Non-Business Energy Tax Credit

Time is running out to take advantage of energy saving investments in your principle residence. The Non-business Energy Property Tax Credit was increased as part of the American Recovery and Reinvestment Act of 2009. I've written about these before (and here)but wanted to bring them to your attention once again as they are set to expire at year end.

First, to qualify, the improvements must be placed in service before January 1, 2011.

Here are some of the important facts to keep in mind:

• The law increased the credit rate to 30 percent of the cost of all qualifying improvements and raised the credit limit to $1,500 total for 2009 and 2010 combined
• The credit applies to improvements in insulation, energy-efficient windows, and energy-efficient heating and air conditioning systems.
• For purposes of the credit, to qualify as "energy efficient", the product must generally meet certain standards. If you have questions, make sure you make the determination before you purchase the product to make sure you qualify.
• Manufacturers must certify that their products meet the standards and must provide a written statement to the taxpayer, either with the product or on their website.
• The improvements must be made to your principle residence located in the United States. A second home or rental property would not qualify for the particular credit.
• You must claim the credit on the tax return for the year that the improvements were made.

Oregon residents should also determine if their investment would qualify for the Oregon Residential Energy Tax Credit (RETC). Oregon residents might also qualify for special incentives from the Energy Trust of Oregon.

You should also check the Database for State Incentive for Renewables & Efficiency to what other local incentives might be available around the country.

Small Business Jobs and Tax Relief Bill

President Obama signed the Small Business Jobs Act of 2010 (HR 5297) yesterday.

The Act expands loan programs through the SBA, strengthens small business preference programs for federal government projects, provides export incentives, and offers a variety of small business tax breaks. Many of the provisions are effective immediately.

These changes are in effect for 2010 and provide some great tax planning opportunities:

• Increased section 179 expensing
• Extension of 50% first-year bonus depreciation
• Zero capital gain tax rate from IRC Sec. 1202 small business stock
• Increased IRC Sec. 195 deduction for business startup expenses
• Five-year carryback of general business credits
• New deduction for self employed health insurance costs on the Schedule C
• Removal of cell phones from the definition of listed property

You can read more details in this Journal of Accountancy article on the House Bill.

Biking to Work

This month is the bike to work commuter challenge sponsored by the Bicycle Transportation Alliance. Today was the first day of the challenge and I started by riding 5 miles to Toastmasters for a 7am meeting and then 2.2 miles back into work. I feel good and can't wait to see the physical results of commuting by bike every day this month.

Team TriLibrium has a goal of 100% participation on 100% of the days in September. So far so good as everyone rode to work today.

The beauty of this event is the fact that it is a month long. The length will actually force me to deal with all the issues (clothes, showers, commute time, locks, lights, storage, rain gear, etc.) that need to be solved to make daily biking viable. I had a number of logistical issues this morning that I'll get solved before next week so the commute is easy and comfortable.

Having recently completed our FY2010 green house gas inventory, I know that 80 percent of our firm's CO2 emissions is from employee commuting. We will never be sustainable driving to work in single occupancy vehicles.

So many of the changes necessary for us to become sustainable are easy and simply need to be implemented. We know we can't go on driving everywhere like we did 20 years ago but when do we actually make the change? I am hoping that today was a day of significant change. For our firm to be sustainable, we can't rely on fossil fuels to get us around.

I'll also take this time to remind readers that the tax code provides a $20/month non-taxable fringe benefit to employees who ride bikes. I mentioned it in this earlier blog post.

Culture of Insatiability

Our economic system is broken. We are all tied into a system that creates lots of stuff while it destroys the environment and wreacks havoc on our lives.

The system forces us to work too much. The system forces us to compete with each other for basic necessities like food, shelter and health care. The system is destroying the fragile biosphere upon which our lives depend. The system often destroys communities. The system places the love of money above all others. The system has compromised our democracy and our ability to self-govern.

These are symptoms, not root causes.

The system is on auto-pilot (no one is in charge) and each of us dutifully do our little part to keep the system going. We work, we vote, we pay taxes, we work, work, and work some more.

