Accounting News and Notes

These simple guidelines will help you determine your filing status and give you a leg up on understanding the nuances of what tax filing status you can legally claim on your personal return. There is much confusion over what is allowable in making these determinations and the below overview will do much to erase many of the existing mystiques surrounding the proper status and therefore the correct filing of your personal return.

Single - Only taxpayers who are single on the last day of a tax year may claim single status. It does not matter what your marital status is on the first 364 days of the year but only what is your status on the last day of the tax year/December 31st, which is the key determining factor. A taxpayer who is married on the last day of a tax year cannot claim single status regardless of whether they want to file a return without their spouse.

Head of Household - To qualify as filing as head of household a taxpayer generally must have a dependent child who lives with them throughout the year. However a single taxpayer who is allowed by a divorce decree to claim a child as a dependent, but the child does not predominantly live with them, does not qualify for Head of Household Status. Conversely, a child who predominantly lives with a parent for most of the year, can still claim Head of Household Status even if the decree specifies the other parent to be eligible for the dependency exemption in a given year. Generally speaking, married individuals with dependents who do not live with their spouses for the second half will also qualify for Head of Household status. The Head of Household tax rate is the second lowest behind the tax rates of those who are married and filing a joint return.

Married Filing Jointly & Married Filing a Separate Return- Taxpayers who are married on the last day of the year must file as either Married Filing a Joint Return, Married Filing Separately, or Head of Household (see above). Generally speaking it us usually most advantageous to file a joint return if one can, as most often the aggregate tax bill will be lessened and the attendant reporting less due to the filing of one return vs. two. You will want to keep in mind that the Married filing a joint return is the lowest of the overall tax rates/brackets and that Married Filing Separately is the most expensive/highest tax brackets.

Please be reminded these are general guidelines only and that you should work closely with your CPA to determine which filing status you are able to claim to ensure you fully understand and qualify for the status you will be claiming.

There are times in life when the only choice is do what is necessary without any forethought, insight, or concern for future issues/concerns. For example, when a child is hungry we do not need to be contemplative or forward thinking about what to do when an infant in front of/near us is in pain, we need solely to act to address and fix the immediate calamity. Similarly medical issues need to be responded to quickly, rather than worrying how a particular patient got hurt or came to be in this condition. However, I am not convinced that our present economic condition of our country is an issue when we should just hand over seven hundred billion dollars, without adequate controls and procedures being established.

For a bailout to work, we do need to do so quickly. However we need to act in a just and judicious matter while being sure that the billions spent are a hand-up and not a bail-out. Unlike then the U.S. government loaned Chrysler monies to avoid bankruptcy, these recent ad hoc measures in a large degree are Socialistic in nature rather than democratic.. Although I do support the overall plan to prop up America’s economy, I am only willing to do so if there are adequate safeguards and controls, those offending parties are isolated from control of the money, and there is adequate collateral and protection. It is only by our government leading the way in an ethical manner and with sound business practices will this economy be able to expeditiously turn around.

The proposed federal bailout has left the whole of the U.S. and the media frenzy surrounding the bad economic news asking the wrong question. A bailout unfortunately will be required to shore up the debacle of the housing mess caused by the greed of CEO’s who focused on market share rather than prudence. Any business owner who fails to successfully guide their business suffers; there is no bailout for the millions of us who go it alone, whether we own our own business or solely manage our family household budget. There is no one around, if we fail, to pick us up and make us whole while allowing us to go forward as if nothing had ever happened.

The housing/financing crisis has focused on the economy as well as it should. However, no CEO/President/Vice-President of any of the failing financial institutions should inherit even one dollar of those belonging to U.S. taxpayers. Let’s add accountability back to the mix of integrity and do away with impractical golden parachutes that benefit those who have failed. Let’s add common sense to the compensation plans of all public companies limiting the seemingly endless array of millions paid for failure and average performance. To this end, there should also be pragmatic limits to compensation even in light of even soaring growth and profitability. Let’s bring good sense back to business America, with legislation if need be, to ensure the continued success of America as the world’s dominant economic force.

