When Father Tom Speaks....

Four Tax Breaks for the Entrepreneur

2011-03-06T18:14:00.004-05:00

Entrepreneurs have far more sophisticated needs for tax and retirement planning than any other type of client. Not only do these individuals have needs for themselves but, for their employees as well.

Here are 4 credits/deductions for the self-employed

Health Care Tax Credit - employers that pay at least half of their employees health care coverage can qualify for the credit. Employers with 10 or fewer full-time employees with an average annual wages of $25,000 or less will benefit most from the credit. The credit begins to phase out as the number of employees exceeds 10 and completely phases out at 25 employees with average annual wages of $50,000. The credit can be as much a 35% of the employers share of health-care costs. The credit is only available for a maximum of six years so, don't let this one slip by.
Self-Employed Health Insurance Deduction - self-employed persons can deduct health insurance premiums from gross income. This is a far better opportunity than the standard medical expense deduction found on Schedule A. If you itemize deductions, to the extent that your total medical deductions exceed 7.5% of your adjusted gross income, the excess will be the deductible on Schedule A. If your prospect uses the self-employed deduction, it won't matter whether or not they can itemize their deductions. Remember, this deduction is for premiums only. All other medical expenses must be deducted on Schedule A.
Section 179 Deduction - this deduction allows businesses to fully deduct the cost of qualifying equipment purchases in the year of purchase. For 2010 and 2011, purchases up to $500,000 qualify for the deduction. This deduction is like a double-edged sword. You can't have your cake and eat it too. If you take the full deduction for the purchase price, you don't get to depreciate it in future years. This deduction is a popular way to expense low-cost per unit purchases. It makes sense to completely deduct the $300 you paid for a license to QuickBooks in the year in which you purchased it rather than spread a small cost like this over future years.
Car/Truck Depreciation - in past years, Congress enacted regulations that significantly limited the depreciation on cars and trucks. For 2010, business owners that place new vehicles into service can deduct depreciation as much as $11,060 for a car and $11,160 for a light truck or van. The rules are different for SUVs and heavy pickup trucks but, still a great benefit compared to prior years.

This information is a free service of:

J.T. Hicks & Co., PA

Certified Public Accountants

470 S. Main St

Brewer, ME 04412

(207) 990-3127

Notice: always consult a tax professional before implementing any tax reduction strategy.

IRS CIRCULAR 230 DISCLOSURE: Tax advice contained in this communication (including any attachments) is neither intended nor written to be used, and cannot be used, to avoid penalties under the Internal Revenue Code or to promote, market or recommend to anyone a transaction or matter addressed in this communication.

10 Ways to Avoid an IRS Audit

2011-03-06T18:07:00.002-05:00

In my 28 years as a CPA, I've been asked countless times by clients "will this send up a red flag to the IRS?", "what are my chances of being audited?", "do you think I'll get caught?". Just about time that I think that I've heard it all somebody comes up with, what I call,the "I know a guy, who has a nephew that knows a guy that owns a business and he has a friend that once took an H&R Block course, and he said....." I'm sure I'll have enough to write a book by the time that I retire. There's all kinds if crazy ideas out there that have absolutely no merit at all. Here's 10 practical, common sense ways to help you avoid an audit:

Choose your tax professional carefully - Beware of that person in your neighborhood that hammers a sign in the ground that reads "Tax Returns Prepared Here". CPAs and Enrolled Agents must possess and maintain a knowledge standard to keep their licensing. Your neighbor with his sign in the front yard is only required to sign the return as a paid-preparer. Effective May 1, 2011, these people are on their way out. IRS has revised their regulations to require that all paid preparers are CPAs, Attorneys or Enrolled Agents. The IRS also holds these professionals to a higher standard of ethical behavior.
Report your income honestly. The IRS has stepped up their efforts with their Information Matching Program to check the income that taxpayers report. Common forms of income are reported to the IRS electronically by the payer. Wages, interest, dividends, state income tax refunds, investment sale proceeds, IRA distributions, pension distributions, Social Security and the like are all reported electronically. The IRS is able to match these records within just a few months after you file to determine if you reported all your income. That dreaded IRS letter could be in your mailbox's before the tulips pop out of the ground in the spring.
Answer the questions. The number one reason that I see self-prepared returns come into my office is because the taxpayer did not answer all of the questions completely or check the right boxes. The conversation usually starts something like this "I was trying to save some money by doing my own return and following what the H&R Block guy did last year". I try to hold the big grin from coming across my space but, I know something that the he or she doesn't know. This person is likely to become what I call a "client-for-life". That's always good for me.
Don't become a target. Many taxpayers believe that claiming a certain type of deduction will increase their odds for being audited. Many others believe that if you file your return early, you have a greater chance of being audited. There are all kinds of misnomers floating around about this issue. The truth is that the IRS uses a very sophisticated statistical profiling model which provides them with statistical probability of finding tax cheats. When your tax return triggers one or more of these statistical pointers, it is likely that you'll get audited. Best advice I can give is be honest. Keep good documentation about your expenses and always, always use a tax professional to be sure that you report deductions accurately. And by all means, please do not listen to your neighbor. He's an idiot.
Don't make it up as you go along. Just because you "think" something "should be" deductible or excludable from income, don't make it necessarily so; or at least that is the way the song goes. The IRS and state revenue authorities have excellent resources available on the Internet. If you decide to go it alone, use all the resources that you have available to you. All IRS forms and instructions are downloadable in PDF format. All of these forms are searchable using the free version of Acrobat. There is no excuse for not being informed. Even if you decide to use a tax professional (which you should), I always enjoy working with an informed client.
The devil is in the details. Trying to go cheap and quick is never good. If you try to use the old "paper and pencil" approach, there is a good chance that you will make an arithmetic error that will bring unwanted attention to your return. It also means that you return has to be processed manually by a key punch operator which means it will take longer to get your refund; hopefully you're getting at refund. Incorrect Social Security Numbers for the taxpayer, spouse or dependents are another top reason why your refund will get delayed if you choose to go the old-fashioned route. Using a tax professional that provides electronic filing will catch these errors before the return even makes it to the IRS. When using this methodology, we can warn a client about pending problems. The most common problem we see is related to divorced parents. Frequently, the divorce decree provides that the parents will divide the tax deductions for children or alternate their deduction from year to year. Inevitably, one parent, in the rush for the big refund that they so desperately need (this is a future blog topic) will file the tax return claiming the dependency deduction to which they are not entitled. This is a mess you just don't want to deal with.
Color inside the lines. Please do not write little notes to the IRS in the margins of your return to explain some reason or logic that you are using to justify a deduction or explain some reason why you are doing what you are doing. All this does is attract unwanted attention to the return. Don't do it. It doesn't help. You don't want to get a letter in your mailbox where the return address is from the nearest IRS service center. Just don't do it no matter how strongly you feel is warranted. In the immortal words of Forrest Gump, "that's all I got to say about that".
Update your status. The IRS has made good on their promise to audit more sole-proprietorships than they ever have. Sole proprietors reporting revenue greater than $100,000 increase their propensity to be audited more than 10 times the average. Now is the time to extol the virtues of being incorporated. Statistical probability of audit of a corporate return is substantially less than any other type of return. It may also be a good time to look at the Social Security savings from electing S-Corp status. You'll be able to offer your client a multitude of retirement investment vehicles to deposit the money they won't be sending to the Social Security Administration. It is not my intent to open up the debate as to whether or not Social Security is bankrupt (and it is bankrupt, most people just do not know it) or whether or not so Social Security will be around when we retire. That'll be a topic for another article all of its own. Be careful before you recommend this approach. Always consult a tax professional before making choices like this one.
Beware of gossip. The IRS and state revenue authorities share information electronically. If the IRS picks you up on an error or unreported income, it won't take long before they share this information with your state revenue agency. You can usually expect a letter from the state requesting additional tax, penalties and interest within six months of the bad news from IRS. The same process works in reverse; so, do not think you can get away with it from that from that angle either. The best defense is a good offense; so it has been said. Anytime we assist a client with this type of issue, we proactively prepare an amended return for the state or federal government as the situation requires. The moral of the story is: get to them before they get to you.
Be a Boy Scout. "Always Prepared" is their motto. Always, always keep your documentation. More importantly, always keep GOOD documentation. If you are unfortunate enough to be the lucky recipient of an audit, deductions that lack documentation or are poorly documented will be disallowed. The documentation is always your best defense in an audit. Have you ever been stopped by law enforcement officer because you were speeding? You probably didn't think you were going that fast or that driving a few miles over the posted speed limit was not enough to warrant a citation. Like me, you have probably always thought they just had to "make their quota". As much as law enforcement officials will deny that quotas exist, they do. I have it on good authority from a high-ranking official (that happens to be my client), now retired, from the State Police that officers are given a specific number of citations they are expected to write especially at certain times of the year like holidays. IRS auditors are no different. Whether they are evaluated, formally or informally, by the amount of taxes they collect is irrelevant. It's impossible for any supervisor or manager to overlook the productivity of a person in this position. So, human nature being what it is, whether you like it or not, they get evaluated by what they produce.

