IT IS NOT THE 1% THAT TIS STRANGLING THE ECONOMY

Everybody should have a favorite economist. Mine is Professor Ernie Goss of Creighton University.  The following is from his July newsletter:

The 25%, Not the 1%, Are Strangling the U.S. Economy

It's not the 1 percent that is siphoning U.S. economic resources. It is the 25 percent--the portion of the U.S. population born between 1946 and 1964 or, baby boomers like me. Not only are we 25 percenters leaving the workforce at very high rates, (consuming instead of producing), we are draining the U.S. Treasury via higher Social Security (SS) benefits and greater Medicare spending. Over the past decade, SS outlays soared by 69 percent and Medicare expenditures rocketed by 135 percent, enlarging the nation's debt to $16 trillion.
This debt which is the largest in the galaxy and 100 percent of GDP will ultimately be paid for by the 60 percenters (those born after 1964). We need to take steps to reduce this wealth transfer from young to old by: (1) raising the SS retirement age from 67 to 70 by increasing it 2 months per year, (2) increasing the Medicare eligibility age from 65 to 67 and, (3) cut the yearly SS inflation adjustment by 1 percent. Taking these actions would save $360-$400 billion between 2012 and 2021. Additionally to reverse the aging of the nation’s labor market, the U.S. should expand legal immigration allowing younger workers and their families to enter the U.S. Latest U.S. Census data show the median age is 38.3 for Whites, 35.3 for Asians and 27.4 for Hispanics. By increasing legal immigration and slowing the growth in SS and Medicare spending, the U.S. would avoid the stagnation and looming economic calamities threatening Japan and Europe as a result of their aging populations and expanding pensions/healthcare payments to baby boomers. Ernie Goss.

I found his comments on a “fix” to the deficit that the Social Security fund very interesting.  Last fall, I attended the National Tax Conference in Washington D.C.  One of the sessions was on Social Security and Medicare, the speaker, Theodore Sarenski echoed some of the advise that Dr. Goss presented.  If this happened, according to Sarenski, no person over 55 would be see their benefits change and people under 55 would still receive at least 85% of their benefits. 

LOOPHOLE - A ROSE BY ANY OTHER NAME WOULD SMELL THE SAME

I was recently speaking about taxes at a convention in Orlando, Florida. After my session one of the participants came up and said that he did not like my reference to a few of the tax "loopholes." He felt that a loophole was a shoddy idea that was on the verge of something that was illegal.

That conversation got me to thinking. "Loopholes" is one of those words with different connotations for different listeners. To some, it's a dirty word — I've seen editorials calling the exclusion for employer-provided health insurance a "loophole," and making it clear that a "loophole" is one small step removed from out-and-out graft. Others of us love it. In fact, from time to time I refer to myself as "Loophole Larry."

My understanding of the word "loophole" has always been a law that's passed for one purpose that gets used for another —sort of like when a doctor prescribes a drug for off-label use.

My favorite example is Code Section 132(j):
(4) On-premises gyms and other athletic facilities

       (A) In general- Gross income shall not include the value of any on-premises athletic facility provided by an employer to his employees.

       (B) On-premises athletic facility - For purposes of this paragraph, the term 'on-premises athletic facility' means any gym or other athletic facility -

          (i) which is located on the premises of the employer,

          (ii) which is operated by the employer, and

          (iii) substantially all the use of which is by employees of the employer, their  spouses, and their dependent children (within the meaning of subsection (h)).

Do you have a home-based business? Do you or any of your family qualify as employees? Do you have a pool in your backyard? Congratulations! You've got a tax-deductible on-premises employee athletic facility!

Now, we all know Washington didn't pass that law to let folks like us write off our swimming pools, treadmills, or elliptical machines. They passed it to clarify that when Corporate America sticks a gym in the basement of his big glass tower, his employees don't get stuck with taxable income for working out instead of taking lunch.

But clever planners like us take a law that was passed for one purpose, and explore it to the fullest definition. If a big employer can deduct the money it spends providing a swimming pool for its employees, should a small employer not be entitled to the same opportunity? For some, it's a "loophole" and for others it's a "strategy." Either way, it takes astute planning to take a law that was passed for one purpose and use it for a slightly different but honest and defensible purpose.

So I've never shied away from promoting "loopholes" as something my clients should want to take advantage of.

