The IRS and the ARRA

Here's a link to the IRS publication explaining provisions of the American Recovery and Reinvestment Act which explains the act's importance to individuals and business taxpayers. I've copied the front page of the publication below for readers to review for items of possible interest. Expansion of Sec 179 allowance for the deduction of purchases of new and used equipment is one item worth reviewing. Extending the roll back period for losses is another. If you visit the linked site and click on captions of interest you may learn more. Feel free to give us a call for guidance in areas you think might apply to tour 2002 tax return.

The American Recovery and Reinvestment Act of 2009: Information Center

Updated Nov. 6, 2009: The newly-enacted Worker, Homeownership And Business Assistance Act Of 2009 extends and expands the first-time homebuyer credit.

Información en Español

Information for Individuals
Some of the provisions of the law primarily affect individuals.

Making Work Pay Tax Credit. This tax credit means more take-home pay for many Americans. To make sure enough tax is withheld from their pay, taxpayers can use the IRS withholding calculator. See Making Work Pay for more.


First-Time Homebuyer Credit Expands. Homebuyers who purchase in 2009 can get a credit of up to $8,000 with no payback requirement. New legislation extends and expands this credit.


Money Back for New Vehicle Purchases. Taxpayers who buy certain new vehicles in 2009 can deduct the state and local sales taxes they paid or other taxes and fees they paid in states with no sales tax.


Education benefits. The new American opportunity credit and enhanced benefits for 529 college savings plans help families and students find ways to pay higher education expenses.


Enhanced Credits for Tax Years 2009, 2010. Find details on the earned income tax credit and the additional child tax credit.


Increased Transportation Subsidy. Employer-provided benefits for transit and parking are up in 2009.


Up to $2,400 in Unemployment Benefits Tax Free in 2009. Individuals should check their tax withholding.


$250 for Social Security Recipients, Veterans and Railroad Retirees. The Economic Recovery Payment will be paid by the Social Security Administration, Department of Veterans Affairs and the Railroad Retirement Board.


Energy Efficiency and Renewable Energy Incentives. See what individuals can do to reap tax rewards.


Health Coverage Tax Credit. The credit increases from 65 percent to 80 percent of qualified health insurance premiums, and more people are eligible.
Information for Businesses
Some of the provisions of the law primarily affect businesses.

Making Work Pay Tax Credit. Businesses should use the new withholding rates for their employees. For pension plan administrators, new optional withholding procedures are available to supplement the February withholding tables.


Work Opportunity tax credit. This newly-expanded credit adds returning veterans and "disconnected youth" to the list of new hires covered by the credit that businesses may claim. Businesses have until Oct. 17 to request certification for the tax credit for some new hires.


COBRA: Health Insurance Continuation Subsidy. The IRS has extensive guidance for employers, including an updated Form 941, as well as information for qualifying individuals.


Energy Efficiency and Renewable Energy Incentives. See what businesses can do to reap tax rewards.


Net Operating Loss Carryback. Small businesses can offset losses by getting refunds on taxes paid up to five years ago. Information on the carryback, an expanded section 179 deduction and other business-related provisions, is now available.


Municipal Bond Programs. There are new ways to finance school construction, energy and other public projects.
2008 and 2009 Tax Returns
The law could affect some 2008 tax returns due in 2009. However, most of the changes in ARRA will affect 2009 individual tax returns filed next year and due April 15, 2010.

Way to go, Kids

FromNBCChicago.com

Local Community College Beats Yale
Elgin Community College takes down Ivy League school in mock trial competition
By DICK JOHNSON and ANDREW GREINER
Updated 7:08 PM CST, Tue, Nov 10, 2009


They might object to a David and Goliath comparison but, then again, as their twitter message said yesterday ...

"WE BEAT YALE!!!!"

Elgin Community College’s Mock Trial team didn’t win the Harvard Crimson Classic this year, but they did trounce a practiced Ivy League competitor -- no mean feat, considering Elgin completed its first full mock trial season just last year.

"What allowed the students to [beat Yale] was dedication," said coach Ron Kowalczyk. " That's the bottom line. Hard work."

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ECC was one of 11 teams participating in the annual two-day event, which usually pits Ivy League types against each other in a faux courtroom setting.

The team from ECC wasn’t even allowed into the tourney until a regular team dropped out and they got a call to fill in.

So ECC made the best of it during their weekend run, beating Villanova in the first round, losing to Brown in the second round, beating Yale in the third round and losing to Princeton in the finals.

Brown, which barely beat ECC in the second round, went on to take the tournament.

For the coach who put together the Elgin team, the victory was a shocker.

"I would say we were stunned. You never know in the end how the judging is going to come down,” Kowalczyk said.

Kowalczyk has good reason to be amazed. Two years ago he didn’t even have a team – an interested student asked him to create one in 2007 – and he wasn’t even on Harvard’s radar.

But that didn’t stop him from writing letter upon letter until the stodgy university put his team on the waiting list.

