Burnsville, MN CPA / Nancy L Shoemake, CPA, PA

February 28, 2008



Ready for a Rebate?

Who better to promote the Economic Stimulus Act of 2008 then the elderly woman from that famous Wendy's commercial (assuming she is still alive). "Where's the rebate????Wheeeerree's theeeeeee Reeeebaaaate?" she would ask in her distinctive voice.



Based on meetings with clients during the past month of tax season, that is the exact question that is on everyone's mind these days......."Where is the rebate?"



The BASICS



Early in February, Congress passed the Economic Stimulus Act of 2008 and on February 13th, the President signed this bill into law. A major component of this $152 billion stimulus package is a tax rebate of up to $600 for single individuals and up to $1200 for married couples. If you have kids under the age of 17, expect to receive an additional $300 per child as well. Right after tax season, the IRS plans to begin issuing these rebates to an estimated 130 million eligible Americans. Do you qualify for this rebate? Here goes:



Single individuals with 2007 adjusted gross income of less than $75,000 will receive the lesser of their 2007 federal tax liability or $600.



Married couples with 2007 AGI of less than $150,000 will receive the lesser of their 2007 federal income tax liability or $1200.



Anyone claiming dependent children on their tax forms will get an additional rebate of $300 per child under the age of 17.



A reduced rebate of $300 for single individuals and $600 for married couples is available for people who have more than $3000 of earned income, Social Security benefits or certain veteran's benefits. or meet other requirements.



Anyone whose 2007 AGI exceeds the applicable threshold of either $75000 or $150000 respectively will begin to phase-out the rebate at a rate of 5 percent of the excess.



Have a great day!

Nancy







February 7, 2008



Muldoon lived alone in the Irish countryside with only a pet dog for company. One day the dog died, and Muldoon went to the parish priest and asked, "Father, my dog is dead. Could ya' be saying' a mass for the poor creature?"
Father Patrick replied, "I'm afraid not; we cannot have services for an animal in the church. But there are some Baptists down the lane, and there's no tellin' what they believe. Maybe they'll do something for the creature."
Muldoon said, "I'll go right away Father. Do y a' think $5,000 is enough to donate to them for the service?"
Father Patrick exclaimed, "Sweet Mary, Mother of Jesus! Why didn't ya tell me the dog was Catholic

February 1, 2008
A TAX DOLLAR SAVED IS A DOLLAR EARNED

Ben Franklin was a man ahead of his time. Even though he died more than 100 years before the current income tax code was put into place, one could argue that he gave some pretty good tax advice when he coined the phrase, "A penny saved is a penny earned."

Any time you take advantage of a tax savings opportunity, less of your hard-earned money goes to taxes and, therefore, more ends up in your pocket. So let's follow another piece of advice from Ben, "An investment in knowledge pays the best interest," and review some of the tax breaks available to you these days.

Pre-Tax Opportunities

When is $100 worth $155? If you're in the 28 percent tax bracket, that's the value of paying for personal expenses with pre-tax dollars. Whenever post-tax dollars are involved, you need to earn $155 to have $100 left over after paying your federal income taxes, social security taxes, and Medicare taxes. Here are some pre-tax opportunities that might be available to you:

Medical expenses paid through a Flexible Spending Account: Most employers, as part of their benefits package, allow their employees to elect to have certain expenses paid with pre-tax dollars through a "flexible spending account (FSA)", including as much as $5,000 per year to be used for medical and dental expenses. Please beware that this benefit comes with a big caveat, you either use it or lose it. In other words, if you don't spend the money that is set aside, it won't be refunded to you. If you haven't spent all of last year's money, don't despair. Under the current rules, your employer can give you to as late as March 15, 2008 to spend any money that you set aside for this pre-tax benefit in 2007.
Childcare expenses paid through a Flexible Spending Account: If you're paying child care expenses, and both you and your spouse work, you can set aside $5,000 per household through your employer's FSA to pay for your dependent's care expenses. The catch is that you need to report the name, address, and taxpayer identification number of the care provider on your tax return, or the $5,000 becomes taxable to you again. If you only have one child, paying for the child's care through the FSA saves you a lot in taxes.

