Newsletter

This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.

The American Recovery and Reinvestment Act (ARRA) of 2009 was signed into law by President Obama on February 17, 2009.

The bill is intended to provide a stimulus to the U.S. economy in the wake of the economic downturn.

The bill includes federal tax cuts, expansion of unemployment benefits and other social provisions such as domestic spending in education, health care, and infrastructure-including the energy sector.

It sets forth both short-term and long-term legislation to restore economic growth, create jobs and strengthen the American middle class.

But what does it mean to you?

Here are some key highlights of the tax relief for individuals:

• Payroll Checks Increase This Spring. The "Making Work Pay" Tax Credit will mean an additional $400 to $800 for many Americans. New withholding tax tables have been issued for employers, thereby increasing paychecks. This credit, however, begins to phase out for single taxpayers with an AGI of $75,000, or $150,00 for joint taxpayers.

• First-Time Homebuyer Credit Expands. Homebuyers who purchase in 2009 can get a credit of up to $8,000 with no payback requirement. For further information, see the article below titled First Time Homebuyer's Credit.

• Expansion of the Hope Tax Credit for College. The Hope Credit for college costs increases to $2,500 for 2009 and 2010 (from $1,800 in 2008). The credit is now allowed for 100% of the first $2,000 of qualified expenses and 25% of the second $2,000. Furthermore, the qualified expenses now include course materials (in addition to tuition and fees). The credit can now be claimed for up to 4 years (up from 2 years).

• Expansion of Low Income Tax Credits. More taxpayers will qualify for the Earned Income Tax Credit and Child Tax Credit in 2009 due to revisions in the phase out and qualifying income limits.

• Unemployment Compensation Tax Exclusion. In 2009, the first $2,400 a person receives in unemployment compensation benefits will be excluded from taxation.

• $250 for Social Security Recipients, Veterans and Railroad Retirees. The Economic Recovery Payment will be paid by the Social Security Administration, Department of Veterans Affairs and the Railroad Retirement Board.

• Money Back for New Vehicle Purchases. Taxpayers who buy certain new vehicles in 2009 can deduct the state and local sales taxes they paid.

• Home Energy Credit. Homeowners will benefit from extended energy saving credits when making their homes more energy-efficient in 2009 and 2010. Projects include energy efficient windows, doors, heating and air conditioning systems. The existing 10 percent tax credit for energy saving home improvements has been increased to 30 percent of a cost up to $1,500 and extends through 2010.

• Alternative Minimum Tax (AMT). The floor for the AMT calculation has been increased to $70,950 for joint filers in 2009.

New Recovery Package - Questions and Answers:

Taxpayers, like you, have many questions related to the American Recovery and Reinvestment Act of 2009, especially since the legislation was enacted while many taxpayers are working to file their 2008 tax returns. How will this new legislation affect you? Here are a few questions and answers to help guide you.

Q: Could the new law affect 2008 tax returns?

A: Generally, no. The new law does not have any major impact for the vast majority of individuals preparing their 2008 tax returns due April 15. Instead, these changes will largely impact 2009 tax returns filed next year, in 2010. Taxpayers should continue to prepare their 2008 tax returns as they normally would.

Note: There are a few limited areas in the law that could impact 2008 tax returns. For some small businesses, changes in the net operating loss provisions could affect 2008 tax returns. For first-time homebuyers, there is an expanded credit available on 2008 tax returns.

Q: Does this new recovery program have any impact on the recovery rebate credit for 2008 tax returns being filed now?

A: No. But the IRS reminds taxpayers and tax preparers to make sure they properly determine eligibility for the recovery rebate credit before they file their 2008 federal tax returns.

Given the current economic conditions, you may be faced with tax questions surrounding a job loss and unemployment issues.

Here's some answers:

Q: What if I receive unemployment compensation?

A: Unemployment compensation you received under the unemployment compensation laws of the United States or of a state must be included in your income. It is taxable income. If you received unemployment compensation, you should receive Form 1099-G showing the amount you were paid and any federal income tax you elected to have withheld.

Note: The American Recovery and Reinvestment Act will temporarily change the taxation of unemployment benefits for the 2009 tax year only. Under the new economic stimulus law, the first $2,400 of unemployment benefits received in 2009 will not be subject to federal taxes. The exemption will be reflected on tax returns filed in 2010.

Q: What if I lose my job?

