Friday, July 27, 2012

SENATE MAKES NO PROPOSED CHANGES TO ESTATE TAX IN EXTENSION BILL

I think that we all know that the only thing going on in Washington between the Republicans and the Democrats is positioning for the upcoming elections. Bills are submitted in the Senate (controlled by the Democrats) and in the House (controlled by the Republicans) that will never become law because it takes both bodies and the President to make the provision law. So bills are passed by one of bodies with the realization that the other body will vote it down. Just positioning. At the same time, the defective proposals give us some indication of the thinking which could eventually become law if they ever get serious about doing their job. 
Senate Democrats removed any mention of the estate tax in a Bill that is currently headed to the floor. This proposed Bill will now extend the 2001 and 2003 “Bush” tax cuts for families earning $250,000 or less. An earlier version of the Bill would have included a maximum estate tax rate of 45% while dropping the exclusion level to $3.5 million. With the new changes to the Bill, the maximum rate will be 55% with only a $1 million exclusion amount.

This new Bill would set the top rates for dividends and capital gains at 20% (plus the Medicare Surtax of 3.8% if applicable); reinstate the phase-out of personal exemptions and certain itemized deductions for higher income households; and extend certain credits such as the education credit, child tax credit and earned income credit for another year. The Section 179 expensing limits would be set $250,000 for 2013 and probably most important, it would provide for another one-year“patch” to the alternative minimum tax for 2012.

The chance of this passing is about as good as farmers having record yields this year.

WHO IS PAYING THE TAX - BY STATE

President Obama recently called for letting the Bush tax cuts expire for people who make more than $250,000 a year. Senator Chuck Schumer and Representative Nancy Pelosi had previously called for an extension of the tax cuts for those earning up to $1 million dollars, only to abandon that position in favor of President Obama’s proposal.

Recently, and for the first time, the IRS published state-level data on tax returns with adjusted gross incomes over $1 million for tax year 2010. Together with data on incomes over $200,000, we can finally take a look at who might win and who might lose as a result of President Obama’s tax proposal.

Here is what people need to realize. Returns with adjusted gross income over $1 million a year were only 0.19% of total tax returns, but 22% of total taxes paid. Those making over $200,000 were 3% of returns, but nearly 50% of income tax paid.

The Tax Foundation just published a map that shows the percentage of federal income tax revenue from each state that is paid by filers with incomes over $200,000. Such filers make up a small percent of the population but pay a high percent of total tax revenue. Given that President Obama proposes to let the Bush tax cuts expire for single filers earning over this threshold (and for married filers earning over $250,000) this map gives an idea of the states that would be most affected.



Thursday, July 26, 2012

QUICKBOOKS SETUP ERROR & HOW TO FIX IT #1

Since many of you use Quickbooks over the next few weeks I am going to pass on some Quickbooks tips. 

As they say: Garbage in = Garbage out… so proper setup is crucial. Here is 1 QuickBooks setup error that we see the most AND how to fix it.

Chart of accounts
Account list not appropriate to reporting needs: If you are unsure if your chart of accounts is appropriate for you and your business, do a Google search. Chances are you aren’t too far off base or not as far off as you thought you were.

Redundant or duplicate accounts: You don’t want a bloated Chart of Accounts, you want a lean mean account machine so LESS is MORE! And let’s be honest here, you don’t REALLY need two or three accounts for, let’s say, telephone expenses.

Here are a few alternatives for you:

Since it is most likely that your telephone expenses are paid to different vendors, if you want to know how much you paid in cell phone expense versus what you paid in office phone expenses – you can either run a Vendor Transaction Report or run a General Ledger Report for the account in question and sort it by the vendor paid.

If you must separate them, make them sub-accounts of a main account – for instance, Cell Phone Expense &  Office Phone Expense would be sub-accounts of Telephone Expenses.

If you find that you have duplicate accounts, you can merge them.

Unused accounts: During the setup process, QuickBooks can (and will) generate a Chart of Accounts for you. Sometimes, it creates accounts that just don’t make any sense for you and your business. No big deal. Here’s what you do. If you notice that there are accounts that you have never used and you will never use, you can do one of two things:

(1) if you are unsure and just want it to “disappear” for now, make the account inactive but if you are absolutely positive that you will never use the account, you can
(2) delete it

As I’ve heard it said, standing in a garage, doesn’t make you a car… knowing a bit about QuickBooks and being able to navigate it, does not make you an accounting expert. Don’t be afraid to ask for some help from us!

