Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Mar 25

    In his book “The Ultimate Success Secret,” Dan Kennedy exposes the truth that “no politician, few economists, few teachers want to tell people, and fewer want to hear: certain jobs are only worth a certain, maximum number of dollars per hour, whether you’ve been doing it one year, ten years, or thirty years. Longevity does not necessarily increase the real value of getting that job done.” 

    However, hidden inside this uncomfortable truth, is the secret to increasing your income literally at will.

    In his book “Earl Nightingale’s Greatest Discoveries,” Earl noted that “every field of human endeavor has its stars; all the rest in these fields are in a descending order of what we might call ‘the service-reward continuum.’” He went on to point out that the reason some people earn more money than others is that they have made themselves more valuable. He observed that, for the most part, the size of a person’s paycheck is determined by this question—how difficult is he or she to replace?

    According to Kennedy, the harsh reality is that one year, three years, and five years from now, the particular job you do will not have appreciably increased in value. YOU will either have stayed the same in value or increased in value through your own initiative; that’s the only way. If you have not increased in value, at some point, your employer won’t pay any more—regardless of inflation.

    This is true of the self-employed, the business owner as well. If you are not increasing your value to your customers, if you are not making yourself indispensable to them all over again, every day, then you are declining in value to them. You are either increasing in value or declining in value.

    How many people do you think have this “add value” idea straight in their minds? Well look around. In most big companies, there are masses of people doing the very same jobs, the very same way year after year, even decade after decade, shocked when cheaper foreign labor or automation or some other replacement boots them out on the street. Small business owners suddenly find themselves vulnerable when a major, mass retailer or chain or aggressive new competitor comes to town.

    Everyone of these people has one very distinctive thing in common; from one year to the next, they have not taken any initiative, not done anything, nor invested any time or money in increasing their own personal value. YOU need to look very closely at all these folks and avoid following their example at any and all cost. And if you really would like to double your paycheck, simply take action to triple your value; one of three things will absolutely happen: (1) your present employer will respond with raises, bonuses and advancement; (2)  a new employer will find and grab you; or (3) you’ll discover some entrepreneurial opportunity and move on to writing your own paycheck. And if you already own a business and would like to double your paycheck, simply take action to triple your value to your customers. Your compensation will always catch up to your value.

  • Mar 18

    Average taxpayer to receive savings of $ 1,890 in tax reductions

    To my surprise, Congress actually acted during the 2010 lame duck session granting tax relief to all Americans. Unless you’ve had your head buried in the sand for the last year, you know that the so called Bush-era tax cuts were set to expire on December 31, 2010 after ten years, but it didn’t become a priority until it became urgent.

    The 2010 Tax Relief Act extends all personal income tax rates at the 2010 levels for two years, through December 31, 2012. All the brackets and the capital gains/dividend rates remain the same. The Act extends the repeal of itemized deduction limits and the repeal of the personal exemption phase-out. Both affected higher-income taxpayers.

    Also temporarily extended through 2012 are:

    • Marriage penalty relief
    • The child tax credit
    • The earned income credit
    • American Opportunity Tax Credit
    • State and local sales tax deduction
    • Higher education tuition deduction
    • Teacher’s classroom expense deduction
    • Charitable contribution of IRA proceeds

     

    Note: The issue has not gone away. It’s only been postponed until the 2012 election cycle. President Obama has pledged to make the sunset of the two highest brackets an issue in the 2012 presidential campaign.

    In addition to the extension of the reduced individual income tax rates, the most immediate impact of the new law, for most individuals, will be the payroll tax cut. The employee’s share of Social Security taxes will be reduced by 2 percent from 6.2 percent to 4.2 percent for wages earned in calendar year 2011 up to the taxable wage base of $106,800. Self employed individuals would pay 10.4 percent on self-employment income up to the threshold.

    Note:  The new payroll tax holiday is estimated to inject $110 billion into the economy in 2011. Individuals who do not pay into Social Security, for example, some public employees, will not benefit from the payroll tax cut.

  • Mar 11

    Information Reporting Requirement Has Been Expanded to Landlords

    Ever since the Health Care Reform bills became the law of the land in March 2010 various politicos have stood and decried the burden placed on small businesses with the change in information reporting requirements. Promises were made and repeated that it would not stand, that this burden on small businesses would be repealed. But they have been nothing more than a noisy gong or clanging cymbal.

    Hidden deep inside the massive 2,409 page health care reform bill are a few lines which will unleash a flurry of paperwork on unsuspecting businesses.  The new law makes key changes in 1099 requirements. First, it expands the scope from only services to include all tangible goods and second, it requires that businesses issue 1099s not just to individuals but also to corporations.

    Beginning in 2012 companies will have to issue 1099 forms not just to contract workers but to any individual or corporation from which they buy $600 or more in goods or services in a tax year.

    Businesses will have to issue billions of new tax documents each year.

    Now, under a law titled the “Small Business Jobs Act of 2010,” the requirement to file Forms 1099 for vendors paid $600 or more during the year has been expanded to include landlords. Yes, if you have one rental property, the same reporting requirements now apply to YOU!

