Fourth Quarter Year-End Payroll Reminders

Before the year ends and the New Year’s celebrations begin, make sure you have all your ducks in line for the end of year quarterly payroll reports.
• Check to see if you have any items to report.On or before your final payroll of the quarter, report in-house checks, voided checks, or sick/ disability payments to employees by a third party. Make sure to report any fourth quarter changes before the year-end deadline of 12/31/2010.
• Payroll LiabilitiesCheck with you payroll service provider to MAKE SURE all payroll liabilities for the year have been scheduled or paid. If not, attempt to get this taken care of as soon as possible to avoid any additional penalty or interest. Also verify that tax liabilities were collected for bonus checks.
• Confirm employee name and address list.Report employee changes to your payroll service provider and ensure that you have the necessary federal and state withholding forms available when reporting new employees. Verify correct name and social security numbers for each employee. Reminder: The IRS may charge employers a penalty of $50 for each returned W2 form that has a missing or incorrect SSN.

What’s New for 2011?
• In November, the IRS mails a notice that includes your deposit frequency for 2011. Be on the look out!
• Effective January 1, 2011 the IRS will discontinue accepting deposits made with Form 8109. If you are not registered to pay online via EFTPS, you will need to register.
• You should receive notification of your state unemployment insurance (SUI) tax rate for 2011. You need this rate to calculate the SUI tax and SUI expense correctly.

What In The World Is A “MINI-MED”?

The Obama administration on Monday loosened rules for bare bones health insurance plans known as “Mini-Meds”. Essentially, a mini-med is an insurance policy that pays for small, routine health care expenses but does not provide for catastrophic events. For example, a mini-med might pay $90 of a $100 doctor visit. If the doctor put you in the hospital, it probably would not pay more than a flat daily amount. Actuarially, the mini-med uses a different model than standard health insurers.

The mini-med concept has great appeal to the foot loose and fancy free younger generation that is seldom sick. This group typically only goes to the doctor once or twice a year. For employers with significant workers that fall in this class, this product is very valuable.

So when the Obamacare program came out, it required health insurance companies to spend between 80 and 85% of its premium dollars on actual medical care (a topic for another day). Mini-meds were included in the initial legislation.

The problem, as previously stated, is that the mini-med model requires a lower payout to premium percentage than the standard policy. The only way to make the mini-med work was to significantly raise the premium. Enter now the employer of America’s youth, McDonalds. McDonalds said “not so fast my little friend.” Mickey D’s has approximately 30,000 hourly workers on the mini-med program. To change to a standard program would require a significant cost. Or, put another way, old Number 2 and a Dr. Pepper would have to go up in price.

Monday, the President and his posse loosened the rules giving the mini-med an extension. That is good news for companies with a number of young hourly workers. Mini-meds are a good program for that category of individuals. The product offers a low cost employee benefit for employers.

If you need more information on mini-meds, give our office a call 210-495-4424.

WHY THE INCREASE IN AUDIT COSTS?

Time. It all comes down to the amount of time a firm and its employees must spend gathering support and documentation. An increase in audit hours leads to an increase in overall audit costs due to the per hour rate that most firms institute. Why the increased support and documentation? Two words: new standards.

These new accounting and auditing standards are often difficult to interpret and can be even harder to apply. Some of the more wide-known changes include:

• Greater responsibility related to the detection of material fraud
• Gaining a better understanding of the design and operation of a client’s internal controls
• Obtaining specialized knowledge regarding fair value measurements
• Determining the best answer when presented with conflicting guidance in professional literature
What can firms (who require audits) do to assist the auditors and decrease audit costs? The following list provides a few basic rules to follow to make an audit as smooth as butter (butter? Maybe crunchy peanut butter):

• Ask your auditors for a list outlining what documents they will need. Some likely suspects:
o Articles of incorporation
o Debt agreements
o Significant leases
o Minutes of the Board of Directors
o IRS filings
• Designate sufficient personnel to the audit. For example:
o CFO
o Controller
o Accounts receivable manager
o Accounts payable manager
o Internal auditor
• Hold a meeting to introduce the audit firm to any personnel they may need to have contact with.
• Develop a joint audit plan that identifies deadlines and the materials needed at those deadlines.

Instituting these simple steps can greatly reduce confusion, excessive communications, and thus audit hours. For further questions regarding the audit process and how to simplify it, contact your local Certified Public Accounting firm.

UNIVERSAL HEALTH COVERAGE MANDATES

I just finished a continuing education class on the new universal health coverage mandates. I also visited with people in the health care insurance business. After last Tuesday referendum on the current administrations policies, there may be changes. As of today, however, this is where we stand.

First, the coverage requirement does not include individuals whose employer sponsored coverage exceeds 8% of their household income. So if your household income is $50,000 then you do not have to take the coverage if the annual employer sponsored coverage exceeds $4,000 (8% of $50,000). Since insurance premiums tend to increase with age, older individuals that have higher premiums , will be more likely to exceed the 8% rule. Hence, the people most likely to need insurance will be less likely to be covered.

In addition, coverage rules to do apply to exempted religious individuals, Indian tribes and incarcerated individuals.

Penalty for Non-paying Qualified Individuals
If an individual that qualifies for coverage, does not maintain coverage, they will be penalized. The penalty is the lesser of (1) a flat dollar amount or (2) a percentage of income. Now it gets confusing.

The flat dollar amount is actually the lower of two separate calculations based on a government mandated applicable dollar amount. For 2014 this amount is $95.00. After you have determined the
appropriate flat dollar amount, you calculate the percentage amount and chose the highest number as your flat dollar amount.

The percentage method takes a percentage of household income adjusted by the filing threshold amount (part of you annual 1040). The kicker is that household income is the sum of the taxpayer and all individual accounted for in the family unit. Therefore, if the kids work, you must include their income!

Now choose the appropriate amount and you have your penalty. These penalties will be a part of your annual tax return (form 1040).

If you are confused, you are not alone.

Insurance premiums will be increasing 30 to 50% at your renewal date.
Your insurance premiums will be increasing because you will also be paying for those that can not afford regular insurance premiums. Here is how this provision works:

Should you not be covered by an employer, the government is creating a new program similar to CHIPS called QHP. The QHP insurance will be provided by all insurance companies at discounted rates. All insurance companies must participate.

There is more in this legislation including the tax credits for those that can not afford any of the above. The long and short of this legislation is that those of us that pay insurance premiums will pay more to subsidize the QHP. Those of us that pay federal income taxes will pay more to offset the tax credit program.

Halloween and Taxes: Top IRS Horror Stories

To get in full spirit of the Halloween season here at Cook and Associates, we’ve decided to share some of the scariest IRS horror stories we could find.

1. A Cayman Islands Vacation Gone Bad

When most people hear the words "Cayman Islands" they probably think of a relaxing Caribbean vacation. However, many might also think about illegal tax shelters, as the islands are somewhat infamous for hosting the private bank accounts of many American tax evaders. A few years ago, Joe ran into a few problems of his own in the Cayman Islands. He and his business partners used to vacation in, and bank in the islands on a regular basis, until Joe's vengeful ex wife got wind of the situation. She tipped off the IRS and Joe found out about it one afternoon when 25 federal agents stormed his home and business, ceasing all kinds of financial information. Joe was considered a flight risk and imprisoned under $5 million bail. It took dozens of court cases and thousands of dollars in legal fees to prove his innocence, and resulted in a major lifestyle change for Joe.

2. The Audit of Endless Receipts

Auditors are notorious for being difficult every now and then when it comes to documenting expenses and qualifying for credits, but usually leave a little leeway. However, this was not the case for a taxpayer named Heather who was audited by what she now refers to as the world's most relentless auditor. She claims that the auditor in question hounded her for not only proof of her business expenses, but receipts for every single personal and professional transaction made over the past two years. The auditor supposedly made her scrounge up receipts for transactions for as little as a dollar or two. Needless to say, Heather could not find every document required and faced several penalties.

3. The Beauty Shop Butchery

Celia, an honest and hardworking beauty shop owner, had her life ruined by the IRS a few years ago when her shop's equipment was seized and sold at auction to pay her back tax debts. Celia did not know much about taxes and hired a professional to assist her. Fortunately, the tax consultant found that Celia had indeed paid her taxes in full. The IRS had made a mathematical error, accidentally entering her tax amount twice in to the system, which made it look like she had not paid her taxes at all. Although she got her equipment back, she lost many of her clients and income due to the incident.

Refinancing Your Home - A Good Idea?

Refinancing is probably the last thought in many American’s minds. At a time when many people are having trouble just paying the monthly mortgage, how could you even consider throwing down a chunk of cash to reach a lower interest rate? Interestingly enough, this very thought has been on my mind quite a bit lately.

As more and more of my neighbors either walk away from their mortgages, resulting in foreclosure, or sell at a deep loss, the more I contemplate the benefits of refinancing. Crazy, right? Maybe not. While home mortgage refinancing can certainly be a tricky business, it may be worth your while to consider how refinancing can save your future.

1. It can reduce the length of your loan.
2. It can lower your interest costs.
3. It can lower your payments.
4. It can allow you to tap into your equity.

