Thursday, March 29, 2012

Traffic Alert - Richmond Area

March 29 (Thursday)
I-95 north/south – From 8 p.m. Thursday through 6 a.m. Friday, I-95 will be reduced to one travel lane in each direction at Laburnum Avenue (mile marker 79) as crews replace the I-95 northbound bridge over Laburnum Avenue. I-95 north traffic will merge onto the southbound bridge. Both I-95 north and south traffic will use the southbound bridge to maneuver around the construction. Also, Boulevard drivers will be restricted from accessing the ramp to I-95 north during the nightly bridge replacements. Expect major delays along I-95. Use I-295, Route 288 and the Downtown Expressway (toll)/I-195 to bypass the construction.


Monday, March 26, 2012

Abusive Home-Based Business Tax Schemes

One of the tax breaks for some start-up businesses is the fact that some otherwise non-deductible personal costs become deductible as home office expenses if certain conditions are met. To be qualified, the home office must be used regularly and exclusively for the taxpayer's trade or business. The home office deduction amount is limited to the profits earned by that trade or business.

Unfortunately, criminals have used, and continue to use, this feature of the tax law as a part of schemes to rip off unsuspecting people. The IRS has information on some of the perpetrators of these schemes here. These include people who have gone to prison for tax evasion, money laundering, fraudulent use of the U.S. mail and other crimes.

By the way, most of these home based business cons were pyramid schemes as well.

Friday, March 16, 2012

Damages for Physical Injury or Illness

The general question is, "if I get compensation for damages someone else has done to me, is the money taxable?"
As with any tax question the answer is, it depends.  That money is usually taxable, however.

A more specific question is, "if I get compensation for physical injury or illness that someone else has inflicted upon me, is the money taxable."
The answer is still, it depends, but settlements like these are usually not taxable.

Here is the general rule.
  1. The settlement has to be for a tort or tort-like action. "Tort" is one of those legal-babble terms that means you got damaged by someone else. You don't have to go to court for this requirement to be met.
  2. The settlement has to be because of a physical injury or illness. Making you bleed is what we call a "good fact." Internal bleeding counts. So do bruises.
Next, the exceptions: If the payment, or part of it, is for medical bills that have already been deducted on a tax return, that part is taxable income. Also, if the payment, or part of it, is labeled "punitive damages," that part is taxable. That's it. Those are the exceptions. Everything else is excluded from taxable income.

"So what's the big deal," you might ask. "It doesn't seem like rocket science."

You would think. However, there are a lot of people running around out there who believe there are other exceptions. Here are some myths in descending order of pervasiveness.
  • Myth #1: If you get physically injured by someone else and they compensate you for lost income, that part is taxable. Not so! It makes no difference how the dollar value of the physical injury is computed, the payment is still tax free.
  • Myth #2: If the compensation includes an amount for emotional distress or something similar, that part is taxable. This one is trickier because another part of the tax code says compensation for emotional distress is taxable. However, that other part refers to emotional distress when that's the only damage done to the person. If the emotional distress (including pain and suffering) is a result of the physical injury, the payment is still tax free.
  • Myth #3: Payments to anyone besides the injured party are taxable. Wrong again. If a person is banged up in an automobile accident and the spouse gets a payment for his/her suffering as a result of that accident, those payments are tax free. If a spouse is killed by someone else in an accident and the settlement results in the estate getting money, the estate does not have taxable income. If that settlement goes to the surviving spouse or other family member, the payment is still tax free.
If you meet the criteria under "general rule" and you're told by your tax return preparer that the lost wages part of your settlement is taxable, tell them to read IRC Section 104, Reg Section 1.104-1, and most importantly, Revenue Ruling 87-95. If they still don't understand, drop me a line. Our rates, in my opinion, are reasonable. (I have to say it's just my own opinion that our rates are reasonable because the AICPA has said that a general claim of charging "reasonable" rates is unethical.)

Do be sure to read the disclaimer at the top right of this page.

Thursday, March 15, 2012

Invitation to be scammed

Here is how the scam works.

Start your own <pick a job> business
  • You can earn $100/hour <or some other pie in the sky number per some time period>
  • You can work whenever and however you want <not if you want a successful business>
  • You can reduce your own tax liability <yeah, right>
  • You will be in demand for your skills <if you have marketable skills>
  • You can work from home <or not, depending on local zoning regulations>
  • You can work full-time or part-time  <depending upon whether or not you want a profitable business>

First things first. The only way you can start a new business and reduce your tax liability is to lose money on that business. If you are losing money, you aren't making $100 an hour.  Additionally, most of these "reduce your taxes" come-ons revolve around taking a home office deduction. However, one of the requirements for taking a home office deduction is making a profit. If you're making a profit, your tax liability goes up. If you're already losing money, your home office deduction is zero.

