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September 9, 2010

The entrepreneur’s leap of faith

Filed under: Articles — Tags: , — admin @ 1:18 am

I am a huge fan of the entrepreneurial spirit and the energy that founders and innovators can bring to a meeting. Last week, I met a gentleman to get an update on his new business. We had met several months ago and was I excited to hear about his progress. In the end, I was disappointed to learn that the business had not gotten off the ground yet. 

There are several reasons for this. One is the difficulty in obtaining capital given the current economic climate. Banks, institutional and angel investors, as well as venture capital and private equity firms are treading lightly because of sluggish domestic demand and the high degree of uncertainty that continues to envelop the economy.

Another is the amount of risk that this entrepreneur is willing to take. He continues to analyze business conditions in an attempt to minimize his exposure in the event that his business ultimately fails. While I agree that it is better to gain knowledge as opposed to blindly diving into something, there is such a thing as paralysis by analysis. At some point, all entrepreneurs have to take that leap of faith like Indiana Jones and the Last Crusade. 

The older we get and the more we have to lose, the tougher this decision becomes. If you have a spouse, children, a home, and a comfortable living, it is more difficult to take the leap than when you have nothing to lose (i.e. no job and little or no responsibilities, etc.). I admire serial entrepreneurs who are not afraid to fail and understand that every new business is not going to be a home run. 

About one year ago, I made the leap after reading the stories of a number of entrepreneurs and realizing that there is no such thing as the “right” or “perfect” time to launch a business. No matter how well you prepare and strategize, everything will not go as planned. One thing I have learned is that it is easier to take risks once you are willing to let go of your fears. 

My advice to you: do your homework, build a strong team to help you, and then take the leap. Make your tomorrow today!

Lou Arellano, CPA, CFE



Small business health insurance credit

Filed under: Articles, Taxes — Tags: , , , , , , — admin @ 1:13 am

With all of the talk and controversy surrounding health care reform, you might have missed the small business health care credit that was included in the Patient Protection and Affordable Care Act (aka the health care reform act). Beginning in 2010, a business with 25 or fewer full-time equivalent employees and average annual wages of less than $50,000 may be eligible for a credit of up to 35% of non-elective insurance premiums paid for its employees. If your business has less than 10 employees and average wages of less than $25,000, the credit is 100% of non-elective insurance premiums. 

In simple terms, businesses with fewer employees and lower average wages will receive a larger tax credit than businesses that are close to the thresholds of 25 employees and average wages of $50,000. Not-for-profit organizations are also eligible for this credit and can receive up to a 25% credit as a reduction of payroll taxes. 

Starting in 2014, the credit will increase to up to 50% of qualified insurance premiums paid on behalf of small business employees and 35% for not-for-profit organization employees. Also starting in 2014, the credit will only be available to a business for a maximum of two consecutive years and the average annual wage threshold will be indexed to inflation. This tax credit will continue until 2016. 

Recently, the IRS released a draft version of Form 8941, which will be used to calculate the credit for an eligible small business. You can find this form at: http://www.irs.gov/pub/irs-dft/f8941–dft.pdf.

Keep in mind that by 2014, all businesses that employ more than 50 people must provide health insurance or pay penalties for noncompliance. Small Business Health Options Programs are expected to be up and running in 2014 to provide health insurance benefits to self-employed individuals and small businesses.

Consult your CPA or tax preparer to determine if you are eligible for the credit this year or to discuss the health care reform act and its implications to your business.

Lou Arellano, CPA, CFE



June 18, 2010

Brother Can You Spare a 1099?

Filed under: Articles — Tags: , , , , , , — admin @ 8:47 am

What can I buy for $10.99? From a quick search of the internet, I learned that I can buy a bear doorstop, a t-shirt that says “Brain Damaged,” or an official video of U.S. Presidents and First Ladies. I know – tough call, right? Actually, the title was not a reference to things that could be purchased for $10.99. Instead, it was designed to call your attention to changes to regulations for the use of IRS Form 1099.

The new rules were included in the health reform act in order to pay for tax credits and the federal budget deficit. Uncle Sam is hoping to get his hands on a sizeable chunk of the income that goes unreported every year. Barring amendments that could be made via future legislation, the new rules become effective beginning in 2012. Unless you believe that the Mayan calendar correctly predicts the end of the world in 2012 and not the beginning of a new age, I suggest you pay attention to the rest of this article. 

One of the most significant changes is the requirement to file Form 1099 for payments made to corporations (except not-for-profits). Currently, businesses are not required to file notifications to the IRS for payments made to corporations. In order to avoid the withholding of federal income tax for payments you make, your business will be required to obtain the Federal Tax ID Number (FTIN) for each payee. But wait, it gets worse!

