To File or Not to File - That is the Question (or is it?)

As the econcomy continues to struggle and people start to find themselves making decisions on how to allocate their money, it makes sense that sometimes bills might not get taken care of. As a tax accountant, I have seen this firsthand with my client base.

Unfortunately, we are seeing that an increasingly popular way for people to try to save money is to avoid filing their federal income tax returns! While anyone who has wage income doesn't see much benefit from this tactic, self-employed filers and people who have lots of passive (interest, dividend, and capital gain) income can - at least temporarily - keep some cash in their wallet.

This strategy can provide temporary relief, but here are five good reasons for a taxpayer not to skip filing their tax return - even if they can't pay right away:

1. It can land a person in jail
While not paying taxes is a crime, it's only punishable as a civil offense. A taxpayer can (and will) be penalized, but they can't be imprisoned for simply not paying. This isn't the case when a return is not filed or when a fraudulent return is filed. Failure to file a required tax return is punishable as a criminal offense, which means the taxpayer can be put in jail. It's rare to actually see it happen, but Wesley Snipes, Richard Hatch, or Al Capone will tell you that it does happen.

2. The penalties are much higher when someone doesn't file
IRS will charge "failure to pay" penalties and interest on any balance due to them. These penalties vary, but they usually cap out at about 10% of the balance due. However, if someone does not file their return, IRS will also assess a "failure to file" penalty for each month that the return is late, and it is a much steeper penalty. Failure to file penalties can exceed 25% of the actual tax liability!

3. It can limit a person's ability to get credit or government aid
If someone is not current with their tax filings, the IRS will not turn them in to the credit agencies. However, they can still put the taxpayer in a tough spot financially. Virtually every major loan that someone might apply for requires a copy of the last tax return. Applicants must be current on their tax filings to be able to apply for many forms of government aid, including student loans, housing assistance, and many other programs. Having all returns filed is also a condition for people to be able to file for bankruptcy protection.

4. The IRS will not work with anyone unless they are current on their filings
Usually, when people cannot pay, they think they shouldn't file. However, the IRS has several programs available to assist taxpayers in making arrangements to settle their tax liabilities. The IRS offers payment plans, partial settlements, and even deferred payment arrangements to taxpayers. However, these programs all have one thing in common - a taxpayer must be current on their filings and stay current for as much as ten years in order to qualify for relief.

5. Taxpayers could forfeit a refund
In the event that someone's return would have actually shown a refund, they can end up out of luck. IRS rules say that a return must be filed within three years of its due date or any refund that is generated is forfeited. In my practice, I have had several clients who realized that they were unable to claim large refunds from prior years simply because they waited too long to file. There's nothing worse than leaving money on the table - and to the IRS, no less!

I realize that nine out of ten people who read this are going to be current on their tax filings. However, if you are that tenth person, I urge you to get caught up as soon as possible. Not only will you avoid the potential traps listed above, but you just might sleep a little better at night.

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

Top Five Networking Sites

My recent foray into social and business networking has opened my eyes to a wealth of websites that provide valuable services. This list represents my idea of the top five. Check out what they have to offer:

Facebook
A January 2009 Compete.com study ranked Facebook as the world's most used social network. With over 250 million active users, that’s no surprise. This site can be used to promote yourself, your business, or a cause that interests you....or just to play games and catch up with friends.

Twitter
Have you ever heard the term "micro-blogging"? That’s what a “tweet” is. Twitter allows users to post a message of up to 140 characters on their profile page to update people on where they are, what they are doing, or to share an important message. This page is visible to the author’s “followers”. Use this site to promote a blog or share important information.

LinkedIn
This site allows registered users to connect to people they may know through school or business. The people in this list are called “connections”. This site is often used to find jobs, employees, or business opportunities. It is similar in structure to Facebook, but its focus is strictly business.

YouTube
YouTube is a video sharing website where users can upload and share videos with just about anyone. Unregistered users can watch the videos while registered users can both watch and upload them. Have you heard of Susan Boyle, the British singing sensation? Her performance on Britain’s Got Talent was viewed on YouTube nearly 50 million times!

