ALERT – Congress to grab your cash!

Initial reports from the commission to cut the deficit would seem to want to fix things on the backs of the middle class.

1. No apparent cuts in funding to welfare programs or Earned Income Credits.
2. No apparent desire to make the Federal budget smaller.
3. Wants to limit or eliminate mortgage interest deductions (home owners)
4. Deductions for Child Care (Mostly effects lower and middle income and single parents)
5. Eliminate tax breaks for capital gains (investors)
6. Reduced Military Spending
7. Gas Tax (regressive for lower income earners)

Things that won’t really help the budget now or in the near future

• Limiting malpractice suites (has nothing to do with government deficits)
• Raise the Retirement age for Social Security to 68 by 2050. Currently you have to be almost 67 to be “fully” retired under Social Security.

You need to write to your congressman and Senator today. Just because the election is over, it doesn’t mean your responsibility is done.

Source: Bloomberg.com

15 Signs You'll Be Rich

1. Attractive men earn 9 percent more money than unattractive men; attractive women earn 4 percent more money than unattractive women.

2. Individuals with above-average IQs are only 1.2 times as likely as individuals with below-average IQs to have a high net worth.

3. People who were popular in high school earn 10 percent more than people who weren't.

4. Graduates of Princeton University and Dartmouth College earn salaries 162 percent higher, on average, than graduates of East Texas Baptist University.

5. For every three inches taller than average they are, women earn 5 to 8 percent more money than women of average height; men earn 4 to 10 percent more for every extra three inches in height.

6. Being married and staying married increases your net worth by 77 percent.

7. Drinkers earn 10 to 14 percent more money than abstainers.

8. Those who earned undergraduate degrees in petroleum engineering earn salaries over four times as high as those who earned undergraduate degrees in child and family studies.

9. Each one-unit increase in a typical young person's body mass index is associated with an 8 percent reduction in wealth.

10. 22 percent of American households headed by persons of Russian ancestry have a net worth of $1 million or more.

11. 21 percent of white Americans and only 2 percent of African Americans and 8 percent of Hispanics buy real estate or make other investments at young ages, which economists consider a key predictor of future wealth.

12. Blond women earn 7 percent more money than non-blonds.

13. Nonsmokers' net worth is about 50 percent higher than that of light smokers, and more than twice as much as that of heavy smokers.

14. 36 percent of American children born to parents in the uppermost economic bracket remain there as adults.

15. 54 percent of American children who are born to parents in the uppermost economic bracket and who then earn college degrees remain at the top.

Source (thedailybeast.com)

2011 retirement adjustments

IRS provided the TY11 cost of living adjustments for pension plans and other retirement-related programs. The limits for the most part remain the same as in TY10 or increase modestly. Of most interest to EAs are:

• The contribution limit remains $16,500 for employees participating in § 401(k), 403(b), or 457(b) plans (as well as the federal government's Thrift Savings Plan).
• The age 50-plus catch-up contribution limit under those plans remains at $5,500.
• The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are active participants in an employer-sponsored retirement plan and have modified adjusted gross incomes (AGI) between $56,000 and $66,000 (same as 2010). For married couples filing jointly, in which the spouse who makes the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phase-out range is $90,000 to $110,000 (up from $89,000 to $109,000). For an IRA contributor who is not an active participant in an employer-sponsored retirement plan and is married to someone who is an active participant, the deduction is phased out if the couple's income is between $169,000 and $179,000 (up from $167,000 and $177,000).
• The AGI phase-out range for Roth IRA contributions is $169,000 to 179,000 for married couples filing jointly (up from $167,000 to $177,000 in 2010). For singles and heads of household, the income phase-out range is $107,000 to $122,000 (up from $105,000 to $120,000). For a married individual filing a separate return who is an active participant in an employer-sponsored retirement plan, the phase-out range remains $0 to $10,000.

“Don’t be evil” Is paying low taxes evil?

