Stacy's Tax Blog

Employers: Get Your Ducks In A Row!

2009-10-16T15:50:00.003-05:00

Just received this in my inbox from the Texas Society of CPA's:

IRS and Employers Gear Up for Employment Tax Audits
October 9, 2009 – The Internal Revenue Service has announced plans to launch employment tax audits this fall in conjunction with its National Research Program (NRP). NRP audits are intensive audits followed by analysis. While it is expected that the audits will result in tax assessments, the underlying purpose of the audits is to collect data that will be used in designing profiles for future audits.

A random selection of approximately 6,000 employers will result in the audit class for this project. Employers will be chosen across a broad statistical platform and will include large, medium, and small businesses, for profit, and not-for-profit businesses.

Issues to be considered in these audits include classification of employees v. independent contractors, classification of fringe benefits, reimbursement of expenses, comparison of employee and independent contractor records to actual tax return filings by the recipients, and officer compensation.

Accountable plans for reimbursement of expenses will be examined in the audits. Such plans will be expected to demonstrate that there is a business connection for the expenses, the expenses are reasonable, there is reasonable accounting for the expenses, and reimbursements are paid in a reasonable amount of time.

Auditors will look at withholding and remittance of income taxes, Social Security and Medicare taxes, and unemployment taxes. Employer-prepared payroll tax forms and related deposits will also be examined for accuracy and timeliness.

The audits are expected to begin in November, 2009 and will be conducted over a three year period. Typical audits will cover three years of employment tax records.

S Corporation Shareholder/Employees and Social Security

2009-10-08T15:25:00.005-05:00

One of the benefits of an S corporation is the flow through aspect of the income for tax purposes. S corporations do not have their own tax liability; the income simply flows through to the shareholder's individual income tax return. Even though the IRS says that S corporation shareholders who provide services to the company should pay themselves a "reasonable" salary, the shareholder/employees will often keep that salary to a minimum in order to avoid incurring Social Security and Medicare taxes, and take the rest of the funds they need as dividends/distributions of previously taxed income.

Young S corporation shareholders are particularly against paying into the Social Security system because they are of the opinion that by the time they retire, Social Security will be no more. What they do not realize is that the Social Security system is not only for retirement. It also provides disability and survivors benefits. Heaven forbid anything happen to that person, but if it does, Social Security benefits are made available to that person upon disability or to his/her survivors upon death. In the latter scenario, Social Security acts almost like a life insurance policy. Something to think about before you decide to set that low salary as an S corporation shareholder/employee. Not only will you possibly attract the scrutiny of the IRS for an unreasonable salary, you might also be short-changing your family, especially if you aren't sufficiently covered in the private market for disability or life insurance.

For more information about Social Security benefits, you may visit www.ssa.gov

QuickBooks 2010 Has Arrived!

2009-09-30T15:53:00.003-05:00

Just received my copy of QuickBooks 2010 today. It is now available for ordering or download. Can't wait to check it out and see what new features are available. Stay tuned...

Houston Unemployment

2009-09-21T10:38:00.005-05:00

Well it appears that the recession has finally made its way to Houston. It has just been reported that unemployment is at 8.4%. I believe it because I can see it and clients are definitely feeling it. Texas employers, get ready for your unemployment tax rates to go up at the first of the year.

Seems like one of the few industries unaffected right now is health care. Anyone affiliated in any way to the health industry seems to be doing okay. This may change however if Congress is irresponsible and passes sweeping health care legislation. Doctors really don't need another excuse to quit and young brilliant minds don't need another reason to avoid medicine as a profession.

NASA seems to be okay for now; United Space Alliance employees are affected because of the impending shuttle retirement and not because of the recession. There has been a pretty massive layoff here and I have a friend whose last day is October 9. This has to be the absolute worst time to begin looking for a new job.

Indirect Investors of Madoff Left Out in the Cold

2009-06-29T14:58:00.002-05:00

Here is an interesting article in today's Wall Street Journal. It discusses how people who were invested in so called "feeder funds" - funds that were invested indirectly in Madoff's firm - are out of luck as far as declaring theft losses on their investments and making a claim with the SIPC.

Employer Question: Temporary Employment = Contract Labor?

2009-05-14T15:52:00.003-05:00

These are definitely not the same thing. The question posed is this: An employer is hiring a person in a low-level position who was laid off from his previous high-paying job and the new employer knows that this person is going to be looking for permanent employment elsewhere. If that person is probably only going to be working for the company temporarily, can the employer keep things easy and pay that person as contract labor? The answer is a definite NO. There is no period of time of employment that enters into the decision of contractor versus employee. Regardless of the amount of time that person works for you, if he meets the definition of an employee, then he should be set up as such.

