Why do you do what you do?

Yesterday, I spoke on the phone to a potential new client after listening to his voice mail asking me to call back.

In his voice mail message, I could clearly hear the pain and resignation in his voice as he described his need to get his tax filings caught up.

This is something I experience a great deal; people who are afraid, resigned, and reluctant to report to the IRS. From whence does this fearfulness come?

One of my dearest friends has a horrible opinion of any regulating organization, especially the IRS. After having met his mother, it’s very clear to me from whence this reasoning stems.

The IRS is an organization that does what it is set up to do. Nothing more, nothing less. It is staffed by people who are working a job, just like anyone else. Unlike a collection agency, they are just comparing paper filings with what is established by Congress as the law, and reporting back about inaccuracies and asking for payment.

The other day, I was helping a friend work on an organizational development project and I told him an anecdote that this morning I found in an old email folder – it goes like this:

Start with a cage containing five monkeys.  In the cage, hang a banana on a
string and put a set of stairs under it.  Before long, a monkey will go to
the stairs and start to climb towards the banana.  As soon as he touches the
stairs, spray all of the monkeys with cold water.  After a while, another
monkey makes an attempt with the same result - all of the monkeys are sprayed
with cold water.  Pretty soon, when any monkey tries to climb the stairs, the
other monkeys will try to prevent it.  Now, turn off the cold water.  Remove
one monkey from the cage and replace it with a new one.  The new monkey sees
the banana and wants to climb the stairs.  To his horror, all of the other
monkeys attack him.  After another attempt and attack, he knows that if he
tries to climb the stairs, he will be assaulted.  Next, remove another of the
original five monkeys and replace it with another one.  The newcomer goes to
the stairs and is attacked.  The previous newcomer takes part in the
punishment with enthusiasm.  Again, replace a third original monkey with a
new one.  The new one makes it to the stairs and it attacked as well.  Two of
the four monkeys that beat him have no idea why they were not permitted to
climb the stairs, or why they are participating in the beating of the newest
monkey.  After replacing the fourth and fifth original monkeys, all the
monkeys which have been sprayed with cold water have been replaced.
Nevertheless, no monkey ever again approaches the stairs.  Why not?  Because
that's the way it's always been around here, and that's how company policy
begins...

All of the self-employed tax responsibilities

Everyone is pretty sure about filing their “taxes”, but when you’re running a business, there are so many OTHER taxes to pay attention to – many small business owners get cross-wise with the tax man very easily!

Here in Texas, there are a few that are readily overlooked:

For everyone -

Even if you work from a home office, your county tax assessor will tax you on your business assets and your inventory (if you keep inventory). You will likely get the county’s estimate of what your business assets are, and you have an opportunity to assert a different value by providing an inventory.

If you’ve paid anyone more than $600 in a tax year for services, you must issue them a 1099 form by January 31 of the following year. Transmit those 1099 forms to the IRS using form 1096.

For businesses with employees -

Of course, if you have employees, you have to report their earnings and withholdings on form W-2, which is transmitted to the government using form W-3. It’s better to use a Federal EIN to track these payments and accounts, even if you’re a sole proprietor.

You have to register and report your wages paid to the Texas Workforce Commission on at least a quarterly basis.

Quarterly, you have to report your wages paid and withholdings to the IRS using form 941. You may be required to make monthly or weekly withholdings deposits, but the returns are required quarterly.

Annually, you have to report your wages paid to the IRS using form 940, to calculate and report Federal Unemployment Tax.

Everyone you employ, including contractors, must be documented with an I-9, W-4 or W-9 and evidence that you checked their social security number for validity and their state issued photo ID.

For incorporated businesses (including LLCs)

Annually, you must report your revenue to the State of Texas on the Franchise Tax Return form, and file a Public Information Report.

These reports are required to maintain your corporation or LLC in good standing, and if you fail to file them, your corporation will be forfeited until you get them all filed.

If you have more than about $300,000 in gross revenue in Texas, you will have to pay a tax to the State of Texas to maintain your corporate privileges.

If you’re unsure of whether you have filed these returns, or whether any of these apply to you, let me know and I’ll be glad to guide you!

