SCA -Tax Blog

How to determine your “real” yield- a free spreadsheet

2011-09-27T14:28:00.000-04:00

Things are rarely what they appear to be in the financial markets.
Sometimes your real yield is what is left after the taxes have been paid.

E-mail us for the free spreadsheet below to determine the effective yield of
a tax-free investment vs one that is fully taxable.

Can your tax cost ever change?

2011-08-31T12:13:00.000-04:00

Surprising the answer is yes! Here's how. Clients are welcome to E-Mail us if questions.

How we see Government vs. how the elite see Government

2011-08-25T10:03:00.000-04:00

This gives new meaning to the phrase that "beauty is in the eye of the beholder."
But since we're paying the bills, our vision is much better than those in DC.

If your stockbroker sounds like this . . .

2011-08-22T10:52:00.000-04:00

. . . you may need to be more careful with your investments.

Need to get your files to us quickly? We're here to help.

2011-08-11T16:39:00.000-04:00

All existing clients now have their own secure portals to send us tax or financial files. Here's an instructional video on how to upload your data.

Link to training video

Government is very predictable ...

2011-08-11T16:08:00.001-04:00

. . .and that is the problem!

Putting things into perspective by removing 8 zeros

2011-08-08T18:13:00.000-04:00

It's amazing what simple math can show:

-Why S&P downgraded -

• U.S. Tax revenue: $2,170,000,000,000
• Fed budget: $3,820,000,000,000
• New debt: $ 1,650,000,000,000
• National debt: $14,271,000,000,000
• Recent budget cut: $ 38,500,000,000
Let's remove 8 zeros and pretend it's a household budget:

• Annual family income: $21,700
• Money the family spent: $38,200
• New debt on the credit card: $16,500
• Outstanding balance on the credit card: $142,710
• Total budget cuts: $385

Who is for more Federal Debt?

2011-08-03T11:08:00.001-04:00

Thanks to this article in the Wall Street Journal we have an overview of which Congressmen approve of giving your children additional debt. Details by state are available via the link.

It only takes room temperature intelligence to figure out that ...

2011-07-22T15:54:00.000-04:00

this just might be part of the reason American business has a hard time competing with our European counterparts.

If you're about to file bankruptcy ...

2011-07-12T17:06:00.000-04:00

do you go out and apply for a line of credit??

I wish Washington had as much sense as the average homemaker.

Now mobile enabled

2011-06-09T09:37:00.000-04:00

Our blog is now optimized for mobile devices as well as your regular browser.

A relaxing movie after tax season?

2011-04-16T14:50:00.000-04:00

Ding Dong the wicked witch is . .

2011-04-07T19:35:00.000-04:00

Remember this headline about the 1099 requirement for 2012?

"As reported in our last newsletter, a sleeper provision in the healthcare bill has imposed a draconian requirement on every small (and large) business in America. [see the link for details]"

We're happy to report that the wicked witch law is dead. Here's the good news.

Fromaccountingweb.com
Senaterepeals 1099 provision; bill goes to President Obama for signature!

TheSenate voted on Tuesday, April 5, by a vote of 87 to 12, to repeal theprovision in the Patient Protection and Affordable Care Act (akaObamaCare) that would have required businesses to file 1099 tax formsbeginning in 2012 for all purchases over $600. The measure now goes tothe president, who is expected to sign it. The measure was sponsored bySenator Mike Johanns (R-NE).

The measurealso repeals a requirement passed in the small-business lending bill inthat required recipients of rental income to distribute and file 1099forms on annual payments in excess of $600.

The1099 repeal is expected to be paid for by requiring people to returnoverpayments of health-insurance subsidies when their income becomesgreater than the threshold used to calculate the subsidy. Thatthreshold is reached when people make more than 400 percent of thefederal poverty limit over the course of a year. This premiumassistance provision in the health care act is not effective until 2014.

SomeDemocrats in the Senate opposed the way the repeal is funded. Anamendment offered by Sen. Robert Menendez (D-NJ) that would haveinstructed the secretary of Health and Human Services (HHS) to studythe repeal and determine if it would cost small businesses more than itwould save them was defeated 41 to 58; it needed 60 votes to pass.

"Thisis a big win for small business and, more importantly, I hope it's thefirst of many successful repeal votes related to the disastroushealthcare bill passed by Democrats last year," Senate Minority LeaderMitch McConnell (R-KY) said Tuesday before the vote, according to theHill.com

April 15 humor

2011-04-06T18:21:00.000-04:00

My thanks to The Onion for their great (although tongue in cheek) headline on how General Electric made 19 billion in profit and paid no US income tax.

Tax analysis of how GE paid no taxes the top 7 methods:

Saved all receipts from aggressive lobbying efforts
Purchased TurboTax Corporate Max Edition
Wrote off bankruptcy of sister company Abstract Electric
Brought a few hundred million good things to life; claimed them as dependents
Somehow managed to locate a loophole in the transparent, ironclad U.S. tax code
Claimed entire NBC prime-time lineup as a loss (that's believable)
Claimed cash as a spouse, earned marriage tax credit

Advice from a successful business owner

2011-03-23T18:10:00.000-04:00

The Heritage Foundation provides insightful views on the effect of Obamcare on business.

How Congress defines the "Evil Rich"- Now you know

2011-03-14T10:35:00.000-04:00

Provisions of 2010 Tax Law

2011-03-10T14:10:00.000-05:00

Here's a summary of some of the new tax provisions from the Tax Relief Act and the Small Business Job Act of 2010. Too bad that passing a law called a job act isn't the same as creating a job. Only the businessman can do that.

The most asked questions about Roth-IRAs

2011-02-26T17:40:00.002-05:00

Q & A session - To Roth or notto Roth? Here are the answers to the questions clients ask.

TRUE OR FALSE?

1. Startingin 2010, there are no income limitations to make regular contributionsto a Roth IRA.

2. Roth IRAinvestment income is always tax-free if received after age 59½.

3. A 10%penalty never applies to a Roth IRA distribution if the owner is overage 59½.

4. Dividingan individual retirement account (IRA) into various IRAs, each holdinga different investment asset class, before converting them to Roth IRAsis a strategy that allows taking advantage of market volatility.

5. Thedeadline for a 2010 Roth conversion is April 15, 2011.

6. Thedeadline to recharacterize a Roth conversion is Oct. 15 of thefollowing year.

7. A clientwho has only made nondeductible contributions to a sole IRA can convertit to a Roth IRA and pay no taxes on the conversion of earnings.

8. The firstdistribution taken from any Roth IRA is considered to come from regularcontributions, even if contributions were made to a different Roth IRA.

9. Aninherited IRA cannot be converted to a Roth IRA, while an inheritedemployer plan can be.

10. Theoriginal owner of a Roth IRA can always choose to take the money out,but is never required to.

11. A Rothconversion cannot be done in a year when the taxpayer has nocompensation income.

12. Atraditional IRA converted to a Roth IRA with a trustee-to-trusteetransfer automatically transfers the beneficiary designation to theRoth IRA.

13. Distributionsfrom a Roth IRA are not counted as income for the calculation of taxeson Social Security benefits.

14. Assetsrecharacterized can be reconverted at the later of (1) the beginning ofthe year after the year of recharacterization, or (2) the end of the30-day period beginning on the day of the recharacterization.

One of the morefrequent questions for tax year 2010 is, "should Iconvert my IRA to a Roth?"

There is no "one size fits all" answer, but knowing about how a Rothworks can help you determine if you're a good candidate for this. Takethis quiz and test your Roth I.Q.

ANSWERS

1. False. Incomelimitations no longer apply to conversions, but still apply to regularcontributions.

2. False. A secondrequirement is that it is received after a five-year period beginningJan. 1 of the year the client first established a Roth IRA. Someexceptions apply.

3. True. Age is oneof several exceptions to the 10% penalty.

4. True. The ideais to keep the accounts that go up in value and recharacterize others.

5. False. Thedeadline is Dec. 31, 2010. Therefore, a conversion (unlike acontribution) cannot be evaluated when a tax return is being finalized.

6. True. Aconversion can be made by Dec. 31, and then recharacterized (evenpartially) before Oct. 15.

7. False. Taxes aredue on the conversion of earnings from nondeductible contributions.

8. True. Thecomplex Roth IRA distribution rules apply to the aggregate of theclient’s Roth IRAs.

9. True. However, asurviving spouse can roll over to a spousal IRA, then convert to a RothIRA.

10. True. Taxes anda penalty may apply, but the option to take the money out is alwaysavailable. Required minimum distributions (RMDs) apply tobeneficiaries, with a possible exception for a surviving spouse.

11. False. Unlike acontribution, a Roth IRA conversion can be made regardless ofcompensation income.

12. False. Rememberthat beneficiary designations should be made on all new IRAs.

13. True.

14. False. Assetsrecharacterized can be reconverted at the later of (1) the year afterthe year of conversion, or (2) more than 30 days afterrecharacterization.

2011-02-26T17:39:00.000-05:00

Here'sthe best of all productions- one where you get the starring role and a freegift from us!

Whether you agree ordisagree, we're always glad to get your comments. Log into our blog andpost your tax comment or question. We can help you minimize yourgovernmental footprint, legally keep more of what's yours, and gain theability to measure your financial performance.

