Sunday, January 23, 2011

Registered Domestic Partnership Tax Law Change

Hey Hey it's tax time!

Don’t you all just love to hear those words? Especially if you are an RDP, or married same sex couple in California.

Last summer the IRS passed a new revenue ruling impacting all Registered Domestic Partners in California. There have been numerous articles appearing and I even assisted in an article earlier in the year in the Bottom line.

Now, if you are an RDP, then this time may be for you, especially if one of the partner’s incomes is significantly lower than the other partner.

Under the new rule the IRS will allow the partners to split their income and deductions following community property rules. Are your eyes rolling back in your head yet? If so you need to contact me, you should because I live and breathe this issue daily!

I get contacted daily from both tax preparers and taxpayers to explain the IRS issue.
Part of the ruling is that RDP’s are able to possibly amend tax returns back to 2007, but only if there is a benefit. You do not need to do this if you would owe tax.

Remember if a return is to be amended both sides need to amend the tax returns. And in some cases one partner may owe while the other would be getting a refund. Only amend if the net gain is positive.

Also please work with an accountant that is familiar with this issue, if you don’t you could get screwed and lose possible benefits.

Also tax returns for RDP’s will need to be paper filed as there will be no way to account for the transactions and apply the breakout in an electronic format.

I have been advising clients to expect tax notices since the IRS will have no way to match up income and deductions or withholdings under this new rule. But hang in there!

We have been seeing significant benefits to our clients in this area so far with large refunds in the past. This may also be a time to consider becoming an RDP in California-or at least move here to take advantage of this ruling. Remember it’s only for California at this time.

At the end of the year I advised, from a tax standpoint, for a couple they might consider becoming an RDP. When we did the analysis of comparing them as 2 single men versus the RDP, they would have saved over $10,000 per year in taxes. I don’t know about you but that is some real savings and now allows us to do some other planning for them.

The above is just one example and we have had numerous ones in our office. It’s nice to see people leave our office with a smile and say I never knew!

My goal is to educate my clients about this ruling and the impact on them. I want them to be at parties and say I just saved thousands of dollars on my taxes!

The savings don’t necessarily work for everybody, if you have a couple where both work and the incomes are almost equal the savings if any will be minimal. But remember the work still needs to be done and factored into the tax returns.

In California beginning in 2007, RDP were required to file either a married filing joint return or a married filing separate return, the days of filing a single return in California were over. So take a look at the new rule for the IRS and make sure you also filed correctly in 2007 in California. You may find additional savings from the state.

So when doing your tax return this year ask the following questions of your preparer:

How many same sex couples and/or RDP returns do you prepare? If they answer one, run for the hills!!

Do you know the new rule?

Can I amend back returns and if so how far back can I go?
Do I have to amend both sides?
What do we do with non-community property and income?
Do we electronic file this year?
Should we become RDP’s?

The best advice I offer people that contact me on these issues is be certain to work with preparers that understand this issue and can advise you accordingly. Remember even some gay/lesbian CPA’s are not familiar with this. Don’t be afraid to make a change it’s your money!

Sunday, June 20, 2010

Why CPA? Why Not?

Why did you become a CPA?

I have been asked several times over the past few weeks why I became a CPA.

Now some would say that it must be my love of the Tax Code! That is so far from the truth.

When I went to college (by the way I was really, really good in math) I majored in pre-med. Pre-med to Accounting?

Oh my, what a difference. One day while hanging out on campus, I thought, “Do I really want to spend the next 8 to 10 years in school of some sort while I work to become a doctor?”

The answer came back, “NO!” But what could I do to help people?

I thought about finance but wasn’t attracted to it (or should I say to the students that were in that major?). So, accounting drew me in.

To say it’s not about taxes isn’t entirely true. I do enjoy that aspect, but really it is about helping people and businesses grow. Even in this economy there are ways to help, from maximizing tax savings to helping restructure business operations.

Restructuring makes them more profitable and puts them in a position to take advantage of the market when the economy does turn.

This week I explained to a client, who is self employed, that we could take advantage of a SEP for his business and not only save taxes, but also put money away for retirement. I was able to show him that by investing approx. $18,000 in a SEP (which, by the way, he has until he files his tax return to fund), that he would save approx. $7,000 in taxes, at 39% return on his investment. I don’t know about you but I don’t

know where else can somebody get a 39% return immediately an investment.
His reaction was total amazement. None of his other tax professionals had ever explained about saving on taxes while getting the return on investment. His next question was how can he do more this next year? The answer is by planning earlier in the year--like now!

The first thing he did was schedule a meeting next week to start year-end planning for 2010. This is why I help people to save money on taxes and for retirement.