Why last week was such a great week

Last week, I got to do what I love over and over – and it was great!

It’s very challenging to describe what it is that I do, exactly – I’m not a CPA, nor a lawyer, nor really an accountant. I don’t do books for people, but what I do better than anyone is take whatever paperwork situation you have for your self-employed and micro business and clean it up, catch it up, fix it up so that you can focus on what YOU love to do.

Haven’t filed in a while? I’m your guy.

Corporate privileges suspended? No sweat.

Not sure if you did the W-2s and 940s right? I’ll handle it for you.

I love telling people that the problem is all handled, and that it’s no sweat.

The Worst Mistake

I don’t consider myself a paragon of QuickBooks use by any means.  I know enough to spot when something isn’t correct, and I’ve first hand experience at just what a train wreck bad QuickBooks entry is.

Let no one for a moment consider that this is some curse upon QuickBooks.  I’ve used their software for more than twenty years, and I find it to be quite reliable and effective.

We’re talking about USER issues. 

QuickBooks is a competent program for use by people who are trained in accounting.  Not someone who’s a Certified Public Accountant (CPA), but someone trained in accounting.  Even Intuit’s Quicken program can cause a world of hurt for someone not trained in accounting.

QuickBooks has made a wonderful success of creating a terrific GUI and series of spreadsheets that organize financial data in usable ways.

It, like any software, is completely subject to the adage “Garbage In, Garbage Out”.

I have looked at books for clients that were created and kept on QuickBooks.  I’ve seen loans from shareholders categorized in up to five different ways, credit cards that reflect both balances and payments as liabilities; I’ve rarely, if ever, seen non-accountant QuickBooks files that were reliable enough to be used as accurate records of whether a business was making money or losing money.

The mistake, made over and over by micro businesses and sole proprietors, is to assume that QuickBooks has magical properties that can turn a $6.00/hour clerk into an effective book keeper, accounts payable clerk, accounts receivable clerk, financial reporting manager and payroll manager.

The WORST mistake is to assume that your wife/spouse/partner/boyfriend can be transformed into a CPA with the application of a QuickBooks CD-ROM.

QuickBooks can be used as a multi-user platform; for a fee, you can have a version of QuickBooks set up on more than one machine, and have a real, live, trained accounting expert provide you with your QuickBooks data entry/reconciliation, and keep your clerk/wife/husband/girlfriend around to write checks and follow the instructions of the accountant or book keeper.

Trust me, it’s far, far cheaper to hire an external book keeper who’s an expert than it is to find after three years that you have no defensible records to support your bank loan application or Internal Revenue audit.

It’s also cheaper to hire an external book keeper than it is to pay your CPA to have your taxes done from really bad data.

The worst part of poor micro business accounting is that the owner never really knows where they stand. Are you losing money? Are you a victim of employee theft? Can you afford to expand or to do some new advertising?

When you manage your micro business as do most people their household finances, you could most easily join the ranks for those who have started a business and then failed within just a few years from lack of understanding about your own business.

First time home buyer tax credit – and increasing your business

I was explaining the first time home buyer tax credit just yesterday – and the client was stunned. “Why don’t people know about this?”

Well, there’s knowing it exists and there’s knowing how to access it.

For people buying a home to owner occupy between now and November 30, 2009, there is a tax credit of $8,000 available if they meet the qualifications.

A tax credit is a reduction in TAX which can be paid as a refund if no tax is owed. Most people are familiar with an income credit, which reduces only the income on which tax is owed.

Simply put, if your client is like most people, they get a refund back each year. This tax credit gives them an additional eight thousand dollars in refund. This money can be used to pay down payment and closing costs in the State of Texas (while funding holds out) or just gives your customer a huge refund.

So, you can generate more closings or more referrals by letting your customers know about this program. Even if they don’t personally qualify, the information may help their friends, which increases referrals and retention.