StumbleUpon
With more than 8 million members, StumbleUpon is quickly gaining popularity. This site uses ratings to form shared opinions on website quality. Users can submit keywords to guide your “stumbles” to sites that have been tagged by other members. If your blog, website, photo, or other post gets a thumbs up from a reader, it will be added to the database for others to stumble upon.

Go forth readers….tweet, follow, connect, view, and stumble.

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

Why We Do the Things We Do

There was a wonderful article in the Monday, August 24 issue of the Wall Street Journal penned by Meir Statman entitled The Mistakes We Make - and Why We Make Them. The crux of the article was about how investors’ thinking often gets in the way of their investment success.

Today’s blog is the “Cliff Notes” version of the article. We encourage you to read the full article. While the article focuses on investing, it really is about the way we process data. As you read this overview, you may substitute your business, your family or any other activity for ‘investment’. The point of the article is that the mind is a very powerful piece of equipment. The ability to control and harness its incredible power determines success or failure.

Statman begins by posing the question; “How many times have we asked ourselves what was I thinking?”

“…here’s the problem: While we know that we made investment mistakes, and vow not to repeat them, most people have only the vaguest sense of what those mistakes were, or, more important, why they made them. Why did we think and feel and behave as we did? Why did we act in a way that today, in hindsight, seems so obviously stupid? Only by understanding the answer to these questions can we begin to improve our financial future.”

Simply put, our brains are overflowing with emotion. The ability to control this emotion is what determines if we are normally smart or normally stupid. How do we control this situation?

Statman suggests that we need to develop tools. Investors tend to think about each stock they purchase in a vacuum, distinct from other stocks in the portfolio. They are happy to realize ‘paper’ gains in each stock quickly, but procrastinate when it come to realizing losses.

Why do we procrastinate? While we have regrets over a paper loss, we console ourselves in the hope that, in time, the stock will roar back into a gain. This hope would be lost if we actually sold the stock and realized the loss. “So we do pretty much anything to avoid that pain-including holding on to the stock long after we should have sold it.”

Knowing the turbulent waters of the emotional mind Statman offers eight lessons to be learned.

Lesson One: Goldman Sachs is faster than you
“There is an old story about how hikers who encounter a tiger. One says: There is no point in running because the tiger is faster than either of us. The other says: It is not about whether the tiger is faster than either of us. It is about whether I’m faster than you.”

We, as individuals, are not faster than the Goldman Sachses of the investment world. Plan you portfolio for the longer term. Leave the speed to the fast.

Lesson Two: The future is not the past, and hindsight is not foresight (My Favorite)
“The hindsight error leads us to think that we could have seen in foresight what we see only in hindsight.” There are no crystal balls. The only thing we know about hindsight is that is a good evaluator of past events.

Lesson Three: Take the pain of regret today and feel the joy of pride tomorrow
“Stop focusing on blame and regret and yesterday, and start thinking about today and tomorrow.”

Lesson Four: Investment success stories are as misleading as lottery success stories
“We tend to look for evidence that confirms our belief rather than evidence that might refute it.” For example, lottery marketing never talks about the millions of losers, only the few winners. In investing, you will have winners and losers during any period. Focus on the longer term.

Lesson Five: Neither fear nor exuberance are good investment guides

Lesson Six: Wealth makes us happy, but wealth increases make us even happier
Our greatest happiness comes from gains in wealth more than from levels of wealth. Focus on the gain. Frame the positive event. When the average Joe that wins $25 on a scratch-off he is happier than the millionaire whose portfolio went up 1%. “In other words, it’s all relative……Standing next to people who have lost more than you and counting your blessing would not add a penny to your portfolio, but it would remind you that you are not a loser.”

Lesson Seven: I’ve only lost my children’s inheritance
This is a lesson in mental accounting. Mental accounting is a cognitive process that allows us to manipulate our feelings. So here is Statman’s advice: “Ask yourself whether the market damaged your retirement prospect or only deflated your ego. If the market has damaged your retirement prospects, then you’ll have to save more, spend less or retire later. But don’t worry about your ego. In time it will inflate to its former size.’

