FAQ Friday: What is my tax bracket?

Income tax is based on your income after personal exemptions, standard or itemized deductions, and other adjustments are subtracted. A tax bracket is the rate at which the top of your income is taxed, but not all of it. Someone in a 28 percent tax bracket has part of their income taxed at 10 percent and part at 25 percent, with only the highest portion at 28 percent. The tax bracket tells you how much you will have to pay in federal income tax on each additional dollar you make.

2010 Federal Tax bracket	Single	HOH	MFJ or QW	MFS
	For income over...
10%	$0	$0	$0	$0
15%	$8,375	$11,950	$16,750	$8,375
25%	$34,000	$45,550	$68,000	$34,000
28%	$82,400	$117,650	$137,300	$68,650
33%	$171,850	$190,550	$209,250	$104,625
35%	$373,650	$373,650	$373,650	$186,825

The federal Form 1040 actually collects several other taxes including:
• Self employment (Social Security and Medicare) tax
• Social Security and Medicare tax on tip income
• Early withdrawal tax on IRA's and retirement plans
• Household employee payroll tax ("nanny tax")
• Alternative minimum tax

Tax Tuesday: Why should I defer income to a later year?

Most individuals are in a higher tax bracket in their working years than during retirement. Deferring income until retirement may result in paying taxes on that income at a lower rate. Deferral can also work in the short term if you expect to be in a lower bracket in the following year or if you can take advantage of lower long-term capital gains rates by holding an asset a little longer.

FAQ Friday: What are the limits on deductible travel, entertainment and meal costs?

There are no dollar limits. Expenses must be "ordinary and necessary" (meaning appropriate and helpful) and not "lavish or extravagant", but this doesn't bar deluxe accommodations, travel or meals.

Deduction for business entertainment and business meals can't exceed 50% of the cost.

There are additional special limitations on skyboxes and luxury water travel.

Tax Tuesday: CNN article on tax hikes and jobs

Here is an interesting article by CNN on the correlation between tax hikes and jobs.

NEW YORK (CNNMoney) -- Raise taxes on the rich, and you'll put the nation's "job creators" at risk.

It's a ubiquitous Republican talking point: Congress must keep the top two rates at 33% and 35% -- instead of 36% and 39.6% as President Obama wants.

The argument: Many small businesses file taxes under the individual tax code.

But while that argument makes for a good bumper sticker, it's a misleading simplification of a complex policy issue.

"The Republican claim that this is a tax increase on a large fraction of employers is just not true," said Howard Gleckman, a resident fellow at the Urban Institute.
In sharp contrast to the rhetoric, current data suggests small businesses don't create an outsized number of jobs, very few small business owners fall into the top two tax brackets, and tax cuts for small businesses are ineffective stimulus measures.

Relatively few small businesses would be affected: Extending the tax cuts for top earners for another decade would come at a significant cost -- nearly $1 trillion in added debt over a decade.

But small businesses wouldn't see much of that cash.

Obama's 17 tax breaks for small business: Big whoop!
Only 2.5% to 3.5% of small businesses would be affected by an increase in those two rates, according to the nonpartisan Congressional Research Service.

Instead, almost all individuals who report business income fall into lower tax brackets, where both Democrats and Republicans want to retain current rates.

And some of the businesses that do fall into the top two brackets are not what Americans typically consider "small businesses." They are doctors and lawyers and members of limited partnerships, not mom-and-pop store owners.

According to CRS, 80% of tax cuts in the top two brackets would go to non-businesses.

Small businesses are not job-creation heavyweights: It's the central premise of the argument to keep the current rates: Small businesses drive hiring. While frequently cited in political circles, it's not quite true.

First off, definitions of what exactly constitutes a small business vary greatly.

But a new report from the Treasury Department found that only 20% of small businesses in 2007 even had employees.
"It turns out most of the firms those politicians define as small businesses don't hire or invest very much at all," Gleckman wrote in a blog post on the subject.

Of course, small businesses do create a lot of jobs -- but at the same time, new ventures fail at a prodigious rate -- wiping out jobs just as fast as they are created.