As of now, it is believed that payments made to vendors will need to be reported. Get out the Rolodex and make sure you budget an appropriate amount of time in 2011 to get the FTIN number of all your vendors. And, expect to provide your number to all of your customers unless you want them to pay you less cash because of the withholding requirement.

Besides the mountain of paperwork this is likely to create, what happens if a vendor reports one amount to the IRS and you report another because of errors or different accounting methods such as accrual basis versus cash basis. This could result in a reconciliation nightmare for the companies involved and the IRS.

Fortunately, there is still time to fix this mess. Or better yet, maybe this is an opportunity for me to create software that will allow the IRS to manage the new process. I can probably get government grants to fund the development so that it won’t cost a thing and then I can sell the service to the IRS. How’s that for putting your tax dollars to work!

Lou J. Arellano, CPA, CFE



Helping Small Businesses Revive the Economy

Filed under: Articles — Tags: , , , — admin @ 12:22 am

Today, I was running an errand when I saw three young girls selling lemonade on the corner by their house. Enthusiastically, they waved signs and ran down the sidewalk to get the attention of all the cars that passed by. Because I admired their spirit and determination, I purchased a $1 lemonade. 

I realize it will take millions of cups of lemonade to kick-start the economy, but these young ladies had a good idea. It was HOT today, so demand for a cold drink soared. If they weren’t limited to selling near their home, a more strategic location could have netted them a nice profit. We could all learn a lesson from their efforts! 

Which brings me to my point: how often does an opportunity present itself and we walk away from it? Last month at the 22ndAnnual Colorado Capital Conference, Jeff Hoffman, a founder of Pricline.com, spoke about innovation in terms of execution. As he put it, everyone has ideas, but most people don’t take action to see their idea to fruition. 

It is going to take good-old-fashioned American know-how to get the economy on track because many jobs are not coming back. Sure credit is tight. Are Americans saving more and spending less? According to economic data, the answer is a resounding “yes.” With that said, market opportunities do exist. 

Next time you see an opportunity, think of the three neighborhood girls selling lemonade and go make it happen!

Lou J. Arellano, CPA, CFE



April 30, 2010

Scammers, Scammers, Everywhere!

Filed under: Articles, Fraud, Taxes — Tags: , , , , , , , — admin @ 4:43 pm

With tax season only a couple of weeks behind us, blood is in the water and the sharks are ready to feast! Well, if we let them, that is.

I received an email today claiming to be from the IRS. The email stated that my tax return had been recalculated and that I had a refund of $493.50 ready for me to claim. Eureka! My ship has come in!

Not so fast, Lou! Let’s take a closer look at this email. First, it was received in my spam box. HMMM – that’s clue number 1. Second, does the IRS use cents or do we round all numbers? Third, would the IRS request a credit card in order to apply the refund? I really like this next part:  “Please submit the tax refund request and allow us 6-9 days in order to process it. A refund can be delayed for a variety of reasons.” I think they should add to this “including the fact that you are being scammed!”

Not taking anything for granted, I contacted the IRS and spoke to a representative. I described the email to this person who confirmed that it was indeed a scam. At his request, I forwarded the email to phishing@irs.gov. I’m hoping the Feds catch the perpetrators! I know – wishful thinking!

Sadly, this isn’t the first time something like this has happened. Every year, various tax-related scams rear their ugly heads. And unfortunately, some people will respond and supply the requested information. If no one replied, maybe the deviants would leave us alone and get a real job!

So, watch out! Remember: never give out your social security number, date of birth, or credit card information to anyone over the phone or via the internet unless you know EXACTLY who you are dealing with. When in doubt, contact the company or organization to verify the authenticity of an email or phone call. Lastly, if it sounds too good to be true, it probably is!

Lou Arellano, CPA, CFE



March 22, 2010

Time to Tan

Filed under: Articles, Taxes — Tags: , , , , — admin @ 9:38 pm

Have you switched to indoor tanning as a preventative health measure? If so, do you buy a monthly pass or pay for each individual session? If you do the latter, you need to listen up! Starting July 1, 2010, your tanning services will be taxed (like a sales tax) at the rate of 10%! This isn’t a misprint – 10%! 

The tax will be collected when payment is made for the services. So, I suggest you buy an annual pass on June 30th 2010 so you can enjoy tax free tanning for another year! It will be interesting to see if the tanning salons come up with different packages that will allow you to stock up on tanning sessions before the tax kicks in. Ask the employees at your favorite tanning salon if they are aware of the new tax and if their salon is doing anything to help its customers. 

Several months ago, I tweeted that this could happen. Since the federal government continues to spend money, Congress is trying to find creative ways to raise funds. If you recall, the original health care bill called for a 5% tax on certain cosmetic procedures. In December, the lobbyists for cosmetic surgeons, Hollywood, and certain women’s groups were successful in getting the BoTax replaced by the tan tax. Congressmen wanted to make sure their girlfriends would look their best!

