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

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!

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

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:

1. 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.

2. 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.

3. 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

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

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

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

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

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

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!

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

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

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

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!

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.

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

"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!

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

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....

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

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

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...

….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.