Monday, March 5, 2012

Wisconsin's Child and Dependent Care Deduction

Most tax software gets this one right without any additional entries. If you prepare your tax return by hand you need to remember to claim this deduction if you qualify for the federal child care and dependent deduction.

Wisconsin added the child care and dependent deduction for 2011 tax returns and is simple to claim. All you do is take the amount on Line 6 of federal Form 2441 as your starting point.. You can claim this amount as a deduction on your Wisconsin tax return, limited to $750 for one qualifying person and $1,500 for two or more qualifying persons. Use Code 28 on Line 11 of Wisconsin Form 1.

Note: If your expenses are all covered by your employer, you do not qualify for the deduction.

Sunday, February 12, 2012

Wisconsin's Job Creation Deduction

Upon reviewing tax returns from other accounting firms and self-prepared tax returns, certain deductions and credits are missed on a regular basis. New deductions top the list along with state specific credits. When a new deduction shows up on the state tax return, opportunities are often overlooked.

Wisconsin's new Job Creation Deduction (Schedule JC) allows most employers a $4,000 deduction per full-time employee added in 2011. Large businesses (over $5,000,000 in revenue) only get a $2,000 deduction per new full-time employee equivalent.

Schedule JC is easy to prepare. Most software does a good job handling the deduction with problems coming from flow-through entities and calculating the full-time employee equivalent. These problems are solved with a manual entry. Even if a business added employees later in the year, it is still possible to get the deduction. The hardest part is determining what a full-time employee equivalent is. Simply stated, a full-time employee equivalent is an employee that is required to work 2080 hours per year, including hours from holidays and vacation. The employee may work fewer hours as long as they are required to work the required hours. Employees can be terminated for any reason and the deductions still applies while they worked. New employees are accounted for pro-rata.

You will need your unemployment reports for 2010 and 2011 for calculate the deduction. Schedule JC is a short form with few entries. Follow the instructions for determining how many full-time equivalent employees you have. If you have more in 2011 than 2010, you get a deduction.

Monday, January 9, 2012

If They Can Do It, So Can I

I am a student of business owners. In my line of work I see all kinds of businesses, how they function, and their level of success. My personal experience qualifies me to make comments on the subject. Tax Prep & Accounting Services breathed life under my personal name in 1982, taking on the name Tax Prep & Services in 1989, and its current form in 1992. I have managed real estate and financial services companies. So you don't think bad things of me, I also produce stuff on my farm.

Most businesses fail in the first 5 years. They fail due to too little business or too much business. Too little is easy to understand, but too much? Yes, too much business too fast requires advanced management skills most small business owners lack. A business owner producing widgets is great at making widgets. He has a difficult time delegating the task of production and managing the workforce. Sometimes the owner cannot do it. His skills in management are inadequate.

A new phenomenon (to me, at least) has struck small business. Several of my business clients have hours starting at 9 or 10 in the morning and end at 3 sharp to pick up the kids. Either I didn't notice this before or there is a new business model in town. The funny things about this phenomenon is that it works. The businesses that use it are very successful. Most have employees. The employees work longer, but the boss is out by 3. Period.

Seeing business owners running their business on reduced hours intrigues me. Why does it work? After questioning clients/business owners using reduced hours I discovered an important point. Owners that work long hours get less done due to fatigue, make more mistakes, and poorer decisions. Shorter hours allow for a fresher mind and greater productivity. They also enjoy their work more.

Employees get more work and hours in these businesses. The boss is out talking with new clients while staff gets the work done. Everybody wins. The boss leaves early, but works evenings or weekends when necessary. When the boss works 40 hours a week he is kinder to his clients and employees. He also enjoys his family.

Now you know. This new information has me thinking. Don't call me after 3; I'll be golfing. Talk to Jeff; he'll be there. Wait a minute. It's tax season. Forget it. I'll be in the office from 4 AM to midnight.

Thursday, January 5, 2012

I Don't Want to Hear About It

Many people want to tell their accountant things they shouldn't. It is true accountants have limited privilege with clients. Certain matters you tell an enrolled agent or CPA remains confidential and your tax professional cannot be used against you in an audit or in court in certain instances. The key word though is "limited." Now is a good time to review what is and is not covered by privilege with an enrolled agent or CPA.

Accountant-client privilege only extends to noncriminal tax matters before the IRS. In state court, accountant-client privilege cannot be asserted. If you are engaged in tax fraud, your accountant can be compelled to testify against you. What is always confidential is any tax inquiry you make. If you want to explore ways to reduce your taxes, the discussion is covered by privilege.

Your accountant is subject to fines and prison is he knows you cheated on your taxes and signed the tax return anyway. So let me say this as clear as possible: I don't want to hear about it.

By the way, you will sleep better at night if you follow the rules, anyway.

Tuesday, January 3, 2012

Double Digit Interest Rates Are Back?

Treasury bonds had a really good year in 2011 with the 10-year bond yielding under 2% at the end of the year for the first time since at least 1977 and the 30-year bond under 3%. This is good news for bonds at first glance. But is it?

An improving economy and a Federal Reserve ending Operation Twist, where short-term Treasury bills are sold to buy long-term Treasury bonds, comes to an end, leaving future gains for bonds in doubt. Unless the economy declines, interest rates will head higher in 2012. There are few reasons remaining for the Federal Reserve to continue pushing rates lower.

How high rates go and when is anybodies guess. History has an interesting reference though. When we consider the low 10-year Treasury bond yield at the end of 1977, one concern comes to mind. A few years later interest rates pushed toward double digits and later went well over 10%.

If history repeats, which is no certainty, interest rates could head a lot higher. There are notable differences, however. Inflation is less an issue today than in 1977. Demographics are significantly different. Tax rates are lower and greater global trade should keep inflation lower. Energy prices are less an issue today because of more efficient use of these resources.

The differences aside, one overwhelming fact remains: Interest rates can go from very low to very high very quickly. The good 'ol days of low interest rates are coming to an end. It might take another generation to see these rates again.

Anybody for a 14% 30-year Treasury bond?