The Personal Income Tax Increase

The top income tax rate will rise from 35% to 39.6%.  the lowest rate will rise from 10% to 15%.  All the brackets in between will also rise.  Itemized deductions and personal exemptions will be phased out if you have “too much income”, which has the same effect as higher marginal tax rates.  Here’s the complete list…

* The 10% bracket becomes an expanded 15%

* The 25% bracket becomes 28%

* The 28% bracket becomes 31%

* The 33% bracket become 36%

* The 35% bracket becomes 39.6%

Though these increases may seem small, their ramifications for your wallet, and your monthly budget are quite significant.

The Return Of The Estate Tax

This year, there is no estate tax.  However, for those dying on or after January 1 20011, there is a 55% top death rate on estates over $1 million. (And you thought you weren’t “wealthy” because your net worth–including real estate–was only $1.4 million?)

And, unfortunately, this will have an impact on gifting, charities, and more.

New Higher Taxes On Married Couples, Families

The “marriage penalty” (these are compressed tax brackets for married couples) will return starting with the first dollar of your income.  The child tax credit will be cut in half from $1000 to $500 per child.  The standard deduction will no longer be doubled for married couples and the dependent care tax credit with the cut.

Higher Tax Rates On Savers and Investors

The capital gains tax will rise from 15% this year to 20% in 2011.  The dividends tax will rise from 15% this year to 39.6% in 2011.  These rates will rise another 3.8% in 2013.

Further, there are over twenty new or high taxes in the new Patient Protection and Affordable Care Act (the Health Care Reform Act), many of which will first go into effect on January 1, 2011.

I’ll share more about those next week.

Now, all of these things I’ve listed above (and what I’ll be sharing next week) are contingent, of course, on Congress *NOT* acting to change them.  Unfortunately (or fortunately, depending on your opinion), that’s probably a safe assumption.

What You Should Do Right Now

First of all don’t be surprised at what comes down the pike on New Year’s Day.  I’m giving you plenty of warning.

Second, take advantage of these remaining months in 2010 to have your income count during this tax year.

Third–look over your specific information, compile a list of questions for me and my staff, and let’s sit down to talk things over…together (and as soon as possible!  Our schedule has been extremely busy with savvy clients who have already seen the ‘writing on the wall’).

Send me an email, or give us a call (973-605-1212).  We’ll make sure you (and your wallet) survive this coming Armageddon.

Warmly,

Dan and Rita

First of all, thanks for all the feedback we’ve received in the last two weeks.  I’ve been asking about YOUR experience with our firm, and what our clients and friends have written has been extremely useful.

These economic circumstances *require* that we (and you) have god intel on what our clients are thinking.  So again, thank you!

(And if you haven’t yet done so, feel free to shoot me back a quick note about how we’re doing for you.  I won’t rehash the specific questions we’ve been asking–any quick comments at this point would be fantastic.)

Well, last week I encouraged you to take a hard look at the staff you’re “running with”, and whether they’re helping you or not.  And I mentioned that I’d be back with some counter-intuitive thinking about screening and interviewing potential employees who will actually help you.

Here’s what’s great about the approach I’m about to share: It doesn’t just have to be used solely with prospective employees.  Use this question-asking approach with your *current* staff , and watch your results go through the roof.

And, of course, feel free to let me know what you think!

P. S. REMEMBER ALL 1040 TAX RETURNS AND CORP STAE RETURNS ARE DUE 10-15-10

Frankly, there is just so much pablum out there about how to conduct an interview…”What’s your greatest achievement?’, “How do you respond to adversity?”, “what’s your favorite color and why?”…and so on. Yikes.

Many interviewers (and managers) resort to this approach simply because it seems what everyone does.  Unfortunately, it’s not only lazy, it’s terribly ineffective. No, high quality questions should have four characteristics:

1) They should be easy to answer.  They need to be direct, and focused into specifics as much as possible.

2) They should be just one answer.  Instead of asking a general question like, “How do you deal with deadlines?”, ask what was the biggest deadline you had in writing your last book?  Step me through how you dealt with that deadline. The second question gives you specific information you can use to evaluate the candidate.

