The Accounting to English Translation

LHN, A&M, OU ….oh what a tangled web

2011-09-08T08:45:00.000-07:00

Steve Cook is the managing member of Cook, Gola and Company, PLLC, certified public accountants with offices in San Antonio and Austin. www.cookgola.com

If you are like me, you have been following the Big 12 divestiture saga. The political posturing among these institutes of higher learning tops anything out of D.C. The entire chain of events is very interesting and a bit aggravating.
Both the University of Texas (my alma mater) and Texas A&M are above average schools. They both have unique heritages that have proven the test of time. They are, however, different. When I visit with people that are not direct descendents of the institutions, they just do not get the unique character of each institution. They are just two huge schools that cannot get along with each other. In reality, the schools coexist rather nicely. The schools were, however, chartered for different purposes. They were chartered to attract different groups of Texans. The combination of the two schools was designed to accommodate the broad cross section of Texas cultures.

So when A&M says that it wants to move to another athletic conference with schools more closely aligned with their core value, that really isn’t a stretch. At the same time, when UT says that it wants to align with the more academically oriented PAC 12/14, that isn’t a stretch either. The State of Texas is not a rural, one dimensional state. It is a multifaceted mammoth. There is plenty of room for growth from all sides.

From this outsider’s viewpoint, the LHN cracked the door for A&M to move East to join schools with a more agricultural and conservative basis. While I think that their excuse is rather weak given the fact that they could have participated in the network, I do accept that the move will benefit the school and as such is a solid business decision.

I also think that road trips to Phoenix, Los Angeles and Seattle are not all that bad. It sure beats Ames, Iowa and Lawrence, Kansas.
At any rate, OU is going to wait for A&M to announce their move. That will make the OU fans think that they are not UT’s step child. Then UT will follow since there will be no other option available. The politics will have worked out. I only wonder whether this was the “back room” plan from a year ago?
The big winners are Tech and Okie State. As for Baylor, who did you think you were fooling? Welcome to CUSA.

Gotta love politics.

Increased Taxes on Small Businesses a Possibility

2011-09-01T16:33:00.000-07:00

A simple change of definition could mean increased taxes for small businesses. The Treasury Department is currently considering adopting a new definition for what constitutes a small business. Under the proposed definition, only businesses with less than $10 million in annual gross income or deductions would qualify as “small”.

This change could have a huge impact on closely held businesses such as partnerships, S corporations and limited liability companies. These business types are called flow-through entities because profits flow directly to the owners, who pay personal income tax without first being subject to corporate tax.

A recent study by a former Treasury official revealed that more than 90 percent of businesses are organized as flow-through entities, with their owners paying around 43 percent of all U.S. business taxes on their individual tax returns. If the new definition takes hold, there will be significantly fewer small businesses and fewer owners of these businesses will be included in top income brackets.

Thoughts?

LeAnn Gola, CPA MAcy, is a Member-Assurance Services with Cook, Gola and Company PLLC, Certified Public Accountants, with offices in San Antonio and Austin, Texas. www.cookgola.com

BRAIN FATIGUE

2011-08-30T14:48:00.000-07:00

Steve Cook is the managing member of Cook, Gola and Company, PLLC, Certified Public Accountants with offices in San Antonio and Austin. www.cookgola.com

From the August 30, 2011, Wall Street Journal, “Like a muscle, our brains appear to get fatigued after working for sustained periods of time, particularly if we have to concentrate intensely or deal with a repetitive task, says Michael Posner, an emeritus professor at the University of Oregon who studies attention.”

The article which was very interesting pointed out that sometimes a walk in the park is more beneficial than a big gulp of coffee. The idea is that coffee and other caffeine based products amps up the intensity level which reduces our ability to concentrate. Getting away from the task at hand for a short period both clears and refreshes the mind.

This appears to be sound advice indeed. Generally, I feel more alert after lunch (a small lunch). I probably do my best work between 1:30 and 3:30 each day. But I need my coffee!

I like coffee. I have developed a taste for it over the years. I even have favorites……and it isn’t your favorite grocery store’s brand. Personally I like Costa Rican Peabody and Jamaican Blue Mountain. A little Kenyan roast is also good in the morning. But the best coffee, especially after dinner, is Kona. Real Kona coffee is wooonderful…..and expensive. Don’t get the blends, they are rip-offs!

All this leads me to conclude that a walk in the park with a cup of your favorite coffee may offer the optimal in relaxing pick me up.

NOT FOR PROFIT PRIMER

2011-08-25T09:38:00.000-07:00

Steve Cook is the managing member of Cook, Gola and Company PLLC, certified public accountants with offices in San Antonio and Austin. www.cookgola.com

Today I am giving a presentation to a group of Texas Chamber of Commerce executives hosted by the Texas Association of Business in Austin. Apparently, there is some confusion within that group regarding their not-for-profit options. I thought you might find some of the points of today’s address interesting.

The most common not-for-profit is the Internal Revenue Code (IRC) 501.C.3. The purpose of these organizations must be either charitable, religious, educational, scientific, literary, public safety, amateur sports, or the prevention of cruelty to children or animal.

The entity must be organized exclusively for one or more of these purposes. The creating document must clearly limit the purpose of the organization to one or more of these purposes. In addition, the document must clearly state that the organization is not empowered to perform any activities that are contrary to the entity’s stated purpose. Finally, the actual document must clearly state how the assets of the organization will be disbursed should the organization discontinue operations.

The rules are actually even more involved. If you are in an existing organization or are starting a tax exempt organization, we highly recommend engaging an attorney that has experience in these matters.

A 501.C.3 organization may be taxable!

Yes, a tax exempt organization can be taxed at the Federal level. The taxable income is computed and reported on federal form 990T. Any revenue generating events that are not for the explicit purpose of the not-for-profit are taxable. The Internal Revenue Service is getting increasingly more aggressive in auditing these activities. For example, bingo is generally considered a 990T activity. As such those revenues are subject to taxes.

Many directors of local not-for-profits are unaware of the many legal and taxation issues that confront them. They simply want to “do their part.” Please be aware that there are a number of rules and regulations. As a Board member, you assume liability for your organization.

WHAT IS VALUE?

2011-08-15T07:01:00.000-07:00

The other night we went out to dinner at a moderately priced Italian restaurant. As I scoured the wine menu, I began to think of the value of certain items. Generally in a restaurant, the wine is marked up three times. For example, a $45 bottle at the restaurant would cost you about $15 at your favorite liquor store. Some restaurants use a larger mark, but most of the eateries in San Antonio seem to use that formula. That, in and of itself, isn’t a real good value, but they do open the bottle for you and that is labor.

There are approximately 25 ounces in a bottle of wine. Depending on the glass size, there are four or five servings. We chose a nice Pinot Noir at $55 per bottle. It worked very nicely with the pasta. We could also buy that wine for $13 per glass. Depending on the serving size of the individual glass, we either made a prudent decision, as we usually have two glasses apiece, or we made the sucker play.

In this case, the difference was small either way. Given other purchases, however the difference may be more significant. In your business dealings, you are always determining value. Evaluation is how we make decisions. The quality of our evaluation determines the effectiveness of our decisions. When determining value, we need to look past the obvious. We need to peel back the layers of the onion. We need to be thorough in our evaluation so we will always receive the best possible value.

Steve Cook is the managing member of Cook, Gola and Company, PLLC, Certified Public Accountants with offices in San Antonio and Austin. www.cookgola.com

BEWARE OF FAKE IRS LETTERS

2011-08-09T12:17:00.000-07:00

Steve Cook is the managing member of Cook, Gola and Company, PLLC, Certified Public Accountants with offices in San Antonio and Austin. www.cookgola.com

Today’s topic is very short, but very important. I recently had a client walk into the office paralyzed with fear. In hand, they had a letter that looked very similar to an IRS letter.

The letter talked about liens and levies. It was a ‘Second Notice’ letter. If this was a real IRS letter, the client had better take it seriously. This letter was not from the IRS. It was from some entity that wanted to represent our client in an IRS matter. There was no company name or contact on the letter, only a phone number.
Please note that any debts to either the Federal or State government are public information.

These letters at worst are fraudulent and at best immoral. Any correspondence that you receive from the IRS will be clearly marked. It will have case numbers, identification numbers and contact information. Pitch anything else.
Do not fall for these low class solicitations. If you have any doubt, contact the IRS.

Speaking Engagement: We are speaking to the Texas Association of Businesses on non-profit issues on August 25th in Austin. Phone 512-637-7711 for information.

ON THE LIGHTER SIDE…..

2011-08-04T14:22:00.000-07:00

I am fascinated by statistics. The last few blogs have served as an update on IRS hot buttons. There are a few more in the offing but today I want to pass on some interesting statistics, if not alarming statistics, that appeared in the July 29, 2011 edition of the San Antonio Business Journal.

The July 29 edition was dedicated to health care. One section presented the following statistics from the Bexar County Health District:

The largest hospital is Baptist Medical Center. I always assumed that University Hospital would be the largest.

30% of 216,935 kids in Bexar County that were tested were overweight! There were 15,058 sexually transmitted diseases reported in 2009. Further, 24 out of every 1,000 was the number of Bexar County residences diagnosed with diabetes.

I suppose the logical conclusion is that we enjoy our sweets and personal companionships.

Finally, the leading causes of death in the County were heart disease, vehicle accidents, diabetes and throat/lung cancer. All of this leads to our final conclusion that we must have smoked a cigarette as we drove home from our night of indulgences.

Steve Cook is the managing member of Cook, Gola and Company, PLLC, certified public accountants with offices in San Antonio and Austin. www.cookgola.com

The Accounting to English Translation: SO YOU DON’T WANT TO PAY THOSE PAYROLL TAXES…part ...

2011-07-25T07:40:00.000-07:00

The Accounting to English Translation: SO YOU DON’T WANT TO PAY THOSE PAYROLL TAXES…part ...: "Steve Cook is the managing member of Cook, Gola and Company, PLLC, certified public accountants with offices in San Antonio and Austin. www...."

SO YOU DON’T WANT TO PAY THOSE PAYROLL TAXES…part III

2011-07-25T07:16:00.000-07:00

Steve Cook is the managing member of Cook, Gola and Company, PLLC, certified public accountants with offices in San Antonio and Austin. www.cookgola.com

As we have noted in our previous blogs, there is a real temptation to delay payroll tax payments. Frankly, this is not a good cash flow solution. The failure to file payroll tax returns and/or pay payroll taxes in a timely fashion will result in substantial penalties.

Please note that interest is charged on both unpaid taxes and assessed penalties.

Generally, interest is charged on any unpaid tax from the due date of the return until the date of payment. The interest rate on unpaid Federal tax is determined and posted every three months. It is the federal short–term interest rate plus 3 percent. Interest is compounded daily.

There are two components of payroll taxes. Component one is the deposit. Component two is the actual report. Each is subject to a failure to comply penalty.

Component one is the Deposit Penalty. It applies to amounts not properly or timely deposited, the penalty rates are as follows:

Days Late & Penalty
1-5 2%
6-15 5%
More than 16 10%
Upon IRS Notice 15% Begins 10 days after notice

Component two is the Late Filing Penalty. This applies if you owe tax and don't file on time. The late–filing penalty is usually 5% of the tax owed for each month, or part of a month, that your return is late up to five months (25%).

If your return is over 60 days late, the minimum penalty for late filing is the smaller of $100 or 100 percent of the tax owed.

You may be liable and not even know it. A responsible person can be an officer or employee of a corporation, a partner or employee of a partnership, an accountant, a volunteer director/trustee, or an employee of a sole proprietorship. A responsible person also may include one who signs checks for the business or otherwise has authority to cause the spending of business funds.

At any rate, your best cash flow management tool may not be passing on this week’s payroll tax deposit.

Hotter than Hell’s Waiting Room

2011-07-14T11:46:00.000-07:00

It’s hot outside. Really, really hot. It’s hotter than Hell’s Waiting Room. Okay, you get the picture. Throughout all this extreme heat, my husband and I have been running the AC hard. We’ve been more willing to take a punch to the pocket than suffer through a house that was hotter than 76 degrees.

Unfortunately (but not surprisingly), all this intense pressure on our AC unit caused it to go kaput…on a 102 degree day. Joy! The second kicker came when we found out the AC guy couldn’t make it out until two days later. Were we really going to have to sleep, cook, shower, dress, eat, or even sit in a house that was already at 92 degrees?

Thankfully, my sister lives a block away (there are some benefits to living close to family!), so we were able to stay with her during The Wait From Hell. Forgive me for my dramatics as I’m currently sitting in the 90 degree house *patiently* waiting for it to cool down enough so that I can take a shower to get clean rather than to just cool off.

The AC guy was here for 4 hours. During that time, I did some work, but I also ruminated over this unexpected cost we were facing. I don’t know about you, but I’d much rather use my savings on a vacation than a home repair. Nevertheless, it’s out of my hands and I’m okay with it (or maybe it’s the blessed relief of cool air on the back of my neck making me say these things).
Getting to the point. How does this have anything to do with accounting or business? During my rumination, I realized that we would be eligible for an Energy Tax Credit on our 2011 return. While it’s not a huge amount, it’s enough to make me feel slightly better about this sudden expense.
So if you find yourself in Hell’s Waiting Room, 1) don’t waste your time showering in your own house…you’ll just have to do it again 5 minutes later, 2) find a nearby relative to impose on, 3) breathe – some of your money will likely come back to you in the form of a credit.

To see what products qualify and how much credit you could receive, go to: http://www.energysavers.gov/financial/.

LeAnn Gola, CPA, MAcy is a member, assurance services with Cook, Gla and Company, PLLC, certified public accountants with offices in San Antonio and Austin, Texas. www.cookgola.com

SO YOU DON’T WANT TO PAY THOSE PAYROLL TAXES…..part II

2011-07-11T10:36:00.000-07:00

…….Or, beware of what you seek

I have been out of the Blog circuit for a couple of weeks. We moved our San Antonio offices to 45 N E Loop 410, Suite 210. San Antonio National Bank is the anchor tenant. Moving was a bear. The actual move went off relatively well save a broken picture frame and a dropped table. Getting everything setup and operational took two weeks. Finally, after a full weekend of hanging pictures, relocating desks and tinkering with the computers, we are good to go.

As I noted in my last blog, the IRS is the largest, most powerful collection agency in the world. The monster is alive and well. The Service has become very active in the auditing and monitoring of businesses that do not pay their payroll taxes and properly report their contract labor.

We have just completed a payroll tax audit with one of our clients. A client, I might add that tries very hard to comply with every rule, no exceptions. Most businesses really don’t understand payroll taxes so even if they try to comply, there are still issues. Typically, they don’t know what “pay items” are subject to payroll taxes. Every year small business owners bring in their work, usually on Quickbooks, for us to prepare their tax returns. I will scan the general ledger and find checks labeled “Bonus” or “Commission”. The business owner generally will treat these as separate checks. They don’t take any payroll taxes out, nor do they pay TWC (Texas) taxes. For some unknown reason, business owners think that by renaming an item that you change its character. This is not true. Any moneys paid to an employee are considered compensation.

Sometimes part of the compensation is not taxable. This would be the case when an employee is being reimbursed for out-of-pocket expenses. There also could be retirement contributions that are not subject to federal payroll taxes. It doesn’t take an IRS examiner long to find “Bonuses” and “Commissions”.
The big thing that came out of the audit, however, was the Service’s aggressive position on “Contract Labor”. Briefly, contract labor is a service provided by an independent entity that works without your direct supervision and is paid for the completion of the contracted service. A good example would be calling a plumber to unstop your drains. You don’t do the work, you don’t supervise, you just write the check when the water goes down.

