Q. I am a small business owner and we are having a terrible time with our cash flow. To make matters worse, we have not been able to fund our retirement account for the last couple of years. What can I do? I am so in the dark.
A. I have been giving a lot of thought to your cash flow and to the retirement question that you posed. I really think the best thing we can do is to measure exactly where we stand financially to determine what course of action to take. If we can get your books up to date, then we can determine what the break-even point of sales is for you. Once we have measured that number, we can determine what steps need to be taken to make sure that we have the cash flow necessary to prosper.
Don’t forget, there are five ways to have more profits and therefore, more cash flow:
• More clients (referral and marketing programs)
• Come in more often (pre-book)
• Spend more when they come in (retail and ad on services)
• Increase prices
• Cut expenses (except accounting) --A little humor there
Regarding the retirement plan, that really depends on cash flow. Lately, many of my clients have been putting off contributions to retirement plans and working on business growth and debt retirement.
Let’s get the books caught up-to-date and analyze. Remember--"What you can measure…you can manage.”
Tuesday, August 9, 2011
WONDERING ABOUT DEPRECIATION ON A USED TRUCK AND ESTATE LAWS
Q. Two questions: First, I am thinking of purchasing a used truck. How much depreciation can I take? Secondly, I have heard talk about estate laws changing in 18 months. What is the deal?
A. Regarding the truck…Does the truck weigh over 6,000 pounds? The weight of the truck makes a difference on the depreciation.
The estate tax question is a tough one. The problem is, if the current rules are not extended, we go back to the rules 10 or so years ago, and there will be estate tax due on anything over $1 million. Currently, that number is $5 million per husband and wife and what the first to die does not use, flows over to the survivor. In essence, a couple has $10 million to work with.
Most experts feel that there is no way that the government will allow the estate tax floor to fall back to the $1 million level, but who knows. The problem is that to balance the 10-year budget, they work the estimated estate taxes in based on the lower level.
A. Regarding the truck…Does the truck weigh over 6,000 pounds? The weight of the truck makes a difference on the depreciation.
The estate tax question is a tough one. The problem is, if the current rules are not extended, we go back to the rules 10 or so years ago, and there will be estate tax due on anything over $1 million. Currently, that number is $5 million per husband and wife and what the first to die does not use, flows over to the survivor. In essence, a couple has $10 million to work with.
Most experts feel that there is no way that the government will allow the estate tax floor to fall back to the $1 million level, but who knows. The problem is that to balance the 10-year budget, they work the estimated estate taxes in based on the lower level.
Sunday, August 7, 2011
CELEBRITY TAX PROBLEM OF THE WEEK
Singer R. Kelly Faces IRS Tax Lien
The Internal Revenue Service has reportedly filed a tax lien against singer, R. Kelly for $837,442.59. The IRS filed the tax lien against the Grammy-winning R&B singer-songwriter in January 2010, according to the Detroit News. Last month, however, the IRS lifted an earlier tax lien for $1,036,858.
The singer, whose full name is Robert Sylvester Kelly, is also facing a $2.9 million foreclosure lawsuit against his mansion outside Chicago, according to Crain’s. He allegedly has not made mortgage payments since June of last year. Kelly has had many hit songs including, "I Believe I Can Fly," for which he won three Grammy Awards in 1998. He has also produced and remixed songs for a number of artists, including the Isley Brothers, Luther Vandross and Vanessa Williams. However, he has also faced arrests and lawsuits for disorderly conduct, sex with underage girls, assault and other incidents.
Saturday, August 6, 2011
ADOPTING A CHILD AND WHAT TO EXPECT TAX-WISE
Q: What are the tax benefits and expenses when adopting a child?
A: There are two tax benefits available to offset the expenses of adopting a child. For 2011, you may be able to claim a refundable credit against their federal tax for up to $13,360 ($13,170 for 2010) of “qualified adoption expenses” (see below) for each adopted child. The credit is reduced (phased out) if your income exceeds certain limits (see discussion below).