This information is a free service of:

J.T. Hicks & Co., PA

Certified Public Accountants

470 S. Main St

Brewer, ME 04412

(207) 990-3127

Notice: always consult a tax professional before implementing any tax reduction strategy.

10 Documents You’ll Forget To Give To Us

2011-02-07T09:53:00.003-05:00

W-2s - Many times clients work multiple jobs or change jobs during the year. Because clients are anxious for refunds they forget one or more W-2s.
1099-INT - Does your client have multiple bank accounts? Did you compare the current year 1099-INTs to the previous years Schedule B?
1099-DIV – Clients buy and sell investments all year-long. Did you compare the current year 1009-DIVs to the previous years Schedule B?
Capital Gains/Losses – 1 in 10 returns submitted to us is missing basis information.
1099-SSA – older clients often mistake these documents for other correspondence they received form the Social Security Administration. Clients will often say “I get $600 per month so just multiple that by 12”. Unfortunately, these amounts are net of Medicare premiums.
Tuition Deduction – Form 1099-T is often mistaken as a college financial aid document. For families with college students, we can’t calculate the deduction without the form.
Real Estate Taxes – clients that don’t have their real estate taxes escrowed by the mortgage lender often forget to bring the municipal tax bills with them. A quick review of the previous years Schedule A would reveal the omission.
Sales Tax – sales tax on autos, campers, motor homes and other large purchase are often forgotten.
Mortgage Interest – interest on family-financed mortgages are often overlooked because clients think they are doing the family member a favor by not reporting the interest. Also, clients that re-finance during the year sometimes forget about the previous lender.
Non-Cash Charitable Contributions – Clients often do not keep or lose detailed records of these types of contributions. Dates, description, name and address of the charitable organization are all necessary for proper deduction.

ObamaCare Makes a House Call to My House

2011-02-03T09:18:00.000-05:00

The health care crisis in this country made an unannounced, uninvited visit to my house. I had no idea that it was coming. It never called ahead; never wrote. The least it could have done was "drop a dime" and called from the rest area at Kennebunk. I didn't have any groceries. The house was a wreck. The sink was full of dishes. It was definitely an unwelcome visit. What are you gonna do? It was there at the door. No matter how much I wanted to be rude and send it on its way, I couldn't. I wanted to but, I couldn't. It was here to stay; for how long I have no idea.

We hear about the crisis from Brian Williams of NBC News every week. You never think that it will affect you until it knocks on your front door. I got the shock of my life when I opened the door. I wished that I hadn't opened the door. It's not like it's going away. It's just going to sit on the front porch. So, we'll all probably face the beast at one time or another. The beast is health care insurance and the issue is whether or not you can afford the premiums.

My small company employs 6 people at the busiest time of our business cycle. I offer health insurance to my staff. The company pays 50% and the employee pays the balance. For $250 per month, (the company pays $125 and the employee pays $125) we get a $5,000 deductible, with $30 co-pays for office visits and prescriptions. As long as you don't have a chronic illness or an accident, you have enough comfort that you can sleep at night. It's not great insurance but, it's better than going without. I was clear about what it was when I agreed to buy the policy. I'm paraphrasing Shakespeare when I say that "it doesn't matter what you call it, it doesn't change what it is." The what "is" catastrophic insurance. You really have to be terminally ill or hit by a bus before you'll meet the deductible. If you were in an accident or had a heart attack, the ambulance ride to the hospital will cost $5,000. That's a good thing, right? The deductible would be met and the insurance would kick-in and all is well as long as you survive and recover from the incident, right? Not so fast, the insurance only pays 80% of covered costs after the deducible. The $5,000 ride to the hospital and the 20% balance is yours to pay. Assuming that you survive and recover, the next challenge you'll have is the financially devastating hospital bills and the almost certain realization that you'll spend the rest of your life paying a nominal amount to the multiple health care providers that saw to your care while you were laid up. I can understand why some people would want to end their lives facing that mess. I guess it's better than no insurance at all.

Here's how the ugly beast revealed itself: I got the policy renewal for the next policy period starting March 1st. The monthly premium doubled. That's right, double. The single employee will now have to pay $250 per month and the company will pay the other half. I was carrying the premium for myself and my domestic partner, Mary Lou. I thought I could manage the $455 per month but, now the $989 is completely out of the question. That amount is greater than the monthly mortgage payment on my house which includes principle, interest, taxes and insurance. Imagine that, more than my mortgage payment. What if I was supporting a family? What would be the premium cost?. I can't even think about it.

Why did the premium double? What happened? How could this happen? The health care crisis is a very , very complicated beast with many, many faces and tentacles. I don't understand the everything about the issue but, I understand more than most. I have a first-hand connection to the issue. My "domestic partner", Mary Lou is a Registered Nurse working in the Emergency Departments at two major hospitals in this area. I hear the stories about parents bringing their children to the ER for rashes and other non-emergency maladies. Why do they come? Shouldn't they call their family doctor? They cant because they don't have a doctor, insurance or money. There's enough there for a totally separate article. I'll save that part for another day.

With this issue at my front door, I wondered what we, as consumers, can do to help reduce the cost of health care. For that, I turned to Maureen Hedges, CEO and Founder of Health Benefits Insurance & Consulting, LLC and asked for five ways to reduce health care costs. Here's what she had to say:

The first thing that most people need to recognize is the Health Care Reform legislation is really only addressing some insurance issues … and totally ignoring the actual COST of health care.

