Are there tax breaks for you in the new law?

You're probably aware that President Obama signed the
"American Recovery and Reinvestment Act of 2009" on
February 17. But have you checked to see what the new
law contains that could benefit you? Here's a quick
look at the law's tax changes and who's likely to
benefit.

MAKING WORK PAY CREDIT

Employees and self-employeds may qualify for a tax credit of up to $400 for singles and $800 for couples to be paid through lower withholding on paychecks or in a lump sum when tax
returns for 2009 and 2010 are filed. The credit phases out if income exceeds $75,000 for singles and $150,000 for couples.

FIRST-TIME HOMEBUYER CREDIT

Those who buy a first home before November 30, 2009, may be eligible for a refundable credit of 10% of the purchase price, up to a maximum of $8,000. Again income phase-outs fall at
$75,000 for singles and $150,000 for couples. If the home isn't sold for at least three years, the credit does not have to be paid back.

PAYING FOR COLLEGE

The Hope education credit is renamed the "American Opportunity Tax Credit," is increased to $2,500, and applies to four years of college, not just the first two. In addition, 40% of
the credit is now refundable. Income limits apply. Another break for those paying higher education expenses: In 2009 and 2010, funds in Section 529 college plans can be used tax-free to pay for students' computers, computer technology, and Internet fees.

NEW CAR DEDUCTION

Those who buy a new vehicle from February 17 through December 31, 2009, may take an above-the-line deduction for state and local sales and excise taxes on the first $49,500 of the vehicle's cost. In general, this includes new cars, SUVs, light trucks, motorcycles, and even motor homes. The income phase-out starts at $125,000 for singles and $250,000 for couples.

ntactOther provisions in the law raise the 2009 exemption
levels for the alternative minimum tax, make the first
$2,400 of unemployment benefits tax-free, and subsidize
health insurance premiums for those who lose their jobs.
For guidance in planning under these latest tax changes,
contact our office.

March 16th : Deadline to file Corporate Tax Returnfor  Year End corporations 

March 16th: Employers: Deposit Payroll tax for February if the monthly deposit rule applies. 

March 20th: Texas Sales Tax Returns & Payment due for Monthly Filers   

Can I Deduct That? A Guide To Uncommon Expenses

IT'S TIME TO trim the tax bill.

When it comes to taking deductions, most business owners know pretty well the expenses that the Internal Revenue Service considers "ordinary and necessary" for business. There are specific rules, for instance, on writing off vehicle costs. Ditto with equipment, furniture, inventory, retirement savings, home offices and professional fees paid to accountants, lawyers and consultants.

Not every legitimate business expense falls neatly into one of these categories, however. A growing number of business owners are turning to professionals outside of accounting or law for advice on everything from mediating partner disputes to boosting workplace productivity. Some health-conscious bosses are stocking office kitchens with healthy snacks for the staff or hiring personal trainers for staff fitness sessions. And some weary business owners often tack vacation days onto their business travels.

So how do you determine whether those expenses, especially those that also yield a personal benefit, are fair-and-square business deductions? "These are things that aren't specifically contained in the law, so you have to navigate and see if they've been barred or allowed or not yet talked about," says Barbara Weltman, a Millwood, N.Y., tax attorney and author of "J.K. Lasser's Small Business Taxes 2008."

If court rulings and IRS pronouncements don't offer much guidance, then it's time for what tax pros refer to as the "laugh test." Can you write off an expense without snickering about pulling one over on the IRS? "If there is a concern in the taxpayer's mind, that probably means it's not deductible," says Keith Hall, national tax advisor in Dallas for the National Association of the Self-Employed.

Here are some not-quite-textbook expenses, and how tax experts view them:

Fees paid to nontraditional advisors

Did you hire an efficiency expert for tips on time management? Or a speech expert for help on public speaking? As long as you can argue that the advice was appropriate and helpful for your business, you should be able to deduct the fee, according to Weltman. There are gray areas, however, when it comes to professionals (such as business coaches) who offer a blend of personal and work-related advice. In those cases, use common sense; if a coach focused on personal matters, then don't claim it as a business deduction, she says. One exception is when a family business uses a consultant to settle sibling disagreements or other strained family relationships that impair a company's management. Those fees are typically deductible, she says.

