New Banks Placed on FDIC's Troubled List

The Federal Deposit Insurance Corporation or the FDIC has placed 703 banks on its list of problem banks, which is the highest since 1993.  The FDIC is expectng $20 billion in additional losses for 2010.  However, the agency does not believe it will need to access its emergency reserve fund with the US Treasury.  Most of the lsses have already been accounted for by the banks.  Last year, the fund fell into the red and required member banks to pre-pay their quarterly assessments to bring the fundi back up to normal levels. The fund is attempting to attract non-traditinal buyers of the bank assets such as investment groups and private equity firms. 

Credit Card Reform

This is one of personal favorite pieces of legislation that has passed Congress in quite some time.  Finally, our lawmakers have listened and put an end to some of the predatory practices that credit card companies use against consumers. Some provions have already taken place last August.  These are the new ones. 

Interest Rates

• Starting Monday, interest rate hikes on existing balances will be prohibited unless the cardholder is more than 60 days late in making a payment.
• Additionally, credit card companies will be prohibited from raising interest rates on customers if they are late paying an unrelated bill such as a car loan or a utility bill.
• Introductory or "Teaser" rates will be required to last for at least six months, and credit card companies will be prohibited from increasing rates in the first year after a credit card account is opened.

Discosure Clarity 

• Payment dates and late payment dates will be clearly indicated on the bill.
• Agreements will be posted on the company's web site.
• Montly statements will inform customers on the length of time it will take to pay off a bill using minimum payments.
• Card holders will be notified 45 days in advance of changes to their card conditions
• Card holders will have five years to pay the card off.
• Statements will be mailed out 21 days prior to their due date.

Other Terms

• Any payments in excess of the minimum pays off the highest interest balance first.
• Card companies will be unable to charge customers for paying by phones, or the internet.
• Customers may opt in or out of over limit fees.  If they opt out, their card will reject when it is over limt.
• Customes under age 21 must obtain the signature of a parent or guardian.
• Credit card companies must not use misleading marketing presentation to minors. 

TGIF Series-Accounting Boot Camp-Episode 1

I completed my degree in accounting at the University of Tulsa, a private university in Tulsa, Oklahoma in 1982. At this time, (at the risk of totally dating myself) there were eight national public accounting firms, “The Big Eight.” At the University of Tulsa, the professors made it clear that if you did not work for one of these firms, your entire career would basically be a failure. It was imperative to make a high grade point and have sufficient extracurricular activities so that these firms (not all were located in Tulsa) would interview you.


No one wanted to stay at these firms long, because everyone knew they were “sweat shops”. They hired large recruiting classes only to layoff half of them each year. Not only that, but we heard that they made you work insane amounts of hours. If you were still there at the end of the third year, you had it made. You could get a really good job at a private company.

Fortunately for me, school was easy for me and I easily secured interviews with all of the firms located in Tulsa. Each one was reputed to have a certain personality, but the two best firms, hands down. were Arthur Andersen (Go Ahead and Laugh-Worldcom, Enron, fraud, document shredders, eventual dissolution of the firm, etc.) and Arthur Young. I went for my first interview with Arthur Andersen and spent all day there. (All of the interviews took all day long) My last interview was with an influential partner who just happened to be a large donor to the University of Tulsa.

Evidently I failed the question: “Where do you see yourself in 10 years?”. I answered honestly and said, that I certainly did not want to be a partner or anything like that, but that maybe I would want to stay about three years. Evidently this was the wrong answer and I did not receive an offer! This was the first inkling I had, that I might have chosen the wrong career. Apparently, from talking with other recruits, you were supposed to lie about this question. Although only about one out of twenty accounting students that I knew were planning on remaining with an accounting firm, the answer you were supposed to give was “My greatest desire is to become a partner at this firm”.

This inability to go with the flow, speak the company line, be a team player, etc has plagued my entire career, unfortunately. I decided that the next interview I was going to ace, so I practiced in front of my family and friends. I was fully prepared when I went to Arthur Young and they asked me “Where do see yourself in ten years? “ I swallowed, slowed my breathing and squeaked out “My greatest desire is to be a partner at Arthur Young”. Fortunately, they did not know me well enough to know I was totally lying. I received an offer from Arthur Young and was thrilled.

