My Offseason Vacation
Funny how time flies. About this time last year we were knee deep in trying to get our new office ready. Now I’m in the process of getting it all cleaned up and back in shape for our second season. But a lot has happened since we shuttered the doors for the summer. With that being said, I thought I should pen a note updating everyone on exactly what I’ve been up to since then.
Kinder Morgan
Well, back in April I landed a temp/contract job with a company called Kinder Morgan. For those unfamiliar with the name, Kinder Morgan is the largest midstream energy company and the third largest energy company (based on combined enterprise value) in North America. If you’ve ever driven down I-55 and seen a facility that looks like this then you’ve more than likely driven by their Argo terminal.
The company actually has many business segments ranging from pipelines (natural gas/products) to CO2 and terminals. I was actually stationed at their Argo terminal which is basically a big liquid storage facility for anything and everything fuel related. The business is actually quite interesting and was certainly a departure from my manufacturing and service industry days. Initially I was brought on to help create some routine financial reporting based upon the Hyperion Essbase application. I was told that my time with them could be anywhere from a few months all the way up to a full six when I was scheduled to return to Wilson Rogers in December.
Well, the initial reporting was created within a month of me being there so I wasn’t sure what exactly would be next. However, I did wind up staying almost seven months and assisting with things ranging from budget reporting to a host of other things. But the best part of the gig had to be the people. Not since my days with the PCD team at PepsiCo had I had the opportunity to work with such an “eclectic” bunch. So to Ron, Brion, Steve, Flo, Angela, Asad, Keith, Lukas and Maureen (aka the mother of Mr. Spanky, who makes some mean hummus by the way) – it was a blast working with you all and thanks for the opportunity.
Cycling & Racing Bikes
Well some of you may have heard a little story about me breaking bones back in March. Via a boneheaded move that is not really worth writing about (as it’s not awesome and didn’t happen in a race) I managed to take a spill on my bike and break my wrist. This happened right during the height of tax season and required surgery, a titanium plate and about 8 screws to fix. To say that things were interesting during this time would probably be an understatement.
Well, the short story about my race season is that it was 1) delayed due to healing, 2) had its ups and downs and 3) was only somewhat similar to what I had hoped for. So to make up for that I decided to make it epic in other ways like riding 200+ miles to four states in a single day and taking 3rd in my age group at the Illinois State Time Trial Championships.
Ben, Nikos, Ryan, Bill, Jared and Coach Randy showing off our hardware
Ms. Rogers Becomes Mrs. Rogers?
If the title has you confused then maybe this story will help straighten it all out. Typically in August, Aaronita and I head up to Michigan to visit my parents for a little relaxation and some bike racing. Well, this year the entire family was in Chicago on the date of this year’s Cherry Roubaix. Why? Because my little sister was getting married! The funny thing about it is that her fiancé Melvin actually had the last name of Rogers. Don’t worry, we already checked and no he’s not some long lost cousin! Guess her lack of name change will at least simplify things for her when it comes to her next tax return huh?
Melvin & Whitney Rogers
The original Mr. & Mrs. Rogers with the kids
All in all it was a good time and we’re happy to have Melvin as part of the family. As you can see from the picture below, Pilar also had a blast. Not only did she get to be the flower girl at her Aunts wedding, she also got to compete in her very first dance off!
Melvin’s brother Romey vs. Pilar in the infamous dance off
Vacations, Hurricanes and Weddings – Oh My!
In early November all eyes were on the east coast as hurricane Sandy threatened to make a mess of just about everything. This was important to our family as my sister-in-law Sonya and her fiancé Jason live in New York. What was even more pressing was that they were supposed to be getting married on November 4th down in beautiful St. Thomas. Needless to say, they decided to catch an earlier flight so as to not get stranded by the storm. Good thing too as no one wanted to miss views and experiences like these:
Trunk Bay – St. John’s US Virgin Islands
Sonya & Jason on their special day
The St. Thomas trip was a blast and is probably the first “real” vacation that our family has taken in about a year. When you work for your own company, when you don’t work you don’t earn. But with that said, the trip was most certainly one for the memory books and we’re proud to add Jason to the family. Here is a shot of me with all my girls so to speak.
