What Is A Durable Power of Attorney For?

A durable power of attorney is used to give another person certain legal powers to manage your assets. It can give someone all powers to do everything you could do if you were able or it can give limited powers. Oftentimes we use a general power of attorney that gives someone complete power over our assets but it does not become effective until and unless we become incapacitated. This kind of power of attorney is part of your complete estate plan. See article below for definition of “incapacity.”

Even if you have a trust you will need a power of attorney to give someone control over basic things such as, changing your mailing address, transferring money from accounts that are not in your trust, talking to an institution regarding your affairs, like, the IRS, Social Security Administration, Veteran’s Administration, life insurance company, pension plan administrator, etc. Because of the privacy laws, if you don’t have the power of attorney for someone, like your parents, none of these institutions will divulge any information to you. Even your parents’ doctors cannot give you any information unless you have this document. This power is not always included in a medical power of attorney or “advance health care directive.”

Many times we see an elderly person, whose son or daughter helps with paying their bills and checking their bank balances. The son or daughter can do this because they sign on the bank account. But if they need to help with anything else not in the bank account they can’t. Many times the parent gets dementia or Alzheimer’s, becomes incapacitated and then it’s too late to have them sign a power of attorney form. At this point the child will have to go through the probate court process of getting a conservatorship for their parent, which takes many months and costs anywhere from $ 3,000 to $ 6,000. Again, with a little planning you can avoid this by getting a durable power of attorney now before your parent becomes incapacitated.

What Is a Durable Power of Attorney?

What Is a Durable Power of Attorney and How Does It Work?

A Durable Power of Attorney is a legal document giving certain powers to another person to act as your attorney in fact or as your agent with regards to your assets. That is, it enables the person you appoint to make decisions about your assets and liabilities and to sign documents, contracts, agreements, leases, etc. for you. The power of attorney is used like a trust, except you’re not dead. So when does it take effect and for how long does it last?

What Is a Durable Power of Attorney and How Does It Work?

A Durable Power of Attorney is a legal document giving certain powers to another person to act as your attorney in fact or as your agent with regards to your assets. That is, it enables the person you appoint to make decisions about your assets and liabilities and to sign documents, contracts, agreements, leases, etc. for you. The power of attorney is used like a trust, except you’re not dead. So when does it take effect and for how long does it last?

When does it take effect?

It takes effect and it ends when you say it does. You define the time limits and other terms in the document. Usually we use these powers of attorney for asset management to protect the family in case the creator (you) becomes disabled or incapacitated. That means you are not able to take care of your financial affairs. It can also mean that the creator, perhaps your parent, is not able to resist “undue influence.”

This can happen when an elderly person can’t say “No” when someone asks them for money. Or a caregiver or someone else may find out that your parent has some savings and uses their position as a friend to influence your parent to give them money. This is financial elder abuse. It happens more often than we want to admit. The scary part is that the county agencies in California that were helping to protect seniors against elder abuse have all been cut back and have let go most of their staff.

You may also use a power of attorney if you just don’t want to handle your affairs and want to appoint someone else to do it. The document usually includes terms providing that you will get your powers back if you regain capacity. So if you are temporarily ill and someone has to pay your bills for you, you will take back your powers when you recover.

Sometimes you want the power of attorney to take effect immediately even if you’re not a senior or disabled, such as, when you travel out of the country a lot. One of our clients who travels to South East Asia on a regular basis gave a power of attorney to her brother with whom she owns rental property. That way if anything happens while she’s gone her brother can handle it and sign any necessary documents to maintain the property.

What is Incapacity?

The document includes a definition of incapacity which you can tailor to your own needs. The standard definition is:

(1) The person is unable to provide properly for that person's own needs for physical health, food, clothing, or shelter; to manage substantially that person's own financial resources; or to resist fraud or undue influence.
(2) A medical doctor or psychiatrist, not related by blood or marriage to any trustee or beneficiary, examines the person and declares under penalty of perjury that the person is temporarily or permanently incapacitated, according to medical definitions.
(3) The person already has a conservator who has been appointed by the court.
(4) The court makes a finding that the person is either temporarily or permanently disabled.
However, you can define it any way you want by removing any of these items or adding some of your own.

When Does It End?

The power of attorney can end on a specified date, when the person regains capacity or under any other circumstance you describe in the document. Estate planning documents are to protect you and your family. So you decide what you want to include.

For more information call the Law Offices of Patricia Rowe at 925-256-1000 or go to our website at www.PatriciaRowe.com and sign up for our monthly newsletter. Or you can ask questions here in the comment section or email your questions to prowe@patriciarowe.com.