Little did I know just what I was getting into.

Financial Reform Bill

As part of the Financial Reform Bill, the Senate Banking Committee is currently working on legislation which could create a standalone “Consumer Financial Protection Agency”. The creation of the agency is in response to the recent financial disasters including sub-prime mortgages and other financial instruments, which escaped government regulation, as well as the failure of several large financial institutions and the subsequent federal bailouts of these institutions. Another disputed topic is the amount of control that shareholders should have over executive pay. Additionally, President Obama has asked that the bill limit bank’s proprietary trading, refuse bank access to the hedge fund business, and limit bank growth. Some critics of the bill had previously expressed concern that the proposed agency would over regulate the Securities and Exchange Commission. However, Senator Bob Corker (R-Tenn), a member of the committee expressed optimism that the bill would receive Republican support. Senate Banking Chairman Christopher Dodd (D-Conn) also expressed encouragement about collaboration between Democrats and Republicans on the bill.

Jobs Bill

Senate Majority Leader Harry Reid, (D-Nev) received unexpected help from the Senates newest member Scott Brown (R-Mass) with the new jobs bill. Senator Brown and four other Republicans joined the Decomocrats in voting for the bill.  Democreatic opponents of the bill argue that it did not go far enough, because an extension of unemployment benefits and Cobran benefits for unemployed workers was not included.  However, the following items were included:

The jobs bill includes four components:

• a tax credit to employers who hire new workers
• a provision giving small businesses more leeway to write off the cost of capital investments
• the Build America Bonds, which would subsidize the borrowing costs of state and local governments
• a one-year extension of surface transportation authorization funding

The unemployment benefits and COBRA benefits will begin to expire on February 28, prompting other Democratic lawmakers to push for more jobs legislation.

 

 

 

 

 

 

 

  

 

Home Mortgage Deduction-Tax Savings or Not?

Are you renting right now?  Have you had many of your friends who own their own homes hassle your about making the plunge and buying a home? Would you be surprised If I told you that sometimes it does not make economic sense to buy a home for tax purposes? Owning a home has other advantages including the potential for appreciation with the property and the opportunities for making changes to the property as you see fit in order to make it more of a home for your family.  However, depending on your personal situation, and the other itemized deductions you have, owning a home may not make sense for taxes. In order to claim the mortgage interest and real estate taxes deduction, you must itemize.  Below is a list of the standard deduction amounts for 2010:

Single – $5,700


Married Filing Jointly – $11,400

Married Filing Separately – $5,700

Head of household – $8,350

Qualifying widow(er) – $11,400

Example 1 The net effect for deducting mortgage interest would be as follows:

• Net interest deduction  $11,500
• Tax refund                      2,875
• Net Cash Paid                8,625

Example 2 The net effect for using the standard deduction for married filing joint is as follows:

• Standard deduction     $11,400
• Tax refund                      2,850
• Net Cash Paid                       0

As shown in the example, although the tax refund in example 1 is $25 higher, no mortgage interest was paid to the bank, so the taxpyer actually came out $8,600 ahead.  The standard deduction versus the amount of estimated itemized deducations is a consideration when deciding on purchaing a home.  A home puchase does not always guarantee a better tax situation.

Work at Home Strategies for Business Continuity

Several strategies are currently in use by organizations in the event of a disaster or emergency affecting the continuity of business operations. 

• One approach is to use an alternate site within the same organization already equipped to accomodate an infusion of staff during an emergency including computer equipment, office equipment and furniture.
• Another approach is to contract with a third party vendor to deploy assets which the company can utilize during a disaster.  These arrangements are typically shared with other organizations or dedicated for a single organziation.  The dedicated arrangements are obviously more expensive.
• Additionally, a company may cross-train employees located in another area of the company to take over responsibilities of a different department during a business interruption. 
• Some organizations do not have a planned strategy and intend to deal with the situation as it occurs.  If recovery time objectives (RTO) are more than a few days or weeks, this strategy may work.
• A quick ship strategy which involves contracting with a vendor to ship essential equipment and materials to a pre-planned location in the event of a disaster, is another strategy to consider.  If proper planning is employed, each computer can be imaged to meet that person's needs for the workplace.
• The most progressive and innovative program that many companies are using is Virtual Desktop Recovery (VDR) also called Work-At-Home Continuity.  The most effective version of this strategy uses a remote central server which runs all applications, programs, and data centrally.  Each employee is able to log on to this virtual server with any computer using the proper security protocol.  Some organizations use specially designed USB devices for this purpose.  This method retains the security within the central server and eliminates the need to install software on employees home computers.