Judy, Aaronita, Pilar and Jared after the wedding
Getting Ready For Next Tax Season
So other than all the exciting stuff mentioned above, I was also busy working on building up the practice. While tax season is only a four month affair, there are always things that need to be done as we strive to grow. First there was the addition of some new sales reps to the firm. I’m pretty excited that they will represent the company well and continue to spread the word of what a wonderful practice we have. In the offseason we also added a monthly newsletter to our advertising arsenal. The response to it has been pretty good thus far, especially when you have a monthly contest where you’re giving away $50 gas cards!
Other things we worked on included some of the following:
- Continued servicing of our growing number of bookkeeping clients
- Increasing our advertising reach via supporting local church bulletins
- Expanding our current client referral program with one we think will generate some real excitement come January (more on this to come in the next few weeks)
- Renewing and expanding our partnership with EPS Financial as we strive to continue to offer economical and responsible financial products to those who are “unbanked”
So as you can see, my summer was filled with lots of activities, lots of fun, and lots of work. Now all we have to do is try and gauge how delayed the tax season will be due to the Fiscal Cliff and the IRS scrambling to decide which way to go with updating their system. Who said being in the tax field was boring? Until next time!
2% Shareholders, S Corporations and Fringe Benefits
The IRS code section related to fringe benefits allows employers (in most cases) to deduct the cost of fringe benefits, while employees may exclude those amounts from their gross income. Employer paid health insurance costs are an example of such costs. However, while it seems like deducting health insurance premiums for a shareholder/employee of an S corporation should be a simple matter, only the tax law can make something that should be simple, complicated.
The problem goes back many years and arose soon after S corporations became part of tax law. Initially, S-corporations were viewed as similar to partnerships, and there was a prohibition on deducting certain fringe benefits of partners. Thus, a deduction was denied to S corporations for certain fringe benefits, most importantly health insurance, paid on behalf of S corporation shareholders. Well, not all shareholders, only those owning more than a 2% interest.
Approach. Health insurance of a 2% shareholder isn’t deductible by the corporation unless it’s included in the shareholder-employee’s income. Thus, the approach to make it a deductible expense by the corporation is to include the income on the shareholder’s W-2. At this point it’s a wash – the corporation gets a deduction and the shareholder has income (of course, the deduction is “passed through” to the shareholder). In the final step the shareholder deducts the premiums on his Form 1040, making the insurance premiums deductible.
Corporation or shareholder’s plan? What if the plan isn’t exactly 100% paid for by the corporation? The plan providing for coverage is established by the S corporation if:
- The S corporation makes the premium payments for the health insurance policy covering the 2% shareholder-employee (and his or her spouse or dependents, if applicable) in the current taxable year, or
- The 2% shareholder makes the premium payments and furnishes proof of the payment to the S corporation and the S corporation reimburses the shareholder-employee for the premium payments in the current tax year.
If the accident and health insurance premiums are not paid or reimbursed by the S corporation and included in the 2% shareholder-employee’s gross income, a plan providing medical care coverage for the shareholder is not established by the S corporation and the shareholder is not allowed the deduction.
In order for the shareholder to deduct the amount of the premiums, the S corporation must report the premiums paid or reimbursed as wages on the shareholder-employee’s Form W-2 in that same year. In addition, the shareholder must report the premium payments or reimbursements from the S corporation as gross income on his or her Form 1040.
Examples. It always helps when one has an example to clarify the various scenarios that may be encountered. In the examples below, Goofball Inc. is an S corporation and Jeb and Bobbi Joe are 2% shareholder-employees.
- In 2012 Jeb, a shareholder in Goofball Inc., obtains an accident and health insurance policy in his name and makes the premium payments on the policy. Goofball makes no payments or reimbursements with respect to the premiums. In this case a plan providing medical care for Jeb has not been established by the S corporation and Jeb is not entitled to the deduction under Sec. 162(l).