According to CRS, "small businesses contribute only slightly more jobs that other firms relative to their employment share."

And a smaller, very specific, subset of that group -- startups -- drive most of the job growth. Established firms, even small ones, hire far fewer workers.

Tax cuts aren't powerful stimulus: Would an increase in tax rates mean fewer jobs are created? Maybe not.

"The primary thing standing in the way of hiring is not taxes, it's lack of demand in the economy," said Leonard Burman, a professor at Syracuse University's Maxwell School.

Would tax reform really lead to jobs?
Over the long run, most research suggests modest tax rate increases "would have little negative impact on long-term economic growth and job creation," according to CRS.

Alan Viard, a resident scholar at the conservative American Enterprise Institute, said that tax cuts do little to stimulate aggregate demand in the economy. But, he added, higher marginal rates would cut into some firms' incentive to earn additional income.

Still, the rhetoric? Unconvincing.

"Politicians have this irrational romanticization of small businesses," Viard said. "There are no economic grounds why a small firm is better than a large firm."

Tax Tuesday: Home Office Deduction

The "office-in-home" tax deduction is valuable because it converts a portion of otherwise nondeductible expenses (for example, utilities and homeowners insurance) into a deduction. The treatment of home offices for income tax purposes is one of the more controversial provisions in the tax law.

An individual is not entitled to deduct any expenses of using his/her home for business purposes unless the space is used exclusively on a regular basis as the "principal place of business." The IRS applies a 2-part test to determine if the home office is the principal place of business.

Do you spend more business-related time in your home office than anywhere else?

Are the most significant revenue-generating activities performed in your home office?

If the answer to either of these questions is no, the home office will not be considered the principal place of business, and the deduction will not be available.

Business use of the home by an employee must also be for the convenience of the employer. These rules make it very difficult for an employee to qualify for the deduction.

If these three tests are met, the deduction is limited to the gross income from the business activity. Furthermore, a deduction for home-office expenses cannot create or increase a net loss from the business. Any disallowed deduction may be carried over to future years.

Taxpayers taking a deduction for business use of their home must complete Form 8829. Some tax experts believe that taking a deduction for home-office expenses, whether clearly allowable or not, increases the likelihood of an IRS audit.

These are some thoughts to consider.

If you have a home office or are considering one, please call us at 818.242.4888. We'll be happy help you take advantage of these deductions.

FAQ Friday: What are the benefits of incorporating?

The primary advantage of incorporating is to limit your liability to the assets of the corporation only. Usually, shareholders are not liable for the debts or obligations of the corporation. So if your corporation defaults on a loan, unless you haven't personally signed for it, your personal assets won't be in jeopardy. This is not the case with a sole proprietorship or partnership. Corporations also offer many tax advantages that are not available to sole proprietors.

Some other advantages include:

• A corporation's life is unlimited and is not dependent upon its members. If an owner dies or wishes to sell their interest, the corporation will continue to exist and do business.
  
• Retirement funds and qualified retirement plans (like 401k) may be set up more easily with a corporation.
  
• Ownership of a corporation is easily transferable.
  
• Capital can be raised more easily through the sale of stock.
  
• A corporation possesses centralized management.

Tax Tuesday: We're more than just tax consultants!

Did you know that Robert Hall & Associates offers a wide array of services, in addition to tax services?

We offer services in the following areas: Tax, Incorporating, Financial Planning, Bookkeeping, Educational Seminars, Mortgage, Estate Planning, and Payroll.

Please feel free to contact our office at 818-242-4888 for more information.

FAQ Friday: Are there any non-tax records I should keep?

There are other records you should keep, even though they don't appear to have any use for your tax returns. Here are a few examples:

• Insurance policies, to show whether you were to be reimbursed in case you suffer a casualty or theft loss, have medical expenses, or have certain business losses.

• Records of major purchases, in case you suffer a casualty or theft loss, contribute something of value to a charity, or sell it.