Tax-Free Opportunities:

Tax-free opportunities are a relatively recent phenomenon. Prior to some of the tax law changes during the late 1990's, there were very few tax-free options available to taxpayers. Even though you don't get a current tax deduction in most cases, the potential for decades of compounded growth coupled by tax-free withdrawals down the road makes them worth a close look.

Roth IRAs: For 2007, you can contribute up to $4,000 to a Roth IRA, as long as you have earned income, and your adjusted gross income doesn't exceed $114,000 if single or $166,000 if married. Starting in 2008, the maximum annual contribution jumps by 25% to $5,000 per year. Anyone 50 or older can contribute an extra $1,000 annually. Amounts contributed to a Roth grow tax-free as long as you don't withdraw any of the earnings until you turn 59 1/2, use $10,000 for first-time homebuyer costs, or meet certain other exceptions.
529 Plans: College savings plans allow you to put away a sizeable amount of money for a child's education. Currently, you can contribute up to $12,000 per child per year into a 529 Account. You can even frontload five years worth of contributions, up to $60,000, all at one time, but then you can't add to that child's account for the next four years. Amounts withdrawn from your 529 plan are not taxed as long as the money is used to pay for tuition and other qualified college expenses.
Principal residence: When you sell your principal residence, you aren't taxed on the first $500,000 of gain if you are married, or the first $250,000 of gain if you are single, as long as the home was your principal residence for two out of the previous five tax years. If you sell the house in connection with a job related move or meet certain other conditions of hardship, and lived in the house for less than two years, you can exclude a prorated amount.
Other Tax-Free Opportunities: Gifts received from parents and relatives are generally not taxable to you. Instead, the donor might be subject to a "gift tax" if the value of the gift to another person exceeds $12,000. Life insurance proceeds aren't subject to income taxes either. Depending on who owned the policy, however, the proceeds might be subject to estate (inheritance) taxes. Make sure to talk with an estate planning attorney about these two items.

Tax-Deferred Opportunities:

With a tax-deferred savings opportunity, you save taxes today, and then generally owe taxes when you withdraw the money later on. Even so, these opportunities make sense for a variety of reasons. For starters, a dollar today is more valuable than a dollar tomorrow, due to the time value of money. Plus, the government lets you invest the taxes you save and keep the compounded earnings on that money. For both these reasons, tax-deferred savings opportunities make a lot of sense.

401(k) & 403(b) plans: These salary deferral retirement savings plans are only available through your employer's benefit package. Amounts contributed during the year reduce your taxable earnings and grow tax-deferred. For 2008, the maximum contribution into either of these plans through salary deferrals is $15,500. Anyone 50 or older by December 31st can contribute an additional $5,000 this year. If you go with the Roth version of these plans, you forego a tax savings today in exchange for a promise from the government of tax-free withdrawals down the road.
SEP, SIMPLEs, and Solo 401(k) Plans: If you have some self-employment earnings, or own a small business, you're entitled to set up your own retirement plan. You can contribute up to 20% of your net earnings into a SEP and up to $10,500 plus 3% of your income into a SIMPLE. If you don't have access to a 401(k) or 403(b) plan through another employer, you can contribute $15,500 ($20.5k if 50 or older) plus 20% of your net earnings into a Solo 401(k). Amounts contributed to these plans reduce your taxable income and grow tax- deferred.
Be A "Learned Blockhead"
Ben Franklin put it best when he said, "A learned blockhead is a better blockhead than an ignorant one." And with the complexity of today's tax code, Ben warns us that, "By failing to prepare, you are preparing to fail" and will end up paying higher taxes.
January 31, 2008

A nice little quote for the day...

Mark Twain said, "If you don't read the newspaper you are uninformed, if you do read the newspaper you are misinformed."