One of the biggest problems is the inappropriate use of Emergency Rooms – especially by those without commercial health insurance. More than 60% of ER visits are non-emergency situations – frequently for upper respiratory distress [colds]. Free standing out-patient clinics such as Concentra and offices in many WalMart stores need to be expanded – and public programs such as Medicaid need to penalize patients for non-emergency visits to hospital emergency rooms [just like the insurance companies do].

The federal and state governments pay providers of Medicare and Medicaid services significantly less than their cost to provide those services … forcing cost shifting to private patients and insurers. As baby boomers start to increase the Medicare rolls this is only going to increase exponentially. Public programs need to pay equitable sums to providers. This is, in my opinion, the greatest short coming of all current and proposed government health care programs, and one that almost no one is addressing realistically.

We need to change the way health care services are delivered. More video/telephonic visits with a provider. Greater use of physician assistants and nurse practitioners and off site testing locations [example: get the EKG at WalMart in Houlton transmitted directly to your cardiologist in Bangor and then discuss results on the phone]. We should encourage creativity in this area … rather than imposing more and more regulations to “protect” the consumer, resulting in higher costs not commensurate with any risk these innovations might bring.

Many people have no idea what medical services cost … a $20 or even a $30 office visit isn’t enough to make people really think about whether or not a visit is really necessary or appropriate. This is where phone/video conferencing with a provider could significantly reduce medical cost … especially where there are long term relationships with a primary care provider.

Physicians often tend to be overly cautious and order more tests than might be immediately necessary - to ensure not missing even remote diagnoses [malpractice]. Patients should be more involved, inquire about the reasons for tests, and be part of the decision making process as a consumer as well as a patient.

Maureen Hedges is a Certified Employee Benefits Specialist and consults with individuals and businesses regarding health insurance and other employee benefits. She can be contacted at:

P.O. Box 1172
Bangor, ME 04402-1172
Voice: (207)v223-1233
Fax: (866) 363-0876
http://www.healthbenefitsmaine.com/

Death & Taxes

2011-01-20T12:07:00.026-05:00

We've all heard the old adage that there is nothing more certain than death and taxes. Truer words have never been spoken, in my opinion.

Back in 2001 when "Dub-Yah" was in office, Congress decided to gradually reduce the effect of the estate tax until 2009 when it would expire leaving 2010 with no estate tax at all. I am certain that many of our older and wealthier Americans would have, if they could have, planned their own "final exit from earthly bonds" to take advantage of zero estate tax. The plan was to bring the estate tax back to life in 2011 with a $1 million dollar exemption and a 55% tax rate.

In December 2010, Congress performed it's own "Miracle on 34th Street" by extending the estate tax retroactively to all estates in 2010. So much for planning to die conveniently in 2010.

The new law (for 2010 and 2011) allows $5 million to go to your heirs tax free and a 35% tax on the value of your estate that exceeds the $5 million.

One question entered my mind: What's likely to happen for 2012?

President Obama and the Congress will have to pay for the stimulus package(s) some how. The government has very few options. It's simple arithmetic really: increase revenue, decrease spending. Increasing revenue can only happen two ways: raise tax rates and or create new taxes. Neither one are particularly attractive especially when you're a Democratic President that wants a second term in office. Talk about the "kiss of death"!

To answer the question of what's likely to happen for 2012 and some salient advice on the need for all of us to do some estate planning, I turned to estate planning attorney Roberta Kuriloff of Ellsworth, Maine. Here's what she had to say:

7 Reasons Everyone Needs Estate Planning

Do you have concerns should you become disabled?
Do you have concerns about passing on core values to your beneficiaries?
Do you have concerns that some of your beneficiaries could lose their inheritance because of creditor problems or divorce?
Do you have concerns that some of your beneficiaries don’t have the ability to handle money, or are receiving government benefits that could be affected by an inheritance?
Would you like to give your beneficiaries the same asset protection that is available to wealthy families?

If the answer to any of these questions is YES, please continue reading.

Congress has now passed estate tax reform. Each individual has a $5 million federal exemption from estate taxes. Maine has a $1 million exemption. But even if your estate is not taxable, the need for estate planning won’t be eliminated.

That’s because good estate planning is first and foremost a means to insure your goals and objectives for yourself and your family. Whether or not you have a taxable estate, you still need to plan for the possibility of your disability and to ensure that your property, however much you have, goes to the people and organizations YOU CHOOSE, in the most meaningful and cost-effective way. Let’s look at some planning techniques.

Do you have a Financial Power of Attorney? If so, does the Power allow your agent to make gifts of your assets for continued estate and asset protection planning? If not, then if you become disabled your family will have to go to court to be appointed conservator over your estate. This is expensive, time consuming and not private.
Do you have a Medical Power of Attorney? Having this document in place allows you to make the decisions about your care should you become disabled. Without it, your family will have to go to court to be appointed your guardian.
Do you have a will? If you do not have a Will, even a simple one, the laws of intestacy will apply to your estate. This means that if you die leaving a spouse and children, the spouse gets the first $50,000 of your estate, and the balance is divided one-half to your spouse and one-half between your children! I’m sure this is not what you would want.
Do you have children? Are you concerned that after you die your spouse will remarry and the new spouse will get your share of the joint estate, not your children? You can protect against this by setting up a trust in your Will that requires that your spouse sign a prenuptial agreement should he/she remarry.
Do you have a child with special needs? If you do and you leave assets outright to the child, the child will lose his government benefits. If you leave the assets in a “special needs trust,” then the assets can be used to give your child a better quality of life without losing benefits.
Do you have a home or vacation cottage that you want to remain in the family and not lose should you need care in a nursing home? If so, you can protect the property if you plan ahead before disability hits.
Are you afraid that your child’s inheritance could be lost if she got divorced, or was sued? Well, if you plan like the parents of Ted Kennedy, that won’t happen. Ted had a trust set up by his parents. When he was sued by the estate of Mary Jo Kopechne, the estate could not invade his trust. When his previous wife sued for divorce, she didn’t get any of the trust assets. That’s because the assets were not his, but his parents, and they said the assets should be used for the beneficiaries’ health, education and maintenance, not to pay their creditors or non-beneficiaries!

As you can see, there’s a lot to think about, and a lot of meaningful planning you can do. Learn more and make informed decisions.

Roberta Kuriloff is an estate planning attorney located at:

20 Oak Street, Ellsworth, ME 04605, (207) 667-3107

www.kurilofflaw.com

What's on Your List?

2010-12-10T19:39:00.035-05:00

15 Ways to Reduce Your Taxes Before December 31

If you're anything like me, at this time of year I get stressed about gift giving. What's the perfect gift to give this family member? What's the perfect gift to give the most important woman in my life? The tsunami of gift-giving anxiety can easily overwhelm anyone.

It didn't take long for me to come up with the perfect gift that almost anyone can use. Lower taxes, of course. Are you surprised?