A: The loss of a job may create new tax issues. Severance pay and unemployment compensation are taxable. Payments for any accumulated vacation or sick time also are taxable. You should ensure that enough taxes are withheld from these payments or make estimated tax payments to avoid a big bill at tax time. Public assistance and food stamps are not taxable. The IRS has updated a helpful publication which lists a number of job-loss related tax issues.

Q: What if I am searching for a job?

A: You may be able to deduct certain expenses you incur while looking for a new job, even if you do not get a new job. Expenses may include travel, resume and outplacement agency fees. Moving costs for a new job at least 50 miles away from your home may also be deductible.

Q: What if my employer goes out of business or in bankruptcy?

A: Your employer must provide you with a 2008 W-2 Form showing your wages and withholdings by January 31, 2009. You should keep up-to-date records or pay stubs until you receive your Form W-2. If your employer or its representatives fails to provide you with a Form W-2, contact the IRS and we can help by providing you with a substitute Form W-2. If your employer is liquidating your 401(k) plan, you have 60 days to roll it over to another qualified retirement plan or IRA.

If you have experienced a job loss and have questions, please call us. You need to be prepare for the tax consequences.

First-time homebuyers represent a significant portion of existing single-family home sales. The expansion in the first-time homebuyer credit will make it easier for first-time homebuyers to enter the housing market this year.

First time homebuyers have lots of options at their disposal to claim the new $8,000 first-time homebuyer credit for 2009 home purchases. For people who recently purchased a home or are considering buying in the next few months, there are several different ways that they can get this tax credit even if they’ve already filed their 2008 tax return.

Note: Taxpayers can claim the credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.

Under the American Recovery and Reinvestment Act of 2009, qualifying taxpayers who purchase a home by between January 1, 2009 and November 30, 2009 may receive up to $8,000, or $4,000 for married individuals filing separately. Taxpayers can claim the credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.

Further, under the Recovery Act, the earlier repayment requirements have been eliminated as long as the home is not sold within three years.

The amount of the credit begins to phase out for taxpayers whose modified adjusted gross income is more than $75,000 for single taxpayers, or $150,000 for joint filers. Taxpayers can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately.

The filing options to consider are:

• File an extension. Taxpayers who haven’t filed their 2008 returns but are buying a home soon can request a six-month extension to October 15. This step would be faster than waiting until next year to claim it on the 2009 tax return. Even with an extension, taxpayers could still file electronically, receiving their refund in as few as 10 days with direct deposit.

• File now, amend later. Taxpayers due a sizable refund for their 2008 tax return but are also considering buying a home in the next few months can file their return now and claim the credit later. Taxpayers would file their 2008 tax forms as usual, then follow up with an amended return later this year to claim the homebuyer credit.

• Amend the 2008 tax return. Taxpayers buying a home in the near future who have already filed their 2008 tax return can consider filing an amended tax return. The amended tax return will allow them to claim the homebuyer credit on the 2008 return without waiting until next year to claim it on the 2009 return.

• Claim the credit in 2009 rather than 2008. For some taxpayers, it may make more financial sense to wait and claim the homebuyer credit next year when they file their 2009 tax returns rather than claiming it now on their 2008 tax returns. This could benefit taxpayers who might qualify for a higher credit on the 2009 tax return. This could include people who have less income in 2009 than 2008 because of factors such as a job loss or drop in investment income.

As you can see, there are many options available to first-time homebuyers related to this credit. We are available to help you determine the best option for you.

Spring is a great time to clean out that growing mountain of tax and financial papers that clutters your home and office. Here's what you need to keep and what you can throw out without fearing the wrath of the IRS.

Let's start with your "safety zone", the IRS statute of limitations. This limits the number of years during which the IRS can audit your tax returns. Once that period has expired, the IRS is legally prohibited from even asking you questions about those returns.

The concept behind it is that after a period of years, records are lost or misplaced and memory isn't as accurate as we would hope. There's a need for finality. Once the statute of limitations has expired, the IRS can't go after you for additional taxes, but you can't go after the IRS for additional refunds, either.

The Three-Year Rule

For assessment of additional taxes, the statute of limitation runs generally three years from the date you file your return. If you're looking for an additional refund, the limitations period is generally the later of three years from the date you filed the original return or two years from the date you paid the tax. There are some exceptions:

• If you don't report all your income and the unreported amount is more than 25% of the gross income actually shown on your return, the limitation period is six years.

• If you've claimed a loss from a worthless security, the limitation period is extended to seven years.

• If you file a 'fraudulent' return, or don't file at all, the limitations period never begins to run. The IRS can, in fact, get you at any time.

