There are a number of tax provisions expiring in 2013.  Some of them impact individuals and others businesses.  Here are a few notable ones that may impact you:


  1. “Section 179” expense is widely known.  It allows businesses to expense the acquisition of business property, such as equipment.  There are some limitations, however, on its use.  The last few years have been generous.  Businesses are permitted in 2013 to write-off up to $500,000 of business property purchased during the year.  However, to the extent such purchases exceed $2,000,000, there is a dollar-for-dollar reduction in the amount of Section 179 expense that is permitted.  This changes in 2014!  Starting in 2014, the maximum Section 179 expense is reduced to $25,000.  To the extent property purchased during the year exceeds $200,000, there is a dollar-for-dollar reduction in the permitted amount of Section 179 expense.
    1. Recommendation: If you’re planning a big capital expansion in the near future, try to bundle it in 2013.
    2. Bonus deprecation in the amount of 50% of the cost of qualified property may be expensed in 2013.  In 2014, it is no more.
      1. Recommendation: As with Section 179 expense, consider pushing  capital expansion to 2013, if you can.
      2. ALSO: There are advantages to the 50% bonus depreciation deduction versus taking Section 179 expense.  Please call me to discuss.


  1. Charitable contributions up to a total of $100,000, made directly from your IRA are permitted in 2013 if you’re over 70 ½ years of age.  These distributions, called “qualified charitable distributions”, are not counted towards your income, nor can they be deducted as an itemized deduction on Schedule A.  They are applied to your Required Minimum Distributions (RMD) for the year.  There are numerous benefits.  For instance, such distributions do not increase adjusted gross income, which is a trigger that, at certain levels, reduce tax benefits and increase tax.   In addition, for those who don’t itemize, charitable contributions provide no benefit.  While a direct contribution to a charity from your IRA provides no tax benefit, nor does it increase income.  This tax provision EXPIRES at the end of 2013. 
  2. For 2013, but NOT for subsequent years, Qualified Conservation Contributions are permitted up to 50% of Adjusted Gross Income.  Amounts in excess may be carried-forward 15 years.  For years AFTER 2013, the maximum contribution is limited up to 30% of Adjusted Gross Income and amounts in excess may be carried-forward for only 3 years.
  3. 2013 is the last year when an S-corporation shareholder may reduce his or her basis in the S-corporation by the pro-rata adjusted basis of the asset contributed by the S-corporation to a charity.  Starting again in 2014, the S-corporation shareholder will have to reduce his or her basis by the pro-rata share of the fair market value of the asset contributed.  The 2013 tax law is a good deal because while the taxpayer gets to deduct the value of the asset (which is presumably greater than its basis), the unrealized gain embedded in the contribution doesn’t impact his or her stock basis, which will come into play when the stock is eventually sold.  While the tax benefit from the contribution is the same in 2013 and 2014, the basis in the shareholder’s S-corporation stock is higher if the charitable contribution is made in 2013 than if made in 2014.


I’d say most taxpayers in the U.S. have fairly predictable federal and state income tax liabilities.  While there’s always change, those whose tax returns are dominated by W-2 income manage to stay ahead of the game by withholding through their employers.

The folks who have problems are those whose income is primarily self-employment related or, for the lucky few, attributable to investment income. 

I’m keenly aware that people find tax penalties abhorrent.  It’s like absentmindedly missing a credit card payment only to be dinged for interest unnecessarily.  I know it drives me crazy, too.  However, as of today, interest rates on underpaid estimated tax (arising from the failure to pay the proper amount of estimated taxes on time) are historically low.  This estimated tax penalty, which is calculated as if the government has loaned YOU the tax you pay to them, is in essence interest expense on the underpayment.   The amount depends on the amount of the underpayment and how long it’s been outstanding.  While it can seem like a lot of money (any amount is too much!) it pales in comparison to what I’ve observed way too many times: and that is, an unanticipated income tax liability that becomes known to the taxpayer only days before it’s due. That, friends, is a heart-sinker.

Forewarned is forearmed.  Spend a little time in October estimating your tax responsibility due on April 15th of the next year and, while the outcome may not be pleasant, at least you’ve given yourself the opportunity to deal with it.


Bobcat Bytes

When last I left you, I posed the question, why will Boris respond to invitations to play, but absent enticements, like food, getting him to do anything else ranges from unlikely to absolutely-don’t-count-on-it?  And, having answered that, does it give us a clue as to the evolution of adaptive behavior, not only for cats, but for humans, too? 

My acquaintance with Boris has led me to the conclusion that behavioral traits of cats and people (probably between all sorts of animals and people) are far more related than we think.  I thought a lot about Boris’ inclination to engage in play and exactly what that play is all about.

First, if you’ve never given it much thought, “play” is a creative activity.  It requires imagination and pretending.  The “play” is representative of some other highly meaningful behavior.  So, take Boris, for example.  When he’s chasing a rope across his cage he exhibits the sort of behavior you’d expect to see in the wild.  Bobcats use ambush as a primary means of creating advantage.  They hide behind things, get prepared to pounce and when the moment is right, accelerate at warp speed, surprising the unsuspecting prey with overwhelming power.  Isn’t that something?  That’s how Boris plays, too!  He LIKES to play that way!  It’s innate.  He takes to it naturally.  It’s what comes out when he scratches the itch to play.

There are a couple of interesting elements to this.  First, of course, is the very fact that bobcats and domestic cats, have an imagination, as humans do.  And, I’ll bet cats aren’t alone.  Up and down the food chain are animals that like to play.  Some aren’t too smart and, compared to humans, can’t hold a candle to our computational ability.  But still, they’re imagining, and that’s the point.  I think imagining is essential to learning.  It allows organisms that are capable of imagining to extrapolate beyond their immediate experience, into the future.  And, by the way, I can think of a few species of fish that are that way, too.

Second, when I think of Boris when he’s playing I think I can define what he’s imagining.  He’s usually thinking about hunting.  For purposes of this discussion, let’s decide that’s what he’s up to.  Hunting is the primary means by which wild cats feed themselves.  If they don’t hunt, they don’t eat.  If they don’t eat, they don’t live.  Pretty straight-forward, right?  OK, here’s the million dollar question: Even if I agree that cats that don’t hunt don’t live, what is the primary motivation for cats to hunt?  This is Steve’s opinion, remember.  And, I’m just an accountant who happens to hang-out with a wild cat.  But, I think the reason cats hunt is so beautifully adaptive and rooted in evolution that I’m about 100% sure I’m right.

The real reason cats are motivated to hunt is not because they have to, it’s because they like to.  And, it’s a darned good thing they do.  If they didn’t, they wouldn’t be much good at it.  Which leads me to a companion question:   All things being equal, which cat is a better hunter?  The cat that really, really likes to hunt or the cat that’s luke-warm about it?  And finally, the ultimate question:  Which cat — the one that really, really likes to hunt, versus the one that can take it or leave it — is more apt to survive and reproduce?

There. I rest my case.


Posted in FISHBYTES, PERSONALBYTES | Comments Off on Bobcat Bytes

Fish Bytes

OK. This isn’t about fish. It’s about a cat named Boris and maybe some other stuff, too.