- In 2012 Goofball obtains a health insurance plan in the name of Goofball. The plan provides coverage for Jeb, his spouse, and dependents. Goofball makes all the premium payments to the insurance company. Goofball reports the amount of the premiums as wages on Jeb’s Form W-2 for 2012 and Jeb reports that amount as gross income on Form 1040 for 2012. In this case a plan for providing medical care for Jeb has been established by Goofball and Jeb is allowed the deduction under Sec. 162(l).
- For 2012, Bobbi Joe obtains a health insurance policy in her name. Goofball makes all the premium payments to the insurance company. Goofball reports the amount of the premiums as wages on Bobbi Joe’s Form W-2 and Bobbi Joe reports that amount as gross income on Form 1040. In this case a plan providing medical care for Bobbi Joe has been established by Goofball and Bobbi Joe is allowed the deduction under Sec. 162(l).
- For 2012, Bobbi Joe obtains a health insurance policy in her name. She makes the premium payments to the insurance company and furnishes proof of premium payment to Goofball. Goofball then reimburses Bobbi Joe for the premium payments. Goofball reports the amount of the premiums as wages on Bobbi Joe’s Form W-2 and Bobbi Joe reports that amount as gross income on Form 1040. In this case a plan providing medical care for Bobbi Joe has been established by Goofball and Bobbi Joe is allowed the deduction under Sec. 162(l).
Why I Will be A Failure
Someone once asked me if I wanted to be great. My response was no, I wanted to be mediocre. I have no desire to be “great” in life; that takes too much time, effort and energy. I’d rather be a failure routinely and satisfactory on my best days. Matter of fact, when it comes time for me to reflect upon my life and what it has meant, I know I will deem myself a failure. Why? Because of these seven reasons:
I think there is a pre-established role for my life. My psychiatrist told me the reason I had problems with change was because of something called “agency.” Essentially, all of us humans like to believe that there is a reason or purpose for everything. So, we think, what if there’s a reason we are what we are — what if celestial agency has determined it so? Should we be messing with that? I think not. Who am I to recognize that the role of my life has only one true agent – myself?
Someone told me what I would be. I was told when I was younger that I would never amount to nothin’ in life. I mean, someone convinced me that I was what I was and I’d better just live with it because, well, that’s what I’ll always be. Too bad I never thought – really? Says who? Show me the chapter on predetermined stations in the cosmic rule book, please.
I don’t believe. I remember in the movie Star Wars the following conversation:
“Luke: I can’t believe it.
Yoda: That is why you fail.”
And this is a large reason why I fail – I don’t believe I can be great so why even try? I mean, we all know that positive things happen when we 1) believe, 2) act, 3) obtain positive/negative confirmation, 4) adjust and 5) repeat until success. I’ll just stop this equation at step one if I may.
I’m established in my career and that’s okay right? At this stage in my life things are good. But is established what I really want out of life? I mean, if “established” means I can’t reach beyond certain imposed parameters to achieve anything else that I truly want, then maybe it isn’t so useful after all. But since this is a personal choice, I’m going to say that I like the idea of “establishing” myself out of greater achievements.
I’m afraid of losing what I’ve built. True, I know that I can lose everything I’ve built through no fault of my own. Heck, there were people who lost everything they “built” via the financial meltdown of 2008 or Super Storm Sandy though no action of their own. However, I want to let the fear of losing everything stop me from reaching out for what I really want in life.
I don’t want to be a disrupter. The notion of disrupting anything – or being the water that breaks the rock – is scary to me. Disruption means that consistency, stability and certainty might get jettisoned for a time, and that puts my hard-wired internal defense system on high alert. Sometimes, though, you have to override the alarms and move ahead anyway. If you never do, you’ll never know what could happen. Unfortunately, I am okay with not knowing.
I have no idea where to go next. Even if I do want successes in life, I have no idea where to start. I mean, I’m too hardwired in my life to let things kind of just “flow” and figure themselves out. Maybe this has to do with my desire to deal with what is certain or known and dealing with “faith” is just a little too much for me. Never mind the fact that most of what is thrown at me in life is out of my control. I’ll just attempt to stay safe in my little cocoon rather than venture into the unknown with just a rough plan and a lot of “conviction.”