3 Reasons Why You Need a Trustee

1. To Take Care of Your Assets for Your Children- If you have minor children they will need someone to manage your assets for them. Even if you only have a house and a few investments, if both you & your spouse die in a car accident, say, your children will probably have to go live with someone else. In that case your house will have to be sold and the money will have to be reinvested in stocks, bonds, cd’s, etc.

Who will do that for them? You will need someone to deal with a real estate agent, sign a listing agreement, decide on a listing price, negotiate with buyers, sign the sales contract, perform all the tasks that a seller must do to complete a sale. So even if you have children who are no longer minors, would they be able to do all that? Probably not- many adults can’t do it. So if you haven’t appointed a trustee (by writing it in your trust document) the court will appoint a stranger to do it for your family.

After the house is sold the trustee will have to manage the investments of the trust to get the highest rate of return (income) possible while keeping the assets safe. That’s the main job of a trustee, to safeguard the assets for the beneficiaries of the trust (usually, the kids) and make distributions according to the trust document.

2. To Provide Flexibility in Making Decisions- If your children are young the trust will have to be managed for many years. Oftentimes parents will set up the trust to give discretion to the trustee regarding how much to distribute to each child each year, that is, the trustee decides. If children are young that would mean giving living expenses or a monthly allowance to the guardians of the children, the people who are taking care of them. If kids are going to college, they might need money to buy a car, for example. That would be an extra distribution that the trustee would have to decide on. Most trustees may give $ 12,000 to buy a used Honda but would not give $ 100,000 for a Lamborghini.

Even if your children are in their twenties, oftentimes, clients set up a time schedule for distributions of principal, that is, all of the assets that went from you or your estate to your trust. Usually if there are no problems with, say, drug or alcohol abuse, parents will write in their trust that the trustee should distribute one third of the principal when a child reaches age 25, one half when they reach age 30 and the balance when they reach age 35. This helps to give out the assets when the children become a little more mature. You must have a trust to do this.

3. To Give the Trustor (You) More Flexibility in Describing How To Distribute the Assets- You can also describe in your trust other reasons you would want your children to receive distributions, such as, for education. Your trust document can include a definition of education. You may not want to pay for basket weaving school but you may have a child or grandchild who you know will never go to college. However, if they were interested in a trade school, you would probably want the trustee to pay for that as well.

You can describe other things you would want your trust to pay for, such as, giving a child money to start or buy a business, or for the down payment on a house.

If you have a child who has a drug or alcohol abuse problem, you can provide that they must be clean and sober for one year subject to testing before they receive any distributions.


These are only three reasons to have a trust. There are many more. Stayed tuned for future blog postings! Or subscribe to our RSS feed. You can get more trust and tax tips from our monthly newsletter. Just subscribe below! Or you can always call us at the Law Offices of Patricia Rowe 925-256-1000. Or you can visit my website at www.PatriciaRowe.com !

How to Use Your Corporation to Save Taxes

First of all the name of the game is to have the corporation pay for as much as it possibly can so you are using pre-tax dollars. That means just what it sounds like, you are using money that you haven’t paid tax on yet. The corporation takes in income then gets to deduct all business related expenses and pays tax only on what’s left over, net taxable income.

C Corporation

If you have a C corporation, then the corporation will pay the tax on the net income. If you can leave some of the money in the corporation (as opposed to taking it out in the form of wages to you) this will save taxes because the corporation pays only 15 % federal tax on the first $ 50,000 of taxable income.

If the corporation makes $ 93,300 and if you can leave $ 50,000 in the corporation you will pay 15 % tax on all of the income, that is, the combined tax between you and the corporation. Here’s how:

Corporation net income $ 93,300
Less: wages to you ( 43,300)

Net taxable income to corporation $ 50,000 taxed at 15 %

Wages to you $ 43,300
Less: standard deduction
& personal exemption ( 9,350)

Taxable income to you $ 33,950 taxed at 15 %

So you’ve paid 15 % tax on $ 93,300 of income!

Remember, if you or you and your spouse are the sole owner/employees of the corporation it doesn’t matter who is paying the taxes you or the corporation. It’s all coming out of your pocket. For example, when you pay yourself wages the corporation will pay the FICA Social Security and Medicare taxes by withholding 50 % from wages and paying 50 % itself. It’s still all coming out of your pocket because you own the corporation.

S Corporation

If you have an S corporation, then the net taxable income and certain other items, like interest income and capital gains, will be passed through to you to be reported on your individual tax returns. If you can leave some of the money in the corporation (as opposed to taking it out in the form of wages to you) this will save taxes because the net income from an S corporation is not subject to self employment tax.

This is the great advantage to using an S corporation instead of a sole proprietorship that reports its income on your 1040 Schedule C. All of the income on the Schedule C is subject to self employment tax. It’s a killer!