A little known and useless fact about me is my over-the-top love of animals wild or domestic. Dogs, cats, raccoons, squirrels, chipmunks and up the food chain, it doesn’t matter. The ones that really get me are the large, wild predators: raptors, wolves, coyotes, bear, and, of course wild cats of all sorts. There’s not a one of them I wouldn’t call-out in my best, non-threatening falsetto, “Here little wolfy, wolfy. Look what I got for you!”
So, when I discovered my friend Rob Carmichael, the curator of the incredible Wildlife Discovery Center, had managed to adopt a bobcat I was on the phone pleading for a chance to meet the critter. Rob is all about introducing the public to the wonders of the wild animals of our world, near and far. We made a date for a cold, snowy day. I showed-up with treats and a toy, having little idea what appeals to a wild cat. Rob comes into the cage with me, I suppose to referee the whole affair. He introduces me to Boris the Bobcat. Bobcats are part of the Lynx family. His tail is short and his ears are tufted. Really, a beautiful animal and very reminiscent of a domestic cat except two or three times the size. The moments slipped away too fast and it was time to go. Funny thing, it kind of broke my heart. I wanted to hang around, play with the furry-fellow until the snow melted in the spring.

I guess I wasn’t so subtle about asking if I could care for the big hair-ball. At the time, Rob had it covered. I think, secretly, Rob was spending his free time playing with Boris. Heck! That’s what I’d do!

Anyway, fast forward a couple of years. Rob’s life has become more and more complicated. The Wildlife Discovery Center has never been busier and it’s an all-volunteer organization, save for Rob and his organizational guru, Sandy Kooper. One day I get an email from Rob asking if I’d be interested in caring for Boris. WOW! Sure would!

I’m guessing this is complex work. I wonder how long the training period is. I’ve been looking after animals of one sort or another, my whole life but, this is different, right? I show-up on a cold winter day. Rob explains the protocol for entering and exiting the cage. He grabs a thawed rat from the fridge and off we go. “This is the key to his cage. Here’re the garbage bags to pick-up the poop and make sure he has water. Any questions? No? Let me know if you have any problems.” That’s it? Well…OK!!

I’d been given the keys to the kingdom. It doesn’t get any better than this. Man! I’d pay HIM to look after Boris and I get to do it free!! What a deal!!

It’s been seven months since Boris and I became acquainted. I’ve learned a lot about Boris and about wild animals, in general, which I’ll share with you in future installments. I’ve learned a lot about myself, too. I’m a natural zoo keep. I always figured everybody has natural inclinations to animals and the only difference between me and everyone else is I’m a bit more talkative about it. For better or for worse (and there are definitely some downsides to the way I am), that’s not the case. I wouldn’t call what I’ve got a “calling”, but you get the idea. I guess you’d say I’m an animal behaviorist – I look for meaning in an animal’s behavior. And, I’m oddly good at it. I haven’t yet been accused of anthropomorphism, RIGHT TO MY FACE. But, look it up in the dictionary and decide for yourself. Wild animals like Boris aren’t people. But, if you look real closely you recognize common behaviors. And, why not? Take the critter and stick him on two legs instead of four, put a pair of spectacles on him and then see what you think. Looks a little more familiar?

I was planning on leaving this for later, but may as well lay it out now. Boris will do anything for a piece of cheese. “No cheese? Sorry Steve, I’m too tired.” But, Steve’s not that dumb. Boris is a cat and cats like to play. Wave something in front of him and he’s bound to take a swipe at it, cheese or no cheese. Why is that? That’s the question for you: Why? And, what does it say about Boris the Bobcat, Steve the Human and You the Reader?

To be continued…
Boris playing

Just like any other cat he loves boxes.

Just like any other cat he loves boxes.

Boris on a chair
Keeping an eye on someone interesting.

Keeping an eye on someone interesting.

Posted in FISHBYTES | Comments Off on Fish Bytes

Cats and Quakes

We have cats in our house.  That’s not the same as saying “we have mice in our house”.  Some people, who don’t like cats, might think it is.  And, I understand their feeling.  After all, we do have quite a number of cats running around. 

 I’ve observed that critters have complex personalities.  Fish of course, but dogs too.  It may be less obvious, but I’ve met some very deep fish.   

 Cats, like humans, are better or worse at a whole range of activities.  Jumping, running and so on.  It’s difficult to predict when one will be better at one thing than another. 

 We have one cat named Brady.  He’s a small, yellow tabby.  Our daughter Cissy, who saved him when he was a kitten, said native intelligence is not his adaptive advantage. He’s somewhere in the middle of the pecking order probably due to the dimness of his bulb, his size and the customary cluelessness with which he leads his life.  I like him, though.  Don’t get me wrong.

 We humans are fairly certain of our place on nature’s ladder – the top rung.  We are forever in cynical disbelief, waiting for the “show me” moment to clear things up.  But, the truth is there are some things we just can’t see, hear, feel or smell.  Some of these very same things are those that our companion cats sense like a two ton elephant lounging in a bathtub. 

 I can tell you for sure, that earthquakes are one of them.  Maybe not all cats, because as I mentioned, not all house cats are constructed the same.  Although, it’s quite possible that where one says, “Gee the floor is trembling.  Hmmm.  I wonder if there’s any food in my bowl?” another might say, “OH MY GOD!  OH MY GOD! THE FLOOR IS TREMBLING!  I’M GOING TO DIE! I’M GOING TO DIE!”  I, myself, am not a good enough judge of character to predict which cat will be which.  But, here’s my story anyway:

 Usually, waking up in the morning in the middle of the week isn’t something I tuck away in my memory to dwell upon later.  I staggered over to let the cats in.  They tumbled across the threshold like cords of wood stacked-up against the door.  I beat a hasty retreat to the bathroom before they had the bright idea of joining me.  It’s a race that happens every morning.  If I’m just a little slow I have cats draped all over the bathroom peering at me with hungry, demanding eyes.  So, I shut myself in and went about my business.  When the last hair was plastered to my head I hung up the towel and opened the bathroom door.

 Poor Brady shot past me like he’d been catapulted from a sling shot.  Really, I’ve never seen a cat move so fast.  Several of the others were standing around looking puzzled. 

 “I don’t know?”, they shrugged. 

 “Huh!” I thought to myself.  What’s wrong with him? 

 I went downstairs to the kitchen.  “Hey, Kathleen.  Anything wrong with Brady?”  No?  Well…OK.

 After breakfast, I tried to find him.  It was as if he’d disappeared.  This worried me on two levels.  First, I was really worried for his safety.  What could ever have happened to him?  Second, seeing how I was the last to see him, my recollection ended about the time he zoomed by me.  It was as if a whole slice of memory had been erased.  Not good on a personal level.

 I have to admit, once I got thinking about it, I was a lot more worried about myself.  Which is selfish.  The associated guilt provoked me to look more carefully.  Eventually I found him under the bed.  After a little coaxing he emerged with no visible injury other than a pair of eyes rotating wildly in his head.

 Later that morning I read on the internet an earth quake had hit central Indiana.

 Wow.  That’s amazing!  I hadn’t felt a thing.  Nor had Kathleen.  Poor, dimwitted Brady, on the other hand, felt the jilt through every sinew of his body.  I wondered about the other cats, although, as mentioned, it’s pretty hard to tell who’s feeling what.  Certainly, in our household, only Brady felt enroute to kingdom come.

 But, I’ll bet Brady wasn’t the only one locked on the thought he was about to die.  I’ve heard that dogs and birds and deer and all other manner of wildlife and domestic creatures feel the inner rumblings of the earth.  We humans need to fall into a deep crack in the ground before believing Mother Nature is toying with us. 

 We’re just so dumb. 

 But, we think we’re so smart.

 Maybe not smarter than Brady.

Posted in PERSONALBYTES | Comments Off on Cats and Quakes

Saving for Retirement: Dissecting the Past and a Warning for the Future

A vast swath of baby boomers (and others, frankly) have likely made a mess of their retirement by failing to adequately save.   What have they failed to do?  To examine that and to provide a roadmap for others to follow, I’ve created an analysis that estimates the amount required to save during pre-retirement in order to have a certain annual income during retirement.

For purposes of my analysis, I have employed only three variables.  They are:

  1. Number of years of savings prior to retirement,
  2. Rate of return on investment savings before retirement, and
  3. Rate of return on investment savings after retirement.