The examiner scoured the general ledger for any potential contract services. The examiner was looking for services that were rendered but a form 1099-Miscellaneous was not generated. They asked to see form W-9 for each of these vendors. Needless to say most of us do not get a completed W-9 for each vendor. Each unfiled 1099-Miscellaneous is subject to a “per form” penalty.
So this week’s IRS lesson is simple. Be sure you know what constitutes taxable wages. And, get a completed W-9 from every vendor or trade that provides personal services to your company.

In our next blog, we will outline some of the penalties associated with both payroll and contract labor reporting.

Steve Cook is the managing member of Cook, Gola and Company, PLLC, certified public accountants with offices in San Antonio and Austin, Texas.

SO YOU DON’T WANT TO PAY THOSE PAYROLL TAXES…..

2011-06-20T09:38:00.000-07:00

…….Or, beware of what you seek

The IRS is the largest, most powerful collection agency in the world. The monster is alive and well. The Service has become very active in the auditing and monitoring of businesses that do not pay their payroll taxes.

I have always been amazed by the number of businesses that think the solution to their cash flow problems is to not pay the payroll taxes. Business owners and anyone that signs checks or reports, or is responsible for payroll preparation in any form are liable! That is correct. If you are the trusted bookkeeper that prepares the payroll, you are liable for the taxes. If you are the owner that just assumes the taxes are being paid, you are liable.

We have clients that owe back taxes for extended periods of time. Essentially there are very few options. You may pay the taxes in full and get on with life. You may do an installment plan. This exercise very seldom retires the liability since the interest continues to be applied.

Or, you may attempt to do an “Offer In Compromise.” This choice allows you to pay less than you actually owe. These are the guys that you see on TV with the big smile. The problem with this approach is that very few businesses qualify. This is not a negotiation. It is begging at the highest level. An overwhelming number of offers are rejected. If you have any assets either personal or business, the chance of an offer being accepted is remote. The Service will simply attach those assets and keep on billing.

The penalty for non-payment is very high. It is not unusual to see penalties that double the tax amount. In the old days, the IRS was very lenient on collections. It was rather easy to get both penalties and interest charges waived. Those days are over. The Government is aggressively seeking compliance with the payroll laws. They are in no mood to negotiate. They have allocated significant resources to perform the task.

In our next blog, we will let you know some of the things that came out of a recent payroll tax audit by the IRS. You will be shocked at the things that they look for and the things that you, as a business owner, are liable for.

Steve Cook is the managing member of Cook, Gola and Company, PLLC, certified public accountants with offices in San Antonio and Austin, Texas.

NEVER UNDERESTIMATE THE HEART OF A MOUSE…

2011-06-01T14:12:00.000-07:00

….OR: Your Texas Legislature at Play

The Texas Legislature did not quite reach a budget accord. It seems that one gal had the tenacity to stand up to the establishment. I guess that means that all of those legislative folks will be spending part of their summer in Austin and not at their home.

In the end, I suspect that the establishment will win. I hope none of them have kids or grandkids in school, need any Medicaid, or want a new road because it isn’t happening! Our boys in Austin just plan to punt on first down.
The no new taxes mantra has gotten a little out of hand. As a taxpayer, I do not want any more taxes. That would cut into my fun money. As a citizen that dearly loves Texas, I am appalled at the legislature’s approach to our financial issues. Everything in the world has increased in price over the years. Government is not exempt from this trend. Simply put, if a trip to Office Depot cost me more today than yesterday, it also costs the State more. I remember when a burger at Whataburger was $ .50, gas was $ .20 per gallon, etc. The cost of life has increased. One legislator –a man whose claim to fame as a sportscaster in Houston that painted himself blue on Oiler game days - suggested that the solution was for government to just “tighten their belt.”

I am sure that there is some waste. I waste money. But, as a CPA that audits government entities, I will tell you that local governments bargain harder and watch their spending far closer than any of us civilians. Government entities pay their employees less, have fewer benefits, and older equipment than any of our non-governmental clients. ….and that’s a fact Jack!

At some point we have to increase revenues and trust that each entity will use the money wisely. We can do that and create new taxes. All that we need to do to increase revenue is apply the sales tax laws equally and re-set the Texas Margin Tax back to its original level.

There are too many exemptions from sales taxes. Let’s just tax all services except food and medical as the original sales tax law was designed. Why should professional services like attorneys, CPA’s, engineers and the like not collect sales taxes? Why should “packaged purchases” pay less sales tax than individual item purchases? The answer to these questions is simply special interest groups. Why not just treat everything the same?

When the Texas Franchise Tax calculation changed several years ago, companies that had always paid the state franchise tax were exempted.
We don’t need new taxes. We just need to put the existing taxes to work. Seems simple enough.

Steve Cook is the managing member of Cook, Gola and Company, PLLC, certified public accountants with offices in San Antonio and Austin.

PAY ME NOW, OR PAY ME LATER

2011-05-25T09:02:00.000-07:00

Believe it when I tell you, everyone pays taxes. Some pay sooner, some pay later, but ultimately we all feed the machine.

Richard Hatch of Survivor fame is back in jail for the third time for tax evasion. In 2006, Mr. Hatch was sentenced to three years in prison and three years of suspended release. The IRS believes that the taxpayer owes $1.7 million in back taxes from earnings in 2000 and 2001. Penalties and interest have increased the amount to close to $2 million.

Whether the Internal Revenue Service will ever collect this amount is anyone’s guess. This time of year most of us in the CPA world are just plain tired of taxes. Everyone wants services but no one wants to pay the government. I, too, am in this group. The one thing that I have learned after 28 years is that dealing with the IRS on collection issues can be very difficult. The other thing that I have learned is that usually, somewhere down the line, Uncle Sam catches up with the taxpayer.

My advice to those that think they won’t be found, don’t be surprised if you get a letter from the IRS. It is considerably easier to pay each year and move on than it is to pay five years with penalties and interest. Take all the legal deductions. Be aggressive where possible. Pay now and don’t worry later.

Steve Cook is the CEO of Cook, Gola and Company PLLC, certified public accounts with offices in San Antonio and Austin. www.cookgola.com

VALUE-ADDED ACCOUNTING – INCORPORATING PAST, PRESENT, AND FUTURE

2011-05-16T07:08:00.000-07:00

Our firm recently expanded into the Austin market by acquiring two existing firms with a good reputation and good clientele. We had been considering this option for a while, and decided to pursue it vigorously this past fall. While my partner and I were both extremely excited about this new venture, we also realized that buying a new firm (in our case, TWO new firms!) was a huge risk and would take some serious dedication, hard work, and good old fashioned schmoozing.

Essentially, we would be shaking up the foundation of a firm and expecting clients to transition to new operating procedures and new owners. While we wanted to maintain many of the previous owner’s ways of communicating and doing business, we also wanted to add our own flair and introduce some new ways of doing business. The key to introducing this change was by showing our clientele that we would be providing a value-added service.

Five months down the road, I can say that the transition was just as much work as we expected, but also just as fruitful. Here’s why: VALUE-ADDED SERVICES.

Of course we provide quality work, good customer service, and a fair price. But so does every other CPA on the block. What we’ve done is become a trusted advisor to our clients. Rather than focus solely on financials and historical data, we provide our clients with a look into their future.

Most business owners are more concerned about day-to-day operations and future growth and potential than they are about their prior year tax return. Sure, where you’ve been is important, but getting you to where you could be is invaluable. Our goal is to help you understand your financial situation and then help you improve it.

For instance, one of the clients we acquired is a rather large operation in the area. This client had been operating at a loss for the past twelve months and was at a loss for what to do. After visiting their offices, touring their operations, and reviewing their prior year financials, we were able to pinpoint the problem. The company had too many employees. Essentially, they had 10 employees working at a 40% productivity rate due to a decrease in demand. By cutting back to 5 employees, the potential for profit would be within reach. Needless to say, this was one happy client!

This is just one of many ways we have been able to provide a value-added service. Next time you’re in the market for a CPA, look for one who goes above and beyond the call of duty. It’s not just about reviewing your prior year tax return – it’s about looking at where you are today and where you could be in the future.

LeAnn Gola is the partner of the Austin office of Cook, Gola and Company, PLLC.

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

2011-05-04T06:06:00.000-07:00

This was the headline and first part of my blog on 05-11-2010…… It seems that little has changed in the last 12 months.

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 are 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!

That was directly from my blog of one year ago. Not much has changed. Our center would rather shoot three pointers. Our shooting forward won’t shoot. Our ace guard would rather play for France. The coach appears to be in denial. But this blog, like last year’s 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 very good for our CPA firm. Unlike the previous year, our sales were up. Better yet, our profitability was up. All of this was due to a plan that we placed in motion as the end of a poor 2009.

At the end of 2009, we reduced staff. We also graded our clients and eliminated those clients that didn’t pay their bills on a timely basis or who were undercharged. We did what we felt was best for the longer term.

At the end of 2010, we had enough cash to allow us to open an Austin office and upgrade some of our older equipment. Not too bad considering the general economy.

We analyzed our assets taking a longer term approach.As the manager, we must understand our position and the responsibility that accompanies it. Don’t forget to open the box. Good luck.

Steve Cook is managing member of Cook, Gola and Company, PLLC, a full service Certified Public Accounting firm with offices located in San Antonio and Austin. Follow us on Facebook at ez.com/CookGolaFB or Twitter at SABestCPAs or our website at www.cookgola.com

Fourth Quarter Year-End Payroll Reminders

2010-12-08T09:01:00.000-08:00

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”?

2010-11-24T06:44:00.000-08:00

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?

2010-11-17T06:57:00.000-08:00

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

2010-11-08T05:59:00.000-08:00

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

2010-10-29T07:01:00.000-07:00

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?

2010-10-22T11:20:00.000-07:00

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

2010-10-19T06:50:00.000-07:00

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

2010-10-14T07:16:00.000-07:00

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

2010-09-29T12:09:00.000-07:00

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

2010-09-22T10:49:00.000-07:00

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

2010-09-15T08:23:00.000-07:00

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

2010-09-09T09:37:00.000-07:00

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

2010-08-31T09:41:00.000-07:00

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?

2010-08-26T12:24:00.000-07:00

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

2010-08-25T07:32:00.000-07:00

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?

2010-08-12T06:55:00.000-07:00

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

2010-08-10T13:50:00.000-07:00

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

2010-08-03T12:39:00.000-07:00

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?

2010-07-26T07:14:00.000-07:00

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.

Expiring Tax Cuts Can Mean Big Tax Increases in 2011

2010-07-20T06:15:00.000-07:00

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

2010-07-12T08:19:00.000-07:00

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?

2010-06-29T14:10:00.000-07:00

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

2010-06-24T08:47:00.000-07:00

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?

2010-06-15T13:53:00.000-07:00

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

2010-06-09T09:55:00.000-07:00

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?

2010-06-07T06:56:00.000-07:00

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

2010-05-25T08:33:00.000-07:00

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……………………..

2010-05-21T09:33:00.000-07:00

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

2010-05-18T13:48:00.001-07:00

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?

2010-05-11T06:11:00.000-07:00

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

2010-05-06T11:32:00.000-07:00

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”

2010-05-05T07:00:00.000-07:00

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

2010-04-29T09:47:00.000-07:00

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

2010-04-27T10:57:00.000-07:00

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.....

2010-04-23T08:49:00.000-07:00

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…….

2010-04-20T09:16:00.000-07:00

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

2010-04-09T07:10:00.000-07:00

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

2010-04-06T09:35:00.001-07:00

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.

Record Retention – Know When to Throw Away

2010-03-31T06:28:00.000-07:00

There are two kinds of people in the world – pack rats and everyone else. Pack rats are those people who keep items such as old bills, old bank statements, old mail – you get the gist. So when does old get promoted to “old enough to throw away”?

First, decide if there’s a reason behind such extensive recordkeeping. The two main reasons to keep documents are for tax purposes or for proof of payment. For tax purposes, the IRS requires that individuals be able to produce records proving any income, deductions or credits claimed for the last years from the date of a return. However, this length of time may be extended to six years if individuals fail to report income that is more than 25 percent of their gross income.

For that reason, it’s a good rule of thumb to keep supporting tax documentation for six to seven years. Records that fall into this category could include W-2 forms, 1099 forms, end-of-year bank statements, and any receipts related to deductions (such as family gifts, tuition, or charitable contributions).

Another reason to keep financial records is to verify payment. Unless you need to save bills for tax purposes (for instance, deductions on a schedule C), they should be thrown away once you’ve received the next month’s bill with no balance due. In addition, experts recommend that bank and credit card statements be kept no longer than a year, unless something is incorrect on the statement and needs to be challenged. In that case, keep the statement until the dispute has been resolved.

Documentation for insurance and loans should be kept a longer period than most other items. Original loan documents and loan statements should be kept until the loan in paid off. At that point, the documentation showing the loan was paid off is all you need to keep. In the case of insurance, it’s important to keep the paperwork for as long as you have the policy.

There are a few documents that must be kept indefinitely. These include wills, inheritance, legal filings, bankruptcy filings, and paperwork documenting IRA contributions and withdrawals.

If you recognize the signs of a pack rat in you or someone you love, follow this 3 step guide to recovery:
1) Drive to your nearest grocer
2) Buy Hefty
3) Use hands + Hefty to de-clutter your life!

LeAnn Carlson

10 Rules That May Affect Your Taxes

2010-03-30T07:05:00.000-07:00

Check out my tax partner Dan Musick’s recently published article in the San Antonio Express- News titled “10 Rules That May Affect Your Taxes” . You can view Dan’s article in the business section of today’s San Antonio Express- News or by clicking on the link below:
http://budurl.com/756c

Key Tax Provisions of the New Health Care Bill

2010-03-27T07:15:00.001-07:00

In my memory, there has been no bill passed by Congress that has been as politicized as the recently-passed health care reform package. With all of the emotionally-charged discussion and partisan rhetoric, it's been my experience that the actual facts of the bill are often lost. As a CPA, I am interested in the tax-related provisions of any new law. In this case, I am particularly interested because many of the goals of the law are expected to be financed by tax law changes.

Here is a list of some of the most relevant tax-related items in the new law. Please remember that because of the reconciliation process, some of these are still subject to change.

Provisions going into effect in 2010:

Effective July 1, the law imposes a 10% excise tax on indoor tanning services.

Provisions going into effect in 2011:

The law will increase the 'penalty'tax on distributions from HSAs and Archer MSAs not used for qualified medical expenses from 10% to 20%.
Employer W-2 reporting will be required for the value of health benefits.
An annual fee will be imposed on manufacturers and importers of branded drugs. The fee will be $2.5 billion for 2011, and will increase annually.
The law makes the definition of "qualified medical expenses" uniform for purposes of MSAs, HSAs, and itemized deductions.

Provisions going into effect in 2013:

The law establishes a $500,000 deduction limitation on salaries for officers, employees, directors, and service providers of covered health insurance providers.
The law limits health flexible spending arrangements in cafeteria plans to $2,500. Currently, there is no limit.
A 2.3% excise tax will be imposed on manufacturers and importers of certain medical devices.
The law raises the 7.5% AGI floor on medical expenses deduction to 10%.
The new law increases payroll taxes on higher-earning taxpayers. It places an additional tax of 0.9% on earned income and 3.8% on investment income for taxpayers with AGI in excess of $200,000 (single) and $250,000 (married).

Provisions going into effect in 2014:

The law imposes an annual fee on health insurance providers ($8 billion in 2014 and increasing each year thereafter). The fee for each provider will be based on their market share in 2013.
There will be a $695 annual excise tax (i.e., penalty) on individuals without "essential health benefits coverage." In other words, if you choose not to carry health insurance, you will have to pay a penalty tax to IRS when you file your tax return.
The law also provides for an excise tax (i.e., penalty) on employers who employ more than 50 workders and do not provide health insurance coverage to employees. There will be a requirement that employers report health insurance coverage to the IRS to avoid the penalty. The penalty will be $2,000 per employee who has to pay for self-coverage.