IRS CP2000 Notices

2009-05-04T11:24:00.002-05:00

It is the time of year for the IRS to send out CP2000 notices for tax year 2007. This type of notice is generated when the IRS computers find a discrepancy between what was reported on the tax return versus the documents filed by various sources (1099-INT, 1099-R, etc.). If you fail to report for example a 1099-R that you received for an early retirement distribution, the IRS will discover the discrepancy and you will eventually receive a notice. It takes about a year from the time that the tax return was filed for the IRS to catch any discrepancies. This is why you will see many CP2000 notices being sent around the time period of March, April, and May.

If you receive one of these notices, do not panic. It is not an audit. The IRS simply wants you to respond to the discrepancy. Also, do not just blindly send them a check for the amount due. Read the notice carefully to see what the IRS is describing as the discrepancy. It is possible that a mistake was made by the creator of the source document. Here is an example that I just dealt with recently: someone in the business of making mortgage loans accidently prepared a 1099-INT for interest income rather than a Form 1098 for mortgage interest paid. This triggered a notice because the IRS was looking for the taxpayer to report interest income. Rather than the originator having to file a corrected 1099/1098, the IRS simply required a letter signed by the originator acknowledging the error. We attached a copy of that letter as a response to the notice.

If upon examining the notice you do discover that the IRS is correct, you will have 30 days from the date of the notice to make the payment. If you need additional time for research, you can request an additional 30 days by calling the IRS. There will just be additional interest assessed for the extra time. The fact that it takes a year for the discrepancy to be found, unfortunately means that interest and penalties have accrued on the balance for that period. It is possible to have the penalty abated, if you feel that you have a good reason. Sometimes it is worth a shot. Simply attached a letter explaining the reason you feel that the IRS should consider your request for penalty abatement. All they can do is deny it. Don't bother to try and abate the interest. The IRS sees that as a time value of money issue (you had the use of the funds and not them) and therefore I have never seen them agree to abate interest.

If you are unable to pay the full balance, then the IRS will allow you to set up an installment plan. You should find an installment plan application included with the copy of the notice.

IRS Audits Contract Labor

2009-05-04T11:11:00.003-05:00

A CPA colleague contacted me yesterday to let me know that one of her clients is being audited by the IRS for paying contract labor. This particular issue is emphasized by one of my prior posts. The IRS and the state unemployment commissions do not like the contract labor classification, and it is a difficult position for an employer to defend. If I hear any more detail regarding this case, I will post it here.

Pitfalls of the Obama Tax Credit

2009-04-30T19:57:00.002-05:00

Be aware that there are certain situations where your tax credit may be reduced or eliminated, yet the withholding tables do not account for this. Review this article to see if you fall into any of these scenarios and need to adjust your withholding.

Question: Can I Do A 1031 Exchange With Foreign Property?

2009-03-13T09:16:00.000-05:00

As tax season rolls along, I am posting real and of course compelling questions that I will field from clients during the season. The answer is that yes you can do a 1031 exchange with foreign (non U.S.) property as long as the property you are exchanging to is also non-U.S. property. A 1031 exchange refers to a section of the tax code that allows the tax-free exchange of investment or business real estate for other investment or business real estate as long as the property received is of like-kind as the property that is given up. Therefore, in order to meet the definition of "like-kind" foreign property must be exchanged for other foreign property. 1031 exchanges are complicated and must abide certain time constraints in order to qualify. For more information on the excellent planning tool of 1031 exchanges, this Wikipedia article is a good resource of how the process works.

Quality Control In A Single Preparer Practice

2009-02-22T09:54:00.000-06:00

Not long ago, I was asked by another CPA who works for a large accounting firm how I handle tax return quality control as a sole practitioner? In his company, a partner reviews every return that he prepares. I must admit that it is a challenge to make sure that I have accounted for everything in a tax return...there is so much that can be missed especially in the more complicated ones. I was mentored early on by another sole practitioner CPA in the local area who has been practicing on her own successfully for probably close to 30 years. The strategy that she uses and that I have implemented as well is this: First, do an initial return preparation by inputing all the data into the tax software. Then, set aside that return for several days, maybe even a full week. Work on other tax returns or projects in the meantime. Then, after that time has elapsed, go back to that tax return and review all the entries. This has been effective for me because many times there are items that I did miss, or I will discover something that I need to ask the client about for further clarification. I absolutely hate the "fast food tax preparer" mentality such as H&R Block for instance where you go in and 15 or 30 minutes later walk out with a completed tax return. I just don't think enough time and attention is spent. That works fine on the simplest of returns, but I just think it is dangerous on ones that are even slightly more complicated.

Offer from QuickBooks

2009-02-13T14:47:00.003-06:00

QuickBooks is offering a free copy of QuickBooks Pro 2009 (a $199.95 value) with the purchase of QuickBooks Enhanced Payroll (cost=$349). If you do your payroll in-house, you might want to consider this. Or, receive a free copy of QuickBooks Premier 2009 (a $399.95 value) if you sign up for QuickBooks Assisted Payroll (cost=$720).