• Family records, such as marriage licenses, birth certificates, adoption papers, divorce agreements, in case you need to prove change in filing status or dependency exemption claims.

• Certain records that give a history of your health and any medical procedures, in case you need to prove that a certain medical expense was necessary.

• These categories are the most universal and should cover most of your recordkeeping needs. Everyone's needs are unique, however, and there may be other records that are important to you. Skimming through our Tax Library Index might highlight other categories that apply to you.

Tax Tuesday: 7 Biggest Misconceptions Business Owners Have About Their Returns

Regardless of how life changes, one of the biggest hurdles you'll face in running your own business is to stay on top of your numerous obligations to federal, state, and local tax agencies. A tax headache is only one mistake away, be it a missed payment or filing deadline, an improperly claimed deduction, or incomplete records.

You can safely assume that a tax auditor presenting an assessment of additional taxes, penalties, and interest will not look kindly on an "I didn't know I was required to do that" claim. The old legal saying that "ignorance of the law is no excuse" is perhaps most often applied in tax settings. On the other hand, it is surprising how many small businesses actually overpay their taxes. They often neglect to take deductions they're legally entitled to, or just don't know about certain breaks that can help them lower their tax bill.

Adding to the mayhem, we have tax codes that seem to be in a constant state of flux. Creating exceptions for special groups has resulted in a steady stream of new and revised tax laws, which have lengthened the Internal Revenue Code to over 4,500 pages and rendered it barely understandable to even the most experienced tax professionals. Often one section can run up to several hundred pages. A special tax service used by tax professionals explains the meaning and application of each part of the code. It is contained in another 12 volumes! The harder Congress tries to simplify the code, the more complex it becomes.

Preparing your taxes and strategizing how to keep more of your hard-earned dollars in your pocket becomes increasingly difficult with each passing year. Your best course of action to save time, frustration, MONEY, and (God forbid) an auditor knocking on your door, is to have a professional accountant handle your taxes. Tax professionals have years of experience with tax preparation, religiously attend tax seminars, read scores of journals, magazines, and monthly tax tips, among other things, to correctly interpret the changing tax code and gain the advantage over the IRS.

Nevertheless, many accountants don't understand the mammoth tax code and end up being too conservative with your tax deductions. The more conservative they are, the more taxes you end up paying.
Unfortunately, the cryptic and mystifying nature of the tax code generates a lot of folklore and misinformation that also leads to costly mistakes. Here is a list of some common small business tax misperceptions:

1. All Start-Up Costs Are Immediately Deductible
Business start-up costs are the expenses you incur before you actually begin business operations. Your business start-up costs will depend on the type of business you are starting. They may include costs for advertising, travel, surveys, and training. These costs are generally capital expenses.
You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation. You can elect to deduct up to $10,000 of business start-up costs and $10,000 of organizational costs paid or incurred in the year that you start a business. The $10,000 deduction is reduced by the amount your total start-up or organizational costs exceed $60,000. Any remaining cost must be amortized.
The only catch is that in order to take advantage of the immediate deduction you must spread out the remainder of your start-up costs over 15 years (180 months).

2. Overpaying The IRS Makes You "Audit Proof"
The IRS doesn't care if you pay the right amount of taxes or overpay your taxes. They do care if you pay less than you owe and you can't substantiate your deductions. Even if you overpay in one area, the IRS will still hit you with interest and penalties if you underpay in another. It is never a good idea to knowingly or unknowingly overpay the IRS. The best way to "Audit Proof" yourself is to properly document your expenses and make sure you are getting good advice from your tax accountant.

3. Being incorporated enables you to take more deductions.
Aside from health insurance, deductions for the self-employed (sole-proprietors and S Corps) are pretty much equivalent to corporate deductions. For many small businesses, being incorporated is an unnecessary expense and burden. Start-ups can spend $1,000 in legal and accounting fees to set up a corporation, only to determine shortly after that they want to change their name or company direction. Plenty of small business owners who incorporate don't make money for the first few years and find themselves saddled with minimum corporate tax payments and no income.