Boondoggles
If you tack a few extra days onto the end of a work trip for personal R&R, you can deduct many of your travel-related expenses, according to Hall. The primary purpose of the trip must be business, however, and the cost shouldn't be overly extravagant. If that's the case, you can deduct the costs of airfare, taxis and 50% of your business meals. You can even deduct some out-of-pocket personal expenses if a Saturday night stay makes your business trip cheaper.

Snacks, food, beverages and other office-kitchen supplies.

Whether they're healthy or not, small bites or drinks that you supply staff for free count as a deductible business expenses. But be careful not to be too generous, as the IRS might view meals, in particular, as part of your employees' compensation. "If you were to give your employee a free lunch every day, that's probably an example of something that would be taxable to the employee," says Steve Hurok, tax director at BDO Seidman in Woodbridge, N.J. In most cases, however, the IRS considers small food or drink items as a fringe benefit that's "de minimis," meaning it doesn't have to be added to wages because the value is minimal. For more on fringe benefits, see IRS Publication 15-B.

Trips to the gym.

Sorry, but even if those daily workouts make you more physically fit to run your company you can't write off those health-club costs. However, a business owner can deduct the cost of installing an athletic facility (such as a small gym) for employees as long as it meets three rules: the facility is operated by the employer; located on the employer's premises; and primarily used by employees, according to Hurok. 

Clothing.

Uniforms for owners or employees that carry the company's name or logo are deductible as a business expense. However, "you can't take a deduction for clothing if it's adaptable to street use," says Weltman. "If you are an attorney, and you buy a $3,000 suit to look good in court, you can't deduct it." A contractor, however, could safely write off the cost of steel-tipped boots, and a party clown could deduct the cost of a clown suit, she says.
Classes, workshops and conferences. Tuition, books and related educational expenses are deductible as long as they're directly related to your business, says Hall. A business owner who takes a class to help her maintain or improve her business skills is deductible. But an art class taken at a local community college to relieve stress won't fly with the IRS. "Even though it makes some intuitive sense," he says, "it's going to be considered a personal expense."
Meals. For wining and dining to be deductible, the primary purpose must be business, and someone else (such as a client or customers) must be present, says Hall. If you drive a long way to meet with a client and stop to buy a meal for yourself on your way home, that's not deductible, he says. But, in most cases, if you have dinner with that client, you can deduct 50% of the meal's cost as a business entertainment expense.
Music. In an effort to create a comfortable or creative work environment, a number of small businesses like to play soft background music. When that's the case, the cost of the stereo equipment can be deducted as a business expense, Weltman says.

If you have any questions about what might be deductible for your business or personal taxes give us a call.

Tax Change is Coming

Though Congress tried to extend some tax breaks for
businesses, it could not put the necessary legislation
together before adjourning for Thanksgiving. Congress
was able to pass a law authorizing seven more weeks of
unemployment benefits for out-of-work individuals (13
more weeks of benefits for individuals in states where
the unemployment rate is above 6%).

Tax Change is Coming  

A look at the provisions in the tax relief measure that
failed to pass will give you an idea of changes that are
very likely to occur, if not in a second lame-duck
session on December 8, then in 2009 when President-elect
Obama takes office. Here are the major provisions in the
proposed bill -

* Extension through 2009 of 50% bonus depreciation for
  the purchase of business equipment.

* Extension through 2009 of up to $250,000 first-year
  expensing for the purchase of business equipment.

* Easing funding requirements for pension plans to help
  cash-strapped businesses.

* Temporary suspension of required minimum distributions
  from retirement plans for those 70½ and older.

Congress is also set to create a stimulus package in
January comprised of tax cuts and some $500 billion in
federal spending on infrastructure over the next two
years.

Stay tuned for what is likely to be a year with multiple
changes to the tax code. Make it a priority to contact
us for tax guidance before you make important financial
decisions this year.