To help you reach the above goals, we're beginning a new service freeof charge to all existing clients. This will be unique among accountingfirms. For an advance preview, click here.

Poking fun at CPAs

2011-02-26T17:35:00.001-05:00

Time to poke some fun at CPAs

We've made some strong (but extremelyaccurate)comments aboutthe politicans so, in the interest of equal time, let's see whatHollywood says about your friendly neighborhood CPA.

I know this is hard to believe, but there actually is a Hollywood moviewith a CPA as a leading character!

In this 1950 Joan Crawford movie, a handsome, dashing, and cleveraccountant is the auditor for Joan's company. Mrs. Crawford isobviously fascinated by his explanation of what a CPA does and inviteshim to an expensive restaurant that evening.

Alas, our tax hero sabotages his own date by ordering the cheapest itemon the menu and then bragging about it (hence the astonished look onJoan's face at left). Of course, even when accountants write the TV ad,we don't fare well.Here'sa TV clip from an accounting firm that purports to make the taxpreparer seem like Rocky Balboa.

We've condensed the best 90 seconds of Joan's date with aCPA foryour viewing; just click the play button.

CPAs get alarmed at these numbers.

2011-02-26T17:32:00.001-05:00

Areyou better off today than you were two years ago?
Numbers don't lie,and here is the data on the impact the economy has had on the lives ofAmericans:

What's the lesson? Restructure to investments that perform well in a high inflation environment.

	January 2009	TODAY	*% chg*	^Source
Avg. Retailprice/gallon gas in U.S.	$1.83	$3.104	69.6%	¹
Crude oil, EuropeanBrent (barrel)	$43.48	$99.02	127.7%	²
Crude oil, West TXInter. (barrel)	$38.74	$91.38	135.9%	²
Gold: London (pertroy oz.)	$853.25	$1,369.50	60.5%	²
Corn, No.2 yellow,Central IL	$3.56	$6.33	78.1%	²
Soybeans, No. 1yellow, IL	$9.66	$13.75	42.3%	²
Sugar, cane, raw,world, lb. Fob	$13.37	$35.39	164.7%	²
Unemployment rate,non-farm, overall	7.6%	9.4%	23.7%	³
Unemployment rate,blacks	12.6%	15.8%	25.4%	³
Number of unemployed	11,616,000	14,485,000	24.7%	³
Number of fed.Employees, ex. Military (curr = 12/10 prelim)	2,779,000	2,840,000	2.2%	³
Real medianhousehold income (2008 v 2009)	$50,112	$49,777	-0.7%	⁴
Number of food stamprecipients (curr = 10/10)	31,983,716	43,200,878	35.1%	⁵
Number ofunemployment benefit recipients (curr = 12/10)	7,526,598	9,193,838	22.2%	⁶
Number of long-termunemployed	2,600,000	6,400,000	146.2%	³
Poverty rate,individuals (2008 v 2009)	13.2%	14.3%	8.3%	⁴
People in poverty inU.S. (2008 v 2009)	39,800,000	43,600,000	9.5%	⁴
U.S. Rank inEconomic Freedom World Rankings	5	9	n/a	¹⁰
Present SituationIndex (curr = 12/10)	29.9	23.5	-21.4%	¹¹
Failed banks (curr =2010 + 2011 to date)	140	164	17.1%	¹²
U.S. Dollar versusJapanese yen exchange rate	89.76	82.03	-8.6%	²
U.S. Moneysupply, M1, in billions (curr = 12/10 prelim)	1,575.1	1,865.7	18.4%	¹³
U.S. Moneysupply, M2, in billions (curr = 12/10 prelim)	8,310.9	8,852.3	6.5%	¹³
National debt, intrillions	$10.627	$14.052	32.2%	¹⁴

Sources:

(1)U.S. Energy Information Administration;
(2) Wall Street Journal;
(3) Bureau of Labor Statistics;
(4) Census Bureau;
(5) USDA;
(6) U.S. Dept. Of Labor;
(7) FHFA;
(8) Standard & Poor's/Case-Shiller;
(9) RealtyTrac;
(10) Heritage Foundation and WSJ;
(11) The Conference Board;
(12) FDIC;
(13) Federal Reserve;
(14) U.S. Treasury

Can government really stimulate the economy?

2011-01-25T15:16:00.000-05:00

Here's what usually happens !

Where do rebates come from? These folks know the answer.

2010-10-22T12:56:00.000-04:00

Punishing folks with more children?

2010-10-11T12:14:00.000-04:00

Punishingfolks with more children? It may not be deliberate, but that is exactly whatCongress will do by letting the Bush tax cuts expire. As you'll see in our nextnewsletter, the numbers are not even close to the real effect.

Selected highlights from the new tax bill

2010-09-28T18:05:00.000-04:00

The President signed the new tax bill on September 27, 2010.
Here's are just a few selected highlights for our clients.

Will it inject some life into the economy? We'll see.

E-mail us for a full analysis.

The Small Business Lending Fund Act of 2010

Extension of 50% Bonus Depreciation: The bill extends – as the President proposed in his budget – a Recovery Act provision for 50 percent “bonus depreciation” through 2010, providing 2 million businesses, large and small, with the ability to make new investmentstoday and know they can receive a tax cut for this year by accelerating the rate at which they deduct capital expenditures.

A New Deduction of Health Insurance Costs for Self-Employed: The bill allows 2 million self-employed to know that on their taxes for this year, they can get a deduction for the cost of health insurance for themselves and their family members in calculating their self-employment taxes. This provision is estimated to provide over $1.9 billion in tax cuts for these entrepreneurs.

An Increase in the Deduction for Entrepreneurs’ Start-Up Expenses: The bill temporarily increases the amount of start-up expenditures entrepreneurs can deductfrom their taxes for this year from $5,000 to $10,000 (with a phase-out threshold of $60,000 in expenditures), offering an immediate incentive for someone with a new business idea to invest in starting up a new small business today.

Tax Relief and Simplification for Cell Phone Deductions: The bill changes rules so that the use of cell phones can be deducted without burdensome extra documentation – making it easier for virtually every small business in America to receive deductions that they are entitled to, beginning on their taxes for this year.

Zero Taxes on Capital Gains from Key Small Business Investments: Under the Recovery Act, 75 percent of capital gains on key small business investments this year were excluded from taxes. The Small Business Jobs Act temporarily puts in place for the rest of 2010 a provision called for by the President – elimination of all capital gains taxes on these investments if held for five years. Over one million small businesses are eligible to receive investments this year that, if held for five years or longer, could be completely excluded from any capital gains taxation.

Learning from experience

2010-09-27T15:21:00.000-04:00

Did we get the IRS' attention or what?

2010-09-17T15:51:00.000-04:00

Mere hours after this post, I found that the IRS is "requesting" comments and input on the most onerous and draconian requirement every foisted on US business owners.

(See the above link and this article for full details.)

Clients and fellow business owners - we have their attention, it's time to make your voice heard.

Be sure to read this summary of the IRS Notice 2010-51. For maximum effect, respond in the format described and sent to

notice.comments@irscounsel.treas.gov, with “Notice 2010-51” in the subject line, or by postal mail to IRS, CC:PA:LPD:PR (Notice 2010-51), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

Comments are requested by Sept. 29, 2010.

US Senate says tough luck to small business and 1099 requirement

2010-09-17T10:25:00.002-04:00

As reported in our last newsletter, a sleeper provision in the healthcare bill has imposed a draconian requirement on every small (and large) business in America. [see the link for details}

Hidden in Section 9006 of the healthcare bill is a potential requirement that will cause every business to issue 1099s to all vendors. Presently, 1099s are required for individuals and partnerships but not to corporate vendors. Under current law, 1099s are issued only for rents, services, and financial-based transactions. Section 9006 would require 1099s to all vendors for all transactions over a set amount, creating a cost accounting nightmare for businesses both small and large.

Two separate amendments to repeal or reform the most onerous reporting requirement in IRS history were defeated by the Senate this week.

The Wall Street Journal demonstrates just how harmful this bill in going to be in this recent article.

Think about a midsized trucking company. The back office would have to collect hundreds of thousands of receipts from every gas station where its drivers filled up and figure out where it spent more than $600 that year. Then it would also need to match those payments to the stations’ corporate parents.

A solution is obtainable if enough clients voice their opinion. See the article A Nightmare on Main Street for an explanation.

Answers to your questions about the new health care bill

2010-09-15T17:47:00.000-04:00

A lot of folks thought that they would have more freedom and options under the new healthcare law.

Nothing could be further from the truth. Instead of expanding the use of private tax-sheltered health savings accounts (HSA), Flexing Medical Spending Accounts (FSA), and Medical Savings Accounts (MSA), the new law actually restricts their use. What used to be legal won't be in a few months.

Taking a tax concept that was helpful and working and restricting its use - that's our Congress.

Here's a list of what of what's changed from the IRS Website.

Q. How are the rules changing for reimbursing the cost of over-the-counter medicines and drugs from health flexible spending arrangements (health FSAs) and health reimbursement arrangements (HRAs)?
A. Section 9003 of the Affordable Care Act established a new uniform standard for medical expenses. Effective Jan. 1, 2011, distributions from health FSAs and HRAs will be allowed to reimburse the cost of over-the-counter medicines or drugs only if they are purchased with a prescription. This new rule does not apply to reimbursements for the cost of insulin, which will continue to be permitted, even if purchased without a prescription.

