The Potts Report

Nonbusiness Energy Property Tax Credit

The American Recovery and Reinvestment Act of 2009 reinstated and amended the non-business energy property tax credit. The credit is for people who spend money on their principal residence for new improvements or certain new equipment that increase the energy efficiency of their home. The credit equals 30% of the amount spent on qualified improvements in 2009 and 2010, but the credit cannot exceed $1,500 over both years.

What type of expenditures qualify?  Expenditures for insulation materials, exterior windows, exterior doors, asphalt or metal roofs, natural gas furnaces, propane furnaces, oil furnaces, natural gas hot water boilers, propane hot water boilers, oil hot water boilers, advance main air circulating fans, central air conditioners, electric heat pumps, and stoves  that burn biomass fuels qualify IF they meet certain specifications. How do you know if they meet specifications? You can consult the Internal Revenue Code and the 2000 International Energy Conservation Code or you can ask the person selling you the equipment or materials. The manufacturers will have told the distributors whether or not their product qualifies for the credit. But therein lies a problem.

Your salesman can tell you whether the equipment or materials will qualify for the credit based on energy efficiency, but that doesn’t guarantee you can take the full amount of the credit on your tax return. Why? You may not have $1,500 worth of tax liability for the credit to offset. The non-business energy property tax credit is not a “refundable credit”. I.e., you must have a tax liability to benefit.

The bottom line: Many people will make a decision to buy a more energy efficient central air conditioning unit if they believe they will get $1,500 back on their income taxes at the end of the year. For money people, this $1,500 might not materialize. It depends on your particular tax situation. Ask your CPA.

Change is Coming. Get Ready!

2009 is just past its midpoint. The long 4th of July weekend allowed me the time to consider the course of action Potts & Company should take over the next six months. Then that sleight feeling of anxiety arrived. The magnitude and impact of the changes our government are attempting to pass into law this year creates a level of uncertainty that hasn’t existed in my lifetime. Well, that last statement isn’t totally true. The government is certain to cause change, change that affects small businesses and their owners. Will the impact of this change be good or bad? I don’t know. (I do believe the government is certain to raise taxes in the near future on everybody and not just the rich).

The government is spending and committing to future spending in the trillions of dollars. The speed at which they are trying to pass new laws is worrisome. Economic stimulus packages, health care reform, educational reform, and environmental regulations are being pushed so fast that I doubt that anybody except lobbyist really now the details. Nobody can reliably predict the impact of of these changes on your finances or your company’s economic future. Inflation? Higher interest rates? Who knows. But change is coming. Get ready.

If you own a business, you have more demands on your time than most people.When was the last time you hid from everybody just to think about your business. Do you have a plan to manage the impact of health care reform on your business? What is the government implements an eight percent payroll tax on wages to finance health care? What impact will new “green” laws and regulation have on the cost of energy?

Creating plan “A” may not be enough. You may need a plan “B” and “C” too. Do yourself a favor. Find a quiet place and take time to think.

Want to Know What’s In Your Future?

Higher taxes! Read the following paragraph, the last paragraph in the summary, from the publication titled The Long-term Budget Outlook – June 2009 published by the Congressional Budget Office.

CBO’s long-term budget projections raise fundamental
questions about economic sustainability. If outlays grew
as projected and revenues did not rise at a corresponding
rate, annual deficits would climb and federal debt would
grow significantly. Large budget deficits would reduce
national saving, leading to more borrowing from abroad
and less domestic investment, which in turn would
depress income growth in the United States. Over time,
the accumulation of debt would seriously harm the economy.
Alternatively, if spending grew as projected and
taxes were raised in tandem, tax rates would have to reach
levels never seen in the United States. High tax rates
would slow the growth of the economy, making the
spending burden harder to bear. Policymakers could mitigate
the economic damage from rapidly rising debt by
putting the nation on a sustainable fiscal course, which
would require some combination of lower spending and
higher revenues than the amounts now projected. Making
such changes sooner rather than later would lessen
the risks that current fiscal policy poses to the economy.

It is going to take the Republicans (lower spending) and the Democrats (higher taxes) to put the United States back on the path to fiscal health. How optimistic are you?

The Potts Report Returns

The Potts Report has been inactive for several months. I began The Potts Report without a clear vision of what I wanted it to achieve. Who was my audience? Who was I writing for and on what topics did I know enough to write intelligently. I’ve been to the sweat lodge and received my vision for The Potts Report. When writing The Potts Report, the primary audience addressed will be the clients of Potts & Company. I will address topics that I feel will primarily benefit small businesses and their owners and professionals. The topics will be varied and address income taxes, reading financial statements, small business finance and management, marketing, creativity and innovation, technology, security, and just about anything else that I think my clients will find interesting and beneficial. Although my primary audience will be the clients of Potts & Company, I bet any small business owner or professional will benefit from reading The Potts Report.