Although I am a fervent believer in our federal government doing what it must in order to shore up our declining markets, I am equally as zealous to doing so in a method and fashion that will add controls, rules and guidelines to ensure that monies are used wisely. To date the mortgage lending industry itself has proved to be incapable run its own affairs and to judiciously run its business in a way that justifies trust and confidence. As such we have no credible assurance that the very decision makers who not only got themselves into this mess, but also the whole of the American economy, are able to effectively ride herd over the monies and opportunities the bailout will afford. Accordingly we need to demand as a condition of the bailout that the very business leaders/CEO’s  who created this mess are not in power if they are to receive any of the proceeds to their firm or organization.

A bailout unfortunately is necessary. However, it should be done with much more insight than that of the people who created it as they alone created the problem; they should and cannot be part of the solution. The CEO’s and leadership who led these lending institutions to financial ruin should find new work more suitable to their skill set and not  the financial well being or a large monetary institution.  As bailout hearings go on today in the U.S. Senate, we need to focus on a plan that not only deals with the root cause of such catastrophic losses but also to provide a clear and comprehensive plan for the present as well as the future.  Succinct and direct oversight should be established so that all taxpayer money is spent wisely and with adequate safeguards. As we all are required to run our businesses and households with sound economic policies lest we bankrupt, so should we look to our leadership to govern and legislate our money accordingly. Let us all pray our sound economic decisions to be reached in an intelligent and well thought out plan during these tough economic times.

In an effort to present a comprehensively answer the U.S. financial crisis, the FED’s are presenting a plan for the government to buy all of the banks/financial lenders bad debts/housing loans. So far financial decisions by the FED have been made on an ad hoc basis which has increased rather than decreasing volatility in the market. However, on the news of this recent announcement the DOW soared.

Also, in an effort to keep money in the economy, there has been much discussion about the FED also guaranteeing rates on money market mutual funds. Money Market funds provide much of the needed financial capital needed for the market to operate and this proposal would help provide assurances and needed comfort to ensure fund capital preservation, which should dramatically slow the withdrawal of these monies.

The SEC (Securities & Exchange Commission) has just announced that it is voiding short sales, which are when investors purchase stock betting that the stock will go down in value, which will should serve to bolster consumer confidence and decrease market volatility.

By all accounts this economic downturn  is by far the worst since the Great Depression as our economy struggles with a financial Armageddon. However, these recent announcements are a great step in beginning to turn the tide towards settling the markets and reassuring both lenders, markets, and our citizenry.

The 15th of October if the final deadline the IRS has for clients to file their 2007 personal returns. Often taxpayers fail to remember that an extension to file is not an extension to pay, accordingly taxpayers frequently are surprised to discover that late penalties/interest are assessed/and due for late payment even though a tax return has been properly/timely extended and filed.

During the second World War, the U.S. government/IRS changed the rules of paying personal tax bill obligations so that all taxpayers became responsible to pay their taxes as they go rather than waiting until the end of the year filing to pay, which was allowed before this change. Therefore all taxpayers are now responsible to ensure that all taxes are paid as the monies/profits/taxable income is generated.

To avoid unnecessary payment of additional penalties and interest on top of the taxes, which may be due, taxpayers should be doing tax planning now for the 2008 tax year. At a minimum I suggest that this process/issue should be addressed at least twice annually and more often for situations which are subject to/incurring rapid and substantive change.

In great economic times and overall positive growth in our economy many loans which might seem to be a great way to reduce one’s monthly outgo/mortgage payment, can become a purveyor and indicator of future financial trouble. Though I personally have acquired a home mortgage seven times in my life I have never selected any of the below loans as the best option. I would always rather pay a bit more on the front-end that have a disaster on the back-end resulting in the loss of my home or worse yet; bankruptcy.  Those all of the below loans have their place and are often well suited to a sound financing decision, all of them should result in a potential borrower having even more liquidity and a smaller debt to income ration that when using a fixed rate home mortgage loan.