I think the biggest disappointment about the inclusion of the tan tax is that it is projected to bring in significantly less money than the cosmetic tax because the industry is much smaller. According to the Joint Committee on Taxation, the BoTax was projected to bring in $5.7 billion vs. only $2.7 billion from the tanning tax. In addition, several tanning industry experts believe the $2.7 billion estimate is too high.

In recent years, cosmetic surgical services have continued to increase both in the total number of procedures performed and total revenues while the tanning industry has had to tighten its collective belt as Americans cut back on their spending habits. Given this data, you would think that a logical person would choose the BoTax, but that’s not how Congress works. Politics, politics, politics…

Surgeon General’s Warning: I do not frequent tanning salons nor have I been paid to write this on behalf of the tanning salon industry.

Lou Arellano, CPA, CFE



Home Sweet Home

Filed under: Articles, Fraud, Taxes — Tags: , , , , , , — admin @ 3:45 pm

The sounds and smells of Spring are in the air! Birds are singing, flowers are blooming, and bells are going off in your head reminding you that the first deadline for you individual income tax returns is approaching. So stop being a couch potato and get out there and enjoy the sunshine on a new bicycle that you are going to buy with your tax refund!

How did you end up with a refund anyway? Well, it might have to do with the making work pay credit or those education credits that I mentioned in previous posts. Or, maybe it’s because of the next item up for bid on the Credit (Price) is Right: the first-time homebuyer credit. I don’t know about you, but I can hear Drew Carey saying “come on down!” Where’s Bob Barker when you need him? Probably looking to deck Happy Gilmore again or make another donation to PETA! We miss you, Bob! 

We are going to temporarily forget about the latest news from Congress (Healthcare reform) and set the not-so-way-back machine to November 2009. At that time, Congress extended the first-time homebuyer credit until April 30, 2010. A first-time homebuyer is considered to be someone who has not had an ownership interest in a principal residence (in the U.S.) during the previous 3 year period. So, if you are looking to buy a home, now is the time to claim your $8,000 credit. As long as you have a contract in place by the end of April, you have until June 30, 2010 to close on the home. Then, you can decide to take the credit on either your 2009 or 2010 tax return. If you are considering the purchase of a home in the next month, consult with your CPA to determine which year’s tax return (2009 or 2010) will provide you with the most bang-for-your-buck. 

There are a couple of other nice provisions that Congress included in the extension. If you’ve owned and lived in a principal residence for any 5 consecutive years during the last 8 years, you may still be eligible for a $6,500 credit as long as the purchase price of the home is $800,000 or less. Also, the phase-out ranges of the credit have been increased. Under the extension, the phase-out for the credit starts at an adjusted gross income of $125,000 for single filers and $225,000 for joint filers.   

If you purchased a home in 2009, congratulations! Don’t forget to see if you qualify for the first-time homebuyer credit provided that you didn’t take the credit already on your 2008 tax return. If you are going to buy a home in the next 40 days, let me know so I can bring you a housewarming gift. Good luck with you new purchase and enjoy the benefits (and occasional headaches) of owning your home! 

Lou Arellano, CPA, CFE



March 6, 2010

Hi ho, hi ho, it’s off to school I go

Filed under: Taxes — Tags: , , , , — admin @ 7:33 pm

According to the National Center for Education Statistics (http://nces.ed.gov), the number of students attending college for undergraduate or postgraduate degrees is projected to increase for the next seven years. The rising enrollment is due to an increase in the college-age population and an increase in the number of high school graduates choosing to continue their education. Enrollment increases during the years 2008-2010 can also be attributed to the challenging job market many high school and college graduates have been facing since the recession began in December 2007.

Whether you are a parent shelling the bucks out for your dependent child’s education or you’re a working adult paying your own way through school, here are some changes you should be aware of when you file your 2009 and 2010 federal tax returns. The American opportunity credit is a modified version of the Hope credit that allows for a maximum deduction of $2,500 per student for each of the first four years (used to be two years) of post-secondary education. For joint filers, the phase-out range of this credit begins at $160,000. The Hope credit and Lifetime learning credit are still available as well. Check with your tax consultant to find out which credit best applies to your situation.

Here are a couple of other welcome additions to the education credit rules. Qualified education expenses now include books, supplies, and equipment that are required for enrollment. It’s about time we get to include the cost of books because that $400 plus per semester really adds up! Also, qualified expenses for distributions from a 529 Plan now include the cost to purchase a computer. DUH! Can I get a Triple Lundy?