Many strategies for business continuity are available for organizations to consider.  The size of the company,  the number of employees, the number of locations, the complexity and nature of operations and recovery time objectives are important considerations when selecting a strategy which is appropriate for the company.  The VDR option is being considered by many progressive companies as the most viable solution because it meets more of their business continuity objectives at a lower cost than the other available options. 

Bailout Bonuses

Most Americans have felt anger to some degree over the large bonuses paid to executives that received bailout money from the federal government.  Most of us feel that our tax money could be better spent somewhere else, other than enriching executives who helped to create the financial crisis which has devastated so many families in this country and across the world. 

Efforts are underway in the House and the Senate to tax bonuses that these executives received.  In the Senate, Democratic senators Barbara Boxer from California and Jim Webb from Virginia have plans to release legislation which would tax bonuses received by these executives.  In the House, the chairwoman of the House Rules Committee, Democratic Representative Louise Slaughter is working with other members of the House to prepare legislation which would institute a 50% tax on bonuses exceeding $50,000 at companies supported by the United States government. 

Keeping the Books

Many small business owners are deciding at this time of the years that they have made the wrong decision about their accounting needs during the year.

Some business owners are still in the "shoe box" mode of thinking when it comes to bookkeeping.  Throw everything that might relate to the 2009 into a box and let the accountant sort it out.  Several reasons make this a poor decision:

1. If a conscious effort was not made during the year to keep tax records in one easy to access to place, many records may be missing or incomplete, making the job of the accountant challenging and expensive. 
2. With incomplete records, there is a chance that the books may be misstated, resulting in possible penalties for both the preparer and the owner in the event of an audit.
3. If estimated payments are not made based on current year income, penalties on short paid taxes could be owed.

Another method commonly used today is for the business owner to decide to do the books himself with the availability of inexpensive software available today.  Several caveats should be made known to the business owner:

1. Just because the business owner has software, does not mean he knows accounting, which includes the knowledge of how to categorize all of the income and expenses and how to make journal entries for all unusual transactions.  Miscategorized items could lead to misstatement of tax.
2. Several functions need to done monthly and compared to the general ledger like bank reconciliatons.  Addtiionally, loan statemets, accrued liabiities and other balance sheet accounts need to reconciled monthly.  If they are not reconciled monthly, the accountant preparing the return is forced to re-perform the work.

The business owner may have decided to hire a bookkeeper who is not an accoutant or a CPA, but perhaps has bookkeeping experience.  The knowledge and expertise of people without a degree or certification varies widely and so does their work.  I have many times looked at the work of supposed "bookkeepers" and wished that they had done nothing and I could just start from scratch. 

The best advice is to consult with your CPA and ask them what would be the best approach for your business given its size, the number of transactions, and the talent of your staff.  Prepare for 2010 and make the best of the 2009 records that are available. 

Tax Breaks for Almost Everyone

by Mary Beth Franklin


Monday, January 25, 2010 provided by Kiplinger

You'll find lots of new deductions, credits and expanded eligibility rules when you prepare your 2009 tax return.

There's no denying that 2009 was a challenging year for millions of Americans. But filling out your 2009 tax return could bring some welcome relief in the form of a big refund. There are a slew of new and expanded tax breaks for home buyers and car buyers, college students and their parents, homeowners who installed energy-efficient improvements, and the unemployed. Together, these tax savings are expected to boost average tax refunds above last year's level of about $2,800, says IRS spokeswoman Nancy Mathis. The sooner you file, the sooner you'll get your money back.

Here are highlights of what's new for 2009 tax returns.