And once that happened, Kowalczyk – and students Anastasia Toufexis, Jennifer Rieger, Rebecca Day, Jessica Bianchi, Elizabeth Martzel, Eleni Bala, Robert Dalin, Rita Russo and Mary Burke – shocked the upper crust with their come-from-nowhere performance.

"I was beaming thoughout this whole period and I still have not gotten my face back from the beam!" said Elgin president David Sam.

ECC's team celebrated with a nice dinner in Boston.

Overall, they had a better record than Boston College's "A" team, Wake Forest, Boston University, Dartmouth's "A" and "B" teams, and Wellesley's A&B teams. ECC also tied Penn State, the Herald notes.

The ECC squad has a few more tournaments before heading to the American Mock Trial Association regionals in February.

As for Yale, a spokesperson said ECC's victory was "impressive."

"I'm sure their reputation will precede them next time."

Financing

I'm passing along a recent email from the folks at SCORE. That organization provides great mentoring to entrepeneurs and a calendar of events and instruction you may wish to monitor. Here's a link: www.scorefoxvalley.org/

Borrowing from Friends, Family Requires Wise Management

Friends and family are an invaluable source of support for the aspiring small business owner. And often, they're an invaluable source of financial assistance as well.

In fact, more small businesses rely on loans from friends and family than any other funding source. Familiarity with the person and his/her business goals, the investment opportunity, and the ability to monitor the venture's progress are among the major reasons why friends and family members willingly contribute to a start-up or expansion.

However, a ready source of cash is not without its potential pitfalls. Business loans from family and friends also can be a disaster if they are not done right. Unstructured or loosely structured financing and payback terms can haunt both sides later on. Research shows that 14 percent of business loans from family and friends go into default, compared to about one percent for bank loans.

To increase the odds of success, approach family and friends with a detailed loan proposal, including financials from your business, just as you would a bank or venture capitalist. Be frank about the risks. If things go badly, they could lose all or some of their money. Consider the consequences of a soured business deal to your relationships.

Pick a financing structure that works best for your business and make certain everyone understands it. Specifically, be clear on whether the deal involves an ownership stake in your business, or whether it is a simple debt you plan to repay. And be clear about repayment terms.

To legally seal the deal, use a document such as a "Promissory Note." Putting the terms of your borrowing agreement into proper legal form is crucial. You can find the downloadable legal documents you need, including many different Promissory Note variations, at www.findforms.com. Self-help legal publisher Nolo also offers loan forms and related information at www.nolo.com.

Another helpful resource is Virgin Money at www.virginmoneyus.com, previously known as CircleLending.com before it was acquired by well-known entrepreneur Richard Branson. Virgin Money helps small business owners avoid the problems that can arise with loans from friends and family by providing loan administration, recordkeeping, payment processing and structural support. The service emphasizes flexibility to meet the needs and concerns of both borrowers and lenders, from terms and interest rates to repayment strategies.

To learn more about financial issues facing your small business, contact SCORE "Counselors to America's Small Business."
The Fox Valley SCORE Chapter offers free, confidential counseling to small businesses, including start­ups. Affiliated with the U.S. Small Business Administration, SCORE has counselors available in nine locations in the counties and suburbs west of Chicago.


We look forward to helping you work out financing possibilities for your business.

Sincerely,

The Counselors at SCORE

Frist-Time Homebuyer Credit

Ten Facts about the First-Time Homebuyer Credit

Many taxpayers who purchase a home this year will qualify for an $8,000 federal tax credit. The refundable first-time homebuyer credit is a major tax provision in the American Recovery and Reinvestment Act of 2009. But time is running out to qualify for this credit.

Here are ten things the IRS wants you to know about the first-time homebuyer credit:

1. To be considered a first-time homebuyer, you and your spouse if you are married – must not have jointly or separately owned another principal residence during the three years prior to the date of purchase.
2. You cannot claim the credit before there is a completed sale and purchase of the residence. The sale and purchase are generally completed at the time of closing on the purchase.
3. To qualify for the credit, the completed purchase must occur before December 1, 2009.
4. The home must be located in the United States.
5. The credit is either 10 percent of the purchase price of the home or $8,000, whichever is less.
6. The amount of the credit begins to phase out for taxpayers whose modified adjusted gross income is more than $75,000 or $150,000 for joint filers.
7. The credit is fully refundable. A homebuyer with no taxable income, who qualifies for the credit, may file for the sole purpose of claiming the credit and receive a refund. The credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.
8. The credit is claimed on IRS Form 5405, First-Time Homebuyers Credit.
9. Taxpayers can claim the credit for a qualified 2009 purchase on either their 2008 or 2009 tax return. For those who have filed a 2008 return, a Form 1040X, Amended U.S. Individual Income Tax Return can be filed in order to get a refund in 2009.
10. The credit for qualified 2009 purchases does not have to be repaid, as long as the home remains your main home for 36 months after the purchase date.

Qualified taxpayers who have been considering a main home purchase may find extra incentive from this tax credit to buy now so they can complete the purchase before the December 1 deadline.
Links: YouTube video: English-Spanish

How are you financing?

In addition to the article. I'm copying readers comments as well.