Even though there are precious few days left and this year, there is still plenty of things you can do to reduce your tax liability for 2010. Here are my 15 gift-giving ideas to yourself:

Increase Retirement Contributions - Most of us have at least two or more paychecks remaining this year. Check with your employer to see if you can increase your contribution to your 401(k)/403(b) retirement plan. Your contributions will reduce your taxable wages for the year.
Spend Your Pre-Tax Deductions - If you participate in a flexible spending account plan or a dependent care benefit plan where you work, check with your employer to see if you can increase your contributions before the year. Just like retirement savings, your contributions reduce your taxable wages. Be careful! These types of plans require that you "use it or lose it". If you don't spend the entire amount contributed to your account, you lose whatever you don't spend and may pay tax on whatever you leave in the account.
Alimony - If you're fortunate enough to have a good relationship with your ex-spouse, this one is a "no-brainer". Talk to your ex-spouse to see if you can accelerate some of next year's alimony into December of this year. This can be helpful if you have higher than expected income in this year.
Pre-Pay Business Expenses - Self-employed? Do you have more net profit than you want to pay tax on this year? I know that seems like a silly question given the state of the economy over the last few years. If this applies to you, you could look for some expenses you would normally pay next year and pay them in the current year. Expenses like office supplies, dues, subscriptions, airfare, convention attendance fees and the like can all be deductible in the current year.
Maximize Capital Losses - Why would you want to "maximize" a loss.? It's a little play on words so, try to stay with me. In simplest terms, the maximum capital loss you can deduct in any one year is $3000 more than capital gains. If you've been fortunate enough to experience capital gains in your investment accounts, consult with your financial advisor to determine if any of your investments that are worthy of being dumped would result in a capital loss. Deductible capital losses can exceed capital gains by only $3,000. Be careful with this one and be sure to consult your financial advisor.
IRA Distributions - Did you take advantage of President Obama's offer to forego taking your required minimum distribution from your IRA account in 2009? Unfortunately, skipping a required minimum distribution in 2010 is not an option. Consult with your financial advisor before the end of the year to be certain that you are in compliance. So, how is this a tax saving suggestion? Noncompliance with required minimum distributions carry very significant penalties. It's bad enough that taxes are as high as they are; I don't want you to pay a dime more than you absolutely must.
SIMPLE Contributions - Many small businesses have adopted this type of retirement plan in the last few years. Perhaps you are an owner/employee of your own corporation or merely employed by a small business. The deadline for contributions to this type of account is December 31; no exceptions. If you want to make additional contributions, you 'll need to work with the payroll department and your employer to coordinate these additional deposits into your "nest egg". Your contributions will reduce your taxable wages and reduce your overall tax.
HSA Contributions - As the health insurance crisis escalates in this country, Health Savings Accounts (HSA) have been growing in popularity over the last few years. While it is possible to make deductible contributions for 2010 on or before April 15, 2011, it never hurts to evaluate your current contributions. Consider contributing the maximum allowable amount to your account. Your contribution will be deductible against gross income and provides a significantly higher benefits than medical expenses as itemized deductions.
Self-Employed Health Insurance - Self-employed individuals with qualifying medical insurance plans may be able to deduct those expenses from gross income as apposed to an itemize deduction. Make sure your premiums are paid by December 31 to maximize your deduction for the current year.
Tuition & Fees Deduction & Education Credits - Is there a college student in the family? Pay for his/her tuition bills before the end of year to maximize your tax savings for the Tuition & Fees Deduction or the family of higher education credits. Check with your students college business office to be sure that your payments will be credited in the current year and reported on form 1099-T. Coordination of benefits between the deduction and credit programs is tricky business. Be sure to consult with your tax professional before tackling this beast.
Dependent Care Credit - If you have children in daycare, make sure your fees are paid by year-end. This credit considers only the first $1,200 of expense per child for a maximum of $2,400 for no more than two children. You should also be sure to have your child care provider's Taxpayer Identification Number or Social Security Number on file. You'll need this information to claim the credit.
Medical - Before you head to the cosmetic surgery center, pull back on the reins for this one. Most medical expenses are deductible. Medical expenses are part of itemized deductions and not all taxpayers qualify to itemize their deductions. To be deductible, the qualified medical expense must be paid by December 31. It's not enough to simply "incur" the expense; only the amounts that you actually pay will be reportable as an itemized deduction. If you have a large unpaid bill for which you've been making installment payments, only the total of your payments in the calendar year will qualify. On top of that, the total allowable medical deduction is limited to the amount exceeding 7.5% of your adjusted gross income.
State & Local Income Taxes - Most of us understand that state and local income taxes that are withheld from our paychecks or deducted from other income such as pension and retirement payments are deductible as an itemized deduction. Some taxpayers manage payments of these taxes on their own by making payments to IRS and/or state revenue departments on prescribed dates throughout the year. The last and final installment is due on January 15, 2011. Consider mailing a check to your state revenue department on or before December 31 of this year. Payments made by this cut off will be deductible as an itemized deductions in the current year.
Charitable Giving - "Charity sees the need, not the cause." (German Proverb). There's a surprisingly long list of methods and causes to which you can support that not only make your heart warm but also give you a tax deduction. Most taxpayers know that cash contributions to charities are deductible as itemized deductions. Most taxpayers also believe that the just about every "worthy cause" qualifies for the deduction. For the most part, qualifying exempt organizations are easy to recognize as they are icons of our everyday life. The Salvation Army, Goodwill, your local church, colleges & universities, local governments and municipalities are just a few examples. Just because you may believe in the mission or the purpose of an organization or you think it's a "worthy cause" doesn't make it a deductible contribution. Only organizations recognized by the federal government as "charitable-exempt organizations" are eligible for deductible contributions. Before you give, be sure that your organization or cause is qualified. Most charitable organizations can provide you with a copy of their charitable exempt organization certification by IRS. IRS also publishes a comprehensive list of all recognized charities which is available on their website. Just about anything can be contributed to a charitable organization to get a tax deduction. The most common gift is cash but, your contributions of personal property such as clothing, furniture and appliances also qualify. Property such as antiques, real estate, securities and art will also qualify. For non-cash gifts, limitations apply; so, contact your tax professional to determine the allowable deductible amount of your contribution.

Bonus Gift: Energy Tax Credit - Could you use a a $1,500 credit on your taxes this year? Purchase qualifying home-improvement material such as energy-efficient windows and doors, metal roofs or furnaces (natural gas, oil and biomass) qualifying for the credit program and you may be entitled to a 30% credit (maximum's lifetime $1500 credit) for your purchase.

Please accept my best wishes for a safe and happy holiday season. Please feel free to contact my office if you have any year-end tax concerns.

I am, as always, Father Tom.

QuickBooks Users Beware!

2010-12-01T20:46:00.006-05:00

If you're a Quick Books user, you may have good reason to be concerned when it comes to the IRS. Within the last two years, IRS has promised to audit substantially more taxpayers that report income as sole-proprietors (using Schedule C) than it ever has before. Taxpayers that report more than $100,000 of revenue are the prime targets of the increased audit efforts. The prevailing justification is, at least statistically, that this type of taxpayer is more like to under-report income and over-report expenses. If you have a business with this level of revenue, you're probably a Quick Books user or, at the very least, have a bookkeeper that uses this popular program. So, what's the big deal about? The IRS now has a new power. When you are selected for an audit, IRS can compel you to provide a back-up file of your data. With their own Quickbooks license, they have a "full-access back stage" pass to all your transactions, past and present. Imagine that. Giving an IRS auditor the privilege to look at any transaction is scary at best.