News came out the Google, inc. only pays taxes at a 2.4% rate. The corporate tax rate in the US is 35% which is higher than almost all the other industrialized countries. So an industry of reducing your taxes is the game many companies play. These games use to be played by individuals in the U.S. when tax rates were as high as 70%. The tax rates were lowered to 39.6 (later to 36%) under Reagan but the loop holes were also taken away.

In the Bloomberg article (Bloomberg.com) the flow of franchise fees to Ireland, then the Netherlands and finally ending up in Bermuda create the 3.1 billion dollar reduction in taxes for the technology giant. By the way the whole flow of income was approved by the IRS in 2006 so there is nothing illegal about this under current U.S. tax laws.

The motto of Google is “Don’t be evil” and the article challenges that by including a quote by a professor of accounting, “flying a banner of doing no evil, and then they’re perpetrating evil under our noses,” can only be a legitimate question if you believe that all income is the governments.

When Google pays low taxes, it frees up more money for investment (paying other people and increasing their taxable income), increase dividends (which are taxable) or just pay their own employees more money (more taxable income) so it will eventually make its way to an income tax return and the government, just not in a way that progressives or anti-corporate types would like it to.

Obtaining Copy of Return or Transcript

The IRS has a new toll-free number for requesting free transcripts - 800.908.9946. You can follow the message prompts, or complete Form 4506T, Request for Transcript of Tax Return, and mail it to the address listed in the instructions. To obtain an exact copy of a previously filed and processed tax return with attachments (including Form W-2), complete Form 4506, Request for Copy of Tax Return, and mail it to the address listed in the instructions, along with a $57 fee for each tax year requested. Copies are generally available for returns filed in the current year and previous six years.

Army Post Accounting always provides a copy of your tax return with your fees. If you need an extra copy there is an additional $20 charge (W-2's included)

515.285.5544

Changes in business tax laws for 2010

On September 27, President Obama signed into law H.R. 5297, the Small Business Lending Funding Act. The tax title of this bill, the Small Business Jobs Act of 2010 (the Act), includes a number of important tax provisions for businesses large and small, and changes for individuals as well. The following are some of the more notable provisions:

• Doubles the §179 expensing limit to $500,000, phasing out at $2 million for tax years beginning in 2010 and 2011, and allows the expensing of up to $250,000 of leasehold, retail, and restaurant improvements.
  
• Reinstates 50% bonus depreciation for qualifying property acquired and placed in service in 2010, and authorizes an increased first-year depreciation limit by $8,000 for passenger autos that are "qualified property."
  
• Doubles the allowable tax deduction for start-up expenditures to $10,000.
  
• Removes cell phones from the definition of listed property.
  
• Allows self-employed individuals to deduct health insurance costs in paying their 2010 self-employment tax.
  
• Allows small businesses to carry back general business tax credits to offset their taxes from the previous five years, and count those credits against their Alternative Minimum Tax (AMT) liability.
  

Don’t let the government pick your pockets

As the leafs turn colors, there has been very little to report for important tax changes in 2010. Most of the changes deal with business and less to do with individuals.

The major credit available is for energy property. Furnace, waterheater, windows and other “Energystar” labeled items can still get up to $1500 of non-refundable credits on your 2010 return. It will end with this year and if you used it up on the 2009 there is no more available. Bring your receipts this winter.

Roth IRA is also a possible benefit you can take advantage of this year. If you convert this year you can defer the tax until 2011 & 2012. Then it grows tax free after that time. Check with your investment advisor for the details.

The Check (refund) is not in the mail

Americans receiving payments for Social Security, unemployment insurance, veterans benefits, IRS tax refunds, railroad retirement, and government benefits will now find the money automatically deposited into their personal bank accounts. Americans without bank accounts can get paid using the Treasury Department's Direct Express Debit MasterCard program.

Why the shift to direct deposits? Two reasons:

1. it will be easier and faster for consumers to get paid and,
   
2. it will save taxpayers money - an estimated $303 million over the first five years and about $120 million each year after that.
   

For instance, despite repeated attempts to get recipients to convert to electronic payments, the Treasury Department still mails out more than 136 million benefit checks each year. Now, as part of President Obama's effort to eliminate waste and modernize government for taxpayers, that will change.