Paying off your loan more quickly may be one of your top reasons to refinance. Let’s say you have 25 years left on your mortgage loan, but the idea of a 15 year loan is appealing. Is it a good idea? It could be. If the interest rate is lower on the new 15 year loan allowing you to make payments equal to or slightly above your current amount, it might make perfect sense.

Lowering your interest costs generally means paying less overall in the long run. Is it worth paying the fees and points initially to save in interest costs over the course of the loan? How many months/years will it take to recoup the fees you paid by paying less in interest? Make sure you plan on being in the house long enough to start seeing the savings.

If you’re aiming to lower your monthly payments, refinancing to a lower interest rate or a longer term might make sense. However, keep in mind that the longer your loan, the more you’re paying in interest.

Have a child going to college? Have a yen to do some remodeling? You may want to refinance to tap into your equity. If the rates to refinance are less than the going rate on a personal loan, it may be beneficial to consider this option. On the other hand, if refinancing rates are higher than your current rate, you could end up paying a bundle more in interest than you would have on a personal note.

Finally, before you commit to any new financing, be sure you understand what you’re taking on. Do your research and be prepared. It could be the difference between -$ and $$$$$.

Tax Planning Tips For Year End 2010

Uncertainty is a factor in most tax planning decisions, but this year it is greater than ever. The recent decision by Congress to adjourn without addressing the expiring Bush tax cuts, as well as other items that expired at the end of 2009, leaves many tax advisors in the lurch.

With both political parties staking out irreconcilable positions - from the Republicans releasing a "Pledge for America" that calls for more tax cuts and the permanent extension of the Bush tax cuts, to the Democrats not extending those cuts.

"There's been universal frustration at the delays," said Robert Kerr, director of government relations at the National Association of Enrolled Agents. "The trend in the last few years has been to pass extenders at the end of the year. The extenders package, in addition to the tax rates, are up in the air. We go into November not knowing simple things such as whether the R&D credit exists, the deductibility of state and local sales taxes, or the Alternative Minimum Tax patch."

Yet planning, though difficult, is still possible and absolutely necessary, according to Greg Rosica, a tax partner in Ernst & Young's Tampa, Fla., office and a contributing author to the Ernst & Young Tax Guide.

"We're in a time of greater uncertainty when it comes to planning," he said. "But just because the legislative process has been delayed, it doesn't mean that taxpayers should. If they do delay, they might not be able to execute on ideas that make sense."

Rosica recommended planning a series of alternative scenarios based on the possibilities that might come out of the post-election process. "Instead of traditional year-end planning, we consider at least two different sets of assumptions," he said. "For example, Action List A would be the things to do if things stay the way they are. Action List B sets out the path to take based on various legislative changes. Once we get clarity as to what direction the rates will go, people can look at the list and execute the plan with the time remaining in the calendar year. Once we know what happens, we know what actions to take."

CORPORATE PLANNING

For private C corporations, Rosica recommended a look at accelerating dividends from 2011 to 2010. "If the corporation pays dividends, it should consider paying all its dividends, or as much as possible, in 2010 in light of the fact that there is currently a 15 percent tax rate on dividends that is scheduled to go up to 39.6 percent in 2011," he said.

Pass-through entities, such as partnerships and S corps, should re-evaluate their entity status, advised Rosica. "Is the S corporation or partnership status going to continue to make sense versus converting to a C corp? C corporation rates are not scheduled to change, but the flow-through rates are, so it's important to check where you are from an entity perspective," he said. "Even with an S corporation, there may be accumulated earnings and profits from a previous C corporation, so by accelerating some of these dividends there may be a more favorable tax result."

INDIVIDUAL PLANNING

"When you look at individuals, customary planning is 180 degrees different this year," said Rosica. "Traditionally you're looking to defer income and accelerate dividends, but now it's the opposite - accelerate income into 2010, and defer deductions till 2011, because income is worth more at lower tax rates, and deductions are worth more at higher tax rates. Real estate taxes, year-end deferred-compensation decisions, and charitable contributions are areas to consider."

"The important thing is to develop a plan with at least two different scenarios now so you will be able to execute it when the time comes. If you wait, you will be pushing up against a difficult time," he said.

All in all, this is a really tough time for those of us in the tax planning business. Our best advise is be prepared for anything.

1040 DEADLINE

The Internal Revenue Service’s final deadline for individual taxpayers who filed an extension to submit their 2009 tax returns is October 15, 2010. The IRS expects over 10 million returns to be electronically transmitted on October 15. The IRS encourages filing the returns electronically not only to receive your refund more quickly, but also to prevent common errors that are not caught on paper returns.
This is also an important date for small non-profit organizations. If you have failed to file returns for the past three years, you are at risk of losing your tax-exempt status. Links to this information can be found at the address below:

http://budurl.com/gjb3

The IRS sent out one last reminder to individual taxpayers in general….check your federal filing status. There are about three months left in this calendar year so now is the time to make sure you are getting enough taxes taken out to prevent owing anything at the end of the year. The IRS has a free withholding calculator to estimate if you’re taking out too much or too little. Below is a link to that website:

http://budurl.com/4us6

Viva San Antonio

As an adopted San Antonian (or Houston refugee), I’ve come to enjoy life in the Alamo City.

The latest San Antonio Business Journal includes a supplement called All About San Antonio. The supplement contains all sorts of factual information regarding our fair city. I encourage you to pick up a copy. If you study the information, you will find a number of things that are positive. Unfortunately, there are a few items that are not that great.

Very few people outside of San Antonio realize that we are the seventh largest city in the country. In fact, we are larger than Dallas, which is eighth. Take that AT&T!

Here are some other interesting tidbits. The number of homicides has remained the same over the last three years. You would never know that by watching the six o’clock news. Theft is up 25% over the same period. So I guess you can expect to be burgled, but not shot.

The median priced home in 2008 was $151,000 in San Antonio versus $197,000 nationally. The median family income was $57,000 here and $64,000 for the nation. Our per capita personal income was $34,937 which was 189th in the country. Unemployment is just under 8%, which is well below the national average. In other words, people are working, but they are not being paid very much. So, while call center employment growth is good for the employment numbers that the mayor brags about, it really doesn’t put much money into the economy.

This trend will probably continue as long as the available quality of education is substandard. Companies with big paying jobs are not going to invest in communities that provide poor education for their families…..it is just that simple.

Of the sixteen school districts listed in the article, three districts were rated “Unacceptable” and seven districts were rated as “Acceptable”. “Acceptable” means that the district met no more than the minimum standards (good job Alamo Heights-you meet minimal standards). “Acceptable” is nothing to shout about. There were six recognized districts. Of this group, three were at the military bases. HEY, MAYBE DISCIPLINE MAKES A DIFFERENCE IN EDUCATION ………

The substandard schools were in the predominantly Hispanic neighborhoods. Hispanics have the highest drop out rate in Texas. Hispanics have the smallest percentage of kids going to college in Texas. If you are Hispanic, and you want your kids have income that is 189+th in the country, and their kids to have income that is 189th, then continue with your current attitude toward education.

In 2040, San Antonio is projected to have a population of 2.5 million people. Of these, 1.5 million will be Hispanic. That is 61% of the population. That would be 1.5 million people in our beautiful city making far below the national income median.

So my charge to my Hispanic friends is: “Get off your butt and make a difference unless you want to live in McAllen North!”

IFRS VS. GAAP

A potential audit client recently came to us requesting a bid for an audit prepared under International Financial Reporting Standards (IFRS). This may be a first for us, but it definitely will not be the last. IFRS is taking the American audit community by storm.

Just the other day, as I was browsing audit reports online, I came across the Georgetown Chamber of Commerce report. Interestingly enough, the report complied with IFRS, not Generally Accepted Accounting Principles (GAAP). While IFRS has not yet become a requirement, it has certainly become a viable option for many organizations. So what, exactly, is the difference between IFRS and GAAP?

INTRODUCTION TO IFRS
The globalization of business and finance has led to mass adoption of IFRS in more than 110 countries. In the next three years, it is expected that 150 countries will mandate or allow IFRS. Canada, India, and Japan plan to adopt IFRS in 2011 with Mexico following suit in 2012. IFRS has the potential to enhance the quality of reporting and decrease the costs of preparing and interpreting financial statements.

DIFFERENCES BETWEEN IFRS AND GAAP

Revenue Recognition
With respect to revenue recognition, US GAAP is much more detailed and industry-specific. IFRS mentions just two main revenue standards along with a couple of interpretations related to revenue recognition as guidance.

Expense Recognition
There are also some significant differences with expense recognition in regards to when an expense should be recognized and the amount that should be recognized. IFRS recognizes the expense of certain stock options with vesting over a period of time sooner than GAAP.

Financial Instruments
Some significant differences exist in the area of financial liabilities and equity. While an instrument may be regarded as equity under GAAP, it may be considered as debt under IFRS.

Consolidation
GAAP has several criteria for consolidation while IFRS allows consolidation based on the power exercised by the company on the financial operational policies of the other entity.

Inventory Methodology
GAAP offers companies the option of using the last in, first out (LIFO) inventory methodology whereas IFRS forbids this type of inventory costing.

The above are just a few of the major differences and possible changes when converting to IFRS. For more information on IFRS requirements and transitioning to IFRS reporting, check out pcaobus.org or contact our office.