What's the best defense? It's simple. Maintain good clean data. Our QuickBooks Pro Advisor, Joy Peterson, is available to help you maintain a clean, high-quality set of accounting records. Joy can be contacted at 207.990.3127.

What’s Your Time Hog?

2009-05-04T14:30:00.007-04:00

I know that having your own business has its appeal, such as freedoms that wouldn't be a normal privilege if employee of someone else’s business. However, if not managed wisely, time may be something that the day just doesn’t have enough of for you.

A common ‘Time Hog’ of the self employed is the bookkeeping. Perhaps you’re one of the few who have it all together where the paper trail is concerned, but haven’t caught up to the ‘times’ with the use of software. You’re still in the trap of not using your time to best advantage!

Perhaps you’re using software, feeling your time has been freed up, but still the dollar investment seems extraordinary when you see the fee for your tax preparation services. There’s always room for improvement when it comes to what our software can and is doing for us.

As a small business entrepreneur you want to know how you can free up those precious minutes of your day to be doing more of what you really want to do: managing your business.

If you’re like most entrepreneurs, you’ve been wearing so many hats for so long that you can’t remember what it was like to actually have a life. Coming to the realization that you are not using your time most effectively is just the first step on the road to time recovery! The next step is choosing software (if you haven’t already) that will allow you to “free up” you some valuable time and then treating yourself to some training/assistance with its proper setup and use.

As a QuickBooks Pro Advisor, I frequently find the software is in use, but certainly not used properly. Allow me to offer valuable advice: making a small dollar investment in training on your software will pay huge dividends in the future. Without the initial investment in training, more of your valuable time will be spent on “trial & error” learning. The single most important objective with any accounting/bookkeeping system is to provide the business owner with timely and accurate information from which to manage their business.

Treat yourself. Invest wisely. Two hours could very well be the best use of your time and money to bring you one step closer to “taking back” from the “Time Hog”. Get connected with those who can make your clock tick more in favor of what you like to do best!

Joy Peterson is a QuickBooks Pro Advisor with J.T. Hicks & Co. She can be contacted at:

email: joy@thomashickscpa.com
phone: 207.990.3127
web: www.jthicksandcompany.com

Photo Credit: The Pug Father via Flickr

Home Sweet Home

2009-03-08T21:23:00.009-04:00

Here's a little good news from the government that may seem ironic and contradictory in light of the depressing economic news we hear on television. It seems ironic (at least to me) that the government announced a new program intended to "stimulate' the real estate market by offering an $8,000 tax credit to qualifying first-time home buyers that purchase a home before December 1, 2009.

On it's face, it seems like the classic "catch-22". It's a great time to buy a house. Inventory is high, prices are low and mortgage rates are at an all time low. Here's the ironic part: a mortgage is not as easy to get anymore and a job is not an easy thing to come by anymore. If you feel good about your employment prospects and your credit is good, then you're in Fat City; If not, you're on the outside looking in.

Here's the details:

WASHINGTON — The Internal Revenue Service announced today that taxpayers who qualify for the first-time home buyer credit and purchase a home this year before Dec. 1 have a special option available for claiming the tax credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.

Qualifying taxpayers who buy a home this year before Dec. 1 can get up to $8,000, or $4,000 for married filing separately.

“For first-time home buyers this year, this special feature can put money in their pockets right now rather than waiting another year to claim the tax credit," said IRS Commissioner Doug Shulman. “This important change gives qualifying home buyers cash they do not have to pay back."

To qualify for the credit, you must be a first-time home buyer; you qualify if you, and your spouse (if you are married), did not own any other main home during the three-year period ending on the date of purchase. To claim the credit, you can file Form 5405 with your 2009 income tax return or you can amend your 2008 tax return using the same form. All things being equal, you should file an amended return to get the money faster. The government could change it's mind (it not like that has ever happened before).

So, if you're fortunate enough to have a job that looks stable for the foreseeable future and you want your piece of the American dream, call a real estate agent and get busy.

Remember, time is of the essence. You have to close the purchase by December 1, 2009 to get your "free money". It's free money, right? That will be a subject for another blog.

I am, as always, Father Tom.

Thomas Hicks is a Certified Public Accountant working in Brewer, Maine. For more information or to contact Tom, click here.

Your Identity Is Priceless

2009-02-19T08:39:00.011-05:00

I suspect that you'd have to be living under a rock somewhere to not know about the very real threat of identity theft. We've all read countless stories of Nigerian scam artists sending e-mails telling us they need to get millions of dollars out of the country. They need money to bribe government officials and your bank account information so they can wire the money to you after all the bribes have been paid. These stories and countless variations upon them abound all over the Internet and other news services. We are constantly bombarded by credit card companies during prime time television assuring us they are doing everything they possibly can to protect your identity and your credit. I believe that they are doing all they can to battle this problem.

It wasn't until this morning that I had some personal contact with identity theft. There seems to be a never ending supply of teenagers at our house these days. I have great difficulty in matching names and faces. It seems as though that there are new faces at our dinner table at least once or twice a week. You wouldn't think that teenagers are at risk of identity theft. At worst, you may think they may be at risk for contracting the common cold and other childhood maladies such as mononucleosis. I'm worried more about my teenagers safety while driving then identity theft. I'm not entirely convinced that our teenagers really are at risk of identity theft as much as they can become the vehicle by which our identities may be compromised or, at the very least, taken advantage. My sort-of-kind-of stepson (let's call him Steve) has a friend (let's call him Bob) that recently had his identity compromised. It wasn't through the traditional sense of a lost or stolen credit card or some Internet hacker breaking into an online merchant website. His identity was compromised through a device so common that I never would have even suspected that it can be used for such a purpose. It was a cell phone. I know; I said the same thing: a cell phone! How could a cell phone possibly be used to steal or attack your identity? I can assure you that was the first question that went through my mind.

This is Bob's story as told to my fiancé by his father. Bob is 16 years old. What could he possibly have to compromise at that age? It wasn't so much what Bob had as it was to what he had access. Bob's story begins a few weeks back when he lost his cell phone. Apparently the cell phone fell into the hands of a very capable criminal. This capable criminal used Bob's phonebook/contact list contained within the cell phone. The criminal used the cell phone to contact Bob's Grandmother. The Grandmother was told of a terrible accident that involved Bob while he was traveling in Canada. The thief went on further to tell the Grandmother that unless she was able to electronically transfer $3,900 to the hospital in Canada, that Bob would be unable to receive desperately needed medical care. Obviously the thief appealed to the grandmother's maternal nurturing instinct to come to the aid of a loved one. Sadly, she sent the money. I am absolutely convinced that if my mother had received a similar telephone call telling her of a terrible tragedy that has befallen one of my daughters, she would also become a victim in this type of scam.

