Common Sense

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Currently, business’ have to give a 1099 to anyone that  has provided them with services in excess of $600, who is not a corporation.  In 2012, this is set to change to providing a 1099 to everyone that provides goods and services, corporation or not, with a value over $600 for the year. You should check out www.paymentsavy.com if you are interested in high risk merchant processing.

It was heartening that the President, in his state of the union speech, addressed the need to so something about this law that was included as a kicker in the health reform bill that was passed last year.  How this measure was ever allowed to be included and passed in the first place, just shows how ignorant some legislators truly are.  The administrative burden this is going to put on small business is onerous.  At a time when job creation is so important, why anybody would think that this is a good idea just baffles me.  Trying to get rid of it was previously attempted in the recent lame duck session of congress, but was shot down because of the potential revenue involved. 

Small business is the backbone of this country and to create measures that would stifle it makes little sense.  If congress wants increased revenues to pay back our mounting debt and to balance the budget, they would be better served by stimulating small business, so they may become more profitable and thereby paying more tax, and of course hiring more workers who in turn would stop having to be on the dole and would be paying taxes on their earnings. 

Seems like common sense to me.  I quesss that’s why I’m not a political.

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Be the first to comment - What do you think?  Posted by RLH - January 29, 2011 at 9:59 am

Categories: Commentary, Tax   Tags: , , , ,

A Different Look at Retirement

Saw an article today that kind of hit home in that it’s something that has been on my mind of late. 

Due to circumstances that have come up lately in my life, it’s become apparent that I will not be retiring anytime soon.  The thing about it is that when I think about it, it is not that big a deal.  Even though there are certainly days when I wish that retirement was a reality, I am coming to the realization that I will always be doing work of some sort.  I have a lot of hobbies and interests, but I doubt if I’m left with doing these things on a full time basis, I will become bored.  So I’m thinking that it’s okay to keep working, at least to some degree.  With that realization, the pressure to save, save, save, has lessened and has given me a fresh look at the present.

The point that I’m getting at is that make sure you take a look at your expected use of time in retirement, not just the money side of things.

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Be the first to comment - What do you think?  Posted by RLH - January 18, 2011 at 10:53 pm

Categories: Financial Planning, Retirement   Tags: , ,

Small Business Tax Bill

On September 27, 2010 the President signed into law the Small Business Tax Bill that includes $12 billion in tax cuts for small business and a $30 billion lending fund to aid credit availability for small firms.  

Some of the key provisions include: 

For the past couple of years taxpayers purchasing new were allowed to deduct 50% of the cost in the first year.  This provision has been extended for assets purchased and placed into service in 2010.

The ability to immediately deduct the cost of equipment purchased and placed into service, better known as the Sec 179 deduction has been increased to $500,000 for 2010 and 2011, an increase over 250,000 and $25,000 respectively.  Included in this provision is the ability to deduct $250,000 of the cost of qualifying leasehold improvements, restaurant improvements and retail improvements.  Qualifying leasehold property is normally written off over 15 years, so this one really excites me. 

Start-up expenditures are defined as expenses paid or incurred in connection with investigating or creating an active trade or business, which would be deductible if paid or incurred in connection with the operation of an existing trade or business. Under prior law the first $5,000 of these costs were able to be deducted in the first year the business starts operating, with the remaining amounts written off over 15 years.  With the new law the first year amounts increase to $10,000.

General business credits which normally could be carried back one year and then forward if unused can now be carried back 5 years and not be subject to the alternative minimum tax.  Always good to be able to go back and get back taxes that were paid in previous years. 

Current law allows business owners to deduct the cost of health insurance in arriving at adjusted gross income.  The new law now allows this deduction to become a business deduction for the purpose of computing 2010 self employment (social security) taxes.  $10,000 in health premiums saves $1,530.

 There are several other tax provisions, but the above are what I feel are the key provisions.  Also included in the bill are various SBA and small business loan provisions, including changing the SBA guarantee on 7(a) loans from 75% to 90%, that are designed to help business’ obtain capital.  We shall see.

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Be the first to comment - What do you think?  Posted by RLH - September 28, 2010 at 9:44 pm

Categories: New Developments, Tax   Tags: , , , ,

What’s Your Number? – Part 1

A couple months ago, I was watching the NCAA basketball tournament and noticed an ING commercial that poses the question,“Do you know your number?” Everybody in the commercial was carrying around numerals representing the number that they needed to retire.  I meant to write a post at the time, addressing the “number,” but never got around to it.  Well, I saw the commercial again while watching the U.S. Open golf tournament.  I guess they are trying to scare us couch potatoes by revealing to us how inadequate our savings are.  