Here are the bullet points you can use to let people know about the program:

* First time home buyer means that they cannot have owned any property during the three years prior to the purchase
* If they borrowed money to purchase, it has to be an FHA loan
* They can either take the credit when they file their 2009 tax return next year, OR they can amend their 2008 return and take the credit now – getting the money in about six weeks
* They cannot have delinquent student loans, tax obligations, money owed to the Federal government, or child support obligations, or the credit would be used to pay down those obligations
* If they earned more than $90,000 in gross income in the year they take the credit, they are ineligible

Here is where the real meat is, that will give you the ability to generate a ton of good will and more referrals -

* If they bought their first home (under these rules) between April 1, 2008 and today, they can amend their 2008 return and get the money before summer’s end.

Think for a moment what it would do for you if someone you had done good business with contacted you and said “Hey, I think you qualify to get eight grand back from the IRS – you should look into that”. Would you be excited? Would you think first of that person when a friend was looking for that service?

You sure would.

If you want to know how to use the money for new transactions at closing, I’ll gladly go through that for you with a more detailed briefing.

If you’d like a flyer that you can send out to your clients, just hit me back and tell me how many you want.

Of course, everything has to have a hook in it – I do these tax return amendments for $125 each. I would love to support you in expanding your good will by delivering swift, accurate and warm service to your clients – I’ll even pay you a referral fee of ten bucks for each completed referral!

I know that it’s tough to think about marketing yourself most of the time, given that there is so much else to be done – but this is a slam dunk way to generate terrific good will only for going through your closing list and contacting people who look like they qualify.

If you want to visit about this and get more information, please call me!

Douglas

IF YOU THINK THAT’S BIG, TRY THIS

If you’re in the real estate or related industry, you probably have a smart phone. Blackberry, Treo, something that accesses the internet, has a full keyboard, does it all. Many Realtors now have smart phones that are their Supra key.

Have you ever marveled at one of these little hand held devices and remembered what it was like fifteen years ago? How much like Star Trek are these little things?

They’re going to get a whole lot more complex, and a whole lot faster than you may think. In another four years, what we’ll be buying will seem far more like a Star Trek tricorder than what we’re using now. You have seen the billboards for “3G wireless networks” – welcome to 4G.

Now, if you go to that linked article about 4G and can read it and understand it, you’re probably a physicist or something. I looked at it a few times and boiled it down to this:

* None of the phones we’re using now will work at all in about three years
* What we’re just now starting to get used to – streaming video on our handheld, slow and clunky internet, navigation on our handhelds – is merely a baby step compared to the 4G devices that we’ll see awfully soon
* The only thing that will hold a 4G device back is the screen size. There will be some 4G handheld devices that will have more computing power than the laptop I’m writing this on – and you can use it to stream movies, work at your desk, or in replacement of the stereo system and navigation system in your car through wireless Bluetooth-like technology and full sized monitors/keyboards.
* South Korea has already re-wired their wireless networks to 4G and is rolling out the products – this is not speculation, it is coming more certainly than the inaguration on January 20
* In another five years or so, your new car will have a video screen, and a power/cable plug for your 4G device, which will be the video/audio/satellite radio/navigation system/trip computer/telephone for your vehicle. If you rent a car, you’ll have your normal and familiar functionality with you.
* No more laptop cases, no more lugging your eight pound device around. No more desktop computers. Monitors, keyboards and pointers (commonly called a mouse) with a power port will be the work stations of the very near future. This alone will massively reduce electrical consumption.
* You’ll never have to miss your favorite TV program ever again!

Well, Lieutenant Uhura, get me Star Fleet on the comm!

What to do with this information? If you’re challenged by your Blackberry NOW, take a class about them at HCC or something! The train is whistling to leave the station, and your competitors (who can handle this massive technology shift) will be aboard!

JUST ONE MORE THING YOU SHOULD KNOW ABOUT THE REAL ESTATE BUBBLE

I think I’ve made this clear before – this wasn’t because of the current administration. It takes a Village, and in this case, we’ll now be thinking of them all as Village Idiots.

We’ve talked about predatory lenders, greedy Wall Street brokers, and loose lending regulations. How about the tax code? For a truly perfect bubble, you need favorable tax treatment OR loose regulations – and we had them both.

If you’ve always loved Ayn Rand’s philosophy as expressed in “Atlas Shrugged,” you should consider this a full refutement of that philosophy by its grandest champion:

“I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms.”

Alan Greenspan, former Federal Reserve chairman