This blog post talks about the importance of listening to your client first to learn what is expected of you. Only then can you tailor your offering to your client’s specific needs. By communicating how you will meet those needs from the beginning, and then telling your client what you are doing throughout the process, your client will understand the process better and see the value in what you do.

We have built our firm on the principles of understanding our clients first, then determining how best to help them achieve the goals they set. By communicating openly along the way, we can work together to build on success. By going beyond the traditional approach of delivering the expected end result, our long-term relationships can enhance the success of our clients.

How can we exceed your expectations? We’ll be happy to listen to you.

Here’s the better part:  The original extended NOL carryback provision, part of the American Reinvestment and Recovery Act (ARRA) of 2009, applied only to an ‘eligible small business’ (under $15 million average gross receipts). The Worker, Home Ownership, and Business Assistance Act (WHOBA) of 2009 allows taxpayers of any size to make the election.

The other better part:  The extended carryback election is generally available for only one of the tax years ending after 2007 and beginning before 2010. However, if you already made a timely election under the provisions of the ARRA, you may make an additional election for another year’s NOL under WHOBA. Even if you have already timely filed your 2009 return, you may be able to make the election before the extended deadlines.

The worse part:  These rules are extremely complicated, so you need the help of a professional who is familiar with them.

By applying a net operating loss to profitable tax years, you can give your company a cash stimulus through a refund of previously paid taxes.

With Mr. Steinbrenner’s estate estimated at $1.1 billion,  that means his heirs will inherit as much as $600 million that would have gone into the Federal treasury, based on the rate when the estate tax resumes in 2011 (55% maximum on estates over $1 million). He joins another high-profile billionaire whose passing we wrote about a few weeks ago.

Here’s a morbid thought: Will death become the ultimate tax-planning tool this year? I shudder at the thought.

Here is a checklist (but consult your tax adviser for specifics related to your situation):

• Was the new worker hired to fill a new position, or to replace someone who quit voluntarily or who was terminated for cause? The new worker may not be related to you or to another owner of the business.
• Was he/she hired after February 3, 2010, and before January 1, 2011?
• Did he/she work less than 40 hours during the 60 days ending on the hire date?
• Did he/she sign and give you the required Form W-11 certifying these facts? (Do not send this form to the IRS.)

If all of the above conditions are met, you qualify for an exemption of 6.2% (the employer share of Social Security tax) of wages paid between March 19 and December 31, 2010. This reduces the amount of your tax deposits for this year. It does not affect amounts withheld from the employee’s pay.

Form 941 has been modified to report wages to qualified employees starting with the second quarter. The IRS has provided more information in the instructions to the forms, and in a question-and-answer format at their website.

The homebuyer credit in its present form (it’s been amended three times now) is a tax credit of 10% of the home’s purchase price, up to a limit of $8,000. It is available to buyers who have not owned a principal residence in the last three years. A similar credit, limited to $6,500, is available to “long-time residents” who have lived in their old house for 5 consecutive years in the last eight before buying their new house. 

In order to claim the credit, the buyers must have bought the house or signed a binding contract before May 1, 2010. The deadline to close the deal was June 30, but many buyers could not meet the deadline because of backlogs at lenders and federal agencies, construction delays, and difficulties working out terms of short sales. The extension of the closing deadline allows three more months to settle and close those deals, but it does not change the April 30 deadline for signing contracts.

There are limits and prcoedural rules to claiming the homebuyer credit. It is reduced or eliminated as income rises, and it cannot be claimed for homes whose purchase price exceeds $800,000. Dependents and purchasers under 18 cannot claim the credit, and it is not available if the house was purchased from certain relatives.  Proper documentation must accompany Form 5405. Consult your tax advisor (our number is 865-523-8700) to make sure you follow all the rules to get your credit.

The technique is called a net operating loss carryback. You must elect to carry a loss back on a timely filed return, otherwise the loss may be carried forward to as many as twenty future tax years to reduce taxable income. Normally, the loss may be carried back two years. For either 2008 or 2009 (not both), a loss may be carried back up to five years. If the loss is not used up in the prior years, it may be carried forward.

The IRS provides a method to quickly recover taxes to be refunded because of the loss carryback. By properly filing an Application for Tentative Refund (Form 1139 for corporations, Form 1045 for individuals, estates, and trusts), you can recieve a refund within ninety days of filing. This can provide a relatively quick cash infusion to help pull your company through the rough patch.

If a coroporation expects a loss this year and has not yet filed its return for last year, it can apply on Form 1138 for an extension to pay last year’s tax. When the net loss for this year is calculated, the company will pay last year’s tax (plus interest) after applying the net operating loss.

A corporation that has paid more estimated tax than necessary in light of adjusted income or loss projactions may apply for a quick refund of those payments on Form 4466.  