So if we want to get technical, Dictionary.com defines "loophole," in part, as "a means of escape or evasion; a means or opportunity of evading a rule, law, etc.: There are a number of loopholes in the tax laws whereby corporations can save money." Is that the same as the understanding I just outlined? Nope. Is it a pejorative? Not to me, but I see how it is for others.

So, what's our bottom line here? My job is to point out alternatives to my clients. Let them know the color (black, white, or gray), but don't let them not follow the law.

I try to throw in a quick definition when we use those terms. For example, I might tell a client "when I say 'loophole,' I mean a law that Congress passes for one purpose that gives someone else an unintended benefit. It's perfectly legal, even if Washington didn't realize that's how we could use that law."

NEBRASKA LEADS STATES IN INCREASED CROPLAND VALUE

(AP/SacBee.com) -- The AP reports, "The value of an acre of Nebraska cropland rose more than any other state over the last year."  According to the USDA, cropland in Nebraska climbed nearly 36% to $4,480 an acre on average. "Farm real estate, which includes all land and buildings on farms, was up 33.5% in Nebraska, again the highest increase."

To read more of the story: CLICK HERE

MEDICAL PREMIUMS - W-2

Q: Larry, I heard for someone that we are going to have to put any medical/dental premiums that we pay for our employees on the W2s starting this year. Do you have any information about this or know where I would be able to look that up? We just want to make sure that we have it covered sooner rather than later.

A: As long as a business had less than 250 employees in 2011, then there is relief, in that, there will not be a requirement to report in 2012.

To see Q and A sheer on IRS website: CLICK HERE

CLARIFICATION OF DEDUCTION OF MEDICARE EXPENSES

Until about 2009, the IRS position was that a self-employed taxpayer (including partners and more than 2% S corporation shareholders) could not deduct Medicare premiums above the “line” as part of the self-employed health insurance deduction. In 2010, the instructions for form 1040 and other related forms had added a section indicating you could deduct these premiums above the line. The problem was that there was no actual formal announcement from the IRS just a change in the instructions.

We picked up on this right away and started deducting the Medicare premiums as a adjustment to gross income on page one of the return. Now, over two years later, the IRS announced a formal change in the long-held position on the detectability of Medicare premiums (normally withheld from Social Security Benefits), which in most part agree with the 2010 instructions.

Take note that for S corporation shareholders and partnerships, a notice issued previously by the IRS requires that these premiums actually be reimbursed by the corporation (or paid directly by the employer, which is not normally applicable with Medicare premiums). This requires a check be issued by the employer to the employee paying the Medicare premiums. These payments would then be included in the income of the employee (deducted by the employer) and then deducted on page 1 of form 1040 of the employee. If these guidelines are not followed completely, then the deduction is not allowed.

FEDERAL STUDENT AID NEW WEBSITE

Federal Student Aid launched a new streamlined website, StudentAid.gov, which will assist in making it easier for students, parents, and borrowers to navigate the financial aid process. These new resources offer more than just information in an easy-to-read format; they also feature interactive tools, such as videos and infographics, to help answer the most frequently asked questions about financial aid.

StudentAid.gov is the first step to develop a single point of entry for students accessing federal student aid information, applying for federal aid, repaying student loans, and navigating the college decision-making process.

QUICKBOOKS SETUP ERROR & HOW TO FIX IT #2

This is my second in the Quickbooks Tips series:
QuickBooks is driven by lists – quite a few of them. You have to know your business and know what the lists mean so that you can efficiently and effectively create a database.  Here is another QuickBooks setup error that we see the most AND how to fix it.

Customers and Jobs

Customer and job organization not appropriate for reporting needs: Customer/Jobs don’t work for every QuickBooks user. In my experience, I’ve seen it used most often in construction, home improvement or real estate/property management companies where there are multiple & concurrent “jobs” worked for each customer that the business owner would like to track separately (typically for profitability reporting reasons). If this does not describe you and your business, then the extra level of “Jobs” is inappropriate for your reporting needs and is probably overkill.

Redundant or duplicate: Again, the same as with the Chart of Accounts, you don’t want a bloated list of Customers/Jobs. Periodically review the list for duplicates and merge the Customers.

Jobs not properly assigned to customers: If you use Jobs, you want to make sure that they are properly assigned to Customers. Periodically review your customer & job list to make sure that everything is as it should be.

Don’t be afraid to ask for some help!