The Treasury published a notice of proposed rulemaking in the Federal Register to begin a 60-day period of public comment. Once the final rule is published, the administration will roll out the changes with a public education campaign.

The new rule will primarily take effect in March 2011, with a few exceptions that will not take effect until March 2013.

This will propably not effect the 2010 tax season (Jan-April 2011)

Odds & Ends

1. Medicare $250 checks will begin being sent mid-June.
   
2. Starting July 1st the 10% excise tax on indoor tanning services begins. If you pay a separate fee for tanning, either to a business or at part of your Gym you will be subject to the tax. If your Gym offers it as an “included” service there will be no extra tax and as always any medical reasons will not be subject to the tax or the “spray-on” services.
   
3. As of 6/22/10 there will be no extension of the closing date for the First Time Homeowners Credit. You will need to close by June 30th, 2010. You do however, have until April 15th, 2014 to amend or file for the credit.
   
4. Processing Time:
   1040 Paper Return – 12 wks
   1040X (Amended) – 12 wks
   1040 e-file – 3 wks
5. The IRS will either charge or pay 4% interest on underpayments or overpayments.
   
   Need to do a “Mid-Year” tax check up? Give a call, no charge.
   
   Army Post Accounting 515.285.5544

Conversion to ROTH IRA

There are several options on converting a traditional IRA to a ROTH. You can split the tax over two years. Even if you are married and both convert. Check with your tax professional for the best situation for you.


Married Filing Joint filing status, both taxpayers convert their traditional IRA to ROTH. May they make separate elections on how to pay the tax? One spouse would include in income on the joint return the full amount of their conservation and pay all the tax in 2010 and the other spouse would include in income 1/2 of conservation in 2011 and 1/2 of conservation in 2012 and pay the tax in 2011 and 2012.

Updates to come.

Tax Preperation industry changes

Earlier this week H&R Block announced it was closing 400 of its company offices out of the 8,500 they operate in the US. This comes after a 5.5% drop in revenue for this last tax season. But a decrease in revenue is not the only issue facing the tax prep industry many banks are pulling out of the “Refund Anticipation Loan” (RAL) program as states are passing legislation to limit interest fees on short term loans. This effected Jackson Hewitt in February when it lost about half it its ability to generate these loans and its revenue dropped dramatically (final numbers not yet announced) and its stock dropped 52%. Jackson Hewitt has 723 company owned offices and 5,778 franchise offices. On the upswing of the “Big 3” is the third place Liberty tax which reported an 8% increase in returns in its 62 company offices and 2,664 franchise offices.

The story not being told in the media is that the IRS passed new regulations for “Paid Preparers” beginning this fall, people being paid to prepare tax returns must have passed a test and take continuing education classes each year. Despite this only CPA’s and E.A.’s (Enrolled Agents) can represent tax payers before the IRS.

The industry has evolved from local preparers, to large national prepares who offer quick returns and quick refunds, but at a high price. The average return for those “Big 3” is $188.00 with the preparer only making $10 to $15 dollars per hour and they can do 2 returns per hour for the simpler returns. Now many returns are being prepared on line or with software like turbo tax. These are options for low income or simple returns less than $50,000 per year. However, if you need advice or have a more complicated return with business expenses or investments a trained preparer is best.

I would anticipate that the “Big 3” will raise their rates to offset the loss of volume instead of improving service and inform people of the importance of their services. That is why I am always looking to improve services like “Accountant-on - Call” for small business who can’t afford monthly services, free notary services for clients, quick turnaround on returns, year around service and prices that are not only about 45% less than the “Big 3” but about 15% below local prices for paid preparers that have offices and not out of their homes.

For a free consultation give us a call at 515.285.5544 or e-mail me at chris@1600armypost.com

Confessions of a Tax Preparer

I have been professionally preparing tax returns for 9 years. Averaging between 900 and 1000 personal tax returns each year and another 100 corporate/partnership & non-profit returns, I am exposed to a lot of personal and professional circumstances that wanted me to write/blog about what is really going on with our financial health at the ground level.