4. The home office deduction is a red flag for an audit.
This is no longer as true as it once was. Because of the proliferation of home offices, tax officials cannot possibly audit all tax returns containing the home office deduction. A high deduction-to-income ratio tends to lead to an audit.

5. If you don't take the home office deduction, business expenses are not deductible.
You are still eligible to take deductions for business supplies, business-related phone bills, travel expenses, printing, wages paid to employees or contract workers, depreciation of equipment used for your business, and other expenses related to running a home-based business, whether or not you take the home office deduction.

6. Taking an extension on your taxes is an extension to pay taxes.
Extensions enable you to extend your filing date only. If you do not pay taxes on time, penalties and interest begin accruing from the due date.

7. Part-time business owners cannot set up self-employed pensions.
If you start up a company while you have a salaried position complete with a 401K plan, you can still set up a SEP-IRA for your business and take the deduction.
Besides avoiding these pitfalls, possessing basic knowledge of how the tax system works is also beneficial. After all, even if you delegate the tax preparation to someone else, you are still liable for the accuracy of your tax returns. If your accountant messes up, you pay the penalty, not him.

FAQ Friday: Higher Education

As we approach the start of a new school year, it is important to keep taxes in mind, whether if it's for yourself, or for your children.

Today's FAQ is:

What types of tax relief are available for costs of my children's higher education?

A wide variety of relief is available. In some cases you'll have to choose which to claim, based on what each is worth in your tax situation. There are tax exclusions, tax deferrals, tax credits, tax deductions, and relief from tax penalties.

You can't take two different kinds of relief for the same item. You can sometimes take one type of relief for one education item and another type for another item.

Some benefits have income ceilings that bar or limit the relief as taxpayer's income rises. 

Tax Tuesday: International Tax Planning

As our society continues to move towards global economic dependence, our tax regulations will continue to become more complex. As this international economic trade continues to affect small businesses and individuals, it will be vital for taxpayers to understand the regulations when dealing with international treaty requirements and international commerce. By utilizing foreign corporations, foreign tax credits and foreign income exclusion provisions, taxpayers are able to fairly report their income and utilize qualified deductions. Establishing record keeping strategies and remaining compliant with government reporting standards will not only keep you safe but give you peace of mind knowing your financial scenario.

FAQ Friday: What type of records do I need to keep?

Keep records of all your current year income and deductible expenses. These are the records that an auditor will ask for if the IRS selects you for an audit.

Here's a list of the kinds of tax records and receipts to keep that relate to your current year income and deductions:

• Income (wages, interest/dividends, etc.)
• Exemptions (cost of support)
• Medical expenses
• Taxes
• Interest
• Charitable contributions
• Child care
• Business expenses
• Professional and union dues
• Uniforms and job supplies
• Education, if it is deductible for income taxes
• Automobile, if you use your automobile for deductible activities, such as business or charity
• Travel, if you travel for business and are able to deduct the costs on your tax return

While you're storing your current year's income and expense records, be sure to keep your bank account and loan records too, even though you don't report them on your tax return. If the IRS believes you've underreported your taxable income because your lifestyle appears to be more comfortable than your taxable income would allow, having these loan and bank records may be just the thing to save you.

Tax Tuesday: Can ObamaCare Survive an Unconstitutional Mandate?

Forbes magazine had a great article on the much-talked about ObamaCare.

Can ObamaCare Survive an Unconstitutional Mandate?

The answer is yes … and no.

A three-judge panel of the 11th Circuit Court of Appeals has now weighed in and two of the judges, one Republican and one Democratic appointee, ruled unconstitutional the health care legislation’s mandate requiring people to have health insurance.  That’s the good news.

But the court stopped short of following federal Judge Roger Vinson of Florida, who struck down the whole law.  The Appeals Court decided to leave the rest of the legislation in tact.  That ruling immediately raised the question: If the U.S. Supreme Court came to the same conclusion, could the rest of ObamaCare survive?