Wednesday, July 25, 2012

DROUGHT AND TAXES

Boy do I hate having to write this blog item.  Because of this year’s record drought we are most likely going to see a large amount of crop insurance claims.  The question I always get is “I received a check for $100,000 for crop insurance, do I have to claim that as income this year?” 

Fortunately the tax code is good to farmers.  Normally crop insurance proceeds due to crop damage (not price drops) are taxable in the year of receipt; but, the tax laws do allow a farmer to make a deferral until the next year assuming that the farmer meets the following:

·         The crop insurance proceeds are for the current year crop, i.e. crop insurance proceeds for 2012 crop damage received in 2012 can be deferred to 2013. 
·         Note If the proceeds for the 2012 crop are received in 2013, then no deferral is available
·         AND, You have a history of reporting more than 50% of crop sales in the subsequent year. 
·         For example
·        If the farmer harvests 100,000 bushels in 2011 and sells all 100,000 by the end of 2011, then he cannot defer his crop insurance. 
·         If, however, he normally would sell 50,001 or more bushels in 2012, then he can defer his crop insurance proceeds.

The election to defer is made on the tax return.

Note that price adjustment payments do not qualify for the deferral.

KO PLANNING TIP:  If you normally sell all of your crop in the year of harvest, you still may be able to “defer” by getting the insurance check after the first of the year.


Friday, July 20, 2012

I WON A CAR, HOW DOES THAT IMPACT MY TAXES?

Q: I recently won a car. How does this impact my taxes?

A: Congratulations on the win of the car. The fair market value of the vehicle will be ordinary income to you. There really isn’t too much you can do to reduce the tax consequences.

The following are some of the items involved:
  • You will want to watch the fair market value of the vehicle that is reported on the 1099. Sometimes the value reported on the 1099 is considerably higher than the actual fair market value. This is especially true in the case of a vehicle where the sticker price is considerably higher than the real value. I would consider comparing the 1099 value to the Bluebook value. If there is a big difference, we might want to re-discuss this.
  • You do not need to worry about any penalty for underpayment of estimates as long as the amount that you have withheld from your paychecks is greater than last year’s tax liability. If this is the case, you should not have to worry about underpayment penalties.
  • If you are not in alternative minimum tax (AMT) and itemize deductions, you might want to consider paying your state income tax prior to the end of the year. This will allow you to have that itemized deduction in the 2012 year as opposed to 2013. In addition to this, there is some discussion of changing the tax code and eliminating the state income tax deduction. If this should happen, it would be best if you could pay that this year. It’s hard for me to give advice without seeing your actual tax situation regarding the AMT.
  • This is considered gambling winnings so, therefore; should you have any gambling losses you should keep track, in that, they would be deductible. Keep documentation of your losses. There is a court case where tickets were disallowed because there were foot prints on the tickets. You will need to show that you actually had cash withdrawals to support the deduction.
Again, congratulations! Drive the new car proudly.

Thursday, July 19, 2012

SHILLER’S FAVORITE FINANCIAL IDEA


The following article is from the July Forbes magazine. I thought you may be interested in what Robert J. Shiller, an economist at Yale University, view is on the American government. He predicted both the Internet and housing bubbles.

The American government should go public- literally. Here’s how it could work: The federal government would issue a trillion shares against our $15 trillion GDP and sell them to the public in an IPO. These so-called Trills would pay dividends in perpetuity or until the government decided to buy them back. Trill investors probably would accept relatively low dividends in expectation of future GDP growth, meaning America could refinance its debt at better rates. “Governments need to end their historic reliance on debt financing. Issuing shares in GDP is analogous to corporations issuing equity.” Shiller says. “Substituting Trills for conventional debt helps deleverage the government, something whose importance has become clear with the European debt crisis. Had European countries financed themselves with Trills in the past, there would be no crisis today.”

INVESTMENTS DO BETTER WHEN CONGRESS IS OUT OF SESSION


I just received a flier from Edward Jones Company talking about the performance of stocks and bonds under Democratic or Republican rule.