Doom’s Day

Today, September 15, 2010, is the final deadline to file corporate tax returns if an extension was requested. If you haven’t gotten the work in to your local CPA or begun work on the return yourself, you’re looking to perhaps pay some penalties and interest.

If you have a balance due on a late tax return, the Internal Revenue Service will calculate further penalties and interest. Here’s what to look out for:

Failure to File Penalty

If you do not file your return by the due date, with or without an extension, you may be stuck with a failure to file penalty. The penalty is 5% of the tax not paid by the due date for each month or part of a month that the return is late. If your return is more than sixty days late, the penalty will be the lesser of $100 or 100% of the balance due. If you can show reasonable cause as to why the return was filed late, you will not have to pay.

Failure to Pay Penalty

This penalty is pretty self explanatory. Until the full balance is paid on the return, there will be a 0.05% penalty for each month the balance is not paid in full. There is no limit on the failure to pay penalty.

Interest

Generally speaking, the IRS will waive some penalties but will be VERY hesitant to waive any interest fees. Interest rates are set quarterly and are calculated based on how much tax you owe. The underpayment tax is currently 4% per year.

Prepare yourself for tax season and its deadlines. If you feel like you cannot make the deadlines, file an extension. Remember it is ALWAYS beneficial to file sooner than later.

Key Questions to Ask Payroll Processing Companies

There comes a time in every business when you must decide how to conduct payroll. Many business owners begin by conducting their own payroll. With constant change in the laws and hefty penalties for disobeying the federal and state guidelines, most business owners decide to outsource the service to a payroll processing company. Before you decide, ask your prospective payroll provider this list of key questions to ensure they are the right fit for your company.

1. Who am I going to be working with to conduct my payroll? Outsourcing your payroll to a smaller CPA firm or payroll company usually gives you A LOT more personal time with your payroll representative. If you have a question, are you one phone call away from your person of contact or are you going to sit on hold for twenty minutes?

2. What steps does the company take to stay in compliance with the ever so often changing payroll laws? Ask what measures are taken to stay in compliance with the IRS, Social Security Administration and the Department of Labor. Find out when and how ALL federal, state, local, and unemployment taxes are paid accurately and on time.

3. How can I pay my employees? Do you offer direct deposit, check stuffing and mailing and can you possibly deliver the checks? What are the options for reporting the hours? Will it be as simple as emailing them over, a phone call or an online portal where the employees can log in their own hours?

4. What am I paying for? Ask what the services INCLUDE. Find out if new hires, quarterly, year end, and W2 report filing are an additional cost to the services provided. Most, if not all, payroll processing companies charge based on the number of employees. Make sure you find out how your rates will change when your company expands. Find out if they offer any employee benefit services associated with their services as well.

5. What is the company’s confidentiality policy? Make sure that your employees and your company are protected. Find out what the policy is and make sure you feel confident that your information will be protected.

If you’re looking to take some of the burden associated with payroll off your shoulders, outsourcing your payroll is an excellent option. To prevent future headaches, make sure you ask the prospective payroll company all the right questions to insure your company is going to get the best service possible.

IRS Scrutiny of Small Nonprofits

Recent activity by the federal government suggests that increased scrutiny will be placed on nonprofit entities. This increased scrutiny includes an increase in the number of audits. Many smaller nonprofits may shrug off this recent development as an issue that does not apply to their organization. The assumption, “we’re too small to be noticed”, would be wrong.

The IRS is currently beefing up their Tax Exempt and Governmental Entities (TE/GE) Division with 155 new employees. 100 of these will work in examinations. What does this mean for your organization? You have a greater chance of receiving an inquiry or being audited. The TE/GE Division expect to conduct around 500 audits of randomly selected exempt organizations.

So, rather than sitting back on your haunches and waiting to see if your entity is unlucky enough to draw the short straw, get proactive! Be audit ready. Below are a few practical measures to consider now.

Organizational documents. Articles, bylaws, determination letters, and other formal documentation will be requested during the audit. Make sure you can put your hands on these and that your organization is operating within the standards set forth in the documentation.

Minutes of meetings. Make sure the minutes reflect all actions of the organization’s governing body and of any committee having the power to bind the organization.

Payroll information. For all employees, make sure you have an employee file containing W-2s, copies of the Social Security card and driver’s license, and insurance documentation. If you have any contract labor, make sure that the contract labor classification is defensible. For descriptions on employment status, see the February 2010 issue of The PPC Nonprofit Update.

Financial records. Ensure that you have good record of all financial statements, receipts, invoices, check registers, bank statements, expense reports, and any other financial documentation that supports your books.

Nonprofits of ALL sizes should be aware of the potential for an IRS audit. Be prepared by following the above suggestions

The IRS…………..friend or foe?

The IRS just sent out another round of collection letters. Their computer spits these letters out every 30 days. The letters come with varying degrees of venom. Generally, when you get the letter that threatens to place liens on your bank accounts and other properties, it is time for you (the taxpayer) to take some form of positive action. Don’t shred this letter.

The Internal Revenue Service is the collection branch of the United States government. The IRS does not make tax law. Your elected Congressmen make the laws. If you do not like the tax laws, the collection laws or any other law, call your Congressman.

So when you call your CPA and vent about the IRS and the unfairness of tax laws, fines, penalties, interest and collection procedures, you are complaining to the wrong person about the wrong group. Call your Congressman.

ON THE OTHER HAND, if you want to complain about the quality of service provided by the IRS, call the IRS. We need to let IRS management know that they have issues. I have been a practicing CPA for 27 years. In the “good ole days” you could take your client’s power of attorney, go to the local IRS office and work out every problem in a face to face meeting. The process was simple and effective. You can’t do that any longer.

Today virtually all issues are handled by IRS telephone call centers and correspondence. Your ability to resolve an issue often rests with the “luck of the draw”. If you get a well trained, experienced agent on the phone, you may get your issues resolved quickly. Please be aware that the call centers are staffed by the lower level, less experienced agents, so there is a very good chance that your issue will not be resolved.

In the meantime, the IRS computer is sending out collection letters every 30 days. It is not at all uncommon for an issue to be resolved or in the process of being resolver via the phone agent only to have an IRS collection letter generated via computer.

Here is an actual case on this point. We filed an amended income tax return for a client. The amended return reduced the client’s liability substantially. A week or so ago, the client received a letter stating that due to the unpaid taxes, the IRS was going to attach liens on their bank account and their home. Needless to say our client was hot. We called the IRS. Their response to our call was that amended returns take 6 to 9 months to process. They showed receipt of the amended return but we could not give a date for processing. Their solution was to put a 30 day hold on the account. Yes, a 30 day hold on an issue, that by their own admission may take as much as 9 months. So we, the taxpayer, have to call the IRS every 30 days to get them to extend the “hold” every 30 days until the issue is resolved.

I am sure that the practitioners that you use can regale with similar stories. Here is my point. The number of returns being processed by the IRS is growing at a ridiculous rate. Congress has not mandated the adequate funds to increase staff and equipment to keep up with the filing growth. The problem is only going to get worse. So don’t shoot the messenger!

Employee Termination 101

One reality of running a business is that occasionally an employee needs to be terminated. Whether it be performance, incompatibility, or any number of other issues, there will come a time when a business owner is faced with this challenge. Preparation is key to firing an employee and avoiding facing legal problems down the road.

Documentation, Documentation, Documentation

You can NEVER have too much documentation. What location is to real estate, documentation is to termination. Document the employee’s performance over time and provide feedback in full detail. Make sure you have an employee handbook and you follow the guidelines with each employee equally. If you document everything, there will be no questions in the end.

Is that your final answer?

You have thought long and hard about your decision to fire an employee. There will be a rush of emotion when you tell them the news. Grief and anger are a few to name BUT hold your ground. Give honest answers while avoiding any and all debatable issues. Do not apologize for your decision but offer explanations of the termination without creating a long discussion. Misleading the employee into thinking they have one last chance will only cause you more of a headache in the end.

Firing via Social Media or Text

Face-to-face is the best and ONLY way an employer should terminate an employee. Trash any and all electronic methods of termination (i.e. Facebook or text messaging). When you fire an employee, give them the courtesy you would extend to any other person and avoid any and all accusations of defamation. You might want to scribble this one down for break-up tips as well.

Firing without Warning

Firing without warning can be one of the biggest downfalls for an employer. As said earlier, documentation is key to firing and can become your biggest defense in a legal issue. Blindsiding your employee with a surprise can lead to an overwhelming amount of emotion that you do not want in your work place.

Can I get a witness?

Employment termination is a hot topic in court these days and definitely not the place you want to find yourself. ALWAYS have a witness in the room with you before you begin the termination process. Most employers would rather have an employee from HR, but any witness is better than no witness. Keep in mind that anyone can sue anyone these days and your witness’ testimony for the events of the meeting could quite possibly be your defense in court.

What’s mine is mine and what’s yours is yours.

During the termination meeting, ask that the employee hand over all company property from cell phones to passwords. Accompany the employee to their desk in order to gather necessary items. If the employee has company property outside of the workplace, make documented and solid plans for when you expect them returned. Give the employee an explanation of how long they have to gather their personnel belongings and leave the premises. Following the termination, minimize the contact the former employee has with other employees at the work site. If the former employee is upset, schedule another time for them to come in and get their personal belongings.