Have a great day!

Nancy

January 28, 2008

As a nation, we've witnessed dramatic financial swings over the last few years � from boom times to economic lassitude. Most frustrating of all, there's no foolproof way to predict the economy's next move. The only thing that is certain is change.

A good way to survive these changeable times is to practice smart money management, and to position yourself to help provide maximum financial security, regardless of where the economy goes. Here are some suggestions:

Reduce your expenses.

Good advice at any time, it's doubly valuable now. Start by examining your budget. Look for ways to cut back on unnecessary expenses. If luxury items became commonplace for you during the easy-money days of the 1990s, redefine what is necessary. Revise your attitude toward spending. Be a bit cautious regarding big expenses, at least until the economy decides where it is going. This will help you weather tough times, as well as position you to capitalize on opportunities as they arise down the road.

Keep whittling away at debt, reducing your balance a little each month.

There's a great deal of truth in the saying: It's better to earn interest than pay it. Set debt-reduction goals and, if necessary, make some short-term sacrifices. In the end, you'll find that your standard of living will increase just by paying down your debt load. Most of all, don't add new debt. More and more people are proving that it is possible to live a credit-free existence. They live by a simple philosophy: If I can't afford to pay cash, I can't afford to buy it.

Secure your job by making yourself indispensable.

Though every week brings news of the latest round of layoffs, unemployment is still relatively low. Nonetheless, it seems that the name-your-price days for job seekers have come to an end. Businesses are taking a wait-and-see approach to hiring in changeable times. The best approach: Look for ways to emphasize your unique skills and your value to your employer. Also, if you're thinking about a career change, keep in mind that this may not be the best time to make the move, if only because it puts you at the bottom of the seniority list... making you the first to go if another round of layoffs starts.

Don't ignore your bills if you get caught in a financial bind.

You'll only accumulate interest fees, jeopardize your credit rating and compound your problems. If necessary, contact the people you owe and explain your situation. Most will accept a revised payment plan, with no penalty or additional interest.

Preserve your future assets.

Try to avoid making withdrawals from IRAs and other qualified plans unless absolutely necessary. If you do start cashing in your plan money, you may be penalized for early withdrawals at the expense of your own future financial security. Worst of all, you'll consume retirement dollars you have been accumulating for years and may have a hard time replacing.

Keep your insurance in-force, including your medical, life and disability insurance coverage.

It's tempting to let your coverage lapse when forced to choose between paying insurance premiums and paying the mortgage. But financial protection is particularly important during difficult economic times.

Overall, the best way to weather an uncertain economy is to protect what you have and reduce your expenses. Most of all, keep in mind that downturns are normal, temporary phases of the economic cycle followed historically by ever-increasing prosperity. Just remember that if you maintain financial self-discipline when times are tough, you'll probably be way ahead of the game when the financial climate turns around.

January 26, 2008

When is travel a deductible business expense?

Travel Within the U.S.

When traveling within the U.S. , the trip must be primarily for business to be fully deductible. By meeting this threshold, you get to deduct all of your travel and lodging expenses, as well as 50% of the cost of your meals and entertainment, incurred while away from home. Non-business activities and side trips are never deductible.

What if your travel was primarily for personal reasons? You can still deduct the money spent on travel, lodging, and meals and entertainment incurred in connection with any business related activities. So if you met with a colleague to discuss business or had a job interview during your vacation, make sure to deduct that day's hotel and restaurant bills.

Travel Outside the U.S. ,

The threshold to deduct foreign travel expenses is much higher. To be deductible, your trip must be entirely devoted to your business activities. If the trip was for a week or less, or you spent at least three-quarters of the time working that is an acceptable guideline.

And here's another hint to make your foreign travel deductible. When traveling abroad, make sure to work the day after arriving and the day prior to departing. By doing so, your travel days count as business days.