Lesson Eight: Dollar-cost averaging is not rational, but it is pretty smart
Dollar-cast averaging is a good way to reduce regret and spread risk. Dollar-cost averaging won’t outrun the tiger, but it will distance you from the field. It is not about hindsight, but about foresight. It doesn’t take the pain of investing away, but it does minimize the degree of pain.

As we look back over Mr. Statman’s article, we are reminded that people do stupid things for seemingly rational reasons (emotion). It is our ability to control and harness the mind’s incredible power, however, that determines success or failure.

Steve Cook is the Managing Shareholder of Cook & Associates, PLLC, Certified Public Accountants. The firm offers tax, assurance and business consulting services from its offices in San Antonio and San Marcos, Texas.

"Cash for Clunkers" out of gas

Today is the last day for consumers to cash in on the wildly popular CARS program - that is, if they can find a dealership that will still let them. Problems with the administration of the program have led to many dealers pulling out early.

Under the CARS program, or Cash for Clunkers, people driving older cars would receive a guaranteed trade in allowance of $3,500 or $4,500 for purchasing a new vehicle that met certain fuel economy standards. The way that it works is that the dealership advances these allowances to the buyer and then submits a reimbursement form to the government to get the money back.

At least, that was how it was supposed to work.

Administrative issues have led to many dealers being unable to submit the reimbursement forms, which are due at 8 PM tonight. Many dealers are reporting that the form package is too long and confusing, and that the website for submissions is frequently down. Others claim that there is no one to call for help in completing the reimbursement package and that the printed rules are no help.

To make matters worse, dealers are having trouble collecting on claims that they were able to file. In Virginia, the Automobile Dealers Association estimates that only about 3% of all claims filed have been paid by the government so far. They also estimate that one in four dealers are no longer participating in the program, citing fears of not being reimbursed. These aren't isolated incidents - these types of statistics are being repeated across the nation.

In the end, what seemed like a good deal may be going the way of other "great government social programs" like social security, welfare, or the WPA. The only difference here is that it took years or even decades for these other programs to flounder, but the CARS program is struggling after only a couple of months.

My concern will be what will happen if the dealers end up unable to receive reimbursement. Will consumers start getting bills for an additional $4,500 from the dealerships? If so, how many repossessions will that lead to? Or will the dealerships end up being expected to absorb the costs, placing even more strain on an already struggling industry? Only the future will tell.

In the meantime, what is the moral of this story? I don't know....maybe "if it sounds too good to be true, it probably is" or "no idea is too good for the government to mess it up".

Social Marketing for Businesses

Like most in the Generation Y demographic, I am well versed in the area of technology. I have owned a computer since I was 12 and a mobile phone since I was 15. I am proficient at texting, tweeting, and blogging. I use Facebook, LinkedIn, and MySpace. If these things don’t sound familiar to you, it’s time to get “in the know”!

Sites such as Facebook are no longer just for the young. Log on and you’ll see. There are a multitude of members – from pre-teens to baby boomers to businesses. Businesses, you say? Absolutely! Many companies are now creating “social” profiles to draw attention to their business. These companies are of varying sizes but likely have the same goal – to increase sales through social marketing.

How do you do this? A local bar in the San Marcos area uses the site to post events and drink specials. This free marketing costs the owner nada! This marketing can lead to an exponential grapevine effect, where one member shares the information on a “wall” where many other members can see it and pass it on.

Just how far-reaching is Facebook?

· There are more than 250 million active users
· Over 120 million users log on to Facebook at least once a day
· More than two-thirds of users are outside of college
· More than 5 billion minutes are spent on Facebook each day
· About 70% of Facebook users are outside the United States

If these statistics don’t knock your socks off, continue reading at http://www.facebook.com/press/info.php?statistics . While you’re at it, sign your business up for a profile. You may just find how social marketing can work for you.

--LeAnn Carlson

QuickBooks....is it enough?

Intuit’s QuickBooks is a low cost, easy to use accounting software package popular with many small businesses. If you believe the advertising, installing QuickBooks will make you a CPA, financial analyst, and cost analyst with the flip of a switch. Even better, those nasty accounting problems surrounding inventory, billing and payroll are all things of the past. All you have to do in lock, load and click.

