Archive for the ‘Anything Goes’ Category

In case you didn’t know, the tax filing deadline is April 18^th this year rather than the 15^th.  Why you ask?  Because the District of Columbia has this holiday called “Emancipation Day” which was celebrated on the 15^th this year.   So, taxpayers got another day to procrastinate and we got another three days to work long hours.

Thank you to all our clients!  As you can imagine, we are very happy another busy season has come to a close.  To celebrate, our office will be closed from 12 noon Monday, April 18^th through Wednesday, April 20^th. 

On a side note, our blog has officially been up and at your service for one year now.  We are quite proud of it.  We hope you’ve found it valuable and would love your input.  Have a subject or a question you’d like addressed?  E-mail it to us or post a comment and we’d be happy to respond.

In order to deduct charitable contributions, the charitable organization must be created or organized in the US (including the states, District of Columbia and possessions of the US) or must be provided by a treaty (side note – have you ever tried to read a treaty?  Not fun!).  Many generous people want to give for causes around the world and there is absolutely nothing wrong with it.  It is commendable!  However, in order for charitable contributions to be tax deductible, you need to give it to a bona fide US charitable organization which can direct the funds to those in need around the world.  Some think that Catholic churches located in other countries would qualify because they are arms of the Roman Catholic Church, a universal organization.  Tax courts have repeatedly rejected this argument. 

 Also beware of giving money to an individual or earmarking a donation for a specific individual.  You cannot give money to your church or other charity to give to a specific family in need. While it is a charitable act, it is not tax deductible.

Jeff Vistica, one of our business associates from Gradney & Vistica Financial Management offers this post with a comparison of my golf game to some other people’s investment behavior.   Enjoy!

By the way, if you are interested in contributing to our blog, email Mary for more information. mmm@politoeppich.com

What’s your take on golf?

Jeff Vistica,  CFPjeff@gradneyvistica.com www.gradneyvistica.com

You may be for or against the sport or maybe you’re not going to adopt a stance either way. Regardless, I hope you’ll chuckle at a comment by Santa Clara University Professor of Finance Meir Statman, in which he opined, “Golf seems stupid to me — a cognitive error that misleads avid players into spoiling a good walk.”

Is the man crazy; clearly doesn’t get it? Or are you nodding your head in sympathy? Don’t worry, I’m not suggesting there’s a right or wrong answer. In fact, his challenge to golf enthusiasts along with his editorial title — “What Investors Really Want” — got me thinking about the value of differing perspectives.

When you take your leisure time, what is it that you enjoy the most? The competitive nature of sport…achievement…or perhaps a restorative pastime? What you choose doesn’t matter much to me. What does matter is whether you know deep down which is the right answer — for you. Wherever you find your reward should be the driving force for how you choose to play.

Translate that into the world of investing: like most years, 2010 offered up the usual frenzy of financial distractions that threatened to ‘hook and slice’ us into unforeseen sand traps. For example, consider this sampling of 2010 headlines:

• May 29: “May 6 brought the ‘Flash Crash,’ a bewildering nearly 1,000-point slide that still defies explanation.” — The Wall Street Journal
• July 23: “The equity markets are not working on a scale that is truly shocking.” — Financial Times
• September 27: “Some 279 banks have collapsed since September 25, 2008.” — The Wall Street Journal
• December 3: “The unemployment rate unexpectedly rose to 9.8 percent last month.” — The Wall Street Journal
• December 29: “Housing market is still facing a blizzard.” — The Wall Street Journal

How did we respond to these and other reports? All too many investors reacted by swinging wildly at the risks and rewards from the previous hole, so to speak. Investors pulling their money in and out of the stock market documented this behavior. According to Morningstar, average stock mutual fund flows over the 36 months through November 2010 saw outflows of $414 billion, with $132 billion of these outflows occurring between November 2009 to November 2010.

Is this a wise strategy? Stocks in the S&P 500 Index ended the year up just over 15 percent. The Russell 2000 (U.S. small-cap) Index returned nearly 27 percent. International stock returns varied widely by country, with Peru and Thailand in the lead, and Greece and Spain in the basement. As a whole however, international stocks as measured by the MSCI EAFE Index, provided positive returns of just under 8 percent.

Investors who knew their game were best positioned to capture these sorts of returns in accordance with their personal risk/reward goals.  Those with a clearly established diversification plan realize a sound portfolio is built to ignore these distractions. They recognized that predicting market movements based on current events is nearly impossible and that a properly diversified portfolio is the winning strategy.