3) A clear specific purpose. the purpose of every interview question is the same: to gather a piece of data–but it doesn’t ALWAYS have to be direct attack For instance, if you want to know if someone stays current on the latest technologies, a good question would be, “What technical journals do you read?” as opposed to, “What’s the last book you read?”

4) They should be task-related.  Sure, we all like to delve into personal issues, but you’re always better off if you stay with topics that are very specific to the job.

I’ve put together a good list of sample questions that you can use, as a guide for putting together interviews and performance reviews…these are, samples of course, and can be a jumping-off point for you.

Factual questions

- how many people report to you?

- by what percentage did you increase your sales last year?

Action questions

- how did you handle the last customer problem elevated to your level?

- step me through how you debugged that particular program.

- how did you build your business plan for the roll-out of that division?

Candidate-specific questions

- what was the last deal you closed?

- what was the biggest objection you got in that sales cycle? Step me through how you overcame that objection

To re-cap, these specific questions are good because they require specific examples of behaviors, not just “sound good” theories.  If your candidate can provide specific examples of past behaviors, chances are she’ll exhibit those same behaviors in the position you have available.

Probing questions (these are follow-up, clarification and detail questions):

- tell me more about that.

- could you please be specific?

- what do you mean by that?

Remember, past behavior is the best predictor of future performance.

Many people think that preparing taxes for a living is an easy assignment.  Can I say that nothing could be further from the truth?

It’s not just filling in the boxes and having the numbers spit out the results.  I WISH it were so simple.  There are two big reasons why it’s so hard–even for many professionals.

1) The tax code is incredibly long, complicated–and carries contradictory incentives for taxpayers.  Sorting through all of them in indubitably not a task for a computer software program.  It requires sitting down with an individual, a business owner, a family–and determining what they most care about, and how to plan for it properly. Really, that’s the only way to do it.  Everything else is just after the fact, clean-up work.

Which is why it’s so critical to meet with someone in the fall to make sure that you’re set up to hold a tax position which represents the real picture of where you are going.  This is the essence of tax planning.  Some may say that this is overstating it–but after years of doing this, I’ve become convinced that it’s the truth.  I’m in the business of helping you fulfill your dreams by helping you hold on to as much income/revenue as possible!

2) The other big reason this job is no cupcake is what’s required to stay up to date with how the law changes…and it’s made much worse by what happens in Congress.

I have a bit of a rant this week,  which is triggered by last week’s news that 950,000 tax payers will have to repay portions of the home-buyer tax credit.  As YOUR advocate, this simply frustrates me to no end.  But there is hope, especially for our clients…

How The Legislative Process Creates Tax Cheats

You may have seen the news that Capitol Hill is stuffed with people who owe back taxes.  But that is not what I’m talking about here.  (That article is here: http://www.washingtonpost.com/wp-dyn/content/article/2010/09/16/AR2010091601770.html)

Rather than pointing the a finger at the actions taken by Congress which hurt our voluntary tax payment system.

Now, of course, the truth is that we don’t have the choice to not file or not pay what the tax laws say we owe.  That’s why the IRS audits returns and has all sorts of mechanisms (liens, refund offsets) to encourage us to file by each April 15, and to do so correctly.

But even with payroll deductions, etc. we U.S. taxpayers are trusted to fill out forms, ensure the correct amount was withheld and let the IRS know what our true final bill was.  That’s called tax filing.  and if we discover that we owe the U.S. Treasury, then our system, as it stands now, relies on us to send in the necessary payments.  This, of course, is what we spend much of our time on around here–helping YOU to ethically, but ensuring you’re not overpaying.

But congress seems to encourage tax cheating.

They do this– probably unintentionally–by tinkering with our tax laws so much.  They change them sometime slightly, sometime quite a bit, and they do so constantly. What’s worse is the procrastination in the House and Senate.  I see this all the time.  As a regular course of business.

And these delays in tax changes–or the decision to make some laws retroactive months later (extenders, estate tax, etc.)–totally screw up basic tax planning, sometimes negating options that could have been used to legally lower the tax bill.