Q. How are the rules changing for distributions from health savings accounts (HSAs) and Archer Medical Savings Accounts (Archer MSAs) that are used to reimburse the cost of over-the-counter medicines and drugs?
A. In accordance with Section 9003 of the Affordable Care Act, only prescribed medicines or drugs (including over-the-counter medicines and drugs that are prescribed) and insulin (even if purchased without a prescription) will be considered qualifying medical expenses and subject to preferred tax treatment.

Q. When will the changes become effective?
A. The changes are effective for purchases of over-the-counter medicines and drugs without a prescription after Dec. 31, 2010. The changes do not affect purchases of over-the-counter medicines and drugs in 2010, even if they are reimbursed after Dec. 31, 2010.

Q. How do I prove that I have purchased an over-the-counter medicine or drug with a prescription so that I can get reimbursed from my employer's health FSA or an HRA?
A. If your employer’s health FSA or HRA reimburses these expenses, you would provide the prescription (or a copy of the prescription or another item showing that a prescription for the item has been issued) and the customer receipt (or similar third-party documentation showing the date of the sale and the amount of the charge). For example, documentation could consist of a customer receipt issued by a pharmacy that reflects the date of sale and the amount of the charge, along with a copy of the prescription; or it could consist of a customer receipt that identifies the name of the purchaser (or the name of the person for whom the prescription applies), the date and amount of the purchase and an Rx number.

Q. How does this change affect over-the-counter medical devices and supplies?
A. The new rule does not apply to items for medical care that are not medicines or drugs. Thus, equipment such as crutches, supplies such as bandages, and diagnostic devices such as blood sugar test kits will still qualify for reimbursement by a health FSA or HRA if purchased after Dec. 31, 2010, and a distribution from an HSA or Archer MSA for the cost of such items will still be tax-free, regardless of whether the items are purchased using a prescription.

Q. Will I need a prescription to use my health FSA, HRA, HSA or Archer MSA funds for insulin purchases after Dec. 31, 2010?
A. No. You can continue to use your health FSA, HRA, HSA or Archer MSA funds to purchase insulin without a prescription after Dec. 31, 2010.

Q. I use health FSA funds for my co-pays and deductibles. Will I still be able to reimburse those expenses with health FSA funds after Dec. 31, 2010?
A. Yes. Co-pays and deductibles continue to be reimbursable from a health FSA after Dec. 31, 2010. Similarly, funds from an HRA can continue to be used for these expenses and a distribution from an HSA or Archer MSA for these purposes will be tax-free.

Q. My company gives me two extra months beyond the end of the year to submit claims for health FSA expenses incurred during the year. What happens if I purchase over-the-counter medicines or drugs without a prescription in 2010 but do not submit the claim for those expenses until January 2011? Will they qualify for reimbursement?
A. Yes. The new restriction on plan reimbursements for the cost of over-the-counter medicines or drugs without a prescription applies only to purchases that are made after 2010.

Q. My company’s health FSA includes a provision for a grace period, so that if I don’t spend all of the money in my health FSA by Dec. 31 in a given year, I can still use the amount left in my health FSA at the end of the year to reimburse expenses I incur during the first 2 ½ months of the following year. If I buy over-the-counter medicines or drugs without a prescription during the 2 ½ month grace period of 2011, can I still use the amount left in my health FSA at the end of 2010 to reimburse those expenses?

A.. No. The change applies to purchases made on or after Jan. 1, 2011. Thus, even if your employer’s plan includes the 2 ½ month grace period provision, the cost of over-the-counter medicines and drugs purchased without a prescription during the first 2 ½ months of 2011 will not be eligible to be reimbursed by a health FSA.

Q. If my plan issues a debit or credit card that I use to pay for over-the-counter medicines or drugs, will I still be able to use the card to purchase over the counter medicines or drugs after Dec. 31, 2010?
A. Generally, no. The plan must ensure that the card is reprogrammed no later than Jan. 15, 2011, so that the card can no longer be used to purchase over-the-counter medicines or drugs. For further information, see IRS Notice 2010-59. If your employer’s plan reimburses expenses for over-the-counter medicines and drugs, you can seek reimbursement for these expenses by presenting the information described above in the answer to the question “How do I prove that I have purchased an over-the-counter medicine or drug with a prescription so that I can get reimbursed from my employer's health FSA or an HRA?”

Q. If I use HSA or Archer MSA funds to reimburse the cost of over-the-counter medicines or drugs purchased after Dec. 31, 2010 without a prescription, what taxes will I incur?
A. If you have an HSA or Archer MSA, the amount of the distribution for expenses that are not qualifying medical expenses will be includable in your gross income and subject to an additional tax of 20%.

What drives the deficit? You just might be surprised.

2010-08-24T12:01:00.000-04:00

Most of us have an annoying trait of expressing an opinion on government spending without really knowing the facts.

James Carville recently said the war in Iraq added 3 trillion to the deficit. He's overstating by a factor of 323% but we've come to expect that from Jim and his follow politicians.

The important point to learn from the attached CBO (Congressional Budget Office) chart is that the deficit which will devastate our children's future is controlled by Congress, not the war or any uncontrollable event.

Choose the right Congress and the incredible spike of 2009 et al can be brought under control.

By the way Mr. Carville, your 323% distortion would be just about the right number to describe the increase in the deficit the President and the current Congress are creating.

Much truth in jest?

2010-07-29T10:16:00.000-04:00

The new meaning of high crimes rates!

Does Governmental insurance cover this?

Are you a good candidate for a Roth Conversation?

2010-07-26T18:56:00.001-04:00

Are you a good candidate for a Roth Conversation?

Answer these 10 questions to find out.

From the august, 2010 Journal of accountancy

By Jean-Luc Bourdon

August 2010

By now, CPAs have heard much about Roth IRA conversions made widely available in 2010. Take the following test to see how much you’ve learned.

TRUE OR FALSE?

1. Starting in 2010, there are no income limitations to make regular contributions to a Roth IRA.

2. Roth IRA investment income is always tax-free if received after age 59½.

3. A 10% penalty never applies to a Roth IRA distribution if the owner is over age 59½.

4. Dividing an individual retirement account (IRA) into various IRAs, each holding a different investment asset class, before converting them to Roth IRAs is a strategy that allows taking advantage of market volatility.

5. The deadline for a 2010 Roth conversion is April 15, 2011.

6. The deadline to recharacterize a Roth conversion is Oct. 15 of the following year.

7. A client who has only made nondeductible contributions to a sole IRA can convert it to a Roth IRA and pay no taxes on the conversion of earnings.

8. The first distribution taken from any Roth IRA is considered to come from regular contributions, even if contributions were made to a different Roth IRA.

9. An inherited IRA cannot be converted to a Roth IRA, while an inherited employer plan can be.

10. The original owner of a Roth IRA can always choose to take the money out, but is never required to.

11. A Roth conversion cannot be done in a year when the taxpayer has no compensation income.

12. A traditional IRA converted to a Roth IRA with a trustee-to-trustee transfer automatically transfers the beneficiary designation to the Roth IRA.

13. Distributions from a Roth IRA are not counted as income for the calculation of taxes on Social Security benefits.

14. Assets recharacterized can be reconverted at the later of (1) the beginning of the year after the year of recharacterization, or (2) the end of the 30-day period beginning on the day of the recharacterization.

ANSWERS

1. False. Income limitations no longer apply to conversions, but still apply to regular contributions.

2. False. A second requirement is that it is received after a five-year period beginning Jan. 1 of the year the client first established a Roth IRA. Some exceptions apply.

3. True. Age is one of several exceptions to the 10% penalty.

4. True. The idea is to keep the accounts that go up in value and recharacterize others.

5. False. The deadline is Dec. 31, 2010. Therefore, a conversion (unlike a contribution) cannot be evaluated when a tax return is being finalized.

6. True. A conversion can be made by Dec. 31, and then recharacterized (even partially) before Oct. 15.

7. False. Taxes are due on the conversion of earnings from nondeductible contributions.

8. True. The complex Roth IRA distribution rules apply to the aggregate of the client’s Roth IRAs.

9. True. However, a surviving spouse can roll over to a spousal IRA, then convert to a Roth IRA.

10. True. Taxes and a penalty may apply, but the option to take the money out is always available. Required minimum distributions (RMDs) apply to beneficiaries, with a possible exception for a surviving spouse.

11. False. Unlike a contribution, a Roth IRA conversion can be made regardless of compensation income.

12. False. Remember that beneficiary designations should be made on all new IRAs.

13. True.

14. False. Assets recharacterized can be reconverted at the later of (1) the year after the year of conversion, or (2) more than 30 days after recharacterization.

Reason # 5 to keep accurate accounting records

2010-07-14T14:34:00.000-04:00

What drives your profits?

2010-07-06T17:45:00.000-04:00

It's not really the 80/20 rule that you hear quoted so often. It's more like this.

Even in a tough economy, it pays to screen your clients. If you don't get the help you need in analyzing ROI per client. Click here for solutions.

