The Potts Report

Standard Mileage Rate Increases

The IRS increased the business standard mileage rate from 50.5 cents per mile to 58.8 cents per mile effective July 1, 2008. They also raised the standard mileage rate for medical mileage from 19 cents-per-mile to 27 cents-per-mile.  Charitable mileage rates remains fixed by law at 14 cents per mile.
The standard mileage rate for business use of vehicles is used to calculate the business deduction in lieu of actual costs of operating a vehicle. The standard mileage deduction covers all costs of operating the vehicle excepts for interest expense and personal property taxes.

Many people don’t realize the mileage rate includes a factor to cover depreciation expense. Depreciation  using the standard mileage rate was 16 cents per mile in 2003 and 2004; 17 cents per mile for 2005 and 2006; 19 cents per mile for 2007; and 21 cents per mile for 2008.

The standard mileage rate cannot be used to compute the deductible business expenses of operating an automobile or truck if the business operates five or more automobiles or trucks at the same time. You cannot use standard mileage rates if you have ever used a depreciation method other than straight-line depreciation to compute you vehicle operating costs. For practical purposes, if you start deducting you automobile’s business deduction using actual costs then you can’t switch to standard mileage rates.  However, if you start computing your automobile’s business deduction using standard mileage, you can switch to actual costs as long as depreciation is computed using the straight-line method of depreciation.

Economic Stimulus Payment Schedule Released by IRS

Direct from the IRS: For tax returns filed and processed by April 15, 2008.

Economic stimulus payments will be issued according to the last two-digits of the main filer's Social Security number. People who use direct deposit also will be among the first to receive the payments starting May 2. Paper checks will be put in the mail starting May 16.

DIRECT DEPOSIT

Last two SSN digits:  Payment will be transmitted:
00 through 20  May 2
21 through 75  May 9
76 through 99  May 16

PAPER CHECK

Last two SSN digits:  Payments will be mailed by:
00 through 09  May 16
10 through 18  May 23
19 through 25  May 30
26 through 38  June 6
39 through 51  June 13
52 through 63  June 20
64 through 75  June 27
76 through 87  July 4
88 through 99  July 11

Delegation - An Overlooked Management Tool

It is no secret that you can get more done if you delegate tasks. Delegation is most important to small business owners who wear several hats in their business and work 50, 60, or 70 hours each week. So if you want to get more done, delegate.  Simple enough.  But if its that simple, why do so many business owners routinely fail to delegate?

Personally, I fail to delegate tasks because I think its faster if I just do it myself.  It is also an ego thing. I can do it better. But there is a downside to this type of thinking. When I fail to delegate I fail to develop my employees, my team members. I cheat them of the opportunity to learn and to develop their skills. Skills that will make them more productive and take some of the load off me. By failing to delegate I cheat myself.

Delegation done well takes time and effort. You have to clearly communicate to your employee the end result you want to achieve, any scope or time limitations imposed, at what points in the project or task you want him to report to you, and when the task should be complete. You should make sure the employee understands your instructions and get his commitment to complete the assignment.

Delegation should become a habit for a business owner. The upside for you and your business could be increased productivity, employee development, less stress and more time for yourself.  The downside could be limited business growth, longer work hours, and less satisfaction with your business.

Give yourself a break. Delegate.

Food for Thought

What Exactly is a Chart of Accounts?

The first task you perform in setting up a bookkeeping system is to create a chart of accounts.  A chart of accounts is simply a list of categories you use to record and group your business transactions. [E.g., account 101- Cash in bank; account 400- Sales; etc.] If you use Quickbooks all you need to do is select the type of business you operate and they have a chart of accounts you can use without having to waste energy to think. No big deal.

Most business people have heard the axiom or truism "you manage what you measure".  Look at your chart of accounts again. Look at your chart of accounts as a simple management tool.  What accounts could you add to help you manage? Is all your payroll in one account?  How about separating the overtime premium from regular wages?  Has your supplies account become a catch-all for most expenditures?  Take time to think. What do you need to measure to help you manage your bottom line?

Organizing Your Documents

Organization is a valuable skill.  The realization of its value is felt by many when gathering documents needed to prepare their income tax returns.  Organization saves time.  It can save money.  If you are fearful of the IRS examining your income tax return, organization can greatly reduce stress by giving you confidence that you can always find the documents supporting your tax deductions.

It may be time for you to develop your organizing skills.  Smead, a manufacturer of file folders, has some articles on their web site that may help you become better organized. (Click here). They also have a free booklet titled 100 Ideas for Better Organization that you can download in pdf format. Of course Smead wants you to buy their products and these tips are designed for that purpose. I am not endorsing Smead over any other folder manufacturer.  Buy hey, the information is free and you might find it useful.