(Which, incidentally, is why I have to pay so much attention to what’s happening in the legislation.  I do this so you won’t have to!)

So some people cheat, and unfortunately, they feel justified in doing so.

Last week, I saw a blog comment by a tax filer which opened my eyes:

I did take the original tax credit and…felt cheated when the revised 2009 credit was passed.  This is especially true since I closed just 11 days too soon to take the revised credit.  So I will dutifully pay back the $500 credit on my 2010 tax return, but I will also find a way to skim $500 (read: cheat) somewhere else on the return (not hard to do since I’m self employed and can easily “forget” to report some income) and will continue to for the next 15 year.

That person was talking specifically about the first-time homebuyer tax credit and the many ways congress fiddled with it after its creation in 2008.  But there are plenty of other tax laws with similar histories that tick off filers enough so that they look for ways of getting payback when they fill out their 1040s.

Now I’m not condoning this taxpayer’s or anyone Else’s decision to “even up” the tax code where a person might find it unfair.  Life is unfair and taxes are a huge part of life.

But congress can do a lot to prevent such “they hurt me so I’ll hurt the tax system right back” attitudes by doing tax-writing job in a more rational and professional manner.

Until it does, then Capitol Hill is going to keep creating tax cheats.

But here’s where the hope comes in…

For my clients and contacts, you can rest assured that we are paying attention and will be on top of even the procrastinating legislation’s.  We’ll make sure you don’t make moves that you regret after the fact.

And the best way to help us help YOU is by giving us a call back to talk things through this fall–973-605-1212

Theres’ a ton of “doom and gloom” out there, with the “recovery summer” fizzling, continual media drip of bad news, and just general bleakness about the prospects fro small businesses heading into the fall. 

But we don’t have to join the maddening crowd, do we?

In case you were wondering–no, we don’t.  But it really does start with getting serious about sharpening your sales and marketing strategy for the back to school season.  Things that were easy in the past, aren’t as easy as they used to be.  It’s time to make sure you’re squeezing all the value you can out of advertising and your selling.  And to do that, you’ve got to avoid the big mistake I am writing about.

Look–as an accountant, I don’t claim to be a marketing “guru”, but I am intensely committed to the success of your venture, beyond managing finances and books for our clients.

Dan Vigilante and Rita Weiss’s “Real World Strategy”

Be clear on who you are talking to

Here’s something which I’ve seen in healthy, growing businesses…and which is often absent in stagnant, failing small business: Knowing their target prospect.

You see, in EVERY kind of business (even a non-profit), you want to do business with, accept donations from, and/or serve clients, etc. who meet a particular profile.  And, if you can identify this profile, you can save a bunch of advertising money, and keep your sales force from wasting their time.

Sometimes , small business owners think their market is simply their “local-Contact.City-area”, or even worse, “anyone with money to spend”. I hope you see how wasteful this approach can be.

No, you’ve got to zero in on what groups will provide the best ROI possible when you’re putting together a marketing plan.  So, you’ll need some detaled information about your BEST target clients. 

I put together a list of 7 things you absolutely MUST know about your prospects.

(And, in case you’re wondering, if you’re a B2B business, this is just as pertinent.  You’re still selling to people, not companies.  Remember that!)

1. Age - everything you say and write, including slang, allusions, word difficulty, and topics should be adjusted to meet age appropriateness.

2. Gender – Despite the dual roles, men and women tend to fill, most individuals can be segmented (and sold to) based on gender-specific interests or needs.

3. Location - Values and culture tend to vary based on demographics.  Having a clear understanding of regional difference will improve your targeted messages.

4. Education Level - Similar to age appropriateness, education levels should determine how you address your prospects and what benefits they will fill in your product or service.

5. Income – The needs and wants from one social class to another should be a guide to the types of products and services you should be selling them.

6. Marital Status - The values, needs, and desires of married persons greatly differ from those that are single.  Marketing family messages to single persons (and vice versa) can lose the deal for you.

7. What Keeps Them Up At Night - This is the most important one.  You’ve got to kn0w your prospect’s fears, worries, concerns, excitements, hopes and dreams.  When you know the conversation inside your prospect’s head, you can enter it, speak to it, and build a relationship that leads to a customer.