Qualified adoption expenses. To qualify for the credit or the exclusion, the expenses must be “qualified adoption expenses.” These are the reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses (including amounts spent for meals and lodging) while away from home, and other expenses directly related to the legal adoption of an “eligible child” (defined below).
Qualified adoption expenses don't include expenses connected with the adoption of a child of a taxpayer's spouse, expenses of carrying out a surrogate parenting arrangement, expenses that violate state or federal law, or expenses paid using funds received from a federal, state, or local program. Expenses that are reimbursed by an employer don't qualify for the credit, but benefits provided by an employer under an adoption assistance program may qualify for the exclusion.
Expenses in connection with an unsuccessful attempt to adopt an eligible child before successfully finalizing the adoption of another child can qualify. Expenses connected with a foreign adoption (i.e., one in which the child isn't a U.S. citizen or resident) qualify only if the child is actually adopted.
Taxpayers who adopt a child with special needs will be deemed to have qualified adoption expenses in the tax year in which the adoption becomes final in an amount sufficient to bring their total aggregate expenses for the adoption up to $13,360 for 2011 ($13,170 for 2010). They can take the adoption credit or exclude employer-provided adoption assistance up to that amount, whether or not they had $13,360 for 2011 ($13,170 for 2010) of actual expenses.
Eligible child. An “eligible child” is a child under the age of 18 at the time the qualified adoption expense is paid. A child who turned 18 during the year is an eligible child for the part of the year he or she is under age 18. A person who is physically or mentally incapable of caring for his or her self is also eligible, regardless of age.
Special needs child. This refers to a child who the state has determined cannot or should not be returned to his parents and who can't be reasonably placed with adoptive parents without assistance because of a specific factor or condition, e.g., ethnic background, age, membership in a minority group, medical condition, or handicap. Only a child who is a citizen or resident of the U.S. can qualify as having special needs.
When to claim the credit or take the exclusion. If the qualifying expenses are paid before the year the adoption becomes final, the credit is claimed for the year after the one in which the expenses are paid. If the expenses are paid in the year the adoption becomes final or in a later year, the credit is claimed for the year in which the expenses are paid. For example, say $3,000 was paid in 2009, $2,000 in 2010, and $4,000 in 2011, when the adoption becomes final. The taxpayer claims a $3,000 credit in 2010 (for the 2009 expenses). The $2,000 of 2010 expenses and the $4,000 of 2011 expenses are combined to be claimed in 2011. In the case of a foreign adoption, the credit may not be taken until the year in which the adoption becomes final.
Adoption credit is refundable. The adoption credit is a refundable credit. So, if the sum of your refundable credits (including any adoption credit) exceeds your tax liability, the excess amount is an overpayment that can be refunded to you.
Phase out for high-income taxpayers. The credit allowable for 2011 is phased out for taxpayers with adjusted gross income (AGI) over $185,210 and is eliminated when AGI reaches $225,210. (For 2010, the phase-out begins at $182,520 and is completed at $222,520.) The 2011 credit is reduced by a percentage equal to the excess of AGI over $185,210 divided by $40,000. (For 2010, the credit is reduced by a percentage equal to the excess of AGI over $182,520 divided by $40,000). For example, say taxpayers who could otherwise claim a $2,000 credit have an AGI of $195,210 in 2011. Their $195,210 AGI minus $185,210 equals $10,000, and $10,000 divided by $40,000 is 25%. Accordingly, the taxpayers “lose” 25% of their credit ($2,000 times 25% is $500) and can only claim a credit of $1,500. (Special rules for determining AGI apply in some cases.) The phase out rules for high-AGI taxpayers apply for the exclusion as well.
Child's taxpayer identification number required for credit or exclusion. The IRS can disallow the credit and the exclusion if a valid taxpayer identification number (TIN) for the child if not included on the return.