With Enhanced Payroll, you generate your paychecks in-house, but QuickBooks performs all the payroll calculations and creates the payroll reports for you. All you have to do is print them. It also calculates your tax deposit amounts.

Assisted Payroll is similar to using an outsourced payroll service such as ADP or Paychex, but as I understand it, at a significantly lower cost. With Assisted Payroll, you still generate the paychecks in-house, but QuickBooks will transmit the tax deposits and file the payroll reports for you.

This offer is good until March 16!! Click here to learn more and take advantage of the offer.

Paying Income Tax is Voluntary?

2009-02-07T15:58:00.002-06:00

Harry Reid says that it is....

Pimp My Taxes

2009-02-01T11:02:00.004-06:00

This guy should have paid attention to what happened to Al Capone: It isn't illegal activity that will necessarily get you caught, but hiding the INCOME on that illegal activity from the IRS. He is learning a lesson that income and gains from whatever source derived must be reported.

Maybe it was just an "honest mistake". Tax evasion i.e. "honest mistakes" seem to be a hot issue right now. I don't think there is much of a difference between a politician and a crook anymore. Geitner and Daschle anyone?

Equilibrium

2009-01-30T08:46:00.000-06:00

I have been trying to find a bright patch in this economic crisis. My undergraduate degree is in economics so I often think a lot like an economist as well as an accountant. I have been thinking about this crisis a lot in terms of an equilibrium. This economy just got too out of hand for too long...spending too much, taking on too much debt, people getting into career fields and starting businesses in areas (real estate, mortgage lending) that they had no business getting into, investing in financial instruments (complex derivatives) they had no business investing in. Things are just trying to equalize...revert back to the mean...become more in line with how they should be. People buying homes that are more in line with their resources and saving money for a rainy day like they should be. Those with strong balance sheets and fundamentals will survive this and we will all learn better habits in the process. I truly believe that this is a good wake up call for everybody and hopefully we will all learn something from this. How's that for making the best out of a bad situation?

There Is No Such Thing As Contract Labor!

2009-01-23T09:27:00.000-06:00

That is what a retired IRS revenue agent told me a few months ago. He now operates a consulting practice assisting those on the “other side” with tax problems. I thought this was interesting and states very clearly the IRS position for the age old question of whether a worker should be classified as an employee or a “1099” vendor or contractor. What he means is that if you hire someone to work for you in your business and the only way to classify your payments to them is as “contract labor” then that person should probably be set up as an employee, having taxes withheld and you as the employer contributing half the social security and medicare. If the person fits more in the category of a consultant or professional service provider, then that implies most likely that person has other customers and his/her own business. The term “contract labor” assumes the person is under your control – you dictate how and when the job gets done. Many employers classify workers as contract labor to save money, but as in the case of paying a nanny as I discussed here, it could be an expensive decision and you could be liable for back taxes. Here is some official IRS guidance on the issue. However, if in doubt it is always best to err on the side of caution, do the right thing, and set that person up as an employee.

An Experiment in Socialism

2009-01-16T07:46:00.000-06:00

I am not by any means implying that our country or leaders are “socialist”, free market principles and private ownership of property do still drive this country for the most part, but all the talk during this last election and the bailout fiasco got me thinking about the concept of socialism. My bachelor's degree is in economics and that is really my first love. Because I have had formal training in the subject, I think I approach it with a good background of knowledge. Just remember, what has made this country great and prosperous is not our government policies and programs, but FREEDOM. The freedom to pursue our own happiness as long as it does not encroach the liberty of others. as the Declaration of Independence so well stated. You just can't tax and re-distribute your way into prosperity, I don't care who is getting taxed. Yes, there are people who have a large piece of the pie, but the fact that they do have a large piece means that we all have a chance to obtain a larger piece ourselves. I know that the new administration will keep this in mind because we are still a center-right country in terms of our philosophy.

My clever husband has devised the following classroom socialism experiment. I really think it illustrates the concept of socialism in a way that is simple to understand. It would be cruel and unfair to implement...but that is exactly what socialism is...cruel and unfair. I think it would work! Here is his idea:

If I were a teacher or professor, I would first let the students take the initial exam. Then, I would tell those with the higher than average grades on the exam that it is unfortunate and unfair to those who made below average scores so I am going to take the extra points of the higher scoring students and give them to the lower scoring students so that essentially everyone would have an average score on the exam. Obviously, the students who scored higher on the first exam would no longer have the motivation to work and study for the subsequent exams and would thus score average or worse. The students who scored low to begin with would still not do well because they would be expecting those extra points, and certainly would not gain anything from this system because there would not be extra points to dole out on subsequent exams. Everyone would be worse off!

Taxpayer Question:Can I Claim My Grandchild As A Dependent?