Most of these "opportunities" are nothing more than poorly disguised pyramid schemes. What you're really invited to do is either pay an upfront fee, or work for free, in order to acquire the right to sell the "opportunity" to the next sucker.

Here's my offer. If you want to pay someone to watch you read IRS Publication 17, Your Income Taxes, I'm available.  Plus, one hour free of my watching you read if you can figure out specifically what prompted this post (and tell me what it was, of course).

Check out those charitable organizations

The IRS has announced, in News Release 2012-34, the creation of an online search tool to get information about exempt organizations. Unfortunately, if all you have is the name, this might not be too useful. A search for "American Red Cross" yielded 21,146 hits and "American Cancer Society" yielded 34,931. Unfortunately, adding Atlanta, GA (the location of its headquarters) to the ACS search still provided 130 hits. The ACS was 4th on that shorter list but what if it had been 97th?

Maybe you better get its tax ID number from any charitable organization you have doubts about. A search with that number should yield one hit.

The search tool itself is accessible here.

Wednesday, March 14, 2012

It's education, stupid

Will Davis said it again. "The quality of [local] schools is the deal maker or breaker on many [economic development] projects." The managers of those companies thinking about investing in Chesterfield don't just ask about the schools, they point at a specific one and say, "I want a tour. Now." Not in a couple of months after some cosmetic fix-ups.

Virginia enjoys a reputation for quality education at all levels. So does Chesterfield County. However, that reputation is on the brink of being flushed down the toilet by a state legislature with too many members who cannot, or will not, think beyond the next election.

In Chesterfield, some of the new School Board members show signs of (1) seeing the connection between quality physical plant (an important component of quality education) and economic revitalization and (2) being willing to do something about it.

The final outcome remains to be seen but those who care about good jobs, a stable economy, and a reasonably high quality of life for everyone had better also begin voicing their support for restoration of school budgets and teaching positions.

Tuesday, March 13, 2012

Manchester Growing

44 new apartments are being built in Manchester, a section of Richmond south of the James, by Urban Development Associates. The BizSense article mentions several other projects under way in that area.

Successful revitalization in south Richmond is crucial to revitalization efforts in adjoining areas of Chesterfield County.

Monday, March 12, 2012

2011 AICPA National Accounting Competition

Students from N. C. State, my alma mater, have won the 2011 AICPA National Accounting Competition. The Journal of Accountancy story is here. "The members of the team, Wolfpack in the Black, are: Alan Perry (captain), Amanda Dew, Brian Jones, Seanna Robey and Eileen Taylor (faculty adviser)."

I was one of the first five students in the N C State accounting program to take the CPA exam. Leon Ennis, Cranstoun Reinoso, Bill Pinna and Mac McBurney, the instructors, laid the foundation for a great program. Full disclosure: We had to commute to Chapel Hill one semester to take auditing from Junius Terrell, with apologies to Joe Ben Hoyle, probably the best auditing teacher in the land. Four of us passed the auditing section (including one who didn't retain credit for it because it was the only section passed).

We first five received credit for 40% of the parts attempted on our first sitting - not bad when the "premier" program in the state was just over 50% and the national rate was below 20%. I also taught at State for 8 years.

Just to show you how good an auditing teacher Junius Terrell was, one of the students in that class, Phil Ameen, had the highest combined grade in North Carolina on the May 1972 CPA exam. If I remember correctly, he had the second highest combined grade in the country.Phil went on to do relatively well in the profession. His bio is here. It is a bit out of date; Phil is retired now although I wouldn't be surprised if he were even less retired than I am.

I'd like to say that Phil and I were bosum buddies but we weren't. He sat on the front row of the class and I was way in the back with the other interlopers from NCSU. I spoke with him at a professional meeting a few years ago. He claimed to remember me but he was probably just being polite.

Friday, March 9, 2012

Study refutes theory that workers returning to the job market will jack up the unemployment rate

Another article in today's Richmond Times-Dispatch has this headline. "Older workers are exiting fast, shrinking the labor force, study says."

The authors of the study, economists at Barclays Capital, said (emphasis added),"Based on our reading of the evidence, the conventional view that in recoveries the unemployment rate will stop falling and even start to rise because of surging labor force participation rates amounts to something of an urban legend. Such an event has not happened in the past, and we do not believe it will this time either."