Protecting your business data with strong passwords

2010-06-30T15:56:00.001-04:00

We've all heard the horror stories of private data being compromised. This almost always happens through the use of weak passwords. Here's a helpful (and short) read from the Journal of Accountancy on a system that lets you easily remember those tough passwords.

Q I have to remember so many passwords that require all kinds of number and letter combinations. How can I create something that I can remember?

A First, remember what not to do. Don’t use simple words or numbers someone might guess—your child’s name, your birthday or your anniversary date for example.

So, how does one create a better password? To begin with, it should be complex—a mix of letters (upper-, lowercase), numbers and even a sprinkle of punctuation marks.

I can anticipate your next question: OK, if it’s that complex, how am I going to remember it? Read More

Conversely, you can do what I do and solve your problem by buying Roboform. It's cheap,easy, and solves the problem instantly.

They could use a better headline writer.

2010-06-10T17:55:00.001-04:00

Deficit Reduction Committee seeks larger budget.

I wonder if anyone else sees this as self-refuting?
Click the link for the full story.

Healthcare law provision effective in 2009 for medical student loans

2010-06-08T12:05:00.000-04:00

You read it right. Although the bill was passed in March 2010, a few of the provisions take place for tax year 2009.

It seems Congress believed the survey results that indicated 30% to 40% of certain specialists would abandon the medical profession (can you blame them) if this law passed.In an effort to increase the supply of new doctors in the system certain student loan forgiveness is excluded from 2009 income.

Here's a summary of this provision. Contact us if you need help with this on the 2009 return.

Hiring for Dollars

2010-06-04T10:36:00.001-04:00

Hire the unemployed andreduce your company's FICA expense

The 2009 movie Hire Me! was about anelaborate ponzi scheme. There is no such trickery to the new Hiring Incentivivesto RestoreEmployment Actsigned by the President earlier this year. If your newemployee(hired after 2/3/2010) has been unemployed for 60 days, wages paidafter 3/18/2010 qualify for exemption from the 6.2% FICA normally paidby the employer. In addition, your business may qualify for up to a$1,000 tax credit per employee for those employed 52 continuous weeks.

Let's recap just how helpful this credit could be to your company.

The 6.2% benefit is an immediate increase to cashflow.
No minimum weekly number of hours required
No phase-out of the 6.2% benefit - it applys equallyto an employee making 12,000 or 60,000.
May apply to non-profits as well as private companies
No limit on the number of new employees who mayqualify.

You'll needthis form from the IRS to begin the process.

Could this credit apply to hiring your previously- furloughed spousefrom a family business?

Clients are welcome to contactus for an answer.

Tax Law goes Hollywood

2010-06-04T10:11:00.000-04:00

It appears that the TV series Law and Order has become Tax Law and Order.

Itappears that Hollywood has become infatuated with tax law! Arecent Lawand Order episode was entirely devoted to the problemspresented due to the estate tax lapsing in 2010 but returning with avengeance in 2011. The Lawand Order plot centered around the DistrictAttorney'sinvestigation of a medical clinic that prolonged the patient's lifethrough December, 2009 so that he would die in 2010. The heirs avoidedmillions of estate tax. Our favorite part (of course) is thattax advisor saying , "Hey, I did nothing illegal except explain the taxcode to my client." In case you missed it, here's a clip(justclick the picture below) of thetax law episode featuring both the tax and medical professionals.

Congressional Minds

2010-06-04T09:41:00.000-04:00

The TV seriesCriminal Minds focuses on 7 FBI agents who, as a team,profile the minds and motives of the criminal offender. The idea isthat if you understand how the crooks think, you can better thwarttheir actions.

Here's our latest idea for Hollywood. It's a show that exposes themotive of some really prolific and plunderous folks. It features theSCA team of profilers who will analyze the video interviews of varioustax law officials and expose their erroneous thinking. As acompanion to Criminal Minds, we present the following pilot series.

~~Criminal~~ Congressional Minds

Profiling the~~Criminal~~ Congressional mind-- ATV series that enables youto understand why Congress comes up with insane ways to plunderyour business and checkbook.
(View our interviews below with selected Congressional
minds and then note the SCA profiler's comments.)
WARNING:
Certain quotes by the Congressional Minds profiled below are sounbelievable that you may need to watch the video several times tofully understand their plundering mindset.

	CaliforniaRep.PeteStark comments that, in government, that the more debt you have, the wealthier you are. When the interviewerpointsout that this is impossible, Rep Stark explodes into a rage ofquestions about the interviewer's lack of a Masters Degree in economic theory and begins a tirade of various obscenities. We haveremoved the inappropriate language by Rep. Stark since this is a familyprogram. Observe an advanced case of Congressional doublespeakin action! Our Profile of aCalifornia mind: Mr. Stark suffers from the common Congressional delusion that Congress can spend itself rich. As a young man he likely believed you could drink yourself sober as well. This profile manifests itself in yelling, insulting, and using of profanity when confronted with certain economic truths that any business owner learned in his first week of operations. Mr. Stark has "served" 37 years. Perhaps by year 40 he will understand basic economics.
	Mr.TimGeithner states that he has never held a "real" job and that since graduate school he has held employment only in the government sector of the job market. Our Profile of a Treasurymind: We really hate to nit-pick, but wouldn't most folks with common sense (i.e. the non-Criminal/Congressional mindset) believe that IF: you've never met a payrol,l you screw up your own tax return. you've never worked for a company that has to competein the market, you just maybe shouldn't be in charge of the US Treasury!!! This Congressional mind illness is typical of appointed as well aselected officials. It's known as "the rules that everyone else must live bydon't apply to me" syndrome.
	Analysisof Rep. BarneyFrank offers a rare view into the Criminal/ Congressional mind. He states that we should concentrate solely on an"immediate increase in spending"and "a dose of Keynesian economics." Barney seesno long-term fiscal damage to unlimited spending because "there areplenty of rich people that we can tax and get the money back." Our Profile of aCongressional mind: Our diagnosis calls for us to be frank with Barney. His Congressional mindset ignores that fact that states like New Jersey, California, NewYork, Maryland,etc. have all seen their tax revenues plummet as folks leaveratherthanbe treated as a financial voodoo doll that Barney can stick every timehe needsmoremoney. Despite Washington's attempt to stop it,the same exodus is happening at a national level. People are leaving in record numbers to avoid thecoming tax wave. Our treatment recommendations are contained in a modern day revision oftheclassic book AnimalFarm. Clickhere for the updated and economized version of the supply and demandstory.and here for the Wall Street Journal articleon the coming Wealth Exodus. Send Barney a copy of these articles by usingthis link.
	Whenquestioned about the Constitutionality of forcing folks to buy a healthcare contract, Rep. Phil Hare is caught red-handed saying, " I don't worryabout the Constitution." Our Profile of a"Hare"-brained mind: This is one of the most dangerous of all Congressional minddiseases. It removes any sense of absolute values. In our opinion, Mr. Hare requiresintervention therapy that includes forcing an answer to the following type of question(s). Since you don't worry about the Constitution, are you: equally non-worried about the concept of private property rights? If so, why stop at health care? Couldn't the Congress provide forhousing, automobiles, guaranteed pensions (they are working on that one),full-time employment, and a right to free gasoline? If that peskyConstitutionalconcept of limited government is not anything to "worry" about, why notprovide the above needs? People like this are dangerous to your financial health.Avoid close contact at all costs.
	VicePresident Joe Biden, in an interview explaining how to claim some new 2009 tax breaks, proclaims, "I don't deserve a tax break." Our Profile of a VicePresidential mind: It seems the first causalty of elected office is the ability to seeyour own inconsistencies. Don't get me wrong on this. I'm fine with any citizen taking abenefit that the tax code allows them to utilize. I'm not so fine with saying "I don'tdeserve a tax break" andclaiming $62,954 of tax breaks on one's return. Recommended treatment entails as many voters as possible letting thispublic offical know that he doesn't have to paint himself as undeserving. Whathe does need to do is work to lower spending and the tax rate on all of us includinghimself. We believe that this will totally cure the guilt complex that afflicts him.
	"Ido think at a certain point you've made enough money." Our Profile of aPresidential Mind Our recommendation calls for a cold dose of the reality ofexactly where this mindset leads us economically. If the above is true at "a certain point"then: At what point should I stop hiring new employeessince I've "madeenough money"? At what point do I stop giving bonuses to key peoplesince I've "madeenough money?" Do I postpone buying the new computer system (giving my computer vendor taxable income as well as a sale)just because I've already "made enough money"? At this point, you've probably thought of your own logical questionsyou'dlike to add to the above list. Visit this article at ourTax Blog andyou can share your wisdom (or your criticism). This will also help ourNielsen ratings and move the show to prime time.

Marriage Penalties Increase Dramatically Under ObamaCare

2010-04-24T12:43:00.004-04:00

Diana Furchtgott-Roth has written an excellent article on this subject. One again, the President and Congress display their anti-family bias.

New Healthcare law taxes the poor,sick, and low income earners

2010-03-29T21:13:00.011-04:00

Do you really believe that the new health care laws don't hurt the poor, the sick, and the low (and middle class) wage earners?

Think again!

Below are just some of the new taxes that will affect all of us. (click to enlarge)

Do you still believe?