    If, over the course of a calendar year you pay any individual or enterprise (other than a government) $600 or more for advertising, management, repairs, utilities, etc. you will be required to report the payments on Forms 1099 (typically Form 1099-MISC).

    Are you ready? Beginning now you need to start systematically capturing the names, addresses and federal employer identification numbers (FEIN) of everyone you do business with as a result of being in the business of renting real estate. You’ll need to issue 1099s this time next year – yes, 2012!

    You’ll also need a system in place to be able to tabulate the total paid to each vendor. This is not something you can just ignore and hope it will go away. Ignoring the requirements could lead to disaster. Businesses or individuals which fail to file information returns or file incomplete returns could be subject to a $50 penalty for each required return. For an intentional disregard of the requirement, the penalty could increase to $100 per return or more.

    Why are they doing this? Won’t it get repealed? Aren’t they going to repeal the whole thing anyway?

    Yesterday, Democrat Nancy Pelosi handed over the gavel as Speaker of the House to Republican John Boehner and one of his first promises was to introduce legislation to repeal “Obama Care.” I’m not a political expert, but it seems likely to me that even if such a bill passes in the Republican controlled House it will be DOA in the Senate. So no, I don’t think they are going to be able to repeal the whole thing.

    The IRS estimates that more than $345 billion is lost in unreported tax revenue each year. Using 1099s to document millions of transactions that now go untracked is one way they believe they can close the tax gap. Why? Because the study also pointed out something rather significant: Wages on an individual’s tax return are under reported 1 percent. Business income however, and this is a combination of under reporting income and over reporting expenses, is understated a whopping 67 percent!

    Not only has the provision NOT been repealed, it’s been EXPANDED!

    Certainly, increased record keeping could weigh heavily on small businesses and landlords. At a minimum, a significant amount of time and training is going to be required to gather, sort and input the data needed for every vendor. Even the smallest of businesses will require software to help them maintain good records.

    It might be helpful to think of the new reporting requirements as similar to payroll. In a sense, America is going on a payroll style reporting system beginning in 2012.

  • Mar 4

    In what may come as a shock to many of you, the country is broke and is looking for additional revenues. You should know, it will be looking in every nook and cranny to replenish the federal coffers. What you may not know is the Internal Revenue Service seems already to be engaged in revenue-finding-missions. Among the objects of their affection – in the tax audit – are sole proprietors filing Schedule C and substantiation requirements for every possible deduction.

    The IRS now views the Schedule C as the repository of all manner of evil taxpayer intentions to reduce their tax liabilities (and, from the perspective of the IRS, federal revenues). IRS agents are reportedly beating the bushes of sole proprietors primarily to reduce or eliminate claimed deductions as unsubstantiated to increase both income and self-employment tax liabilities.

    All deductions are a matter of legislative grace, and that grace comes with a price: at a minimum to maintain books and records to support the expenditure, and in many cases to meet more exacting substantiation standards than the Code imposes as a condition to deductibility in various circumstances. One might not think of charitable contributions as a source of major contention with the IRS, but in the case of non-cash contributions, the taxpayer is technically required to establish, both the fair market value of the property and the property’s adjusted basis. In some cases, the Code requires an appraisal of property (where the value exceeds $5,000) contributed to a charity.

    However, the property’s adjusted basis comes into question in two cases: first, in most cases where the property is inventory in the hands of the donor, and secondly, if tangible personal property that is unrelated to the charity’s exempt function, the amount of the contribution is limited to the donor’s adjusted basis in the property. For example, if a taxpayer donates used clothing to a charity that does not distribute them to poor or indigent individuals, the deduction is limited to the lesser of your basis or fair market value. Now it may seem like common sense that the current value of almost all used clothing is less than what was paid for it but technically, a claim for a deduction of such items requires some proof of both the fair market value and the cost basis of the property.

    And such was the case I recently read about in Surgent McCoy’s Tax Issues Newsletter where a taxpayer was denied a claimed $850 deduction for clothing donated to charity. Yes $850! The return was under audit and the taxpayer submitted photographs of all the clothing donated and matched them up to the current list of retail prices published by the Salvation Army and recognized by the IRS. But that wasn’t enough. The auditor wanted purchase receipts of each item to establish the cost basis. Even if the taxpayer was in the 35 percent tax bracket, the amount of tax at issue was only $298. The IRS correctly assumed the taxpayer would throw in the towel rather than incur additional time, effort and costs to substantiate the deduction. So, the IRS pressed the issue hard enough to deny any deduction. Hooray, the deficit was reduced $300!

    From a practical standpoint, trying to establish the cost of most any item of personal property even shortly after its purchase, much less a couple of years down the road, is extremely difficult, so nothing prevents the IRS from using similar audit strategies where larger sums of money are involved.

    Echoing the motivation Willie Sutton once famously gave for robbing banks, the Internal Revenue Service knows where the money is.