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%

Wednesday's Tax Tip #18 - Rebate checks

If you are wondering where your rebate check might be here is a schedule of the release dates.

If you had your 2007 federal income tax refund direct deposited, you rebate check will direct deposited.

Last two SSN digits:	Payments will be transmitted no later than (and received by the end of the day of):
00 through 20	May 2
21 through 75	May 9
76 through 99	May 16

If you did not have a direct deposited refund you schedule will be as follows.

Last two SSN digits:	Payments will be mailed no later than (and received a few days after):
00 through 09	May 16
10 through 18	May 23
19 through 25	May 30
26 through 38	June 6
39 through 51	June 13
52 through 63	June 20
64 through 75	June 27
76 through 87	July 4
88 through 99	July 11

If you have any questions about your individual circumstance , please email me at gtvcpa@yahoo.com

Business Tip #16 - Who are you?

Several years ago, I read an article about economics of Formula One racing and was stuck by a quote from the head of Tag Heuer, the high end watch maker.

Roughly quoting, "we probably spend too much in advertising through Formula One but we do it because that's who we are".

I'm not a believer in frivolously spending money on expenses but I was struck by his belief in "that's who we are".

So if you own a business do you know "who you are?"

I often preach about having a vision that runs throughout your organization, from employees to vendors to customers. You'll find, in the most successful small businesses, a community that is united by that business.

Some questions to ponder as it relates to your business.

1) Who is your "ideal" customer?
2) If you had to communicate to these customers face to face, where would you go to "bump into them"?
3) If your business were to support one charity that all of your customers would support, what charity would it be?

I like to tell people that many of my clients are the people who will pay you in ducks and chickens, which is fine with me because that works with my personality. But if I want to meet more of those people as prospects; I'd be wasting my time going to a formula one race. I'd be better served heading to a NASCAR race.

When you start to ask these types of questions, a certain theme starts to develop. With that theme, your selection of vendors becomes clearer, how you find the "right" employees becomes clearer, etc.

I'm often use the example of "mob" attorneys who end in trouble. More often than not it starts with something innocent; like defending a gangster with a DUI charge. But that person brings in his buddy who's in trouble, then another. The next thing you know, you're going to parties populated with gangsters.

Eventually that attorney gets wrapped up in a mess. All because he never really questioned where his business was headed.

So if you want to really make your business go, know who you are!

Wednesday's Tax Tip #17 - Rebate schedule

Here is a schedule of when the government rebate checks will be sent out.

Please note, if you had your 2007 tax refund direct deposited, this rebate will be direct deposited.

Wednesday's Tax Tip #16 - Capital Gains

Often times, taxpayer's are afraid to sell a stock for fear of triggering a capital gain.

In general the tax implication should be one of the last issues you consider when sell a capital stock. As I like to tell my clients, I would much rather have you pay capital gains tax on income than deduct losses.

Here is the decision making rationale I believe the owner's of capital assets should consider.

Can I make more money leaving my investment where it at or is there an investment where it will earn more?

For instance, assume you have a stock that you paid $15,000 for and now it's worth $24,000. you're decision should negate the $9,000 gain to date. The investment question should be, where can I invest that $24,000 where it will earn more? Maybe you decide to keep it where it's at because you like the long term prospects of the industry/company.

Maybe you decide there's a better place to invest that money, in which case you sell. But if you decide to hold on to that stock because you will have to pay $1,350 in capital gains tax, you may find that it costs you more money.

Let's assume that investment, now worth $24,000, drops to $22,000, you have just lost $2000 in real dollars, just because you didn't want to pay the capital gain; and you still have the capital gain tax.

Ideally, you would analyze your investment portfolio continually to maximize your gains. But time makes that impractical.

I would recommend that you corner your broker or account manager on a quarterly basis and review your portfolio and adjust your investments accordingly.

Hopefully, you've got quite a few capital gains, it means you're making money.

Personal financial tip #17 - Getting rich

So you want to get rich?

Just perusing our client base, you will find that there is one common theme among our wealthiest clients. That theme? CONSISTENCY.

Most of our wealthiest clients live in nice but modest homes and rarely moved. Most of them work(ed) steady jobs with little transition. Most had little in terms of marital transition (divorces & marriage). Few waste their money on "toys" such as boats or high end autos.