I was listening to talk radio yesterday morning and they were discussing the BYU suspension of Brandon Davies for having sex with his girlfriend.  The host ended the discussion by saying this quote from Maeser, the founder of BYU… it struck a chord and made me think.  I know this isn’t normal accounting talk, but I thought it was worth repeating Maeser’s quote: 

“I have been asked what I mean by ‘word of honor.’ I will tell you. Place me behind prison walls–walls of stone ever so high, ever so thick, reaching ever so far into the ground–there is a possibility that in some way or another I may escape; but stand me on the floor and draw a chalk line around me and have me give my word of honor never to cross it. Can I get out of the circle? No. Never! I’d die first!”

– Karl Maeser, Founder of BYU

Religious differences aside, think about this quote.  One’s word isn’t what it used to be. Society’s standards have been lowered and it’s a shame. (Geez, I sound like my mom!)

As auditors, we always consider the “tone at the top” set by management of the companies we audit.  If management holds itself to high ethical standards, they usually hold their employees to the same standards without hypocrisy.  Thus, if we determine that management does not put importance on high ethical standards, our audit risks increase… so we have to do more work… so the cost goes up.

Clearly BYU set the tone at the top and expects its students to adhere to those standards without exception.  Do we do the same in our companies?  How do you value your word?  What value do you place on honor?  Would you cross over “Maeser’s line” if you gave your word that you wouldn’t?  Would you die to keep your word?  Now it’s an extreme statement, because let’s be honest… why would you promise to never cross the line? Nonetheless, it’s something to think about!

We briefly discussed some of the new burdensome 1099 requirements that came out of the Small Business Jobs Act one of our December blogs; IRS requires 1099’s….  We haven’t yet discussed the extremely burdensome 1099 requirements that came out of “The Patient Protection and Affordable Care Act” (affectionately known as “Obamacare”).  Expanded 1099 reporting requirements include all payments for both goods and services aggregating $600 or more in a calendar year, including those made to corporations.  Effectively this means virtually all business transactions must be reported to the federal government.    Government analysts estimate that this reporting will flush out taxpayers who do not report, or under report their income.  To many of us who have studied this proposal, the compliance cost to businesses and the taxpayer cost to fund the bureaucracy that must process all this data seems more costly than the perceived unreported tax revenue. 

Relief may be coming.  Thanks to some heavy pressure by the AICPA and many state CPA societies, the House Ways and Means Committee approved a bill earlier this month to repeal these expanded 1099 requirements.  It has been sent to the house for a full vote.  The Senate has a similar bill, but it doesn’t appear to be as comprehensive.  Of course, it wouldn’t come without a cost.  The House bill includes measures to make up for the perceived revenue loss.   The Journal of Accountancy’s article has more information.

In the mean time, the 1099 requirements for rental property owners is still effect.  Read the article for full details and continue to prepare yourself until it is actually repealed.  Keep your fingers crossed for full repeal!

Jessica Dorsett

Saturday is Jessica’s birthday and she is the thoughtful person who posts all the Happy Birthdays on our blog so here’s my feeble attempt to honor hers! 

Jessica has been with the firm over 5 years.  Paul recruited her on her wedding day!

Here’s the story…. 

Paul’s daughter Regina and Jessica are good friends.  A spot had opened up on our audit staff a week before Jessica’s wedding.  Paul knew that Jessica was a high achiever from years of connection when Regina and Jessica got together at the Polito house.  As often happens, Jessica had been recruited before graduation by a firm in San Diego and hadn’t even thought about our firm.  Literally on her way out the door to Jessica’s wedding, Paul asked Regina, “Do you know where she is going to work?”  “Some firm in Sand Diego, she’s not looking forward to the drive from Escondido”.   Paul told Regina to let Jessica know that “We would make her an offer she couldn’t refuse”, which Regina relayed to Jessica at her wedding.  After the honeymoon, Jessica interviewed with Don and decided to join our firm. 

She is thorough, professional and proactive and her contributions to our firm grow each year.  Her clients love her and often take the time to let us all know what a great CPA and person she is. 

She has propelled the firm’s baby boomers into the 21^st century leading development of our website design and blog content.  She also monitors our quality control program on the attest side of the practice. 

She is a dear friend to us all and raises the bar by her dedication.  This is going to be a great year for her as she and her husband Brett are expecting a new brother or sister for their 21 month old son Chase!