For those of you in Midwestern disaster areas that include certain counties in Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska, and Wisconsin, the maximum amounts allowed for the Hope credit and the lifetime learning credits are $3,600 and $4,000, respectively. That’s a nice gesture to those who have suffered through some difficult times and is similar to tax breaks given to residents in hurricane ravaged regions in prior years. Good luck to you all as you rebuild your towns, homes, and lives.

FYI – March 15th is right around the corner. Make sure your corporate tax returns are being completed so the work can begin on your individual returns. Don’t delay – unless you are trying to avoid paying Uncle Sam for as long as you can.

Lou Arellano, CPA, CFE



March 2, 2010

I get by with a little help…

Filed under: Articles — Tags: , , , , , , — admin @ 9:34 pm

Unless you have been living at the bottom of the ocean, the social media explosion that has occurred during the past three years should not be news to you. LinkedIn, Twitter, and Facebook have changed how we communicate by providing new channels for finding business opportunities, friends, and colleagues. Who knows – networking may look completely different in another 5 to 10 years. For now, let’s deal with the present.

As with any business tool, incorporation of social media into your marketing program requires a plan in order to get the most out of the possibilities that these avenues present. I am not an SEO expert, so I am not going to talk about social media from a professional marketing standpoint. However, I would like to discuss the ways that I use Twitter and Facebook.

Through Twitter, I am able to connect with other small business owners in Colorado who are looking to help each other succeed. I have discovered several sources of local business and news information that I may not have found from a general search of the Internet. From the person, groups, or businesses I follow, I get to read some interesting tweets that, at a minimum, keep me amused. I’ve also enjoyed the free items or specials that I have been able to take advantage of. Many of these came from local businesses. What a world! 

Facebook, on the other hand, allows me to stay in touch with my extended family. I’ve also been able to find and reconnect with classmates and friends from my grade school, high school, and college years. Being able to share life’s challenges and successes via Facebook keeps me grounded. I am grateful for my wonderful family and friends! Thanks to all of you for helping me throughout the years!

So here is my ulterior motive for writing about this topic. I am going to share information about a couple of groups I am involved with. The Bard Center for Entrepreneurship at the University of Colorado Denver runs a business plan competition every year with prizes awarded for the top 6 plans and to business category winners. For more information and important dates, check out: http://thunder1.cudenver.edu/bard/business_plan_information.htm. If you know of anyone who has a business concept, please pass along this link. Private enterprise makes this country great!

The Bard Center also has a Venture Capital Fund that I am privileged to be a part of as a student at UC Denver. Along with 4 other graduate students, I get to manage fund operations. Check out http://thunder1.cudenver.edu/bard/funding.htm to learn about who is eligible for funding and how you can apply.

Your mission, should you choose to accept, is to pass the above information on to as many people as you can. Use social media and whatever other outlets you have at your disposable to put the word in the streets. After all, helping others is what life is all about! This message will self-destruct.

Lou Arellano, CPA, CFE



February 19, 2010

The Name Game

Filed under: Articles — Tags: , , , , — admin @ 2:59 pm

Recovery, recovery, banana nana humbuggery – fee fie foe foolery – recovery! Everyone, sing it with me now! Who doesn’t remember that famous song from the 1960s and early 70s? If only congress could be that creative when they decide to enact tax legislation! Our Congress men and women can be very imaginative when trying to get elected, but cannot seem to do better than the American Recovery and Reinvestment Act of 2009 (ARRA). That said, what do you need (or want) to know about the ARRA?

For starters, there is the Making Work Pay Credit which gives workers a credit of 6.2% on earned income up to a maximum of $400 for single filers and $800 for married filers. However, the credit does get phased out at higher levels of income ($75,000 for single and $150,000 for joint returns). That $400 could buy approximately 80 lattes at Starbucks or almost twice that many at McDonald’s – if you choose to spend it. Our government hopes you do to keep the economy going.

The IRS revised the tax tables to reflect the credit, but your employer may have continued to withhold the same amount or may have not withheld enough in 2009. So, be careful. To claim the credit, you need to file the new Schedule M with your Form 1040. This credit is also available for 2010 as well. Lucky us! If you are self-employed, you are still eligible for the credit provided that you meet the requirements. Lastly, the credit must be reduced by any $250 Economic Recovery Payments you received from items such as social security or railroad benefits.

If Congress wanted to really make work pay, I am sure they could have come up with something better. Or, am I giving our elected officials too much credit? That is a discussion for another day. In the coming days and weeks, I will be following up with additional provisions from the ARRA that may help you prepare for the April 15th tax deadline. 

Shirley, Shirley, bow burly banana nana foe furly – fee fie foe furly, Shirley! Back in the day, that really bothered my sister! Hee, hee, hee!

Lou Arellano, CPA, CFE



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