I love the people side of the business as a CPA, and I’m not one of those greenshade, nerdy types that are always depicted on TV. I like to call it the way I see it and advise my clients accordingly.

My new motto is Cool People hang with Cool People

There you go! CPA it is!

Wednesday, June 9, 2010

Foreclosures and Credit Scores

I had a client in this week that is getting ready to retire and owns a home which is severely upside down and had no way of being able to afford the home once retirement sets in.

Through the process of working with them, we talked about strategic foreclosures and the impact on them and their credit. I suggested they check out the 60 Minutes piece a couple of weeks ago on strategic foreclosures.

As everyone knows by now, of course any type of foreclosure is going to have an impact on one’s credit, but maybe there are ways to reduce the hit.

I gave this person an example of one my clients, for which we were monitoring their credit scores, that had a rental property go into foreclosure. At the time of foreclosure, last August, their score dropped by approximately 80 points from the reporting of the foreclosure.

But by the end of the year their score had actually increased to a point that was greater than where they started just before the foreclosure. By analyzing this we were able to determine that the money they were saving on the house payments which had been redirected to credit card debt, they were actually able to reduce their debt faster thus causing their scores to increase.

So if this could happen to one client why couldn’t the same thing happen to other people?

As I talked about in a past blog my personal belief is that the FICO system is antiquated and needs to be redefined, if people are going to be able to buy on credit again.

But in the meantime if we can all work on our credit the way this other client did then the credit hit may not be so bad.

I’ve been monitoring my own credit on a monthly basis and I have adopted a dispute strategy.

If at I anytime something appears on my credit that I didn’t authorize I am on attack mode and disputing the item. This week along I found that one of my lenders, did an inquiry on my credit. Bullshit to that and I disputed the action.

I am also doing this on my credit card, last week I noticed for the past several months, during tax season, which I usually don’t take the time to watch my credit card very closely, I was being charged approx. $35 per month from 2 recurring transactions.

You know from those online sites where you buy something then they automatically charge your account. I immediately thru my on-line credit card account disputed the items. And low and behold within 48 hours all the charges were reversed. And being the good PFC that I am, I immediately transferred the savings to my Frap Fund. Found money right!

But if we don’t watch our stuff this is the type of thing that can happen.

So keep on top of your account and save!!

Wednesday, June 2, 2010

Like KFC except without the secret spices

This week one of my clients came up with a new name for me. And no, it’s not bad. #shocker

I’ve been working with several clients on personal finance issues, from loan modifications, to credit card restructuring, to developing savings plans.

The name was Personal Finance Coach.

I kind of like that, it’s certainly different than being a soccer coach for one of my kids teams, which I don’t do nor do I want to do.

This Personal Finance Coach (“PFC”) resonates with me.

Unlike financial planners I don’t sell products nor do I profess that I am a certified financial planner.

What I do is take a look at real life circumstances and apply sound logic. My goal is to get my clients to develop their strategies on their own, thereby making them accountable and feel like the plan they come up with is theirs and not an edict from above.

I’ve taken my skills from the corporate world and applied them to individuals.

For me being a PFC is take my client’s overall picture and apply tax savings strategies, savings ideas and credit card debt reduction techniques. And right now in this stressful economic period to work with people who are having a difficult time trying to decide what to do with their home.

I enjoy being there for my clients. It feels like people more than ever need someone with not just a financial background, but someone who can empathize as well. Someone who understands how deeply emotional personal finance truly is.

If you aren’t satisfied with your current accounting firm, please don’t hesitate to check out our website or if you live local to Palm Springs and the Coachella Valley, call our office at 760-969-6499.

Wednesday, May 19, 2010

The Boat - A Symbol of Our Philosophy

Over the past several weeks I have talked about my Frap Fund. You know the one where I don’t go to Starbuck and put the money away. Or the money we save with coupons goes into a savings account.

I kind of fell off the wagon this week and was only able to save a little bit but @TheDeeView and I had a realization which will amount to a tremendous savings.

As summer is approaching, faster than I thought, I started the search for a boat for us to use over the summer in our mountain escape. I even took the 10yr old boat shopping one Saturday a couple of weeks ago, only for the 2 of us to be overwhelmed.

The onto Craig’s List and Boattrader.

I was determined to find the best boat and a great deal (you know, being a great saver that I am).

Then @TheDeeView and I started talking about the money to own a boat and get it in the water this summer. What started out as a boat in the $9,000 range quickly became double that by the time we added servicing, dock fees, equipment, skis, wakeboards etc. Oh my God. It became crazy.