Although as a presidential candidate, Barack Obama criticized the mandate; now the Obama Justice Department says the mandate is absolutely necessary to make the law work.  It’s just one of many Obama flip-flops in his long and sordid drive to control virtually every part of the U.S. health care system.

Another of the important flip-flops playing a role in the 11th Circuit’s decision is whether the mandate is a tax.  In the fall of 2009, the president told ABC’s George Stephanopoulos in a televised interview that the mandate absolutely was not a tax.  Now, of course, the Justice Department claims it absolutely is.

But in its very carefully reasoned and well-written majority opinion, the 11th Circuit ruled that the mandate is a penalty and not a tax and that some parts of the law were severable from the mandate.  Let’s take the last claim first.

ObamaCare is 2,700 pages long and sticks the federal government’s nose in virtually every segment of the health care system.  Many of those regulations, restrictions and intrusions have little or nothing to do with the mandate.  For example:

    * The much-hyped “free” benefits added to Medicare and private health insurance last year;

    * The recent, and also much-hyped, requirements that health insurance cover all FDA-approved contraceptives, along with other services, without patient copays;

    * The Independent Payment Advisory Board (IPAB) that will soon morph into Medicare’s rationer-in-chief;

    * The Department of Health and Human Services Secretary Kathleen Sebelius’s heavy-handed approach to private health insurance, including efforts to monitor premium increases and punishing health insurers that don’t toe the administration line.

However, there are also good provisions, such as:

    * Establishing a regulatory pathway for “biosimilar” drugs;

    * And some important steps to reduce the fraud and abuse in Medicare.

The mandate to buy health insurance would have little to no effect on any of these, and many other, provisions.  Even many of the new taxes are not necessarily dependent on the coverage mandate.  They are intended to pay for Medicaid expansion and subsidized coverage for the poor, health care pork given to the states, high risk pools to cover uninsurable people (at least until 2014), health care clinics for the poor and many of the new “free” coverages mentioned earlier.

However, as big and intrusive as these steps are, they pale in comparison to the mandate to buy coverage or be penalized.  That provision allows Washington to micromanage every health insurance policy in the country.  If people are required to have coverage, then Washington must determine what kind of coverage is “qualified.”  And they will be very expensive, comprehensive policies—the only kind most liberals and Democrats think are worth having.

If the Supreme Court were to strike down only the coverage mandate as an overreach of the federal government’s constitutionally limited powers, the state-based health insurance exchanges might still function.  And the federal subsidies to help families with incomes up to 400 percent of the federal poverty level pay for coverage might still flow.  That’s because the government can provide families with a subsidy if they choose to buy health coverage in the exchange without demanding that they do so.

By contrast, without the mandate lots of people and employers would likely continue buying non-qualified coverage outside of the exchange, limiting the government’s ability to interfere.

But just because a health care system might find ways to function under a wounded, rather than a dead, ObamaCare doesn’t mean that’s any way to run a health care system.

Even if the Supreme Court follows the lead of the 11th Circuit, or if it upholds the law, congressional candidates running next year should still make “repeal and replace” the second most important plank in their campaign platforms—after jobs and the economy.  ObamaCare may be able to survive an unconstitutional mandate, but the country can’t.

FAQ Friday: Should I keep my old tax returns? If so, for how long?

Yes, keep your old tax returns.

One of the benefits of keeping your tax returns from year to year is that you can look at last year's return while preparing this year's. It's a handy reference, and reminds you of deductions you may have forgotten.

Another reason to keep your old tax returns is that there may be information in an old return that you need later.

One example of information you may need years later is the tax basis of your home. If you sold your home some years ago and replaced it with the one you live in now, you filed a Form 2119 with your old return. On Form 2119, you figured the tax basis of your current home. When you sell your current home, the starting point to find out what your gain (or loss) is comes from the Form 2119 for the old house.

Audits and your old tax returns

Here's a reason to keep your old returns that may surprise you. If the IRS calls you in for an audit, the examiner will more than likely ask you to bring your tax returns for the last few years. You'd think the IRS would have them handy, but that's not the way it works. Your old returns are more than likely in a computer, in a storage area, or on microfilm somewhere. Usually what your IRS auditor has is just a report detailing the reason the computer picked your return for the audit. So having your old returns allows you to easily comply with your auditor's request.