Provisions going into effect in 2018:

The law will impose a 40% excise tax (i.e. penalty) on health coverage in excess of $10,200 for single people and$27,500 for family coverage. Increased thresholds of $1,650/$3,450 will apply for over age 55 retirees or certain high-risk professions. The tax will be levied at the insurer level and will be nondeductible for tax purposes.

There are many facets to this bill, and not all of them involve taxation. However, now you know how your taxes could be impacted by the passage of this law. Hopefully, this information can help you make an educated, informed decision about the bill.

--Dan Musick is the tax services partner for Cook & Associates, PLLC, a full-service public accounting firm with offices in San Marcos and San Antonio, TX.

WHAT IS A CPA?

2010-03-23T11:26:00.001-07:00

I am compelled to write today’s blog on this topic because every year at this time I become aware that the general public does not know the difference between a certified public accountant (CPA), H&R Block and the corner bookkeeper.

CPA’s are college graduates that have passed a prescribed number of class hours. Most of today’s graduates have received a Master of Accountancy. After receiving the appropriate college education, each man and woman must pass the Uniform CPA Exam. This is a two and one-half day examination covering all facets of accounting and taxation. Upon successful completion of the examination, the individual must then complete a minimum of one year of approved accounting work related experience. Then, and only then, will they receive their designation as a Texas Certified Public Accountant. License’s are granted by and renewed by the Texas State Board of Public Accountancy.

Only those individuals completing this process may hold themselves out to certified public accountant. Only certified public accountants may perform audits. Only CPA’s, licensed attorneys, and licensed enrolled agents may represent you in Tax Court.

CPA’s must display their valid, annually renewing license. Anyone that cannot produce a license is not a CPA and cannot legally hold themselves out to be a CPA. Not H&R Block, Betty’s bookkeeping or any other non-licensed company.

In the last quarterly newsletter from the Texas State Board of Public Accountancy, there were 16 non-CPA firms sited for holding themselves out to be CPA’s. San Antonio is a hotbed for this type of illusion. Frankly, this is just the tip of the iceberg.

Buyers beware……….don’t hesitate to ask for credentials. If someone tells you that they are just as good as a CPA, ask them for their license.

Steve Cook is the managing shareholder for Cook and Associates, PLLC, a full service CPA firm, with offices in San Antonio and San Marcos.

THE TRUTH ABOUT THE IRS ‘WHISTLEBLOWER’ PROGRAM

2010-03-18T06:27:00.000-07:00

At first glance, turning in a tax cheat seems to be a no-brainer decision. After all, people who cheat on their taxes drive up the balance due for the rest of us. A 2005 study by the IRS estimates that the “tax gap” – the difference between what taxpayers should pay and what is actually paid – is about $290 billion per year. This represents money that some taxpayers are underpaying to the government, and money that the rest of us have to make up with our taxes.
In 2006, IRS established a whistleblower program that offers a reward of up to 30 percent of the amount collected to anyone who turns over information leading to the collection of underpaid tax liabilities. IRS estimates that it paid $27.3 million in rewards from 2001 to 2005, with the average reward being $24,000 per case. So it is doubly puzzling to us that more people don’t take advantage of this program.
IRS estimates that only 5 percent of unpaid tax bills are collected via tips from third parties. Why such a small percentage? We believe it is because many people don’t understand the basics behind the IRS whistleblower program and as a result, don’t use it.
Here are some facts that we think might help people understand more about this program:
1. Many people think that only exposing blatant fraud will earn a reward. The truth is that any underpayment of tax, whether intentional (fraud) or unintentional (error), can be turned in to the IRS and be eligible for reward.
2. Any kind of tax is eligible for the whistleblower reward. An informant can turn in someone who is underpaying income tax, payroll taxes, excise taxes, or any other kind of tax.
3. In the corporate world, employees are often silent because they fear that their boss will fire them if they turn them in to the IRS. In fact, many states have laws prohibiting an employer for firing a whistleblower. Also, the IRS keeps the identity of a whistleblower confidential.
4. Anyone can claim a whistleblower reward for turning in a taxpayer who is underpaying their taxes. Many believe that only US citizens can earn the reward. In fact, foreign nationals are often in the best position to be able to turn in a taxpayer because so many of these types of workers are often paid “under the table” without payroll taxes being properly withheld.
5. Many people believe that IRS will “blow them off” if they bring a whistleblower claim. The truth is, IRS welcomes any help it can get when attempting to collect tax liabilities and they will take any claim seriously. This is especially true if the whistleblower takes the time to prepare evidence and hire an attorney to represent their claim.
There are standards that must be met to establish a proper claim for reward, so specific information is a must when building a case. A potential informant should have specific examples and detailed records. An informant will not earn a reward by simply saying “my boss just bought a new truck”. However, if an informant can provide copies of correspondence showing that the boss was writing off a personal vehicle as a company asset, the IRS could use that information.

Throughout the years, IRS has paid millions of dollars in rewards to informants. There are millions more to be paid, and IRS has strengthened its support and protection of whistleblowers to encourage more participation. Will you be the next one to earn a reward?
--Dan Musick is the Tax Services Partner for Cook & Associates, a full-service public accounting firm with offices in San Marcos and San Antonio, TX.

REDUCE YOUR AUDIT RISK

2010-03-11T11:56:00.000-08:00

Tax season is in full throttle and many of you may be in the process of compiling the information needed to file your return. As much as you may want to speed through this process, it’s important to slow down and make sure you’re not raising any red flags with the IRS. Here are some tips to get you through tax season and reduce your chance of being audited.

-Don’t use round numbers for deductions. This indicates that you are estimating rather than keeping accurate records.

-Record your income accurately. If you are paid $2,150 from a client and you round that down to $2,000 while the client reports the correct amount, you will likely catch the attention of the IRS.

-Pay estimated taxes on time and keep them current.

-Pay attention to notices from the IRS. If you wait a while to respond, the IRS may already be knocking on your door.

-Do not borrow from the taxes your employees have been paying. This money is withheld for a reason. Send the payroll taxes in a timely manner.

-Be wary of classifying expenses as “miscellaneous”. If you do use this category, make sure you have good documentation.

-Avoid the twelve notorious tax scams, otherwise known as the “Dirty Dozen”. These include:

Phishing
Hiding income offshore
Filing false or misleading forms
Abuse of charitable organizations and deductions
Return preparer fraud
Frivolous arguments
False claims for refund and requests for abatement
Abusive retirement plans
Disguised corporate ownership
Zero wages
Misuse of trusts
Fuel tax credit scams

--LeAnn Carlson is the Audit Manager for Cook & Associates, a full service public accounting firm operating from offices in San Marcos and San Antonio, TX.

SO YOU WANT TO BE AN ENTREPRENEUR

2010-03-08T12:58:00.000-08:00

The entrepreneurial experience is a very challenging and rewarding adventure for those that lean in that direction. On the other hand, it is a trip that is fraught with blind alleys and false starts. So my advice is simply, “Buyer Beware”.

If you are inclined toward entrepreneurship, you may find my notes on the comments by Paul Nichols of Trinity Orthopedics, LLC delivered at the Innotech, San Antonio Business and Technology Conference. First, let’s define entrepreneur. If you simply want to be the boss and you do not have any other ambitions, then stay as an employee. You will make more money, have fewer headaches and generally enjoy a higher quality of life. If your goal is to make something special that has sellable value, then go for it!

Setup your company, from the very beginning, to maximize your investment when it time to cash out. Cashing out may take several forms. It may be selling you company for the highest price or may be providing you with a comfortable retirement. Either of these requires creating a company that maximizes its value.

Mr. Nichols suggests four ways to maximize your investment:
1. The value of the organization will be determined by the level of inherent risk and the company’s ability to be innovative.
2. Identify your consumer’s need from within the competitive landscape.
3. You must determine the proper entry points along the product timeline so that you will maximize your return on investment.
4. Create a stepping stone approach to addressing problems.
5. Look bigger than you really are. Make you footprint and presence such that the public believes that you have more horsepower than you have.

If you are looking to build a company that is sellable for maximum value, potential investors are looking for companies with strong internal financial and production controls. Until you have the production issues resolved and the people in place, your company is not ready to sell. The same may be said for financial controls. Investors are also looking for companies that serve target markets that are not currently being served. Finally, investors are attracted to brands. Establish your brand using proper marketing techniques. Stay focused on your product line and do not allow yourself to be diverted.

Remember that the goal of entrepreneurship is to build a company that has determinable value. Entrepreneurs reap the benefits of their efforts at the end of the journey. If your concern is today, then steer clear of this path. Owning your own company is very exciting; but, it is also very difficult and demanding. Good luck on your adventure.

Steve Cook is the managing shareholder of Cook and Associates, PLLC, certified public accountants. The firm has offices in San Antonio and San Marcos, Texas.

San Antonio vs Austin Tweet-Off set for 5.00 pm, Wednesday, March 24 at Sean Patrick’s Restaurant and Pub in San Marcos

2010-02-22T06:10:00.000-08:00

EMERGING MEDICAL SUMMIT : MARCH 3 - 4, NORRIS CONFERENCE CENTER

Beginning on Wednesday March 3 and ending on March 4, Innotech of San Antonio is hosting the region’s largest business to business emerging medical technology event.

If you are part of San Antonio’s emerging medical technology products industry and you want to interface with other facing the same business challenges, the conference offers you an opportunity to do just that. The conference affords you the opportunity to learn about things such as:

Product development and realization
Workable business models
Funding sources
Wealth preservation

The sessions begin Wednesday at noon with an address by Paul Nichols of Trinity Orthopedics, LLC entitled “Challenging Times for Early Stage Medtech”.

Later, on Wednesday afternoon, yours truly we be part of a panel discussion entitled “General Business Practices: Accounting, Contracting with Government Facilities, Exit Strategies, and Talent Acquisitions”. We look forward to seeing there.

Steve Cook is the Managing Shareholder of Cook and Associates, PLLC, Certified Public Accountants with offices in San Antonio and San Marcos, Texas.

15 Frightening Facts for Young Professionals

2010-02-12T08:49:00.000-08:00

As a young professional, I realize the importance of focusing on your career very early on. Trust me, it pays off. Unfortunately, many individuals in the 18-25 range fail to realize that career planning starts as early as the first year of college.

Students can no longer coast through college and expect a job upon graduation. It doesn’t work that way anymore! It takes planning, strategy, and an investment of your time and energy. You are the future work force and it’s time to invest in your career now. If you still need convincing, here are 15 frightening facts that may prod you to act now:

A college education has gone up 23% in the last 10 years.
Starting salaries have dropped 11% in the last 10 years.
Less than 50% of students ever see the financial return on their investment in an advanced degree.
70 million baby boomers who should be retiring are staying in the job market, thus preventing new grads from entry into the workplace.
90% of young people feel they have to go to college in order to get a job. Most don’t know why they should go or what they should study.
$100,000 is a reasonable fee for a top state or private university education.
Less than 30% of students gain experience in a professional setting while they are still in school.
25 is the average age of a college grad before moving out of a parent’s house.
80% of jobs are achieved through networking.
Less than 20% of grads had jobs when they graduated last year.
The job seeker to job ratio is 6:1. Yikes!
A young person will only spend an average of 18 months in a job.
Today’s college grad can expect 9 careers with an average of 3 jobs in each one.
It’s estimated that it will take 5 years to recoup the jobs we’ve lost from the recession.
It’s estimated that it will take 10 years to fully recover from this recession.
(facts courtesy of careerealism.com)

I hope this motivates you to take action, stand out, and get hired. Not so long ago I was in your shoes -trust me, invest in your career now and you’ll see dividends later.

EMERGING MEDICAL SUMMIT MARCH 3 - 4, NORRIS CONFERENCE CENTER

2010-02-10T07:31:00.000-08:00

Beginning on Wednesday March 3 and ending on March 4, Innotech of San Antonio is hosting the region’s largest business to business emerging medical technology event.

If you are part of San Antonio’s emerging medical technology products industry and you want to interface with other facing the same business challenges, the conference offers you an opportunity to do just that. The conference affords you the opportunity to learn about things such as:

Product development and realization
Workable business models
Funding sources
Wealth preservation

The sessions begin Wednesday at noon with an address by Paul Nichols of Trinity Orthopedics, LLC entitled “Challenging Times for Early Stage Medtech”.

Later, on Wednesday afternoon, yours truly will be part of a panel discussion entitled “General Business Practices: Accounting, Contracting with Government Facilities, Exit Strategies, and Talent Acquisitions”. We look forward to seeing you there.

Steve Cook is the Managing Shareholder of Cook and Associates, PLLC, Certified Public Accountants with offices in San Antonio and San Marcos, Texas.

Don’t forget the Schedule M....and other things to remember when filing your 2009 return

2010-02-08T14:11:00.000-08:00

Now that everyone is getting their W-2 or 1099 forms, thoughts are turning to tax filing season. As with any tax season, there are several provisions for the 2009 tax year that filers will want to be on the lookout for this season. Here are, in our opinion, the top ten tax provisions that will impact taxpayers filing their returns over the next couple of months:

1. Making Work Pay Credit – if you work and earn less than $190,000 ($95,000 if single) in 2009, you are eligible for a tax credit of 6.2% of your earned income, up to a limit of $800 ($400 if single). This is HUGE, since virtually all returns filed will contain this credit in some form. The credit is claimed on Schedule M of the tax return, which is an entirely new schedule designed specifically for this credit.

2. The standard mileage rates for 2009 are 55 cents per mile for business travel, 24 cents per mile for medical mileage, and 14 cents per mile for charitable mileage.

3. For 2009, the first $2,400 of unemployment benefits received can be excluded from income. Previously, all unemployment benefits were taxable.

4. If you purchased a new car in 2009, the sales tax on that car purchase will be deductible as long as you itemize your deductions. In Texas, this provision has been around for a couple of years now, but for 2009 this deduction is available for taxpayers anywhere.

5. If you lost your home during the housing crisis and the mortgage company wrote off your debt, you will not have to pay taxes on the amount of debt that was discharged.

6. The penalties for filing late returns have increased. Now, if a return is more than 60 days late, the minimum penalty is $135 or 100% of the unpaid tax. In other words, late filers could end up owing double their original balance in a very short time period. So even if you can’t pay, file that return!

7. The minimum threshold for an event to qualify as a casualty must now be 10% of your income plus $500. Previously, it was 10% plus $100.

8. If you pay off your tax liability with a credit card and incur a ‘convenience charge’ to do so, that charge will now be deductible on your next return if you itemize.

9. Small businesses only need to pay in 90% of the previous years’ tax liability to avoid being penalized for estimated tax payments. Previously, the threshold had been 100%

10. Last but not least, don’t forget that the well-publicized First Time Homebuyer Credit was in effect for 2009.

There are also literally hundreds of changes to existing tax rules regarding phase-out limits for deductions, breaking points between tax brackets, and any other provision that is allowed to index annually for inflation.

As always, the information presented here is intended to be basic in nature and is to be used for general information purposes only. If you have questions about a specific item of tax law, please consult a tax advisor.