2010-03-26T13:52:00.010-04:00

Our regular clients know that the FICA tax is simply a penalty tax on productive Americans. Regular folks can't recover their cost (much less a return) if they live to be 120.

My thanks to the Boston Globe. In this article, they confirm that the system will pay out more than they take in this year and that this is a trend that will continue. This was projected not to happen until 2016, but thanks to Congress and the President, we're way ahead of schedule and way behind in budgeting. [Post your comment below if you want more details on this shortfall.]

Don't be like the characters below. Wise up and plan now for retirement because you won't find social security to be sociable or secure.

Speed Deemin'

2010-03-22T18:46:00.004-04:00

Not our recommended strategy.

Does (Tax) History repeat itself?

2010-03-21T14:52:00.005-04:00

Depending on Sunday's vote-we could see a repeat of some unpleasant history.

Red State vs. Green State?

2010-03-06T13:44:00.005-05:00

True nephews of their Uncle Sam?

We hear a lot about Red States vs. Blue States, but here's an alarming illustration about Green States (those who have fully funded their pensions) vs those who cannot.

As far as fiscal responsibility, the non-green guys are true nephews of their Uncle Sam.
(Click here for a full size chart.)

It's the economy stupid--Bill Clinton

2010-02-22T18:13:00.003-05:00

Hey Congress, the American people think you should listen to Clinton on this.

It appears to be a 5:1 ratio.

Atlanta talent = FICA Wisdom

2010-02-18T15:28:00.004-05:00

One of our Atlanta talk radio hosts published some great thoughts on the social security tax. As tax and financial planners, our position has always been that FICA is simply a penalty tax on productive Americans. You cannot live long enough to recover your cost investment much less any supposed "earnings" on your money.

A hat tip goes to Neal Boortz for this comparison of Social Security to another famous financial advisor's position. Be sure to note the final point.

BERNIE MADOFF	SOCIAL SECURITY
Takes money from investors with the promise that the money will be invested and made available to them later	Takes money from wage earners with the promise that the money will be invested in a "Trust Fund" and made available later.
Instead of investing the money Madoff spends it on nice homes in the Hamptons and yachts.	Instead of depositing money in a Trust Fund the politicians use it for general spending and vote buying.
When the time comes to pay the investors back Madoff simply uses some of the new funds from newer investors to pay back the older investors.	When benefits for older investors become due the politicians pay them with money taken from younger and newer wage earners to pay the geezers.
When Madoff's scheme is discovered all hell breaks loose. New investors won't give him any more cash.	When Social Security runs out of money they simply force the taxpayers to send them some more.
Bernie Madoff is in jail.	Politicians remain in Washington.

How to understand Government Logistics

2010-02-13T12:35:00.007-05:00

It's not that hard. Just study the logic of this video clip,and remember, these are the people designing your health care.

2010-02-04T14:50:00.008-05:00

Cast your vote in the poll by clicking

this link

For the correct answer, see our February, 2010 newsletter.

Online Surveys & Market Research

2010-02-03T18:19:00.012-05:00

CLICK HERE

What does the proposed budget freeze really do? Ever hear the expression "just a drop in the bucket"? Click here or above the picture to learn more.

Paying for Education with tax credits

2010-01-26T11:48:00.002-05:00

• American Opportunity Credit (AOC) – This credit modifies the existing Hope Credit for tax years 2009 and 2010, making the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. Taxpayers may be able to take a credit of up to $2,500 for qualified education expenses paid for each student who qualifies for the American opportunity credit. Additionally, up to 40% of this credit may be refundable.

• Hope Credit – The Hope Credit is for the payment of the first two years of tuition and related expenses for an eligible student. This credit may be more advantageous only if at least one student attended an educational institution located in the Midwestern disaster area. For qualifying education institutions located in a Midwestern disaster area there is an expanded definition of qualifying expense and a credit of up to $3,600. However, both the American Opportunity Credit and Hope Credit cannot be claimed on the same tax return. If claiming the Hope credit for one student that attended an educational institution in a Midwestern disaster area, the Hope Credit must be claimed for all students that qualify.

• Lifetime Learning Credit – For the tax year, taxpayers may be able to claim a lifetime learning credit of up to $2,000 ($4,000 for students in Midwestern disaster areas) for qualified education expenses paid for all students enrolled in eligible educational institutions. There is no limit on the number of years the lifetime learning credit can be claimed for each student. However, a taxpayer cannot claim the Hope, American Opportunity and the Lifetime Learning credit for the same student in one year.

The tax version of Animal Farm

2010-01-08T17:16:00.007-05:00

You remember Animal Farm from your school days.

Here's a modern day version. (Credit should be given to our current Congress for their inspiration.)

Click here to view the video.

Need an "Election" to go your way? You control 100% of the votes in this one.

2009-12-29T14:48:00.017-05:00

New IRS regulations provide a unique tax break for certain real estate
owners. It's possible to sidestep the passive loss restrictions, if you
qualify to make the following election with your return.

Election to
Aggregate

All Rental Real Estate Interests

John C. Doe

SSN 123-45-6789

Form 1040, Tax Year Ending 12/31/20XX

Taxpayer hereby elects pursuant to Code Sec. 469(c)(7)(A) to
treat all of his interests in rental real estate as one activity. Taxpayer is
eligible to make the election since he meets the requirement of Code Sec.
469(c)(7)(B) and thus is a qualifying taxpayer for the tax year.

Any of our clients who own business real estate should call us before
filing the 2009 tax return to determine if you qualify for this
election.

The 12 Days of a Congressional Christmas

2009-12-09T18:18:00.008-05:00

We put it to music for you. It's the 12 days of ~~Christmas~~ a lawmaker's lounge as demonstrated by the Texas Legislature.

Sing along as they spent $140,000 on various items in their 900 square foot private lounge.

Click here to play the song.

Governmental Logic ??

2009-11-03T14:19:00.005-05:00

Let me get this straight. Obamacare makes medical care cheaper by making medical equipment cost more???

Here's an excellent accounting of the subject by Wesley Smith. Click the picture to link to the article.

What tax rate would it take to balance the new budget?

2009-11-02T17:43:00.011-05:00

The answer is more than you'd want to pay!

The non-partisan Tax Foundation group has a detailed analysis here.

Shockingly, it requires marginal rates of up to 95.2% to erase the deficit.
(Click to enlarge the Chart)

What's the obvious message here?
Hey Congress, spend a lot less!

Need tax reduction for 2009? Here are some tools.

2009-10-23T17:52:00.002-04:00

Comparison of Qualified Plan Types for 2009

Feature	Profit-sharing	401(k)	SIMPLE IRA	SEP
Restrictions on adopting?	Generally, none.	Generally, none.	Limited to employers with 100 or fewer employees earning at least $5,000 in previous year.	Generally, none.
Can employer maintain other qualified plans?	Yes.	Yes.	No.	Yes, unless Form 5305-SEP is used to adopt the plan.
Minimum age/service requirement?	Age 21, up to two years service may be imposed.	Age 21. No more than one year of service may be required for employee deferrals.	All employees earning at least $5,000 in any two prior years and expected to receive at least $5,000 in current year.	Age 21, any service in last three out of five years, and compensation of $550 or more in current year.
Vesting?	Yes. Graduated or cliff vesting allowed.	Yes. Employer contributions; graduated or cliff vesting allowed. Employee contributions are 100% vested.	100% immediate vesting.	100% immediate vesting.
Annual employer contributions required?	No. Discretionary, unless set forth in plan.	No. Discretionary, unless set forth in plan or required by top-heavy rules.	Yes, but can limit to matching contributions.	No. Discretionary, unless set forth in plan.
Limit on deductible employer contributions?	Maximum 25% of all eligible employees’ compensation.	Generally, same as profit-sharing plan. Elective deferrals do not count toward deduction limit.	Generally 100% match of deferrals up to 3% of compensation or 2% nonelective contribution.	Maximum 25% of all eligible employees’ compensation.
Limit on employer contributions per participant (415 limit).	Maximum 100% of compensation, up to $49,000 per participant.	Maximum 100% of compensation, up to $49,000 per participant.	None.	Maximum 25% of compensation up to $49,000 per participant.
Top-heavy rules apply?	Yes.	Yes.	No.	Yes.
Nondiscrimination rules apply?	Yes.	Yes. Special rules apply to employee deferrals.	No.	No.
Employee deferrals allowed?	No.	Yes. Employee deferrals limited to $16,500; $22,000 if age 50 or over by December 31.	Yes. Employee deferrals limited to lesser of 100% of compensation or $11,500; $14,000 if age 50 or over by December 31.	Yes. Employee deferrals under SARSEPs (adopted prior to 1997) limited to $16,500; $22,000 if age 50 or over by December 31.^a
Permitted disparity allowed?	Yes.	Yes.	No.	Yes, but only with nonmodel SEP.
Minimum coverage rules apply?	Yes.	Yes.	No, but all eligible employees must be allowed to participate.	No, but all eligible employees must be allowed to participate.
Annual additional limit of IRC Sec. 415 apply?	Yes.	Yes.	No.	Yes.
Participant loans allowed?	Yes, if specified in plan document. Subject to IRS limitations.	Yes, if specified in plan document. Subject to IRS limitations.	No.	No.
Rollovers to other plans allowed?	Yes, to another eligible retirement plan.	Yes, to another eligible retirement plan.	Yes, to SIMPLE IRAs or, after two years, to eligible retirement plan.	Yes, to eligible retirement plan.
Annual report (Form 5500) required?	Yes, unless one-participant/$250,000 exception is met.^b	Yes, unless one-participant/$35,000 exception is met.^b	No.	Generally no, unless the plan fails to meet the filing exception for SEPs.
When must the plan be established?	On or before the last day of the plan year.	On or before the last day of the plan year.	On or before October 1 or as soon as administratively feasible after the employer comes into existence.	Due date (including extensions) of the sponsor’s tax return.
Catch-up contributions allowed?	No.	Yes. $5,500 for 2009.	Yes. $2,500 for 2009.	Yes. $5,000 under SARSEPs (adopted prior to 1997).