Now keep in mind, you are an employee of the corporation and you must pay yourself a “reasonable” wage for the services you perform for the corporation. This means it can’t be too high or too low. If you are the sole owner/employee then no wage is too high because all of the income was generated by your efforts. Under the same theory, if you don’t pay yourself all of the income in the form of wages, the IRS may say you didn’t pay enough.

If you do not take all of the income out in the form of wages you should be careful about taking other distributions. Although you are allowed to take distributions from an S corporation without paying tax on them, the IRS could recharacterize the distributions as wages and charge you payroll taxes on them.

These are just a few areas where you can save money by using a corporation. If you have any questions about your tax strategy call Law Offices of Patricia Rowe at 925-256-1000.

7 Tips To Reduce Corporate Taxes (Way After Year End)


The final extended due date for the 2008 corporate tax returns for calendar year corporations is September 15th. You finally looked at your profit and loss statement and it shows too much net taxable income. Your CPA says you’re going to owe a lot of tax, but you don’t know how you’re going to pay for it because your corporation doesn’t have any cash. You don’t know how the corporation could have ended up with net income because there’s no money in the bank.

What can you do now to reduce your corporation’s taxes now that you’re finally doing the returns?

1. Review Your Cash Expenditures- Go through your receipts (if you don’t have any- here’s the reason why you must save every receipt for anything spent during the year- start now!) pick out the ones for which you paid cash. Add the business-related expenses to the corporate books as “loan from shareholder.” That is debit expense, credit loan from shareholder.

2. Look Through Your Personal Checkbook- Look through your personal checkbook for any business-related expenses. Even if you don't have a receipt- you have a cancelled check or entry on your bank statement. (If you don't receive bank statements in the mail make sure you print out statements from online banking and keep them in your file for each month.) Add the business expenses you paid for the corporation to the corporate books as "loan from shareholder." That is, debit expense, credit loan from shareholder.

3. Review Your Credit Card Charges- Go through your credit card bills for your personal credit cards. (You should have a corporate credit card, but those expenses should already be recorded on the books.) Pick out any business-related expenditures and record them on the corporate books. Again, record as “loan from shareholder.” That is debit expense, credit loan from shareholder.

4. Think of Furniture or Equipment You Use in Your Business- Depreciation! Depreciation! Depreciation! Think of furniture or equipment you use for your business that is not recorded on the corporate books. If you have an office at home you have a desk, chair, computer, printer and maybe other equipment there that has never been recorded on the books. You have cell phones, iphones, cameras, camcorders, bookcases, shelving, storage boxes, file cabinets, etc. If anything can be remotely related to your business put it on the corporate books and depreciate it. It must be recorded at lower of cost or fair market value at the date you placed it in service, which is probably January 1.

5. Pay Yourself Rent for Storage or Office Space- You may be using parts of your house or garage for office or storage space for your business. You can have the corporation pay you the fair rental value of that space per month. Think what you would charge an unrelated party to rent such space. Even though you are way past the end of the corporate year, look to see if you have any outstanding loans you owe the corporation. An amount for rent can be transferred on the books from loan receivable shareholder to rent expense. Remember- you should have a written lease agreement between you and the corporation. In the current year start paying yourself monthly by writing checks from the corporation to you.

6. Pay Yourself A Year End Bonus- Again, you are way past the corporation's year end. But if you are desperate you can do this, although it's risky. If you have an outstanding loan receivable from shareholder you can pay yourself a year end bonus by recording an adjustment from loan receivable shareholder to officer salaries. The problem is you'll have to file amended payroll tax returns and this could cause you to be audited by federal or state taxing authorities. It's best if you have amounts that were paid to you by the corporation at the end of the year. You will still have to pay interest and penalties on the payroll taxes, but this may be worth it if you owe alot of corporate tax.

7. Pay Your Spouse for Outside Services- If you can say your spouse or children performed any kind of services for the corporation, such as, bookkeeping, telephone calls, sales meetings, interior decorating service, filing, modeling for advertisements or brochures, etc. pay him or her as an independent contractor. Again you'll have to have an outstanding loan receivable from shareholder balance. But this will avoid having to amend payroll tax returns. Again make the adjustment from the loan receivable shareholder account to the expense account.

If you are not sure how to do any of these adjustments yourself you can just list the items and give them to your CPA to make the adjustments. If your CPA doesn't know how or doesn't want to do these adjustments, or if you don't have a CPA- call Law Offices of Patricia Rowe at 925-256-1000. We can help! See our website at PatriciaRowe.com.

Estimated Tax Payments

Individuals:

There are two ways to pay your income taxes- through withholding, like on wages, or by making estimated tax payments. Estimated tax payments for individuals are due kind of quarterly on April 15th, June 15th, September 15th and January 15th of the following year.