So, for the reasons above I am doomed to be a failure in life. However, don’t cry any tears for me as this is perfectly fine. I never really wanted to be a success – I’m personally more afraid of what my life would be like if I succeeded versus if I just fail like I am supposed to!
Sincerely,
The Failure
Author’s Note: The above is written in jest as the author (and it is presumed you the reader) would never intentionally strive to be a failure in life. However, if you prefer to not seek success in your life, you may print the above letter out and replace your name at the bottom. That way you can give/send it to anyone who asks why you don’t want to be great in life!
Just what exactly is the Fiscal Cliff?
Lately there has been a lot of talk about the impending Fiscal Cliff and its potential to derail the current fragile US economy. However, there hasn’t been a lot of talk explaining exactly what it is or how it even came to be. In this post we’ll take a deeper look at the situation to determine if things are really all “doom and gloom” or if things are just being blown out of proportion.
The Fiscal Cliff Explained
In short, the “Fiscal Cliff” is a term used to describe the conundrum that the U.S. government will face at the end of 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect. The following provisions of current law are what have brought us to this point:
- Expiration of the Bush tax cuts extended by President Obama in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010;
- Across-the-board spending cuts (“sequestration”) to most discretionary programs as directed by the Budget Control Act of 2011;
- Reversion of the Alternative Minimum Tax thresholds to their 2000 tax year levels;
- Expiration of measures delaying the Medicare Sustainable Growth Rate from going into effect (the “doc fix”), most recently extended by the Middle Class Tax Relief and Job Creation Act of 2012 (MCTRJCA);
- Expiration of the 2% Social Security payroll tax cut, most recently extended by MCTRJCA;
- Expiration of federal unemployment benefits, most recently extended by MCTRJCA and
- New taxes imposed by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010.
Possible Effects of the Fiscal Cliff
The major concern behind all the “doom and gloom” talk is that if the current laws slated for 2013 go into effect, the impact on the economy could be dramatic. While the combination of higher taxes and spending cuts would reduce the deficit by an estimated $487 billion, the Congressional Budget Office (CBO) estimates that gross domestic product (GDP) would be cut by four percentage points in 2013, sending the economy into a recession (i.e., negative growth). At the same time, it predicts unemployment would rise by almost a full percentage point, with a loss of about two million jobs. The nice little info graphic below illustrates all the components in play and what happens if lawmakers let all the policies go into effect (left side) vs. if some type of tax and spending concessions are made (right side).
Dealing with the Cliff
Generally speaking, U.S. lawmakers have three choices to deal with the Fiscal Cliff, each of which brings about a different outcome as it pertains to economic growth and budget deficits:
- They can let the current policy scheduled for the beginning of 2013 – which features a number of tax increases and spending cuts that are expected to weigh heavily on growth and possibly drive the economy back into a recession – go into effect. The plus side: the deficit, as a percentage of GDP, would be cut in half.
- They can cancel some or all of the scheduled tax increases and spending cuts, which would add to the deficit and increase the odds that the United States could face a crisis similar to that which is occurring in Europe. The flip side of this, of course, is that the United States’ debt will continue to grow.
- They could take a middle course, opting for an approach that would address the budget issues to a limited extent, but that would have a more modest impact on growth.
Anticipated Outcome?
Given how late Congress acted in 2011 regarding the debt ceiling (i.e. item number two under “The Fiscal Cliff Explained” above), the cost of indecision is likely to have an effect on the economy before 2013 even begins. The CBO anticipates that a lack of resolution will cause households and businesses to begin changing their spending in anticipation of the changes, possible reducing GDP before 2012 is even over.
Having said this, it’s important to keep in mind that while the term “cliff” indicates an immediate disaster, the impact of the changes will be gradual at first. What’s more, Congress can act to change laws retroactively after the deadline. As a result, the fiscal cliff won’t necessarily be an impediment to growth even if Congress doesn’t address the issue until after 2013 has already begun.
However, one thing to note is that the US debt picture is not in a good place currently. Pictured below are some nice graphs on projected budget deficits and historic US federal debt levels to help put things in perspective. We can only hope that our politicians and lawmakers will sit down NOW and make those difficult decisions to help right a situation that could potentially get much worse in the years to come.