When Traveling With Family Members or Friends,

The money spent on your companion's travel generally isn't deductible. As a matter of fact, you're required to limit the deduction for your hotel room to the single rate charged by the hotel.

To make your companion's travel deductible, that person needs to be an employee of your company. There also must be a business purpose for the companion traveling with you.

Special Rules For Conventions

For conventions in North America , you can deduct travel and lodging expenses, and 50% of the cost of meals and entertainment, incurred while attending a convention that benefits your business or profession. The cost of attending investment, political, and other types of conventions generally isn't deductible.

Did you attend a convention outside of North America ? If so, you can only deduct the travel costs incurred if the meeting is directly related to your profession or business. Plus, there must also be a reasonable expectation that a similar meeting could have been held within North America .

And believe it or not, there are even rules for conventions held on a cruise ship. You�re allowed to claim a deduction of up to $2,000 annually, as long as the following conditions are all met:

The convention is directly related to your profession
The ship is a U.S. Flagship
All ports of call are located within the US or its possessions
You include 2 signed statements with your tax return. One from you, and a second from an officer of the organization, each detailing the time devoted to the business activities

Saturday Night Stay:

If you extend your trip to stay over a Saturday night to qualify for reduced airfare, the costs associated with that extra day are deductible, even if the business portion of your trip has ended. Evidently, cheaper fares qualify as a legitimate business reason for spending an extra day away from home.

Meals and Entertainment expenses

When determining whether you can deduct your meals and entertainment, you need to segregate your receipts into two buckets. One bucket is for dinners and events you attend in the general vicinity of where you live. The other is for money spent on meals and entertainment while traveling on business.

Local Meals & Entertainment
Here is what the IRS would like to see in connection with local meals and entertainment that you deduct:

How much money you spent
The time, date and place of the meal or event
It�s a good idea to jot down this information either on the back of the receipt or in your calendar.

Whenever you are on a business trip, 50% of your meals and business related entertainment is deductible. You have two ways you can calculate your deduction.

One option is to keep track of the actual money spent during your trip. The easiest way to do this is by keeping all the receipts together, or by charging everything on one credit card. At the end of the trip, simply tally up what you spent.

The other option is to base your deduction on the per-diem rates. Here, the IRS has actually made your life easier by assigning one of six rates to every metropolitan area in the country. Currently, the rates range from $39 to $64. A complete listing of the per diem rates by city can be found at www.gsa.gov. To calculate your deduction using the per diem rates, simply multiply the number of days you were in a city by that city�s rate. It couldn�t be easier, and it relieves you of the burden on keeping track of your individual meals and entertainment receipts.

Which method should you choose? For each trip, you get to decide whether you�ll base your meals and entertainment deduction on the per diem rates or actual expenses.

When you use your car for business, driving between job sites is deductible. So is driving between your home and a temporary job site, job interviews, and conferences. Commuting between your home and a regular place of business generally isn�t tax deductible.

If you do have allowable business mileage to claim, there are two ways for you to calculate your automobile expenses. You can either claim $.485 per business mile driven in 2007 (increasing by a lousy two cents to $.505 per business mile driven for 2008), or you can base your deduction on the percentage of miles your car was driven for business multiplied by the actual costs incurred during the year. Allowable costs include gas, insurance, repairs, parking at home, and either your lease payments, or if you own your car, a factor for depreciation.

Gene rally, unless you drive your car relatively few miles each year, with most of those miles being allowable business miles, you�re better off basing your deduction on the standard mileage rate.

My first comment regarding the latest talk about a stimulus plan is great....but until it passes into law.....it is just talk.

This latest incentive plan will NOT affect your 2007 taxes. This proposal would be for 2008 and beyond. Here is an excerpt of the tax relief plan from the White House.

The President has proposed a bold and fair tax relief plan that will reduce the inequities of the current tax code and help ensure that

America

remains prosperous. This tax relief plan promotes the values that make the American economy second to none -- access to the middle class, family, equal opportunity, and the entrepreneurial spirit. This plan will reduce taxes for everyone who pays income taxes, and it will encourage enterprise by lowering marginal tax rates.