Adopted child may qualify for dependency deduction, other tax benefits. Your legally adopted child will qualify as your dependent if the other dependency tests are met, e.g., you provide more than half of the child's support. Even if the adoption isn't yet final, the child will be your dependent if he or she was placed with you for legal adoption by an authorized placement agency and was a member of your household for at least part of the year. Special requirements apply to adoptions of foreign children who aren't U.S. citizens or residents. Once the child is your dependent, you will qualify for the dependency deduction and for other tax benefits, such as the child tax credit.
I can help you to make sure that you get the full benefit of the substantial tax savings available to adoptive parents.
A: There are two tax benefits available to offset the expenses of adopting a child. For 2011, you may be able to claim a refundable credit against their federal tax for up to $13,360 ($13,170 for 2010) of “qualified adoption expenses” (see below) for each adopted child. The credit is reduced (phased out) if your income exceeds certain limits (see discussion below).
Qualified adoption expenses. To qualify for the credit or the exclusion, the expenses must be “qualified adoption expenses.” These are the reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses (including amounts spent for meals and lodging) while away from home, and other expenses directly related to the legal adoption of an “eligible child” (defined below).
Qualified adoption expenses don't include expenses connected with the adoption of a child of a taxpayer's spouse, expenses of carrying out a surrogate parenting arrangement, expenses that violate state or federal law, or expenses paid using funds received from a federal, state, or local program. Expenses that are reimbursed by an employer don't qualify for the credit, but benefits provided by an employer under an adoption assistance program may qualify for the exclusion.
Expenses in connection with an unsuccessful attempt to adopt an eligible child before successfully finalizing the adoption of another child can qualify. Expenses connected with a foreign adoption (i.e., one in which the child isn't a U.S. citizen or resident) qualify only if the child is actually adopted.
Taxpayers who adopt a child with special needs will be deemed to have qualified adoption expenses in the tax year in which the adoption becomes final in an amount sufficient to bring their total aggregate expenses for the adoption up to $13,360 for 2011 ($13,170 for 2010). They can take the adoption credit or exclude employer-provided adoption assistance up to that amount, whether or not they had $13,360 for 2011 ($13,170 for 2010) of actual expenses.
Eligible child. An “eligible child” is a child under the age of 18 at the time the qualified adoption expense is paid. A child who turned 18 during the year is an eligible child for the part of the year he or she is under age 18. A person who is physically or mentally incapable of caring for his or her self is also eligible, regardless of age.
Special needs child. This refers to a child who the state has determined cannot or should not be returned to his parents and who can't be reasonably placed with adoptive parents without assistance because of a specific factor or condition, e.g., ethnic background, age, membership in a minority group, medical condition, or handicap. Only a child who is a citizen or resident of the U.S. can qualify as having special needs.
When to claim the credit or take the exclusion. If the qualifying expenses are paid before the year the adoption becomes final, the credit is claimed for the year after the one in which the expenses are paid. If the expenses are paid in the year the adoption becomes final or in a later year, the credit is claimed for the year in which the expenses are paid. For example, say $3,000 was paid in 2009, $2,000 in 2010, and $4,000 in 2011, when the adoption becomes final. The taxpayer claims a $3,000 credit in 2010 (for the 2009 expenses). The $2,000 of 2010 expenses and the $4,000 of 2011 expenses are combined to be claimed in 2011. In the case of a foreign adoption, the credit may not be taken until the year in which the adoption becomes final.
Adoption credit is refundable. The adoption credit is a refundable credit. So, if the sum of your refundable credits (including any adoption credit) exceeds your tax liability, the excess amount is an overpayment that can be refunded to you.