2009-01-10T18:50:00.008-06:00

The taxpayers have a 19 year old unmarried daughter who had a baby a few months ago. She and her infant son are living with them while she attends college full-time and works a part-time job. They already know that they may claim their daughter as a dependent on their tax return, regardless of her income, because she is under the age of 24 and a full-time student. They also realize that the daughter cannot claim her young son as a dependent on her own tax return because they are claiming her as a dependent. Their question is if they may claim their grandson on their own tax return. My answer: Yes, as long as the father is not in the picture and not eligible to claim the child as a dependent. If the taxpayers are providing more than half of the support of their grandchild coupled with the fact that the baby is living with them, they may claim him as a dependent.

This Is Why....

2009-01-09T19:20:00.002-06:00

This is why you should always live within your means in good times and in bad.

This is why you should not take on too much debt and pay cash for most purchases.

This is why you should have 6 months of living expenses in liquid funds saved up just in case.

This is why one of your major goals should be financial independence.

This is why....you know what I'm talking about...

Year End Payroll Filings

2009-01-06T08:31:00.000-06:00

January is the fun month of quarterly payroll reporting along with year end payroll filings. Lots of form printing, collating, envelope stuffing, etc. Technology does make it so much easier and I just have to sing the praises of a form filler program that I have been using probably back as far as 2001. It is called 1099-etc by Advanced Micro Solutions. The interface of the program hasn't changed a lot since then. It still looks like something that you would see running in Windows 3.1, but it is so easy to use and inexpensive. I recommended it to one of my colleagues and she loves it too. It does laser and preprinted form filling of all the federal and state payroll forms that you could possibly need. It also has an after-the-fact payroll module that then transfers to the forms as well as e-filing capability. The bulk of my clients use QuickBooks so I am able to print most of the forms from there, but I do have many clients who either do not use QuickBooks or they prepare their payroll manually. 1099-etc saves me so much time.

Obama Proposing Tax Cuts as Part of Stimulus Package

2009-01-05T08:22:00.004-06:00

Obama has proposed $300 billion in tax cuts for individuals and businesses as part of his stimulus plan. It appears that he is leaning away from government spending to boost the economy and has warmed up to putting the funds in the hands of the people to decide what to do with their own money. Do you think the government knows better than you how to spend your own money? I think you know the answer to that! I am relieved to see this direction because it would avoid all the unnecessary pork built in to any spending increases. I'm sure everyone has been coming out of the woodwork to lobby for their own pet projects.

The More Taxes You Pay, Should Your Vote Count More?

2008-12-30T07:35:00.007-06:00

This article on the Houston Chronicle's blog page is probably offensive on so many levels (especially to East Texans), but it raises an intriguing point....the concept that for every $1000 of tax money you pay to Uncle Sam, you receive one vote. Therefore, those with the largest investment in the government have a larger say.

There is a feeling among some that it is a conflict of interest for those who pay little if anything in taxes and receive entitlements from the government to be able to vote. They have a greater interest in bigger government and are for raising taxes among the well-offs in order to finance their government dependence. This is similar to "back in the day" when only property owners, who were thought of to be the major stakeholders, could vote.

Now, on the other hand, if those who make the most income, and therefore pay the most taxes, have a relatively larger say, then they are obviously going to vote for things that benefit them. We might have a bigger problem of electing leaders in line with certain well-off citizens special interests and pet projects. I think it is always bad to put the power in the hands of a few, no matter what end of the spectrum. Do we really want the Bill Gates and Warren Buffetts of the country having the largest say in government? Some may argue that we already do with the lobbying process and cronyism that already exists.

The Government May Be The Best Customer But Beware Of The Requirements!

2008-12-29T22:00:00.004-06:00

With the economy going down the tubes, it can be difficult these days for companies relying on contracts to obtain private ones. The state, local, and federal government may actually the best bet for shaking up some business right now. After all, Obama is talking about increasing infrastructure spending so this is only likely to increase.

These contracts with the government do not come without a price however. They require mountains of paperwork to fill out and most certainly a surety bond. The bonding agent will then often require an annual financial statement review or audit by a CPA firm and will also likely require the financial statements be prepared on a percentage of completion basis of accounting. The latter can be a challenge because it usually requires the company to handle their bookkeeping in a new and unfamiliar way. The most challenging aspect may be in estimating the total costs of the job. However, this estimate can be revised as the job progresses. There is no way to know 100% obviously the ultimate total costs until the job is closer to completion.

When accounting for long-term contracts, the percentage of completion method does more accurately address the matching principal of accounting - matching revenues with their related expenses within a given time period. It isn't as bad as it sounds because most of the time, the financial statements for the bonding company are only required on an annual basis so an analysis of uncompleted contracts and the corresponding entries just need to be done once a year. If the company uses QuickBooks, then as long as it religiously uses the job costing feature of the program, it is easy to pull up the profit and loss by job reports necessary to perform the calculations. Then, all one has to do is to refer to the original contract for the contract price and the estimated costs for the job. The company can still continue to use its original accounting method for tax purposes.