Notes:^a

SARSEPs cannot be adopted after 1996. SARSEPs adopted prior to 1997 may
continue to operate under previous laws, and new employees hired after
1997 may participate in such existing plans.^b
Form 5500-EZ need not be filed for a one-participant plan that has
$250,000 or less in assets at the end of each plan year beginning after
2006. An employer that has multiple plans that, in the aggregate, has
$250,000 or less in assets at the end of each plan year beginning after
2006 need not file Form 5500-EZ.

Need help with your Vista upgrade? It's really simple!

2009-10-21T12:06:00.004-04:00

Actually, it's not so simple. Here's the upgrade guide from Microsoft.
(Click to enlarge)

Jim Phelps,Mission Impossible, and Health Care

2009-10-19T12:06:00.008-04:00

Here's an interesting clip from a 30 year-old Mission Impossible. Even back then these writers knew what effect national health care has on the public. It's basic supply and demand. Throw 50 million more into the system with the same (or less) number of doctors and supply and demand will force the price up. If you cap the price via government control then you guarantee rationing!

It really is a Mission Impossible.
http://www.youtube.com/watch?v=OSZ6FQxePUk

Now this is a "public option" that I could support.

2009-10-16T16:49:00.002-04:00

How to determine what your business is worth

2009-09-17T17:22:00.006-04:00

Here are some of the most used methods of valuing a business. Remember that, in tax planning, one size does not fit all-so get the proper accounting and legal advice before proceeding.

Valuations are a place where business starts to blur the line between an art and a science. It is important to identify which method is best for your particular situation. Most appraisers will use one of the following methods:

Book value.
Multiple analysis.
Discounted cash flows (DCF).
Replacement value.
Liquidation value.

Let's take a look at how each method works.

Book value. Book value is a simple, quick, and dirty method as it requires only taking book assets and subtracting out book liabilities. However, most financial statements run off of the historical costing principle, where the book value represents the cost of an asset when purchased rather than its current value. If the entity has experienced substantial appreciation, this value could be too low, especially if assets were purchased many decades ago.

Multiple analysis. Multiple analysis takes a predetermined value such as sales or earnings and multiplies this by a value (a multiple) to estimate the fair market value (FMV). One common method is using a multiple of earnings or of sales. This generally requires a survey of other entities in the industry with ascertainable values from recent ownership transfers or other methods. Then a multiple is obtained by, for instance with an earnings multiple, taking the average value of the competitor entities and dividing this by the earnings of those entities. This generates a rough number of how many times larger the value of entity is over earnings. Last, this multiple is applied to the entity's earnings to estimate a value.

There are, however, some pitfalls to this method:

(1) There may be no readily comparable entities from which to derive a multiple.

(2) Even if there are comparable entities, different entities have different accounting methods that could lead to a wide variation of multiples within the particular industry leading to potential inaccuracy.

(3) Even if a multiple is attainable, sales and earnings values are highly volatile and manipulable by seasonal and other factors.

DCF analysis. DCF is projecting future cash flows of the company out for a period of years, creating a residual value for all further cash flows, and then discounting these back to the present.

Then to project the future cash flows, it is necessary to find growth rates and apply them to the current cash flows. The growth rate can be calculated roughly by finding the overall cash trends or by accounting for trends in each sales and cost category. Last, a discount rate needs to be calculated either through readily available metrics or comparing the metrics of other entities within the industry in order to discount cash flows back to the present.

This method is ideal for large, stable low- or no-growth entities where discount rates can be readily attainable and cash flows are predictable. For smaller large-growth companies, it may not be worth the added complexity over another simpler method such as multiple analysis or book value.

Replacement value. Replacement value is valuing an entity at what it would cost to replace the assets of the company. The replacement value may be useful, for instance, if the entity is a company holding idle land for future appreciation or other such assets. Under DCF or multiples, there may be no ascertainable sales, earnings, or cash-flow figures that accurately represent the value of the land. Book value also may not be accurate, as the value may have appreciated already. The replacement cost may be the only way to accurately value the land.

However, this method may not be viable when there is no readily available market for the assets. Some assets may not be replaceable, whereas some assets may have arbitrary or highly variable replacement values.

Liquidation value. Liquidation value is the valuation of an interest as if the entity sells all its assets and divides the resulting proceeds between the owners. This value may be substantially lower than the paper value of the company and may more accurately reflect the value of the assets in a buyout or entity dissolution. This may be a beneficial method, especially when an entity does not have substantial cash on hand and may actually need to sell assets to buy out an owner.

What can a buy-sell agreement do for me?

2009-09-15T14:46:00.010-04:00

The short answer is -- a lot. The following matrix shows some of the goals that can be accomplished with a properly drafted buy-sell agreement.
Just insert an X in the areas that you'd like to learn more about and E-mail to us.

(Click the image to enlarge)

2009-09-15T14:46:00.001-04:00

Payroll theft by employees- Part II

2009-09-14T14:20:00.012-04:00

The goal is not to teach people how to steal but to present the subtle ways it's done. If you own or manage a business see how you score on anti-fraud knowledge. To check your answer, place your mouse over the question mark.

Payroll theft by employees

How do employees steal from a business?

2009-09-09T11:56:00.007-04:00

What they say vs. the numbers

2009-09-04T18:34:00.003-04:00

Thanks to Innocent Bystanders for the graphic data.
Compare to Joe Biden's statement.
"[The stimulus is] doing more, faster, more efficiently, and more effectively than most expected." Joe Biden, as reported by the Associated Press

CPAs get alarmed by inverted curves

2009-08-25T11:12:00.004-04:00

Inverted curve charts indicate that a trend is developing even faster than the problem it represents.

You can't strengthen the wage earner by weakening the wage payer.
(click the chart to enlarge -source is the Bureau of economic analysis)

10 Tax Credits from the ARRA

2009-08-20T18:15:00.004-04:00

The American Recovery and Reinvestment Act (aka no handout left behind law)has a little something for almost everyone. If you're productive in your business (income > than 76,000) look for most of the attached benefits to phase out.

Click to enlarge.

The crossover point to ?

2009-08-20T11:10:00.008-04:00

Click to enlarge

I've often wondered what would happen when over 50% of voters realize that they could shift the balance of taxation and the 49% would be helpless to change it.

This chart is where we currently are in the paradigm of power. It's much worse than the above example.

The Panel- From the Wall St Journal

2009-08-20T10:32:00.004-04:00

Here's a chilling narrative from today's Wall Street Journal. [Note the last line-that's why it happens]

It is very difficult to imagine the country making those decisions just through the normal political channels. And that's part of why you have to have some independent group that can give you guidance.
—President Barack Obama in a New York Times interview on how costly medical decisions should be made.

The people behind the long table do not know what they've become. The drug of power has been sugared over in their mouths with a flavoring of righteousness. Someone has to make these decisions, they tell their friends at dinner parties. It's all very difficult for us. But you can see it in their eyes: It isn't really difficult at all. It feels good to them to be the ones who decide.

"Well, we have your doctor's recommendation," says the chairwoman in a friendly tone. She peers over the top of her glasses as she pages through your file.

You have to clear your throat before you can answer. "He says the operation is my only chance."

"But not really very much of a chance, is it?" she says sympathetically. Over time, she's become expert at sounding sympathetic.

"Seventy percent!" you object.

"Seventy percent chance of survival for five years—five years at the outside—and even that only amounts to about 18 months in QALYs: quality-adjusted life years."

"But without this procedure, I'll be dead before Christmas."

You try to keep the anger out of your voice. The last thing you want to do is offend them. But the politicians promised you—they promised everyone—there would never be panels like this. They made fun of anyone who said there would. "What do they think we're going to do? Pull the plug on grandma?" they chuckled. The media ran news stories calling all rumors of such things "false" or "misleading." But of course by then the media had become apologists for the state rather than watchdogs for the people.

In fact, the logic of this moment was inevitable. Once government got its fingers on the health-care system, it was only a matter of time before it took it over completely. Now there's one limited pool of dollars while the costs are endless.

"You have the luxury of thinking only of yourself, but we have to think about everyone," says the professor of ethics. He's a celebrity and waxes eloquent every Tuesday and Thursday on Bill Maher Tonight. "This isn't the free market, after all. We can't just leave fairness to chance. We have to use reason. Is it better for society as a whole that we allocate limited resources for your operation when we might use the same dollars to bring many more high quality years to someone, say, younger?"

"I'm only 62."