What can we learn from this story? Given the state of our economy, I fully expect that there will be a birth of new angles and methodologies to steal from anyone. These threats could and will take on any form. It could be a phone call, an e-mail, a fax or letter appealing to our sense of right and wrong to act on behalf of another or to somehow acquire a treasure or wealth that we so desperately need to insure that our lifestyle is undisturbed or uninterrupted in the wake of the recession. If only Bob's Grandmother had thought to call the parents of this child to confirm the story, there would be $3,900 still in her checking account. I plan to share this story with my family and loved ones. We'll develop a plan to check in with each other before acting on this sort of thing.

I am, as always, Father Tom.

Photo Credit: D70Focus, KB35

It's About the Arithmetic! (Guest Post)

2009-02-05T08:44:00.025-05:00

Recently, my company had to go into the marketplace to find health insurance coverage for our employees. I discovered the choices for health care coverage for a small business are varied and complex. It occurred to me that many small businesses like ours (including our clients) are struggling with the same decisions and choices. Our current economic climate makes those choices much more critical. It was clear that I needed professional guidance to help our company make smart choices about our health care coverage. Naturally, I turned to my friend and colleague, Maureen Hedges to ask the question: How should a small business approach to health care coverage decision? Here is her response:

Most of the media has come to use the phrase health care, when they are really talking about health insurance. Health Care – the services provided to maintain your good health or treat illness and injury. Health Insurance – provides protection against financial loss in the event of serious/expensive illness or injury. When evaluating which health insurance benefits you should purchase, it is important to evaluate the combination of an individual’s potential out-of-pocket cost and the insurance premium. The objective should be to find the most cost effective way to pay for your health care needs.
Example: Real Company – 6 employees with an average age of 41

Current Plan:

Office Visits: $20 Primary care, $25 Specialst
Prescriptions: $10 generic, $30 brand-name, $50 specialty brand
Deductible: $1000 per person, $2000 per family
Maximum Patient Expense: $2500 per person, $5,000 per family

Premium:
Employee, $453
Couple, $1043
Parent/Child, $816
Family, $1360

Proposed Alternative:

Office Visits: $20 primary care, $25 specialist
prescriptions: $10 generic, $30 brand name, $50 specialty brand
deductible: $2500 per person, $5,000 per family
maximum patient expense: $3500 per person, $7,000 per family

Premium:
employee, $341
couple, $785
parent/child, $614
family, $1023

It is evident that the premium savings exceeds the potential additional expense of $1,000 per person/$2,000 per family.

This employer does not want the potential increase in expense to be borne by the employee, and has implemented a health reimbursement arrangement so that in the unlikely event someone has a serious medical situation the $1,000 will be available to make up the difference. While the numbers will change based on the employee population, the concept remains valid for every situation. Health Benefits prides itself on providing every client with an in depth comprehensive review to design the most cost effective employee benefit program possible

Maureen Hedges, Certified Employee Benefit Specialist is President of Health Benefits Insurance and Consulting in Bangor, ME She can be contacted at (207) 992-4412 or mhcebs@midmaine.com

Photo Credit: Waldo Jaquith, Lisa Brewer

Git-r-done!

2009-02-04T17:45:00.004-05:00

I feel your pain. now that you are receiving all those "IMPORTANT TAX DOCUMENTS" in the mail, you are thinking about filing your tax returns. Suddenly you feel the anxiety pressing down on your chest like a pallet of bricks. You said you were going to do it. You planned on doing it. You didn't do it. Now, you're convinced that there's a large green monster wearing an IRS T-shirt hiding in your closet. Trust me; I know your pain. Last year, after you got your bill from your tax professional, you promised yourself that you would get organized this year. You said to yourself "next year I'm going to get on top of this". I hear these very same statements from dozens of clients every year. Sadly, it's the same several dozen of clients that repeat this behavior year after year. To many of my clients, I am known as "Father Tom". They regard me as their financial priest. They come to my confession booth every year knowing exactly how much and when they have sinned. They come hoping for absolution and redemption mixed in with a little penance. I usually close my annual homily to the sinners like this: "go forth and sin no more". I do my best; but, I'm only human.

I've assembled some ideas to help you in your quest to get better organized for your tax professional. Your mantra is, and always should be, "Organize, Organize, Organize"!

Self-Employed:

If you own a business, there is nothing more critical than having your income and expenses summarized accurately and coherently for your tax professional. Bookkeeping is not as arduous a task as it used to be since the advent of personal computers and easy-to-use accounting software. QuickBooks Pro is a popular program that is easy to use. You can pick up the hang of using this application by watching tutorial videos on YouTube. Your tax professional probably offers training and consulting services for this program. This program is so incredibly versatile. I'm constantly amazed by the enhancements that Intuit adds to the application every year. A business owner can use this program to invoice customers, accept credit card payments, print checks reconcile bank accounts and connect to online banking applications. The feature that I appreciate the most is called the "Accountants Review Copy". The application allows you to create a carbon copy of your accounting data to share with your tax professional. The review copy allows the tax professional to make corrections and adjustments to your data which can be merged with your "live data "at any time allowing you to continue to conduct your business.

You receive monthly statements from your bank, credit card merchant service and business credit card companies. The statements all provide valuable information to you and your tax professional. You should definitely save all monthly statements of this type .

If you're like most businesses, you may have one or more installment loans with your local bank. Most banks provide annual statements documenting the annual interest paid on the loan and the balance of the loan at the close of the year. These statements are incredibly valuable as they corroborate the information contained in your accounting data.

Treat your tax professional as a trusted, valuable resource to your business. He or she needs to know just about everything about your business to prepare a complete and accurate return on your behalf. I encourage clients to discuss significant events in their business from the previous year. Significant changes in sales, employee layoffs, sales of business equipment all provide valuable clues to the accuracy and completeness of your accounting data.

Individuals:

To help you get your personal finances in order, consider personal accounting applications such as Quicken and MS Money to organize and categorize your income and expenses. Consistent use of these apps keeps you in touch with your spending habits. You'll probably be shocked about how much you spend on take-out food and drive-thru coffee.

If you use your personal automobile for business, you should keep track of your mileage using a mileage log. These books are inexpensive and readily available at office supply stores like Staples. In order to use business travel expenses as a deduction for your tax return, you must maintain a log to support the business use of your car. If you use your car almost exclusively from business, I usually recommend to clients that they acquire two or three gasoline credit cards. The use of the credit cards corroborates information in a mileage log and also provides a 12 convenient monthly statements which document where, when and how much gasoline you purchased.

Try to avoid the use of cash to pay your potentially tax-deductible purchases and expenses. Receipts are easily lost. If you lose a receipt credit card statements and bank statements provide an independent record of your purchases. Relying more on your credit cards and debit cards also makes your accounting task much less burdensome. The bookkeeping applications I mentioned previously provide convenient vehicles for reconciling the statement activity to your records.

When you go to Staples to purchase your mileage log, please resist the temptation to purchase a Dome Accounting Ledger. Low cost is the attraction to these types of bookkeeping systems. These books are very time consuming to maintain and generally do not provide useful information for yourself or your tax professional.

Ask your tax professional for a tax organizer. Almost all software used by CPAs and tax professionals include a customized document that organizes your previous year tax return into logical categories. The document will frequently include a questionnaire which is designed to give your tax professional clues about events and/or transactions which may have some bearing on the outcome of your current year's return. Take the time to follow this document meticulously. Using this document as a guideline to gather information will result in significantly improved quality of information that you give your tax professional and thereby lower your taxes.