Confidentiality

Keep all employee records and termination paperwork private. It is appropriate to let the company know the employee has left, but make sure to reassure them that their jobs are not in danger. Keep all conversations about the employee’s termination confidential as well.

Reflect

After the termination, review and reflect over the process. Was everything documented appropriately? Were all termination policies followed according to your company’s standards? Do any alterations need to be made for a smoother transition? All of these are things you should ask yourself.

Cover each base by documenting everything and preparing an appropriate termination process that your company can follow. Be consistent and remember: Documentation, Documentation, Documentation!

Is It Time To Expand Or Stand Pat?

Interest rates are at the lowest levels in my lifetime. The economy is at the lowest level in my lifetime. So, is this the time to recognize opportunity or just buy my few remaining dollars in the backyard?

This is the question that I get repeatedly. To some extent your decision will depend on your risk tolerance level. We had a client in the office this week that is convinced that we are headed for another Great Depression. They are liquidating and holding the cash. Yesterday, I met with a client whose business is growing so fast that their concern is that it is out of control.

My home is Galveston. The richest family in town is the Moody’s. The original Mr. Moody made a significant amount of money in the cotton business after the Civil War. It was Grandpa Moody, however, that made the fortune. He made that fortune during the Great Depression by buying grossly undervalued businesses and later selling those businesses. At one point, he was the largest landholder in Texas. He bank rolled such notables as Baron Hilton (Paris’ grandfather) and many others. He created a banking and insurance empire by guaranteeing returns. The old bank in Galveston sported a large 1% painted on the front door.

My point is this, protect your assets, but don’t be afraid of the future. Invest your business in tomorrow, but invest wisely. Put your business in a position to be a leader in your industry. The economy runs in cycles. Money is extremely cheap right now. Consider investing in your company’s infrastructure. The Boy Scout motto is “Be Prepared”. Our business motto is “Be Ready”.

Other Tidbits…

Senator John Kerry, Democrat from Massachusetts has agreed to pay the state of Massachusetts $500,000 in state taxes that he attempted to avoid by docking his $7 million yacht in Rhode Island. Come on! Screwing the state that elected you!

Chris Tucker is facing tax liens from the IRS of $11.5 million. Ouch. Who was his CPA?

I know most of my readers are into RAP, so here is the update on Lil Wayne. The IRS slapped a $1.1 million tax lien on our man. Apparently he intends to address this issue as soon as he gets out of jail on the weapon charge.

“Dos” and “Don’ts” of Staying Motivated as an Entrepreneur

There comes a time in every business owner’s career where they find themselves lacking motivation. After all, it isn’t every day that we fully expect our grand ideas to change the world as we know it. Sometimes, the fire just dwindles and it is all we can do just to go through the motions. Here are five tips on things an entrepreneur can do to stay motivated and five things to avoid doing that will drain the creative juices that entrepreneurs thrive on.

Do:

1. Avoid tasks that are overly routine or repetitive. The mind of the entrepreneur thrives on performing a variety of activities and the desire to constantly face new challenges. As such, settling into too much of a routine can be draining. If these types of tasks must be done regularly, hire someone else to do them.

2. Set deadlines – and keep them. Nothing motivates activity like facing a hard deadline for the completion of a task.

3. Network. No one “gets” an entrepreneur like another entrepreneur. Networking provides a perfect opportunity to share thoughts and experiences and discuss challenges facing the business. The fact that most networking events tend to be fun doesn’t hurt.

4. Surround yourself with people who buy into your vision. No one wants to be surrounded by “yes-men” but the successful entrepreneur will hire people who see the vision for the business and believe in it. After all, if the staff doesn’t believe in the business, how will the customers ever be able to?

5. Recharge the batteries. It’s true that the business depends on the entrepreneur. However, it’s also true that no one can go indefinitely without rest and relaxation from time to time. Take some time off occasionally. Start a hobby. The business will benefit from the entrepreneur being refreshed and relaxed.

Don’t:

1. Give up. No one likes to be rejected, but the entrepreneur is especially susceptible to disappointment because they live for their ideas. Remember, some of the greatest ideas in human history came about only after several tries. Personal computers? Television? Both ideas that were initially rejected.

2. Linger on the negatives. Everyone has bad days. The key to maintaining focus as an entrepreneur is not letting bad days turn into bad weeks or even bad months. Each day must be looked at as a fresh opportunity. In sports, we used to say “That play is over; now it’s time for the next one”. Entrepreneurs can apply that logic to their businesses as well.

3. Lose sight of the goal. Every entrepreneur has a long-term plan for their business. In many cases, the long term plan was the first thing that they came up with and everything else was just details on how to get there. The successful entrepreneur will take time to revisit that long-term goal and evaluate how they are doing. Doing so keeps them from feeling like they are “lost in the wilderness.”

4. Suppress your feelings. While screaming at employees or family members when there is business-related stress isn’t advisable, it is healthy to freely express your emotions. When the big deal didn’t materialize or the company didn’t land that big contract, don’t stew. Find a trusted companion who you can vent to. In the electronic age, venting online through a blog can also be therapeutic. Keeping the pressure off periodically prevents a major explosion down the road.

5. Ignore your health. Too often, entrepreneurs eat poorly or don’t exercise because they “don’t have time”. A healthy body will not only provide more energy to get work tasks done, but exercise can also be a great stress reliever.

Hiring an Accountant for Your Small Business

Why do you need an accountant? Why won’t a bookkeeper do? While there are several good answers to these questions, the simplest one is this: a good small business accountant does much more than just record transactions and generate documents – a good accountant analyzes, interprets, and translates data into useful information.

The key is, you must select an accountant that fits your needs. What’s important to you and your business? Personalization? Technological savvy? Understanding your industry? Consider raising the following questions in your quest to find a suitable accountant:

What services do you provide to small businesses?
There are several areas that accountants can work or specialize in. These can include audit, tax, bookkeeping, consulting, payroll, and financial planning. Find out which areas could help your business and make sure the accountant you choose has experience fulfilling those needs.

Do you have knowledge about my industry?
In many cases, the more experience an accountant has with a certain industry, the more insight they’ll be able to provide to your business. However, with areas such as payroll, industry knowledge may not be essential.

What types of services do you provide to others in my industry?
This question may open up other possibilities for your business. Other entity’s in the same industry may be receiving services that could be beneficial, but that you hadn’t thought of. This also gives you an idea of the accountant’s background and knowledge.

What type of technology do you use and how will that benefit my business?
Does the accountant keep a paperless office? Will your files be accessible through a portal? How can I access my financials? Exactly what role will the Internet play in data interchange? These are all important questions that need to be addressed prior to retaining an accountant.

How do you calculate your fees?
Most accountants have both hourly rates and fixed fees. If you plan on being a monthly or quarterly client, ask about the fee structure to see if you could qualify for a fixed fee. This saves you from paying separately for quick e-mails, faxes, or brief phone calls.

What Is Your Take on Extended Unemployment Benefits?

My grandfather was not an educated man. He grew up in northwestern Louisiana on the family farm. He had to quit school after 6th grade to work on the farm. But, like so many from that era, he was loaded with common sense and wise in the ways of the world.

During the Depression, he traveled from project to project. Each week he brought his earnings home to the family. He wanted to make more money, but the times were difficult. He did his best and the family survived. Regardless of the situation, he felt good about himself and, more importantly, the family felt good about him. There was no shortage of pride and no self pity.

All of this brings be to the Obamacrats efforts to extend unemployment benefits to 99 weeks. Let’s just round that number up a bit and call it two years. At some point, government subsidies stop becoming incentives for employment and become enablers for non-employment. At some point, it is easier to sit on the front porch and wait for the mailman than to be gainfully employed.

Most people, and I include myself in this category, are driven by deadlines. In our tax practice, the volume of tax returns increases as April 15 approaches. I fail to see how lengthening the unemployment benefit aids in creating new jobs. There is no sense of urgency. There is no cause for activity.

The money paid to these folks should be put into projects that create immediate jobs. The money should be made available for businesses to borrow. Business growth is what actually creates jobs. Working creates pride. Pride creates desire. A March 2010 economic report by Michael Feroli of J P Morgan Chase Bank examined this issue. Their finding was “that lengthened availability of jobless benefits has raised the unemployment rate by 1.5%.”

The Tuesday, July 20, 2010, Wall Street Journal reported that a “record 6.7 million people have now been out of work for at least six months….that number was 23.4% in February 2009. Americans tend to support jobless benefits on compassion grounds, but at some point such a policy becomes the false compassion of welfare by keeping people of the job market and thus not learning new skills.”

Perhaps we should tie unemployment benefits to some level of activity. Activity is not going to TWC once a week and signing in on the computer. Activity is real job training programs, picking up trash on the highways, washing police cars, etc. Government claims to be strapped for manpower because of reduced tax funding. All of these people on welfare are being compensated by the government, let them work.

The more you get something for nothing, the more of nothing you are going to receive.

Top 10 Questions To Ask Your Auditor

Many companies that require an annual audit have no idea what an audit entails or what qualifications the auditor should possess. The following is a list of some of the basic questions you should ask your auditor prior to the engagement. Find out how Cook & Associates, CPAs answers these questions and see if your current audit firm measures up.