TOP TEN PRIORITIES FOR AUDIT COMMITTEES

2010-01-29T08:52:00.000-08:00

Yes, audit season has officially begun. The time has come to put the final stamp on 2009 numbers. The time has also come, however, to plan for 2010. Now is the time for audit committees to implement new agendas. KPMG recently released a list of the top ten "to-do’s" for audit committees this year. Following is a brief summation:

Regain control of the audit committee agenda. Improve the efficiency of committee meetings by insisting on quality pre-meeting materials, spending less time on low-value activities, and engaging in discussions rather than listening to presentations.
Understand the risks posed by cost reductions made in response to the economic crisis. Every audit committee should be asking whether a "cost-reduced" business model can be sustained. Now is not the time to cut-back on internal audit’s budget.
Focus closely on all financial communications. Reconsider the types of earnings guidance the company issues. Engage early on in reviewing 2010 disclosures, particularly those regarding risk, compensation and governance. Understand the company’s policy on the use of Twitter and other social media networks to reach investors and customers.
Continue to monitor fair value issues, impairments, and management’s assumptions underlying critical accounting estimates. There are important new financial reporting developments such as accounting for transfers of financial assets, revenue recognition, and IFRS that may require attention from the audit committee.
Rethink the audit committee’s role in risk oversight – with an eye to narrowing the scope. Does the audit committee have the expertise and time to deal with strategic, operational, and other risks? Is the expertise of other board members being leveraged?
Make sure internal audit is properly focused and fully utilized. Help refine and focus internal audit’s activities on key areas of risk. Internal audit is not accountable or responsible for risk management, but it should provide some assurance to the audit committee regarding the adequacy of the company’s risk management processes.
Prepare for the potential impact of key public policy initiatives on compliance, risk, and governance processes. Major public policy changes will affect many companies and industries, and may impose additional reporting, transparency, and compliance obligations. This will likely lead to new requirements for compliance, risk and governance oversight processes.
The economic crisis continues to put pressure on compliance and anti-fraud programs. The economic downturn has placed tremendous pressure on management to achieve operating results while working with cost cuts and workforce reductions. How has the company been treating its employees? How do they think they’ve been treated? It may be time to review the company’s anti-fraud and compliance programs.
Help link change and risk – and monitor critical alignments. During times of dramatic change, the risk of misalignment of the company’s strategy, goals, risk, controls, compliance, incentive and people goes up exponentially. Given the audit committee’s role in overseeing risk, the committee may be in a unique position to help reduce the risk of misalignment.
Take a fresh look at the audit committee’s composition and leadership. Take a hard look at the committee’s composition, independence and leadership. Is there a need for a "fresh set of eyes?"

As you look forward to 2010, keep these tips from KPMG in mind. The audit landscape is always changing. Use these ten "to-do’s" as a roadmap to guide you through the next year.

Are You Using The Right Legal Entity For Your Business

2010-01-27T06:30:00.000-08:00

Today’s blog is courtesy of our benefits counsel, Walter Wilson. Mr. Wilson is the managing partner of The Wilson Legal Group, Houston, Texas. Today’s blog is a bit technical, but the crux of the article is that different legal entities provide different levels of protection for the owner. The type of legal entity that you choose is critical when doing financial and business planning.

Effective September 7, 2007, a new law went into effect in Texas that offers business owners a more effective “corporate shield” to protect businesses from having its assets and company interest “seized” by a judgment creditor. Most business owners incorporate their business for two primary reasons: (1) to insulate the owners of the business (and their families) from business liabilities and (2) to help reduce Federal Income Tax liability.

Operating as a corporation, shareholders are not personally liable for corporate obligations. However, until this new law was passed, businesses had no similar protection from liabilities created by the business owner.

If a majority shareholder of a corporation was sued and a judgment taken against that shareholder, the judgment creditor could “seize” the shareholder’s stock, take control of the corporation, liquidate its assets and put the shareholder out of business. The judgment creditor could threaten to do this and the shareholder would be forced to settle for cash which normally comes from the business in the form of a loan or sale of assets. Usually the judgment debtor shareholder will do anything to protect the “cash cow” which is the business. Either way, potentially, under old law in Texas, the business would lose!

House Bill 1737 offered a solution to “plug” this hole in the corporate shield by giving entities organized as a limited liability company or a limited partnership greater protection than ever before. Texas has now limited the remedies available to a judgment creditor of an individual member of a Limited Liability Company or LLC (for Professionals a PLLC) or limited partner of a limited partnership (LP) to one remedy, that being a “charging order” remedy.

Now, a judgment creditor cannot “seize” the equity of an individual member or limited partner, cannot take the company away from the shareholder/partner or even threaten to interfere with its business in order to make a party settle. The creditor is left only with a “charging order remedy” which means that the creditor can only seize income the judgment debtor is entitled to receive from the company, and not have access to an interest or potential control over the company, itself.

For physicians as an example, the change offers greater flexibility in structuring buy-sell provisions among multiple parties (owners) of the practice since they no longer have to buy-out the member who is subject to a judgment creditor to collect on a personal debt. So often, entities focus on tort liability claims and exposure associated with their core business of practicing medicine. They often fail to consider the effects of having one of their members subject to a judgment creditor for matters of a “non-professional” or “non practice” nature.

Always consult with your CPAs and legal counsel to consider whether you should consider either forming a PLLC (which can include one person) or restructuring their existing professional association (a corporate entity) or limited liability partnership into a PLLC. This is a simple process that is done by filing documents with the Secretary of the State of Texas. If you are in the health care profession, it does not affect the tax identification or your Medicare provider numbers as it is a “statutory conversion.”

….. This article is not intended as legal advice, but is intended to make physicians aware of these changes in Texas corporate law so they can evaluate with their business advisors whether they should take advantage of this additional protection now available.

Steve Cook is the managing shareholder of Cook and Associates, PLLC, Certified Public Accountants, with offices in San Antonio and San Marc

Important Tax Dates for 2010

2010-01-22T08:18:00.000-08:00

As 2010 gets into full swing, Taxpayers everywhere start to look forward to getting their W-2s and other tax information forms for their tax returns. As a tax preparer, I frequently get questions about when certain forms are due. Below is a list of important due dates for various types of tax returns in 2010:

· January 15 – Final 2009 estimated tax payments due

· February 1 – W-2 forms and 1099 forms must be distributed to the recipients

· February 1 – Fourth quarter 2009 payroll tax reports due; Form 940 due

· March 1 –Government copies of W-2 and 1099 forms due with SSA and IRS

· March 15 – Form 1120 and 1120S (corporate tax returns) due

· April 15 – Form 1040, Form 1065 (partnership returns) due; Form 1041 (estate/trust returns) due; First quarter 2010 estimated tax payments due

· April 30 – First quarter 2010 payroll tax reports due

· May 17 – Texas Franchise Tax Reports due; Form 990 (non-profit returns) due

· June 15 – Second quarter 2010 estimated tax payments due

· August 2 – Second quarter 2010 payroll tax reports due

· September 15 – Final due date for corporate and partnership returns that were extended; Third quarter 2010 estimated tax payments due

· October 15 – Final due date for individual returns that were extended

· November 1 – Third quarter 2010 payroll tax reports due

· November 15 – Final due date for Franchise Tax returns that were extended

· Also for Texas businesses, sales tax reports are due on the 20th of each month (or quarter, depending on your filing requirement). If the 20th is on a weekend or holiday, the due date is the next business day
All deadlines listed assume that the individual or business files using a calendar year. Fiscal year filing deadlines will differ.

--Dan Musick is the Tax Services partner with Cook & Associates, a full service public accounting firm serving clients from offices in San Marcos and San Antonio, TX

Changes In The Way We Work

2010-01-19T06:24:00.000-08:00

Yes, the recession has been tough. Yes, many people lost their jobs. Did anything positive come from this difficult time? I guess that depends on your point of view.

According to a survey done by the Department of Labor, Americans are spending more of their time engaged in simple, inexpensive activities with family and friends and less time shopping. Think of activities such as gardening, cooking, hiking, or visiting museums.

While some of these behaviors can be attributed to having less money to spend, the trend in the savings rate suggests that it goes beyond that. The savings rate has risen from 1 percent of income in 2007 to 4 percent in 2009. Will these behavioral shifts affect the workplace? Quite possibly.

As it stands now, many companies depend on professionals and middle managers to put in long hours and sacrifice family and personal time for work pursuits. In addition, the vast majority of managers in U.S. based organizations are accustomed to taking either less vacation time or less consecutive time off than managers in European based firms and elsewhere.

This may be changing, however. Due to cutbacks and less available cash, many firms were forced to let members of management go. An optimistic view of the situation is that this presented said management with more personal time. According to a Boston Consulting Group experiment, spending more time away from work may prove beneficial for both managers AND the organization.

In the study, BCG required its most overworked team members to take one day off each week. No phone calls or emails were allowed during that day. Team members not only enjoyed the time off, but also improved internal communications and handled projects more efficiently. A similar project sponsored by a non-profit called the Bold Initiative found that giving team members the flexibility to adjust their work schedules around their personal lives increased employee satisfaction and improved productivity.

While there is certainly no definitive answer as to whether the shifts triggered by the recession will be permanent, companies may benefit by implementing policies that allow for more flexibility and time off. You never know, less time at work could equal more productivity.

　
--LeAnn Carlson, CPA is the Audit Manager for Cook & Associates, a full-service public accounting firm with offices in San Marcos and San Antonio, TX.

WHERE HAS ALL THE MONEY GONE?

2010-01-15T11:14:00.000-08:00

As the country and western song by Junior Brown asks, "Where has all the money gone?" The Board of Directors of one of San Antonio’s leading charter schools is also asking that question today. It seems that their Director deemed himself to be underpaid. He resolved the issue by helping himself to the checking account. The article in Tuesdays SAEN indicated that the amount exceed $100,000. But, as the article pointed out, the real amount will not be known for some time.

The directors and those associated with the institution were shocked and dismayed. No kidding!

I have been in the CPA business since 1984. This disclosure comes as no surprise to me. If you are on the board of a non-profit organization, your chances of experiencing fraudulent behavior by a trusted official in your beloved organization are real. In fact, they are real big!

Non-profit organizations typically have very poor internal controls. Board members are often individuals that support the cause. These are well meaning individuals but more often than not, they really aren’t that concerned about the business side of running the organization. Board members simply trust that the director, bookkeeper, etc. are honest folks.

Many non-profits are required to get an annual financial audit by an independent Certified Public Accountant (CPA). The board members assume that a financial audit will undercover any wrongdoing. Well hear me on this point, "The audit probably will not detect the fraudulent activity until the numbers become significantly large!" Financial audits are focused on "significant" issues, not small issues. If your trusted employee keeps it small, the fraud can go on for quite some time.

The real issue here is "How do we, as a board of directors, do our absolute, dead-level best to assure the integrity of our key staff?" Here are some recommended steps:

STEP ONE
The first step must always be to call your insurance person. Most non-profits have a small E&O policy on the board members and nothing else. If your favorite non-profit does this, then you and your buddies are complete fools! The Board members never are the thieves. The staff almost always perpetrates any fraud. Insure those scoundrels.

STEP TWO
If you want your beloved activity to survive, treat it as a business. Don’t drink the director’s Kool-Aid!
Get with your CPA and set up a reasonable set of internal controls.

FINAL STEP
When you decided to be a "good guy", you also assumed a legal liability. Make sure that each board member is properly insured. Make sure that each board member understands that there are legal implications. Make sure that the director understands that he/she works for the board. Do not let that person overwhelm the board.

Fraud is alive and well in America today. The fraud is almost always perpetrated by the most trusted individual. I am not suggesting that you become a cynic; but, I am suggesting that become aware of your surroundings.

Increased regulation of tax preparers is on the way.....

2010-01-13T10:17:00.000-08:00

There has been an outcry from the taxpaying American public over the quality of work being done by some tax preparers. As a result, the IRS has become concerned that too many returns are being prepared incorrectly by paid professionals. The IRS is taking steps to strengthen regulation of the tax preparation industry. Here are some of the proposed steps IRS is planning to implement over the next two to three years:

· Registration with IRS:

Each paid tax preparer will be required to obtain a Preparer Taxpayer ID Number (PTIN) from the IRS. Preparers will also be required to register electronically and pay a user fee with the IRS. The registration and fee would need to be renewed every three years.

· Competency testing:

Any paid preparer who is not already a licensed professional will be required to take a competency test to be allowed to prepare returns. CPAs and attorneys, because of their state licenses, would not be subject to these requirements. Current rules do not establish any sort of standard for who may be a paid preparer.

There are three levels of certification planned: one for individuals without businesses, one for individuals with businesses (self employed) and a third for corporate and partnership returns. Preparers would not be ‘grandfathered in’ under this rule – every non-licensed preparer who wishes to continue preparing returns would be required to register and take the competency exam.

· Continuing Education:

IRS will require all preparers to complete 15 hours of continuing education each year. This will include a mandatory 2 hours on preparer ethics and another 3 hours on tax law updates. The other 10 hours can be any topic of choice. CPAs and attorneys already complete far more hours than this as part of their state licensing requirements, so they are also exempt from this rule.

· Tax Compliance:

All preparers will be subject to annual verification by the IRS of their personal and business tax filings. While details are not yet available, preparers will presumably be expected to be current on their personal filings and not be delinquent in their personal or business taxes.

· While it hasn’t been specifically addressed by the IRS, there have also been rumblings from Capitol Hill about the legality of “refund anticipation loans” (RALs). For those who don’t know, a RAL is when the paid preparer advances the taxpayer a loan for his eventual tax refund – less a hefty fee. The taxpayer signs an agreement giving the preparer the right to collect the eventual refund. The end result is a seven to ten day loan from the preparer that ends up costing the taxpayer as much as 400% in annualized interest. These types of loans are the “bread and butter” of many large tax preparation franchises, but there are those who feel that the practice is predatory and want to see it banned.

The bottom line is that tax preparers are about to find themselves under a lot more scrutiny by the IRS – not to mention the increased cost of registration and education. As a result, you may see fewer of the “chain” tax preparation sites (Block, Jackson Hewitt, Liberty), and certainly fewer of the local places, since they rely so heavily on less-educated staff and lower overhead than CPAs do. You will, however, also probably see higher preparation fees as firms pass these additional expenses along to the consumer.

In the end, we believe these new regulations are a good thing. Income taxes are too complicated and too important to be trusted to just anyone who calls themselves a “tax preparer”. It’s time some standards were put in place.

--Dan Musick is the Tax Services partner with Cook & Associates, a public accounting firm offering a full range of accounting, assurance, and tax services to clients from offices in San Marcos and San Antonio, TX

IT’S A NEW YEAR……….thank you, thank you, thank you

2010-01-12T06:25:00.000-08:00

I don’t know about you guys (yall), but getting back into the swing of things after nearly two weeks of holidays is tough. My body thinks party time at 5:30 each day. My liver is still in denial.

At our firm we always spend the first week back from the holidays completing any straggling projects and doing computer maintenance. Every piece of software that we use had an update waiting for us when we got back. That means the computer system is up and down more that Manu in a close game.

Like most of our customers, 2009 was a trying year. Everyone had to work harder and manage more aggressively to get through the year. Most, if not all of clients, are very optimistic about 2010. The general consensus among our clientele is that 2010 will be better that 2009. No one, however, is expecting the New Year to be the “good ole days”.

As for the Blog, we will continue to provide timely information on business, tax and wealth building issues. We will also provide some business “Best Practices”. And, of course, we will rail at the lunacy of the federal government from time to time.
Finally, LeAnn who is our newest partner is getting married in May while Casie, our quality control and customer service gal is getting married in March. Both are out of town! I thought SA was a destination city? One wedding will be in Las Vegas and the other in Cancun. Personally, I always thought that Alamo Heights Methodist Church’s chapel was the perfect spot, but obviously I was incorrect. Getting to Vegas is relatively easy, but getting to Cancun on the cheap isn’t so easy. If you have any travel suggestions, let me know.

WHAT TO EXPECT FOR YOUR TAXES IN 2010

2009-12-28T06:36:00.000-08:00

When President Obama won office in 2008, he ran on a platform of bringing change to Washington. Whether you believe his changes are for the better or for the worse, you have to admit that he has certainly made some changes during his first year in office.