Paul Polito

Many of you who know me personally know that I am an amateur guitar builder.  I picked up this hobby when I was in high school back in the 60’s.  Every Christmas I usually receive gifts that “feed” this habit…….I mean hobby!  Most years its tools, gift certificates to woodworking equipment stores and the like.  This year, my lovely wife Helen gave me a new book written by Bob Taylor, founder and president of Taylor Guitars.  Bob grew up in about the same timeframe as me, loved the same music  I did and built his first guitar for the same reason I did…..he didn’t have the money to buy one!

In this very inspiring book called “Guitar Lessons” Bob shares with the readers the incredible story of how this tiny company started out and survived many years of no profits to become the most successful guitar manufacturer in the world.  I especially enjoyed hearing about how they hung on and improved the company during the 1980’s when acoustic guitars fell out of favor and the market dried up.  The market for acoustic guitars in the 1980’s was probably similar to the market for buggy whips in the roaring 20’s!

Each chapter recounts a lesson learned about things like lean manufacturing, automation and technology, employee relations, marketing, brand building, and more.  Any aspiring or struggling business person should read this book.  For years Bob and his partner Kurt couldn’t rub two nickels together so this book will definitely be a source of inspiration for anyone struggling to get a business off the ground.  There are many great lessons in this book about how perseverance eventually pays off and how listening to others can be the key to a breakthrough.  There are also great lessons in this book about risk and reward and doing the right thing no matter what.  The fact that it involves a very “hip” company makes it a valuable book for young people.

One of the nice features of the book is the short chapters which make “Guitar Lessons” a very easy book to read.  For someone like me who takes over a year to build one guitar, hearing about how Taylor Guitars got from one guitar a month to 500 per day was truly inspiring!  This is honestly one of the most enjoyable books about business I have ever read!

“Guitar Lessons, A Life’s Journey Turning Passion Into Business” is available at  Barnes and Noble both in hard cover or as a Nook Book.  I will send a free copy of Guitar Lessons to the tenth new subscriber to our Blog after this book review is posted.  New subscribers email your subscription request to Mary McDannold at  mmm@politoeppich.com .

Small tax exempt organizations, other than churches and church-related organizations, are required to file an annual notice (990-N or e-postcard) with the IRS when annual revenues are $50,000 or less (was $25,000 prior to 2010 tax years). However, there are a few exceptions:

1. Supporting organizations of any size are required to file Form 990 or Form 990-EZ (Supporting organizations are charities that carry out their exempt purposes by supporting other exempt organizations, like university endowment funds)
2. Private foundations must file Form 990-PF
3. The IRS considers the annual gross receipts of an organization to be MORE than $50,000 if-
   1. The organization has been in existence for one year or less and the gross receipts, including amounts pledged by donors, are over $75,000 during the first year.
   2. The organization has been in existence for more than one year, but less than three years, and the organization’s average annual gross receipts for its first two taxable years is over $60,000
   3. The organization has been in existence for three or more years and the organization’s gross receipts for the immediately preceding three taxable years, including the taxable year in which the return is filed, is $50,000 or more.

Once a nonprofit has existed for two years, and is not a supporting organization or private foundation, you will always have to check the last test.  Just because one year the gross receipts dropped below $50,000 doesn’t automatically mean you can file a Form 990-N postcard.

You can file the Form 990-N electronically by going to http://epostcard.form990.org/.  As always, check with your tax preparer to determine the proper tax filings for your organization.

To all you tweeters out there, did you know that the IRS is a tweeter?  That’s right!  IRS has jumped into social media.  Now you can get federal tax news on your iphone!  I wonder how much of our tax dollars this costs the US annually? 

We are far too busy to “Tweet” even in the slow summer months! How many federal employees do you think are needed for the IRS to keep up in Tweets? 

The IRS Twitter news feed, @IRSnews (http://twitter.com/IRSnews), provides the latest federal tax news and information for taxpayers, including tax tips, tax law changes and information on IRS programs.  They also have a Twitter feed for tax professionals, @IRStaxpros (http://twitter.com/IRStaxpros). 

I wonder how many followers they have?

The IRS has issued the new mileage rates.  Beginning January 1, 2011, the standard mileage rate for business purpose is 51 cents per mile (currently 50 cents).  The most common uses of the rate include:

• Mileage reimbursement to employees using an accountable reimbursement plan (can be less than the federal rates, but never greater)
• Mileage deducted on schedule C
• Unreimbursed business miles deducted on Schedule A 

Other mileage rates include 19 cents per mile for medical or moving purposes and 14 cents per mile for charitable purposes.