We are part of a system that believes it has no limits. No limits to economic growth, population growth, having more, living longer, and even being more.

We live in a culture of insatiability and as long as we remain insatiable, we have no choice but to work, work, work leading to a life of destruction.

In this culture of insatiability and discontentment, we never find lasting satisfaction. Is there a wonder where our stress and unhappiness comes from?

Changing this system is a profound challenge however, I see no alternative as this system will grind on until the salmon are dead, the glaciers have all melted, and all of us are working hard to compete against our neighbors. There has to be a better way. Our challenge is to find a new way. This won't be easy but nothing short of a new way will save us.

I believe the first step is to decolonize our minds. We've all grown up believing this is the way and there is no other. That is a mental model that must be challenged.

One book (and author) I'd highly recommend to begin this journey is Ishmael by Daniel Quinn. If you haven't read Quinn, you really ought to. If you've read Ishmael, I highly recommend the other books and writings by Quinn. He really does offer a comprehensive view of sustainability that is often difficult to see with the voice of Mother Culture constantly singing in our ear.

Bush Tax Cuts Set to Expire

Amongst other things, President George W. Bush was famous for cutting taxes, spending money, and running up the deficit.

While his tax cuts reduced taxes on most if not all citizens, they really helped the super-rich with most of the benefits going to them. In fact, it could be argued that his tax cuts facilitated what might be the greatest transfer of wealth in our nation's history. Of course this transfer of wealth went upwards, from the lower- and middle-class to the upper class where we now have one of the highest concentrations of wealth in the world.

While President Bush certainly wanted his tax cuts to be permanent, passing temporary cuts made them appear less costly to the U.S. Treasury, and provided Republicans a future opportunity to make them permanent. That time is now. Most of those temporary tax cuts expire in 2010.

This is going to be a huge battle. The Republican talking points state that allowing the Bush tax cuts to lapse is the same thing as a tax increase while Obama's plan is to let the cuts expire on high income individuals while reducing taxes on average working families.

Who do you believe? How will these tax changes effect you?

The good folks over at the non-partisan Tax Foundation created the website MyTaxBurden where you can enter some tax information and see your tax obligation three ways:

• pre-Bush tax cuts (the system we'll return to if Congress fails to act)
• Bush tax cuts (what will happen if the tax cuts are extended)
• Obama's budget plan (What he ran on and what he's proposed)

I hope you'll check it out and I'd love it if you posted your results here.

Sustainable This and Sustainable That

A recent triple bottom line Google Alert I've set up led me to a blog about "Sustainable Museums." Additionally, the sponsored links (advertisements) on the email had a promotion for "Sustainable Post-it Notes" and another one for "Sustainable Jobs."

I'm not trying to disparage these folks though do you see the problem here?

Before some public speaking events I've been introduced as the founder of TriLibrium, a "sustainable" CPA firm.

Can a business or organization be sustainable inside an unsustainable culture? Are there sustainable jobs in an unsustainable civilization?

Because I'm a stickler for precise language when it matters, I've had to correct the well-meaning introduction calling TriLibrium sustainable. TriLibrium is sustainably-driven and eco-conscious but I have no idea whether we are sustainable.

I've heard people refer to certain farming practices as sustainable. Really? Over what time frame and under what circumstances. Will these "sustainable" farms hold up over 5 generations? What about 500 or 1000? If not, are they really "sustainable?"

I'm sick of hearing "sustainable" used as if it is a condition already achieved. We should all be driven towards sustainability since the problems with unsustainable practices will certainly wreck havoc on us and our offspring. However, I don't think anything inside our current system is "sustainable" since our cultural system clearly isn't.

I hope you'll join me in educating all the companies who call their products or services sustainable.

Reconcile and Review Bank Statements

Because cash is liquid and highly susceptible to theft and misappropriation, controls around cash should be appropriately strong.

One of the best control procedures for a small business or non-profit is the bank reconciliation. A bank statement will tell you a lot about the organization but only if you review the information in a timely manner.

You should examine cancelled checks and endorsements, track transactions between accounts, compare payroll checks with employee records, and ask questions about anything that looks unusual.