I found it interesting to note that the study found:
“more than 90% of the capital gains in the Dow Jones Industrial Average from 1997 to 2004 took place when Congress was out of session”

OCTOBER SURPRISE? U.S. COULD HIT DEBT LIMIT BEFORE ELECTION

The U.S. government's debt is nearing $15.8 trillion. And now there are reports that at the recent pace of debt growth, the U.S. will reach its $16.4 trillion statutory debt limit some time in October — just before the 2012 election. 
According to a report by Investor's Business Daily, the government can employ some accounting maneuvers to stay below the ceiling for a few months, giving lawmakers a grace period. But if the economy continues to weaken -- and federal tax receipts decline in growth -- the debt limit deadline could arrive just in time to play a large role "the super-charged environment of a presidential election." In addition to the debt limit, Congress must also decide what it wants to do about the pending tax increases -- which, collectively, would be the largest tax hike in U.S. history -- as well as the automatic spending cuts that were a part of last summer's debt ceiling deal.
Already, Fitch has warned that the U.S. will lose its AAA credit rating without a credible deficit-reducing plan. And "paired with last year's Standard; Poor's downgrade, a Fitch cut would add chaos in financial markets and raise U.S. borrowing costs," according to IBD.

Friday, July 13, 2012

NEBRASKA AGRICULTURE FLEXING ITS ECONOMIC MUSCLE


(Omaha World-Herald) -- Omaha.com reports, "The greater Omaha and Lincoln area is Nebraska's leading region when tabulating the total dollar impact of agriculture to the economy," according to a new UNL report.  The story notes that "agriculture and related industries represent about one-fourth of Nebraska's total economy — a percentage share that's unmatched anywhere except South Dakota, said Bruce Johnson, a UNL agricultural economist and an author of the report."  About "one of every seven jobs in the Omaha-dominated east region is tied to agriculture."  Agriculture and the food industry contributed $68.88 billion in total sales volume to Nebraska's economy in 2010, the latest year available.  "The report predicts continued growth for Nebraska's ag production complex, with exports likely to grow to China, India and elsewhere in Asia and Latin America. They also predict more growth in food processing, agriculture-oriented manufacturers, biotechnology companies and transportation."

To read more of the article: CLICK HERE

Thursday, July 5, 2012

UPDATE ON SENATE FARM BILL

Here is an update on the Senate Farm Bill:

§ Eliminates Direct Payments, Counter-Cyclical Payments (CCP), Average Crop Revenue Election (ACRE) payments and Supplemental Revenue Assistance Payments (SURE) as of the end of the 2012 crop.  Beginning with the 2013, all of these payments will be eliminated.  This creates $15 billion in savings for deficit reduction over the five years of the Bill.

§ Payments will be capped at $50,000 per person or entity.

§ Payments will only go to farmers with an active stake in the farming operation.

§ A new program called Ag Risk Coverage (ARC) will be implemented that will complement current crop insurance programs.  It will protect against both yield and price losses.  Farmers can make a one-time choice between individual farm level coverage of county level coverage.

§ Payments will only be available when actual losses are experienced off of a benchmark revenue calculated using an Olympic average of the previous five crop years (throwing away the high and the low).  Payment rates depend on whether individual or county coverage is elected and will only be paid on acres planted.

§ Marketing loans will still be available.

§ CRP will be phased down from the current 32 million acres to 25 million acres

§ “Ends Farm Payments to Millionaires”.  This is the Senate’s heading on this part of the Bill, but it actually refers to payments not being allowed if the total AGI for the person or entity is $750,000 or more.

For farmers who are enrolled in ag programs with the FSA, there are currently three different levels of AGI (adjusted gross income) that affect whether they qualify to receive any payments from the FSA during the year.  These levels are:

§ $500,000 of non-farm income

§ $750,000 of farm income

§ $1,000,000 of non-farm income, but OK if 66.66% is from farm income


These levels were implemented with the 2008 farm bill and we are just now starting to see payments being disallowed.  In some cases, the disallowance is due to income earned before the farm bill was even implemented.

The Senate farm bill passed last week contains a provision that will only disallow payments due to AGI being more than $750,000 from all sources on a rolling three year average.  This provision will apply to 2013-2017 crops. 

Monday, July 2, 2012

SMALL BUSINESS TAX RELIEF POSSIBLE?

Q:  I have heard that Congress will pass tax relief for small businesses this year. True?


A:  I doubt it. I think it is all about election year posturing. The two parties like to point fingers at each other.

The House has approved a measure to allow firms with fewer than 500 employees to claim a tax deduction equal to 20% of their income from U.S. sources. The Senate takes a different tack, allowing companies that increase their payrolls in 2012 to get a tax credit of 10% of the additional wages, up to a maximum credit of $500,000. The Senate measure also reinstates 100% bonus depreciation for all of this year.

Normally, House taxwriters would be inclined to consider the Senate proposal, especially since they like the bonus depreciation change. But this is an election year, and the House GOP is wary of passing a bill that makes Senate Democrats look good.