Phase out for high-income taxpayers. The credit allowable for 2011 is phased out for taxpayers with adjusted gross income (AGI) over $185,210 and is eliminated when AGI reaches $225,210. (For 2010, the phase-out begins at $182,520 and is completed at $222,520.) The 2011 credit is reduced by a percentage equal to the excess of AGI over $185,210 divided by $40,000. (For 2010, the credit is reduced by a percentage equal to the excess of AGI over $182,520 divided by $40,000). For example, say taxpayers who could otherwise claim a $2,000 credit have an AGI of $195,210 in 2011. Their $195,210 AGI minus $185,210 equals $10,000, and $10,000 divided by $40,000 is 25%. Accordingly, the taxpayers “lose” 25% of their credit ($2,000 times 25% is $500) and can only claim a credit of $1,500. (Special rules for determining AGI apply in some cases.) The phase out rules for high-AGI taxpayers apply for the exclusion as well.
Child's taxpayer identification number required for credit or exclusion. The IRS can disallow the credit and the exclusion if a valid taxpayer identification number (TIN) for the child if not included on the return.
Adopted child may qualify for dependency deduction, other tax benefits. Your legally adopted child will qualify as your dependent if the other dependency tests are met, e.g., you provide more than half of the child's support. Even if the adoption isn't yet final, the child will be your dependent if he or she was placed with you for legal adoption by an authorized placement agency and was a member of your household for at least part of the year. Special requirements apply to adoptions of foreign children who aren't U.S. citizens or residents. Once the child is your dependent, you will qualify for the dependency deduction and for other tax benefits, such as the child tax credit.
I can help you to make sure that you get the full benefit of the substantial tax savings available to adoptive parents.
Thursday, August 4, 2011
A DUMB LAWSUIT
And Here’s the Kicker~ On her way home from having dinner and drinks, Melanie from Chicago got angry with her husband and tried to kick him. Instead, she crashed through the window of a beauty salon, suffering several deep cuts. So naturally, she sued the salon. Part of her argument: The store’s plate glass window, which fronts a sidewalk, “frequently traveled by intoxicated pedestrians,” should have been stronger.
Source: wbbm780.com(Chicago)
Wednesday, August 3, 2011
SEVEN STEPS FOR FAMILY BUSINESS SUCCESS
Imagine this: A business owner wakes up in the morning and heads to the office. When he walks in, he finds that there is no inventory, no employees, and no equipment. As he looks around, he realizes that he forgot to pay the bills, forgot to make orders, didn’t advertise and therefore, had no clients.
Although this is a pretty silly story, it is very similar to what happens when a business owner fails to prepare a succession plan.
Creating a succession plan is not that difficult once you realize how important communication is. The following are the seven steps that we discuss with clients as we talk about family business succession.
1. Communication
2. Business and estate planning
3. Leadership development
4. Trust
5. Personal resilience
6. Retirement investment planning
7. Non-key employees
All seven of these items need to be discussed as part of your succession plan. With good communication and realization of the hurdles that you need to take twice, a business plan can flourish. If you need some assistance with a family succession plan, please contact our office.
Although this is a pretty silly story, it is very similar to what happens when a business owner fails to prepare a succession plan.
Creating a succession plan is not that difficult once you realize how important communication is. The following are the seven steps that we discuss with clients as we talk about family business succession.
1. Communication
2. Business and estate planning
3. Leadership development
4. Trust
5. Personal resilience
6. Retirement investment planning
7. Non-key employees
All seven of these items need to be discussed as part of your succession plan. With good communication and realization of the hurdles that you need to take twice, a business plan can flourish. If you need some assistance with a family succession plan, please contact our office.
Tuesday, August 2, 2011
HOW LONG SHOULD YOU RETAIN YOUR TAX INFO?
Conventional wisdom says to hold on to tax documents for three years after filing a return, said Liz Weston in the Los Angeles Times. But the conventional wisdom isn’t always so wise. Many assisted-living facilities, for example, want to see five years’ worth of financial statements from prospective residents. Medicaid also looks back five years into would-be recipients’ financial pasts to ensure that people aren’t “artificially impoverishing themselves by transferring money or assets” before they apply for coverage. And the IRS can demand up to six years of records from taxpayers suspected of underreporting income. If you’ve already shredded your documents, most banks, brokers, and credit card companies will provide copies—for a fee.
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