Halt! Slam on the breaks, stop this crazy nonsense and smell the roses. We both decided at that moment a boat was not the great idea it had been!

We decided to save the money, get rid of one of our credit cards and find different ways to enjoy the summer in the mountains.

At the end of the day, I ended up buying a portable tetherball set for kids, which I can play and guess what we will get more enjoyment out of that by playing together and getting exercise. We’ve added biking to the mountains and walking hiking and just hanging out.

My god we’ve saved $17,000 just by doing this one thing!!!

Now that’s a FRAP FUND contribution!!!

Oh and by the way we were able to find a great sleep away camp for the kids for one week and we are still ahead.

What the boat purchase made us do was to stop and really consider our own lives, spending habits and ways for which we can spend money more efficiently and save money.

We are now assessing other strategic cuts in our lifestyle that will actually give us a better quality of life and at the same time boost our savings.

Now that is not to say we won’t buy the boat next year, but for now we are about filing our Frap Fund.

Work this in with my other #BudgetBuddy tips and have fun saving.

Saving money should be about fun and not a chore. I love seeing my Frap Fund grow.

When I am done with this blog I will actually be transferring money to the Frap Fund because we decided not to go out to dinner this weekend which would have cost us, family of 4 an easy $120, instead we BBQed and saved an excess of $80 for the Frap Fund baby!

That’s what I’m talking about!

Tuesday, May 11, 2010

Frap Fund - The Sequel!

Frap Fund #2

Well a few weeks ago I started to talk about savings and how we opened a Frap Fund to transfer all of our savings into.

SO to start this blog off I thought I would just state that since I am blogging about it I should also report my results for the last week.

This last week we saved $281 by not going out to dinner twice, store coupons, store clubs and wait for it, I only went to Starbucks once during the week, I must be going thru coffee withdrawal by now.

But alas my coffee was free from the office and yes its Starbucks.

This week I also took time out of my day to go to 7 year olds first grade class and talk to them about savings and why it is so important. I delivered to the classroom 22 piggy banks and the kids were in love with them and they couldn’t stop talking about both savings and other ways to save money.

We also had the teacher fully engaged and she introduced the concept of the kids filling their piggy banks then transferring the money to a savings account at the bank, thus allowing for the addition of interest.

Meeting with these kids opened my eyes to how we, meaning us everyday consumers, have not done a good job with savings. We have been a spend-it society even above our means.

But these kids don’t have any of those preset conditions to spend yet! I think it is our job as adults to teach these kids about savings.

I mentioned to the kids that I felt money was an emotion and some of the kids understood and even gave me other emotions. These kids had it down now if we can just keep them on the growth path, happy days.

Since starting to talk about the Frap Fund lon my blog I am now finding people who I now have read it and we have started talking about savings and credit card debt again.

And speaking of savings there was a great little article in the LA times that talked about if you had bought $5,700 worth of Apple stock when the MAC came out, approx. 1997, instead of the MAC, it would now be worth more than $330,000!

Wow is what I said.

In addition, if you had purchased one share of Apple stock instead of the ipad when it came out you would have made an additional $70 on that one share in the past several weeks. But hey at least I have my iphone; I don’t want to even see what the stock has done in that period of time.

I may regret buying it!

Nah never!!!

Friday, May 7, 2010

The End Of FICO As We Know It

Okay let’s follow along with a recent blog and talk about credit cards and credit scores.

I think it’s about time we all revolt against the so-called FICO system.

I don’t know about the rest of you, but this week, I have had my fill of the credit card industry as a whole.

One of my clients shows up with a letter from Wells Fargo saying they will reduce the interest rate on the credit card if a payment of 10% would be made.

Sounds great right?

But when you go on to read the fine print “Wells Fargo will reduce your credit limit by the amount of the payment”. Are you F*%#&ing kidding me!

These banks take TARP funds, oh ya, that was taxpayer money, then they turn around and screw all of us.

The reduction in interest rate is great; however reducing the credit limit will negatively impact your FICO score!

Come on Congress when are you going to grow some balls and deal with these institutions?

I thought part of the bailout was to help them (the banks) so they could turn around and help the individuals. Well if the way they are helping people is to damage their credit scores, then I ask; how that helping?

We need real financial reform; the credit card reform was a joke. It allowed the banks several months to screw us and they are still doing it. When is the Federal Government going to step up???

Whatever happened to the day when banks would work with their customers and reach across the desk and shake the hands and say we can do that?

Let’s start by getting rid of this lame ass FICO system which is now terminally antiquated due to the recession.

Wells Fargo you should be ashamed of yourself (and Goldman too!)