Economic Stimulus Act of 2008 - Part 2

In addition to cash rebates (previously discussed), the Economic Stimulus Act of 2008 included a couple of business incentives - a more generous Section 179 deduction and bonus depreciation.

Most business owners are familiar with Section 179. Section 179 is an election in the Internal Revenue Code that allows you to elect to expense certain assets in the year purchased rather than to depreciate these assets over several years. In 2008, you can expense up to $250,000 under Section 179 as long as your total asset purchases don't exceed $800,000.  When asset purchases exceed $800,000, the $250,000 election amount begins to phase out on a dollar for dollar basis.  Previously the Section 179 deduction topped out at $128,000 of qualified assets if your total asset purchases for the year were less than $510,000. [We've come a long way, baby. During my first tax season out of school, you could only expense $5,000 of assets under Section 179.]

Caution: If you have a fiscal year, the increased Section 179 amounts due not become effective until your year begins in 2008.  If you have a June 30 fiscal year, the increased limits do not begin until July 1, 2008.

Also, bonus depreciation is back.  50% bonus depreciation is allowed on assets purchased in 2008. For example, if you purchased $10,000 of assets that don't qualify under Section 179, you can still deduct 50% of the assets cost plus normal depreciation on the other 50%.  Restated, If you purchased computers that are to be depreciated over 5 years and these computers cost $10,000, you can take first year depreciation of $7,000 ($5,000 bonus depreciation and $2,000 depreciation on the remaining cost).

As always, there are exceptions to the general rule and the tax laws may not work as you first expect.  If you are a client of Potts & Company and have questions, give us a call.

The IRS has posted detailed information concerning the cash rebates on its website. Click here.

The Economic Stimulus Act of 2008

FREE MONEY- LET'S PARTY!!!

President Bush signed the Economic Stimulus Act of 2008 this past Wednesday.  It has been all over the news for the last month.  Our government is giving us free money and they want us to spend it!

Most of us are getting a credit on our 2008 income taxes when we file our 2007 income tax returns! (Huh?) It's simple. File your 2007 income tax return and the IRS will do the rest.

Here's the particulars. If your adjusted gross income is less than $75,000 for individuals and $150,000 for married couples filing jointly, you will qualify for a rebate up to $600 each (i.e., $1,200 for married couples) plus $300 for each qualifying child.  You have a qualifying child if that child qualifies for the child tax credit. You may qualify for a partial credit if your income exceeds $75,000 or $150,000 (if married) as long as your adjusted gross income does not exceed $87,000 or $174,000, respectively.  To calculate your rebate, Kiplinger has a calculator on their website to help you determine the rebate amount. Click here. If you are a client of Potts & Company, we will calculate it for you when we prepare your return.

If your 2007 tax liability is less than $600, or $1,200 for joint filers, your rebate will equal the greater of your tax liability or $300 (plus $300 per qualifying child.) Aren't income tax calculations simple?

If you have no tax liability in 2007, you can try again when you file your 2008 income tax return. Remember, it is a rebate based on your 2008 income tax liability.  Sending checks in 2007 is just an advance credit payment of a 2008 credit.

Rebate checks will be mailed beginning in May 2008 and continue through the summer.

The Economic Stimulus Act of 2008 is even more exciting if you own a business!  It includes a more generous Section 179 deduction and 50% bonus depreciation.  Stay tuned. Details next blog post- in a day or two.

Contributions of Clothing & Household Items- A Reminder

A charitable non-cash contribution deduction of clothing and household items is allowed only if the donated property is in "good used condition or better".   "Good used condition or better" has not been defined by the IRS so its going to be a judgment call.  [I guess it will depend on how big the hole is in your underwear.] You can document the condition of the clothing or household items by taking pictures of what you contributed.

How Generous is the IRS?

The IRS is not very generous when allowing a charitable cash contribution when compared to prior years.  In fact, they are getting downright stingy. Beginning with your 2007 income tax return, a deduction for a charitable cash contribution is not allowed unless you keep certain records.

For contributions less than $250 you must have a canceled check or bank statement copy that documents the name of the charity, the date of the contribution, and the amount or a written acknowledgment from the charity listing the same information.  No more deducting the loose $20 per week contribution dropped into the offering each Sunday. Now there will be a record of how often you attend church or there will not be a tax deductible contribution.

For cash contributions of $250 or more, proper records must include a written acknowledgment from the charity stating the amount of the contribution, the date the contribution was made, whether or not you received anything of value and, if you received something of value, a good faith estimate of its worth. If you received something of worth, only the amount allowable as a charitable contribution is the amount in excess of its worth.

Note that the $250 contribution limit is for a single contribution, not cumulative contributions.  I.e., 3 contributions of $100 each are subject to the rules for contributions of less than $250.

If you contribute to a charity through payroll deductions at work, you must keep a pay stub that shows the amount and date of contribution and a pledge card or other documentation that shows the charity's name.