Cantrell CPA Services, LLC

Louisiana Embraces Solar Power

In 2007, the State of Louisiana really embraced the addition of solar electricity systems for Louisiana homeowners. 

The Federal Government offers a tax credit for 30% of the labor, parts, and all associated installation costs for a Solar Electricity System.  This credit is nonrefundable.  However, the credit can be carried forward to future years until the entire amount is realized.  On a solar electric system in the price range of $25,000, this credit would result in a reduction in tax of $7,500.  For tax years prior to 2009 this credit was limited to $2,000.  However, for 2009 and going forward, the credit cap is removed.

The State of Louisiana has taken the Federal credit and gone one better.  The State of Louisiana offers a 50% credit for the addition of the same solar system as covered by the Federal law.  This state credit is in addition to the Federal credit resulting in a total 80% tax rebate towards the purchase price of a new solar electric system for Louisiana residence.  The State credit is only limited to the first $25,000 of the cost of the system.  However, most systems in the state run in that price range.

Therefore, a Louisiana resident can install a $25,000 solar system, receive a $7,500 Federal tax credit, get a $12,500 State tax credit, and only be out-of-pocket $5,000 in the end.  Also, remember that in the State of Louisiana, the electric company is required to purchase any electricity you produce in excess of the electricity you use for a given month - in other words, your meter can run backwards.  So the overall tax savings and savings towards your electric bill can help pay for the system in no time at all.

It is a wonder that more taxpayers have not taken advantage of this program.  But, who knows, in the near future every other house in Louisiana could have solar panels planted on the roof. 

Louisiana School Tuition and Expense Tax Deduction

The State of Louisiana enacted a tax deduction for private school tuition and expenses in the 2008 Legislature.  However, this deduction did not go into effect until January 1, 2009.  So this information only relates to the 2009 tax return. 

The deduction is for private school tuition and fees, including expenses for uniforms and supplies for private school students. However, parents of home school students will be allowed to deduct expenses for instructional materials. Parents of public school students will be allowed to deduct expenses for uniforms and supplies that are purchased from the school.

Parents can deduct up to half of the total costs up to $5,000 per child.

So all parents need to keep receipts and track the costs for 2009 for all education expenses.  A copy of the latest press release on this deduction is at the Louisiana Department of Revenue at the link below.

Louisiana School Tuition and Expense Tax Deduction - Press Release 2/5/2009

And More Stimulus

It finished at about 1,100 pages and some of it was still in hand-written form when it was passed by the House and Senate.  So, it's unlikely we will know all the details of the new stimulus plan for some time.  However, there are a few nuggets I thought you might find interesting in this bill.

1. Parents will be able to receive a tax credit of up to $2,500 for college costs.  But, unlike in the past, these costs will include tuition and books.  In the past only tuition was considered a qualifying expense.
2. First-time home buyers may be eligible for an $8,000 tax credit.  But, unlike the old law which allows a $7,500 credit that must be repaid within 15 years, this credit does not have to be repaid unless you sell your home within three years.
3. Also, buyers will be able to deduct the sales tax paid on vehicles purchased with sales prices under $49,500.  The deduction is above-the-line so you don't have to itemize to enjoy the benefit.  The deduction phases out for individual taxpayers making over $125,000 and married taxpayers making over $250,000.  In addition, motorcycles and motor homes are included in the tax breaks thanks to some heavy lobbying by Harley-Davidson.

Getting Personal

I have been fielding calls and visiting clients in force for the last two weeks.  This is the time of year when everybody wants to discuss taxes even if they are nowhere near finished accumulating all the information to do the returns.  To be honest I look forward to these meetings very much.  I am happy with the friendly relationships I have with almost all my clients.  This is an opportunity for me to catch up on the families.  Who had a baby - who graduated - who got married - etc. 

I learned very early the importance of building personal relationships in business.  Some people try to treat people one way in personal situations and differently in regards to business.  How many times have we heard someone say - well that's business.  But, I found that I could be my most successful when I took the time to build personal relationships with clients and not just arms length business deals.  And it makes work a lot more fun.

Getting Ready for the Annual Meeting with the CPA

This week has been spent on the phone with tax clients discussing the year end and setting up appointments for the early birds.  So, I thought I would share a few hints on how to prepare for those tax meetings to help keep the cost of the tax preparation to a minimum.