You can count on there being changes to our tax laws as well. What can we expect to see happen to our tax system in 2010? Here are a few things to look for:

Deductions that will expire on 12/31/2009:

· Sales tax deduction for individuals that live in states without a state income tax
· Sales tax deduction for the purchase of a new motor vehicle
· Out of pocket expenses for educators
These changes affect people in states like Texas the most since there is no state income tax to deduct instead of the sales tax. Each of these deductions were originally set to expire in past years, but were extended. Look for potential last-minute extensions of these deductions as Congress gets set to leave for the holiday recess.

Other law changes for 2010:

· The income limit for people who want to convert traditional IRA accounts to Roth IRA accounts will be removed.
· AMT exemptions are dropping to $33,750 (single filers) and $45,000 (joint filers)
· The mileage rate for business miles will decrease to 50 cents per mile.
· Itemized deductions and personal exemptions are no longer subject to phase out for higher-income taxpayers.
· There will be a $2,400 exemption from taxable income for anyone who received unemployment benefits.
· Charitable donations paid directly from an IRA will no longer be excludable from income.
· The 2009 version of the first time homebuyer credit expires on May 1, 2010.
· Also, anyone who took the first time homebuyer credit in 2008 will be required to begin repaying it in 2010.
· For 2010, the estate tax will not exist.
Though each of these items could be neatly summarized in a bullet point, some of them could have huge implications.

· The AMT law is flawed and if it isn’t fixed soon, many middle-class families will find themselves on the receiving end of an AMT tax bill in 2010.
· Removal of the phase outs could mean dramatically lower tax bills for higher-earning families.
· The first-time homebuyer credit has been a big part of the partial rebound of our housing market. People will want to be sure to time any purchases before the deadline to take advantage of the deal before it expires.
· The removal of the estate tax could be the most important item on the list, though. Currently, the top estate tax bracket is almost 50%. That means when someone dies and they have assets in excess of $3 million, the government could end up receiving a large percentage of their net worth instead of their heirs. The one-year repeal of this tax is all the more significant when you consider that in 2011, the tax comes back with even higher rates and lower exemptions than before. Because of this, many tax advisors are (jokingly, I’m sure) advising their wealthy clients to plan to die in 2010 and save a ton of tax. Here, I would not be surprised to see the government pull a ‘bait and switch’ and repeal the repeal.
In addition to the tax law changes listed above – all of which are already on the books – I am sure that there will be other changes to come. Government spending has reached record highs already and if the health care reform package passes, our government will need a significant boost in its revenues to keep up. Since government revenues are generated by tax dollars, it’s a safe bet to say that taxes will be going up in the near future.

The government has also increased compliance requirements for paid tax preparers, including more strenuous oversight and the requirement to electronically file returns. So not only will taxes be going up, but taxpayers should expect to see fees for tax preparation increase as well.
There is no easy way to predict what the government will do with our taxes from year to year. However, knowing what we know will still allow us to plan with our clients to minimize their burden – whatever the government throws at us.

--Dan Musick is the Tax Services Partner at Cook & Associates, a public accounting firm serving clients from offices in San Marcos and San Antonio, TX

End of Year Tax Tips

2009-12-21T13:00:00.000-08:00

Although there are only ten days left in the year, there are still some things you can do to save big on your 2009 taxes:

Compare Standard vs. Itemized Deductions – Put the amount of your standard deduction next to your itemized deduction. If your itemized deductions are slightly lower than your standard deduction and you won’t be able to itemize next year, try shifting some of next year’s payments to this year. For example, pay your 2010 real estate taxes in 2009. If you can’t itemize in 2009 but may be able to in 2010, postpone expenses. Pay your 2009 property taxes and make your charitable donations in January rather than at the end of the year...then you can "double up" next year.

Medical Deductions – These expenses are deductible if they exceed 7.5% of your adjusted gross income. If you think you may be close to this threshold, consider getting any necessary procedures done before the end of the year. You can save losing expenses to the 7.5% floor twice and make more of them deductible.

Retirement Contributions – You can lower taxable income by contributing to a retirement plan. You can make contributions to 401(k) and 403(b) plans up to December 31, 2009. Contributions to IRAs can be made as late as April 15, 2010.

Charitable Donations – If you plan on itemizing this year, donating to charities is a good way to increase your deduction. Donations can include cash, clothes, household items, toys, and even contributions made by credit card. Remember, if the value of the donations is over $500, you must have an itemized list.

Miscellaneous Itemized Deductions – Employee business expenses, investment expenses, and tax preparation fees are miscellaneous deductions subject to a floor of 2% of your adjusted gross income. If the sum of these is close to or more than 2% of your AGI, consider whether there are other items in this category that you could purchase before year end. If they’re not close, postpone the purchase until 2010.

Cash Gifts – Up to $13,000 per person can be given away without having to file a gift tax return. If you’re married, you and your spouse can give $26,000 tax-free to an individual. The number of individuals you can give this to is unlimited. Keep in mind, however, that the individual needs to cash or deposit the amount prior to year-end. These types of gifts can reduce a taxable estate and potential estate tax upon the death of the giver.

Self-employment Tips – If you use the cash method of accounting, you can decrease your 2009 taxable income by postponing your December billings or collection efforts until January. You can also purchase supplies and equipment at year-end to accelerate your deductions.

Happy Holidays and Happy Tax Planning!

--LeAnn Carlson is the Audit Manager for Cook & Associates, a full-service public accounting firm with offices in San Marcos and San Antonio, TX

The Party Season Primer

2009-12-17T13:46:00.000-08:00

For some, December means the end of football season and/or the beginning of basketball season. For everyone, however, it is the party season! If you are like me, then you have already attended a few holiday events. To use a sports metaphor, the real season begins this weekend and runs through January 3, 2010.

So for those of you that are “party hard” types, I have done some research and identified some items to help guide you through this short, yet intense season.

Pre-Game:
Filter that alcohol to eliminate as many toxins as possible. This helps your liver-the body’s filter. Finally there is a practical use for that Brita filter setting in the cabinet. Just run your vodka, gin, etc. through the filter a few times and you can reduce the amount of toxins entering your body.

Like all good athletes, you want to hydrate properly. Alcohol dehydrates the body. It also depletes trace elements. So start getting in game condition by grabbing that gallon of Gatorade and chugging.

No athlete performs their best when they are tired. Get a good nights rest before the event. A quick nap may also come in handy if the event is a marathon.

And of course, let’s not forget the pregame meal. All athletes have their favorite pregame meal. Marathoners are famous for “carbing up” before the race. Football players prefer something more long term. Personally, I have found a burger provides a good foundation in my tummy for the night.

Post-Game:
A post game drink (next morning), may not be the answer. Of course, it will deaden the pain so this is possible option.

Firing up the coffee pot and drowning yourself in coffee also may not be the best path. Coffee is simply going to wake you up so you can feel that head pounding. Actually, coffee is a diuretic. Diuretics are used in weight loss programs. They flush your system, dehydrating the body. In effect, they do the same thing that alcohol does. More coffee may not be the answer.

My research indicates that the big, greasy jalapeño cheeseburger and fries isn’t a good choice. This one really bums me out because I have used this method on a number of occasions. Sadly, I can’t remember if it worked. At any rate, researchers say that fatty, hard to digest foods take the body away from its main job which is ridding the body of alcohol toxins.

Instead, this year I am going to try eggs, bananas, water (lots), and orange juice. Apparently these foods are rich in the nutrients and trace elements that alcohol destroys. I am not sure how all of this will taste together, but I can do a breakfast taco with no meat and wash it down with OJ.

Once you stabilize your tummy, a regimen of vitamins is always good for the long haul. This is important because, like any highly trained professional, you need to get ready for the next game.

Conclusion:
Have a wonderful holiday season. Put Yellow Cab on your speed dial. Focus on what you have. It really is a wonderful life....especially when you have family and friends to celebrate with.

Steve Cook, CPA, is the managing shareholder of Cook and Associates, PLLC- certified public accountants. The firm has offices in San Antonio and San Marcos, Texas.

Checklist To Help Businesses Bounce Back

2009-12-10T11:22:00.000-08:00

I like the quote "Success always comes when preparation meets opportunity". The key to this quote is that the preparation must come before the opportunity. In the wake of the recession, many businesses are not considering preparing for future opportunities. Instead, they are struggling to stay afloat, concentrating on the here and now. Treading water gets you nowhere.

Now is the time to analyze your business. Now is the time to plan and prepare for economic recovery. Robert Half, an accounting and finance staffing company, has some good tips on how to prepare:

1. Keep reassessing budgets. It's important to continually modify budgets to reflect progress or setbacks. Those companies that fully leverage the expertise of financial, budget, treasury or cost analysts will be better positioned to capitalize on improving conditions.

2. Evaluate your bench strength. Have you cut a significant amount of staff? Is it time to do some re-hiring? This can be an ideal time for a "talent upgrade" as many highly skilled financial professionals are in the job market. If you're reluctant to add employees, you can still prepare for the future by engaging temporary professionals to fill potential skills gaps.

3. Revisit compliance requirements. Companies should be prepared to evaluate financial reporting competencies, information technology controls, risk assessment procedures and documentation.

4. Anticipate next-generation financial reporting. The U.S. Securities and Exchange Commission has mandated that public companies report their financials using Extensible Business Reporting Language, or XBRL, an interactive data format, by 2011. In addition, while the timetable for convergence between International Financial Reporting Standards and U.S. GAAP is uncertain, proactive firms are already offering education and training to help staff better understand these initiatives and plan for eventual implementation.

5. Invest in your people. It may be time to consider reinstituting training and development programs. Firms that invest in staff training better prepare their teams for new business opportunities. Professional development also boosts employee job satisfaction.

6. Upgrade IT systems. Outdated financial systems can impair a business's ability to compete, but conversions take time and resources. Companies that are planning systems upgrades should ensure they have the budget and staffing resources to manage the implementation.

7. Prepare for new products and services. For companies that are considering new product or service launches, this is the time to ensure that the new offering can be introduced quickly when the economy rebounds.

8. 'Re-recruit' your best people. Just as your firm may be considering additional hiring, so are other firms. Don't be surprised if top performers are approached with other offers once the economy turns around. A best defense is a good offense: Managers should meet with their best people now to discuss their careers and remind them how much their contributions are valued.

Stop treading water. Now is the time to get prepared so you'll be ready when opportunity strikes.

LeAnn Carlson is the Audit Manager with Cook & Associates, a public accounting firm offering tax, advisory, and audit services to clients from its offices in San Marcos and San Antonio, TX

MANAGING YOUR BUSINESS USING ONLINE TOOLS

2009-12-03T12:31:00.000-08:00

On Tuesday, December 8, I will be presenting a webinar for the San Marcos Chamber of Commerce entitled, “How To Effectively Manage Your Business using Online Accounting Tools”.

The seminar will be no more than one hour long and begin at noon. The program is a great opportunity for non-profits, healthcare, professional and small business to learn what tools are currently available and how they benefit you.

For information regarding the presentation at the following link:

www.ez.com/SanMarcoschamber

For reservations for the presentation, use the following link:

www.ez.com/SanMarcoschamber1

We look forward to seeing everyone for lunch next Tuesday.

TIME FOR SOME TRANSPARENCY, UNCLE SAM

2009-12-01T06:39:00.000-08:00

The U.S. government is currently operating with a great deal of debt. This is common knowledge. Not so common knowledge is the exact dollar amount of this debt. This is about to change, though.

Under a new standard issued by the Federal Accounting Standards Advisory Board (FASAB), the federal government will soon be required to issue annual reports on its fiscal sustainability.

Representative James Cooper, a member of the FASAB task force that researched the standard, speaks on the implications of this requirement. “Including a statement of fiscal sustainability into the financial report is a step in the right direction. I'm proud of the members of FASAB for coming to consensus on this. If we're ever going to get a handle on our $56 trillion fiscal gap, we need to be more honest about how we account for it. I hope they can take the next step and begin treating our social insurance promises to Social Security and Medicare as liabilities in our national balance sheet - our accrued debt."

According to the Institute for Truth in Accounting, the federal government is currently under-reporting the national debt by as much as $60 trillion. No business would be allowed to misrepresent its liabilities this badly – why should our government? The newly required report should provide a reconciliation of the two figures. The report will also present required supplementary information that will detail income and expenses, deficits or surpluses, and Treasury debt held by the public as a share of gross domestic product (GDP).

While the report will be somewhat technical, it should still provide information that is understandable and meaningful to the general public. More transparency in government will promote accountability and provide valuable information to citizens about how and where their money is being spent. Hopefully, the end result will be a more fiscally responsible government.

--LeAnn Carlson is the Audit Manager for Cook & Associates, a full service public accounting firm operating from offices in San Marcos and San Antonio, TX.

“NO HAGGLE” CAR DEAL MEANS “NO RECOURSE”... take care of what ya got

2009-11-23T13:06:00.000-08:00

Our mission for this blog is to provide information on taxation and other business related topics. Yes, we have strayed a time or two and railed about the dangers of the pending socialist medical program. There is only one way to pay for social program and that is by increased taxes. But I digress.

Today’s blog is on business development. I recently purchased a new car from one of the local “no-haggle” dealers. I thought I had made a good purchase. I later learned otherwise. The vehicle that I traded in was leased. For those that don’t know, the price of a leased vehicle is based, in part, on mileage. This is known as the contract mileage. If you go over the contract mileage amount, then you must pay a surcharge for any miles over and above the stated amount. For example, if your surcharge is $ .15 per mile and you go over the contract amount by 10,000 miles, then you owe $1,500 at trade in.

When I made my deal, I was to make the remaining unpaid lease payments on the old car and the dealer was to pay the mileage overage. Well, that didn’t happen. A month after signing the deal, I received a bill from the finance company saying that I owed for the mileage overage. Needless to say, I was surprised. I called the dealer to make sure that they paid the overage amount.

Guess what? I learned that “no haggle” also means “no recourse”. They said that the deal that I thought I made was too good to be true and I should have known better! In order to maintain my credit rating, I now have to pay the outstanding overage fees. Ouch!

As a result, I will never darken the door of that dealership or any of their other dealerships. They will not get $1 in service revenues from me. They will never sell me another vehicle at this dealership or any of their other dealerships. Further, any time someone wants to buy the same brand of auto, I will refer them to the Austin dealership where I did the exact same deal three years earlier without incident.

I understand their business development model, but I don’t agree with it. The experts tell us that business development takes two forms. First, there is new business. This is where you go out and get a customer that has no prior history with your company. Second, there is maintaining your current business.

In every business development seminar that I have attended, the experts consider maintaining your current business as the business number one development priority. These are the customers that come back time and again. They provide referrals. They are the base of your business. It is said that one unsatisfied customer can harm your business more than ten new customers would benefit it. I believe this statement to be true.

Car dealers and other high volume businesses believe that there are an unlimited number of customers. In a capitalist society this simply isn’t true. Consumers have a choice. They vote with their check book. If you don’t believe, ask Sears, Woolworths, General Motors, Chrysler Motors, and so on. There is a reason that HEB has run every grocery chain on the planet out of town…..and it isn’t just pricing.

When you put your annual business development plan together, don’t forget about your current client base. Don’t be like the “no haggle” guys. Be an HEB.

CPAs and TAX PLANNING - A PROACTIVE APPROACH

2009-11-20T11:24:00.000-08:00

As a CPA in public practice, part of my job is to help clients with their taxes. While bookkeeping services and tax preparation services also offer this service, what sets the CPA apart is the ability to do tax planning with clients. What is 'tax planning'?

There are two goals in tax planning. The first goal is to minimize our client's annual tax liability. The second goal is to make sure that the client has paid in just enough tax to cover that liability.