New Year's Resolutions

2008-12-29T07:36:00.000-06:00

I hope that everyone had a wonderful Christmas surrounded by family and friends. Now it is time to charge ahead to the New Year. I don't know about you, but I am ready for 2008 to be over with. In addition to the bombardment of bad economic news, we in the Houston area also had to deal with a little storm named Ike. Therefore, I am celebrating the New Year a little early. Are you looking for some resolutions? Here are a few you may need to think about putting on your list:

Get organized by setting up a good filing system. Get some manila folders and organize your receipts in them by either vendor or by category (insurance, office supplies, charity etc.). Ideally, separate them by year. If you are audited, you will be glad that you did this.
Buy some accounting software and USE IT! For keeping track of personal finances, take a look at Quicken. If used properly, it is very helpful for budgeting purposes and answers that age old question "Where does all the money go?". For small business, nothing beats QuickBooks. Both are simple to set up and use. Work on keeping things up to date at least once a month so you aren't scrambling at the end of the year to update your data file. When it comes tax time, instead of handing your tax preparer a mountain of receipts, you can just give him/her a copy of your Quicken/Quickbooks data file or printouts from the files.
If you are self employed, and you don't already have this, set up a dedicated checking account for your business along with a debit card. If you do already have one, stop using your personal accounts and credit cards to pay business expenses. It makes it much more difficult to keep track of things. If you do find yourself occasionally using personal accounts, submit an expense report to your business and reimburse yourself out of your business account for those expenses. This ensures that you have a good trail and all of your business activity remains in your business account.

Happy New Year everybody! Here is to 2009 being a great improvement over 2008!

Tax Breaks for Homeowners

2008-12-26T23:04:00.003-06:00

Business columnist Shannon Buggs with the Houston Chronicle gives an excellent summary of five tax breaks currently available to homeowners that you may not be aware of. Check it out here. The comments posted underneath the story are fun to read too...it turned into a heated debate on tax policy. A lot of folks are fired up about the break given to foreclosure "victims" that do not have to include the forgiveness of mortgage debt in their taxable income. Banks are definitely not the only ones getting a bailout.

Free Quickbooks 2009 Offered Monday Only At Staples

2008-12-19T21:03:00.003-06:00

On Monday the 22nd, Staples is offering free copies of Quickbooks Pro 2009. The offer is good in the store or online. The savings actually come in the form of a rebate. This is how it works according to the email that I just received from Intuit:

The regular price at Staples is $199.99.

The customer will receive $40 in instant savings.

The customer at the store will receive a $159.99 mail-in rebate form.

When the customer mails in the rebate form they will receive, some weeks later, a rebate for $159.99.

Once the customer obtains the rebate, their base costs are zero: $199.99 - $40.00 - $159.99 = $0.

The buyer may still be responsible for sales tax at the time of purchase; sales tax is not free.

The offer is limited to one per customer and while supplies last!

Uncle Sam A Madoff Victim Too

2008-12-18T18:56:00.006-06:00

Poor Uncle Sam...he has really been pummeled this year with job losses resulting in lower tax revenues. He is also happens to be a victim of the Madoff scandal. The IRS could be out by as much as $17 billion in tax revenue as a result. Most of Madoff's investors will not be able to recover their losses as SIPC insurance is limited to only $500K per individual for instances of fraud. An option for those folks may be to amend their prior tax returns to undo the fictitious income that was reported, but they will only be able to go back three years because of the statute of limitations on amending tax returns. They may also be able to take it as a "theft loss" which can be carried back 3 years and forward 20. The amount of the loss they may deduct is 10% of their adjusted gross income less $100. I'm sure the tax attorneys of these investors are hopping right now, reviewing all the options. Ultimately, the IRS should provide some guidance as far as what they consider to be the proper way to handle these losses. In any case, they won't come out ahead.

Grumblings Over Sales Tax Discounts

2008-12-18T16:25:00.005-06:00

Earlier this week, KPRC Channel 2 here in Houston did an "investigators" report into the millions of dollars of sales tax money that stay with the retailers rather than end up in Austin. The way the headline of the story reads "Why Are Retailers Keeping Sales Tax Money", you would think that the retailers are stealing. What they are referring to is the 1/2% discount that businesses who collect sales tax receive if they file their reports and remit their collections on time. According to the report, it amounts to about $90 million a year, the largest retailers such as Walmart receiving the bulk of this because of the sheer volume of their sales tax receipts (about $7 million in their case). Apparently Texas is only #2 to Illinois when it comes to these rebates. Here is the complete study released in November.

All I know is that among my clients, the sales tax discounts result in a paltry amount...definitely not enough to compensate them for complying with the law. After all, sales tax is assessed on the consumer and the businesses have the burden of collecting and reporting it. Businesses also have the burden of dealing with frequent sales tax audits, and I can tell you that these happen more regularly than IRS audits. In fact, I just had a conversation with a worker's comp auditor and we were discussing how sales tax auditors like to park themselves for days at a time compared with other auditor types. I would like for those "investigators" to do a study on the dollar figure in sales tax penalties paid by businesses each year who are late to file. Even one day late can mean a hefty amount depending on the tax. Add to those numbers the cost of compliance which sometimes means hiring programmers to make sure the computers have the correct taxable product codes and localities, hiring tax preparers for report preparation, and maybe even hiring someone for audit representation. Once we have those numbers, then we can talk.