Interest Only Loans

As our society continues to be mobile, interest only loans have gained in popularity. These loans require the borrower to pay only the accrued interest due, with no principal payments being required. Borrowers considering interest only loans should exercise care to ensure that they do not purchase more than they can afford just because they might qualify. Remember the old adage that “creative financing” means you probably cannot afford it. These loans have become very popular on vacation or second homes, where the growth rate of the value of the property might be even higher than on other real estate.  If losing this loan type it is best to always have enough readily available capital elsewhere, which can be used to pay the loan off in full if needed.

Reverse Mortgages

Reverse Mortgages are also gaining in popularity as our population ages. These loans allow borrowers to gain access to the equity in their homes without having to move. Reverse Mortgages especially provide a way for seniors/ individuals living on a fixed income to gain access to their net worth by converting it to cash flow that the borrower can use to pay their normal monthly expenses. Like other loans, the loan amount of a reverse mortgage can never exceed the value of the property. Care should be exercised to ensure that payments will last throughout one’s lifetime. These loans should be viewed as incremental dollars to those otherwise being set aside for retirement and only taken as a matter of last resort for your financing needs which will always remain unpredictable.

Variable Rate Loans

Variable or adjustable rate loans continue to be popular and have proved, in spite of their ability to fluctuate, to be somewhat troubling for borrowers who initially gain access to lower interest rates only to see those rates fluctuate upwards causing financial instability. While these loans, with the interest rate changes and annual caps, could eventually exceed the percentage paid on a fixed rate loan, they have proved to be problematic in providing suitable financing for purchasers.

For all mortgage and substantive financial and lending decisions discuss them first with your CPA and financial adviser as they main well provide the wisdom to avoid and avert disaster.

Nehemiah, a layman, lived approximately 500 B.C. His story is told in the Old Testament which I have spent considerable time in studying as of late in writing two books. A Voice of One, Nehemiah’s Prayer and Overcoming Life’s 911’s, Job’s Journey. In reviewing these books especially I find many things about these stories I have been previously unaware of. Originally believing the God of the Old Testament to be harsh and judgmental, I have learned the error of my understanding and a God who loved his people offering grace, teaching faith, and an unyielding love. 

In our frailty and left to our own devices we often will stray from the Word choosing a path which is not ordained by our heavenly creator. By leaning on God’s word, the Bible, we have a standard and benchmark in which to live our life by. In frequently going back to God’s word we are able to more aptly see his hand in our lives and the miracles which occur along its way. Some years ago I began to journal keeping a written account of events in my life, fears and troubles I faced, and prayer requests. By doing so I was more able to look back and begin to see God’s hand more clearly than ever before. My journal covers all aspects of my life including my wife and children and my walk with God detailing all aspects of the highs as well as the lows. In taking time to detail my concerns, toils, and tribulations I am able to begin to look back on these events with more clarity than ever before allowing me to see answered prayers more clearly. We are exhorted by Jesus to ask anything knowing if it is in accordance with God’s will that he will answer us. My prayers are sometimes not answered the way I would have preferred but with the added advantage of looking back I am able to gain perspective help me to be able to illuminate God’s hand. Being able to see the past, present, and future God knows what is best for me and my life. Just as diamond is polished to perfection so are we refined to be more like him.

By living our life in accordance with his precepts we come closer and face to face with who he truly made us be. Our God is one of order and not happenstance. In journeying through this life we are able to fulfill our God ordained appointments keeping those meetings he has for us along the way. Maybe there are those about us who are in need of our hearts, experiences, and helping hand to comfort those about us. Just as Nehemiah was able to look after those about him so are we called to help those about us who are in need and hurting. In our service to others we learn more about God’s love and grace growing deeper in our faith.

Leaning not on our own understanding but seeking after God’s wisdom we are more aptly to be able to accomplish great things in God’s name. By bringing God into our workplace our love of others is able to permeate through us sharing the good news of Jesus Christ. I have learned by being more bold in my faith it easier to be who God has always made me to be. Seeking after him daily I find father who loves me unconditionally. It was not until my daughter was born I was able to begin to get a grasp of how great his love is for his people. Though God will never violate the free will he has given us, he stands at the door of our heart gently knocking calling out our name.

