Wednesday Tax Tip #23 - IRS loses

In a big tax case that has received little notoriety, the IRS lost a tax case on insurance company demutualizations.

First some background. Many big name insurance companies were "owned" by the policy holders, also known as mutual ownership.

In the late 90's early 2000's, many big insurance companies (John Hancock, Prudential, Western & Southern, etc.) "demutualized" their ownership. Meaning, they gave stock to the policy holders based on their policies and premiums paid over time.

When the stock holders sold that stock the IRS argued that the entire amount of proceeds was fully taxable as a capital gain since the taxpayer did not "pay" anything for the shares.

On it's face I believed that was incorrect because different policy holders received differing number of shares. In my mind, they must have "paid" for the shares otherwise everyone would have received the same number of shares.

Well an ornery accountant in Minnesota took on the IRS and won.

If you own shares of an insurance company as a result of a demutualization, check out his site and it may give you some insight as to how to go about reporting the sale of those shares.

Check with your accountant if you've already filed a return and claimed a full capital gain on the return to see what your recourse is.

Wednesday Tax Tip #22 - IRS mileage rate

As a result of soaring fuel prices, the IRS has increased the mileage rate to .585/mile effective 7/1/08.

This is probably a good time to remind taxpayers that you need documentation to claim this rate.

At a minimum, this documentation should include the following.

Date
Trip ( From/To )
Number of miles
Reason for Trip

If you need any additional information regarding your business use of an auto, please call me at 513-683-0520 or email at gtvcpa@yahoo.com.

Wednesday Tax Tip #21 - Estimated Payments

If you forgot to mail your 2nd quarter estimated payment to the feds or the state, now is a good time to get those in, albeit late.

Like all payments in the government, late payments are better than no payments. In the case of estimated payments, a late payment penalty may be assessed for what amounts to interest from the time the payment was due to the time it was actually received.

So minimize any penalty and get those payments in ASAP.

Wednesday's Tax Tip #20 - Stimulus checks

If you should have received your stimulus check by now and have not. The IRS has established a place to check on the status of your check.

Click the link below and you may be able to find out the check's status.

IRS Stimulus Check Status

Personal financial tip #18 - 10% off gas purchases

I came up with a unique way to drop 10% off of the price of gasoline.

Right now many of the larger chain grocery stores (Meijer & Kroger) are offering to add 10% on a gift card with your government stimulus, check.

Simply purchase a card for $300 or $600 (roughly the price of an SUV refill) and the store will ad $30 or $60 on top of that. Then simply use that card at the gas stations of those stores.

Stay tuned for your latest in consumer savings tips.

Business Tip # 17 - Capital

A while back, we did a piece on how the bank's establish the credit worthiness of a small business loan or the "Five C's of Credit".

Following up this week we'll go over Capital.

Capital is the built up reserves a business holds. Capital can be liquid or not.

Many banks will attempt to evaluate your liquid capital; your current assets (cash, accounts receivable, inventory) less your current liabilities (accounts payable, accrued expenses, short term debt obligations).

Depending on the business, a well capitalized company will have a current ratio (current assets divided by current liabilities) of at least 2 to 1. Meaning that the company has $2 in current assets for every dollar in current liabilities.

A prudent banker becomes concerned if this ration deteriorates over time.

For instance, if a company's current ratio is less than 1.0 to 1, it indicates that the company does not have the resources to pay it's current debt obligation. In addition, it could indicate that the company has a good deal of uncollectable receivables and/or obsolete inventory that cannot be sold.

Review your current ratios over time and notice your company's trends. it may tip you off as to why your feeling a liquidity pinch.

Wednesday's Tax Tip #19 - IRS Tax Processing

Not so much a tax tip this week, but an interesting item.

Hat Tip. TaxProf

2008 FILING SEASON STATISTICS
Cumulative through the weeks ending 5/18/07 and 5/16/08
Individual Income Tax Returns	2007	2008	% Change
Total Receipts	129,150,000	143,138,000	10.8%
Total Processed	119,827,000	130,342,000	8.8%
E-filing Receipts:
TOTAL	77,076,000	86,347,000	12.0%
Tax Professionals	54,932,000	59,975,000	9.2%
Self-prepared	22,145,000	26,372,000	19.1%
Web Usage:
Visits to IRS.gov	142,282,000	205,654,000	44.5%