPRISE! It is your last chance to do some tax planning for 2008 that could make a real difference. If you itemize your deductions, it is a good time to clean out your closets/garage/attic and give all your unwanted stuff away to a fine local charity. Needy folks out there could probably use it. Want to increase your sales tax deduction? You can add the sales tax from a purchase of a car, boat, motorcycle, or RV to the standard table amount. I know there are great deals on those items right now, so if you are in the market, you may not want to wait until next year. Also, it is a great time to make a retirement contribution! It may not be too late to bump up your 401k contribution at work, depending on when your employer allows you to make changes. Don't be a procrastinator! Get your house in order now before it is too late.

I know that a lot of folks are sitting tight to see what new tax policies might be implemented next year, but you know the old saying that a bird in hand is worth two in the bush. Who knows what is going to happen so it is best to work with what you've got NOW.

If you have a business, you may want to take advantage of incentives available under the Economic Stimulus Act of 2008. These include 50% bonus depreciation on new equipment and a higher Section 179 limit of $250K. See this IRS release from earlier in the year with all the details.

Paying the Nanny Under the Table

Here is the scenario:  You have found a wonderful nanny to care for your children in your home.  You are fully aware of the tax requirements for domestic employment, given that it is an occasional topic on the news when it is discovered that a politician has been circumventing the rules.  However, in your situation you agree to pay her cash.  She likes the idea because she doesn't have to report the income and you like the idea because you avoid paying employment taxes on her wages.  How will anybody (the IRS) ever find out?  Maybe everything works out and you live happily ever after.  But, let's just assume that you decide to let her go for any number of reasons.  A few weeks go by and you receive a letter from the Texas Workforce Commission.  Apparently she has filed for unemployment benefits.  How can she do this?  You never hired her as an "employee".  Careful there...she is perfectly within her rights to do this because she in fact met the statutory definition of a domestic employee.  You are now liable for back taxes, penalties, and interest.  You have to hire a lawyer to assist you in working through this mess.  Paying the nanny under the table seemed like such a good idea at the time!

The Wall Street Journal published an article on this topic yesterday.  It goes into more detail on why it is important to do the right thing when it comes to hiring a nanny and some additional resources for information.

Treasure Trove of Money Saving Ideas

Who couldn't use some tips to save money during these crazy times?  This link is a one-stop-shop of money saving ideas - 1,019 of them!  If you implemented just a few of these, just think of the possibilities.

Obama's Tax Policy

The American people have spoken.  I am so grateful that we have a voice in the selection of our leaders...we live in the greatest country on Earth.  What a blessing.  I hope that President Obama will be guided by wisdom and that he will choose thoughtful and experienced advisors as he navigates through the tough times our country is facing.  He certainly has his work cut out for him and I hope that he makes the right decisions for the future of our nation.  Now, what might his tax policy look like?  Answer:  Who knows?  I don't even want to speculate on this right now.  What tax changes we ultimately end up with may be and probably will be very different than what was proposed during his campaign.  I suspect that there will be some compromise.  If you are interested, 15 tax professors give their take on what we might expect.

Hurricane Ike/SBA Disaster Loans

The application deadline is fast approaching for low-interest physical damage disaster loans offered through the Small Business Administration.  These loans are for both businesses and homeowners and the deadline for applying is November 12.  Homeowners may borrow up to $200K and businesses up to $2mil.  Loans for economic injury have a longer filing deadline - those apps are not due until June 15, 2009.  For more information, see the SBA disaster assistance page.  I spoke with an SBA agent a couple of weeks ago and she said that they review the applications on a case by case basis so it does not hurt to apply if you think that you might be eligible, even if you have credit problems such as a recent bankruptcy.

Wealth vs. Income

It will be nice when the election is finally over on Tuesday and we can get back to not being bombarded constantly by campaign rhetoric (from both sides!).  One thing in particular really drives me nuts and seems to come up in some form or fashion during every election cycle.  That is any statement including the words taxes and wealthy...i.e. tax cuts for the wealthy.  Politicians need to be informed that wealth and income are not the same thing.  Wealth is a snapshot of your financial position at a point in time, otherwise known as net worth.  Your net worth is assets less your liabilities (what you own minus what you owe).  Income on the other hand is based on a period of time...it is the amount you earn monthly, annually, etc.

You all know the commercial where the fellow says "I am in debt up to my eyeballs".  He has all that great stuff and an awesome lifestyle, but he doesn't actually "own" that stuff...some creditor does...and he is probably living paycheck to paycheck in order to pay all those bills.  That guy probably even has a negative net worth at this point, especially if that beautiful home has decreased in value during this housing slump.  He might be a successful business person with an INCOME of $300K a year, but because of his purchasing frenzy and his dire financial position he is by no means WEALTHY.  With that significant of an INCOME he certainly has the potential to become WEALTHY if he were to read the top three books on my list to the left and actually live within his means.

The tax increases that the politicians are referencing only affect those with a high INCOME.  The fellow mentioned above who has the high INCOME, but is not WEALTHY, would be affected.  Those who are truly WEALTHY may or may not be affected depending on their INCOME.  For instance, a retired person age 65 with a $3mil IRA may be considered wealthy, but is able to keep his taxable income low by managing his withdrawals from the retirement account to a minimum of say $100K a year.  Therefore he would not be affected.  Also, someone with income from his job of $300K may choose to retire early or at the very least cut back on working if he has $3mil in savings he can tap in order to avoid the increased taxes on the "wealthy".  Newsflash - he IS wealthy!!