For sake of argument, we’re dealing with a married couple who retire at age 65.  Their expected remaining life is 20 years.  However, in the event they goof and live until 105 years of age, my analysis will allow them to do that, but not a day longer.  In other words, if the couple lives to 105 (let’s hope they don’t) they will have exhausted their savings.  Also, let’s say that social security generates $25,000 of annual income for both.  I’m going to assume the couple needs $80,000 a year on which to live (such living expenses include amounts owed for federal and state income taxes).  As a result, the couple’s investment savings will need to generate $55,000 of investment income ($80,000 total income per-year minus $25,000 of social security equals $55,000 of investment income).

Here are the variables:

Years of savings: 40, 30, 20, 10
Rate of return on investment savings pre-retirement: 10%, 8%, 6%, 4%
Rate of return on investment savings post-retirement: 10%, 8%, 6%, 4%


Here’s how to read it:

Example A

If the rate of return on your investments during pre-retirement years is 10%, AND you’ve been saving regularly for 40 years AND the rate of return in post-retirement years is 10% THEN you need to save only $1,215 per year in order to generate $55,000 a year in post-retirement investment income, which along with social security will generate $80,000 of total post-retirement income per year. 

Example B

However, if the rate of return on your investments during pre-retirement years is only 4% AND you’ve been saving regularly for only 10 years AND the rate of return in post-retirement years is only 4% THEN you need to save $90,671 per year for ten years in order to generate $55,000 a year in post-retirement  investment income, which along with social security will generate $80,000 of total post-retirement income per year. 

Yikes!  That means if I start saving only 10 years before I retire, I may need to put away as much as $90,000 per year for 10 years just so I can live on $80,000 per year?  That’s scary.  Not to mention, it’s not as if two people can live like kings on $80,000 a year. 

And that’s the problem.  If you’re ten years from retirement and haven’t started saving, a rich, long-lost, aged spinster aunt, with you her remaining relative, better be in your future.

Please call or email if you need  assistance reading the chart.

Posted in BIZBYTES, PERSONALBYTES | Comments Off on Saving for Retirement: Dissecting the Past and a Warning for the Future

“Extenders” from the Recent Tax Law Change

Here’s what’s in this article:

  • Making A Charitable Contribution From Your IRA
  • Itemized Deductions Are Not Taken Away As Adjusted Gross Income Rises!
  • The Student Loan Interest Deduction Remains Available for a Wide Range of Taxpayers.
  • Enhanced Deduction for Charitable Contributions of Real Property for Conservation Purposes is Extended
  • Child Tax Credit Enhancements Extended
  • The American Opportunity Credit (modified Hope credit) is Extended to Apply to Tax Years 2011 and 2012
  • Residential Energy Property Credit

Making A Charitable Contribution From Your IRA

If you’re taking required minimum distributions (“RMDs”) from your IRA or 401(k) you may be interested in this.  RMDs may be made directly to a charitable organization (501(c)(3)) without the amount of the distribution first considered income and then, as you contribute it,  an itemized deduction.  In past years this has been particularly helpful as it may help minimize adjusted gross income (AGI).  There are numerous deductions available to taxpayers that are lost or reduced as AGI increases.  For 2011, keep your AGI to a minimum and maximize your deductions.  Make ALL your charitable contributions from your IRA or 401(k).  You must be over 70 ½ .  And, you can distribute no more than $100,000 to charities from your IRA or 401(k).

Itemized Deductions Are Not Taken Away As Adjusted Gross Income Rises! 

It used to be that after some threshold amount of AGI, the taxpayer would begin to lose itemized deductions.  For 2011 and 2012 this rule is suspended!  In past years taxpayers could lose up to 80% of their itemized deductions.  This rule will be resurrected in 2013 if not renewed before then.

 The Student Loan Interest Deduction Remains Available for a Wide Range of Taxpayers. 

The increase in the phaseout ranges (based on Adjusted Gross Income) for eligibility for the student loan interest deduction (Code Sec. 221(b)) has been extended for two years through 2012. The 60-month limitation as to the number of months during which interest paid on a student loan is deductible and the restriction that makes voluntary payments of interest nondeductible remain repealed for two more years through 2012.  An eligible taxpayer can deduct qualified interest on a qualified loan for an eligible student’s qualified educational expenses at an eligible institution. For tax years beginning in 2010 (Rev. Proc. 2009-50, I.R.B. 2009-45, 617), the $2,500 maximum deduction for interest paid on qualified education loans is reduced when modified AGI exceeds $60,000 ($120,000 for joint returns), and is completely eliminated when modified AGI is $75,000 or more ($150,000 or more for joint returns).

 Enhanced Deduction for Charitable Contributions of Real Property for Conservation Purposes is Extended

The Code contains several rules to encourage taxpayers to donate appreciated capital gain real property to qualified charities for conservation purposes. Specific provisions also encourage both corporate and individual farmers and ranchers to make “qualified conservation contributions.” Specifically, the deduction percentage limits are significantly raised and enhanced carry forward rules apply for charitable contributions of property for conservation purposes made in tax years beginning after December 31, 2005, and before January 1, 2010.  The enhanced deduction for charitable contributions of real property for conservation purposes (“qualified conservation contributions”) has been extended for two years and applies to contributions made through December 31, 2011.

Limitations on deductions. The amount of a deduction for charitable contributions of appreciated capital gain real property is limited to a percentage of the donor’s contribution base. The limitation is generally either 20 percent or 30 percent depending on the type of charitable organization receiving the donation (Code Sec. 170(b)(1)). However, the Pension Protection Act of 2006 (P.L. 109-280) increased the deduction limitation to 50 percent for qualified conservation contributions (Code Sec. 170(b)(1)(E)(i)).

Child Tax Credit Enhancements Extended

The $1,000 child tax credit amount per qualifying child has been extended two years, through December 31, 2012.

The American Opportunity Credit (modified Hope credit) is Extended to Apply to Tax Years 2011 and 2012

This includes the $2,500 maximum credit per eligible student, the higher income phaseout ranges of $80,000 – $90,000 for single filers ($160,000 – $180,000 for joint filers), the eligibility extension to the first four years of post-secondary education, the inclusion of text books and course materials as eligible expenses, and the 40 percent refundable credit component.

Residential Energy Property Credit

The residential energy property credit is extended for one year, through 2011. The credit amount is reduced to $500 and no more than $200 of the credit amount can be attributed to exterior windows and skylights.  Effective for property placed in service after December 31, 2010, an individual is entitled to a credit against tax in an amount equal to:

  • 10 percent of the amount paid or incurred for qualified energy efficiency improvements (building envelope components) installed during the tax year, and
  • the amount of residential energy property expenditures paid or incurred during the tax year (Code Sec. 25C(a), as amended by the Tax Relief Act of 2010).

The maximum credit allowable is $500 over the lifetime of the taxpayer.

Posted in TAXBYTES | Comments Off on “Extenders” from the Recent Tax Law Change

Sam and Ester

The blue sky and gentle breeze greeted Ester as she emerged from her egg in a nest on an island in a lake almost as far north in Minnesota as you can go.  Her mother and father peered down at her with blinking eyes, nustling away the broken bits of shell that clung to her.  Soon she was surrounded by many brothers and sisters, all with mouths agape waiting to be fed.  She and her siblings grew quickly and grew strong.  Both mother and father hovered over each, quick to feed and patient with each chick’s unending demands.  

Ester learned quickly.  Her mother and father protected the brood with a sturdy, unbending determination.  But, beyond the circle of her family the tragedy of desperate souls played out; brethren in pitched battles to save themselves and their young ones often failing calamitously.  Ester was the first of her siblings to fly.  Her extraordinary eyesight discovered all matter of food below.  Although she remained with her family, she ventured farther and farther as her confidence and self-determination grew.  She was a bird of decisiveness and understanding of her world.  At a young age she strived to lead rather than follow.  