Utilities Sales Tax Exemption for Manufacturers

2008-12-18T15:18:00.003-06:00

Many manufacturers in Texas, and other states for that matter, are unaware that they can receive a sales tax exemption for utilities used in the manufacturing of tangible personal property that will be for ultimate sale. The exemption is due to the fact that the manufactured product will eventually result in sales tax collected from the end purchaser. Not every type of manufacturing qualifies. For example, if a company manufactures items used in construction, then those items are tax exempt to the purchaser. Therefore, that particular manufacturer cannot qualify for a sales tax exemption on utilities. On the other hand, if a company manufactures widgets that are ultimately sold to the public, then a utilities sales tax exemption may be granted.

You must have what is called a “predominant use study” performed in order to qualify. This is typically done by engineers who know how to analyze the utility usage of manufacturing facilities. They prepare a comprehensive report that backs up their findings, and they certify their findings to the comptroller in order for the client company to receive the exemption.

Another good thing about the study is it helps to document the portion of utilities used in the cost of goods sold deduction for the Texas franchise tax.

If you would like more information, let me know and I will point you in the right direction.

IRS Makes It Easier For Those With Federal Tax Liens On Property To Sell Or Refinance

2008-12-17T19:42:00.007-06:00

A federal tax lien on property normally makes it very difficult to sell or refinance because of the delay in IRS approval of the transaction. Sometimes the IRS rejects the transaction altogether. However, the IRS has just announced that they will make it easier for folks to sell or refinance property that has a federal tax lien attached. They are going to expedite the process to clear the liens so that property owners can proceed with their transactions. See today's article in the Wall Street Journal for the details and options for affected property owners.

Need Business Advice But Don't Want to Spend A Lot of $$? Check out a Small Business Development Center Near You!

2008-12-16T07:30:00.004-06:00

When you are first starting a business, margins are tight and you try to pinch pennies wherever you can. The U.S. Small Business Administration has several locations of Small Business Development Centers offering low or no cost services to help businesses get a good leg up so that they have a better chance of success. This is so important in the times we are facing right now, and is definitely NOT a bailout! It is a proactive approach to educate small business owners on important topics such as business plans, loan applications, marketing strategies, etc. The SBDC offers classes as well as one on one consulting. Click here to find an SBDC near you.

College Bang For The Buck

2008-12-15T20:56:00.004-06:00

I just received the January issue of Smart Money magazine and am reading the article titled "Why The Ivies Aren't Worth It". The magazine basically has a "return on investment" approach to their rankings. They took the early and mid-career earnings of graduates at 50 of the most expensive colleges and then accounted for the tuition and fees. From this data, they derived a payback ratio for each school. University of Georgia is at #1 with an average payback of 338%. I am thrilled that my alma mater TEXAS A&M comes in at #2 with a payback of 315%. t.u. is not far behind...but still note that they are behind at #3 with a payback of 306%. Actually, all rivalries aside, I could not be more pleased to see both Texas flagship schools with such high rankings.

As far as the Ivy rankings, a sampling of their paybacks are as follows: Princeton 132%, Yale 127%, and Harvard 124%

This is great news for parents and students who are struggling in this economy to decide whether to invest in an Ivy League education. Hopefully it demonstrates that public colleges are a great value. There should be no shame in stellar students choosing them over an Ivy if money is a consideration, both in terms of paying for college and earning potential after graduation.

A Nonsensical Tax

2008-12-15T13:18:00.007-06:00

Who says we must have tax policy that makes any sense? I was just talking with someone who took his car in for service at the local Ford dealership. As he was admiring the Shelby Mustangs on the showroom floor, he was surprised to see an additional tax disclosed on the fuel economy label. Ah, the gas guzzler tax! Imposed on sports cars, but not on those Cadillac Escalades driving around that have thirsty V8 engines as well. This is an archaic part of our federal tax system that predates the sport utility vehicle craze. It was enacted in 1978 and is a graduated tax added to the cost of new cars (not trucks or SUV's) that do not meet certain fuel standards. Does it make sense that a tricked out Chevy Trailblazer SS does not have to worry about this tax while the upcoming 2010 Chevy Camaro does (if GM lives that long)? It doesn't have to!

As If I Needed Another Reason Not To Live In New York

2008-12-15T10:46:00.006-06:00

Besides the fact that my blood is thin from living my whole life in Texas causing me to be extremely cold natured, New York Governor David Paterson has provided me with another reason to be glad that I do not live in his lovely state. He has proposed an "obesity tax" that will tax non-diet sodas. There are other things in his plan that are more likely to pass than this proposal, but it really takes the cake. Lawhawk has all the details.