Of course this isn’t true; but, it is amazing the number of people that come to our offices proudly proclaiming that they no longer need our services. They have QuickBooks!

QuickBooks is designed to offer someone with little or no accounting background the ability to record payables and pay bills, and record sales with their related receivables. It is the electronic version of the “check stub” checkbook and the “expandomatic” file folder. In skilled hands, however, it can be more. The software allows business owners to design a chart of accounts with subcategories. This makes it possible to create financial reports by location or product or both. It has a basic inventory management system that can be tied to the billing system. These are nice features, but they have limitations. The payroll system is similar in that it offers a good basic payroll preparation process with payroll tax calculations.

Does this mean that we are anti-QuickBooks? Absolutely not. We encourage our clients to use QuickBooks with our assistance. As CPAs, we want our clients to enter as much data as possible after we set up their chart of accounts and teach them how to properly use the product. When properly used, QuickBooks will offer a good solution for their financial management system.
But the basic QuickBooks program has limitations. It is not designed for a high volume of transactions or multiple users. If the number of simultaneous users exceeds three, you need to start looking for other options. If your inventory and product costing is becoming more complex, then you need to look elsewhere. In short, when your needs become for demanding, you need to look elsewhere. But where should you look?

Depending on your business, you may want to look at QuickBooks Enterprise Solution. This is a more robust version of QuickBooks. Enterprise is better suited to handle multiple users and handle higher volumes of transactions. We have moved clients to the Enterprise Solution product with good success.

Enterprise Solution also has limitations. While it handles more users and more transactions, it still does not handle the specialty accounting areas well. If your business needs are moving in this area, then you are going to have to get your checkbook out. In all likelihood, you will be moving to some type of modular accounting system. In modular systems, you buy the general ledger package and add to that module. Typical installations include billing and accounts receivable, inventory and cost control, payroll and payroll reporting. In a retail environment, you would also add a point of sale module. Each module has its own installation requirements and is priced according to complexity. Sage Software’s MAS 90 is a popular move-up option. As we said earlier, be prepared to write a check. While QuickBooks Enterprise with installation will run about $3,000, the MAS 90 product with installation and training will be an additional $10,000 or more. Once you pass MAS 90 or its competitors, then you get into the expensive custom designed software. These are usually six figure packages that require constant maintenance.

Our message today is that you will need to seek the accounting software that solves your problem. Trying to save money may leave you with too little computing power. Just throwing money at the problem may not create the financial system that you need. We recommend that you steer clear of modules that provide little benefit for the investment. Choose your software wisely. The good news is that there are solutions for every financial system.

TO FIRE OR NOT TO FIRE - What To Do About Troublesome Clients

I recently came across an article in WebCPA about clients who are pains-in-the-you-know-whats (PIAs). Their word, not mine. The author supports the belief that you shouldn’t fire these clients, you should charge them more. I tend to agree. Dealing with rude or impatient clients can certainly be exhausting. However, these people are nonetheless paying clients!

Have you ever been to a restaurant and asked for several substitutions on your order? Did the wait staff grumble or complain? Probably not. They probably just nodded and informed you that it would cost slightly more for the substitution. Did this make you want to leave the restaurant? I doubt it! The restaurant made more money and you left satisfied.

On the other hand, if the staff had grumbled, complained, or otherwise treated you with disrespect, you probably wouldn’t have been as satisfied. In fact, you’d likely never return to that restaurant. You might even tell friends and family about your negative experience, which could prevent them from eating there as well.

This scenario can occur in any type of business. My accounting firm took on a client several years ago who would fall into the PIA category. This client failed to bring in necessary documents when asked, was slow in responding to inquiries, and made our job much harder. Rather than fire this client, we explained the situation and increased his monthly rate. The client didn’t flinch.

You see, he knew he was hard to work with. In fact, he knew that it would be hard to find the same level of service for the same price from some other firm. He’s happy, we’re happy and our bank account is happy.

Moral of the story: Add in the PIA factor when giving price quotes.

LeAnn Carlson