Making Work Pay Credit Woes

What has the making work pay credit done for you? Most of us received the equivalent of $800, through reduced withholding. The reduced withholding was just a vehicle to get the money back into the taxpayer's hands quicker. It was really a reduction in the FICA tax, but that was how they were going to pass it down to the masses, instead of issuing checks. This way they could assure that the credit only went to hard working Americans. Right.

How many of you married couples changed your W-4 withholding when this happened? So far this busy season, every married, no kids couple owes something close to $800. Dandy. We all know that most people think the competence of the accountant determines whether or not they get a refund. Now likely we will lose all of our married, no kid clients because they think it is our fault.

For a simple way to avoid this: When you get your next pay stub, bring it to me (both your's and your spouse's, if applicable). Ask me -- am I withholding enough tax? I can help.

Stimulate the Economy

I just read Mark Cuban's latest blog post (http://blogmaverick.com/2010/01/31/the-simplicity-test-a-simple-policy-guide-for-job-growth/) about stimulating small business. As a CPA, I have often joked that every stimulus plan presented seemed to be drafted by accountants or lawyers, as we can benefit by all the changes, and businesses have no idea what they are, or what the heck they need to do to comply, or take advantage of the new laws/proposals.

Honestly, I have several small business clients (I only do this part time), and none of the stimulus bills have done anything for any of them. One of them did better in 2009 than 2008, but that is really only because he willed himself to do better by working harder, longer, etc. What has any bill done for any of them?

Let's look at Taxes. The federal government can say what it wants, and while it hasn't directly meant to hurt businesses - what has it done?

1. Offered to pay part of Cobra. Bonus for the employee only if they use it (most don't). For the employer? We have to completely change our Cobra process. Twice as much paperwork. Thanks.

2. Making Work Pay Credit. Woohoo. We lowered everyone's withholding so they could get an extra ($40 or so) a month. Now everyone has to pay tax (or has a small refund) and is blaming us (because your tables didn't account for 2 income families properly - how many one income families, by choice, are there left out there -- really?). Thanks - we're the bad guy now, and we doubled our work on payroll processing this year.

3. Bank Bailouts. If you think any of this money went to small businesses, why don't you pose as a small business, decent cash flow, wanting to buy a new piece of equipment that will truly help your business. See if one of the banks that were "bailed out" will give you a dime. Normally all small businesses are asked to personally guarantee all loans by taking out home equity loans. Good luck finding any equity after the housing meltdown.

4. Credit Card Reform. In light of the pending reform, all major banks did a systematic reduction of available credit, and the remaining banks noticed that your percentage of credit was severely changed, and raised your rates. Kudos, now we have less credit at higher rates, that sure helped us. Also, new rules do not effect cards used for business.

5. Extended unemployment. Well this one might have helped a little. Not in an actual business way, but it gives us the ability to sleep at night, when we had to layoff good people.

One of the commenters on Mr. Cuban's blog mentioned a test drive instead of unemployment. This is very insightful. There are actual incentives to hire someone on public assistance (WOTC), but allowing a test market, or even a supplemental to unemployment (without effecting benefits) would be very useful.

The question on most perspective employer (small business) minds is whether they can afford a new employee. Will the time training the new employee be crippling, as usually this is the time when they cannot generate as much income as you are paying them. Other often thought questions - is this a guy that truly is a victim of layoff, downsizing, or "the guy" that employers used "downsizing" as an excuse to get rid of the bad seed. We've all been there.

Kudos for you Mr. Cuban for an insightful look at the problems of small business. Why don't you take on solving college football and the BCS now.

Charitable Donations - State of Idaho

(Updated to reflect new Idaho limits!)

Today I got an e-mail soliciting donations for the college I attended (Go Vandals!). It is asking for a pledge of $1,000 for the coaching excellence fund. Someone asked me how this effected their taxes, so I thought I would pass out the analysis for all you to ponder:

In the state of Idaho we have a credit for donations to educational entities in the amount of $250 for a $500 donation for a single person ($500 for a $1000 donation/married). The credit is not excluded from your itemized donations, so you get a double benefit from the donation (if you itemize your deductions). If your effective tax rate (married) is 25% (married AGI of greater than 67,900 less than $137,050, single $33,950-$82,250), you will have a reduction in taxes of $750 (married), or $500 (single). The number goes up slightly if you are above $137,050/$82,250. You can maximize the credit and tax savings as a married couple by giving $1000 a year (tax savings of $300 for 25% bracket). There would also be about a $70 state tax savings.

So what this is saying is that you can donate to most schools (the way the credit is worded, most schools or school organizations are covered), and effectively donate $1000 to the school and only be out of pocket around $180 (married) or donate $500 and only be out of pocket about $90 (single). Many employers have a policy (I know the two big accounting firms I worked for did) that they will match your donation, up to a certain amount. If this is the case, your $180 just donated $2000 to your school.

In Idaho we have another similar credit for donations to youth and rehabilitation facilities. The cool thing about this credit is that (with several of the entities) you can donate in-kind, or donate all the stuff that is sitting in your garage or storage area that you will never use. My wife and I have a policy, "get-one, donate-one." So whenever I get new clothes, I donate something. I keep a bag in my closet, and fill it as new clothes are purchased. Before the end of the year, I itemize the bag, give each item a value, and drop it off at the Idaho Youth Ranch (get a receipt). You want to donate (at least) $200 single /$400 (married) worth (thrift-store price) of stuff to maximize the credit. You get the exact same benefit (donate $200 single/$400 married get credit of $100/$200), and it is also included in your itemized deductions (if you itemize) as well. So that $162/$325 tax savings is actual money you will save, or get refunded. And you donated to a good cause.

These facilities are specifically named:

• Anchor House, Coeur d’Alene

• The Arc, Inc., Boise

• The Children's Home Society of Idaho, Inc., Boise

• Children's Village, Inc., Coeur d’Alene

• Dawn Enterprises, Inc., Blackfoot

• Development Workshop, Inc., Idaho Falls

• Gem Youth Services, Inc., Emmett

• High Reachers, Inc., Mountain Home

• Hope House, Inc., Nampa

• Idaho Drug Free Youth, Inc., Coeur d’Alene

• Idaho Elks Rehabilitation Hospital, Inc., Boise

• Idaho Youth Ranch

• Kinderhaven, Sandpoint

• Learning Lab, Inc., Boise

• Magic Valley Rehabilitation Services, Inc., Twin Falls

• New Day Products, Inc., Pocatello

• Northwest (North Idaho) Children’s Home, Inc.

• Opportunities Unlimited, Inc., Lewiston

• Panhandle Special Needs, Inc., Sandpoint

• Project P.A.T.C.H., Planned Assistance for Troubled Children

• Project Safe Place

• Shepherd's Home, Inc., McCall

• Transitional Employment Services for the Handicapped,

Coeur d’Alene

• Walker Center, Gooding

• Western Idaho Training Co., Inc., Caldwell

• Women's and Children's Alliance

• Winchester Occupational Workshop, Winchester

If you have any questions, about how this will specifically help you, I can quantify it for you pretty easily. Just let me know,

Go Vandals!

-Al