How long should I keep my old tax returns?

You may want to keep your old returns forever, especially if they contain information such as the tax basis of your house. Probably, though, keeping them for the previous three or four years is sufficient.

If you throw out an old return that you find you need, you can get a copy of your most recent returns (usually the last six years) from the IRS. Ask the IRS to send you Form 4506, Request for Copy or Transcript of Tax Form. When you complete the form, send it, with the required small fee, to the IRS Service Center where you filed your return.

Tax Tuesday: Can I deduct student loan interest?

Now that kids are heading back to school, we’ll be featuring some tax-saving tips and interesting articles on ways you may be able to save money while your children get the education they deserve.

Can I deduct student loan interest?

Since personal interest is generally non-deductible, deductions must meet several tests:

1. You must be the person liable on the debt and the loan must be for education only (not an open line of credit).
2. Your income can't exceed $150,000 in 2011 on a joint return or $75,000 in 2011 (Same limits applied in 2010) on a single return; married couples filing separately cannot deduct.
3. You can't deduct if you're claimed as a dependent.
4. Deduction ceiling is $2,500.

FAQ Friday: Self-Employed

What special deductions can I get if I'm self employed?

You may be able to take an immediate expense deduction of up to $500,000 for 2011, for equipment purchased for use in your business, instead of writing it off over many years. Additionally, self-employed individuals can deduct 100% of their health insurance premiums. You may also be able to establish a Keogh, SEP or SIMPLE plan and deduct your contributions (investments).


What tax-deferred investments are possible if I'm self-employed?

Consider setting up and contributing as much as possible to a retirement plan. These are allowed even for sideline or moonlighting businesses. Several types of plan are available: the Keogh plan, the SEP, and the SIMPLE.

Tax Tuesday: Can I ever save tax by filing a separate return instead of jointly with my spouse?

You sometimes may benefit from filing separately instead of jointly. Consider filing separately if you meet the following criteria:

• One spouse has large medical expenses, miscellaneous itemized deductions, or casualty losses.
• The spouses' incomes are about equal.

Separate filing may benefit such couples because the adjusted gross income "floors" for taking the listed deductions will be computed separately.

FAQ Friday: How can I maximize my tax benefit from charitable contributions?

Many donors are not aware that their contributions may not be deductible, or that deductions may be limited. Here are the general rules:

When an organization claims to be tax-exempt, it does not necessarily mean contributions are deductible. "Tax-exempt" means that the organization does not have to pay federal income taxes, while "tax-deductible" means the donor can deduct contributions to the organization. The Internal Revenue Code defines more than 20 different categories of tax-exempt organizations, but only a few of these are eligible to receive contributions deductible as charitable donations.

Tip: When in doubt, call us or the IRS (800-829-1040) about the deductibility of a contribution.

If you go to a charity affair or buy something to benefit a charity (e.g., a magazine subscription or show tickets), you cannot deduct the full amount you pay. Only the part above the fair market value of the item you purchase is fully deductible.

Example: You pay $50 for a charity luncheon worth $30. Only $20 can be deducted.

Donations made directly to needy individuals are not deductible. Contributions must be made to qualified organizations to be tax-deductible.

Contributions are deductible for the year in which they are actually paid or delivered. Pledges are not deductible they are paid.

No donation of $250 or more is deductible unless the taxpayer has a receipt from the charity substantiating the donation.

Tax Tuesday: What taxes are due upon the death of a family member?

Here is a summary of the various taxes that may have to be paid on the death of a family member:

Federal Estate Tax. Amounts passing to a surviving spouse, and amounts passing to charity, are generally exempt from estate tax. Estate tax is generally only due on estates which, after reduction for what goes to spouse and charity, exceed the unified credit exemption equivalent, which for 2009 it is $3,500,000. This tax was repealed at the end of 2009, there is no exemption amount for 2010. In 2011, however, the exemption rate reverts back to old limits with the exemption at $1,000,000. These are the rules unless Congress elects to change the law.