The first goal is probably the more important - and complex - of the two. In order to help a client minimize their tax liability, we must have an accurate accounting of their income and expenses. Then we have to be able to project that over a full year and estimate their total income. Then the real work begins. The key to minimizing tax liability is in finding out what the client needs and deciding how to meet those needs in the most tax-friendly manner possible. There are several common ways I am able to help clients with their tax liability, including salary management, retirement planning, asset acquisitions, or debt structuring.

The second part of tax planning involves making sure clients have the right amount of taxes paid in. This is easy for employees, because they can manipulate their withholding simply by turning in a new W-4 to the payroll department at their job. However, for self employed individuals and people with large amounts of investment income it's a much more complicated process.

We often ask our clients "what is the perfect tax return?" Most people would say that it's the one that gives them the most money back. In my opinion, though, the perfect tax return is one where there is a small refund generated. Consider this logic: refunds are generated by overpaying taxes during the course of the year. If a return shows a large refund, it means the taxpayer essentially gave the government an interest-free loan for the course of the year. Wouldn't that money be better off staying in their pocket in the first place? We think so.

The common thread is that all of this planning has to be done proactively, not reactively. In other words, April 14, 2010 is too late to do tax planning for 2009. In fact, January 1, 2010 is too late to plan for 2009. Now is a perfect time to be doing tax planning for 2009. Enough of the year has passed that people have a good idea of where they stand, and there is still enough time left in the year to carry out any plans that are developed. Don't put it off!

For more information on options for tax planning for yourself or your business, contact our offices.

--Dan Musick is the Tax Services Partner with Cook & Associates, a full service accounting firm with offices in San Marcos and San Antonio, TX

HOW TO BECOME A LEADER

2009-11-18T13:30:00.000-08:00

I recently started reading a book called “The 21 Irrefutable Laws of Leadership” by John Maxwell. What a great book to pass on to your co-workers and employees! While not all of us are born leaders, Maxwell explains how each of us can become leaders, thereby increasing our effectiveness.

Leadership is important to the success of a business enterprise. It’s vital, in fact. Without leadership, organizations can make no progress. They are stuck at a complete standstill. Leaders are necessary to provide the vision, the influence, and the follow-through that is necessary to put a plan in motion.

Can you tell a good leader just by their appearance? Not likely. Many people have misconceptions about what makes a leader. Maxwell lists five, in particular:

Management Myth - People tend to think leading and managing are the same thing. Not so. Leadership is about influencing people while management is most often about maintaining systems and processes.
Entrepreneur Myth – Don’t assume that all entrepreneurs are leaders. Entrepreneurs are often good at seeing opportunities and going after them, but are not always good with people.
Knowledge Myth – High IQ and a good education do not always lead to good leadership. Consider a brilliant scientist who can come up with fascinating ideas but has no concept of leadership.
Pioneer Myth – Being the first to do something does not make you a leader. You need people intentionally following you and acting on your vision.
Position Myth – This is the most common myth. It’s not the position that makes the leader; it’s the leader that makes the position.

So how do we become a leader if it’s not innate? It’s simple. We become a student of leadership. There are several areas where we can improve ourselves, thus improving our leadership.

Character – Do you have depth of character?
Relationships – Who do you know and what kind of relationship have you established with them?
Knowledge – Have you done your homework? Do you have a grasp on the facts and a vision for the future?
Intuition – Can you make a decision based on what you feel?
Experience – Where have you been and what has it taught you?
Past Success – What have you done in the past that has had a positive impact?
Ability – What are you capable of? Can you lead a team/group/organization to victory?

Every organization needs leaders. To hone these skills and improve the overall function of your organization, become a student of leadership. It’s never too late to learn.

--LeAnn Carlson is the Audit Manager for Cook & Associates, CPAs, a full-service public accounting firm serving clients from offices in San Marcos and San Antonio, TX

"Big Brother" Passes Health Care Bill

2009-11-09T06:46:00.000-08:00

Fans of small government, I hope you're sitting down. Our House of Representatives passed a bill this weekend that would give our government a huge measure of control over our health care system. By taking the reins on health care, our government is proposing to take over an industry that currently makes up 1/6 of our Nation's total economy!!!

In the past year, we have seen our federal government expand its power exponentially. The government is now involved in our financial markets, our mortgage industry, the automobile industry, and now they're also planning on going in to the health care business. At this rate, it might not be long until the government runs everything for us.....all we will have to do is sit back and pay our 90% tax rates and they'll take care of the rest!

Yes, that's probably an exaggeration. But consider that the health care package has a projected price tag of $1.2 trillion, and the stimulus package passed earlier this year cost an estimated $3.27 trillion. That means that, should the health care bill get past the Senate, our esteemed lawmakers have spent an extra $4.5 trillion of our money in this year alone....and this is in addition to the already bloated federal budget.

Since we primarily deal with the aspects of these bills that relate to income taxes, here are some of the tax-related provisions of the bill passed by the House on Saturday night:

--This bill imposes taxes on individuals who do not obtain "acceptable" health insurance coverage, as well as increased employment taxes on employers who do not provide acceptable coverage, in addition to excise taxes on failures to meet certain health coverage requirements.

--The bill would impose a surcharge on taxpayers with adjusted gross income in excess of $1 million for a married couple filing a joint return and $500,000 for a single individual at a rate of 5.4 percent.

--The legislation eliminates nontaxable reimbursements of over-the-counter medications from health savings accounts, health reimbursement arrangements, and health flexible spending accounts, and limits contributions to health FSAs to $2,500. The bill also increases the penalty for non-health-related distributions from HSAs from 10 percent to 20 percent.

--The bill imposes an excise tax of 2.5 percent on medical devices used in the United States.

--Small business tax credits are available for businesses with 10 or fewer employees and $20,000 or less in average wages. The credits phase out if the employer has 25 or more employees, or if average wages are $40,000 or more. The credits are available on rolling basis for the first two years that an employer offers qualified coverage.

--Individuals are required to obtain health insurance coverage or pay a fee equal to the lower of 2.5 percent of their adjusted income above the filing threshold or the average premium on the health insurance exchange.

How else did you think the government was going to pay for this program, other than to tax its citizenry? In typical Washington fashion, their concept for improving our health care system wasn't to fix the problems with out of control provider costs and the need for tort reform. Nooooo....their solution was to require everyone to buy into the broken system - incredible!

Ladies and gentlemen.....our government at work!

--Dan Musick is the tax services partner for Cook & Associates, a full service public accounting firm with offices in San Marcos and San Antonio, TX

Homebuyer Credit Extended

2009-11-06T07:53:00.000-08:00

Thinking of buying a new home? It’s still a good time. The Senate voted to extend the First-Time Homebuyer Tax Credit AND expand the credit to some existing homeowners.

The financial stimulus package passed in February provided for a credit for first time homebuyers that was set to expire December 1, 2009. New legislation has extended the existing $8,000 tax credit and expanded it to allow up to $6,500 in tax credits for existing homeowners who plan to purchase a new home. Both credits do not have to be repaid, and they are refundable - which means that a buyer would get the full amount even if the credit exceeds the amount they paid in.

Stipulations do exist, however. Existing homeowners must have lived in their current home for five consecutive years within the last eight years. Additionally, the credit is limited to the purchase of principal homes (no second homes or vacation homes) costing $800,000 or less. Finally, the credit is reduced for individuals with annual incomes over $125,000 and for joint filers with incomes above $225,000.

Purchase agreements must be signed by April 30, 2010 and closing must be completed by June 30, 2010 to qualify. The deadline is extended another year for members of the military who have served outside the U.S. for at least 90 days between January 1, 2009 and May 1, 2010.

For further questions on eligibility and how to claim the credit, contact our office.

--LeAnn Carlson is the Audit Manager for Cook & Associates, a firm offering a full range of accounting, tax, and auditing services from offices in San Marcos and San Antonio, TX

What your business can learn from the Spurs

2009-11-03T09:26:00.000-08:00

Last Wednesday night I had the good fortune to be invited to opening night by Stephen Geri of Diversified Employee Benefit Services. Generally, I am more of a football guy, but the opportunity to attend opening night was very enticing. The opportunity to sit on row 8 on opening night made it a no brainer.

I’ve been to Spurs games in the past, but have always sat far above the bat’s flight zone. The first thing you notice when you sit at floor level is the sheer size of the players. Those are some big guys. I’m glad I don’t have to feed them. The second thing you notice is the dance team. Gracious! Those are some ultra-attractive young ladies. Viva SA!

Once you waded through these obvious points, the thing that really caught my attention was the teamwork displayed by the home team.

I am constantly reminding and reinforcing the concept of teamwork with our staff. Today’s young professionals tend to be more about “me” than “us”. Whenever possible, I try to hire staff that participated in team athletics in high school. They understand “team”. Unfortunately, you can’t always find individuals with such a background. So, you have to teach them the concept of teamwork and the benefits thereof.

To this end, I have lectured. I have cajoled. I have instituted role playing. In short, I have tried everything within my power to emphasize the importance of “team”. Getting individuals that have never experienced the high of being on a team just don’t understand the incredible high that comes from team success and team recognition.

Businesses, no matter what their product line, have higher success rates when everyone is pulling in the same direction. Petty office politics and self promotion seldom lead to anything good. The more success that the organization enjoys, the more rewards there are for all the participants.

This brings me back to the Spurs. Wednesday night there was a complete singleness in purpose for the players. On the court, there were no raised voices. They played with a quiet determined presence of mind. The goal was to defeat the Hornets - which they accomplished. Good play was saluted and reinforced while bad play was ignored. Laziness was not tolerated. The goal was team success.

Maybe the solution to my problem is to simply push the pulpit aside and just take the staff to row 8 of a Spurs game. After all, seeing is believing.

--Steve Cook is the Managing Principal for Cook & Associates, a full-service accounting firm with offices in San Antonio and San Marcos, TX.

Business or Hobby? Why Does it Matter?

2009-10-30T14:01:00.000-07:00

Among the many challenges that sole proprietors must face is dealing with the IRS. Of course, most profitable small businesses find that their primary IRS concern is dealing with the tax burden. However, there is a chance that IRS can seek to prove that an unprofitable enterprise doesn't even qualify as a business. This is especially true when the business in question contains a significant element of personal enjoyment, as in the case of artists, race car drivers, or animal breeders.

If a business venture does not show a profit in three out of five years, the IRS could take the position that the activity is not being conducted on a “for-profit” basis. Why would they do this? Because while losses incurred by businesses are deductible, losses incurred in the pursuit of a hobby are not.

If a business' records show that it has incurred losses for several consecutive years, it could potentially be at risk of the IRS challenging its profit motive so they can disallow these losses. If the IRS reclassifies a business as a hobby, any losses will be limited to the gross income for that activity for each year. Any excess expenses will be treated as personal items and disallowed, leaving the owner owing taxes plus interest and penalties on any amounts disallowed.

Obviously, an owner would want their business to be able to deduct all of its expenses each year. However, if that business is not profitable for three of five years and the IRS challenges its losses as hobby losses, the taxpayer would have to prove under the “facts and circumstances” test that they are at least attempting to build a profitable business. The facts and circumstances test looks at several factors. Some of these are:

--the manner in which the activity is conducted
--the expertise of taxpayer in the area
--the amount of time and effort spent carrying out the activity
--expectation of future growth
--the success of the taxpayer in other activities
--historical profits or losses of the activity
--the overall financial status of the taxpayer (does he depend on this income?)
--any elements of personal pleasure derived from the activity

The IRS makes its decision on a case-by-case basis, and there are no set rules for determining whether an activity is carried on for-profit or is a hobby. Some things an owner can do to support their position of carrying on a “for-profit” business are:

--keep thorough, business-like books and records
--use a separate checking account and credit cards for the business
--keep a log of personal use of business assets
--carry applicable professional insurance for your business
--advertise the business in trade journals or local sources

Hopefully, all of your ventures are profitable. In the event that they are not, following these guidelines will ensure that you are able to properly deduct all of your business losses.

--Dan Musick is the Tax Services partner for Cook & Associates, a full-service public accounting firm with offices in San Marcos and San Antonio, TX

VACATIONS – LIKE MILK, THEY DO A BODY GOOD

2009-10-26T07:55:00.000-07:00

Shortest vacations in the industrial world? Check. Regularly work over 40 hours per week? Check. High blood pressure? Check. Think there might be a correlation here?

U.S. employees work more hours and get fewer vacations than many other countries. Such strenuous work activity has led to an increase in stress and a decline in health in the general U.S. population.

According to Expedia, U.S. employees get an average of 14 vacation days per year. This is less than half of most European employees, where employees get anywhere between 26 and 37 days per year. Yes, the U.S. is the leader in productivity. However, France maintains a hold on 2nd while only working 35 hour work weeks and getting 37 vacation days per year! Maybe we should re-think the way we do business.

Need 5 good reasons to take a vacation this year? I’ll give you 10.

1. They help you recharge, rejuvenate and avoid burnout.

2. Vacations can inspire you and provide new ideas for the workplace.

3. You are generally more organized and focused in the weeks leading up to a vacation. Prioritizing is a key aspect of this time period.

4. Vacations can reduce stress, which can reduce many health problems such as high blood pressure.

5. Vacations = more sleep = improved clarity and performance.

6. They promote bonding time with family and friends.

7. You can step back and think about the big picture. This can help re-focus the work lens.

8. Changing the pace and place is good for the brain.

9. Seeing the world can expand your horizons and allow you to consider different approaches.

10. Errors, omissions, and even fraud can be detected when an employee takes time off. This is good for internal control purposes and can improve the health of the business.

And one more for the road: When you’re lying on your death bed, you’re not going to say “Man, I wish I had spent more time at the office”.

--LeAnn Carlson is the Audit Manager for Cook & Associates, a full service public accounting firm offering services from offices in San Marcos and San Antonio, TX.

WHERE ARE THE WOMEN LEADERS?

2009-10-22T09:50:00.000-07:00

I sat down with my first cup of coffee of the day with the idea of catching up on the last few days reading. It seems like the longer that I am in public accounting the more it changes. The more it changes, the greater the reading requirement becomes.

In the November 1 edition of Accounting Today, the major headline was “Where are the women leaders (in public accounting firms)?” As I read the article written by Liz Gold, I found myself nodding with approval of the article’s comments. I also found myself nodding with disapproval.

If you read the Wall Street Journal, you will note that there are a number of Fortune 500 companies with women as their CEOs. Many nations now have women as their heads of state. So why are women scaling those very high walls on a more frequent basis, while their counter parts in public accounting can’t seem to get over the backyard fence?

The AT article reports that 55 percent of new hires in CPA firms are female, but the number of women partners in CPA firms hovers around 25 percent.

The article offered some insights which you may or may not agree with.

One point offered by Gale Crosley, the co-coordinator of the Forum for Women in Accounting, was: “Women are taught to be responders, not initiators…business protocol require that if you are going to rise to the top of the accounting profession, you’ve got to be an initiator. Being an initiator, having self-confidence and being fearless around self promotion are all traits necessary to succeed in the profession.”

A second point was offered by Rita Keller: “I don’t think women want partner bad enough.” She stated (and I paraphrase) that women make good money at the manager level, with prestigious titles, and found that CPA firms are willing to work around their family schedules. She states that life has been good to women in public accounting and is puzzled at why women would complain.

A final point was offered by L. Nakarmura, a former KPMG partner, now the managing partner of a large local firm in California: “They (women) knew that to be the parent they wanted to be, they couldn’t be the employee they expected of themselves. So they chose to leave the profession because they couldn’t find a way to balance home success and work success.”