He smiles politely.

"Look, it's not just about me," you argue desperately. "My daughter's engaged to get married next year. She'll be heartbroken if I'm not there for it."

"Maybe you should have thought of that before you put on so much weight," says the medical officer. "I mean, you people have been told time and again . . ."

But the chairwoman is uncomfortable with his censorious tone and cuts him off, saying more gently, "Perhaps your daughter could move the wedding up a little."

The member in charge of "stakeholder" exceptions shakes her head sadly as she studies your file. "If only you could have checked off one of the boxes. It would be awful if you were penalized just because of a clerical oversight."

It begins to occur to you that this is how you are going to die: by the fiat of fatuous ideologues—that is to say, by the considered judgment of a government committee. They are going to snuff you out and never lose a minute's sleep over it, because it's only fair, after all.

That logic is implacable too. Free people can treat each other justly, but they can't make life fair. To get rid of the unfairness among individuals, you have to exercise power over them. The more fairness you want, the more power you need. Thus, all dreams of fairness become dreams of tyranny in the end.

You know you should keep your mouth shut. Be humble—they like that. But you speak before you can stop yourself.

"What you're doing here is evil," you cry out. "You're trying to take the place of God!"

"Sir, this is a government building!" says the chairwoman, shocked. "There's no God here."

Mr. Klavan is a contributing editor to City Journal. His latest novel is "Empire of Lies" (Harcourt, 2008).

Some of our favorite tax quotes

2009-08-19T11:22:00.006-04:00

Need some humor in your week? Here's are some of our favorite tax quotes.

When there’s a single thief, it’s robbery. When there are a thousand thieves, it’s taxation. ~Vanya Cohen

The nation should have a tax system that looks like someone designed it on purpose. ~William Simon

Be wary of strong drink. It can make you shoot at tax collectors… and miss. ~Robert Heinlein

We have long had death and taxes as the two standards of inevitability. But there are those who believe that death is the preferable of the two. “At least,” as one man said, “there’s one advantage about death; it doesn’t get worse every time Congress meets.” ~Erwin N. Griswold

What at first was plunder assumed the softer name of revenue. ~Thomas Paine

U.S. Internal Revenue Service: an agency modeled after the revenue raising concepts of the 19th century economist, Jesse James. ~Robert Brault,

The one time is pays to be average !

2009-08-17T18:24:00.005-04:00

Normally, I hate the idea of being average. Some one has rightly said that average is "the best of the worst and the worst of the best." However, there is one time that it's helpful.

(Click to enlarge)

Above are newly released average deductions from tax year 2007. Some of these items you can't control but when possible it may pay to time your deductions to be in the average range.

The clock is ticking !

2009-08-12T18:26:00.002-04:00

Are Roth withdraws taxable?

2009-08-12T16:16:00.002-04:00

In these tough times, some clients need to withdraw Roth funds. Make sure you do it in a tax-advantaged way. Email us for help or more info.

Click the flowchart to enlarge.

A perfect time to increase govt health care costs?

2009-08-04T17:06:00.002-04:00

Tax receipts are on pace to drop 18% this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion. Other figures in an Associated Press analysis underscore the recession's impact:

Individual income tax receipts are down 22% from a year ago.
Corporate income taxes are down 57%.
Social Security tax receipts could drop for only the second time since 1940
Medicare taxes are on pace to drop for only the third time ever.

5 Lies about the government health care

2009-07-10T12:31:00.004-04:00

My thanks to Forbes for the story -5 Lies about Obama Health Care. Here's the link to the full article.

The lies are:

No one will be compelled to buy coverage.

No new taxes on employer benefits.

Government can control rising health care costs better than the private sector.

A public plan won't be a Trojan horse for a single-payer monopoly.

Patients don't have to fear rationing.

IRAs -Understanding how the funds flow

2009-07-09T22:46:00.003-04:00

Confused about how you handle a parent's IRA? This chart can help.

Plenty of jobs available with this company!

2009-07-03T14:18:00.008-04:00

Will Rogers once said - "Invest in inflation, it's the only thing that always goes up."

Well, I guess under this Congress, the government sector will always be expanding and hiring.

Here's one agency that's looking to hire hundreds of folks. Their website promises the following.

"When you join the __ family, you can enjoy federal health benefits,
job-skills training and flexible work schedules. You also get the satisfaction
of serving your country. Because the ___ is a large agency – with more than
100,000 across the nation -- there are many opportunities for career
growth. "

Do you really need this link to figure out who this is?

Tough Times = Borrowing from your pension?

2009-07-03T13:49:00.016-04:00

In these hard economic times, clients are often tempted to borrow from their pension plans.

This option isn't available for SEP,Simple IRAs, or for certain S-Corp owners;however, for others it may have some advantages.

The arguments for this strategy include:

Interest rates below what a bank would offer
Repayment of P&I go back to the owner's retirement account vs. a bank, broker, etc.

You might have noticed that I didn't list the deductible interest as a factor. That's because it can be highly restricted and possibly not currently deductible at all.

If you are considering this as a cash flow tool, make sure you meet the following requirements for a loan.

Documentation requirement-The loan agreement must be in writing, as required by applicable regulations and plan documents.

Limits on amount- The loan amount can't exceed the lesser of (1) $50,000, or (2) 1/2 of the present value of the employee's nonforfeitable accrued benefit under the plan. But a loan up to $10,000 is allowed, even if it's more than half the employee's accrued benefit.

Term of Loan-Generally, the plan loan must be repaid within five years in substantially level payments, made not less frequently than quarterly, over the term of the loan. Special rules apply as to the repayment term for loans to buy a qualified dwelling unit.

Repayment or termination- If the participant does not repay the loan in time (or leaves the company), it will be treated as a taxable distribution.

As with any tax-related transactions, clients should check with us before implementing.

And you thought Nevada corporations were a good idea?

2009-06-30T14:54:00.008-04:00

I don't recommend Nevada corporations for tax planning. They tend to work about as good as this idea.

22 Tax Breaks that expire in 2009

2009-06-25T15:12:00.002-04:00

22 Tax Breaks that will expire in 2009!

Here they are:

1. Income. Up to $2,400 of unemployment compensation benefits are excluded from gross income by the recipient. However, the exclusion is not available for benefits received in tax years beginning after 2009 [IRC Sec. 85(c)].

2. Personal deductions. Clients can claim a deduction (whether they itemize or claim the standard deduction) for sales or excises taxes paid on the purchase of a new vehicle. The deduction (phased out at higher income levels) does not apply to purchases after December 31, 2009 [IRC Sec. 164(b)(6)(G)].

3. Personal deductions. Clients who claim the standard deduction can take an additional deduction for state and local property taxes, up to a maximum of $500 ($1,000 for joint return filers). The deduction is not available for tax years beginning after 2009 [IRC Sec. 63(c)(7)].

4. Personal deductions. A client can elect to take an itemized deduction for state and local general sales taxes instead of an itemized deduction for state and local income taxes, but the election is available only for tax years beginning before Jan. 1, 2010 [IRC Sec. 164(b)(5)(I)].

5. Personal deductions. A client may claim an above-the-line deduction for “qualified tuition and related expenses” paid for the enrollment or attendance of the client, the client’s spouse, or a dependent at an eligible institution of higher education. The deduction cannot exceed $4,000 (phased out at higher income levels) and applies only to tax years beginning before January 1, 2010 [IRC Sec. 222(e)].

6. Personal deductions. The maximum deduction allowed annually for charitable donations is increased in the case of “qualified conservation contributions.” The increased deduction is not available for donations after December 31, 2009 [IRC Sec. 170(b)(1)(E)].

7. Business deductions. For tax years beginning before 2010, teachers in grades K-12 and other eligible educators can claim an above-the-line deduction for up to $250 of their out-of-pocket expenses for books and supplies used in the classroom [IRC Sec. 62(d)(1)].

8. Business deductions. A client can claim an additional 50% depreciation allowance for qualifying business machinery and equipment placed in service before January 1, 2010 [IRC Sec. 168(k)(2)(A)].

9. Business deductions. A client can claim a Section 179 expensing deduction for the first $250,000 of qualifying equipment and machinery placed in service during the year, subject to a phase out if more than $800,000 of eligible property is placed in service during the year. For tax years beginning after December 31, 2009, the maximum Section 179 deduction drops to $125,000 (adjusted for inflation) with the phase-out starting at the $500,000 level [IRC Sec. 179(b)(7)].

10. Business deductions. The cost of qualified leasehold improvement property, restaurant property, and retail space improvement property can be written off over 15 years. The 15-year write-off period is not available for property placed in service after December 31, 2009 [IRC Sec. 168(e)(3)(E)].

11. Business deductions. Business clients may claim enhanced deductions for donations of food inventory to a charitable organization if the organization uses the property solely for the care of the ill, the needy, or infants. The enhanced deduction does not apply to donations after December 31, 2009 [IRC Sec. 170(e)(3)(C)].

12. Business deductions. The maximum first-year depreciation deduction for passenger automobiles used for business purposes is increased by $8,000 for automobiles placed in service before 2010 [IRC Sec. 68(e)(3)(B)].

13. Business deductions. Certain qualifying machinery and equipment used in a farming business may be written off over a five-year cost recovery period. The original use of the property must begin with the taxpayer and the property must be placed in service before January 1, 2010 [IRC Sec. 168(e)(3)(B)].