Business Planning during the Credit Crisis

The recent credit crisis is just a reminder of the importance and benefits of having a sound strategy that you can use to navigate through turbulent times. Don't hesitate to contact our office for objective guidance in helping you make intelligent financial decisions for the future of your business. In the meantime, below are some tips to help you assess your current financial condition and start re-thinking your business plan to face the current economic challenges.

1. Don't panic. It's difficult to make sound decisions if you do. To get a better sense of where you stand, begin by reviewing your cash position and anticipated cash needs. Are they in line with your business's short-term needs, goals and risk tolerance?
2. Take a fresh look at your monthly income and expenses. Have you been meeting your budgeted projections? How much of a drop in revenues can your business withstand and for how long? What are your cash-flow needs for the next 90 to 120 days? Or 120 to 180 days? Do you have sufficient cash reserves for the next 30 to 60 days?
3. Check with your lenders on the status of your credit lines. Are you in compliance with their terms? Will your bank renew their commitments at similar amounts, rates and terms?
4. Eliminate your reliance on credit by disciplining your spending.
5. Refocus on your balance sheet and how much credit you are extending to your customers.
6. If your credit lines are frozen or at their maximum limits, consider meeting with vendors and working out a schedule of partial payments that would allow continued delivery of critical materials and supplies.
7. Look into alternative types of financing. Some to be considered are loans on life insurance policies, loans from key customers that rely on your business for their materials and supplies or from labor unions, local development agencies or the U.S. Small Business Administration.
8. Keep an eye on your accounts receivable. Watch for new patterns of slow payments and follow up immediately. Review your largest and riskiest accounts to determine whether credit constraint or economic slowdown will affect their ability to pay you. Keep receivables aging current at all times.
9. Manage accounts payable more closely. Forfeiting early pay discounts may be more advantageous in preserving cash that may be needed for critical items. Keep payables aging current at all times because that's an important tool for managing cash.
10. Analyze your expenses and determine which ones can be controlled. Can you reduce spending in any areas to put less of a burden on your cash-flow needs? As necessary, communicate to staff/team members about the need to tighten spending. If you are a manufacturer, review inventory management practices. Are there opportunities to reduce your on-hand inventory? Service companies should make sure they're capturing all their billable hours and invoicing promptly. Have you billed all your contractual items? How about all your pass-through expenses, such as billable third-party services and travel and living expenses?
11. Consider ways to pass your increased costs (i.e., fuel expense) on to your customers.
12. Check the safety of any cash deposits you have. On October 3, 2008 the FDIC deposit insurance was temporarily raised from $100,000 to $250,000 per depositor through December 31, 2009. If you have more than $250,000 in any one bank, move the excess to another FDIC insured bank. Consider investments such as CDARs (Certificates of Deposit Account Registry) to spread the risk of short- to medium-term cash you may have invested in CDs.
13. Don't engage in panic selling of your investments. Make sure your portfolio is diversified and in accordance with your risk tolerance.
14. Come up with a plan NOW to respond to future declines in revenues, before they actually occur. Re-think your business strategies and update projections. Review your product/service lines to identify the most profitable items and determine how to leverage for future growth in profits.
15. Contact your good customers. Even casual discussions can lead to new business opportunities.
16. Review all your insurance coverage, particularly any from companies with weak balance sheets. Be careful not to surrender a policy, as securing new coverage might require underwriting that can affect your coverage.
17. Calm your employees' fears about how this crisis will affect the company, their jobs and their retirement or other benefit plans. Speculation and gossip are counterproductive, so it's better to address their concerns directly.

Finally, remain focused on your own advantages. Remember that:
* Small businesses have greater flexibility and can more easily adjust to changes in the economy than their larger counterparts.
* Small business owners can use the recent crisis as an opportunity to buckle down, refocus, assess and make their company more financially sound, disciplined and less reliant on credit.
During tough times, it's important to maintain communication with our firm, your trusted adviser. Remember that you are not alone. We know and understand your business and the challenges you face, and we can work with you to navigate these turbulent times. We can help you gauge your current situation in the wake of recent market events and create a sound business plan in response. Contact us today for expert advice on how to maintain your company's success.