Not Seeing Much Of A Slowdown Here...And We Had A Hurricane!

2008-12-15T07:05:00.002-06:00

Ok, so we are now in the middle of the Christmas shopping season during one of the worst economic times in our nation's history, and I am still having to plan my routes to avoid the mall and freeway traffic. I really don't see any difference. The stores seem to be as busy as they always have been during this time of year AND we had a devastating hurricane just a few months ago. Is the media just trying to instill fear in us, or is this area relatively insulated from the general economic downturn of the country? The Houston area definitely did not experience the housing boom several areas saw, so there has been nothing to bust. However, this area is also highly dependent on energy. It will be interesting to see if the drop in oil prices has a trickle down effect on the economy here. Will the experience be similar to the early 1980's when oil prices dropped and this area was decimated? I have a feeling that the Houston economy is much more diversified now than it was then. Houstonians are resilient folks and if we can handle Ike as well as we did, we can weather this storm too.

Support the Money Hole!! This Is No Worse Than What is Really Being Done With Our Tax Money.

2008-12-14T11:34:00.005-06:00

In The Know: Should The Government Stop Dumping Money Into A Giant Hole?

This reminds me of the Daisetta sinkhole here in my neck of the woods. Maybe we can put it to good use as a literal money hole.

Hat Tip: Chad Bordeaux at Periodic Ramblings of a CPA

Oxymorons and Hypocricy

2008-12-14T09:12:00.008-06:00

"Congressional Ethics Committee"....Talk about an oxymoron. I was thinking this while reading an article concerning the House investigation of Rep. Charles Rangel's tax shenanigans, who hypocritically is the chairman of the House Ways and Means Committee, which writes our TAX legislation. Do as I say, not as I do, right? Among other things, he is accused of not paying taxes on $75K in rental income on his home in the Dominican Republic.

Bottom line with Rangel's issues and all the bailout mess is that our lawmakers are no longer accountable to the people they represent. They do not care about public service...most only care about enriching themselves. They already "have theirs" so who cares about everybody else and how these decisions will affect us in the long term?

We have gotten so far away from what our founding fathers originally intended. They did not intend for us to have select career politicians making rules for decades. Most people I talk to feel that we need to start over with a whole new Congress. Maybe term limits on congressmen wouldn't be a bad idea? Maybe I am naive, but all I know is that the system as it stands is NOT WORKING!

Congress Finally Does Something Good!

2008-12-12T07:52:00.002-06:00

This just in...Congress has passed and the president is expected to sign the Worker, Retiree, and Employer Recovery Act of 2008. One important provision of the bill is the suspension of the excise tax on those over the age of 70 1/2 who do not take a 2009 required minimum distribution from their retirement accounts. Thankfully, retirees whose portfolios have lost so much in value recently will not be required to add insult to injury and take an RMD next year. I was hoping that they would make this retroactive to 2008 for those who have been waiting to take a distribution just in case something was done to provide relief this year, but it is better than nothing!

Putting the Bailouts into Perspective...The American Taxpayer is an ATM Machine

2008-12-08T16:24:00.001-06:00

I previously blogged here about the burden that massive government programs will leave to future generations. Here is an article that puts the recent bailouts into perspective by comparing them to the costs of past programs. Depressing!

Bailouts Cost More Than All U.S. Wars and Many Big Programs Combined

Obama's Tax Policy Becoming More Clear....

2008-12-08T13:08:00.001-06:00

I am tempted to stand up and sing the Hallelujah Chorus from Handel's Messiah! Not only in the spirit of the season, but also because it appears that Obama's prospective tax policy for his administration has a centrist bent. He is already angering liberals because it is becoming increasingly evident that he is not for too much "change" after all. He has voiced that he will not support a windfall profits tax on oil companies. This tax would not make sense right now anyway with the price of oil dropping like a rock. Also, rather than increasing taxes on the "wealthy" who make more than $250K, he has said that he will simply let the original Bush tax cuts expire at the end of 2010. I am not holding my breath, but I am cautiously optimistic. To be continued...

Simplifying the Tax Code

2008-12-04T13:20:00.001-06:00

Good luck to anybody who wants a simpler federal tax code. The company CCH, where I obtain some of my continuing education and tax guides, estimates that there have been more than 500 changes to the tax code this year. I don't see a major overhaul to the tax system happening in the near future despite the call for a "Fair Tax" or "Flat Tax". There is just too much public policy written into the tax code. Most of the changes this year were made to bolster the economy, such as the passage of the Economic Stimulus Act of 2008. Changes to the Texas Franchise Tax resulted in increasing complexity as well. I spent more time this year calculating "taxable margin", having to take into account all the various inclusions and exclusions for different types of industries, than I ever spent calculating net income subject to the old franchise tax!