Many of you should have received a tax organizer from your CPA around year end.  These forms are a wonderful tool to help you gather your information based upon what you did the year before.  Normally, we report the same sorts of things year after year.  Therefore, it's nice to have a little reminder to speed along the process.  Also, the organizer helps the CPA quickly accumulate and summarize the information necessary to prepare your return.  And, the level of organization of a taxpayers information is directly proportional to the amount paid for the return.

Next, remember to write down all your questions for the tax preparer.  I have had many meetings with clients who had tons of questions but didn't write them down so they couldn't remember them when we were in the meeting.  It is also very important to think ahead to the next year and bring up any new tax issues to your preparer during the meeting.  If some tax item is going to change in the coming year, your tax preparer needs to know to ensure that they have updated the estimated taxes you will need to pay for the coming year.

Finally, remember you are the client.  Don't let a tax preparer rush you out of their office before you are comfortable that all your questions have been answered.  The most stressed taxpayers are those that don't understand what's going on with their tax returns.  It is your responsibility to make sure that you get the advice and information you need to understand everything on a tax return.  So don't be afraid to ask tough questions.

Good Luck!

Obama's New $825 Billion Stimulus

The details have finally hit the streets on the proposed $825 Billion stimulus plan proposed by the incoming Obama administration.  A nice 13-page summary from the house appropriations committee can be found at American Recovery and Reinvestment Act.

There are a number of tax proposals in the plan including the ability to carry-back 2008 losses 5 years instead of 2.  This would require refiling these old returns but would result in some nice refunds.  For those businesses that struggled last year, this could be a nice cash infusion.

Tax Rebates - Free Money?

One of George Bush's first acts as President was an economic stimulus package that resulted in tax rebate checks.  Money came flying out of Washington and went straight to Wal-Mart.  We joined the party and bought a large microwave oven with our cut of the pie.  Americans went on a spending spree with this cash.  And, the most important part was that most of us spent more than the checks we received.  These checks sort of primed the spending pump.  We received $600 and spent $800.  Therefore, the overall impact of the rebates was far more that the dollar values on the checks.

Apparently, Washington was so pleased with them during the last economic downturn that they have gone right back to the well this time.  The Bush Administration and Congress have agreed in substance to a tax rebate plan that could result in checks as early as May of this year.  Once again Washington is going to throw money out on the streets to see if it will jump start the economy.  Maybe we Americans will once again go on a spending frenzy with this cash.  The Feds are banking on Americans taking this cash and spending it.  It would be a real nightmare for them if taxpayers did anything responsible with the money like pay down debt or put it in savings for a rainy day.  But, they have a lot of faith in average Americans that this money will burn a hole in their pockets.   

Here are some of the details of the agreement.

• Most individuals who pay income taxes would get $600; working couples would receive $1,200. Workers who make at least $3,000 but don't pay income taxes would get checks of $300 to $600. People in both groups would get $300 credits for each of their children.
• Businesses would be able to deduct an additional 50% of the cost of certain investments in 2008. In addition, small businesses would be able to write off more expenses from their taxes: $250,000, up from $125,000.

• The checks would be gradually phased out for wealthier taxpayers (individuals - $75000; couples - $150,000).  Couples with income of more than $174,000 would get nothing, unless they have children.

Of course the devil will be in the details.  I'm still curious to see exactly what is meant by working couples.  I would assume this just means a family that filed a joint tax return.  I can't imagine that the government would punish a family for having a stay-at-home parent. 

So, let's look at some dollars:

• The Cantrell family consists of myself, my wife, and five children.  We could be looking at a tax rebate of as much as $2,700 - $1,200 for the couple and $300 per child in addition.
• An individual with two kids could receive $1,200 - $600 individually and $300 per child.
• Of course to receive a tax rebate of $600 per person, a taxpayer would need to at least have paid this much in tax for 2007.  Otherwise the rebate would be limited to $300 for taxpayers making over $3,000.

The rebates will be based upon a taxpayers 2007 tax return.  So, if a taxpayer has not filed the return by the time the rebate checks start printing, they will not receive payment.  Rebates could be delayed for any taxpayer that extends past April 15th this year.  However, some mechanism may be put in place to include the rebates in 2007 tax returns filed after the deadline.  Otherwise, the rebate process would not even start for late filers till after the IRS receives and processes the 2007 returns.  This might just be a great year to get it all done on time.

A final thought.  Remember, these are tax rebates.  This isn't just some free cash falling out of the sky.  This is your hard earned tax dollars being returned.  It seems funny to me that periodically Washington realizes taxpayers would be able to be a lot more economically active if they didn't have to pay so much in taxes.  A rebate check like this is sort of an admission of guilt on the part of the government that taxes go a long way in limiting the buying and saving power of families.