Sam’s mother died shortly after his emerging.  She was small and desperate to feed her brood.  His father, a restless bird prone to fighting, was a poor provider.  Each hatchling clearly understood that survival was waged as much in the nest as outside of it.  Only Sam and his sister survived. 

Sam’s father was a very large bird and Sam clearly took after him.  It was not soon after Sam’s first flight that his father disappeared forever.  Sam spent his first season battling the adults for food and jockeying for the attention of females.  His size, intelligence and aggressiveness made him a bird to be reckoned with.  It was not long in his second season, having survived his first by shear will, that Sam won the right to pick the eligible female. 

The ice was out, just barely.  Sam stood on the shore, tall and straight, guarding spring’s abundance.  Many females had passed, nervous and without confidence.  Suddenly a female landed, calling out.  She stared at Sam with an unwavering glance.  The warming of the land had filled out her winter hunger.  She was a bird of uncommon beauty and strength.  There was a palpable charge that passed between them.  Sam approached.  Ester remained, unmoving.  Sam was puzzled at the feeling that jolted each sinew; an excitement he had never known.  Ester was riveted by the vision of Sam.  In her eyes he embodied the greatest of her species.  There was an indefinable quality that made her yearn for him as he did for her.  They stared at one other for timeless moments.  Sam offered her the bounty he guarded.  She accepted and from that time they would be forever linked.  In their every waking moment each would fill a corner of their consciousness with the other, their lives so intertwined as to merge two into one.  She was constant and tender, easing his anger and comforting him. He was courageous and loyal and shamelessly devoted.  She would sacrifice herself for her offspring and he would sacrifice himself for her.  They were willing companions forever, joyous in each other and in the beauty of the world and their creation.   It was a remarkable, mystical transformation, a second emergence.  They sang to one another deep into that first night until their voices filled the sky and the stars disappeared. 

And so it was for many years.  On this remote, fertile lake and under their stern eyes the young ones thrived.  The children and grandchildren gathered each spring and fall so that they were a mighty flock, their passing a shadow over the earth. 

 It had been a particularly brutal winter and food had been scarce for everyone.  It was time to return north.  Ester observed how the seasons had left their scars on Sam.  He was still a mighty bird but had grown slower and more deliberate, not so quick to fight and more tolerant of the young ones who challenged him.  But still, he gathered his brood for the long trip home, his call echoing among the marshes and wet lands.  There upon, there was a great rising of birds, a lifting off, a casting aside and a venturing forth. 

 As the multitude twisted north, Sam looked for Ester but did not see her.  He allowed himself to slip behind his grandson, a large bird, intelligent and ambitious.  Sam called to Ester but she was not among the gathering.  Returning to his winter roost he found her, waiting for him, expectant, love in her song.  He was puzzled.  He circled her many times, flying low, calling to her.  With great effort she lifted from the earth, following him as he traced the route they had taken many times.  She fell behind and he would slow until she reached him.  They rested frequently, each time for longer and longer.  Sam patiently waited for Ester.  He provided for both of them on their long journey home.  They finally arrived.  Their grandson had claimed the island that had been their nesting place for many seasons.  While Ester rested, Sam scoured the lake for a suitable location.  He came upon an abandoned nest, poorly constructed, but well hidden.  He led Ester there whereupon he began the ancient ritual of building.

 There was a fury in his actions.  In past years Ester had been their driving force.  Now, it was just he alone who must do the work of two.  Each time he would return to the nest she would rise to the edge and call out his name.  Each time, she grew weaker.  Finally, with the nest complete and Ester safely resting there, Sam stood over her, calling out to her, willing his life force enter her depleted body.  As night fell, Ester began to sing softly to Sam, like a lullaby, her sweet breath bathing him once more.  Soon both their voices mingled in harmony until, late in the night, Sam fell asleep, the song of his beloved caressing him.

 Sam dreamed of life’s beauty.  Sam dreamed of Ester.  He dreamed of long summer nights and moonlit skies, but tinged with a sadness that weighed more and more heavily until it awakened him in the early dawn.  As he had for every day these many years his first thought was of Ester.  She was beside him as she had been seemingly his entire life.  But, her spirit had fled.  She was no more.  Sam rested his head upon her back for a long while.  The sun gained angle in the sky and then descended, but Sam took no notice.  As the moon arced above, his love songs to her haunted the night sky. 

Sam sang his plaintiff song to Ester until the day he died.  The pain of Ester’s passing seemed to diminish over time.  But for every moment of beauty Sam witnessed, he did so alone.  And, although it was at those times he most felt the absence of Ester, he welcomed them as they brought remembrances of great happiness. 

Sam, like Ester, had the great fortune of dying painlessly in his sleep, his life’s work, his children, calling loudly to one another, one early spring night. 

Of course, this is a love story, not tragic but filled with all the exquisite wonders existence has to offer.   Life and love are great treasures, bounded by birth and death, their value sometimes best understood by the pain at their passing.  Sam and Ester lived lives of undying love and sacrifice.  We can look at Sam’s pain at the loss of Ester and ask this most important question, to which Sam would answer, if he could talk: 

“I would gladly exchange my life for one more moment, to breathe her sweet breath, to see her gaze upon me and to hear her song when I call out.” 

So, dear friends, may I wish your lives together be long and filled with the same love as Sam and Ester.  Though your days are numbered, may they be lived in blissful harmony in a world of happiness, peace and beauty.  And may you and yours multiply and flourish, casting indelible shadows on the earth each day of your passing.

Posted in PERSONALBYTES | Comments Off on Sam and Ester

Hibernation is NO Fun and How to Think About Expanding Your Business

I had an uplifting, sunshine filled experience yesterday, which I am pleased to share with you.  It’s been a long time, too!  A long time.  I telephoned a prospective client about their accounting and tax work.  The woman I spoke with is the office manager.  I already knew a bit about the company.  My first observation is how lucky the business owner to have as clear and perceptive a thinker as the office manager.  Really, she humbled me.  But, back to the reason for the call.  Their current accounting firm has not been proactive in providing general business guidance.  From the sound of it, they’re order-takers not order-makers.  The office manager said, “What I want you to do is tell me how a business like ours should be thinking about expanding”.  Music to my ears!  After two years of client cost-cutting and lay-offs, her request was like a fragrant, spring breeze. 

The economic times we’ve just lived through have certainly taught some lessons.  Regrettably, they’ve been imparted via the swift end of a two by four.  I suppose I could dust-off the product of previous thinking on the topic.  But, the times have changed me.  I need to put new ink to paper (or whatever the electronic equivalent is). 

I know I’m stepping out on the ledge a bit, but I think I’d like comments from those of you who read this.  Don’t feel bad if you decide not to.  But, it might be interesting if you do.

Anyway, here’s my first shot at “How To Think About Expanding Your Business”.  My purpose is to stimulate thinking on the subject.  Here’s my challenge: When asking yourself the questions I’ve posed and considering the statements I’ve made, on what side of the ledger do your responses fall?  Moving ahead?  Or, giving it a rest?  Some of the queries are either non-issues for you or already accounted for.  It’s the one’s you haven’t thought about, that resonate as important, that may provide value to the following.

You’ll notice I’ve written this in outline form, as if I were making a list.  Well, I’m a firm believer in the value of lists, especially those made in a hierarchical manner, which I’ve attempted to do here.  As you begin thinking about your expansion project I urge you to start making lists organized in a way that reflects the correct progression of events leading to a decision. 