Contact the IRS for a Form 706 if you need to file an estate tax return. A federal estate tax return must be filed and taxes paid within nine months of the date of death absent extension.

State Death Taxes. State laws vary. Many states impose estate taxes, which may apply in addition to federal estate taxes, or may apply even when federal estate taxes don't. Some states impose inheritance taxes, which are on individuals who receive inheritances, rather than on the estate.

Income Taxes. The federal and state income taxes of the deceased are due for the year of death. The taxes are due on the normal filing date of the following year, unless an extension is requested. The spouse of the deceased may file a joint federal income tax return for the year of death. A spouse with a dependent child may file jointly for two additional years. The IRS's Publication 559, "Information for Survivors, Executors and Administrators" may be helpful.

FAQ Friday: Incorporating

What is a corporation?
A corporation is a legal entity that exists separately from its owners. Creation of a corporation occurs when properly completed articles of incorporation are filed with the correct state authority, and all fees are paid.


What is the difference between an "S" corporation and a "C" corporation?

All corporations start as "C" corporations and are required to pay income tax on taxable income generated by the corporation. A C corporation becomes a S corporation by completing and filing federal form 2553 with the IRS. An S corporation's net income or loss is "passed-through" to the shareholders and are included in their personal tax returns. Because income is NOT taxed at the corporate level, there is no double taxation as with C corporations. Subchapter S corporations, as they are also called, are restricted to having no more than 100 shareholders.

Tax Tuesday: Accelerate Capital Losses and Defer Capital Gains

If you have investments on which you have an accumulated loss, it may be advantageous to sell it prior to year-end. Capital losses are deductible up to the amount of your capital gains plus $3,000. If you are planning on selling an investment on which you have an accumulated gain, it may be best to wait until after the end of the year to defer payment of the taxes for another year (subject to estimated tax requirements). For most capital assets held more than 12 months the maximum tax is reduced to 15% for sales after May 5, 2003 and before 2013. However, make sure to consider the investment potential of the asset. It may be wise to hold or sell the asset to maximize the economic gain or minimize the economic loss.

FAQ Friday: Small Business Owners

What steps can I take to improve my business cash flow?

To achieve a positive cash flow, you must have a sound plan. Your business can increase cash reserves in a number of ways:

• Collecting receivables: Actively manage accounts receivable and quickly collect overdue accounts. Revenues are lost when a firm's collection policies are not aggressive.  
• Tightening credit requirements: As credit and terms become more stringent, more customers must pay cash for their purchases, thereby increasing the cash on hand and reducing the bad-debt expense. While tightening credit is helpful in the short run, it may not be advantageous in the long run. Looser credit allows more customers the opportunity to purchase your products or services.
• Manipulating price of products: Many small businesses fail to make a profit because they erroneously price their products or services. Before setting your prices, you must understand your product's market, distribution costs, and competition. Monitor all factors that affect pricing on a regular basis and adjust as necessary.
• Taking out short-term loans: Loans from various financial institutions are often necessary for covering short-term cash-flow problems. Revolving credit lines and equity loans are common types of credit used in this situation.
• Increasing your sales: Increased sales would appear to increase cash flow. However, if large portions of your sales are made on credit, when sales increase, your accounts receivable increase, not your cash. Meanwhile, inventory is depleted and must be replaced. Because receivables usually will not be collected until 30 days after sales, a substantial increase in sales can quickly deplete your firm's cash reserves.

Tax Tuesday: Important Business Automobile Deductions

An automobile is quite an expense, especially for those of you who own more than one. The mileage reimbursement rates for 2010 are 50 cents for business, 14 cents for charitable and 16.5 cents for moving/medical miles. For 2009, the mileage reimbursements rates were 55 cents per business mile, 14 cents per charitable mile, and 24 cents per moving/medical mile.