Data Backups - Avoiding the Nightmare

My extensive history in the catastrophe of computer failures began about three years after college graduation.  I was the staff CPA for the City of Gatlinburg, Tennessee.  One of my many duties involved the backup of all accounting data for the City.  Each backup required nine large reel tapes and the shutdown of the entire accounting system for a full day.  Therefore, we were only able to run about 2 or 3 per month.  It didn't seem like the best of situations at the time - but it sort of fell under the category of "Oh Well - So what you gonna do?".  Then one day while we were all just scurrying along I got an interesting message from the system involving the corruption of the Kernel.  This problem completely destroyed all the data on the system and ground all activity to an abrupt halt.

Well, after about 3 or 4 days of reconstructing the computer system.  We were only one good backup from commencing operations.  This is the part in the story that may not be suitable for children under 13 due to the graphic nature of the subject.  The latest usable backup was more than a month old.  This meant that all the information (including utility billing and collections, police fines, tax payments, payrolls, accounts payable records, etc) for a time period greater than one month would have to be entered manually in our spare time to get the system up to date. 

It took almost six months to get the system up to date and back on line.  This forced all cash activity to be maintained manually to ensure that the cash balance was kept current.  Think about this - we were forced to record current transactions in both a manual ledger and computer system while entering prior month activity.  The situation felt hopeless almost until it was finally corrected.

We were performing backups - just not GOOD backups.  From that day forward, I fully understood the importance of a GOOD backup.  There are many options in the realm of backups.  There are CD and DVD systems, tape drives, and mirror server systems.  But, just recently I began using an on-line backup system and have been completely sold on the idea.  The biggest drawbacks that I have encountered in the past with on-site backup hardware and software involves failure rates and the storage of backup tapes or disks.  An off-site storage is always required to ensure the security of the data in case of a fire or other disaster at the office location.  If the office burns to the ground and the backup was on-site, we would be in heap big trouble.

On-line backup systems offer the customer the ability to upload encrypted files over the Internet to a storage center.  Then all files would be accessible for restoration through the software or by logging into the storage company's website.  Files can even be shared through the system by using passwords and file log-in's.  The only requirement is a high-speed Internet connection.  The time requirement for the initial upload was significant.  But, I simply let the software run over night and 2 gigs of data were transferred without a hitch.  For more data, the system could be allowed to run over the weekend to avoid work stoppage.  But, really work stoppage isn't a problem.  The system that I am currently using can work in the background and doesn't require everyone to be out of the system to perform the backup.  It simply waits till the end to backup files that were in use at the time of the backup.  After the initial backup, incremental backups are performed for only the files that were changed. 

In addition, the system that I have been using offers multiple versions of the changed files in order to allow a customer to access a prior version in case something was wrong with the last version saved.  I currently save 3 versions. 

The billings for these services vary.  But, the common thread involves paying based upon the amount of data that is being saved.  I am paying $2 per gig per month.  The security that I have that my files are safe is well worth the five to ten bucks it will cost per month.

These services are really a God send to the average small business operator.  Most of my small business clients perform backups, but very few of them have a system in place to keep those backups anywhere other than the accounting office.  So if the place goes up in smoke, the backups go up with it.  And trust me, it only takes one loss to help a person realize just how expensive it is to reconstruct data.

I have been called in many times by clients to help repair the damage and re-enter data.  It always ended up being a very expensive process.  And, when the clients tried to fix the problem themselves, it always seemed to take an eternity to get everything up to date.

So, I would highly recommend looking into on-line backup services - even if you currently perform your own backups in-house.  Compare the security and recoverability of each system.  Also, check which price package best matches your specific needs.  In the end, this is insurance well worth paying for.

2007 Tax Changes

Happy New Year!!  Well, 2007 is finally in the bag.  I hope it was filled with many blessings for you and your family.  The year end is always a great opportunity to reflect on the changes in our lives over the last 12 months.  We can think about all the babies born, the weddings, the parties, the vacations, the quiet moments with our kids, and the wild games that seemed to make the house shake.  We can look at the kids and see just how much they've grown in the last year. 

But, some changes in the last year have not been so interesting and meaningful.  Some changes are just downright boring.  Like the annual laundry list of tax changes we face each year.  While we were busy trying to make ends meet, the Congress and President have been adjusting the lengths of the ropes.  The following is a quick "down and dirty" look at some of these changes and what they are going to mean to your purse.