You'll receive a small gift from your tax professional in exchange for all your hard work: lower fees.

Thomas Hicks is a Certified Public Accountant working in Brewer, Maine. For more information or to contact Tom, click here.

Photo credits: Joey Harrison, The Daily Hamster

When Distaster Strikes

2009-02-04T16:22:00.001-05:00

Nobody wants to think of or look forward to a disaster. Nobody likes to think about death but we cant avoid it either. I recently prepared an amended tax return for a client in Houston, TX that was affected by Hurricane Ike. The worst part of the damage to their property was a beach house that was uninsured. Hurricane Ike and Katrina did a lot of damage, took lives and displaced a lot people. All of this caused me to think about how a business copes with a disaster. To a business, a disaster doesn't have to be a catastrophic event like a hurricane or a an earthquake. A disaster could be a smaller event like a broken pipe. The real disaster is the damage the water does to your work area, inventory and computers. So, you arrive at the shop, office or workplace ready for a productive and profitable day only be shocked by your business literally floating away. It's great if you manufacture boats; not so good if you're a dry cleaner. What do you do? What's your plan? Who should you call? Can you recover?

Here's my point: It's a great idea to have insurance. Insurance will replace your stuff. It wont rebuild your business. I'm talking about a real plan. The kind of plan that you actually commit to paper. The kind of plan that you discuss with your employees (they'll have some great ideas, by the way).

Here's my list of stuff for your plan:

Off site Data Storage - the hardest asset to replace is your business data. It doesn't have to be that way. Off site data storage is easily obtained from hundreds of companies on the Internet. These companies offer simple server applications you can install to direct your computers to copy data at any frequency or time you wish to secured servers. When a disaster, like a broken pipe, puts you computers under water you'll have comfort knowing that your data can be retrieved quickly.

Insurance - If you don't have insurance, get some. If you do have insurance, ask your agent to review the policy to be certain that the policy is adequate to cover possible losses. While you're at it, reconsider your choice of deductibles too.

Call List - Keep a list of contact information and data for people and services that are critical for your recovery. The list should include:

your insurance agent's phone number/policy numbers
your banker's phone number/account numbers
your credit card/merchant service phone number/account numbers
user names and passwords for off site data storage, email and other websites.
phone numbers for tradesmen like plumbers, electricians and carpenters.
your real estate agent's phone number. You may need to move to a new location permanently or temporarily.
contact information for your local unemployment office. Your state may have a team of specialists that deal with employees that have been affected by a disaster.

Shelter - identify possible locations that will accommodate your business if a disaster strikes.

Replacement - what vendors and resources will you contact to replace your equipment and inventory?

Contact - use your local phone company to keep the lines of communications open for your customers. Phone calls can be forwarded to a cell phone or voice mail where they receive a comforting voice that says "your call is important".

Billboard - use your website as a billboard to communicate with customers to keep them informed about your progress toward recovery. If you have a good service or product, your customers will come back to you. In some cases, your customers will even help you in the recovery process.

Experiencing a disaster is a terrible thing from which you can recover more quickly because you have a plan. Let's hope that it never happens and you never need the plan.

Thomas Hicks is a Certified Public Accountant working in Brewer, Maine. For more information or to contact Tom, click here.

Photo Credit: Dan The Webmaster, Adria Richards

Follow Your Bliss

2009-02-01T08:45:00.001-05:00

2008 was a bad year me for for more than one reason. I lost a friend to cancer. Marsha was a friend and a client, in that order. During a time in my life when I was mourning another loss, I was struggling to answer critical questions and doubts about the direction of my personal and professional life. Marsha gave me some advice disguised as a casual statement. "Follow your bliss, Tom: it'll take you where you're supposed go" she said. At the time, I didnt it much help. I feel differently now.

When I started writing this series of blogs about starting your own business, Marsha came to mind. Marsha followed her own advice. She started her business because she saw a need for her unique skill and a desire to be financially independent. Marsha was an ESL (English as a Second Language) expert. She was a gifted teacher; she knew and understood the federal regulations that compelled all school districts to provide services to immigrant children in the community. She translated that knowledge and skill into contracts and then into money. She got all that she wanted from the relationship: doing something she loved and financial independence.

That leads me to you and your choices about the business you'll pursue. What is your "bliss"? When making a choice about a business to pursue, consider a few of these ideas:

What skills do you have?
What is unique about those skills?
Do you have specialized knowledge?
If you don't have the knowledge, what will you have to do to acquire the knowledge?
Do you know about a need in the community for a service that is unfulfilled?
How will your business be different from others that are similar?
What do you like doing?

Remember, your business has to fill a need in your marketplace to have your product or service desired. With the Internet, your marketplace can be global.

Best of luck in your search.

Thomas Hicks is a Certified Public Accountant working in Brewer, Maine. For more information or to contact Tom, click here.

Photo Credit: Brian Moore, TheTruthAbout

Swim Out To Your Ship....

2008-12-08T13:17:00.016-05:00

Have you ever thought about starting your own business? If you have, you've probably wondered "when is the best time to start a business". I know you'll be shocked; but, now is the best time to start a business. The down turn in the economy has left many of you without a job. What excuse will you use to stop yourself from making that leap to self-employment? If your waiting for your ship to sail into the harbor and pick you up at the dock you may be waiting a long time. It's more likely that your ship will sail into the harbor but you'll have to swim out to it. That's what happened to me. I was working three jobs trying to support my family and keep mother at home for the children. The unthinkable happened; I lost my primary income source. I wasn't without resources. I had a severance package, unpaid vacation and unemployment benefits. It was clear to me that this was as close to the perfect opportunity I was ever going to get to go full-time in my own business. It took me a half-a second to dive head first into the harbor. I swam out to the ship. I was cold, tired, hungry and wet when I pulled myself over the rails. I was aboard and there was no turning back. It couldn't have been a worst time economically to start a business. I knew it may be my only opportunity.

If you find yourself in a similar situation, take heart; this could be the best thing that ever happened to you.

I'll post more items of interest in the future about starting a business. The most important thing I want you to focus on when your making a decision is your marketplace. It's absolutely critical that you see the market for your product or service as global and not just local. The Internet is the single most important resource for the success of your business. The information super-highway can take you anywhere in the world for just pennies. I'm not the brightest guy in the world when it comes to the Internet. That's why I went to my friend and client, Kelly Cotiax. She's all things Internet. She helped me design a website that was attractive and useful to visitors and clients. She got me writing this blog. She has me twittering. I am also Linked In. Kelly turned me on to a guy named Chris Brogan. Chris is a social-networking guru you can find on Twitter. Chris made me a believer in the power of social-networking. Social-networking is using the Internet as a (mostly) free way to tell the world about your product or service and all the great things about you. It's also a powerful way to let others blow your horn for you (kinda like I'm doing for Kelly & Chris).

Let me be clear. I'm not advocating that you cash in your 401K fund (which is now a 201K) or take out a mortgage on the house or run up your credit cards to start a business. I just want you to see the opportunity for what it is: an opportunity.

I'll write more soon about what steps you should take to plan a new business start in later posts. For now, just keep your eyes open for your opportunity.