• If you're deciding what records you need or want to keep, you have to ask what your chances of an audit are. A tax audit is an IRS verification of items of income and deductions on your return. So you should keep records to support those items until the statute of limitations runs out.

Assuming that you've filed on time and paid what you should, you only have to keep your tax records for three years, but some records have to be kept longer than that.

Remember, the three-year rule relates to the information on your tax return. But, some of that information may relate to transactions more than three years old.

Here's Checklist Of The Documents You Should Hold Onto.

1. Capital gains and losses. Your gain is reduced by your basis -- your cost (including all commissions) plus, with mutual funds, any reinvested dividends and capital gains. But you may have bought that stock five years ago and you've been reinvesting those dividends and capital gains over the last decade. And don't forget those stock splits.

   So you don't ever want to throw these records away until after you sell the securities. And then if you're audited, you're going to have to prove those numbers. So you'll need to keep those records for at least three years after you file the return reporting their sales.

2. Expenses on your home. Cost records for your house and any improvements should be kept until the home is sold. It's just good practice, even though most homeowners won't face any tax problems. That's because profit of less than $250,000 on your home ($500,000 on a joint return) isn't subject to taxes under tax legislation enacted in 1997.

   If the profit is more than $250,000 ($500,000 on a joint return), or if you don't qualify for the full gain exclusion, then you're going to need those records for another three years after that return is filed. Most homeowners probably won't face that issue thanks to the 1997 tax law, but better safe than sorry.

3. Business records. I must warn you: Business records can become a nightmare. Non-residential real estate is now depreciated over 39 years. You could be audited on the depreciation up to three years after you file the return for the 39th year. That's a long time to hold onto receipts, but you may need to validate those numbers.

4. Employment, bank and brokerage statements. Keep all your W-2s, 1099s, brokerage and bank statements to prove income until three years after you file or longer if you need to. Don't even think about dumping checks, receipts, mileage logs, tax diaries and other documentation that substantiate your expenses.

5. Tax returns. Keep copies of your tax returns as well. You can't rely on the IRS to actually have a copy of your old returns. I recommend my clients keep tax records for 6 years.

   The bottom line is that you've got to keep those records until they can no longer affect your tax return, plus the three-year statute of limitations.

6. Social Security Records. You will need to keep some records for Social Security purposes, so check with the Social Security Administration each year to confirm that your payments have been appropriately credited. If they're wrong, you'll need your W-2 or copies of your Schedule C (if self employed) to prove the right amount. Don't dump those records until after you've validated those contributions.

   You can confirm your payments and estimate your future benefits by filing Form SSA-7004 with the Social Security Administration. You can download the form, or apply online.

While it may bring you some psychological satisfaction to review your financial journey from poverty to wealth. But, if you still find some tax returns that were filed with Roman numerals, it's probably time to clean out your attic.

Cash is the lifeblood of any small business. Here are some tips to help ensure that your business maintains a sufficient cash flow to meet its financial goals and keep running efficiently:

Toughen up your credit policies. Review the payment terms you offer to customers and tighten them up if slow payment is a problem area for your business. For instance, how long are customers given to pay? What action will be taken if a payment is missed? Be sure your credit terms are communicated effectively to customers before transactions are entered into.

Tip: Consider requiring advance payments 'at least in part' for new customers.

Tip: For many businesses, a routine credit check should be performed before a sales or service transaction is entered into with a new customer.

Come up with a budget - and stick to it. Surprisingly, many small businesses do not engage in the budgeting process. A budget can be extremely effective in helping you keep track of whether cost- and revenue-related goals are being met. Depending on the size and complexity of the business, the budget process might be informal or formal, lengthy or simple. Projected revenues and expenses should be broken down by months.

Tip: If you don't already do so, budget for next year's revenues and expenses near the end of each year.

Tighten up billing. If collecting bills has become a problem for your business, you might want to consider increasing the intervals at which customers are billed--e.g., from three months to one month, or from one month to two weeks.

Tip: Review your accounts receivable weekly or even daily to make sure slow payers are not allowed to slide.

Are you looking for ways to avoid the last-minute rush for doing your taxes? Here are some stress relieving ideas to help you.

• Don't Procrastinate - Resist the temptation to put off your taxes until the very last minute. Your haste to meet the filing deadline may cause you to overlook potential sources of tax savings and will likely increase your risk of making an error.