Some general stats of my clients through April 15th, 2010:

1623 returns prepared (company-wide)

4 over $200,000 (.2% vs. 2.4% nation)
127 over $100,000 < $200,000 (7.8% vs. 9.4% nation)
212 over $75,000 < $100,000 (13.06% vs. 8.2% nation)
338 over $50,000 < $75,000 (20.8% vs. 13.6% nation)
186 over $40,000 < $50,000 (11.46% vs. 7.8% nation)
235 over $30,000 < $40,000 (14.48% vs. 10.3% nation)
521 under $30,000 (32.1% vs. 47.40% nation)

As you can see my client base is very “middle-class” only about 15% owed additional taxes with their return and most of them were self-employed business owners who had not made enough estimated taxes during the year.

We Americans are in just as crappy shape financially as our government. Too much debt, whether it is credit cards or mortgages and car loans that are underwater, we have been in a bad spot for years. The good thing about this recession is that it has pushed many over the cliff and they can now get their act together.

I use to be one of those that said, “I will pay all my debt” but after the last 18 months I challenge that belief. The game of credit card interest rates is one area that is completely made up in its logic.

Your credit score, which is used to determine your “riskiness” of default and is used to determine your interest rates and is used by other industries like car insurance to set rates, are based on this: The amount of available credit as a percent of your total credit line. So if you have $10,000 of total credit and have a balance of $2,000 you are a good risk. If you have $100,000 in credit but a balance of $60,000 you are a riskier credit so your score is lower and your rates are higher. What is wrong here is your total income and assets. You could make only $15,000 a year have a debt of $2,000 and be in serious trouble to pay it, however, if you make $150,000 per year and have net assets of $250,000 you would still be seen as a credit risk as your income and assets have no effect on your credit score.

Over the last 18 months I’ve had 4 accounts closed (two I had not used in a long time) and initially I was okay with that as I did not use them. However, the effect was to drop my credit report 50 points and making me appears to be a credit risk. I do not pay late and our balances over all were going down and our personal income was going up.

If you were thinking of dumping your credit cards, just tell the collection agent that you have been talking to a lawyer that usually puts them on red alert. If you can get the money to negotiate, do it. Don’t worry about them losing money, Citibank and Bank of America have a lot of taxpayer money and they are doing almost nothing to help their clients who are in trouble. Just be ready for your credit score to go down.

If you do bail on the credit cards do expect a 1099-C “cancellation of debt” and it is income to you. If I loaned you a hundred bucks then said forget it. It is income to you, so it is taxable. But the tax on $5,000 is a lot less than paying the $5K.

Use this time to put yourself into better financial health. People seem to understand as they too are struggling and will not think badly of you as they might have in the past. However, our government seems to just keep on spending and push programs that will cost a lot of money over the next decade. I am afraid that if it doesn’t stop voluntarily it will be forced to by lenders and taxpayers as there will be no money to find and no money coming into the government and it will collapse.

The best tax credits:
Child tax credit – The good part is that it helps families making under $60,000 pay very little tax. The bad part is that it doesn’t help families making over $106,000 as it starts to be limited. In Iowa, $106,000 is a lot of money, but a family of 4 in New York or San Francisco making that amount would still be struggling with the higher cost of living. It also confuses people because it ends the year the child turns 17 but they confuse it with claiming the child as a dependent which continues as long as you can prove 51% support.

Residential Energy Credit:
The good is that for the amount of tax it wipes out is equal to a lot of taxable income. $1500.00 for an average family would like having a kid or reduce your taxable income by $10,000. The bad thing is that salesmen don’t understand that you have to have tax to pay to get the credit. I had a client that spent $4,000 on a furnace and had not taxable income so they didn’t get the credit.

The most unknown credit that can be used to help everyone:
There is a retirement credit for people who put money into an IRA or 401K and make less than $50,000. It can credit back as much as 50% of their retirement money to them. It is a sliding scale so those making more get less of a credit and ends at $50K. However, if this was used to “privatize” the retirement system, I could put money away like Pres. Bush had proposed, and it would be effectively funded by the money I paid to social security. It would need to take the limits off income restrictions. But if one makes $100,000 and paid in $12,600 in social security (half you, half the employer) you could receive a credit of $5,000 (5%) too offset that investment effectively privatizing your retirement. You can’t make any claims on the SSI and the rest goes to pay for those that are currently in the system and over time you phase out the system and everyone has to privately fund their retirement or elect to pay in to the SSI.