Just as a runner trains to run the race set out before him so should we train our soul and spirit. By putting on the very armor of God we will find super natural strength lifting us in our direst time of need. I have learned to lean on God during those trials seeking after him with all my might. In 2003 we went on a family mission trip to Jamaica to reach out to those less fortunate. It was in the midst of this time my family came to claim Psalm 27 as our life verse to guide us along life’s way. My beautiful bride that year for Christmas framed  in calligraphy Psalm 27 where it is proudly displayed in our home. Reading these words reminds me of a creator who is aware of my fears, strengthens my spirit, while making me more steadfast in his ways. Read these verses slowly over and over letting each divinely ordained word permeate your very being teaching you of his majesty, love, and commitment to his people; you and I.

Psalm 27

The LORD is my light and my salvation— whom shall I fear? The LORD is the stronghold of my life—of whom shall I be afraid?   When evil men advance against me to devour my flesh, when my enemies and my foes attack me, they will stumble and fall. Though an army besiege me, my heart will not fear; though war break out against me, even then will I be confident. One thing I ask of the LORD, this is what I seek:  that I may dwell in the house of the LORD all the days of my life,  to gaze upon the beauty of the LORD and to seek him in his temple. For in the day of trouble he will keep me safe in his dwelling; he will hide me in the shelter of his tabernacle and set me high upon a rock. Then my head will be exalted above the enemies who surround me; at his tabernacle will I sacrifice with shouts of joy; I will sing and make music to the LORD.  Hear my voice when I call, O LORD;  be merciful to me and answer me.  My heart says of you, “Seek his face!” Your face, LORD, I will seek. Do not hide your face from me, do not turn your servant away in anger;  you have been my helper. Do not reject me or forsake me, O God my Savior. Though my father and mother forsake me, the LORD will receive me.  Teach me your way, O LORD; lead me in a straight path because of my oppressors. Do not turn me over to the desire of my foes, for false witnesses rise up against me, breathing out violence. I am still confident of this: I will see the goodness of the LORD in the land of the living. Wait for the LORD;        be strong and take heart and wait for the LORD.

Seek after God with all your heart. Seek his ways allowing him to guide your very steps along your journey. You heavenly father desires the very best for you and your life. Right now, today, God is drawing you ever closer to Him and his kingdom. Wherever you are, whatever is going on in your life, God cares. Call out to him and the Lion of Judah, the Great I Am will hear you. By beckoning to the great helper, the Holy Spirit, we are able to tap into the strength of the Lord, one which surpasses all understanding.

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OJ Simpson. Who is he. No longer a football icon, but confirmed at least in civil court, by a preponderance of the evidence, to be civilly liable for millions. Granted in perhaps one of the rides of the century, his white Bronco fled from police across the city and the televisions of a nation. OJ for a while, captured our attention, thoughts, and eyes as we were attentively tuned in the “trial of the century.” Perhaps set fee, in the criminal trial, merely by the words “if the gloves do not fit; you must acquit.”

However today the news is different than about the OJ during the media frenzy surrounding his criminal trial for murder. Today OJ is a non-issue, a non-entity who does not warrant our interest or concern. Accordingly when Fox, CNN, CBS, NBC, etc. begin their news coverage of this tainted past, change the channel, turn off the set and ignore all OJ news coverage. I believe in a live and be with my fellow man, and I mean no harm; I am just tired of hearing anything about him.

The U.S. government has just bailed out AIG Insurance Company to the tune of an eighty-five billion dollar bridge loan. As opposed the recent bankruptcy of Lehman Brothers for which our government took a tough love stand by not helping Lehman Bros. avoid bankruptcy, this time opted to grant the short-term financing need by AIG. This change of heart was widely believed to be required as a result of the mass of international loans and insurance policies/coverage AIG had internationally, believing the about to be less that the resulting fallout had the company gone under.

Unlike some of the past bailouts which consisted of dollars being given to Fannie Mae and Freddie Mac, the AIG handout was a loan which is tentatively to be paid back in two years at a rate of 11.3%. The loan was secured by eighty percent of AIG’s stock allowing our federal government to seize the company and control if need be, in the event of a default. Pray for our leaders at this time to have  a wise and judicious hand in making what now amounts to nearly a trillion dollars of obligations recently made by our federal government for which each of us as taxpayers will ultimately have to pay.