Mileage Rates for 2009

2008-12-03T08:47:00.001-06:00

The IRS has announced the mileage rates effective for 2009. They are 55 cents for business, 24 cents for medical and 14 cents for charitable purposes.

'Tis the Season...

2008-12-02T08:45:00.001-06:00

….for office parties and gift giving to customers and employees. Because of the abysmal economy, holiday gift giving by companies may not be as generous this year. Regardless, many are not aware of the IRS rules associated with the deductibility of these items. Normally any expense involving food and fun relative to a business (unless it is “de minimus”) is only ½ deductible under the meals and entertainment category. However, the IRS does make an exception when it comes to what may be considered a special event such as a banquet or party. In that case, the expenses relative to that event are 100% deductible. Be smart with this one....taking your employees and customers out to eat routinely is not an “event” and would thus be categorized as meals and entertainment and only ½ deductible.

As far as gifts, your business is limited to $25 per recipient. If you spend more than this on a particular customer for instance, the amount above $25 is considered non-deductible. Nominal gifts to customers and employees such as holiday turkeys and hams are okay and 100% deductible by you because it falls under that “de minimus” category. Be careful with gift certificates. Those are considered cash equivalents and cash and cash equivalents given to employees is considered wages and subject to withholding.

Happy Thanksgiving!

2008-11-27T13:29:00.001-06:00

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!

2008-11-20T10:35:00.001-06:00

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

2008-11-19T10:06:00.001-06:00

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

2008-11-17T16:41:00.001-06:00

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

2008-11-13T08:22:00.001-06:00

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!

2008-11-11T08:30:00.001-06:00

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

2008-11-06T11:29:00.001-06:00

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

2008-11-06T08:36:00.001-06:00

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

2008-11-05T12:02:00.001-06:00

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

2008-11-03T17:29:00.001-06:00

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

2008-11-01T10:46:00.001-05:00

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!!

Business Tangible Property Tax

2008-10-31T14:31:00.002-05:00

I have had several calls in the last few days regarding tax statements just received by businesses from the county tax offices. Receiving one of these for the first time is a rude awakening for many small businesses. Their thoughts are 1) they lease their business space and therefore have no property tax to pay, right? and 2) once they figure out that this is a tax on business equipment they wonder why they are being taxed on items that they already paid sales tax on. Sorry folks, state sales tax and county property tax are two different things. Odds are if you started a new business, you are now on the radar for paying ANNUAL property tax on your business furniture/equipment and inventory. This tax is the reason car dealerships always have great year end deals!

The tax bill you are receiving right now is based on values at January 1, 2008. These values were either provided by you on a property rendition form mailed to you in early 2008, or the most likely scenario for a new business is that an agent from the county tax office paid a visit at your new location. What I see quite often, especially in Galveston and Brazoria counties, are agents literally walking door to door, checking their databases to see if businesses have tax accounts. Another way to be automatically signed up by the tax office in most cases is to apply for an assumed name (dba) with the county clerk. Regardless, the RULES are that if you are operating a business within the county then you must obtain a tax account and render the January 1 value of the property used in your business. Blank rendition forms can usually be found on the county appraisal district websites, if you do not receive a preprinted one. The rendition forms are due by April 15 with an opportunity to file a 30 day extension. You certainly want to complete the rendition form rather than ignore it. Otherwise, you leave it wide open for potential penalties and for the county to estimate the values based on the industry and square footage. I know from experience that they always estimate high!

Introducing myself to the blogosphere

2008-10-31T10:39:00.000-05:00

I never thought I would have a blog, but here I am...giving it a shot. I have been doing taxes and accounting for more than 10 years and a Certified Public Accountant for 8 years. I do tax planning and preparation for individuals, small businesses, non-profits, benefit plans, estates, trusts...you name it. I also prepare financial statements for those various entity types. I have been using QuickBooks software since I began my accounting career back in 1997 and have been a Certified QuickBooks ProAdvisor for the last several years. I provide setup, training, and troubleshooting in QuickBooks software. I pay Intuit (the parent company of QuickBooks) an annual fee and take an annual certification exam to retain this qualification. By no means do I receive a commission from the sale of QuickBooks products. On the other hand, I can get discounts (20% in most cases) for my clients on QuickBooks products, and I have access to United States based technical support. The latter being probably the most valuable feature of my affiliation with QuickBooks.

I have observed many things during all these years in the world of taxes, accounting, and small business...what works and what doesn't. I plan to discuss those things here in this blog. Not only on the federal level, but also from a state and local perspective.

Beginning in January through April, when year end reporting and tax season start taking up more of my time, the posts here will probably become shorter and less frequent. However, I will make an effort to post with some observations made during this next tax season that I hope will be helpful and informative to the readers. It will also help me to improve tax season efficiency as it will be documentation that I can refer back to as how the season went and how things can improve.

If anyone has suggestions for topics of discussion, especially tax related, please let me know. I will not give specific tax advice here in this blog but will answer general tax questions.