The bank reconciliation procedure is relatively easy and should be done monthly by someone independent of the accounting function. It doesn't make sense to have the accountant or bookkeeper perform the reconciliation because they'd be in a position to both commit the fraud or error and, cover up the problem. This is why you need a segregation of duties.

For a small non-profit, having the bank statements sent to an independent board member for monthly reconciliation may be one of the best and least expensive controls you can implement.

Segregation of Duties

As a CPA and business advisor, I hear about fraud and material errors far too often. Due to the lack of internal controls, small businesses are especially vulnerable. According the Association of Certified Fraud Examiners (ACFE), the median loss from fraud at a small business was over a $100,000 in the US. It is important for every organization create an appropriate internal control environment to reduce this risk.

A fundamental element in a strong internal control environment is the segregation of duties (SOD). By separating certain duties within an organization, no single employee should be in the position to both perpetrate and then conceal either errors or fraud. While the SOD can be difficult in a small organization, understanding this can help you improve your own control environment.

The principle duties that are incompatible and should be segregated are:

• Custody of assets.
• Authorization
• Recording keeping
• Reconciliation

Ideally, a different individual would do each of these duties since they serve as checks and balances on each other. By separating the tasks, the system would catch any errors unless two or more employees colluded. Collusion can override even a well designed system.

You must build checks and balances into your financial systems. Simple accounting errors, if gone undetected can devastate a company. Fraud as well. A strong and appropriate system of internal controls will reduce risk and increase accountability. Make sure you design these principles into your accounting system.

I haven't had a chance to check this out but found this free Fraud Prevention Check-up on the ACFE website: http://www.acfe.com/resources/publications.asp?copy=fraudprevention

Internal controls for fraud and error prevention

How are you managing your business finances? Many business owners are discovering that their assets are not as well protected as they thought. This is especially true in small business environments where a single employee manages all the finances. Often there are no checks and balances to verify that transactions are accurate.

Fraud frequently increases in a slowed economy as financial pressures grow and fewer people are asked to do more work. Pay cuts and other compensation reductions can leave some employees feeling entitled to more.

When proper, consistent procedures are not in place, employees can learn to manipulate the accounting system to their benefit. Whether they take money from the company or their mistakes are undiscovered, the end result can greatly impact your company’s management discussions, financial reports, and tax filings.

Unfortunately, once your financial records have been altered, discovering problems is extremely difficult. Most standard accounting practices are not designed to uncover internal problems such as embezzlement.

Therefore, the best way to safeguard your company’s assets is to recognize and improve weaknesses in your internal procedures.

I’ll write about some of these business practices over the next few posts.

Move Your Money

There is a movement afoot for people and organizations to move their banking from the mega-banks to a local bank.

The mega-banks (Bank of America, JP Morgan Chase, Goldman Sachs, Citigroup, Wells Fargo, Morgan Stanley, etc.) aren't particularly interested in you or your small business. Sure, they'll take your deposits while paying less than 1 percent on your account and they'll give you a credit card with interest rates in the range of 15-35 percent, but their real motivation is making money and serving their Wall Street masters.

The 10 largest banks hold over 60 percent of the nation's deposits. There are now 23 banks with over $100 billion in assets.

Local banks on the other hand serve their community. Their future prosperity is directly tied to the communities they operate in. Local banks don't give their executives million-dollar bonuses. Local banks hire local service providers like CPAs, attorneys, advertising agencies, marketing consultants, janitors, and other various service providers. At your local bank you'll find friendly people who know your name and want to help you.

Tomorrow, in Portland's Pioneer Courthouse Square, local bankers will be on hand to help answer questions as we encourage people to "Move Their Money." The festivities are from 1-4pm and should be a family fun event complete with music and speakers.

According to pollster John Zogby, nearly 10 percent of Americans have moved at least some of their money due to Wall Street abuses and the current banking crisis.

I hope you'll join me in moving your money and banking from the mega-banks that nearly brought down our economy to a local bank that is committed to and serves your community.

The Value of Planning

Yesterday I got some sad news. One of our clients died unexpectedly. He was under 40 and left behind a family and a business. While tragic, this isn't a rare event.