If Your Income Is Less Than Last Year

The amount of estimated tax you are supposed to pay is 90 % of what you “estimate” you will owe for that year, say 2009. You compute how much you think you will owe, then divide by four and pay that amount. Just use your tax return software for last year and put in your numbers for this year. This is a good method to use if your income in 2009 is a lot less than that of 2008.

If Your Income Is the Same or Higher Than Last Year

But if your income is about the same or higher than last year you should use one of the “exceptions” to penalty for underpayment of estimated tax. That is, pay an amount equal to 100 % of prior year’s tax. (You can pay less but I don’t recommend it- it’s temporary and you never know what they’re going to do with the tax code.) Take the tax on your 2008 1040 line 61, divide by four and pay that each quarter. Then you’re covered- even if you owe $ 1 million on April 15, 2010 you won’t get a penalty. If your prior year’s tax was zero, then that’s all you have to pay for estimated- zero. But be careful, you’ll have to include form 2210 with your return to prove it.

Corporations:

The rules for estimated tax payments for corporations are a little bit different from those for individuals. For a calendar year corporation (one whose tax reporting year ends on December 31) the estimated tax payments are due on April 15th, June 15th, September 15th and December 15th of the current year.

So, use the same rules as above for individuals, i.e., estimate the corporation’s actual tax if income is less than prior year or pay an amount equal to 100 % of prior year’s tax if income is equal to or greater than the prior year.

Unfortunately the “exception” to penalty for underpayment of estimated tax that allows you to pay zero if prior year’s tax was zero is not available to corporations. Attach completed form 2220 to the corporate return to prove your exception.

7 Ways to Avoid Being Audited By the IRS

We’ve all talked to the next door neighbor who has his brother in law preparing his tax returns. He always gets all his withholding back because his brother in law comes up with very creative deductions, like his cat for a dependent, his kid’s private school tuition for child care credit and the cost of his built-in pool for medical expense.

Well, the truth is you can deduct whatever you want on your returns until you’re audited. Then you’re screwed!

Keep in mind, the federal statute of limitations is three years and states are three to four years. That means the IRS has three years to audit your return. They don’t even look at your return until two years after you’ve filed it. So, by the time they audit you, disallow your deductions, recalculate your tax and assess a deficiency it’s three years after you filed and you’ve got to pay interest and penalties in an amount almost as much as the additional tax.

It’s better to keep receipts and records and deduct only what you’ll be able to defend in an audit. Another bit of advice is watch how you report your income and deductions on your tax return:

1. It’s all in the presentation! Schedule C “Profit or Loss from Trade or Business” is the area that usually gets people audited. The IRS is looking at deductions. Give as much detail as possible on the schedule of expenses. Don’t have a lot in “miscellaneous expense” or “office supplies.”

2. Report all of your income. Sounds simple- but many people miss a basic check you should do before you file. If you have 1099 income make sure your income reported on schedule C equals or exceeds the total of your 1099’s. The 1099’s are recorded on the IRS’ computer so it’s an automatic letter to you if your income is less than the total reported to the IRS on 1099’s.

3. If you have received income that really belongs to someone else- usually interest income- report the total amount per the 1099-INT and subtract the “nominee interest” that belongs to the other person. A lot of tax prep software has this feature and will do it for you.

4. Again- they’re looking at your deductions- check Schedule A- itemized deductions- review the standard percentages used by the IRS and make sure you don’t exceed them.

5. Office-In-The-Home- yes- the IRS has made a special form to “flag” the fact you are taking this deduction. But don’t let that stop you! If you have an office in the home you are entitled to this deduction. As long as the percentage of business use (computed by taking the square footage of your office divided by the square footage of the whole house or apartment) is a “reasonable” amount you won’t be audited. Make sure it’s a “reasonable” %- I wouldn’t go over 20 %.

6. Vehicle Expense- another flag- but complete the detailed schedule showing how you computed the deduction and make sure it’s attached to your return. If filing electronically find software that includes the detail.

7. Non-cash Charitable Contributions- IRS hot topic right now- gifts of used clothing and stuff to Goodwill- yes another form to flag it- but complete the form 8283 with name and address of charity, date of donation and estimated value. Put descriptions of items given- use the large items like sofa, desk, TV, video recorder, instead of “miscellaneous.” Enter the cost- we usually estimate this a three times the value.

These are just a few areas where you can avoid an audit by being careful with your presentation. If you have any questions about your deductions or presentation call Law Offices of Patricia Rowe at 925-256-1000.

What Is Estate Planning?