• Don't Panic if You Can't Pay - If you can't immediately pay the taxes you owe, consider some stress-reducing alternatives. You can apply for an IRS installment agreement, suggesting your own monthly payment amount and due date, and getting a reduced late payment penalty rate. You also have various options for charging your balance on a credit card. There is no IRS fee for credit card payments, but the processing companies charge a convenience fee. Electronic filers with a balance due can file early and authorize the government's financial agent to take the money directly from their checking or savings account on the April due date, with no fee.

• Request an Extension of Time to File - But Pay on Time - If the clock runs out, you can get an automatic six month extension bringing the filing date to October 15, 2008. The extension itself does not give you more time to pay any taxes due. You will owe interest on any amount not paid by the April deadline, plus a late payment penalty if you have not paid at least 90 percent of your total tax by that date. Call us for a variety of easy ways to apply for an extension.

With the Child Tax Credit, you may be able to reduce the federal income tax you owe by up to $1,000 through 2010 for each qualifying child under the age of 17.

A qualifying child for this credit is someone who meets the following criteria:

1. Was under age 17 at the end of 2008

2. Relationship is your son, daughter, adopted child, stepchild or eligible foster child, sibling, or stepsibling or a descendant of any of these individuals

3. Is a U.S. citizen or resident alien

4. Support did not provide over half of his or her support and did live with you for more than half of 2008 (note that some exceptions to this criteria exist).

The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending on your filing status:

• Married Filing Jointly -- $110,000
• Married Filing Separately -- $55,000
• All others -- $75,000

Note: There is no change in these phase-out limits in 2009.

In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax you owe.

If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim some or all of the difference as an 'additional' Child Tax Credit. The additional Child Tax Credit may give you a refund even if you do not owe any tax. Additional Child Tax Credit is based on earned income in excess of $8,500 in 2008. For 2008, the total amount of the Child Tax Credit and any additional Child Tax Credit cannot exceed the maximum of $1,000 for each qualifying child.

Note: The American Recovery and Reinvestment Act of 2009 will temporarily reduce the earned income floor for the additional Child Tax Credit to $3,000 in 2009 (from the originally proposed $12,550).

You may claim the Child Tax Credit on Form 1040 or 1040A. Details on how to compute the credit can be found in Publication 972, Child Tax Credit or call us for help.

You should consider claiming tax credits for which you might be eligible when completing your federal income tax returns. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are refundable - taxes could be reduced to the point that you would receive a refund rather than owing any taxes. You should consider your eligibility for the credits listed below:

• The Earned Income Tax Credit is a refundable credit for low-income working individuals and families. Income and family size determine the amount of the credit. For more information, see IRS Publication 596, Earned Income Credit.

• The Child and Dependent Care Credit is for expenses paid for the care of children under age 13, or for a disabled spouse or dependent, to enable the taxpayer to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.

• The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.

• Adoption Credit: Adoptive parents may qualify for a tax credit of up to $11,650 in 2008 ($12,150 in 2009) for qualifying expenses paid to adopt an eligible child. The credit may be allowed for the adoption of a child with special needs even if you do not have any qualifying expenses. The adoption tax credit does have income phase-out limits, starting at $174,730 in 2008 (and $182,180 in 2009). For more information, see the instructions for Form 8839, Qualified Adoption Expenses.

• Credit for the Elderly or the Disabled: This credit is available to individuals who are either age 65 or older or are under age 65 and retired on permanent and total disability, and who are U.S. citizens or residents. There are income limitations. For more information, see IRS Publication 524, Credit for the Elderly or the Disabled.

We are living in a period of "accelerated change". Indeed, the ground does seem to be shifting beneath us almost faster than we can comprehend, so it's important to stay nimble in these difficult times.

One way you can do so is to closely manage your prices. In some cases you may need to ratchet your prices up to cover a commodity cost-spike. Or, you may want to offer special deals to your best customers to help retain their business.

In this article we'll discuss four methods you can use to manage prices (and change) within QuickBooks.

Create Discount Calculations

Studies have shown that it's far easier to get additional sales out of existing customers rather than from new customers. Targeted discounts are just one way to try to encourage your customers to buy more.

However, if you do offer a discount, don't just type over your standard prices on the QuickBooks invoice, create a discount calculation instead. This accomplishes two things:

• Your customers see on their invoice exactly how much of a break you've given them.
• You can track how successful your campaign was.

It's easy to set up a discount calculation:

• Choose Lists, and then Item List.
• Click the Item button, and then choose New from the menu (or press Ctrl+N).
• As shown in Figure 1, Choose Discount from the Type list.
• Assign an item name, complete the description field, and then enter an amount or a percentage.
• Choose an account from the list—you may wish to create a separate account so that you can easily track the amount of discounts that you've offered.
• Choose Tax or Non-tax to indicate whether the discount is applied before or after sales tax, and then click OK.