Alternative Minimum Tax

WHAT?!?!  Our friend the AMT is almost as much a mystery in the lives of Americans as the Virgin Birth.  We don't know what it means, who it affects, or how its calculated.  Heck, most tax professionals couldn't do a decent job explaining the thing.  But, it almost had a chance of becoming an important topic of discussion in about 25 million U.S. homes (up from 4 million in 2006).  The AMT was originally a piece of "soak the rich" legislation.  All of us in middle America have the strange feeling that the rich are the only ones that can afford the lawyer and accountant fees necessary to really milk the tax code.  So, the AMT was invented to make sure that the rich at least paid their fair share.  But, somewhere along the way, somebody forgot to stick a cost-of-living adjustment in the thing.  The 2007 legislation (H.R. 3996) extends for one year AMT relief for nonrefundable personal credits and increases the AMT exemption amount to $66,250 for joint filers and $44,350 for single filers, up from $45,000 for couples and $33,750 for singles and heads of household under the old law.  The old law would have resulted in approximately $2,000 of additional tax for around $20 million tax filers.  So we have avoided (for one year) a $40 billion windfall for the Federal government.

Charitable Contributions

The end has come to deducting cash contributions without support.  For as long as I can remember, taxpayers have been deducting their weekly $20 of cash dropped in the offering plate or the few dollars that they gave to the bell ringer at Wal-Mart.  But, beginning in 2007, no deduction for charitable contributions will be allowed without some record of the contribution (either in the form of canceled check, a bank statement, or a written communication from the charity.  And, any support just contain the name of the charity, the date, and the amount of the donation. 

Mortgage Insurance Premium Deduction

Premiums that you pay or accrue for "qualified mortgage insurance" on home acquisition debt can be deducted as an itemized deduction.  These are only allowable on debt on a first or second home of the taxpayer.  In addition, the deduction begins phasing-out for taxpayers with incomes over $100,000.

Adoption Benefits

For 2007, the maximum tax credit for adoption benefits was increased from $10,960 in 2006 to $11,390.

QuickBooks 2008 Pro Advisor

I started thinking back to my first accounting job as an intern for a CPA firm.  In those days (some 16 years ago) most small businesses operated solely from their paper check registers.  These clients would deliver these check registers along with bank statements to their CPA's on a monthly basis and all accounting information would be accumulated by the CPA in their bookkeeping software and reports and financial statements would be returned to the client.  It was simply too expensive for many small business clients to afford the cost of maintaining the accounting software on their own. 

Then along came softwares such as QuickBooks that offered clients the ability to bring the entire accounting process in-house with a fully integrated software at a reasonable price.  Small business could now operate check registers, run payroll, process accounts payables and receivables, and generate up-to-date financial statements from their own offices.  This was a wonderful opportunity for clients to have financial information at their fingertips.  Remember before this innovation, clients were at best 30 days behind in knowing their exact financial position at any given time.

But, the work for the CPA's didn't suddenly decrease at this point.  Since the introduction of QuickBooks, CPA's have been intimately involved in the operation and support of these accounting softwares with their clients.  I can't begin to count the number of installations and training sessions I have done with clients over the years.  And who better for this task.  The CPA knows his/her clients.  We have been working with them closely and have come to understand where the areas of concern are in each client and their abilities in operating and understanding any software.  I have thoroughly enjoyed the years of working with clients on their various accounting systems.  That involvement really assists the CPA in fully grasping the important issues for each client.

As I stated, I have been offering support and training on QuickBooks for many years.  However, only recently I took the step to formalize my credentials in this area.  I have now completed the certification process to become a certified QuickBooks 2008 Pro Advisor.

The Pro Advisor program consists of extensive training and testing of CPA's and other professionals to ensure that they have a broad and complete understanding of the QuickBooks software.  This certification serves notice to current and potential clients that a CPA has taken the necessary steps to become competent in the operation and installation of the software.  The program requires that an accounting professional exhibit competence by completing exams in various areas dealing with installation, operation, and reporting of the QuickBooks software and achieving grades of at least 85% on all exams.  I have to admit, I am very proud to have been able to complete the process.  It was definitely not simply a lesson in going through the motions to obtain some sort of certification that really didn't challenge me.  The testing was difficult and the information was absolutely pertinent to the day-to-day operations of my clients.

But, most importantly, this certification must be fully renewed each year.  Clients can feel comfortable that a QuickBooks Pro Advisor has kept up-to-date on their training and understanding of the Software.

I look forward to making QuickBooks an important part of my CPA practice.