What follows is rather lengthy.  To help you focus on the areas of particular interest, here’s the “table of contents”.

  1. Is this what you want to do with your life?
  2. What’s the idea?
  3. Making the Investment Decision
  4. The nature of demand
  5. Looking at the numbers and building analytical models
  6. Financing the expansion
  7. Exit strategy


  1. Is this what you want to do with your life?
    1.  As the business owner, what do you want to do with the rest of your life?  Expanding a business comes with risk (of course, I suppose failing to expand does as well).  There’s a gestation period before the seeds that have been planted take root.  You need to have the physical endurance, not to mention financial, to endure the ups and downs.  The time it takes for your new venture to take root is a function of the general business climate, the industry, your familiarity with the incremental business and the complexity of the business plan.  Here’s something to consider: Managing a business that’s sprouted down the hall from you is a lot easier than managing the same business located just far enough away it makes you think twice before traveling to it.  Imagine the complexity if it’s in another state, region, country, continent, different culture, language, laws, and so on.  What I’m trying to say is, is this really what you want to do?  Is your heart in it?  If it isn’t, better start thinking about plan “B”.  It’s easy to daydream the good stuff.  If you really want a taste of the stress you’re about to live with, make it a point to spend a few minutes in the dark quiet of the early morning thinking about all the things that could go wrong.  If you think it’s still a good idea after a few nights of this, you’re probably onto something.
  2. What’s the Idea?
    1.  The easiest idea is “more of the same”.  Often, expansion is driven by customer demand; legions of hardcore consumers beating on your door to sell them more products or services.  What a nice problem!  The nature of other ideas is more subtle: recognizing complementary products or services and similar skill sets or channels of distribution.  Some ideas are even further from one’s expertise but hang around your day dreams as something you always wanted to do.
  3. Making the Investment Decision
    1. What’s the basis upon which you’ll make a decision?
      1. Much of what follows is my recommendation of a process for evaluating your idea.  It’s obvious that to fully analyze the opportunity requires a significant amount of time.  I suppose there are those among us who have such a clear vision that additional pondering is unnecessary.  I know that’s not me.  It’s probably not you – especially considering what’s at stake.  Look, buying a new computer for the office is not the type of project I had in mind.  A new computing center might be, however.
      2. Objective or subjective?
        1. You can do it any way you want.  But, for my money I’ll take objective analysis as much as possible to minimize the risks such analysis is suited to uncovering.
      3. How much analytical detail do you want to commit to?
        1. There’s a cost/benefit to all this.  What’s your thinking?
          • Avoid the mistakes that are avoidable, or
          • Make hay while the sun is shining. 
    2. What’s your objective?  There’s a presumption this idea is going to result in something you want.  Make sure you have a pretty good idea of what that is.  In performing the analysis you should have some basis for comparing why you started pursuing the idea and the possibilities should you make it a reality.  Here are some things to think about:
      1. Make more money?  How much more
        1. When you examine the results of your projected financial analysis, what do you want to see?
          • In terms of sales, profits and cash flow?
          • In terms of liquidity and leverage?
            1. In one year, two years, four years?
      2. Improve the operations of your company to require less management from you?
      3. Make your company more marketable to others?
      4. Pursue an idea that’s been an itch you’ve wanted to scratch?     
      5. Have more fun?
      6. Spend more time at the office thereby staying out of the line-of-fire of your spouse?     
      7. Other??  (To the reader:  What are the other motivators prompting a decision to expand?)
    3. Do you include others in the decision-making process?
      1. Naturally, including others will come at a cost, but
      2. Time-to-market may dictate you get some help
    4. Stakeholders
      1. When making decisions about where your business is headed remember not to forget your stakeholders:
        1. Employers
        2. Family
        3. Vendors
        4. Customers
        5. Others ??
      2. Some groups will win; some will lose; some will win in certain ways but lose in others.
      3. Who do you need support from?
      4. How will you mitigate the loss of support
      5. Is there a scenario where the loss of support sinks the idea?
  4. The nature of demand.  I guess we’re getting into the realm of detail.  You’re planning on expanding due to customer demand.   The nature of the demand is to produce or provide services along lines similar to your existing business.
    1. Quality of demand
      1. Is it blip or is it long term?
        1. Something’s going on out there that’s increasing demand.
          • What is it?
          • Is it regional or national?
          • Is it momentary distortion of the supply chain
          • Will the demand be sustained long enough to make it worth your while
          • The macroeconomics of the decision is incredibly interesting.  There’s probably more than one source that can weigh in on this.  One particularly good source is the industry group to which you belong (or should belong!).  This won’t be the last time I say this, but ultimately you’re on your own in weighing the evidence you uncover.  Ultimately, the buck stops with your judgement
      2. Price elasticity
        1. I wonder how easily it will be for you to pass price increases to your customers?  Whether it’s labor or materials, the ease with which you can get your customers to absorb price increases may be the pivotal issue weighing on the success of your expansion. 
          • Are there alternatives to your product or service?
          • Where are your competitors located?
          • Are the competitors’ costs the same as yours?
          • Do the competitiors source their raw materials and labor as you do?
          • Is your competitors’ strategy the same as yours?
            1. For instance, do they use the product or service as a loss leader?
    2. Availability of “raw materials” (i.e., Cost of Goods or Cost of Sales)
      1. Materials availability and the demand curve
        1. Are materials widely available?
        2. Are there many sources or only a few?
        3. Is the local materials distribution point relative to your location an advantage or disadvantage?
        4. If materials are primarily sourced abroad, is the political climate friendly in those locations?
        5. Are material costs a large or small component of cost of sales?
        6. Does your inventory have many SKUs or few?
        7. Will the additional demand arising from your expansion impact the cost of materials.
      2. Labor availability and the demand curve
        1. Is your labor force highly skilled, trained or educated?
        2. Is there a reasonably easy access to labor?
        3. Is the educational infrastructure strong or weak in your community?
        4. Is labor a large or small component of cost of sales?
        5. Is the labor function susceptible to automation and technology?
        6. Is the skill-set in the labor force you will employ in high demand?
          • Does your region have other employers seeking the same skill set? 
          • If so, how will that influence the availability and cost of labor?
    3. Geography of demand
      1. Is it in your back yard or on the other side of the world?      
      2. Does where the demand comes from make it more or less expensive or more or less risky to do business?
    4. Condition of the economy
      1. Is the economy healthy? 
      2. Is your business sector healthy?
      3. Is your business sector trending up or down?
      4. Any bubbles out there?
      5. To what extent can demand be influenced by the economy?
      6. Where are interest rates going? 
        1. To what extent will an increase in interest rates impact your plan?
    5. Condition of customers
      1. Are your customers in good financial shape?
      2. Trending up or trending down?
      3.  Does the expansion expand your customer diversity?  Shrink it (i.e., create greater customer concentration)?
    6. Condition of suppliers
      1.  Are your suppliers in good financial shape?
      2. Trending up or trending down?
      3. Do you have a broad selection of suppliers?
      4. Can any one supplier cause trouble?
        1. How bad?
        2. How difficult is it to shift suppliers?
          • What’s the preliminary plan?
  5. Time to look at the numbers and building analytical models.
    1. Building analytical models using Excel to do the heavy lifting
      1. I like Excel.
        1. I’ve been using it for a long time. For doing the sort of analysis envisioned here it’s a great platform. The way I use it is to first develop the format (such as an income statement or project cost).
        2. Some items in the analysis are known and unlikely to change. By themselves, their numbers aren’t big enough to be worthy of additional consideration. However, there are other items that are so significant to the outcome they require special focus. These are the variables I want to manipulate.
        3. I will then create a companion worksheet within the file to serve as the index for the model where the variables (assumptions) are listed in individual fields. It’s a beautiful thing to play with the variables and see how the outcome changes.
        4. Other inter-connected analyses can be created that draw from the original (such as a statement of cash flow that will draw from the income statement).