1. Are you independent?

Auditors must be independent and objective when conducting audits. They cannot have a prior working relationship with your organization or provide in-house services. At Cook & Associates we maintain a professional relationship that keeps your best interest in mind.

2. What is your audit experience?

The managing partner at Cook & Associates has over twenty-six years experience in auditing. In that time, he has performed in excess of one hundred audits of various entities, including schools, cities, nonprofits, and other governmental entities.

3. How will you manage the engagement?

Cook & Associates is adequately staffed with professional and support personnel to provide all necessary services and to maintain personalized involvement with each client. Each audit is overseen by the managing partner. Staff members are directly supervised by the partner to ensure that the goals, objectives, and deadlines are met.

4. What type of reports do I get?

Our firm provides all reports requested by the audited entity. These generally include an Independent Auditors’ Report, Audited Financial Statements, and a Report on Internal Control. In addition, we generally provide a Management Letter to discuss operational areas that could be improved.

5. What auditing standards are used?

Auditing standards provide measures of quality that can be used to judge the effectiveness of the tests and procedures used to meet the audit objective. Standards for traditional financial audits are known as generally accepted auditing standards (GAAS) and are promulgated by the American Institute of Certified Public Accountants (AICPA) through the Auditing Standard Board.

6. What are your certifications?

Management qualifications: All audit staff at Cook & Associates have received Masters in Accounting. Both partners hold the title of Certified Public Accounting (CPA).
Professional associations: The firm is a member of the San Antonio Chapter of the Texas Society of CPAs. The firm is also a member of the Texas Association of CPAs.
Recognition: The firm was published in the San Antonio Business Journal.

7. Have you performed audits for our industry before?

Cook & Associates has performed audits for many sectors, including governmental, nonprofit, department of education, housing and urban development (HUD), and nonpublic. We are well versed in the standards and regulations applicable to each.

8. What is your service approach and methodology?

Cook & Associates thoroughly understands the nature of the work to be performed. We have developed programs and procedures designed specifically for these engagements. Both the partners and the staff will have familiarity with the organization’s operating environment due to their ongoing involvement with other clients.

9. Will you provide constructive feedback?

A management letter is provided on every engagement. This addresses internal control issues, potential areas of improvement, and an overall discussion on the health of your entity.

10. Why should we choose your firm?

You need a firm that has extensive audit knowledge, sufficient staffing, and an understanding of your entity. At Cook & Associates we strive to provide top-notch service and present your entity with the reports and feedback it needs to maintain a healthy environment.

Expiring Tax Cuts Can Mean Big Tax Increases in 2011

In 2001, the nation’s economy was rocked by the terrorist attacks of 9/11. The Government passed a far-reaching set of tax law changes called the Economic Growth Tax Relief Reconciliation Act (EGTRRA). This law provided the most sweeping range of tax cuts in our Nation’s history ($1.35 trillion over 10 years). EGTRRA has been credited with stimulating spending enough to keep us out of recession after 9/11 and it has been blamed for creating the nation’s budget deficit.

Why is this not ‘old news’? Here’s why: EGTRRA included a provision stating that all changes would sunset after ten years. This means that effective January 1, 2011 all of the tax cuts established under EGTRRA will go away and we will return to the prevailing tax law as of 2001. What does this mean to the average American? Higher taxes for all, of course!

Here are some of the changes that we could all face if the EGTRRA provisions are allowed to expire:

Tax Brackets: Currently, we pay taxes according to six tax brackets: 10%, 15%, 25%, 28%, 33%, and 35%. Unless something changes, there will be five brackets: 15%, 28%, 31%, 36%, and 39.6%. This would mean that everyone who pays taxes will see a tax increase of 3-5%.

Capital Gain Tax: Under EGTRRA, the maximum tax rate on capital gains and dividends is 15%, and people in the 10% and 15% brackets are not taxed on capital gains at all. Without action, next year the highest tax will become 20% on capital gains. Dividends will be taxed as ordinary income, which could mean taxes as high as 39.6%. This would be a huge disincentive for anyone looking to invest in capital assets.

Marriage Penalty: Before EGTRRA, couples routinely paid a “marriage penalty” to IRS. This existed because the brackets and deductions for married couples was not double what it would be for two single people, resulting in a higher tax liability for married couples than for two single people. EGTRRA corrected this problem, but it could be coming back in 2011.

Phase Outs: Pre-EGTRRA, if you were lucky (unlucky?) enough to make a good living, you found yourself forfeiting itemized deductions and personal exemptions on your tax return as a “reward”. A married couple making $170,000 or more would see their itemized deductions phased out and anyone earning more than $252,000 would start to lose credit for personal exemptions. EGTRRA raised those limits slowly before eliminating them completely this year. Next year, they’ll be back in full force unless something is done to preserve the changes.

Child Provisions: EGTRRA increased the Child Tax Credit from $500 to $1000, and made a portion of the credit refundable for families with more than one child. A refundable credit is a credit that you can take even if it exceeds the amount that you paid in for that year. Losing these provisions would mean significantly smaller tax breaks for working families.

Another credit that would be cut dramatically if EGTRRA expires is the Child Care credit. This credit is already woefully inadequate considering the cost of child care, so losing some of this one will especially hurt.

Estate Tax: This is the one change that you have probably heard about. A taxpayer who dies and leaves significant assets behind could once expect to see a good portion of that value end up in the hands of the government. Pre-EGTRRA, estates valued at over $1 million could face a tax bill of up to 50%. EGTRRA slowly reduced the tax brackets for estates, and also raised the exemption level. This year, there is no estate tax. Next year, the rules revert back to their 2001 form. This provision has led to some (not so) tongue in cheek comments about the best estate plan being to die in 2010.

If the President and Congress allow these tax cuts to expire, we will all find ourselves paying more tax next year then we will this year. There has been discussion on Capitol Hill about extending many of these provisions, but there are also talks of letting them all expire and allow the government to close the deficit. Alan Greenspan, former chair of the Federal Reserve Bank, has advised Congress to let all of the breaks expire. However, most pundits agree that at least some of the tax breaks will be saved.

Multiple Payment Options Present Control Issues

I don’t know about you, but I rarely make payments with a paper check. More often than not, I swipe my credit or check card or pay with an online transfer. This is true for our business as well. Paper checks are quickly becoming a thing of the past while wire transfers and electronic payments are taking the forefront. While these types of payment are convenient and efficient, they create a lack of standardization which can lead to duplicate payments and improper recording.

As more and more firms transition away from paper checks, the more important it becomes for firms to follow set procedures for issuing a payment. The following are some best practice aids to properly manage accounts payable.

• If feasible, limit the payment type to just one format. Whether it is Purchasing cards, wire transfer, or paper checks, using just one format provides better control over the purchasing process.

• Sign off on purchase orders after payment has been made. This is a simple step that can prevent duplicate payment.

• Include the invoice number when coding the payment.

• Make sure that all departments understand the coding standards. These need to be entered in the same manner for each purchase.

• Institute a payment timing policy for all purchases.

Telecommuting – The New Norm?

At a time when the economy is slow and money is tight, what can firms do to reduce costs and increase their profit margin? The answer is in eliminating so-called fixed costs such as rent, electricity, and office space – otherwise referred to as Telecommuting.

More and more firms are catching on to the idea, allowing employees to work from home or another space of their choice. Austin-based firm Ariesnet Inc. has operated as a virtual office for six years now. While CEO Cruce Sanders was originally unsure how long the firm would be able to sustain a telecommuting workforce, he now has complete faith in the system.

Sanders said “We’ve learned we can be more productive, more profitable and more nimble. Our team members – programmers, project managers, consultants – get to live flexible lives while our clients experience high-quality, high-availability service. It’s better for all involved, including our families and the environment.”

According to a survey by the Austin Business Journal, half of the CEOs in the Entrepreneurs’ Organization allow telecommuting, while another 41 percent said it could be an option in the future. Only 9 percent said telecommuting was not an option.

If you are one of those companies considering telecommuting, here are 5 tips to help successfully manage your virtual office:

Set Expectations
Specify and document what is expected of telecommuters. Set up guidelines for how, when, where, and how well projects are to be completed.

Agree on a Schedule
Obviously telecommuting allows more flexibility than a typical 9-5 workday. However, a basic outline detailing days worked, hours worked, and breaks should be established.

Evaluate Performance
Focus on the results rather than the activities. Are your employees completing their projects in a timely manner? Is the work product of good quality? If so, you’ve probably found a good balance.

Maintain Communications
Just because you don’t communicate face-to-face anymore does not mean you should slack on overall communication. Keep an open line of communication about events, information, deadlines, and meetings.

Assess and Adjust as Necessary
Feedback is critical. Find out what the staff thinks is working and what needs improvement. Consider the responses and make appropriate adjustments.

Tips For Small Business Regarding New Healthcare And Other Items Of Note

AND now other items of note:

The Treasury Inspector General for Tax Administration reported that approximately 1,300 prisoners filed for, and received, the First-Time Homebuyer Tax Credits. The total claims paid (yes paid) were valued at about $9.1 million.
Do you remember Reggie Bush and the Southern California Trojans from the 2005 national championship game? The NCAA slapped USC with the “near-death” penalty for improprieties regarding Mr. Bush and basketball player O.J. Mayo. The IRS and the State of California Franchise Tax Board are after them for unreported income. I suppose this will help cover the $9.1 million paid to the prisoners!