Budget deficits, projected through 2022. The “CBO Baseline” shows the effects of the fiscal cliff under current law. The “Alternative Scenario” represents what would happen if Congress extends the Bush tax cuts and repeals the Budget Control Act-mandated spending reductions beyond the end of 2012.
US federal debt from 1940 to 2022. The right side of the diagram projects what would happen to the debt if Congress (a) allows current laws to take effect and reduce the deficit (the baseline) or (b) extends the current policies, such as keeping tax cuts in place (the alternative).
Dealing With Identity Theft
Occasionally bad things happen to good people. Despite all of our efforts to secure that data which is so precious to us, sometimes it winds up in the wrong people’s hands. Where do you begin when you think that you may be susceptible to, or worse the victim of, identity fraud? Read on to find out some of the critical first steps that one should take.
Notify credit bureaus and establish fraud alerts. If you have credit cards, the first stop is to report the situation to the fraud department of the three credit reporting companies – Experian, Equifax, and TransUnion. When you notify one bureau that you are at risk of being a victim of identity theft, it will notify the other two for you. Placing the fraud alert on your file means that it will be flagged and that creditors are required to call you before extending credit. The initial alert is valid for only 90 days, however you can request that it be extended to 7 years. You must have evidence of attempts to open fraudulent accounts and an identity theft report (police report) to establish the seven-year alert. You may cancel the fraud alerts at any time.
Contact banking institutions. If your ATM or debit card has been stolen or compromised, report it immediately. ATM and debit card transactions are subject to the Electronic Fund Transfer Act (15 USC §1693). Even if you are a victim of identity theft, your liability for charges can increase the longer the crime goes unreported. For more on EFTA and your liability for fraudulent use of your ATM/Debit Cards, see the following FTC guide. If you have had checks stolen or bank accounts set up fraudulently, ask your bank to report it to ChexSystems, a consumer reporting agency that compiles reports on checking accounts. Also, place a security alert on your file
Dealing with brokerage accounts. You do not have the same protections against loss with brokerage accounts as you do with credit and debit card or bank accounts. The Securities Investor Protection Corporation restores customer funds only when a brokerage firm fails. If an identity thief or other fraudster targets your brokerage account, refer to your account agreement for information on what to do. Immediately report the incident to the brokerage company and notify the Securities and Exchange Commission. Also notify the Financial Industry Regulatory Association. To protect against fraud, put a password on each of your investment accounts.
Social Security number (SSN) misuse. The Social Security Administration (SSA) does not in most cases provide assistance to identity theft victims. But be sure to contact the SSA Inspector General to report Social Security benefit fraud, employment fraud, or welfare fraud.
- Social Security Administration online complaint form: www.socialsecurity.gov/oig
- SSA fraud hotline: (800) 269-0271
- By mail: SSA Fraud Hotline, P.O. Box 17768, Baltimore, MD 21235
SSN misuse and tax returns. If you are a victim of tax-related identity theft (or a potential victim because someone has wrongfully obtained your Social Security number), you must file Form 14039, Identity Theft Affidavit, with the IRS. Once the form is filed and your identity verified, then the IRS will send you IRS Letter 4869CS, which will provide you with a six-digit identity protection personal identification number (IP PIN) and instructions for its use. For electronic returns, the software will indicate where to insert the IP PIN. For paper returns, enter the IP PIN in the six boxes to the right of the spouse’s occupation in the signature section.
Unlike your SSN, the ID PIN is not a permanent identification number. Rather, it is like the security code found on the back of most credit cards. The ID PIN you receive in one year will be valid only for returns filed for that tax year. For more information on what to do with tax identity theft, please refer to this one page guide.
Keep good records and monitor your credit files. In dealing with the authorities and financial companies, keep a log of all conversations, including dates, names, and phone numbers. Note the time you spent and any expenses incurred in case you are able to seek restitution at a later date. You may be able to obtain tax deductions for theft-related expenses (consult your accountant). Make sure you confirm all conversations in writing and send correspondence using certified mail with return receipt requested. Keep copies of all letters and documents and actively monitor your credit files going forward. If you need times on organizing your case check out these helpful sites:
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