        5. Additionally, you can perform multi-dimensional analyses by creating variables within the variables. For instance, within the cell representing labor cost are numerous factors you deem important to consider. And, within some of these factors may, in turn, be other factors to specifically account for. The result is that the single item on the analysis, “Labor” is built from numerous assumptions, which, themselves, are comprised of multiple assumptions.
      2. Beware of the Tower of Babel!
        1. There’s a tendency to create so much complexity the analysis loses its usefulness. The more variables built into the model, the less the user is able to take the output and use it intuitively. There’s a limit to how much the human brain can wrap itself around multiple variables and still make sense of it all.
        2. In addition, the complete flexibility of Excel is also its danger. One mistake in programming the Excel worksheet can lead to erroneous results that prove damaging.
      3. Using “if-then” statements to create a more meaningful analysis
        1. An “if-then” statement works like this:
          • If “sales” increases by greater than “x%” then increase “rent” by “y%”.
        2. The ability to program a level of sensitivity to activity level provides the opportunity to more closely model reality.
      4. Naturally, you’re not looking at a single point but rather a range of points which you, the decision-maker must decide best represents the likely outcome. As you change the variables take note of how the model changes. After you’ve made as many changes to the variables that makes sense, settle back with a cup of coffee (or whatever you happen to drink) and look at the results. Here’s where judgment comes into play. Where do you think reality lies in all of this?
      5. These sorts of analyses also allow you to evaluate risk. As sales declines, for instance, at what level is the business in serious trouble? Consider creating “low water” benchmarks that will signal if trouble is at your doorstep.
    2. Cost of the project
      1. This is really fun! It’s the first step in translating your plan into reality. Everybody likes to buy stuff. Here’s where we start thinking about it in concrete ways. You have a sense of what you want to accomplish. The question remains, what tools do you need? How much are they going to cost?
        1. Create a project plan.
          • What’s got to happen?
          • Who’s got to do what?
          • When is it going to happen?
      2. Costing the project
        1. The project plan doubles as the format for costing the project AND creating a budget.
        2. Here’s a great example of how Excel can be applied in the manner I’ve described above. A single cell in your main cost analysis can be supported with detail by as many subsidiary schedules as you deem appropriate.
        3. Identify what the idea will look like for purposes of understanding the components.
          1.  Describe the process of creating and distributing the product and/or service
            • Identify equipment and technology needs
            • Identify real estate needs
            • Identify suppliers
            • Identify staffing needs
            • Create a marketing plan
      3. Who’s going to do the research and analysis?
        1. You probably can’t do it all yourself.
          1. Who’s going to help?
          2. What are they going to do?
            • How much time will it take?
          3. How are you going to keep track of the progress of the project?
      4. Timelines and timing of investment capital needs
        1. Part of organizing the project is determining when things are supposed to happen. Often times A can’t happen before B. You need enough detail in this analysis to know when a problem arises during the course of the implementation.
        2. The timeline will also be useful in understanding when project costs need to be paid for. Forewarned is forearmed. Additionally, this analysis can be presented to a source of financing so they better understand the project and your needs. It also demonstrates your commitment to careful planning and cost control, which is music to a banker’s ears.
    3.  Projections
      1. Profit projection
        1. Obviously, there’s a range of responses you want to consider.
          • Optimistic
          • Realistic
          • Armageddon
        2. Through a certain activity level (i.e., sales volume) fixed costs remain unchanged except for inflation. What are the inflection points?
        3. Merely using current-year performance may not be an appropriate starting point. Each item on the income statement needs to be evaluated on the basis of “current reality”. This is particularly true for sales and cost-of-sales.
      2. Cash flow projection
        1. I can’t remember who told me this. My recollection is it was a pretty smart person who’d heard it from someone even smarter. The idea’s stuck with me. The question he asked is this:
          • “Do you know the reason why businesses fail?”
          • I had a bunch of reasons none of which was correct. Here’s the right answer:
            1. “They run out of cash”
            2. So true!
        2. There’s a difference between doing a cash flow projection for the next 90 days and one for the next year to three years.
          1. Predicting the actual cash balance at a point in time is an unsatisfying affair. It’s very difficult to do.
          2. Like so much of this analytical process, we ultimately weigh the actual results against our best judgment of realistic expectations. Those expectations can certainly be influenced by hard-core spread-sheet analysis but you have to be prepared for actual results that are broadly different.
          3. Maybe some thought on “why the difference” turns up more useful information for going forward than the projection itself.
          4. I think the more useful cash flow analysis is the longer-term one.
  6. Financing the expansion
    1. Who to go to?
      1. I’m presuming that despite your success you haven’t accumulated the capital necessary to finance this yourself. Frankly, debt capital is a lot cheaper. One of the points of extraordinary clarity to come from the economic crash of the last few years is the notion that banks were taking risks more appropriate for equity. Certainly, knowing what we now know, the banks failed to adequately charge for the risk they assumed. As the memory of the debacle begins to fade I sense a renewed appetite for risk on the part of banks. I wonder how long before we forget how poorly we matched risk and return and the acquisition of debt financing, once again, requires nothing more than proving you have a pulse.
      2. So, here are your choices:
        1. Banks (my first choice for small businesses)
        2. Private equity.
          • There’s lots of money out there chasing deals.
        3. Friends and family.
    2. What to expect?
      1. Debt and equity investors are simultaneously suspicious and greedy. I’d also say that under most circumstances they are, as we all are, optimistic. If you have a history of unbridled success investors will be falling all over themselves to give you money. If, on the other hand, there’s a stain or hiccup in your business past, their enthusiasm will be much, much more cloudy. The greater your successes, the more flexibility you have. The more problems in your past, the more locked-down and restricted will be your options, if any at all!
      2. Obviously, at least to me, you need competing options to consider. This process also provides an interesting benefit. I’m forever surprised at what I’ve learned about the lending/investment climate, about deal structuring and about the splendor of your business idea (or lack thereof) from speaking to third parties whose only interest is getting their money back and making a profit. It can be humbling.
    3. Assuring adequate capitalization and access to working capital.
      1. You need more than you think you do! Don’t kid yourself. Something’s going to go wrong.
        1. How much?
          • How lucky do you feel?
        2. How much more will your financing source go along with?
        3. Minimize the cost by having access to an additional amount on a line of credit specifically for this project.
          • Other than a commitment fee for making the money available, the cost is incurred only upon take-down of the funds.
    4. Term loans v. revolvers and fixed v. floating interest rates
      1. Here’s a maxim which makes a lot of sense to me: “Finance long-term assets with long-term liabilities and short term assets with short term liabilities”.
      2. That means if you expect the asset to last more than a year, finance it with a liability (or equity) commitment possessing a commensurate life.
      3. This applies to interest rates too. Lines of credit intended to finance accounts receivable are appropriate for floating interest rates. Lines of credit intended to finance assets such as equipment and real estate are appropriate for fixed interest rates.
      4. The interest rate yield curve reflects the nature of the risk. Interest rates rise as the repayment of the principal extends into the future.
      5. Don’t be lured into floating rates merely because they’re lower!
      6. Always ask for pre-payment rights. Work hard for rights without penalty. For many banks, it shouldn’t be a problem.
  7. Exit Strategy
    1. What’s your exit strategy?
    2. How does the new business affect your exit strategy?
      1. When does an exit strategy need to be implemented?
        1. Does the implementation of the new business conflict with the timeline of your exit strategy?
        2. Do you have enough time to implement your idea?
Posted in BIZBYTES | Comments Off on Hibernation is NO Fun and How to Think About Expanding Your Business

There’s No Ignoring It – It’s Winter Time

If anyone hasn’t noticed, it’s winter out there even though the calendar says it isn’t.  It’s December 14th and my truck thermometer said 4 degrees this morning.  Sitting in my warm office with the wind howling outside I admire how my incredible body has adjusted to this abominable weather.  It is superior breeding, a natural toughness; an outstanding physical attribute setting me apart from mere mortals.