These techniques can return cash to the company for daily operations rather than tying it up until after the year’s tax return is filed. Other types of carrybacks are also available, such as casualty and theft loss, farming loss, foreign tax credit, and loss attributable to a federally declared disaster.

As usual, there are technical details and caveats to the use of these techniques. Some of these details are discussed in this article. You should consult your tax advisor to determine the most appropriate action for your situation. We will be happy to help you with these tools, and to find other ways to improve your cash flow.

We are told in this blog that Ponzi schemes happen more often in financial bubbles as investors abandon healthy skepticism to chase higher returns. When the bubble bursts, the investors discover that their investments have disappeared when they try to withdraw their funds, exposing the fraud. The FBI, SEC, and Commodity Futures Trading Commission  are investigating many more securities fraud cases and filing more complaints than they did before the recession as various schemes come to light.

Although the investigations are most often led by law enforcement officials, forensic accountants handle the highly technical task of following the money. Through banking records and other documents, they build a case against the perpetrator and calculate the amounts of money involved through cash flow analysis and other techniques. Their work is essential to building a concrete case against the scammer and in determining how much was lost by each victim.

Special rules apply to rental of a residence (rental house or apartment) and to vacation home rental.

You must charge a fair rent to your relative on a residence to avoid having that property reclassified as a second home (and losing rental deductions).

• Prove fair rent by collecting third-party documentation about rents for similar properties in the area from the want ads and craigslist. Letters from property managers and independent appraisals are good evidence to support fair rent.
• Do not make gifts to help your tenant pay the rent. The gift will be deemed to reduce the rent, putting it below fair value and jeopardizing the rental claim.
• One alternative for your relative who needs rent money is gifting business assets and having your company lease them back so that your tenant receives rental income. Another option is to hire your relative, although that generates payroll taxes.
• You may consider a good-tenant discount of no more than 10%. One justification for this discount is that there is no need for a rental management company, passing the savings to the tenant.
• If you wish to set up a rent-to-own situation, you must follow the rules for a shared-equity financing agreement for the rental to stand.
• Your relative must use the rental property as a principal residence.

If you have a vacation home that you rent for part of the year and also use personally, the tax code provides a break on rental income. Your personal use of the vacation home must not exceed the greater of 14 days or 10% of rental days per year. If your relatives use the vacation home, their use counts toward these limits even if you charge fair rent. If your combined use exceeds these limits, the property becomes a second home, which makes the rent income taxable while eliminating the usual rent expense deductions.

If you are considering renting to relatives, a call to us will help ensure that everything is done in a way that secures the greatest tax advantages and best financial outcome for your family.

We are hearing now from some banks (not all) that they have money to lend to creditworthy companies with good histories and solid plans for using the money (such as commercial real estate with leases already in place). Their credit analysts are beginning to listen again to the stories behind the numbers rather than focusing solely on whather the loans will pass muster with the regulators. We are also hearing from business owners who would much rather have more revenue than more borrowed money that they are not sure they can pay back in the current economy.

Those business owners who are applying for commercial credit are finding a higher level of scrutiny into their personal financial hstory, as this article explains. Because small business loans are often granted subject to the personal guarantee of the owner, lenders are placing greater emphasis on subjective measures relating to the owner’s character. They are going back to the old days when the banker’s mantra was, get to know your client as a person before you decide whether to extend the loan. These days, they have plenty of ways to quantify creditworthiness, but that one-to-one relationship is becoming important again.

If you are considering applying for credit, here are some things to remember:

• Deal with a banker who knows you (let’s hope you’ve already been working on this one).
• Work up a detailed plan for how you will use the money and how this use will increase your capacity to pay back the loan.
• Have your business and personal financial ducks in a row. Check your credit reports and make sure they are accurate.
• Organize your tax returns and other financial information so your lender has a complete, easy-to-follow set of data.
• Try to anticipate the lender’s questions and concerns so you can respond without being caught off guard and convey the sense that you are aware and in control.

If and when his heirs were to sell some of the assets, the substantial gains would be taxed at rates ranging from the current 15% capital gains rate to the maximum income tax rate, which is still lower than the estate tax rate. But that could be many years in the future. In the meantime, the federal government has missed out on perhaps as much as $25 billion of revenue (the estate tax take in 2008).

There are strong and valid arguments on both sides of the estate tax issue, from political, economic, and humanitarian points of view. The plain fact is that this is one revenue stream for the federal budget that dried up for this year.  Care to guess who they will tap to make that up?

The federal estate tax returns in 2011 for estates valued at $1 million, if Congress leaves current law intact. (The cutoff in Tennessee has been $1 million for several years, and was unaffected by the federal law.)

Savvy estate planning can help your family keep more of its assets and minimize the tax liability. We were part of a team of professionals who reduced a family’s taxable estate through good planning from about $8 million to about $2 million, saving them a $3 million tax hit that would have forced them to sell all of their real estate holdings into a depressed market.