My money is on the last of the three points. Public accounting is extremely demanding. The general public thinks that we work hard from January through April 15 and then play the rest of year. In fact, tax filings occur throughout the year. Accounting services, audit services, financial consulting and software implementation are year-round concerns. Every month of the year has both State and Federal deadlines. A standard work week for most public accountants is between 50 and 60 hours. Burn out and alcoholism are major issues in the profession.

I have been in this business for about 26 years. I have found women to be bright and most capable. I have found them to be motivated and initiators of the first level. I have found their management skills to be equal of men’s although their style is different (women want to talk things to death before making a decision).

I also have observed that the family is a higher priority than the job for female accountants. Frankly, I consider that a good thing. So, if you are a potential employer, know that there are some incredible female talents out there. But also recognize that their kids will always come first and you must be flexible on this issue. It seems like a small price to pay for top quality talent.

--Steve Cook is the managing shareholder of Cook and Associates, PLLC, a certified public accounting firm with offices in San Antonio and San Marcos, Texas.

Deadlines, deadlines......

2009-10-19T11:59:00.000-07:00

In the CPA world, there's nothing like a tax deadline. Many grey hairs, ulcers, and headaches have been born of the rush leading up to April 15 or October 15 (and in the old days, August 15). Clients who wait until the last minute to deliver their information, other preparers who wait until the last minute to prepare forms that you need for one of your clients, and other non-tax work that just can't wait all contribute to the hectic nature of the filing deadline. Overall, a non-scientific review of our case load reveals that almost 1/2 of the returns that we prepare in a given year are filed within 10 days of a deadline.

April 15 is the most well-known deadline, but for CPAs it's not actually the most stressful. That "honor" is reserved for October 15. Why? Because if the work isn't done by April 15, you can always file an extension. However, no extensions are available for October 15....it's truly a "drop dead" due date. We may go for several months during the summer and only be able to complete a couple dozen extended returns, only to have thirty to forty returns come in after October 1. Clients know that if they don't file by October 15, penalties and interest are sure to follow.

As a professional service provider, you never want to tell a paying client that you can't meet a deadline for them - especially in this economy where each client is vital. So while the lay person might say "just tell them you can't do it" or my wife's frequent response, "Did you laugh at them", the CPA's response is to roll up their sleeves, put on another pot of coffee, and prepare for a long evening at the office. That guy who brings you four filing boxes full of loose receipts on October 14 at closing time can make you want to rethink your approach sometimes, though.

At the end of the day, everyone gets taken care of, and we've survived another tough filing deadline. It's time now to spend the rest of the year dealing with "troubleshooting", doing tax estimates for the current year, and catching up on continuing education. Once January 1 hits, it's back to tax season and the countdown officially begins toward yet another deadline.

--Dan Musick is the Tax Services Partner for Cook & Associates, a full-service public accounting firm offering tax, auditing, accounting, and payroll services from offices in San Marcos and San Antonio, TX.

YES DOROTHY – THERE ARE STILL GOOD SAMARITAINS

2009-10-12T13:08:00.000-07:00

A couple of weeks ago, I was in the process of losing my mind. It had been an absolutely horrible week. If it could go wrong, it did go wrong. The apex of the week occurred at my favorite Valero station.

With the red gas light screaming at me, I pulled in for gas. My head was pounding from the weeks activities. I pulled my credit card out, swiped it, and filled up my tank. When the pump “bonged”, I put the gas cap on and drove off. Guess what? My wallet and all its contents were still on the trunk of my car!

The next day, I was driving to Austin for a meeting. I was in dire need of coffee. I pulled into Starbucks, reached for my wallet and found nothing but air. I had absolutely no idea where my wallet was. I racked my ibuprofen- and caffeine-stimulated brain, but to no avail.

I had just sat down at the meeting when the office texted me that someone had found my wallet! In what has to qualify as a miracle these days, he had found it and called to return it – intact!

Yes Dorothy, there are still good Samaritans out there. Thanks again, Mr. Ray Soto!

--Steve Cook is managing shareholder at Cook and Associates, PLLC; a CPA firm with offices located in San Antonio and San Marcos.

FDIC INSURANCE – ARE YOU AS PROTECTED AS YOU THINK?

2009-10-09T06:17:00.000-07:00

I recently attended a continuing education seminar discussing FDIC. Boring, you say? Not quite. It piqued my interest just enough to have me returning to the office and (you guessed it) “googling” FDIC.

The first site to pop up on my search was http://www.myfdicinsurance.gov/. The site prominently displays the following picture:

What exactly does FDIC insurance entail? If you’re like many Americans, you may have been under some common misconceptions. Here’s what you need to know:

FDIC stands for Federal Deposit Insurance Corporation. It is an independent agency of the federal government that was created in 1933 to insure deposits in banks and thrift institutions. Interestingly enough, no depositor has lost a single penny of insured funds since the program was created.

Misconception #1: The FDIC insurance limit is $100,000.
Good news. The limit was upped to $250,000. This means that for each “ownership category” (single, joint, revocable trust, retirement account, etc.), you are insured up to the basic limit of $250,000. So, if you have deposits in three of the categories, you qualify for up to $750,000 in coverage.

Misconception #2: Having multiple bank accounts increases your coverage.
Dividing money into multiple bank accounts does NOT increase your coverage. For example, let’s say that Sue has a checking account and a savings account at the same bank. Both accounts are in her name only. She has $150,000 in checking and $200,000 in savings. Even though she has $350,000 in the bank, she is only insured up to $250,000. Keep in mind, if Sue instead had a single account with $150,000 and a joint account with $500,000 (shared with husband Joe), Sue would be insured for $400,000 ($150,000 + ½ joint account up to $250,000). Sue could also increase her coverage by having accounts at different banks, even if they are in the same account class.

Misconception #3: The FDIC does not pay out the insurance in a timely manner.
Federal law requires the FDIC to pay deposit insurance as soon as possible. Often, this means making the funds available on the first business day after the bank is closed. In addition, depositors may also be able to recover some or all of the uninsured portion of deposits, depending on how much the FDIC recoups from selling the bank’s assets. Unlike insured recovery, uninsured recovery can take up to two years.

As the picture says, “Don’t bank on your mattress”. Structure your accounts properly and get a good night’s rest knowing your money is federally insured.

--LeAnn Carlson is the Audit Manager for Cook & Associates, a full-service public accounting firm operating from offices in San Marcos and San Antonio, TX

GDP: The Nation's Report Card

2009-10-07T11:06:00.000-07:00

Why do I care about the GDP?

As my blog readers have noticed, from time to time I have railed about the dangers of runaway government spending. I am not an isolationist. I am a moderate. I believe that debt - in moderation where there is the ability to repay - is a sound business strategy. This strategy works in government as well as business.

The problem arises when the strategy is abused. There are some telling signs that our friends in Washington are heading past moderation. Economists consider the Gross Domestic Product (GDP) and its relationship to other countries’ GDPs to be our “economic report card”. In its simplest terms, the GDP measures the output of a country’s goods and services. In the past, the United States raced ahead of the world in GDP. Relative to the rest of the world, we enjoyed lower interest rates, greater purchasing power, and lower costs of goods and services.

Recent report cards haven’t been so good. The U.S. has fallen behind both Japan and Germany in GDP. What is most interesting is that both Japan and Germany have experienced deeper drops in GDP than the U.S. So what does this really mean?

First, it is a not so subtle reminder that we live and operate in a global market place. This global market affects the costs of many the products that we use in our daily lives. The computer that this blog is written on is “Made in USA”. Well, sort of. The chips are engineered and created in the U.S. but are manufactured overseas. The boards and drives are created in the U.S. but are manufactured overseas. It is “Made in USA” only because HP is located in the U.S. Most of the products that we use in our daily lives follow similar paths. The strength of the dollar is tied directly to the GDP. This affects our purchasing power and ultimately the end cost (consumer cost) to us.

Second, the GDP affects our cost of money. The U.S. is currently the recipient of billions of dollars in overseas investment capital. These overseas countries and investors buy the bonds and money instruments that the US Government issues to run the day to day operations of our government. As the strength of the GDP declines versus the rest of the industrial world, the value of the dollar decreases. As the value of the dollar declines, the desirability of U.S. money funds decreases. When U.S. money funds become less desirable, the government is forced to pay higher interest rates to attract investors.

Why is this so important to your small business? Even the smallest “mom and pop” businesses are connected somewhere to companies that are caught in the global marketplace. Let’s say for example that you run a corner Taco Stand. Your suppliers are Sysco Foods, H.E.B., Wal-Mart, etc. All of these giants purchase their products in a global market. No matter how small you may think you are, you are never outside of the “global market place”. The GDP report card affects you.

Now let me apply this thought process to the US government. The government has a relatively fixed amount of revenues annually. If expenses exceed revenues (called deficit spending), the government goes to the market and borrows money. When the dollar is weak, the U.S. government must pay a higher interest rate. Since revenues are fixed, the increased cost of debt service (interest) leaves less money to fund other programs. If you can’t cut costs, what do you have to do? Raise revenue – and to a government, that means increasing taxes on its citizenry.

Think about this. In 2000, the amount of our GDP needed to pay the interest on the nation’s debt was 2%. In 2010 it is expected to be a similar amount. Under current revenue and expenditure rates, the 2020 rate is projected to increase to 3%. By 2050, the rate is expected to be 5%. These are huge increases when you consider that we are talking about interest on trillions of dollars in debt.

In the long run, we have to manage our debt – both in our personal lives and in our government.

--Steve Cook is managing shareholder for cook and Associates, PLLC a CPA firm with offices located in San Antonio and San Marcos, Texas.

Facts about our tax system

2009-10-05T13:25:00.000-07:00

If you think our tax code is overly complicated, you're not alone. And you're probably right. Consider the following not-so-random facts:

--Our original tax code, published in 1913, contained 11,400 words. Today the tax code contains over 7 million words. By comparison, the Bible only contains 773,000 words.

--When the Sixteenth Amendment created the income tax, the lowest tax bracket was 1% and the top tax bracket was 7%. Today, our lowest bracket is 10% and the highest is 35%.

--There are about 490 different tax forms in the IRS' library.

--Our "easiest" tax form, the 1040EZ, comes with an instruction booklet that is 33 pages long.

--The IRS sends out 8 billion pages of forms and instructions each year. If laid end to end, they would stretch 28 times around the earth.

--The Cato Institue estimates that taxpayers spend 6.4 billion hours each year working on their tax returns. That's the equivalent of a company having 3 million full-time employees.

--General Electric Co. electronically filed a tax return containing 24,000 pages. If this return had been printed, it would be over eight feet tall!

--The IRS has 114,000 employees - five times as many as the FBI and an operating budget just for payroll of approximately $10 billion.

--It costs the IRS $2.45 to collect $100 in taxes.

--The government spends an estimated $2 billion per year on federal tax compliance. This is more than it costs to produce every vehicle made in the United States in a year.

I am not necessarily an advocate for a flat tax, but given these facts, it's clear that something needs to change. Besides the fact that there is too much pork in Washington, our current tax system costs our government - and by extension, our citizens) too much to administer.

--Dan Musick is the Tax Services partner with Cook & Associates, a full-service public accounting firm with offices in San Marcos and San Antonio, TX

Lessons From the Gridiron

2009-09-29T07:29:00.001-07:00

By now, regular readers of our blog have noticed a trend toward sports-themed blogs. It could be because we are all big sports fans. It could be because we are in the early-season head rush that comes with September and football season. But I think it’s primarily because the world of sports is, in many ways, a perfect analogy for the business world. Today, in honor of football season getting into full swing, I wanted to present four financial lessons that people can learn from the world of football:

1. There is no “I” in team. Football is considered by many pundits to be the ultimate team game. Eleven people on the field, each responsible for a task on each and every play. If one fails, the whole play is in jeopardy. Is it really any different in the business world? Can the shipping department deliver the product on time if the sales department doesn’t turn in the order? One of the single most important principles that a business owner needs to instill in his staff – top to bottom – is that the entire organization needs to be working together for a common goal. Employees will certainly have personal agendas, but those agendas cannot conflict with the goals of the organization. It sounds hackneyed, but teamwork is essential to your success.

2. The final score matters. A team can trail at the half and make the big comeback in the second half to win the game. How do they do it? Halftime adjustments. The coach sees a problem and corrects it. The coach who makes the best adjustments often wins the game. Not every business plan is successful. Not every personal financial plan gets off the ground correctly. The lesson here is that you can always make those “halftime” adjustments to your plan and right the ship. I have personally worked with people in their fifties who had absolutely no retirement savings. At the end of our “halftime” we found a plan that would provide full retirement benefits – including medical – and would be fully funded in five years. Having a good plan is important. Knowing when to make adjustments to that plan is critical.

3. Listen to the coach. In the world of football, the head coach is the final authority on the team’s game plan, personnel, and strategy. He decides what plays to run (though sometimes they delegate this responsibility), who gets in the game, and ultimately the coach is the hero when they win and the goat when they lose. In the business world, CPAs are able to function as the coach for business owners and individuals seeking financial advice. However, if you have a football coach whose players don’t buy into his game plan, the team is doomed. It works exactly the same way when you deal with a financial professional. CPAs are experts in matters involving business planning, financial planning, and taxation. So why on earth would someone take their fishing buddy’s advice over the CPA’s? I don’t know but it happens – too often.

4. The game plan changes based on the opponent. Each week, football teams plan intensely for that weekend’s opponent, and the planning is specific to what the opponent’s strengths and weaknesses are. The University of Texas Longhorns will not plan for the Oklahoma game in the same manner as they did for the UTEP game. Why would they? In the financial world, then, why would you plan for your retirement or the success of your business based on a plan that was drawn up for someone else? You need a plan that was designed for your needs. This is why we are no big fans of Dave Ramsey or Suze Ormon. They are certainly capable advisors, but the concepts that they discuss are not designed especially for you. They are designed to be as generic as possible to provide mass appeal. While that’s great for their pocketbooks, it probably won’t be as good for yours. You need to work with a financial team that is willing to design a plan around your needs. You need a plan that will meet your goals. You can’t get that from watching a television show.

Sure, maybe I have football on the brain. But I believe that there are fundamental principles that can be learned from the game that can be applied to your financial success. If you would like to know more about planning for your retirement or for the success of your business, contact our office.

--Dan Musick is the Tax Services partner for Cook & Associates, a full-service CPA firm providing a wide range of tax, accounting, consulting, and auditing services from its offices in San Marcos and San Antonio, TX

Keep Customers Coming Back

2009-09-25T06:38:00.000-07:00

It’s no surprise – we all have our favorite customers. These are the ones who pay on time, are patient and respectful, value our advice, and keep coming back. So if we already have good customers, why are we spending so many resources on gaining new clients? Sadly, this is a fact of business: most companies spend more on attracting new customers than they do on keeping their existing clientele happy. This can cause our “favorites” to walk right out the door. AT&T, for example, gives new customers better deals on new cell phones than they do existing customers looking to renew their agreements. How does that existing customer feel?

Losing good customers can mean fewer referrals, less repeat business, and a lower bottom line. To avoid this situation and keep customers coming back, keep these tips in mind:

1. Give Customers Incentive
Whether it’s a discount, small gift, or chance to win a mystery gift, customers come back for incentives. Kwik Kar gives the tenth oil change free and Subway often gives promotional codes for a chance to win free gifts. Small incentives = big payback.

2. Reward Your Customers
This may sound like the same thing as incentive, but it’s slightly different. Rewards should be unexpected – a nice surprise for the recipient. Tickets to a game, dinner invitations, or a round of golf are all good ways to show loyal clients your appreciation. We give gift cards as a “thank-you” to clients who refer new business to us, and it’s amazing how much goodwill that simple act generates with our clientele.

3. Respond Immediately to Problems
The faster you deal with the issue at hand, the sooner you can move on to another task. Letting a problem fester will only serve to annoy the client and prolong the inevitable. Find a solution - ASAP.