Time's running out to reduce your 2008 tax bill

 

Early fall is the perfect time to take stock of your
tax situation for the year. You have enough information to produce a reasonably close estimate of your 2008 income and deductions, and there's still enough time left before year-end to make some tax-saving moves.

Here are a few possible tax-savers to consider.

* Avoid tax underpayment penalties by adjusting your
income tax withholding over the remainder of 2008. Withholding is treated as having been paid in evenly over the full year.

* Review your investment portfolio for year-end  offsetting of gains and losses. Don't forget that you can apply up to $3,000 of net capital losses against  ordinary income such as wages.

* Make retirement plan contributions up to the maximum  allowed. That's $15,500 to a 401(k) and $10,500 to a   SIMPLE ($20,500 and $13,000, espectively, if you're   50 or older). This year's IRA limit increased from   $4,000 to $5,000 (to $6,000 if you're 50 or older).

* Remember that the "kiddie tax" now applies to you if   your child has unearned income over $1,800 this year   and is under age 19 (under age 24 if a full-time   student).

* You have until December 31 to take any required
  minimum distribution from your retirement plans. If  you just turned 70½ in 2008, you can postpone a first  distribution until next April 1, but then you'll have   to take two distributions in 2009. 

The tax law changes so frequently that you could miss opportunities if you don't invest a little time in an annual review of your tax situation. Call us NOW if you would like to get together to discuss your tax-cutting options.

Have you planned your business equipment purchases for this year?

 

Depreciation for 2008

Economic Stimulus for Business

If you're planning to purchase business equipment, be aware of these two depreciation rules: You can expense $250,000 worth of new or used equipment purchased for your business this year, and you can take 50% bonus depreciation on new equipment purchases.

You can use both breaks this year, and the two benefits can even be combined on the same purchase. For example, you can use the expensing option on a piece of equipment
and apply bonus depreciation to the remaining cost if the property qualifies. Off-the-shelf computer software qualifies for both tax
breaks.

Plan your Purchases  

Plan your Purchases   As you plan your acquisitions, remember that both 50% bonus depreciation and the increased expensing election are available only for 2008. Also, the expensing benefit phases out once your total equipment purchases for 2008 exceed $800,000. For details and help in best utilizing
these tax breaks, give us a call.

IRS pumps up standard mileage rates

Due to rising gas prices, the IRS has increased the
"standard mileage rate" for business drivers in 2008.

The standard mileage rate is an IRS-approved shortcut.
Instead of tracking all the actual business expenses of
your vehicle, you can use the prescribed flat rate for
the year. But you still must keep detailed records of
every business trip.

The new rate of 58.5¢ per business mile - up 8¢ per
mile - applies to travel during the last half of this
year. For the first half, the previous rate of 50.5¢ per
mile still applies. In addition, you may deduct any
business-related parking fees and tolls.

EXAMPLE: You drive 1,000 business miles a month in 2008.
Over the course of the year, you incur $500 in related
tolls. For the first six months, you can deduct $3,030
(50.5¢ x 6,000). For the last six months, the deduction
increases to $3,510 (58.5¢ x 6,000). When you add $500
in tolls, your deduction for 2008 equals $7,040 ($3,030
+ $3,510 + $500).

Note that the IRS also increased its standard mileage
rate for medical and job-related moving expenses from
19¢ a mile to 27¢ a mile for the last six months of this
year. However, the rate for charitable driving, which is
set by law, remains at 14¢ per mile.

Proceed carefully: The new mileage rates are available
to many - but not all - drivers. Give us a call if you
need details on how the changes affect your situation.

About Porter & Company, CPA's

The staff of Porter & Company have been practicing in the Dallas/Fort Worth metroplex for over 30 years. We are focused on meeting the demands of small to medium sized businesses as well as the individuals behind the business. We have an extensive practice area of tax and business solutions to bring cost effective results to you and your company.