Are you prepared if this tragedy were to strike you or your business?

I'm not.

I know the importance of having a will yet I don't have one. If you die without a valid will, state law dictates how your estate will be divided by your heirs according to very specific set of rules. Your friends, favorite relatives and charitable benefactors will get nothing despite your intentions. The only way to not follow the state distribution process is to die with a valid will.

It is probably best to use an attorney but that isn't necessary. Check with your state to determine what form (In writing, witnessed by two people, etc.) a valid will may take.

I've had "getting a will" on my to-do list for years. I'm going to get this accomplished before the end of summer.

On the business side, it is important to consider and plan for the death of owners and key employees. You can use key person insurance, buy-sell agreements, life insurance, and similar techniques to prepare for these contingencies.

A business can have considerable market value which can dissipate quickly upon the death of an owner if proper plans are not in place. I've seen businesses lose half their market value or more when the owner dies without proper planning.

I'm meeting with an attorney next week to put in place the necessary plans so that my untimely death or disability doesn't compromise my business, family, coworkers, or clients.

New Hiring Incentives

The Hiring Incentives to Restore Employment (HIRE) Act was enacted on March 18, 2010. This tax law provides two new benefits to employers who hire certain previously unemployed workers ("qualified employees").

First, employers who hire a qualified employee will get an exemption on the employer's 6.2 percent share of social security tax on the wages paid to these employees, for wages paid from March 19, 2010 through December 31, 2010.

A qualified employee are individuals who begin employment after February 3, 2010 and before January 1, 2011, who have either been unemployed or employed less than 40 hours during the 60-day period before employment. The qualified employee cannot be a relative or otherwise related party.

You also can't lay someone off and then rehire them or another person to do the same job. However, you can qualify for the exemption if you replace someone who quit or was terminated for cause.

To put this in plain English, if you hire someone after February 3rd and expand your payroll, you may qualify for this exemption to avoid paying the 6.2 percent employer portion of the social security tax.

Employers should use the new Form W-11 to confirm new hire eligibility. Form W-11 must be signed by the employee to qualify for the exemption.

Additionally, for each new employee retained for at least 52 consecutive weeks, employers will be eligible for a general business tax credit equal to the lesser of $1,000 or 6.2 percent of wages paid.

I'm not clear but I believe this new hire retention credit will be a 2011 tax year credit since the 52nd week of continuous employment will fall sometime in 2011.

Renewal and Revitalization

The Earth goes through its annual cycle of rebirth, abundance, decay, and dormancy. Our lives consists of cycles although most of us see only linearity.

Working in an accounting firm is like joining a series of cycles: New businesses starting, older ones being closed or transferred, tax seasons, year ends, visioning, implementing, etc. The cycles are endless and important.

Our firm, TriLibrium, just completed a 3-day working retreat on beautiful Whidbey Island. This is our second retreat and I find them to be critical to our firm's success and culture. We used this time to strengthen our team, renew our vision, deal with challenging issues, and bond as humans.

We can't do this work in an office and yet it must be done.

Are you taking time in your business to step away from the day to day routine to provide time to appreciate the cycles of your business?

"Benefit Corp." law passes in Maryland

I've written a number of blog posts on B-Corporations. TriLibrium, the company I founded, is a certified B-Corporation and I believe, the only public accounting firm in the country that has achieved that designation.

Part of the B-Lab (The non-profit supporting the B Community) strategy was the goal to have the B-Corp designation recognized as a distinct legal entity just like C-Corps and S-Corps. Yesterday, Maryland became the first state to pass a law recognizing B-Corporations. You can read more about that in this article.

Wish I could write more but it is April 14th. Have you filed your taxes?

Small Business Tax Credits in the Health Bill

It is busy season at TriLibrium so I've had little time to blog. I'm excited to get back to regular postings after April 15th.

In the meantime, I'd like to at least link my readers to an article that highlights some of the eligible tax credits for small business and tax-exempt organizations in the Patient Protection and Affordable Care Act which was just signed into law.

The good news for 2010 is that eligible small business can get a tax credit up to 35 percent of the premiums paid by employers. Tax-exempt organizations are eligible for a 25 percent credit.