Under the President�s tax relief plan, the typical American family of four will be able to keep at least $1,600 more of their own money.

Over the past several months, the economy has slowed dramatically. President Bush�s tax cut will give the economy a timely second wind by placing more money in the hands of consumers and entrepreneurs. President Bush also understands that, over the long run, wealth is created by hard-working, risk-taking individuals, not government programs. Countries with low taxes, limited regulation, and open trade grow faster, create more jobs, and enjoy higher standards of living than countries with bigger, more centralized governments and higher taxes. The

United States

has led the way in economic performance over the last century because

America

is a freer country. If people are given the freedom to create, they do. If people are given a stake in the outcome, they succeed.

President Bush�s tax relief plan reflects this basic trust in the American people and confidence in the American ideal by increasing tax fairness and enhancing the performance of the economy. It includes:

One of the most powerful tools the federal government has to raise standards of living is to lower marginal tax rates. The marginal tax rate is the tax on each additional dollar of income. The lower the marginal rate, the greater the incentive to find a better job, to save for the future, or start a new business. Lower marginal tax rates also leave more resources with innovative entrepreneurs, instead of funding government bureaucracies.

The marginal tax cuts of the 1980s helped generate the venture capital that is now fueling the growth of the Internet and other technologies. New technologies are boosting productivity and economic growth by helping companies achieve new efficiencies. In this environment, entrepreneurship has become the path to prosperity for many minorities, women, and young people. Yet, today's high marginal tax rates tend to penalize continued innovation and business formation and expansion.

High marginal tax rates inhibit entrepreneurial activity because they act as a success tax, claiming a larger share of income from flourishing enterprises, while the government shares little of the risk of loss. For most entrepreneurs, income taxes reduce their companies' cash flow � the money businesses need to expand, buy more equipment, and hire more workers.

To ensure continued innovation, President Bush believes the tax system should be revised to restore incentives for success. In this period of revolutionary technological change, the government should leave as many resources as possible with the entrepreneurs and companies that are generating new ideas, better jobs, and greater wealth. The President's tax relief plan will cut the top marginal rate, which many small businesses pay, from nearly 40 percent to 33 percent. Reducing the top rate will spur entrepreneurial activity and investment, helping to attract the best workers from around the globe to

America

The tax law is complex - overwhelming - and at times confusing! As a result of this massive body of law and guidelines many people have questions.....is this deductible.....is that deductible.....

Below are a list of items that are NOT deductible on an individual tax return.

I am determined to get a bunch of questions answered and posted on this website before employers begin sending out W-2s. Once that happens......the 18 hour days begin! For many of you out there some of these questions may seem rudimentary. Please hang in there because you may learn something significant for yourself!

We receive many people inquiring as to AMT. What is AMT and why is it in the news so much?

AMT (also known as alternative minimum tax) is an alternative set of rules used to determine tax liability. It first came into existence as part of the Tax Reform Act of 1969. It was designed to target the "rich". Lawmakers who introduced the concept cited a Washington Post article which reported that in 1967, 155 individuals with incomes over $200,000 did not pay any federal income taxes, and that 20 of these individuals were millionaires. The reason why they paid zero tax was because they used legal tax loopholes to eliminate their tax. AMT was designed to close tax loopholes by imposing an "alternative" set of rules. If this "alternative" way of calculating tax results in a higher tax, then regular tax must be increased by AMT.

I thought this might be a great way to communicate some of the most commonly asked questions asked throughout the year. If you have questions you would like posted on this website, please send me an email at nshoemake@shoemakecpa.com. I would welcome any suggestions!

Good recordkeeping throughout the year saves you time and effort at tax time when organizing and completing your return. If you hire a paid professional to complete your return, the records you have kept will assist the preparer in quickly and accurately completing your return.

Medicare tax has no limit - in other words you continue to pay medicare tax on all earnings.

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