Naturally, these delusions last only so long.  Within maybe 5 seconds of leaving the office I curse myself for not living in Florida.  No, even further south!  “Even Central America isn’t far enough, you idiot!”, I think to myself.  The thought of swaying palm trees almost makes me cry. 

My absolute, favorite TV commercial only plays around the Holidays.  It’s a picture of a thatched hut nestled on a sand beach surrounded by palm trees.  A familiar holiday tune kicks in when suddenly Christmas lights illuminate the darkness.  I can almost feel the warm, humid air caress my face.  This happens to be a beer commercial, by the way.  I remind myself how good it would taste on that beach.  And don’t I wish I had a cold one right now?  I seem to recall it’s a Budweiser spot.  I give them kudos for taking me to a faraway place.  But, frankly, their beer is pretty foul.  Still, you never know.  Someday, if I find myself on that secluded, tropical beach, maybe I’ll have a Bud.  This requires I have the forethought to bring one along (which is highly unlikely).

Anyway, I’m trying to keep reality from setting in.  It’s still a week before winter officially starts.  Another ten days or so after that and the tax season begins.  For practical purposes, all I see ahead of me is work, darkness and cold interspersed with red wine and therapeutic quantities of Jack Daniels.  Who signed me up for this?

Actually, quite by accident I found a book even better than the Bud commercial.  It’s about fishing.  Anyone surprised? 

The author, Tim Holschlag, is certainly the finest smallmouth bass fisherman in America (maybe the world?).  I’m particularly interested in his description of fish behavior.  Some guys think about money.  I think about fish.  From Tim’s detailed descriptions, sounds like fish take up much of his waking hours too.  He describes how bass react to various conditions and stimulus.  Heat, light, water flow, fishing pressure, you name it, he’s thought about it.  In this book he talks about river fishing.  Well, I’ll be darned!  That’s what I do too! 

Anyway, each of his lessons transport me to a time I experienced the very same.  In my mind I remember thinking, “Where the heck are those fish!”.  Then, as if on cue, the words in Tim’s book proceed to tell me where, in fact, they are.  “Well…” I think to myself, sniveling, “that’s kind of what I figured too.”  Yeah, sure Steve.

Between Tim and those he’s guided I’ll bet he’s laid hands on thousands of smallmouth.  Me, probably a few hundred, which I suppose is a lot, but not in comparison. 

Once I accept my shorter stature (Tim, by the way, is far north of 6 feet tall) I get down to figuring how I’m going to change my ways.  The great thing about this book is it’s given me lots of ideas how to approach the river next spring.  As importantly, it’s an open doorway to a fantasy world I slip into like a warm bath.  Every day is 80 degrees and partly sunny.  The fish are willing and my technique is flawless. 

Gee!  This is way better than reality. 

Dear Reader,

Kindly, don’t bother me for awhile.

Yours Truly.

Posted in PERSONALBYTES | Comments Off on There’s No Ignoring It – It’s Winter Time

New Tax Law: Bush Tax Cuts Extended


The 2010 Tax Relief Act recently signed into law by President Obama was sweeping in the benefits provided to the American public.  There was at least a little bit for everyone, and certainly a lot more for many.  Conceptually, the Tax Relief Act is a continuation of the Bush tax cuts (EGTRRA) of 2001.  Most of the provisions expire in 2012 at which time the merits of continued tax cuts will be debated (as will the merits of our elected officials).  Courtesy of Commerce Clearing House, I have provided highlights of the new tax laws that are of greatest interest to our clients, both individuals and businesses.  Please feel free to call if you have questions.  Here’s a list of the issues:


  1. Individual tax rates
  2. Capital gains tax
  3. Education credits
  4. Educational assistance exclusion
  5. Student loan interest deductions
  6. Individual tax extenders
  7. Charitable contributions made from IRAs
  8. Alternative minimum tax
  9. Payroll tax cut
  10. Energy Incentives


  1. Estate Tax Compromise
  2. Option for 2010
  3. Portability
  4. Gift Taxes
  5. GST Tax 


  1. 100% bonus depreciation
  2. Section 179 expensing
  3. Research tax credit
  4. Work opportunity tax credit
  5. Business tax extenders 


  1. Cost estimate of the tax law change


1. Individual Tax Rates 

The 2010 Tax Relief Act extends all individual rates at 10, 15, 25, 28, 33 and 35 percent for two years, through December 31, 2012.

2. Capital Gains Tax

Qualified capital gains and dividends are taxed at a maximum rate of 15 percent (zero percent for taxpayers in the 10 and 15 percent income tax brackets) for 2010. The 2010 Tax Relief Act continues this treatment for two years, through December 31, 2012.

3. Education Credits

American Opportunity Tax Credit: The 2009 Recovery Act enhanced and renamed the Hope education credit as the American Opportunity Tax Credit (AOTC) for 2009 and 2010. The e 2010 Tax Relief Act extends the AOTC for two years, through December 31, 2012. Also extended are income limitations (the AOTC begins to phase out for single individuals with modified AGI of $80,000 ($160,000 for married couples if filing jointly) and completely phases out for single individuals with modified AGI of $90,000 ($180,000 for married couples filing jointly).

4. Educational Assistance Exclusion

EGTRRA allows employees to exclude up to $5,250 in employer-provided education assistance annually from income and employment taxes. Employers may deduct up to $5,250 annually for qualified education expenses paid on behalf of an employee. This treatment was scheduled to expire after 2010. The 2010 Tax Relief Act extends these provisions for two years, through December 31, 2012

5. Student Loan Interest Deduction

EGTRRA eliminated a 60-month rule for the $2,500 above-the-line student loan interest deduction and expanded the modified AGI range for phase-out. This treatment was scheduled to expire after December 31, 2010. The 2010 Tax Relief Act extends the enhancements for two years, through December 31, 2012.

6. Individual Tax Extenders

The 2010 Tax Relief Act extends a number of temporary individual tax incentives which had expired at the end of 2009. These incentives, known as extenders, are extended for two years (2010 and 2011). Among the individual incentives extended by the new law (not an exhaustive list) are: State and local sales tax deduction, higher education tuition deduction and teacher’s classroom expense deduction

7. Charitable Contributions Made From IRAs

Seniors can make charitable contributions directly from their IRAs.  These distributions have two notable characteristics: They count towards required minimum distributions (RMDs) AND they are not included in taxable income (of course, neither is the contribution a deduction).

8. Alternative Minimum Tax

The 2010 Tax Relief Act provides an AMT “patch” intended to prevent the AMT from encroaching on middle income taxpayers by providing higher exemption amounts and other targeted relief for 2010 and 2011. Without this patch, which had expired at the end of 2009, an estimated 21 million additional households would be subject to the AMT. The 2010 Tax Relief Act increases the exemption amounts for 2010 to $47,450 for individual taxpayers, $72,450 for married taxpayers filing jointly and surviving spouses, and $36,225 for married couples filing separately.

9. Payroll Tax Cut

The 2010 Tax Relief Act reduces the employee-share of the OASDI portion of Social Security taxes from 6.2 percent to 4.2 percent for wages earned during the payroll tax holiday period (calendar year 2011) up to the taxable wage base of $106,800. Self-employed individuals will pay 10.4 percent on self-employment income up to the threshold.