14. Personal tax credits. A client who hasn’t owned a home during the previous three years can claim a first-time homebuyer credit of up to $8,000 (phased out at higher income levels) for the purchase of a principal residence. The credit can be claimed only for homes purchased before December 1, 2009 [IRC Sec. 36].

15. Business credits. Employers may claim a 20% income tax credit for qualifying differential pay paid to employees on active military duty. The credit expires for payments made after December 31, 2009 [IRC Sec. 45P].

16. Business credits. An eligible contractor may claim a credit of up to $2,000 for each qualified new energy efficient home that the contractor constructs and that is acquired from the contractor for use as a residence. The credit does not apply to homes acquired after December 31, 2009 [IRC Sec. 45L].

17. Alternative minimum tax. Clients can offset nonrefundable personal tax credits, such as the child and dependent care credit and the Lifetime Learning credit, against their alternative minimum liability. The offset will not be available for tax years beginning after 2009 [IRC Sec. 26(a)(2)].

18. Alternative minimum tax. For tax years beginning in 2009, the exemption amounts used in calculating a client’s alternative minimum taxable income of $70,950 for married couples filing a joint return and $46,700 for singles and heads of households. For tax years beginning after 2009, these amounts are scheduled to drop to $45,000 and $33,750, respectively [IRC Sec. 55(d)(1)].

19. Estimated taxes. For small business owners with adjusted gross income of $500,000 or less, the “required annual payment” of 2009 estimated taxes is the lesser of (1) 90% of the current year’s tax or (2) 90% of the prior year’s tax. For 2010, the prior-year’s-tax threshold rises to 100% (or 110% for clients with adjusted gross income of $150,000 or more) [IRC Sec. 6654(d)(1)].

20. Retirement plans. The requirement that an IRA owner age 70 ½ or over must receive a minimum distribution annually is suspended for 2009, but is reinstated in 2010 [IRC Sec. 401(a)(9)(H)].

21. Retirement plans. An IRA may exclude from income distributions of up to $100,000 annually if paid directly by the IRA trustee to charitable organization. The exclusion expires in tax years beginning after 2009 [IRC Sec. 408(d)(8)].

22. Employee benefits. Clients who are covered by employer-sponsored health plans and are laid off before January 1, 2010 can qualify for subsidized plan continuation (COBRA) coverage for up to nine months. Employers can claim a credit against employment taxes for the subsidies provided to employees [IRC Sec. 6432].

A thinking exercise for Congress

2009-06-18T17:47:00.003-04:00

According to the Wall Street Journal, Congress is now considering a new
tax on sweet drinks. Under the guise of using the tax money for health
care (the current code phrase to justify increasing taxes), we're told
that this tax will discourage the practice of consuming
sugared drinks, and thus, convey long-term health benefits upon us.
Ok, let's see if we can put this logic to the test. Taxing something makes it more expensive
and thus discourages the behavior. If they are right, then the logical
effect of raising rates on successful business owners who create jobs
and wealth for many Americans should [circle the correct
answer] encourage/discourage
their behavior?
Wouldn't it be nice if our Congress could think with this
much logic?

D-Day for airline employees is June 22, 2009

2009-06-18T17:44:00.000-04:00

On June 22, 2009, a unique tax break for certain airline employees will expire. That break is the ability to roll certain retirement plan assets to a Roth. Qualified individuals should have received IRS Form 8935 with details. If you have questions, contact us for more information.

Latest newsletter update.

Other due dates in April

2009-06-18T17:39:00.003-04:00

Clients always focus on the April 15 date, but here are some other important tax due dates that occur in April as well.

April 1- Required Minimum Distributions for 2008. 50% Penalty for non-compliance!
April 1-New Withholding required for employees due to the Making Work Pay Credit tax legislation.

Our "Cliff Notes" summary of the significance of these dates follows:

1- Although the required distributions for an IRA or pension account were suspended for 2009, if you reached the age of 701/2 in 2008, you are required to draw an2008 distribution by April 1, 2009, or face the above mentioned penalty!

If you believe you have a problem in this area, see us for help in requesting a waiver on the penalty.

2- A more technically correct title would be Making Gov't Pay. This act (at a 115 billion dollar cost) is one of the largest components of Washington's latest spending spree. It's an attempt to give tax refunds on the first $12,902 of wages on a joint return.

An obvious problem arises with this strategy. The aforementioned couple wouldn't owe any income taxes on that amount; however, our government is nothing if not creative in spreading the wealth around. The maximum credit of $800 is derived from rebating the FICA (Social Security) tax ($12,902 x 6.2%).

Our first question came from a retired client on a fixed pension who found his withholding reduced by this credit even though they had no wages.Full details on the limits, problems, and allowances for retirees, check our website via this link.

Who pays the most tax? The answer is surprising.

2009-06-18T16:21:00.001-04:00

Who pays the most tax?
The answer is surprising!

A friend of mine recently wrote a letter to the editor of our local newspaper. In the
letter, he commented on the various income tax rates in prior years. It
got me thinking about who really carries the tax burden
(regardless of current or past tax rates) in recent years. The CBO
(Congressional Budget Office) just released the data for 2006.

Here's the data in chart form. What it reveals is that almost
73% of all income tax is paid by the top 10% of income earners. To the
"more government at any cost" crowd, we'd like to ask -"Just
how much higher would you like this rate to be?"

Tax version of the new Pixlar movie.

2009-06-17T16:41:00.002-04:00

Sometimes you have to get your mind off taxes by taking in a movie. Here's the political incorrect version of the new Pixlar film.

Twice the profit - but less for the owner?

2009-06-16T15:20:00.003-04:00

If your sales (and profit double) how could you take home less?
The answer is found in understanding how "working capital" really works.

Life Insurance on Employees - watch out for this hidden catch.

2009-05-07T14:41:00.008-04:00

A couple of years ago section 101 of the tax code was changed in the way it treated life insurance on key employees.

Life insurance proceeds received by the beneficiary (due to the insured's death) are not taxable income. But, as with most tax law, there are exceptions.

If your insured employee is:

Not aware of the insurance
Has not consented to the coverage

then the tax-exempt treatment of the death benefit may be in question.

The rules are complex and may apply even if you make a change in existing coverage.

Be sure to "play safe" with key-man insurance or you could get an unwelcome surprise.

How to persuade your Congressman . . .

2009-05-06T13:41:00.004-04:00

that you really don't like trillion dollar spending bills.

This business needs to cut expenses!

2009-05-01T17:07:00.004-04:00

Sounds like it's time for this business to cut overhead - but don't hold your breath.

How most folks are feeling right now

2009-04-10T18:33:00.003-04:00

Practice these lines for an IRS audit!

2009-04-06T20:39:00.003-04:00

Disagreement is ok? Dishonesty is not ok!

2009-04-06T17:15:00.011-04:00

Author Carl Hiaason certainly has a way with words. The problem is that it's a dishonest way.
He commented on the proposed tax plan to limit the charitable contribution deduction.

Can you pick up on the flaw(s) in logic when he makes the following argument in his newspaper column?

"The way it stands now is stacked in my favor. If Mom and I each donated $100 to the United Way, I’d get a better tax break for the contribution just because I’m in a higher bracket. The same is true for mortgage-interest deductions."

Oh brother! Carl, let's at least argue consistently. The reason some folks benefit more from a deduction is that their income is taxed at a higher bracket.

Do you really want to make sure everyone gets the same benefit from their charitable giving? That's easy. Just have one flat bracket for everyone.

Opps, I forgot. That violates his cardinal rule -"From each according to his ability, to each according to his need."

A simple math test for Congress is 165 > 210?

2009-04-06T09:03:00.008-04:00

With all the ire shown by Congress over 165 million in AIG bonuses, it will be interesting to see if there is any outcry about the much higher bonuses by the Congressionally-controlled Fannie and Freddie.

Kudos to Sen. Charles Grassley for taking a stand on this.

From The Washington Times

The federal regulator of bailed-out mortgage giants Fannie Mae and Freddie Mac defended plans Friday to give $210 million in retention bonuses to employees he said had lost years of savings when the companies' stock collapsed in 2008.

Bonuses, some as high as $1.5 million, will go to 7,600 employees at the two federally established home mortgage companies that lost more than $100 billion last year. They are needed to restrain the best talent from leaving in the midst of the economic crisis spawned when the housing bubble burst, said James B. Lockhart III of the Federal Housing Finance Agency in a letter to Sen. Charles E. Grassley of Iowa, the Senate Finance Committee's ranking Republican.

Like a little credit on your tax bill?

2009-03-30T19:48:00.002-04:00

How to itemize when you can't itemize

2009-03-30T19:44:00.002-04:00

These items are new for 2008 and will let some folks reap the benefits of iteming even if they use the standard deduction.

Don't overlook the basics

2009-03-30T19:41:00.002-04:00

Funding your IRA (if applicable) is Tax Planning 101, yet it is often overlooked.
Don't let April 15 come and go without doing this simple technique.

The many benefits of honesty

2009-03-30T19:36:00.002-04:00

How much has the deficit grown in 2007-2009?

2009-03-06T10:18:00.004-05:00