Figure 1: A discount item allows you to create and track percentage or amount based discounts.

Keep in mind that discounts only apply to the previous row of the invoice or sales receipt. To apply the discount to multiple items, you must create a Subtotal item:

• Choose Lists, and then Item List.
• Click the Item button, and then choose New from the menu (or press Ctrl+N).
• Choose Subtotal from the Type list, and then assign an Item Name and Description, as shown in Figure 2.

Figure 3 shows a multi-line invoice, along with a subtotal and a discount on all of the items.

Figure 2: A subtotal item allows you to apply a discount to multiple items on an invoice or discount.

Figure 3: Include a subtotal on your invoice when you wish to discount multiple items.

Use Price Levels

Price negotiations are becoming more prevalent and you may find that you have to offer a standard discount to one or more customers in order to keep their business.

In such cases, you might find the price level feature helpful, so that you don't have to remember to include a discount item on each invoice:

• Choose Lists, and then Price Level List.
• Click the Price Level button, and then choose New (or press Ctrl-N).
• As shown in Figure 4, assign a name to the price level, such as 10% Discount.
• QuickBooks Pro users can only establish Fixed % price levels, which are applied globally to all products. QuickBooks Premier and Enterprise users also have the option to create Per Item discounts, where you can selectively discount only certain items.
• Specify whether to increase or decrease item prices, and optionally choose a rounding method.

Figure 4: Price levels allow you to apply automatic discounts to everything a customer purchases.

Note: You can use price levels to increase or decrease prices.

Change Item Prices

Competitive or other pressures may mean that you need to globally change all of your prices at once. Fortunately, you can use the Change Item Prices feature to do so:

• Choose Customers, and then Change Item Prices.
• As shown in Figure 5, select an Item Type from the list, and then select the items you wish to change, or click the Mark All checkbox.
• Indicate a percentage or dollar amount to increase prices by. This can be based on the current price or current cost of the item. Enter a positive number to increase the price, or negative number to decrease the price.
• Click the Adjust button to see the impact of your changes in the New Price column, and then click OK to make the changes permanent.

Timesaver: You can also manually fill-in the New Price column if you prefer to make targeted adjustments to selected items. This is easier than manually opening each item one at a time.

Figure 5: The Change Item Prices feature allows you to adjust multiple prices at once.

Add a Surcharge

We're fortunate that gas prices are currently far less than were they were just a few months ago. However, who knows how far they may go this summer during peak driving season.

At some point you may need to consider adding a fuel or other type of surcharge to help recover costs beyond what you've factored into your existing prices:

• Choose Lists, and then Item List.
• Click the Item button, and then choose New from the menu.
• As shown in Figure 6, choose Other Charge from the Type list.
• Assign an item name, complete the description field, and then enter an amount or a percentage.
• Choose an account from the list, and then click OK. As shown, you may wish to create a separate account so that you can easily track the amount you earn from the surcharge.

Important: As with discounts, Other Charge items only apply to the preceding row on an invoice or sales receipt. Be sure to add a Subtotal item to your invoice if you want the surcharge to apply to multiple rows of your invoice or sales receipt.

Figure 6: The Other Charge feature allows you to compute fuel and other surcharges.

Review Your Retirement Plans
How much have you accumulated so far? How much do you need to retire comfortably at the desired date? Professional advice may be helpful in determining how much you should be saving and what the best investment vehicles are.

Inventory Your Non-Financial Assets
Perform an inventory of your non-financial assets (e.g., home, furniture, cars, personal belongings). Compare this inventory to your property insurance coverage. Is your insurance adequate for your assets? You may need a rider to your policy for certain items such as jewelry. If some assets are no longer in use, consider selling them or donating them to charity. You may be entitled to a deduction based upon the fair market value of the assets.

Review Budget vs Actuals
Compare March income and expenditures with your budget. Make adjustments as appropriate to your April expenditures. Make sure you have invested your planned savings amount for March.

Scheduled Estimated Tax Payments
Add the estimated tax payments for the year to your calendar so you don't overlook them later. You might want to attach the payment vouchers to your calendar with a paperclip.

Review Retirement Contributions
Review planned contributions for IRAs, SIMPLE Plans, SEPs and Keoghs for the preceding tax year. Professional advice should be sought to help you determine the maximum amounts deductible, and whether postponing return filing for the preceding year will help determine the amount and timing of the contribution.

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