10. Energy Incentives

The 2010 Tax Relief Act temporarily extends for one or two years a number of energy tax incentives, primarily targeted to businesses. One popular energy incentive for individuals, the Code Sec. 25C residential energy property credit, is extended but with some limitations.

The Code Sec. 25C credit is designed to reward individuals who make energy efficiency improvements to their residences with a tax benefit. Under current law, the credit amount is 30 percent of the sum of expenditures for qualified energy efficiency improvements and property, such as furnaces, water heaters, insulation materials, exterior windows and doors, and other items, for 2009 and 2010 property. The credit under current law is limited to a lifetime maximum credit of $1,500 for 2009 and 2010 property. The 2010 Tax Relief Act extends the Code Sec. 25C credit through 2011. However, the new law returns the credit to $500, its pre-2009 Recovery Act parameters.

 Federal Estate, Gift and Generation Skipping Tax

EGTRRA gradually reduced over a period of years and then abolished the federal estate tax for decedents dying in 2010. The pre-EGTRRA estate tax (with a maximum tax rate of 55 percent and a $1 million applicable exclusion amount) was scheduled to be revived after 2010. Additional EGTRRA changes affected the gift and generation skipping transfer (GST) tax.

1. Estate Tax Compromise

The 2010 Tax Relief Act revives the estate tax for decedents dying after December 31, 2009, but at a significantly higher applicable exclusion amount and lower tax rate than had been scheduled under EGTRRA. The maximum estate tax rate is 35 percent with an applicable exclusion amount of $5 million. This new estate tax regime, however, is itself temporary and is scheduled to sunset on December 31, 2012.

Together with the revival of the estate tax, the 2010 Tax Relief Act eliminates the modified carryover basis rules and replaces them with the stepped up basis rules that had applied until 2010. Property with a stepped-up basis receives a basis equal to the property’s fair market value on the date of the decedent’s death (or on an alternate valuation date). Under a modified carryover basis that EGTRRA had put into place for 2010, the executor may increase the basis of estate property only by a total of $1.3 million, with other estate property taking a carryover basis equal to the lesser of the decedent’s basis or the fair market value of the property on the decedent’s death. An executor may increase the basis of assets passing to a surviving spouse by an additional $3 million (for a total of $4.3 million).

2. Option for 2010

The 2010 Tax Relief Act gives estates of decedents dying after December 31, 2009 and before January 1, 2011, the option to elect not to come under the revived estate tax. The new law gives those estates the option to elect to apply (1) the estate tax based on the new 35 percent top rate a $5 million applicable exclusion amount, with stepped-up basis or (2) no estate tax and modified carryover basis rules under EGTRRA. Any election would be revocable only with the consent of the IRS.

EXAMPLE. Caleb, who is unmarried, died on September 30, 2010. Caleb’s estate is valued at $15 million. Caleb’s estate can elect not to have the revived estate tax apply (with a maximum estate tax rate of 35 percent and a $5 million applicable exclusion amount). If Caleb’s estate makes this election, the estate would not be subject to the estate tax, and the carryover basis rules under EGTRRA would apply.

3. Portability

The 2010 Tax Relief Act provides for “portability” between spouses of the estate.  Tax portability would allow a surviving spouse to elect to take advantage of the unused portion of the estate tax applicable exclusion amount of his or her predeceased spouse, thereby providing the surviving spouse with a larger exclusion amount. A “deceased spousal unused exclusion amount” would be available to the surviving spouse only if an election is made on a timely filed estate tax return. Portability would be available to the estates of decedents dying after December 31, 2010. Under the Tax Relief Act of 2010, the portability election will sunset on January 1, 2013.

IMPACT. With the election and careful estate planning, married couples can effectively shield up to $10 million from estate tax by providing that each spouse maximize his or her $5 million applicable exclusion. Because this provision is scheduled to sunset after 2012, the utility of the portability election is limited to situations where both spouses die with the two-year term (that is, 2011-2012).

4. Gift Taxes

For gifts made in 2010, the 2010 Tax Relief Act provides that gift tax is computed using a rate schedule having a top tax rate of 35 percent and an applicable exclusion amount of $1 million. For gifts made after 2010, the gift tax is reunified with the estate tax with a top gift tax rate of 35 percent and an applicable exclusion amount of $5 million.

COMMENT. Donors of lifetime gifts continue to be able to apply the annual gift tax exclusion before having to use part of their applicable exclusion amount. For 2010 and 2011, that inflation-adjusted annual exclusion amount is $13,000 per donee (married couples may continue to “split” their gift and may make combined gifts of $26,000 to each donee).

5. GST Tax

The 2010 Tax Relief Act provides a $5 million exemption amount for 2010 (equal to the applicable exclusion amount for estate tax purposes) with a GST tax rate of zero percent for 2010. For transfers made after 2010, the GST tax rate would be equal to the highest estate and gift tax rate in effect for the year (35 percent for 2011 and 2012).


1. 100 Percent Bonus Depreciation

The 2010 Tax Relief Act boosts 50-percent bonus depreciation to 100-percent for qualified investments made after September 8, 2010 and before January 1, 2012. The 2010 Tax Relief Act also makes 50-percent bonus depreciation available for qualified property placed in service after December 31, 2011 and before January 1, 2013. Certain long lived property and transportation property is eligible for 100-percent expensing if placed in service before January 1, 2013.

IMPACT. This provision is one of the most expansive for businesses. Unlike Code Sec. 179 expensing, it is not limited to use by smaller businesses or capped at a certain dollar level.

COMMENT.  Bonus depreciation is not limited by the size of a taxpayer’s investments in qualified property and it can generate net operating losses. Bonus depreciation, however, applies only to new property and is not exempt from certain uniform capitalization rules as is small business expensing.

2. Code Sec. 179 Expensing

Congress has repeatedly increased the dollar and investment limits under Code Sec. 179 to encourage business spending. The 2010 Small Business Jobs Act increased the Code Sec. 179 dollar and investment limits to $500,000 and $2 million, respectively, for tax years beginning in 2010 and 2011. The 2010 Tax Relief Act provides for a $125,000 dollar limit (indexed for inflation) and a $500,000 investment limit (indexed for inflation) for tax years beginning in 2012 (and sun setting after December 31, 2012). The 2010 Tax Relief Act also extends the treatment of off -the-shelf computer software as qualifying property if placed in service before 2013.

3. Research Tax Credit

The Code Sec. 41 research tax credit expired at the end of 2009. The 2010 Tax Relief Act renews the credit for two years, through December 31, 2011 and is effective for amounts paid or incurred after December 31, 2009.

4. Work Opportunity Tax Credit

The Work Opportunity Tax Credit (WOTC) is intended to encourage employers to hire individuals from targeted groups. The WOTC is equal to 40 percent of up to $6,000 of the targeted employee’s qualified first-year wages, subject to certain requirements and limitations. The WOTC was scheduled to expire after August 31, 2011. The 2010 Tax Relief Act extends the WOTC for individuals who begin employment after August 31, 2011 and before January 1, 2012, but with some modifications.

5. Business Tax Extenders

The 2010 Tax Relief Act extends a number of business tax extenders, which had expired at the end of 2009. These business tax extenders are generally extended for two years: 2010 and 2011. Notable business tax incentives extended by the 2010 Tax Relief Act are 15-year recovery periods for qualified leasehold improvements, restaurant building and improvements, and retail improvements


Here’s the estimate:


Individual Tax Cuts $186 billion
AMT Relief $136 billion
Payroll Tax Deduction $111 billion
Estate/Gift Tax Relief $68 billion
Capital Gains/ Dividend Cuts $53 billion
Bonus Depreciation/179 Expensing $21 billion
Other $226 billion
Total Cost of Tax Provisions $801 billion*

 *$857 billion total cost of law includes $56 billion for unemployment insurance extension.

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