Thomas Hicks is a Certified Public Accountant working in Brewer, Maine. For more information or to contact Tom, click here.

The Diesel Barometer

2008-11-29T15:41:00.019-05:00

Over the last year, I’ve had many conversations with clients, friends and family about the looming economic storm darkening our shores. Most of those that I talk with really have no idea how we, as a nation, came to the brink of economic disaster. The news media focuses on the mortgage crisis which led to the housing crisis which led to the banking crisis which has led to the automaker crisis. It’s clear that the media looks only at the symptoms of a problem and not the root cause. I’m not an economic expert; but, I saw the storm coming back in 2005. Our crisis started when oil companies and oil-producing nations took advantage of us when Hurricane Katrina struck. Gasoline prices literally went through the roof overnight. Oil companies blamed the price increases on “supply and demand”, disruption of supply and market forces. Considering all of that information, it was hard to understand why oil companies posted record profits in 2005 and 2006; worse yet it was even harder to have sympathy for these companies even though they claimed that they needed to reinvest in new energy research and technology. Were they not “reinvesting“ before the hurricane? I am still amazed that we didn’t storm the gates of their corporate offices with torches and pitchforks.

All of this aside, petroleum touches every part of every person’s life in this country. Think about that for a moment. There is no part of our life that doesn’t involve oil. Drive to work in the morning. Go to the grocery store. Take the kids to soccer practice. Turn up the thermostat in the morning. Make a pot of coffee. Have lunch at a local diner. Go to a movie. It all takes oil. If you didn’t burn that gas in your car to get there, then some trucking company or FedEx or the postal service burned some type of fuel to get the product or service to the marketplace. Nothing and no one are sparred. Petroleum rules our lives.

All I know about modern economics I learned while I was in college or watching the evening news and reading on the internet. There are many measures and methods to quantify the relative health of the economy. The federal government publishes an array of indices to benchmark the economy such as Gross Domestic Product (GDP), Gross National Product (GNP), Real Gross Private Domestic Investment and Status of the Labor Force just to name a few. If you find yourself with a particularly bad case of the insomnia some night, I have an excellent cure. I assure you that one-half hour of reading at http://www.gpoaccess.gov should put you to sleep straight away.

After multiple conversations with my soon-to-be-wife (aka; finance`) attempting to explain why my observations into the future of the economy are so much more insightful than Ben Bernake and Secretary Paulson, I had an epiphany. It came to me while I was pumping gas. None of the “leading indicators” mean anything to the average American. It’s all too complicated and too boring to connect the dots between the indicators to our individual lives. We all understand the price of gasoline at least once a week when we fill up our tanks. I see it perhaps a dozen times a day now that we have gas stations with the bright LED signs. The price of diesel fuel is a leading economic indicator we can all understand.

While the price of diesel doesn’t indicate all that is wrong with our economy, it does indicate quite a bit. As the price of diesel increases, the price of just about everything increases. Groceries, gas, heating oil, bread, postage, rent, airfares, cab fares, clothing, movie tickets, a meal in a restaurant, property taxes are all affected. It simply costs more to deliver goods and services to the marketplace. I can’t think of anything in my daily life that isn’t affected by the price of diesel (the first cousin of #2 heating oil and K-1). All this caused me to think about how I could conserve and reduce my usage of oil. I am actively seeking carpooling opportunities from my rural home to my office in Brewer, Maine. I plan to cyber-commute to the office as much as I am able. I have also installed two wood burning stoves in our home to burn wood that we’ve selectively harvested from our land. What would energy conservation be without a discussion on insulation? I’m insulating the sills in our cellar to discourage heat loss and make it a more tolerable place for teenagers. I like to keep them in the cellar until they are 18 years old as they tend to ruin the carpets and furniture. The upside of insulation is the energy tax credit. Keep your receipts and visit http://www.irs.gov/newsroom/article/0,,id=154657,00.html for more information. Just because we are basking in the glory of gas prices below $2.00 a gallon, we shouldn’t lose our national resolve to break the grip of petroleum on the economy. I’ve listed some websites that I think have helpful ideas for energy conservation:

http://greentopics.blogspot.com/2006/06/top-10-ways-to-save-oil-and-gas-use_27.html

http://ecomall.com/greenshopping/20things.htm

http://www.nrdc.org/air/energy/genergy/simple.asp

The next time you drive by a gas station think about the barometric pressure of the economy. Happy driving.

Thomas Hicks is a Certified Public Accountant working in Brewer, Maine. For more information or to contact Tom, click here.

Obama vs. Spiderman

2008-11-20T21:49:00.004-05:00

What do Barrack Obama and Spiderman have in common? Swinging from building to building in pursuit of super criminals? Leathery webs from the wrist? It's not anything super-human it turns out. I was listening to NPR tonight on my 40 mile commute to my home. The Day-to-Day program reported that our President-Elect is an avid collector of Spiderman and Conan the Barbarian comic books. Should we gain any insight from this about the man that is about to become the leader of our country? It doesn't say anything to me other than he likes comic books. It does make me think about taxes. Surprised that a tax accountant thinks about taxes or are you puzzled about what connects Obama, Spiderman and taxes?

The connection is much more simple than you think. It doesn't matter who you are; when a presidential election comes around we all wonder about what the future brings for our country but more importantly how it affects us personally. I've fielded many calls from clients in a state of panic about a sound bite they heard on the evening news where Obama or McCain spoke of a new direction for taxation of the middle class or "re-distribution of wealth". "What will Obama's plan do to my taxes?" they exclaim "What can I do now?" they cry. Here is my short answer: nothing & nothing. Surprised? Allow me to explain. I have 25 years experience as a CPA. In that vast expanse of time, I have yet to see any real, meaningful tax reform. Sure, we hear from our elected officials from time to time and always in times of crisis with promises about "moving the country forward" and bringing relief to the American family; but we really only get words and promises that lack substance and sincerity. In short, our elected officials tell us what we want to hear (can you blame them? The job is pretty "cushy"; they like the paycheck and the best health insurance in the world). After we hear what we want to hear, we go back the daily grind we call life and work to pay our taxes. The fact is that the President has very little power to change anything in this country. Congress is mostly responsible for what happens in this country not the President.

Let's not sleep comfortably tonight under the blanket of trust that Congress has their hands on the wheel while we slumber; because they don't. If the President doesn't direct the country and Congress doesn't steer, then who does? Answer: Special Interest Groups. Don't worry or lose any sleep now that you know this. You've been living like this for this long so why change.

Here is an undeniable truth: Under the US Tax Code, the rich get richer, the middle-class pay taxes and the poor get entitlements.

That's the way it works, sorry. So what does all this mean Father Tom? It's simple. The tax code is not like to change any time soon. The President elect will be busy building a cabinet, sharpening the pencils in his desk caddy and asking directions to the restroom and the water cooler. Making any drastic changes to the tax code will be low on his priority list. Even if he wanted change the way we are taxed, he needs the consent of Congress. Congress is unlikely to do anything unpopular like raising taxes (as a depression approaches) as that sort of thing tends to hurt re-election prospects. Don't despair; all is not lost. If you want to be proactive about your taxes and learn about the many opportunities you can exploit in the code, visit me at: www.jthicksandcompany.com