Estate planning is the process of analyzing your family dynamics, your assets and liabilities, what you wish to happen after your death and creating documents to ensure Remember, you are planning for the next three years only. It’s too hard to plan for contingencies and possibilities much further out into the future than three years. Therefore, you should plan to review your estate planning documents every three years.

What Is A Trust?

A Trust is a way to ensure that your family is cared for if you die or become disabled. You transfer your money and property to a trust, designate trustees and specify the terms of the distribution of your property. The trustee then has fiduciary duties to preserve and safeguard the assets of the trust, ensure that they earn a sufficient rate of return and make distributions when and to whom you indicate in the trust.

One of the most important things is that under the law the money or property in the trust can only be used for the benefit of the beneficiaries.

How Does A Trust Work?

Create the Trust-

You create the trust by writing the trust document. You sign it, notarize it then you must fund it. That means you must transfer some money or property to the trust. This is a revocable grantor trust that becomes effective immediately. You are the trustor, settlor and grantor- person who creates the trust.

Revocable Trust:

· A revocable trust can be changed during your lifetime.
· You can change the beneficiaries
· You can put money and property into and take it out of the trust at any time (subject to community property rules)
· Community property remains community property- either spouse can take it out
· Separate property remains separate property- only the owner of the separate property can take it out
· You are the initial trustee and beneficiary of the trust (both spouses, if married)
· You can change the distributions rules
· The trust becomes irrevocable on your death (50% of it if a married couple)

Grantor Trust:

Creator of the trust retains incidents of ownership over assets, receives benefits of assets
· Creator handles all investment decisions, takes all income, can take property out & put property into the trust at will
· Creator reports all income and expenses on his or her income tax returns
· Trust uses creator’s social security number

Or you can put a provision in your will or your living trust to create the trust on your death. This is also an irrevocable trust that only comes into being when you die.

Name the Trustee-

If you are creating the trust and funding it now, you (both of you, for a married couple) can be the trustee and name someone as the alternate trustee to serve when you can no longer do it. It should be someone who can manage money and invest it properly.

The trustee will be responsible for:
· investing funds to get a good rate of return
· perhaps selling assets, especially real estate
· transferring money and assets
· ensuring the validity of and paying debts
· making sure all distributions are made on time
· responding to requests for additional distributions from beneficiaries
· completing all required accountings on a timely basis
· making sure all income tax returns are filed and taxes are paid timely

If you think about it, this is too much for many adult children to handle, especially if they are young adults eighteen to twenty five years old. The trustee does not have to be the same person as the executor of your will, but oftentimes is.

You should ask this person if they are willing to do it and ask him or her to sign the trust document accepting the job.

You should name as many alternate trustees as you can in case those persons named can no longer do it. If you don’t have any alternates you can appoint a bank, such as Wells Fargo, or a professional trustee. Remember, you are planning for the next three years only.

Give the Specifics of the Distributions to Beneficiaries-

What will your children need after you’re gone? Here’s a list of considerations for child beneficiaries:

· Are they minors who will need someone to care of them?
· How much will they need for their own support per month?
· How much income will your assets generate per month?
· Will they remain in your current residence or live some where else?
· Do they have private school tuition?
· Will they be attending college soon?
· Do they have any special medical or other needs?
· Are they mature enough to manage their own assets?
· Could they be a cotrustee?
· Are there any drug or alcohol abuse problems?
· Do they have good relations with their siblings?

This is not a complete list. You also want to consider if there are services, such as a nanny, that would have to be hired out when one spouse dies.

Describe How the Trustee Will Make Distributions-

You can give the trustee discretion to decide what the reasonable distributions to the beneficiaries are for the trust or you can give specific instructions and require the payment of a certain set monthly amount to be paid or require that all income be paid out to the beneficiaries each month. Likewise, for the principal of the trust you can decide whether the principal of the trust must be paid out to the beneficiaries at certain times or whether to leave it to the discretion of the trustee to decide. Oftentimes trust distributions are required to be made as follows:

One-third of trust principal is distributed when the children reach age 25
One-half of trust principal is distributed when the children reach age 30
The balance of trust principal is distributed when the children reach age 35

Morre to come in my next post! Please leave a comment and forward this to Twitter, Facebook, etc.

White House Email on Health Care Reform

Today I received the White House email forwarded to me by my Uncle George. Yes, the one the White House is sending out to convince people that we want Obama’s health care reforms. I don't believe a lot of this propaganda that the White House is sending out about the health care reforms. These things they are discussing in their email may be in the bill - however- they don't discuss the other things that are in there, such as the public option- that include fines for employers who don't provide health care insurance for their employees.

Employers don't provide health care insurance for their employees because they can't afford it! I know as a small business woman. So if you are forced to provide health insurance or pay extra taxes, employers will of course choose the cheaper public option to provide the government plan to their employees. That's how Obama and the Dems intend to get us all eventually onto the government plan so we can have Socialized Medicine.