4. Stay in Touch
We’ve all heard that handwritten notes make great impressions. They can also serve as a way to keep customers thinking about your business. The more contact you have with clients, the more likely it is they’ll remember you when shopping for goods or services. If writing notes just isn’t feasible, stay in touch through e-mail, phone, or fax.

5. Give First Class Service and Convenience
In an age of drive-thrus, delivery service, and TiVo, convenience is key to the consumer. Make the purchasing process as easy as possible. Service businesses should have systems in place that make their staff and procedures user-friendly. Above all else, make sure you are treating the client with respect and a smile. This demonstrates efficiency and shows the client you value their time as well as their business.

--LeAnn Carlson is the audit manager for Cook & Associates, a public accounting firm offering a full range of accounting, auditing, consulting, and tax services from offices in San Marcos and San Antonio, TX

The New Health Care Tax

2009-09-23T12:15:00.000-07:00

“If it looks like a tax and is enforced like a tax, it’s a tax,” Orrin Hatch

As a CPA, my eye is always in ‘search mode’ for the word TAX. I know that any changes in tax legislation will affect me personally as well as our business. The universal health care proposal falls in this category.

Among the provisions of several of the proposed health care bills is essentially to charge a fee (Tax) to anyone that does not carry health insurance. The fee (Tax) will be reported and paid on the taxpayer’s annual tax return. The latest legislative update indicates that taxpayers will be charged $3,800 per family should they choose not to carry insurance.

As I just mentioned, this fee will be reported on the offenders’ annual tax return. Under the proposed new system, paid tax preparers would become the insurance police. When you go to have your return prepared, you will have to provide proof of health insurance....just like you do for your automobile. If you don’t have it, we will add $3,800 to your tax liability. I assume that this will be a new line item on the Form 1040.

I can hear it now: “I never have to pay additional taxes.” “I always get a refund!” I imagine that there will be other unflattering words before I can explain what actually occurred.

My suggestion to all of our clients that do not carry health insurance will be to increase their withholding amount by about $300 per month. This will mean less money going in the bank to pay bills, but at least they will not come up short at the end of the year. Oh yes, also remember that if your taxes are underpaid, there is a penalty. Penalties on top of fees – you have to love our tax system!

As a single male, sixty years old, I pay a little over $500 per month for a modest health insurance policy. So, if hard times set in and I drop my insurance, I will save $6,000 per year. My taxes, however, will increase $3,800 and have to be paid on my Form 1040. Quite a fee for someone who has chosen to accept the responsibility that comes with being uninsured.

If you are under the federal poverty level (yet to be determined), you will have to complete a separate form and submit the form to some as-yet unknown federal agency. They will determine if you are qualified for the federal insurance subsidy. The federal subsidy will be paid directly to an insurance company on your behalf. For most people, the subsidy will not cover the entire premium. The individual will be required to fund the difference. If the individual does not fund their part, then you will have a partially funded but inactive insurance policy with your name on it.

The good news for CPAs is that income verification is normally provided by tax returns and W-2s. The basic tax returns, however, will be more complicated. Listening to the moaning and groaning will take time and patience. There will also be another federal agency to deal with. At least all of this is billable time!

--Steve Cook is the managing partner for Cook & Associates, an accounting firm offering a full range of accounting, tax, auditing, and consulting services to clients from offices in San Antonio and San Marcos, TX

Identity Theft: What can you do?

2009-09-22T07:22:00.000-07:00

As a CPA, I am often perceived as having all of the answers for whatever financial question a client may pose – and many times, I do have the answer. It may not always be what my client wants to hear, and it may not always be the only answer, but my work experience makes me uniquely qualified to render an opinion on almost any financial issue. There is one topic, however, that can leave me unable to offer anything but condolences. That topic is identity theft.

My family went on vacation this past weekend for the first time since our son was born. We took a long weekend and went to the beach. Of course, Murphy’s Law prevailed and I lost my wallet somewhere on the beach. I guess wrangling a toddler and keeping up with your personal items was just too much for me to handle – especially since my swimsuit had no pockets! As you might guess, the possibility for identity theft is a real concern for me right now.

The sad fact is that an identity thief doesn’t have to get your wallet to steal your identity. In fact, a determined thief can be nearly impossible to deter. There are, however, several things that you can do to at least make it difficult for someone to steal your personal data:

1. Don’t carry your social security card in your wallet or purse. This is the single most important piece of data that identity thieves want to get access to. With your Social Security Number, they can take out loans, apply for credit cards, and even enter into legal contracts in your name....and you won’t even know until they skip that first payment and the bill collector comes calling. Are there cases when you need to know your Social? Certainly – so memorize it and leave the actual card at home. The times that you actually have to show the card are very few and far between.

2. Don’t use your birthday as your Personal Identification Number. It seems like a basic concept, but so many people still do it. One of the easiest pieces of information for someone to steal is your date of birth, and if that’s the key to all of your bank account, credit card, and other financial information, then you’re in deep trouble. Sure, it’s easy to remember, but pick something else and save yourself the potential trouble.

3. Don’t share everything on Facebook. I know social networking sites are all the rage right now. I have more online profiles that I can keep up with. However, in this age of information and quick connections, it’s more possible to ever to share too much. Do all the Mafia Wars and Farmville that you like, but avoid putting your phone number, address, or date of birth on your profiles. This just makes them 'easy pickings' for identity thieves.

4. Don’t reply to suspicious e-mails. “Phishing” is the practice of using fake e-mails to acquire personal information about victims. Often, phishing e-mails will appear to come from your bank, Paypal, or even the IRS. These messages always take a variation on the same theme – they warn you that you are at some sort of risk and ask you to click a link and verify your personal data. The link takes you to a site that looks a lot like your bank’s website, but it’s really there just to steal your personal information. If you ever think a message may be legitimate, close the e-mail and go to the website using an address that you know is safe.

5. Shred all personal information before you throw it away. Identity thieves are not above going through your garbage, hunting for something they can use. Whether it’s a credit card offer, a paid bill, or especially anything with your license number, SSN, or date of birth on it....make sure any documents containing personal data are destroyed before disposing of them.

6. Periodically review your credit reports. Sometimes credit fraud can be detected early if you take the time to get copies of your credit reports a couple times a year. There are three credit reporting bureaus, and all three could show different data, so you will need to look at all three. Report any suspicious activity immediately.

As I mentioned earlier, there is no iron-clad way to prevent identity theft altogether. However, if you will follow these tips, you can at least make yourself a more difficult target for would-be thieves.

--Dan Musick is the Tax Services partner with Cook & Associates, a full-service accounting firm offering audit, tax, consulting, and bookkeeping services to clients from its offices in San Marcos and San Antonio, TX

TAX PREPARATION CHECKLIST FOR INDIVIDUALS

2009-09-18T06:15:00.000-07:00

It's coming up! The extension deadline for 1040s is right around the corner (October 15th) and you may be scrambling to compile all your necessary documents. To assist you in your preparation, here's a short checklist of items you or your tax preparer may need.

GENERAL INFORMATION
Names, SSNs, and Birthdates for you, your spouse, and your dependents
Tax return from prior year
Voided check for electronic filing
Payments of estimated federal, state, or local taxes

INCOME INFORMATION
W-2s
Social Security received
1099s – Interest and dividend income, retirement, annuities, unemployment
Alimony received
Gambling income and losses
Securities (date of purchase, cost basis, date of sale, and sales price)
Rental property income (and expense)

SELF-EMPLOYED INFORMATION
Income (1099s, bank deposits, interest income)
Cost of goods sold
Auto expenses (mileage, insurance, interest, repairs/maintenance)
Wages paid
Business expenses
Home office expenses

ITEMIZED DEDUCTIONS
Real estate taxes
Mortgage interest – 1098
Medical expenses (prescriptions, insurance, doctors, dentists)
Charitable contributions
Unreimbursed business expenses
Union/Professional dues, hobby expenses, safe deposit box, tax prep fees

TAX CREDITS AND DEDUCTIONS
Child and dependent care expenses
Education expenses (1098-T or interest on student loans)
IRA contributions
Alimony paid

--LeAnn Carlson is the Audit Manager for Cook & Associates, a full-service public accounting firm offering audit, tax, bookkeeping, and consulting services. The Firm has offices in San Marcos and San Antonio, TX.

Tidbits from the IRS, or "Is This Any Way to Run a Business?"

2009-09-16T14:09:00.000-07:00

IRS Plans New Standards for Tax Preparers:
The Internal Revenue Service is in the process of improving tax preparer standards. Generally speaking, the new process will require anyone signing the return as a preparer to be registered. The new standards would also require preparers to take a certain amount of continuing education each year. These rules are already in place for Enrolled Agents but not other preparers. So essentially, in the future all tax preparers will be held to the standard of Enrolled Agents. CPAs are currently not Enrolled Agents, because they are held to a higher standard of conduct and continuing education. CPAs follow rules established by national and state governing Boards.

As a practicing CPA, I agree with the registration and education process. I have seen some very creative returns prepared at the local pawn shop-rapid refund store. BUT, the IRS also proposes a much harsher penalty on tax preparers for things that they (IRS) consider to be errors. This is where the real debate begins. The Service’s new preparer program wants all preparers to be “de facto” employees of the IRS.

As H & R Block says, “Our job is to get you the lowest tax legally allowable by law.” There are gray areas in tax law. There are disputed areas in tax laws. There are areas subject to interpretation. That is why we have the Tax Court and the judicial system. If the IRS is allowed to execute their proposed program, no tax preparer will ever push the limits of the tax law. “Legally allowed by law” will come to mean “as interpreted by the Internal Revenue Service”. There will be no need for the appeals division of the IRS or the Tax Court since there will be no challenges from preparers scared to death of the preparer penalty.

IRS is Focusing on Filling Increasing Number of Vacancies:
The IRS has approximately 106,000 employees. About 9% of those are managers. Of the 106,000 employees, almost one-half are age 50 or more. More than 39% of all IRS employees are eligible for retirement. Wow.

When I opened my first CPA practice in 1984, I could have the client sign a power of attorney, go to the local IRS office, discuss the case with an agent, and resolve the case with the agent that same day. Today our best approach is the “Practicioners’ Hotline”. Everything is done over the phone. Each time you call, you invariably get someone new. It is not unusual to talk with one IRS agent and come up with a plan, only to have a second agent tell you that your plan won’t work when you call back.

Our clients constantly complain about the IRS. Typically their complaints are not about the taxing process, because we all know the system. Rather, the complaints are about the fairness and difficulty in resolving their issues. Taxes are complex. Most people don’t understand tax rules and regulations. Talking to a computer only intensifies the frustration. This preparer fully supports the Service’s hiring mission. In fact, we believe that 106,000 employees is a woefully inadequate amount to fill the need. We support a significant increase in the number of agents. It will make everyone’s lives easier.

IRS Managers to Get More Involved in Tax Audits:
The IRS policy on audit dispute resolution is to resolve issues at the lowest practical level. This usually means the field agent. Unresolved issues are then pushed up the ladder to the managers. Still unresolved issues may be pushed to Appeals. While most of the field agents that we have encountered over the last 5-6 years have been solid in their tax knowledge, they have been woefully weak in their accounting knowledge. Precious few agents actually understand debits and credits. When you are hiring Art majors, English majors, and Psychology majors as agents this is to be expected.

What the IRS is really saying with this decision is that they have little faith in their field agents to make appropriate decisions. The real knowledge base at the IRS begins at the manager level. This is especially frustrating for the taxpayer and tax preparer because the reality is that no audit will be concluded until a manager is involved. Unfortunately, the manager makes their decision based on the field agent’s workpapers with no input from the taxpayer’s side! As a result, most skilled tax professionals accept that audit resolution will come at the third level - appeals. This costs both the government and the taxpayer money. It is a “no win” for both sides.

Summary:
The common thread in these issues is personnel. Each of issues previously discussed could (and should) be resolved by hiring, training and properly utilizing good personnel. The answer is not to make tax preparers pseudo-government employees, or to increase the number of agents answering the telephone. The IRS must determine its real staffing needs and approach the problem like any other business. Go out and get the right people, train those people well, and give them the tools and authority to do their job. A rather novel concept for your favorite government.

--Steve Cook is the managing partner at Cook & Associates, a public accounting firm offering clients a full range of accounting, tax, consulting, and auditing services through its offices in San Antonio and San Marcos, TX

Blackouts = Bad Business for NFL

2009-09-14T06:35:00.000-07:00

As a sports fan and a business blogger, it’s always interesting to try to find ways to merge my two interests. Now, the NFL is providing me with a golden opportunity to do just that.

Since we are in an area without a NFL team, it’s likely that the average sports fan hasn’t heard of the NFL’s “blackout rule”. Since 1973, there has been a clause in the NFL’s television deal that allows it to block the local broadcast of any game that isn’t sold out 72 hours before kickoff. The concept behind the blackout rule was to encourage people to get out and go to the game instead of staying home if there were tickets available and to encourage sellouts of its games.

This rule hasn’t really posed a problem for the league until now. The vast majority of NFL games in recent seasons have been sellouts and not subject to blackout. The New York Times reports that only nine games were blacked out last season (probably Lions games) and that over the past four seasons, only 5 percent of all games were blacked out.

Times, though, are changing. It’s no secret that the economy is struggling, and the average cost of attending an NFL game has skyrocketed in recent years. According to Sports Illustrated, the average ticket to an NFL game will cost $75 this season. For a family of four, with parking and snacks, you could be looking at over $400 to attend a game. By comparison, in 1973 when the rule was passed, a Super Bowl ticket cost just $15!

Between the rising cost of attending a game and the economic troubles, the number of games facing blackout is expected to skyrocket this year. NFL insider Mark Maske writes that the league projects the blackout rate this season could be as high as 20 percent! This past weekend, three games (including the Raiders’ Monday night game) were nearly blacked out, each selling out just before the league deadline....and that was opening weekend!

Here is where we tie this story back to the business world. The NFL’s response to these reports is that they will not review their blackout policy at this time, citing that they “do not react to short term situations”. This reaction strikes me as arrogant beyond belief and in violation of several management concepts that we try to teach our clients.

When we consult with small business clients, we teach them that their mantra should be to gauge and respond to their customers’ needs. No business will last long with the attitude that “this is how we do it and if you don’t like it go somewhere else”. Yet this seems to be exactly what the NFL is doing with their response (or lack thereof) to this situation. Sure, the NFL isn't exactly a "small business", but no company can go on forever biting the hand that feeds them.

We also take issue with the league’s statement that they do not respond to short term situations. While it’s true that having a long-term vision is vitally important to the success of a business, you cannot focus entirely on the long-term and ignore important short-term issues. In the information age, the ability of a company to react and adapt to current market pressures is extremely important. Without a successful short-term policy, there might not be a need for a long-term plan.

I’m not predicting “gloom and doom” for the NFL. However, judging from the number of results to a quick Google search of “NFL Blackout”, the amount of negative toward the league's policies is staggering. The NFL is still stinging from the negative publicity over not being able to get their NFL Network onto some of the nation’s largest cable companies, so this issue really comes at the wrong time for them. Simply put, they need to respond appropriately to this issue.

No matter how popular the NFL has become, all it can take is one issue like this to kill that popularity – just ask Major League Baseball after the 1994 strike. Prior to the strike, baseball was "America's passtime", a mantle that football was able to take from them after 1994. With ill-advised decisions on issues like the blackout rule, I have to wonder - is the NFL on their way to giving it back?

--Dan Musick is the Tax Services Partner with Cook & Associates, a full service public accounting firm with offices in San Marcos and San Antonio, TX

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TIME FOR SOME TRANSPARENCY, UNCLE SAM