Another common way to increase deductions is to include both cars (if you own more than one car) in your deductions. This is possible since the business miles driven determine business use. To figure business use, divide the business miles driven by the total miles driven. You can do this for each car driven for the business and can bring significant deductions.

This is simply a wonderful way to save, but remember: in order to be effective, a consistent mileage log should be kept. Consider meeting with a professional to determine the most efficient way of tracking mileage and other costs. Happy driving!

FAQ Friday: Estate & Financial Planning for Unmarried Couples

What estate and financial planning steps are particularly important for unmarried couples?

The following steps are particularly important for unmarried couples:

• Prepare wills. If both partners make out wills, the chances are that the intentions expressed in the wills will be followed after one partner dies. If there are no wills, the unmarried surviving partner will probably be left high and dry.
• Consider owning property jointly. Owning property jointly with right of survivorship is a way of ensuring that property will pass to the other joint owner on one joint owner's death. Real property and personal property can be put into this form of ownership.
• Prepare a durable power of attorney. Should you become incapacitated, the durable power of attorney will allow your partner to sign papers and checks for you and take care of other financial matters on his or her behalf.
• Prepare a health care proxy. The health care proxy (sometimes called a "medical power of attorney") allows your partner to speak on your behalf when it comes to making decisions about medical care, should you become incapacitated.
• Prepare a living will. The living will tells the medical community what your wishes are regarding artificial feeding and other life-prolonging measures.

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How to enter the contest:

1. Like our Facebook page by clicking on the Like button the the right (skip this step if you already Like our page)
2. Tell us how you would spend $50,000 by commenting below
3. Share this blog link with your friends on Facebook

Be sure to complete all 3 steps in order to be eligible for this contest!

The winner of the contest will be drawn once the Robert Hall & Associates Facebook Fan page reaches 1,000 Likes, so be sure to tell your friends about this contest!

The sooner we reach 1,000 Likes, the closer you will be to the

Robert Hall & Associates iPod Shuffle!

The winner will be drawn and announced immediately on camera by our VP of Marketing, Jennifer Nelson. It could be you so be sure to visit our Facebook page as well as our blog frequently. Once the winner has been drawn, he/she will be contacted by email for further instructions for receiving their new iPod Shuffle.

FAQ Friday: Travel and Entertainment

What expenses can I deduct while traveling away from home?
A wide range of expenses can be deducted while traveling away from home.
Here are the main ones:

• Transportation fares, or actual costs (or a per mile rate) of using your own vehicle. Also, transportation costs of getting around in the work area-to and from hotels, restaurants, offices, terminals, etc.
• Lodging and meals (subject to the 50% limit on meals)
• Phone, fax, laundry, baggage handling
• Tips related to the above

Can I deduct the cost of meals on days I call on customers or clients away from my office?

Generally not. Usually, you can only deduct costs of meals when you're away from home overnight, or as part of business-related entertainment.

Even when deduction is allowed, it's only to the extent of 50% of the meals costs and related tips.



What can't be deducted as travel expenses?

The following travel expenses cannot be deducted:

• Costs of commuting between your residence and a work site, but it's a deductible business trip if your residence is your business headquarters.
• Travel as education

Welcome to the Robert Hall & Associates blog!

Welcome one and all to the first official post of Robert Hall & Associates’ shiny new blog! For those of you unfamiliar with Robert Hall & Associates, we have been around since 1971 when Bob Hall first started doing taxes out of his own home in Glendale. Since then, the company has grown to 25 employees.

We are a full-service tax consulting company with niches in real estate, small business owners, entrepreneurs, entertainment, and police & firefighters. In addition to tax, we offer incorporating, financial consulting, and bookkeeping among other services.

Right now, we will be posting twice a week: Tax Tuesdays and FAQ Fridays. The former will be articles pertaining to all things tax. The latter will be an open playing field. We encourage you, the followers of our blog, to post any questions you may have about any aspect of the industry.

To kick off our new blog, we will be having a contest. Be sure to participate for a chance to win a brand new iPod Shuffle! Stay tuned for the rules, and again, welcome to all of our followers!