You must realize that this will lead to a huge government bureaucracy that will develop to implement and grow the government plan. Let's all think about a government agency like the DMV running our medical care system. That's appealing.

Just look at Medicare. The bureaucracy that runs the Medicare system is fraught with fraud they cannot control, whereby the government pays out millions in false claims. The people who really need Medicare are so overwhelmed with paperwork I have personally met people who have had to hire an outside company just to process their Medicare claims & do their paperwork. There are also many situations where coverage is denied and patients have to hire an attorney to force Medicare to pay for their treatment.

Why on earth would anyone want to create a bigger more inefficient government agency to run a health care system that would be a bigger more complicated version of Medicare? Another mismanaged federal government agency that is also running out of money?

And that doesn't address the lies the White House & Obama are telling about this plan not costing the government any more money & not increasing the deficit. That's an out and out lie. Obama's own Government Accounting Office has said so. There's no way he can pay for this without raising taxes. Oh yes, I forgot, the employers are going to pay for it. Is that before or after they go out of business? You can't get blood from a turnip.

There are other reforms that could be done, such as, allowing insurance companies to sell insurance across state lines. That would engender competition and by the workings of a free market would lower prices. That's what this country is based on- free enterprise. That's why this country is the greatest country on earth and why we have become so prosperous.

Obama is a Socialist who believes in a redistribution of the wealth. He has said so many times. This is an obvious first step to making our country into a Socialist society like those in Europe. That's why people are so outraged about this health care plan. Perhaps alot of people who elected Obama want that. But many people don't.

You know this is Obama’s first step towards that goal of redistributing the wealth. That’s another goal of his he has stated many times. We all know “redistributing the wealth” means some people work hard and make money, then the government takes it and gives it to people who don’t work.

All you have to do is look at California to see what will happen to the country if these health care reforms are forced on us. It will go bankrupt in the face of the Democrats' feeble thinly veiled attempt to get the poor to reelect them. But there just aren't enough taxpayers to support all those people who are using our government resources such as, free health care. Again, just look at California. That’s what will happen to our country if this government health care system is put in place.

How can you think that Obama & the Democrats don't intend to make this into government run health care system? That's what he said he wanted to do in his campaign! That's what many in Congress have said they wanted for years. So to say that's not their intention is just another lie.

Cash For Clunkers

We went last night to talk to salesman at Chrysler dealership to find out about the "Cash for Clunkers" program. We went to Chrysler because we heard they giving matching funds in the amount of $ 4,500, so we wanted to find out how to get $ 9,000 towards a new car since we have no money.

The answer is- you can't. Only people who already have money to buy a new car can use the program.

The rules are:

1. The "clunker" must have been registered to you for the last 2 years. It must belong to you. We had a clunker owned by my daughter's in-laws- so my daughter and her husband couldn't use that car to get the $ 4,500.

2. You must have had insurance on the clunker for the past year. Ok- we insure all of our cars whenever we have the money. So our clunkers would have qualified under that rule.

3. You must "own" your car- so if it has a loan on it- the lender owns it and you don't and it doesn't qualify. So my clunker didn't qualify.

4. The Chrysler $ 4,500 only applies if you buy a PT Cruiser. That's not what we were interested in- so it wouldn't have helped us.

5. You only get $ 4,500 from the government if it's a truck you are giving in as a clunker. Cars only get $ 3,500.

So again- we have a program that only helps people who already have enough money to have no car loan, have their insurance paid up to date on a clunker they don't usually drive to help them buy another brand new car that they have enough cash to be able to put an additional 10 to 20 grand down payment on!

Another great government program! Thanks for the help!

How To Get Started On Bookkeeping For Your Small Business

OK, you’ve started your business. You will have cash receipts, otherwise known as income (someday), and you already have cash disbursements or expenses. You need a system to keep track of all of your transactions- it’s called an accounting system.

Now we all know that it would be much better if you could just hire a bookkeeper to do all this accounting, but you’re just starting out and don’t feel you can afford to hire one. Besides, it’s hard to find a good bookkeeper. They are notorious for saying they can do more than they are capable of, then proceeding to make a mess of the books of the unsuspecting small business owner. So we’re going to have to struggle along without one for now.

Although it would be better if you could spend all of your time doing whatever it is you do best, you’re going to be doing the accounting until you can afford to hire a bookkeeper. Besides, you never want to put yourself or your business in the position that you are so dependent on another person to do your accounting, that you have no idea what they are doing. By taking responsibility from the start for your own accounting you will be in a better position in the future to review the work of others in a short period of time each week (or day) and know whether or not it was done properly.