Education Credit

More parents and students can use a federal education credit to offset part of the cost of college under the new American Opportunity Credit. The maximum $2,500 credit is available to eligible taxpayers who paid at least $4,000 in qualified college tuition, fees and required course materials, including books, in 2009. The full credit is available to individuals with incomes up to $80,000, phasing out above that level and disappearing completely at $90,000. (For married couples filing jointly, the full credit is available to those with incomes up to $160,000 and disappears above $180,000.) Those income limits are higher than under the existing Hope and Lifetime Learning credits.

If you claim the credit and owe no tax, you may receive a refund of 40% of the credit, up to a maximum of $1,000 for each eligible student. Other education credits are not refundable. The American Opportunity Credit can be applied only to expenses paid during the first four years of college. Graduate students are not eligible for this new credit, but they still qualify for the Lifetime Learning credit, of up to $2,000 per household, or a tuition-and-fees deduction of up to $4,000. (A credit, which reduces your tax bill dollar for dollar, is more valuable than a deduction, which merely reduces the amount of income that is taxed.)

Parents of some college freshmen and sophomores should bypass the new American Opportunity Credit and opt instead for the supercharged Hope Credit available to students in Midwestern seven states affected by 2008's flooding disaster (Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska, and Wisconsin). The top credit on 2009 returns for qualified students is $3,600.

Home-Energy Credits

If you weatherized your home or bought alternative-energy equipment in 2009, you may qualify for either of two expanded home-energy credits, regardless of your income.

You may claim a credit worth 30% of the cost of eligible home improvements on your principal residence, up to a maximum $1,500. The cost of certain high-efficiency heating and air-conditioning systems, water heaters and stoves used for home heating qualify for the credit, along with labor costs for installing them. The cost of energy-efficient windows, doors, skylights and insulation also count, but installation costs do not. You would have to spend at least $5,000 to qualify for the full $1,500 credit.

A second tax credit is designed to spur investment in alternative-energy equipment, such as solar electric systems, solar water heaters, geothermal heat pumps and wind turbines, in new and existing homes. The credit is worth 30% of the cost, including installation, with no cap on the amount of the credit.

Home Buyer's Credit

If you bought your first home in 2009, you may be able to claim a tax credit worth 10% of the cost of the house, up to a maximum $8,000, subject to income eligibility rules. You are considered a first-time home buyer if you, or you and your spouse, didn't own a principal residence for at least three years before purchasing a house in 2009.

Different income eligibility limits apply depending on when you bought the house. If you purchased it before November 7, 2009, you are eligible for the full first-time home buyer's tax credit if you are single and your income didn't top $75,000 or if you are married and your joint income didn't exceed $150,000. The credit phases out for individuals with incomes up to $95,000 and married couples with joint incomes up to $170,000, disappearing above those income levels.

Income Eligibility Limits

Limits are higher for those who bought homes on or after November 7, 2009. And a new 10% credit, with a maximum of $6,500, is available to longtime homeowners who bought a new principal residence on or after that date. The full home-buyer credits are available to individuals with incomes up to $125,000 and married couples with joint incomes up to $225,000. The credit is phased out for individuals with incomes up to $145,000 and joint filers with incomes up to $245,000 and disappears for those with incomes above those levels.

Taxpayers claiming either credit on their 2009 returns must use the new Form 5405, "First-Time Homebuyer Credit". If you claim the credit, you cannot file your 2009 tax return online; you must print it out and mail it to the IRS. See more details in our FAQ on the home-buyer credits.

New-Vehicle Purchases

If you bought a new car, light truck, motorcycle or motor home on or after February 16, 2009, through the end of the year, you may be able to deduct the state or local sales tax or excise tax you paid on the vehicle on your 2009 tax return. The deduction is limited to the tax you paid on up to $49,500 of the purchase price of the vehicle, but there is no limit on the number of qualifying vehicles.

To qualify for the full deduction, your income can't top $125,000 if you are single or $250,000 if you are married filing jointly. A partial deduction is available for individuals with incomes between $125,000 and $135,000 (and between $250,000 and $260,000 for joint filers). The deduction is available whether or not you itemize your deductions. If you claim the standard deduction, file the new Schedule L ("Standard Deduction for Certain Filers"). If you itemize your deductions, you can claim the deduction for the sales tax on your vehicle purchase on either line 5 or line 7 of Schedule A.

Jobless Benefits

Unemployed workers are allowed to exclude the first $2,400 of benefits.