An Internal Revenue Service agent in Minnesota was indicted by the federal court for soliciting and accepting a $9,700 bribe from a Minnesota business in exchange for lowering the company’s tax liability. I’m not sure 9,700 bucks is worth ruining your life over.

Surprise, Surprise, Surprise……or healthcare reform
This is just in. The Congressional Budget Office released a study that found that the original projection that the new healthcare reform package would reduce the federal deficit was incorrect. It will increase the federal deficit.

If your business has ten or fewer full time employees and each employee’s annual wage is $25,000 or less, you will receive a tax credit equal to 35% of the paid health insurance premiums. Above ten employees, you will loose the credit. My question is how many full time employees make less than $25,000 annually?

On the other side, if you have fifty or more employees and do not offer coverage that the Congress deems adequate, you will be fined $2,000 for each employee beginning with the 31st employee. There is no minimum wage limit on this provision.

The Bright Side
Now that the President and his Posse have added a trillion dollars to the federal debt, driven up the cost of doing business in the U.S. which will force Walmart to buy even more products overseas, he will be less involved in domestic issues. That is a good thing.

After watching a few Victory at Sea and The War in Europe episodes on the History Channel, however, he has decided that his keen skills are best used as Commander and Chief…..holy wow!

I have yet to find anyone that admits voting for these guys.

EXTENDED EXTENSION OF THE HOMEBUYER CREDIT?

Yes folks, the First-Time Homebuyer Credit may be extended yet again. Senate Majority Leader Harry Reid has introduced an amendment to the American Jobs and Closing Tax Loopholes Act of 2010 that would extend the transaction closing date for the First-Time Homebuyer Credit from June 30 to September 30.

The action was taken due to growing concern that banks would be unable to process transactions such as short sales within the designated time frame. The September 30 deadline would allow for completion of the sales.

The Housing and Economic Recovery Act of 2008 established a tax credit for first-time homebuyer’s worth up to $7,500. The American Recovery and Reinvestment Act of 2009 increased the credit amount to $8,000 for purchases made before December 1, 2009. The Worker, Homeownership and Business Assistance Act of 2009 extended the deadline to contract on a home to April 30, 2010, with a closing date prior to July 1, 2010.

KUDOS TO ARIZONA

Wow there partner! Before you send the hit squad to my office, please be informed that I, in no way, support the latest Arizona immigration laws.

However, I do offer kudos to Arizona for bringing this prickly issue to the fore front. As citizens, we have looked the other way long enough. As a government, we have ignored our southern border long enough. Simply put, the federal government needs to establish a realistic, enforceable immigration policy specifically for the southern border.

Building fences does not work. The Berlin wall didn’t work nor did the Great Wall of China. Sorry W, that was not one of your more clairvoyant moments. A full scale military assault on the borders appears to be over kill.

To ascertain what level of security we need, we first need to decide whether we want these folks in the first place. In Monday’s WSJ, there is a picture of what appears to be two Hispanic men on their hands and knees crawling along an Alabama beach picking up oil globs. At my former in-laws farm in Washington state, they use Hispanic’ workers to pick their crops on their truck farm nine months per year. The last building that I reroofed used a 100% Hispanic crew to lay shingles in July in Houston, Texas. And my favorite Chinese restaurant in San Antonio has an all Hispanic kitchen staff.

It seems to me that there is a demand for these hardworking individuals. These are hot, dirty, nasty jobs. You don’t see many Gringos or Bros doing that work. I think it is reasonably safe to say that we need the Hispanic labor force. Since we (see above) won’t do that work, I fail to see how they (Hispanic immigrants) are “stealing” jobs.

We are a capitalist society (despite what the Obama’s say), so let’s capitalize on this productive import. Why not just give these people work permits and make them tax paying W-2 employees . Have them renew their permits every six years, just like we do with drivers licenses. Then we can concentrate our enforcement effort on those unscrupulous industries that hire workers but do not treat them as taxable employees.

To Incorporate or Not to Incorporate?

In my practice, there is no question I get from small business owners more often than “Should I incorporate?” As with most business decisions, there are many factors that must be weighed when making the decision whether to incorporate a business. No amount of “rule of thumb” can replace evaluating each case on its own specific circumstances.
Here are some of the relevant factors to consider when deciding whether to incorporate:
1. What is the expected profitability of the business? For example, is the (realistic) expectation to make $20 thousand or $1 million per year? Corporations pay taxes on a different rate schedule than individuals, so planning for profitability and the taxes that come with it can be an important factor.

2. Will the business want or need to raise capital by taking on equity investors? The corporate structure makes it easier to take on investors – the business simply sells stock to them. If the only planned financing source is debt, then a corporation might not be as attractive to the owner.

3. What is the expected risk exposure of the business? Corporations provide an excellent way for shareholders to shield their personal assets from the activity of the business. If the business carries a high risk of liability, a corporation might be attractive to the owner. If the business is “safe”, the owner might be able to find all the coverage they need with liability insurance.

4. Does the owner need to be able to pay benefits to the employees (or themselves)? Corporations are generally regarded as the best form of doing business where employee benefits are concerned. From health insurance to defined benefit plans, corporations have the clear edge.

5. Does the owner expect the business to go on after they are gone? The corporate form of business can exist long after the founder has retired. Since it operates as a separate legal entity, the corporation does not “live or die” with its shareholders. It simply hires a new CEO and continues on.

6. How much paperwork can the owner tolerate? For all of its advantages, the corporation can provide a large paperwork requirement burden to the owners. The corporation must file a separate tax return, meet state requirements regarding shareholder meetings, keep minutes, track stock, have a separate bank account, and essentially be treated in all manners as separate from its owners. For the extremely small business, this can be a cumbersome burden.

Making the right decision on whether to incorporation can be critical to the success of the business. For more information on how to make the right decision, contact our business consultants for an evaluation of your business needs.

Senate Passes More Reform – This Time, It’s Financial Reform

In what has become a disturbing trend, the Senate once again rushed to a final vote on another massive reform package last week. This time, though, the Bill was not as well-publicized as the health care bill from this winter. This time, the financial industry was in the crosshairs of Obama’s “change” pledge.

The Restoring American Financial Stability Act of 2010 (the Act) was passed despite hundreds of amendments that were still pending. The Bill also passed despite the fact that many Senators had NOT EVEN READ IT. This sort of action should not surprise us, because this is exactly the same pattern that was used to pass health care reform earlier this year. Just another day in Washington.

So what does the Act do? The primary goal of the Act is to increase federal regulation of nonconventional investments. A simple way to describe nonconventional investment is to think of them as anything other than stocks, bonds, or money funds that are traded on the open market. Two major types of nonconventional investments are derivatives and hedge funds.

The government is proposing to step up regulation of these types of investments in hopes of avoiding another situation like we had last summer when banks failed and investment companies went bankrupt due partly to reliance on these nonconventional (and highly volatile) investments. These problems, along with the housing crisis, were at the heart of the economic troubles that the country is still feeling today.

President Obama has claimed that the Act will mean that “taxpayers will never again be asked to foot the bill for Wall Street’s mistakes. There will be no more taxpayer-funded bailouts.”

But wait - wasn’t it Obama that gave all of those bailouts just last year?!?!?!? But I digress.

Perhaps the most significant provision of the Act provides a new way for failing banks to liquidate, similar to a bankruptcy process that a normal business would go through. The Act provides the SEC with the ability to regulate derivative markets. The Act also requires SEC registration of hedge funds. That’s a lot of regulation and government oversight, but no substantive changes to the system.

Other provisions of the Act continue this trend, creating new government agencies tasked with monitoring various sectors of the financial markets. The Act also streamlines the supervision of the banking industry, dividing oversight among agencies based on the size of the institution.

Critics argue that the Act is too strong on regulation and too weak on actual changes to the Wall Street systems that caused the problems in the first place. Rather than give banks a different process to go through when they fail, why not do something that would prevent them from failing in the first place?

Critics also argue that the Act does not prevent banks from combining their commercial banking and investment banking operations. This, they argue, continues to subject commercial deposits to investment risk and could leave banks with insufficient assets to cover their deposits.

In the end, only time will tell whether this Act is as good as its supporters think or a flawed as its detractors view it to be. It is also important to note that the Act, though passed by the Senate, may not be in its final form since it still has to be reconciled in Joint Committee with the House version.

As a CPA in tax practice, I can tell you one thing for sure: get ready – once again – to pay higher taxes to fund all of this new government that is being established.

The Good News And The Bad News……………………..

The good news for those of us with loans is that interest rates are at extremely low level. In today’s WSJ, New York prime is 3.25%, 30 year mortgages are 5.03%, and 48 month new car loans are at 5.14%. These are very good rates for those of us with debt. The lower rates either allow us to pay our loans off at a faster rate or qualify for larger amounts of debt.

The bad news, however, is that the exceptionally low interest rates coupled with inflationary rates under 1% indicate that the underlying economic structure is not improving. Historically, this country has used a combination of federal taxation and Federal Reserve controls to manage the economy. Stimulating the economy meant lowering federal taxes and reducing interest rates. When the economy over-heated, we did the reverse.