Things to Buy:

There are a few things that you’ll have to buy to accomplish the setting up of your accounting system. You’ll need the most recent QuickBooks accounting program. Of course, you’ll need a computer to go with that. You must check the QuickBooks specification requirements for the computer system and make sure that your computer will meet the minimum specification requirements, such as, have enough ram memory, for example.

Yes, there are many other accounting programs out there. But QuickBooks is the easiest, most user friendly accounting software in existence today. QuickBooks also generates many different types of reports, which is the whole purpose of doing your bookkeeping- so you can generate accurate reports showing your financial situation and the history of your transactions. QuickBooks does have its problems- for example, it does not provide a good audit trail, that is, after you have recorded transactions, reconciled the bank account and even closed the books, you can always go back and change things. This is not good, because then you may not be able to trace the transaction (hence the lack of audit trail.) However, if you follow the procedures set out in this book and discipline yourself not to stray, you will not get in trouble. And don’t be cheap and try to save money by buying Quicken. Quicken is useless for businesses because it does not generate many of the reports you will need, like a balance sheet.

How To Save Money

When Hiring a Lawyer

Alot of people are afraid to even call an attorney because they think it will cost too much money. I'm an attorney and I'm afraid to hire an attorney. But there are some things you can do to make sure you don't get ripped off or over-charged.

1. Get a Referral- Ask someone you trust if they can refer you to the type of attorney you need. Either a friend or someone who works with attorneys on a regular basis, like a financial advisor, certified public accountant or banker.2. Interview at Least Two Attorneys- Find at least two attorneys who will tell you about themselves, their practice and the type of work they do. Make it clear when you call that you are interviewing to choose an attorney, that you are not asking for information about your case or legal issues, and confirm that there will be no charge for the call.

2. Interview at Least Two Attorneys- Find at least two attorneys who will tell you about themselves, their practice and the type of work they do. Make it clear when you call that you are interviewing to choose an attorney, that you are not asking for information about your case or legal issues, and confirm that there will be no charge for the call.

3. Ask If They Give A Free Initial Consultation- Many attorneys give a free half-hour initial consultation. Ask for it. Sometimes the attorney will talk about your legal issue for one half hour or an hour and will credit it towards your job if you hire them. Example: talk for 30 to 45 minutes about your estate planning, then just pay the flat fee for the estate plan if you hire them. If you don't hire them you pay for the 30 to 45 minutes at the attorney's hourly rate.

4. Ask For A Flat Fee- Many kinds of legal jobs can be done for a flat fee, that is, not at an hourly rate. Things like incorporating your business, creating estate planning documents, or writing a buy-sell agreement can be done for a pre-arranged amount. Even jobs that are normally billed based on a percentage of assets, like probate, can be done for an agreed upon amount.

5. Set A Time Limit- Even if the job is the type that is normally charged at an hourly rate you can limit the amount of time to be spent on your job. Just ask!

Self Employment Tax Is A Killer!

Many people who go from being an employee to working as an independent contractor have sticker shock when they file their first tax return- it’s the self employment tax that’s the killer! This is an additional tax that is added on to your regular tax. It is your Social Security tax- FICA and Medicare tax that was withheld from your wages when you were an employee. But when you were an employee you only paid one half (7.65 % of your gross wages) and your employer paid the rest.

When you become an independent contractor you pay the whole thing. The bad part is that it’s based only on your self employment income which is the net income from your business. That means your itemized deductions don’t reduce the self employment tax. Another item is an IRA or 401(k) contribution- those don’t reduce the self employment income either.

So it becomes extremely important to allocate as many expenses as you can to your Schedule C- Profit or Loss from Trade or Business. That’s why we always try to deduct things like office in the home, auto expenses, equipment, etc. to get the self employment income down as much as possible. Oftentimes we see clients with little or no regular income tax due to large home mortgage interest deductions- but they still end up with a large self employment tax. So watch out!

Independent Contractor or Employee?

The IRS and California Franchise Tax Board are very aggressive in maintaining that everyone is an employee- but that doesn’t make it true! There is a lot of case law about this issue and criteria have been established over time that shows independent contractor status. Some of those are: more than one customer, letterhead and business cards, advertising product or services, use of own equipment, unsupervised, expertise in the field enabling person to work on their own, no set hours, can come and go as they please, to name a few.

Employers usually want workers to be independent contractors so they don’t have to pay the payroll taxes and do payroll tax reporting or cover the worker with employee benefits. The taxing authorities want to put the responsibility of paying the payroll taxes on the employer. It can be to your advantage to be independent if you have a lot of business-related expenses to be deducted from income. But have your tax professional do a projection to make sure it’s not going to cost you more money to be self employed than to be an employee.