So take the time this week to really nail down these profiles

The expiration of the tax cuts set for the end of the year 2010 are likely to dominate Washington when Congress returns after summer break.

Middle class New Yorkers would take a big hit in the wallet if Congress fails to extend former President Bush’s tax cuts, with some forking over alsmost double what other middle-income americans are paying, according to a new study. 

On the upper East Side for example, families whose salaries are in the middle range would hand over a hefty $3,066 in extra dough to Uncle Sam.  In Brooklyn, where incomes that fall in the middle range are lower, families would pay an extra $1,730.  In Staten Island it’s $1,658 more in taxes, if the cuts expire.

Republicans, emboldened by the slumping economy economy and President Obama’s bleak poll numbers, are planning a fight to have all of the cuts stay.  Some democrats fearful of being called tax hikers in the midst of a recession, have said they want to keep all of the bush cuts as well .  Obama wants to roll back the tax cuts for families making $250,000 a year or more, but would keep the cuts for the middle class.

Some prominent figures, including former Federal Reserve Chairman Alan Greenspan, believe the cuts should be completely rolled back, arguing that the deficit is too high to support tax breaks.

Americans will automatically be hit with massive tax increases on their income and investments after December 31, 2010. We must urge Congress and the president to renew the Bush tax cuts early, before they expire. Now is not the time to raise taxes, as our nation is facing one of the worst recessions since the Great Depression. If Bush tax cuts are not renewed, a massive tax rate increase for almost all working americans including those in the 35% bracket, which will increase to 39.6% – 33% bracket which will increase to 36% – 28% bracket which will increase to 21% – 25% bracket which will increase to 28% – 10% and 15% will condense to 15%, whereas the capital gains tax will increase from 15% to 20% and the tax on dividends will increase from 15% to 39.6%. It is urgent that we contact our representatives in Congress to renew the Bush tax cuts without delay to ensure public confidence in the markets and economy

People often ask what the difference is between a CPA (certified public accountant) and a Box Tax Chain? Education, testing and Regulation.  A CPA must have a four year accounting degree plus 150 educational credits to qualify to become certified.  Then they must complete 80 hours of continuing professional education every two years.  And just like a lawyer must pass the bar exam or a doctor must pass the medical boards, a CPA must pass a tough licensing and certification test, which covers business, auditing, general accounting and taxation and is a total of fourteen hours long.  State Boards of Accountancy issues certificates and licenses to individuals who complete the education requirements and pass the exam and continue to fulfil their continued education obligations.  CPA’s are also subject to have their work reviewed by their peers and are subject  to the highest ethical standards in order to keep their licenses.

Box tax chains are not bound by state or association rules and regulations to have any special education or pass any tests.  In fact they are often just seasonal employees.

The IRS has a magic number–$200,000.  Americans making less than that each year have only the slimmest chance of having their tax returns audited, it was revealed yesterday.

Of the 133 million returns with income less than $200,000 filed in the 2009 fiscal year,  just 0.96 percent were audited, IRS records show.

In contrast, returns of those reporting over $1 million in income had a 6.42 percent chance of getting audited.

Tax returns reporting between $200,000 and $1 million had a 2.9 percent chance of an audit.  The IRS data also revealed that audits of millionaires spiked by a dramatic 30 percent over the past year and 120 percent since 2005.

There were 28,349 audits of returns that reported more than $1 million in income in fiscal year 2009, up from 21,874 the previous year and 12,835 in 2005.  More complex returns are going to be looked at because that is where there are most likely to find opportunities for non-compliance, said IRS spokesman Anthony Burke.  More than half of those millionaire audits, some 15,730 this past fiscal year that ended Sept 30, required grueling in person sessions with the IRS field agents.

The vast majority of people with incomes less than $200,000 got away with a correspondence audit–generally an impersonal exchange of letters.

But everyone should be on their toes, tax pros warned.

Thanks for stopping by our brand-new blog!

Here we will be writing about the accounting issues and tax laws that impact our clients.

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