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Monthly Client Newsletter | October 2011
B y now children are back in school and forming their new daily routine. Unfortunately, nothing is yet routine out of our Nation's Capital. This month, we review yet another tax proposal, this one a $450 billion jobs bill introduced by the Obama administration. While none of us are sure what will pass, it is useful to know what is being discussed.
- Business Capital Expensing
- Making Sense of the Proposed American Jobs Act
- The Rise of the Cyberbully
- Six Tips for Early Retirement
Business Capital Expensing
|Good or bad decision?|
As a reminder, businesses may continue to accelerate the expensing of qualified capital purchases.
The Tax Relief Act of 2010 expands the additional first-year bonus depreciation to 100% of the cost of qualified property. To qualify the property must be purchased and placed in service after 9/8/2010 and before 1/1/2012. For property to qualify it must be "original use" property. This typically means new property, but that is not always the case. In 2012, this first year bonus depreciation falls back to 50%. Not interested in accelerating your depreciation expense? Then you may choose to opt out of this provision for each category (class) of property you place in service.
The Small Business Jobs Act also extends the annual $500,000 amount of qualified assets that may be expensed (instead of depreciated) for 2011. This benefit can be maximized as long as total assets purchased by your firm do not exceed $2 million. Unlike bonus depreciation, qualified property under Section 179 also includes used property.
So is taking advantage of these provisions good for your business? Not always.
Remember if you use these special asset "expensing" provisions, depreciation expense is given up in future years. This is especially important to plan for if your company is organized as a "flow through" entity like an S-Corporation as more income could be exposed to higher marginal tax brackets in a number of future years. How many future years? It depends on the recovery period of the asset, but the additional tax exposure could be from two to six years!
More importantly, if you think Congress will increase tax rates to help balance the budget, your future income may be exposed to a higher tax rate than your current income.
What should you do?
If you have some predictability in your business, it probably makes sense to forecast your projected pre-tax earnings with and without the accelerated depreciation to ensure you are making the right tax decision over the long-term.
Making Sense of the Proposed American Jobs Act
On the heels of the great debate in Congress to cut the deficit comes a new proposal to stimulate job growth in our economy. The American Jobs Act proposed by President Obama in September contains a $450 billion spending package intended to stimulate economic growth.
What you need to know
If you're a small business
Your payroll taxes would be cut in 2012 to 3.1% of wages versus the current 6.2% for the first $5 million of your payroll.
You would also receive a full payroll tax holiday of 6.2% for any new hire wages and any increase in wages given to current employees in 2012.
100% bonus first year depreciation for new investments would be extended through 2012.
You could receive tax credits for hiring the unemployed:
Extension AND expansion of a payroll tax holiday through 2012. The provision would cut employee payroll taxes to 3.1% from 6.2%. This would be a $1,500 savings for a household with a total income of $50,000.
Introduce programs that allow more families to qualify for lower rate home mortgage refinancing.
Numerous programs are proposed to help the unemployed. It includes;
Whether the bill passes and is signed into law is anyone's guess. Many analysts are projecting that at least some form of the provisions will likely pass so you should stay tuned to see how it may impact you, your family, and your business.
The Rise of the Cyberbully
The world of technology is fast-paced and more readily adopted by youth. This often leaves parents and guardians in a catch-up role trying to figure out what our children are doing and how we can teach safe behavior. With over 50% of youth saying they have been subjected to abuse through social and digital media according to a recent MTV - Associated Press survey, the problem requires attention.
Teens use of technology explodes
A 2010 survey by the Cyberbullying Research Center found teen's (10 - 18 year olds) use of electronic communications widespread:
Types of Cyberbullying
Cyberbullying usually occurs from someone the person knows very well. It comes in many forms:
What can you do?
Thankfully many school and state programs are being established to help students be more aware of the problem and provide resources to stop any harassment. Should you wish to learn more:
Six Tips for Early Retirement
With all the concerns about the economy and creating new jobs, is it crazy to be thinking about taking early retirement? Maybe not. Here are a few tips to consider should retiring early be a goal of yours.
Start early. Establish your desire to retire early as soon as possible. Make sure both you and your spouse favor the same retirement date goal. With this stated goal, meeting savings targets and establishing spending priorities gets much easier.
Know what you want to do. Often if you have a dream that can be fulfilled in retirement, it makes any hardships to get there more tolerable. Perhaps you've always wanted to visit the national parks while you're still mobile enough to enjoy them. Once you set this goal, creating a plan to get there will have more meaning.
Pay yourself first. People who retire early have savings rates in excess of 10% of their income. This might mean holding off on a big vacation once in a while, but the long-term dividend is worth it. The larger your savings becomes, the more flexible you are in acquiring assets that generate more wealth for you.
No debt and credit cards paid in full. It's hard to retire early if you are making large loan payments. Having a mindset to save money before you buy something versus taking out loans is the way to go for prospective early retirement. Why pay the credit card company interest when you could use that money for your non-working days?
Financial independence mindset. Save enough to not have to worry about Social Security or other government programs to take care of you. Said another way, never over spend your own resources as you will need to depend on yourself and not others for your financial independence.
Use common sense in investing. Many investment alternatives today no longer make financial sense when compared to the income potential of the underlying asset or property. For example, if you purchase rental property, make sure it cash flows at reasonable rent rates. If you use common sense, more of your investments may help generate income, even in retirement.
Please contact us with any questions.
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