Keep in mind I am a CPA, not a professional writer. I attended school in the seventies when the English curriculum was written, I believe, by educators still recovering from the sixties. My writing skills and grammar are weak. However, my ideas are strong. I will post at least once a week and it will be worth your time to read. Read On!

The Tax Enforcers

This morning I read an article in the Wall Street Journal titled, White House Leans Toward Tighter Enforcement of Taxes . It said…

White House officials disclosed the tax initiative on Tuesday, saying they intend to explore ways to better enforce the current code as well as improve it by eliminating corporate subsidies and untangling its many complexities.

Everybody is in favor of a simpler tax code and a more fair tax code. But toward the end of the article was this paragraph…

Back home, one of the biggest remaining problems is underreporting by small businesses that deal in cash -- as many contractors do. Among the possible further steps: requiring small businesses to use bank accounts, and using the tax code to encourage homeowners to report to the IRS the money they have paid to contractors.

Having grown up in the cold war era, this type of enforcement seems more appropriate for a communist country. A communist government would force you to conduct your business a certain way. A communist country would tell you it was your duty to tell on your neighbor.  It just doesn’t feel right. Why is it that all these rules and regulations are imposed on honest people? Dishonest people won’t comply anyway.

Sunday Reading

It is tax season. That means I need to focus on preparing income tax returns which leaves me short on time to write blog posts. However, I still read and the following links might be worth your time for some leisurely Sunday reading.

Forbes.com: Tax Moves for Tough Times 

Wall Street Journal: Cracking a Valuable Homebuyer Credit

Intuit Future of Small Business Report

Rolling Stone: The Big Take Over (The article has language that might be offensive to some).

Skeptical CPA Blog: McKinsey Strike Again

The American Recovery and Reinvestment Act of 2009

President Obama will sign into law Tuesday, February 16, 2009, The American Recovery and Reinvestment Act of 2009. Below I have outlined the tax provisions of the bill based on the Full Summary of Provisions from the Senate Finance, House Ways & Means Committees. I have listed all the topics so you can sample the flavor of the bill. I will be writing more about the law’s tax provisions in the following days.

TAX RELIEF FOR INDIVIDUALS AND FAMILIES

• “Making Work Pay” Tax Credit
• Economic Recovery Payment to Recipients of Social Security, SSI, Railroad Retirement and Veterans Disability Compensation Benefits
• Refundable Credit for Certain Federal and State Pensioners
• Increase in Earned Income Tax Credit
• Increase Eligibility for the Refundable Portion of Child Credit
• “American Opportunity” Education Tax Credit
• Computers as Qualified Education Expenses in 529 Education Plans
• Refundable First-time Home Buyer Credit
• Sales Tax Deduction for Vehicle Purchases
• Temporary Suspension of Taxation of Unemployment Benefits
• Extension of AMT Relief for 2009

TAX INCENTIVES FOR BUSINESSES

• Extension of Bonus Depreciation
• Election to Accelerate Recognition of Historic AMT/R&D Credits
• Extension of Enhanced Small Business Expensing
• 5-Year Carryback of Net Operating Losses for Small Businesses
• Delayed Recognition of Certain Cancellation of Debt Income
• Incentives to Hire Unemployed Veterans and Disconnected Youth
• Small Business Capital Gains
• Temporary Small Business Estimated Tax Payment Relief
• Temporary Reduction of S Corporation Built-In Gains Holding Period from 10 Years to 7 Years
• Repeal of Treasury Section 382 Notice
• Treatment of Certain Ownership Changes

MANUFACTURING RECOVERY PROVISIONS

• Industrial Development Bonds (IDB)
• Advanced Energy Investment Credit

ECONOMIC RECOVERY TOOLS

• New Markets Tax Credit
• Recovery Zone Bonds
• Tribal Economic Development Bonds
• Modify Speed Requirement for High-Speed Rail Exempt Facility Bonds

INFRASTRUCTURE FINANCING TOOLS

• De Minimis Safe Harbor Exception for Tax-Exempt Interest Expense for Financial Institutions
• Modification of Small Issuer Exception to Tax-Exempt Interest Expense Allocation Rules for Financial Institutions
• Eliminate Costs Imposed on State and Local Governments by the Alternative Minimum Tax
• Delay Application of Withholding Requirement on Certain Governmental Payments for Goods and Services
• Qualified School Construction Bonds
• Extension and Increase in Authorization for Qualified Zone Academy Bonds (QZABs)
• Tax Credit Bond Option for State and Local Governments (“Build America Bonds”)