My experience is that small business creditors including vendors, credit card companies, and line of credit lenders, are all reducing availability, at a time when internal cash flow is deteriorating.

Commentor 2 refers to his "preselling" strategy, which is a good idea but may be an option limited to E Commerce. Most small business owners have probably already evaluated the possibility of internet sales, but now would be a good time to re-evaluate that model.

I work with sub-contractors who are already cash strapped, paying down vendor balances from 60 to 30 days, and meeting their payrolls. They also need to try to arrange prepayments, asking their best customers to pay in advance for material purchases on any job which will extend beyond their vendors terms.

Service providers have the advantage of not having to invest in materials or carry substantial receivables, but they will have to carefully review their expenses and redouble their sales efforts.


From the New York Times, Your the Boss Column

August 25, 2009, 9:00 am
Has the Recession Changed How Small Businesses Are Financed?
By Scott A. Shane
Recently, many people have been wondering if the poor economy has changed how small businesses are financed. Discover Card Financial Services has identified one interesting change.

The company looked at how small businesses were being financed before the recession and how they are being financed now. Ryan Scully, director of Discover’s business credit card, explained that the sources of financing for small businesses didn’t really change between June 2007 and June 2009. In both periods, Discover found, the same percentage of business owners used personal savings to finance their new businesses and similar percentages used credit cards and bank loans.

There was a change in whether or not founders of small businesses needed external financing to start their businesses. Mr. Scully explained that in June 2009 only a third of business owners needed to obtain financial capital to start their companies, substantially fewer than in June 2007.


While it’s possible that Discover’s findings show that entrepreneurs who needed financing couldn’t get started, the company’s analysis fits what many academics believe happens when credit gets tight — many owners change their business models so that they can rely less on external financing. This allows them to persist in their entrepreneurial efforts despite the tighter credit conditions.

I’m wondering if your experience jibes with this pattern, or if you’ve experienced something different. Since the recession began, have you changed the way you finance your new business? If so, what are you doing differently?

Scott A. Shane is a professor of entrepreneurial studies at Case Western.
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COMMENTS

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Look, eveyone is paying later. Which mean I have to pay more for what I borrow because of the lag time. Also, I have to make this ups by receivble financing which means I make less profit and in turn have to either take my prices up to capture some of this lossor or eat it in hopes that my business won’t drop off more. My strategy is to tread water for now, hope I can capture some of my competitors business and take my price up as the competiton drops in about a year or two..

— Marty

2. August 25, 2009
11:47 am

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When I started a similar business in 1992, I did it solely with credit cards and was rewarded with obscenely high credit limits. With this avenue closed this time around, I am pre-selling (allow 7 days for delivery). I deposit the clients funds, and with this capital I make my purchases.

G.A.Landry
Green Planet Meatz
Denville, NJ

— Greg Landry

3. August 25, 2009
12:11 pm

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I started my business in 2006, and at the time, I had no need of external financing.

With the recession, my business is down and I chewed through my savings faster than I would have liked. Now that I could really use external financing, I find it’s harder to come by. Companies that were begging me to take out loans are now not interested.

Like most entrepreneurs, I’m trying to be creative to keep the business alive. My husband and I have seriously cut our living expenses and to get through, I’ve also been relying on personal credit as my rating has always been stellar.

But here’s the rub… With new credit laws in effect, I find that credit companies are still finding ways to make money. I enjoyed low apr’s and no additional fees because of my rating. To compensate, my credit cards are now requiring higher minimum payments at a time when I am trying to keep monthly expenses lean. Before, credit companies punished bad behavior, and rewarded good behavior. Now they’re looking to make up for losses from everyone.

The bottom line, I will do what I need to in order to weather the storm. But at a time when small businesses could use a little help to get through, there’s none out there.

Maria

— Maria

4. August 25, 2009
12:23 pm

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I looked into a franchise and after serious thought, recognized it was a loser. The up front money, forty grand, would eventually be paid back, but I cannot tolerate debt.

I just read about a woman who lost her job and savings at Enron, but found a niche, and it only cost her a grand to start it up. She holds magnificent tea parties for little girls’ birthdays and all it took was some cute furniture she found at yard sales and lots of old linen. She managed to clear $25K after her third year.

How about some tea and sympathy? Tea Parties for Non-Tea Potty Little Black Bag Handlers who want to share stories of deprivation, not imagine them.

— Abby Tucson, AZ

5. August 25, 2009
5:48 pm

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All business owners,and in particular those start up will generally have more difficulty because all though security requirents have increases, finacial institutions will ve looking repayment through proven profit generation. This is demonstrated through ome’s net worth statement or work experience. Look towards financial institutions looking past the working relationship for even loan renewals.

— Terry jackson

6. August 26, 2009
10:23 am

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The tightening of credit will push would be entrepreneurs to more carfully study gaps in the market and real opportunities. When monehy was looser, one could have explored only ideas or developed a me-too business.

Hopefully the focus on better business models will create a new generation of stronger small businesses.

Domenick Celentano
Silberman College of Business
Fairleigh Dickinson University, Madison, NJ

— Domenick Celentano