In other words, the unemployment rate will probably not increase as the economy improves due to disheartened people returning to the work force to look for jobs.

While having people permanently exit the work force has, by itself, a positive impact on unemployment rates, the article notes that a smaller work force means, all else being equal, slower economic growth. The article didn't mention that many retirees still have significant disposable income.When a person leaves the work force, it does not mean he or she will suddenly stop spending any money at all.

The article also does not address the impact that increasing worker productivity has on economic growth. My guess is the negative impact on economic growth of a smaller work force will be so small as to be unnoticeable by most of us and by most economists.

$164 million for transportation projects

Yesterday (March 8) the Richmond region Metropolitan Planning Organization approved allocation of $164 million of federal funding for regional transportation programs over the next several years. Now all that has to happen is for Congress to appropriate those funds over the next several years. This morning's Richmond Times-Dispatch has an article, here, in the business section.

Not mentioned in the article was $200,000 to be expended in FY 2016 for a feasibility study for extending Tuckahoe Creek Parkway to Ridgefield Parkway. Although this was on the list of Goochland County projects, Henrico Supervisor Patricia O'Bannon said all the construction would be in Henrico, that 35 to 40 homes would have to be purchased to complete the project, that the connector is not in the Henrico comprehensive plan nor the Henrico thoroughfare plan, that she opposed it, and that it (the connector) was not feasible.

Sunday, March 4, 2012

Yet Another Tax Refund Scam

On March 2 the IRS issued a warning of a scam involving the American Opportunity Tax Credit. This credit is available for certain qualified education costs but the scammers falsely assert the credit is available for some, usually seniors, who have not recently enrolled in or paid for college. Full details are available here on the IRS web site.

Be aware that the IRS does not initiate contact with taxpayers by email. Be wary of any tax "idea" that sounds to good to be true.

Saturday, March 3, 2012

Personal Financial Planning

Here's a useful, though admittedly just a tiny bit self-serving, post on the AICPA's Insights blog.

A good investment advisor will consider the life goals of his or her clients and present alternatives directed at achieving those goals, even if the advisor's compensation is commissions on the sales made to the client. Sometimes though even an outstanding fee-only and commission based advisor will overlook an important tax factor affecting one or more of the available investment alternatives.

Much of financial planning by individuals or businesses revolves around the tax impact of various alternatives. Is is important to have those alternatives evaluated by a tax professional who does not have a vested interest in the final choice made by the investor. If you are already having your tax returns prepared by a licensed professional (CPA or Enrolled Agent), then discuss your investment plans with him or her BEFORE signing anything. If you don't have a CPA or EA and your thinking about investing what seems to YOU to be a lot of money, then find one. Most of us will provide a free half hour of general discussion of your tax situation.

Chesterfield Public Schools Update Strategic Plan?

A nice article in the Chesterfield Observer describes the ongoing strategic plan process of the CCPS. Perhaps the article is too nice. It remains to be seen whether the new members of the school board can or will bring about an end the long standing behavior of the school board to treat itself as an island, unresponsive and unmindful of the county's broader needs.

School Board member Carrie Coyner and BOS member Dorothy Jaeckle are described as supporting coordination of school renovations with revitalization efforts. Since it seems that a school has be almost falling down around students and teachers before it will be renovated, it will be interesting to see whether Coyner and Jaekle will get their way. (Whether renoviations would be less costly and even less frequent if a rational maintenance program were in place is a topic for another post.)

People will go to where the good schools are. If Chesterfield County is to succeed in revitalization of areas like the Jeff Davis corridor and around the Hopkins Road-Chippenham Parkway interchange, then the school system has to cooperate fully in the process. Whether that happens depends upon the School Board, particularly all of its new members.

Sales Tax Collection Rules Expanding

When people realized that Amazon's new distribution centers in Chesterfield and Dinwiddie would not trigger sales tax collection by Amazon on sales to Virginia residents, the state legislature demonstrated that it is capable of reacting to new situations quickly and effectively. Legislation has been passed that will trigger collections by Amazon and other online retailers that use a controlled subsidiary to operate a distribution center in the Commonwealth.

Friday, March 2, 2012

Bank of America Trys Again

MSNBCFox News and the Wall Street Journal all have stories on Bank of America's plan to impose fees on many more account holders. The Fox News and WSJ articles have the same lead paragraph. "Bank of America Corp. is working on sweeping changes that would require many users of basic checking accounts to pay a monthly fee unless they agree to bank online, buy more products or maintain certain balances."

BOA seems really desperate to keep funding those executive bonuses. I expect smaller banks and credit unions will benefit more from this scheme than will BOA shareholders.