The numerals being carried around by those in the ING ad ranged from $675,000 to upwards of $2,000,000, and the majority of the numbers were north of $1,000,000.  I particularly enjoy the guy trimming his hedge, whose number was a gazillion bazillion.  That’s my number too.  With that kind of savings, I might be able to make it on the strategy professed by financial gurus:  they start by taking 4% a year and then increasing it every year by the inflation rate strategy.  Never mind that I would die with most of my savings intact, but at least my kids will be happy. 

Yes, I am certainly exaggerating, but my point is this – nowhere is it written that you can only live off the earnings of your investments.  Yes, even though the kids will disagree, you may spend down your principle.  You certainly don’t want to outlive your money, but there is a balance somewhere out there that needs to be found.   

Indeed, is very important that you know your number.  It is the key to all retirement planning (as I will explore in future postings). Just make sure that it is realistic for your individual situation.

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Be the first to comment - What do you think?  Posted by RLH - July 27, 2010 at 8:40 pm

Categories: Financial Planning   Tags: , ,

Choice of Accounting Method

What method of accounting do I use when keeping my books, and does it make any difference?  Unfortunately, a lot of small business owners probably don’t even know that there are a variety of choices to make regarding different methods of accounting.  However, to me, the method used is a very important decision which hinges on what information you are trying to get from your books. 

If you are a business owner that only sees your accountant once a year at tax time, then you are probably going to use the “cash basis” method of accounting. Simply put, accounting on the cash basis means that you report income when you get the money and you report expenses when you write the check.  It is the simplest and most cost effective way to keep your books, so if you don’t necessarily keep a close eye on your books throughout the year, this might be the best method for you.  The problems that I see with cash basis accounting are the distortions that can be caused by payment timing.

My feelings, though, are that unless your business is very simple, you are usually much better off using the “accrual basis” method of accounting.  As an accountant, one of the things that you learn in school is the principle of “matching.”  Matching means that you match expense with the income that it pertains to.   The accrual method of accounting does a much better job of matching than the cash basis method does.  Simply speaking, with the accrual method, you report income when you earn it, whether or not you have received payment.  With expenses, you report them when they are incurred, again whether you have paid the bill or not.  Also, when you have inventory (such as in a retail situation), the accrual basis is necessary because you need to match the cost of what you are selling to the sale that you are making. 

An accrual set of books will not be as easy to maintain as a cash basis set because of the adjustments that need to be made. However, because of matching income with expenses, the accrual method gives you a much better gauge as to how your business is performing.  Thus, your books become the management tool they are intended to be.

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Be the first to comment - What do you think?  Posted by RLH - June 9, 2010 at 8:34 pm

Categories: General Business   Tags: , , ,

Health Care Conundrum

Educate me please.

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Be the first to comment - What do you think?  Posted by RLH - March 5, 2010 at 9:32 pm

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The Emergency Fund

Not having, could sabotage an otherwise solid financial plan.

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Be the first to comment - What do you think?  Posted by RLH - February 20, 2010 at 10:46 am

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New Car – To Buy of Lease?

I personally wouldn’t lease, just because I have a tendency to hang on to vehicles till after they are paid off , but depending on your use habits it can make sense.  If you like to trade in every few years and you don’t put on a lot of miles on a vehicle it might work okay.

 Supposedly lease payments are less than paying a loan, but this is not always the case.  One thing that you need to be aware of is that if you put a lot of miles on a vehicle and you stretch out the financing for too many years, you could find yourself upside down.  On the flip side, if you lease, you could run into penalties if you drive too many miles. So again, personally I would buy and finance for 5 years or less. 

Tax wise, if you use the vehicle for business it really doesn’t make a lot of difference over the long run whether you buy or lease, because one way or the other you will write off the cost of the vehicle.  One difference would be that if you owned the vehicle your depreciation deduction is higher in the early years, whereas with a lease you are essentially writing off straight line.  This difference in the early years is not so much with a car.  It becomes more pronounced with a truck or SUV which allows greater front end depreciation deductions.  Operating costs are the same regardless of the way you finance the vehicle.

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Be the first to comment - What do you think?  Posted by RLH - February 13, 2010 at 9:22 pm

Categories: General Business, Tax   Tags:

If a tree falls

If a tree falls and no one is around, does it make a sound?

Reminded of this , when thinking about the recent snow storms on the east coast.  Washington shut down by storms.  Did anyone notice?

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Be the first to comment - What do you think?  Posted by RLH - February 12, 2010 at 9:21 pm

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Inheritance or Gift

Knowing the difference between gifts and inheritances could save thousands.

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Be the first to comment - What do you think?  Posted by RLH - at 9:16 pm

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