This worked well until the playing field changed. Today we live in a global economy. The things that are occurring in Europe with the Euro, do affect the average American. The same can be said of Asia. We are no longer economic isolationist.

The market has gone “ in the dumper” over the last few weeks because of the Euro crisis. The Euro crisis has been caused, according to the experts, because Greece, Italy and France decided to run their countries on credit. In effect, these countries have become governmental Enron’s and Worldcom’s. They are running on credit without any underlying assets to support the credit.

In response, the Greek government, under extreme pressure for the other European countries, looked to implement austerity programs. In other words, the Greek government proposed to stop living on credit, or at least reduce the degree of credit. In the perfect response from the “me- first” world, one of Greece’s larges unions, said hold on! The union said austerity is fine as long as it isn’t us.

I am hopeful but not optimistic that the U.S. Congress will learn the importance of fiscal responsibility from our European neighbor. I am equally hopeful that we, as Americans, will stand ready to make small sacrifices for the betterment of all should those sacrifices be needed.

So what does all of this mean? It means that not only do we need to take care of ourselves but we need to be intellectually invested in the fiscal interworkings of foreign governments. Our well being depends on other’s accountability.

Fund Balance Reporting Clarified

Fund balance reporting has always been a complex and confusing task. It becomes even more so when funds are classified in a number of ways. Monies in the fund balance can be temporarily restricted, permanently restricted, or unrestricted. Determining which category to slot them in is the tricky part.

Thanks to a Statement issued by the Governmental Accounting Standards Board, the guidelines and definitions for each category have become easier to interpret. The Statement spells out the new definitions and groups the funds based on their spending restrictions. It also calls for new disclosure about how the amounts are classified.

GASB project manager Ken Schermann spoke of the change saying “The standards that governed the fund balance in the old model were subject to inconsistent application and different interpretation of terminology, so what readers thought they were seeing in fund balance classifications may not have been the case, depending on different application or interpretation or definition of the terms in those classification categories”.

Four previously vague definitions have been clarified. “Restricted” amounts include those set by external parties, constitution, or legislation. “Committed” amounts include those determined by a formal action of the government’s highest level of decision-making authority. “Assigned” amounts are set aside for specific governmental purposes, but do not fit the criteria of restricted or committed. “Unassigned” amounts include all spendable amounts not contained in the other classifications.

These new classifications should enhance the consistency between information reported in the government-wide statements and information in the governmental fund financial statements. The new definitions will increase confidence and reduce uncertainty related to fund type classifications.

The Statement goes into effect June 16, 2010. Governmental entities with questions should contact their local CPA or Auditor to begin the implementation process.

THE SPURS ARE DEAD…….. BUT ARE THEY BURIED?

The million dollar question in San Antonio these days is “What is the state of the Spurs?” I guess that really should be the multi-million dollar question judging from the size of these quy’s contracts.

Professional sports is big business. It is high stakes poker at the highest level. As a businessman, I certainly don’t envy Peter Holt and staff’s current dilemma. They have invested millions of dollars over the next three years in a pair of 34+ past-their-prime superstars. They have a 6-10 point-center that hasn’t gotten a rebound in two years while making a few million. Throw in a worn out, unmotivated guard that also rakes in millions and Mr. Holt has some issues. Worse yet, the chances of getting a “difference maker” in the number 20 spot in the upcoming draft is rather remote.

Wow, what a tangled web!

But this blog is not about the Spurs. It is about business management. It is about managing your assets and allocating those assets in their highest and best use. It is about making the very tough choices that all managers face regarding their personnel. It is about managing the company’s financial resources in the most efficient manner.

Last year was a difficult year for our CPA firm. Our sales were flat, but our budget and related staffing levels were set to accommodate our average increase of 20% per year. In our business, to be successful, you must have trained staff available to serve new clients. If you wait until you get new customers to add staff, you will lose those clients. So, we staffed and trained based on those historical averages. Oops!

As 2009 trudged on, we realized that sales were not going to hit their historical average. As a result, we had to reduce staff. We had to weigh salary and experience. It is one thing to fire someone that does not do their job; but, it is an entirely different (and difficult) task to terminate people that have been loyal and valued employees. BUT, as the manager, there are times when you have to do what is best for the company’s long term, regardless of the short term pain.

As a manager we must understand our position and the responsibility that accompanies it. Good luck.

A MOTHER’S DAY THANK-YOU

With Mother’s Day right around the corner, I thought I’d take a moment to recognize the working moms out there, including mine.

Working moms have their job cut out for them. They juggle jobs, kids, cleaning, cooking, washing, folding, and the list goes on. On top of all this, they likely battle with the Big “G” – Guilt.

As a former child of a working mom, I’d like to take this time to say GUILT BE GONE! My mother was, more or less, a single parent. Even with a busy and successful career, she still managed to get my 2 sisters and me fed, dressed, packed for school, and in the car before 7AM every morning. She made it to every softball game, basketball game, volleyball game, and tennis tournament any of us ever had. While she may not have played a round of hoops with us or fielded any balls, she was always present at our events to cheer us on and give support.

She also made a point to take us on a yearly vacation, regardless of how tough the times were. She scrimped and saved and showed us the value of togetherness. Even in our teens, when the phrase “family bonding” made us gag, we took those family vacations. Thank you, mom. Years later, I can appreciate the 7 course meal in China Town that dragged on for hours (I finally fell asleep with my head on the table). Years later, my sister can say she visited the Golden Gate Bridge and Alcatraz (even though she was 17 and wanted to be back home with her boyfriend). Years later, we all have these wonderful memories we can treasure for life.

I was blessed with a working mom. She made me into the strong, assertive, determined, loving, family person I am today. And though I can’t erase the guilt she may have felt years ago, I can say “Thank You”. Thank you for the sacrifices you made, the love you shared, the expectations you set, and the praise you gave when those expectations were surpassed.

For all you working moms out there, GUILT BE GONE! Eventually, your children will be able to fully appreciate your first-class juggling act. So…Happy Mother’s Day and Thank You.

Protecting Your Identity in the “Social Media Age”

Social Media isn’t the “next big thing” – it’s here now. Everyone from college students to businesses to little old grandmothers are signing on to web sites like Facebook, Twitter, and LinkedIn. It has never been easier to connect with friends, relatives, and colleagues than it is now.

Unfortunately, that type of networking ability can come with a price. Identity theft is nothing new - from stealing credit card numbers to generating fake IDs, criminals have been finding new and creative ways to make a buck at someone else’s expense. Social media outlets are proving to be a major new source of data that identity thieves can – and do – use.

It is frightening to consider the amount of personal data that can be acquired by anyone with access to a computer. There is even a website out there now called spokeo.com that gathers all of the available information about someone together in one convenient place! Go to their site and type your name in...it will tell you your address, marital status, occupation, household income, number of people in the family, and even your home value. Where does it get this data? You guessed it – your social media pages. Facebook accounts offer the ability for a user to add almost any kind of personal data imaginable to their profile. This information is then subject to identity theft.

So how can you manage your online identity and prevent your social media outlets from turning into a source of data for thieves? Here are five tips that you can use to keep your online identity safe:

1. Whenever possible, do not put any more information than you have to out there. This seems so simple, yet no one thinks twice about filling out the form completely when they register. If the data isn’t there, it can’t be mined.

2. Sign up for Google Alerts. This free service will notify you any time your name pops up online and you can head off potential problems before they grow out of control.

3. Reserve your name on all the major networking sites. This may seem like a strange idea at first glance, but if you have taken your name, no one else can. Just avoid putting in all of your data (see #1) – especially if it is a site you don’t plan to visit often.

4. Make sure you have security software on your computer. Public sites are perfect breeding grounds for spyware or viruses that can attack your machine and get personal data, even if it is not published on the internet.


5. Limit your contacts on social media sites to people that you actually know. Fake profiles are a good way for thieves to bypass the privacy settings on most sites and allow them access to even your private profile data.
While there is no way to guarantee that you will not be a victim of identity theft, following these five guidelines will at least help keep social media sites what they were intended to be – fun.

New Computer Fever

Our firm has a policy that all computers, except servers, are replaced every three years. We feel that the policy is sound. The main reason we adhere to the program is reliability. We replace equipment before it breaks avoiding the panic that comes from a fried computer. The thought of losing data is paralyzing to us. Although we have backup protocols, the realist in me knows that backup doesn’t always take place.

The other reason of consistent equipment rotation is simply technology. Today’s computer is faster and smarter than yesterday’s computer. All of our software vendors write their software assuming that is will be run on the latest and greatest hardware and operating systems. Better technology makes our staff more efficient and therefore more productive.

As luck would have it, there is a good article in today’s (Thursday) Wall Street Journal. The article by Walter Mossberg is entitled “A Brief Rundown of What You Need In a Laptop.” The article offers a quick synopsis of today’s laptop products. We suggest that you take a look. In the following paragraph, I have noted some of the key points.

Intel is coming out with a new chip to replace the Cor 2 Duo. The new chips will be the “i” series. These should be considerably faster. This is a necessity in today’s graphic driven software. Advanced Mirco Devises (AMD) also makes quality chips. We have used both manufacturer’s products over the years with great reliability.

Windows 7 is a big improvement over Vista and XP operating systems. We began using our first Windows 7 machine a few months ago and have been impressed by its operations. Windows 7 looks a great deal like Vista, but operates far more efficiently. Most of our software does not play well with Mac, so we have no Macs.