But all of them did one thing, steadily saved.

In fact, very few of them had/have high paying corporate jobs. You would be surprised at how many of our wealthiest clients are school teachers; a testament to the lack of career transition.

We are all bombarded by messages in our society telling us we can have it all. But I've seen it time and time again that people who chase wealth in a Don Quixote like fashion end up poorer than those who simply have a plan and work the plan, dollar by dollar.

Wednesday's Tax Tip #15

So far this tax season, I've had two clients take distributions from retirement accounts to cover debt issues.

A word for the wise, avoid doing this at all costs.

First, typically when people take money from an retirement account (IRA's, SEP's, SIMPLE's) they will typically have the payor withhold a flat 20% for income tax. This is just an estimate of the tax consequences not the actual tax on the distribution.

For example, if you are in the 15% tax bracket, you will have 15% in income tax plus an additional 10% excise penalty for the withdrawal. You're effectively 5% under withheld on that withdrawal.

In addition, a particularly large distribution may throw you into the 25% tax bracket, thus resulting in 25% federal tax plus the 10% excise penalty.

But we're still not quite finished, you also have state income tax to pay on said withdrawal. In Ohio, I advise clients to factor roughly 5% for state tax (but it can be as high as 6.55%).

Now, you not only have issues around debt but you also have the compounded problem of a tax debt.

So before you yank any funds from a retirement account you should

1) Analyze your personal financial situation. If you are simply prolonging an eventual bankruptcy filing, don't add to it by creating more debt with a big tax bill. In addition, a bankruptcy attorney may be able to keep those assets from being seized.

2) Talk to an accountant about the actual tax impact of such a withdrawal. You may be able to lessen the tax burden with some effective planning.

3) Be ready to pay the additional tax on any distributions.

During my career, I've seen way too many people add to already stressful financial situations with some unwise handling of retirement accounts. Talk to a professional and avoid the same pitfalls.

Personal Financial Tip # 16 - IRS rebate

Normally, I would put information on the upcoming tax rebate on the tax tip page.

However, in the news there has been a reporting of fraud in conjunction with rebate so I would like to address this here.

First, to be eligible for the rebate, you must file a 2007 tax return. The information place on that return will be the information used for the rebate. You do not need to send any additional information to the IRS.

No one from the IRS will contact you or request information from you in an email or phone call.

Second, if you direct deposit an IRS refund check, the rebate check will also be direct deposited. If your refund check was mailed, your rebate check will be mailed.

Third, you are not required to file a return if you owe no taxes. However, you are required to file a return in order to qualify for the rebate.

From the IRS website.

Starting in May, the Treasury will begin sending economic stimulus payments to more than 130 million households. To receive a payment, taxpayers must have a valid Social Security number, $3,000 of income and file a 2007 federal tax return. IRS will take care of the rest. Eligible taxpayers will receive between $300 to $600 if single or $600 to $1,200 if married filing jointly. Millions of retires, disabled veterans and low-wage earners who usually are exempt from filing a tax return must do so this year in order to receive a stimulus payment.

But there are more details to know about. Find out more here and visit this page regularly for the latest updates.

So the bottom line is to file a return and the IRS will take care of the rest. Give no personal information to anyone requesting it.

Business Tip #15 - What's your niche?

I've written about this in the past but it's worth reviewing.

As a business, you need to operationally position yourself as one of three operational niches.

1) Low cost provider

2) Product/Service Innovator

3) High quality product/service provider

Too often, small business owners try to straddle the line between low cost provider and high quality provider. But the two are divergent operational goals.

As a small business owner, you typically do not have the economies of scale to offer the cheapest rates for products and services. In addition, many people are willing to pay a premium for personal service.

What if your just getting going and you find you need to low ball the cost of your product and service to get the work?

Resist the temptation and ask yourself this question. Do I really want these people to be beating me up on price all the time? Because trust me... they will.

Personal Financial Tip # 15 - Telemarketers

If you registered on the National Do Not Call Registry, not that the numbers you put into the system only last for five years.

If you were someone that input that information early on, your five years are just about up.

To continue your block on telemarketers click here.