Estate Planning

About Estate Planning


Estate Planning is an important responsibility for all of us to protect our families and safeguard our assets. None of us wants to see our assets disappear after spending most of our working lives acquiring them. Some of us have spouses and children for whom we wish to provide after we’re gone. We may have minor children or dependent parents who will need someone to manage their financial affairs upon our death. If you are single there’s even more of a chance that your assets may not transfer according to your wishes.

A Basic Estate Plan

A Basic Estate Plan includes four documents and accomplishes several important things. It includes a revocable or living trust and for each person; a pour over will, a durable power of attorney for asset management and an advance health care directive. These four documents will ensure that you and your family will be protected in case of an illness, accident, disability or death.

A Revocable or “Living” Trust is used to avoid the cost and delay of probate by including provisions regarding disposition of your assets, thereby allowing the trustee to distribute the trust assets without the supervision of a probate court. A Revocable Trust has detailed provisions naming initial and alternate trustees to distribute assets on your death; hold, invest and manage trust assets for an extended period of time for minors or disabled beneficiaries and specific terms to reduce estate taxes to a minimum.

Since these trusts are revocable, can be revoked or amended at any time, they are very flexible documents. Special terms to cover a variety of needs, restrictions, special gifts, distributions and contingencies can be entered in the document and provide protection for you and your beneficiaries.

Community Property and Separate Property retains its character even after it is placed in the trust, that is, community property remains community and separate property remains separate. The terms of the trust ensure that only the owner of the separate property may withdraw that property from the trust or amend the terms of the trust with regards to that separate property.

Grantor Trust is another quality of the revocable trust, that is, even after assets are put in the trust they are still held under your social security number. All income and deductions received from or paid for the trust assets will still be reported by you on your individual income tax returns. Since the trust is a revocable grantor trust it does not need to file its own income tax returns.

Pour Over Wills are required for each person and provide that all assets “pour over” into the Trust, even those that were not formally placed in the Trust during the person’s lifetime. If you don’t have a pour over will with the proper terms any assets that are not formally placed in the trust during your lifetime may go to unwanted beneficiaries. Our will even includes a provision that if the trust is determined to be invalid for any reason that your assets will go to a trust with substantially the same terms as your existing trust, that is, you’re covered in case a judge voids any portion of your trust document for any reason. A major feature of your will may be designation of guardians for your children.

Durable Power of Attorney for Asset Management is a document that protects you and your family in case you become disabled. You could experience a disability at any time due to a car accident, fire or any number of unforeseen events. A durable power of attorney will enable your spouse or designated agent to act on your behalf with regards to many of your affairs.

Primarily it allows your agent or “attorney in fact” to pay bills, sign documents, buy, sell or rent property, transfer funds, borrow money and take other action on your behalf. It can give as many or as few powers as you want. It can be for as long or as little time as you want. Usually it doesn’t take effect until you are disabled. Our power of attorney has detailed descriptions of when you will be considered disabled, who may decide and what proof is needed. It also describes what happens if you regain capacity or overcome your disability.

Advance Health Care Directive is one of your most important documents giving someone the power to make life and death decisions about your medical treatment. This only takes effect if you become unable to make these decisions for yourself. Our advance health care directive has descriptions of when you will be considered unable to make these decisions, who may decide and what proof is needed. It also includes terms about organ donation, burial or cremation, living arrangements, pet care provisions and more that are not included in standard institutional forms.

Any One of These Documents Alone Will Not Provide the Complete Protection You and Your Family Need. The Advance Health Care Directive also allows your health care providers to disclose your confidential medical information to your designated agent. Without this document your health care provider would otherwise be prohibited from disclosing such information.

Call us to discuss your options!

Estimated Tax Rules Change After Many Years

Do you know that the federal estimated tax rules have been changed for the first time in more than 55 years? For those of us who do not have W-2 jobs where our income taxes are withheld from our wages, we must pay our income taxes through estimated tax payments that are made kind of quarterly- that is, April 15th, June 15th, September 15th and January 15th of the following year.

For many years taxpayers were required to pay 25 % of the tax they expected to owe each quarter, subject to exceptions. Beginning in 2009 our estimated tax is due in the following amounts: April 15th- 30 %, June 15th- 30 %, September 15th- 20 % and January 15th- 20 %.

Don't Forget The Exceptions to Avoid Penalties

Don't forget- you can avoid the penalty for underpayment of estimated tax by paying 100 to 110 % of prior years tax. Use this option when your income tax liability is increasing from one year to the next. If your 2008 income is down and you expect your 2008 tax liability to be les sthan 2009, just make estimated tax payments equal to the 2008 tax on time in the required installments as shown above and you will avoid any underpayment of estimated tax penalty for 2009.