REINVESTMENT IN RENEWABLE ENERGY

• Long-term Extension and Modification of Renewable Energy Production Tax Credit
• Temporary Election to Claim the Investment Tax Credit in Lieu of the Production Tax Credit
• Repeal Subsidized Energy Financing Limitation on the Investment Tax Credit
• Removal of Dollar Limitations on Certain Energy Credits
• Clean Renewable Energy Bonds (“CREBs”)
• Qualified Energy Conservation Bonds
• Tax Credits for Energy-Efficient Improvements to Existing Homes
• Tax Credits for Alternative Refueling Property
• Plug-in Electric Drive Vehicle Credit
• Addition of Permanent Sequestration Requirement to CO2 Capture Tax Credit
• Parity for Transit Benefits

OTHER PROVISIONS

• Treasury Department Energy Grants in Lieu of Tax Credits
• Treasury Department Low-Income Housing Grants in Lieu of Tax Credits

ASSISTANCE FOR FAMILIES & UNEMPLOYED WORKERS

• Extension of Emergency Unemployment Compensation
• Increase in Unemployment Compensation Benefits
• Unemployment Compensation Modernization
• Temporary Assistance to States with Advances to Unemployment Trust Funds
• Additional Unemployment Provisions
• Temporary Assistance for Needy Families Contingency Fund
• Extension of TANF Supplemental Grants
• Child Support Enforcement

HEALTH INSURANCE ASSISTANCE

• Premium Subsidies for COBRA Continuation Coverage for Unemployed Workers
• Medicare Payments for Teaching Hospitals
• Medicare Payments to Hospice
• Medicare Payments to Long Term Care Hospitals

STATE FISCAL RELIEF AND MEDICAID

• Temporary Federal Medical Assistance Percentage (FMAP) Increase
• Temporary Increase in Disproportionate Share Hospital (DSH) Payments
• Extension of Moratoria on Medicaid Regulations
• Extension of Transitional Medical Assistance (TMA)
• Extension of the Qualified Individual Program
• Provisions from the Indian Health Care Improvement Act
• Prompt Payment Requirements for Nursing Facilities and Hospitals

HEALTH INFORMATION TECHNOLOGY

• Funding for Health Information Technology (IT) through Medicare and Medicaid Incentives

TRADE PROVISIONS

• Expansion of Trade Adjustment Assistance (TAA) Programs
• Duty Refund Recollection

DEBT LIMIT

• Debt Limit Increase

A Review of the Basics for Politicians and Their Appointees and Those That Wish to Be

 

For those of you with political aspirations please review IRC Section 61.

 

Section 61 of the Internal Revenue Code: Gross income defined

(a)  General definition.
Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:

(1)  Compensation for services, including fees, commissions, fringe benefits, and similar items;

(2) Gross income derived from business;

(3)  Gains derived from dealings in property;

(4)  Interest;

(5)  Rents;

(6)  Royalties;

(7)  Dividends;

(8) Alimony and separate maintenance payments;

(9) Annuities;

(10) Income from life insurance and endowment contracts;

(11)  Pensions;

(12)  Income from discharge of indebtedness;

(13) Distributive share of partnership gross income;

(14) Income in respect of a decedent; and

(15) Income from an interest in an estate or trust.

(b) Cross references.
For items specifically included in gross income, see part II ( sec. 71 and following). For items specifically excluded from gross income, see part III ( sec. 101 and following).

Change.Gov…When?

One of the things that irked me about the Bush Administration was that he diverted government contracts intended for small businesses to Fortune 500 companies. Is Obama going to do the same thing? Read Obama Dropped Small Business Stimulus Plan Days Before The Election by Lloyd Chapman.

 

Let’s participate in the democratic process. Go to www.whitehouse.gov , hit contact us, and ask the White House if they are going to discriminate against small businesses.  I did.  I’ll let you know what if any response I get.

Tax Season Officially Begins

Today is the day in which all W2s and 1099s are to be completed and mailed to their intended recipient…except for 1099-Bs, the statements you receive from your broker or mutual fund company reporting your interest, dividends, and stock sales. Last year the law was changed to allow brokers until February 15th to mail 1099-Bs. Hopefully this will prove to be a good change. In the past 1099-Bs were mailed by January 31st but then around the end of February or the first of March many of you would receive an amended form. The intent of the law is to reduce the frequency of amended 1099-Bs.

Now it’s off to the races. Ready, set, prepare them tax returns.