Finally, there is the 64 bit dilemma. Most machines and software are designed for 32 bit operations. All of our vendors will be offering 64 bit software within the next 24 months so we are going to move all of our equipment in that direction. This is something that you, as a purchaser, really need to give considerable though toward. We suggest you talk with your major software providers.

Good luck on your new computer search.

IRS Scrutiny of Nonprofits How to Protect Your Organization from an Audit

What makes the IRS hone in on a nonprofit organization? It can be as small as a simple mistake made while filling out the annual 990 or as large as management collusion. For those who fall in the former category, here is a list of a few issues the IRS may target in an audit:

Internet
Be careful about using the Web. The IRS watches internet activity related to politics, lobbying, and income received from advertisements. Virtual charities and Web-based fundraising are also under scrutiny.

Worker Classification
Employee or independent contractor? Use caution when classifying workers. Nearly half of past nonprofit audits have faced headaches due to independent contractors. Organizations tend to classify workers as independent contractors, when in fact, they should be classified as employees. This misclassification can lead to back taxes, penalties and interest.

Joint Ventures
This area has always been highly scrutinized. When nonprofits and for profits combine, the line separating charity and profit becomes skewed. The most examined joint venture tends to be between nonprofits and for profit health care organizations.

Fringe Benefits
Make sure to include fringe benefits in the taxable compensation of managers. Employers often forget to include onsite parking, employer provided automobiles, and employer provided living accommodations in taxable pay.

Gambling fundraisers
Fundraisers are a common way for nonprofits to raise money. Gambling fundraisers, in particular, are a well-known way to bring in some quick cash. However, hosting a bingo night or casino night can sometimes lead to taxable income known as unrelated business income. Hosting too many of these events can even cause an organization to lose their tax exempt status.

Be cautious, be smart, and don’t gamble with the IRS.

April 16 doesn’t mean that we’re off for the rest of the year.....

Even after almost 15 years in public accounting, I am still surprised at the number of people out there who don’t really understand what we do. I am reminded of this each year when the calendar hits April 16 and I get questions from my friends asking what I’m going to do for the rest of the year. I always assure them that while the truly hectic time of the year has indeed passed, we still have plenty to do for the balance of the year.

I am convinced that many people see CPAs as either a branch of the IRS (!) or as just another version of the dime-a-dozen tax preparation services that seem to be on every corner. While some CPA firms may focus their efforts on tax preparation, the CPA in public practice generally does a lot more than simply prepare tax returns. In fact, tax preparation services accounted for only 37% of our firm’s total billings in 2009. That means that almost two thirds of what we do is not tax-related.

So what else keeps us busy? At the risk of making this sound like an advertisement, our firm offers a full range of accounting and financial support services. Here are some of the other things that keep us busy when it’s not tax season:

• We prepare audits of governmental, non-profit, and small for-profit entities.
• We prepare and process payroll and payroll tax reports for clients with employees.
• We offer traditional bookkeeping services for small business.
• We offer an “outsourced accounting department”. This involves keeping the books, invoicing, paying the bills, and providing management reports for small businesses.
• We provide QuickBooks consulting and training, as well as third party review and “clean up” services for QuickBooks users.
• We offer small business consulting services (entity selection, management planning, etc.)
• Working with strategic partnerships, we offer financial planning and legal resources.

As you can see, we are much more than just “the tax guys”. When you couple all of the above services with the ongoing tax planning and consulting and the returns that were extended, we plan to be busy all year long......

MORE ON YOUR NEW SOCIALIZED MEDICINE PROGRAM…….

Just arrived for my reading entertainment, RIA’s Complete Analysis of the Tax and Benefits Provisions of the 2010 Health Care Act as Amended by the 2010 Health Care Reconciliation Act. This compelling novel of 960 arrived on April 15, how appropriate. Actually this is the abbreviated version. The actual document exceeds 2400 pages.

Much of the juicy tidbits in this blog were derived from an article by Roger Russell which appeared in Accounting Today. Accounting Today is a non-political publication geared specifically for CPA’s and other tax professionals.

The first thing that strikes you is the “phase-in” periods. While a few provisions hit relatively quickly, most of the major items are “phased-in” or do not take effect until 2014. On thing is for sure, everyone will be affected if the current bill is allowed to stand in its current format. This is an important point because at least 13 states have already filed suits challenging the constitutionality of requiring individual to carry coverage. Insurance has traditionally been a state regulated item.

Here are a few interesting areas of the new legislation

• Beginning in 2014, taxpayers who are required to carry qualifying health care coverage will face a penalty if they fail to comply. The penalty increases from $95 per qualified non-covered individual in 2014 to $695 in 2016.

• Additional federal filings will be required to track compliance. The compliance mechanism has not been defined. In all likelihood, it will be part of your federal tax return filings. This, of course, will add to the cost of tax preparation.

• You will have reduced “itemized deductions” for medical expense beginning in 2013. Currently, you are able to deduct any medical expenses in excess of 7.5% of your gross adjust income on your tax return. In 2013, this number increases to 10.0%. In effect the government is forcing you to pay for the coverage by decreasing your deductions.

• Beginning in 2013, if your adjusted income exceeds $250,000 for a joint filer, then you will be subject to surcharge on your investments of 3.8%. This group of taxpayers will also pay an increased Medicare tax of .9%.

• If you current coverage includes a flexible spending account or a HAS, your covered products will be reduced.

This legislation is worrisome for two reasons. First, in Texas, everyone can get healthcare. Healthcare can not be denied. Second, in the UK, someone that makes approximately $57,000 (US) is in the 20% tax bracket while that same income would taxed at about 10% in the US.

Congress is on a spending roll now. Wait until you see the cost of the proposed “financial institution reform program”. Let’s just hope that we can avoid the inflation of the late 70’s and 80’s.

LATE NIGHT WITH COOK CPAs – TOP TEN THINGS TO DO AFTER APRIL 15

1. Sleep.

2. Bring your golf score back below 100.

3. Watch massive amounts of mindless television.

4. Start that exercise regimen you swore to January 1.

5. Visit the grocery store. You know…that place that sells real food.

6. Have a normal conversation (i.e. without using the word “credit” or “deduction”).

7. Re-learn how to move your facial muscles in a manner resembling a smile.

8. Get together with your friends (this might help with #6 and #7).

9. Have the doc check your liver.

10. Did I mention sleep?



LeAnn Carlson

Blood is Thicker Than Water, but not a Revenue Stream

As a CPA, I often see both the best and the worst in people. The best comes when you see someone “make it” in the business world. There is no prouder moment than to see a young entrepreneur succeed with his or her dream, or even to see a grizzled veteran of the business world finally hit a home run with their latest idea. The worst, unfortunately, comes when people are willing to cast aside lifelong friendships – or even family – over money.

I have seen brother fight with brother over control of a business, marriages torn apart over financial issues, parents and children go years without speaking because of disagreement over the family fortune, and the list goes on. How can a prudent individual preserve the financial health that they have worked so hard to build without causing friction in the family? The answer is surprisingly simple – they must plan.

Keep the estate from becoming a source of conflict

No one likes to envision a day when they are no longer with us. I understand that. However, I would bet that even fewer like to envision their families torn apart over financial matters after they are gone. For that reason, my top tip to avoid financial conflict within the family is to have an adequate plan for the estate. Whether it’s a simple will or a more complex plan involving trusts, everyone should have a specific plan for what will happen to their possessions upon their departure.

In fact, I would go one step further and say that this plan needs to be made crystal clear to all involved. I know there was a societal taboo about discussing terms of the will with the heirs, but how much less conflict could there be if everyone knows what to expect well in advance? The top reason that wills are challenged is that someone is shocked to hear that they either got less than they hoped for or that they were left out entirely. Avoid that by discussing your plans with all the parties involved.

Keep business, business

My next tip for avoiding financial conflict within a family is to keep the business part of the relationship completely professional. If two family members go into business together, my advice to them is to act like they are total strangers when setting up the business. Draw up legal contracts. Make a partnership agreement. Clearly document each persons’ expectations and responsibilities. Draw up a clear succession plan. Make sure the process for one buying out the other is clearly defined.

If anything, be even more careful than you would be going into business with a stranger. Almost every time I have seen family go to war over a business, there has been little to no formal structure to the business and it ends up being “he said, she said”. These experiences become emotionally draining and take an even bigger toll on the family. Avoid even the chance of this type of heartache by reducing everything to written requirements, and leave the heart out of it.

Just (don’t) do it

Of course, the easiest way of all for someone to avoid financial conflict with their family is to simply not deal in financial matters with them. I realize this is easier said than done, but when you add the emotional charge of family matters with the emotional charge of dealing with finances, you have a potentially explosive situation almost every time.

If I had a nickel for every time I saw two brothers think it would be “fun” to go into business together, only to end up not speaking to each other by the end....I could retire early. Same for the cousin who always wants to borrow money, or the estranged child who suddenly wants to go to college on mom and dad’s dime. In the end, the less financial interaction you have with those closest to you, the more likely you are to keep them close.

--Dan Musick is the Tax Matters Partner at Cook & Associates, a full-service CPA firm with offices in San Marcos and San Antonio, TX.