The most misunderstood concept:
Extensions on filing are just that, an extension to file, not an extension to pay! If you owed $6,000 in taxes last year and you think you will owe the same but just haven’t got the info together, pay the $6,000 to avoid penalty and interest. If you send nothing you will just be hit with all the penalties. If you don’t have the cash, file (avoid the non-filing penalty) and set up an installment agreement. You can always pay it off faster.

The VAT (Value added Tax)
This idea is bouncing around and Mike Huckabee is a fan of it. The problem with it is this. If you eliminate the income tax and just have a national sales tax like the VAT, only consumers will pay tax. The poorer you are the larger amount of consumption you participate in and why people are in debt. Huckabee’s program also had items that would be taxed and Items that wouldn’t be taxed. Well all that creates is lobbing opportunities to make your product “non-taxable” and the whole reason for the system was to eliminate that stuff.

Also, to offset the poor people paying a higher amount of taxes for their income level, the government would send everyone $400 a month! EVERYONE, you, me and Warren Buffett! This does two things, 1) sends money to people who don’t need it and 2) gets every use to relying on the government for money!

Finally,
People don’t want to pay taxes and will go out of their way, some legal, some illegal to do that. In my opinion most people don’t make enough to worry about avoiding taxes. I also believe that paying taxes is a sign of wealth and my making your business or life about “avoiding taxes” you are really “avoiding wealth”. What government needs to do is make taxes the cheapest cost of business or life and people will be okay with paying it.

Chris Mendelsohn © Army Post Accounting

Why it is important to use a professional

The IRS is changing so that paid preparers are regulated and tested. Enrolled Agents have been the only certification issued by the IRS/Treasury department since the Civil War. Starting in 2011 if you go to a paid preparer they will have to be on file with the IRS and have passed one of two tests and take continuing education.

It is then not too surprising that IRS Commissioner Douglas Shulman doesn’t prepare his own returns. While interviewed on C-SPAN last Sunday Mr. Shulman said, “I've used one for years. I find it convenient. I find the tax code complex so I use a preparer," (C-SPAN Video Link)

The point is that if an IRS Commissioner can’t keep up with changes what chance do you have? Typically the software you can buy will cost between $49 & $69 for e-filing a Federal and State Return. Although you can use these effectively, it can take 2 hours to complete the Q&A portion of the program. Beginning at $75 you can hire one of our professionals to compete your return in as little as 30 min.

The great part is that if there is a problem or letter in October we are still here. You can’t ask the box for answers on letters from the IRS.

Call today and refer a friend to us today. 515.285.5544

Accountant on-call program

Army Post Accounting
1600 SW Army Post Rd.
Des Moines, IA 50315

Professional’s phone: 515.285.5544

Professional’s e-mail: chris@1600armypost.com


Army Post Accounting announces new “Accountant on-call” service for small businesses


Chris Mendelsohn President of Army Post Accounting, located at 1600 SW Army Post Rd., announced that with a lot of businesses needing help with their accounting, but may not have the resources to pay for a monthly bookkeeper; there is a need for a service that is inexpensive and a way to avoid problems with the IRS down the road.

For the yearly fee of $250.00, which can be paid in 10 monthly payments of $25.00 or a one-time discounted payment of $225.00, you get a lot of value.

“Accountant on-call” Includes:

24 questions per year. (24 hour turnaround time on answers)
Your 2009 or 2010 Personal tax return free with full payment.
Unlimited Notary Services.
Discounted bookkeeping fees.
$50.00 for a Computer Cleaning & Windows update.
Other discounted fee based services also available.
Weekend availability for member’s questions.

To set your appointment please call Army Post Accounting at 515-285-5544
http://www.1600armypost.com/