The maximum credits are for small employers (less than 25 full-time equivalents) paying average wages less than $50,000 per year. Reduced credits are still available for organizations outside these ranges.

You can find more details at WebCPA.

Innovations Towards Sustainability

Our firm is constantly innovating towards sustainability. This is an ongoing process and in the spirit of transparency, cooperation and co-evolution, we share our ideas to help others.

One of our recent innovations is to provide a bus ticket to any client who visits us by any means other than a car. We have a pretty large number of clients who walk, bike and/or ride the bus to meet with us. When they do, we provide them with a $2 bus ticket which they can use for future travel. If they don't need or want the bus ticket, we provide them with an option of donating it to social service agency.

This encourages alternative transportation while simultaneously helping an important community organization. The cost is minimal and the return on investment high. Maybe you could implement this at your organization.

Downsizing (Part II)

In my previous post on Downsizing I discussed my move to a smaller home and how I'm shedding over half my possessions. I found an apartment and am moving Monday. The anticipation of being free from my possessions is exhilarating.

The reason I bring this up is not to put myself on some kind of pedestal, but rather to point out just how against the grain this act is. The "American Dream" is about more and more and more (stuff). At a cost of less and less time, love, education, health, freedom, self-determination, joy, etc.

The path to sustainability is about more and more and more time, love, education, health, freedom, self-determination, joy, etc. and less and less stuff.

I venture to guess that probably 90 percent of my U.S. readers have more than enough stuff. Are you better off with all the stuff?

I'll be honest, more stuff makes me less happy. Sure, acquiring new stuff temporarily gives me what I call a "Costco" high, but the thrill is gone in such a short time and then the long-term burden of ownership (maintenance, storage, insurance, moving, repair, disposal, etc.) kicks in.

Getting Educated

I recently heard Richard Heinberg talk at the Illahee Lecture series and blogged about the event. Richard is a Senior Fellow at the Post Carbon Institute (PCI).

One of the other Fellows at PCI is Chris Martenson, the creator The Crash Course that I've recommended before. I'm posting this again to lead my readers to some very digestible and important information for understanding our economic situation.

The Crash Course is presented in chapters you can easily watch in 3 to 18 minutes online. The course is 20 chapters long but I watched it over the course of a few weeks and thoroughly enjoyed each chapter. I occasionally go back to refresh my understanding of various sections.

Downsizing

affluenza, n. 1. The bloated, sluggish and unfulfilled feeling that results from efforts to keep up with the Joneses. 2. An epidemic of stress, overwork, waste and indebtedness caused by the pursuit of the American Dream. 3. An unsustainable addiction to economic growth.

I've been into social change and sustainability as far back as I can remember. I long ago concluded that sustainability can only be achieved through LESS environmentally destructive economic activity. I am not a compulsive consumer yet I've probably acquired, owned and disposed of more "junk" in my 47 year life than 95 percent of the people who have EVER lived. Am I happier because of it?

For a variety of reasons I've decided to sell my house and am moving into an apartment. My current strategy is to movie only those things I want or need, and am looking forward to shedding as much as 3/4 of my possessions. By moving only the things I need or really want, what remains will be easy to give away, sell, or re-purpose.

I've long been burdened by too much stuff. I remember the exact moment I discovered that fact. It was the early 90's and Vicki Robin ("Your Money or Your Life") was in Portland giving a talk about simplification. When she asked "How much is enough?", I realized my maximum joy from possessions occurred during my early college years when my belongings could easily fit in a car. Since that time I'd acquired more and more yet feeling less and less fulfilled. The truth is, most of my possessions feel like a burden rather than a joy.

I've been suffering from Affluenza but I'm about to get cured.

I know I'm an extremely privileged person to be in this position but I wondering how many other people in my position feel the same way?

Changes to Oregon's BETC

The Oregon Legislature, in an effort to address budget issues and to fine tune the Business Energy Tax Credit (BETC) program, has made changes that local readers may want to know about.

The attorneys at Lane Powell have done an excellent job summarizing the changes including the new limits. You can read their summary here.