Top Four End-of-Year Financial Planning Tasks

Between turkey and holiday cookies, don't forget the most important type of planning you should do this year, financial planning. M&I, a part of BMO Financial Group, offers these four aspects of your finances everyone should review before 2012 arrives.

Budgets: Review your monthly budget and track your spending. Keeping track of where your money is being spent will highlight unnecessary expenses. Begin saving today. A savings account can help when life throws an unexpected curve ball. Ideally, build an emergency fund that could pay your necessary expenses for six months.

Creating budgets with your children is also a great way to teach kids about money and the difference between a need and a want. Our Helpful Steps for Parents tool provides parents with tips, games, and strategies to help teach children financial literacy. Visit www.bmoharris.com/parents to learn more.

"The Helpful Steps program starts with kids as young as five years old," said Jim Sathre, senior vice president, retail banking for M&I. "Giving kids a financial education will prepare them for every stage of life, from saving for college to buying a house."

Retirement: Examine how much you've been putting in your retirement account this year. If possible, plan to contribute the maximum allowable amount to your 401(K) and take advantage of your workplace retirement plan to gain matching contributions. If your workplace does not have a matching program consider a Roth IRA.

College: College planning is essential for every family whether you are just starting out or are planning to support a grandchild's education. If you have not started preparing for future college expenses, start now. College savings plans can offer considerable tax benefits. Each state offers residents a 529 college savings plan that provides tax benefits or other perks to help parents and students prepare for college bills.

Investments: Invest wisely. Investigate investment options to determine which is best to meet your financial needs. A few options include money market accounts, CDs and government bonds, and IRAs. Solid investments may reap dividends in the future.

We all know how important it is to save money and prepare for the future and reviewing your budget and investments will ensure you're meeting your financial goals.

Top 12 Financial Planning Strategies for 2012

December 6, 2011 (Business Wire) — The Financial Planning Association (FPA) of San Francisco announced today the top 12 financial planning strategies for individuals to consider for 2012.

Ranging from developing a comprehensive financial plan, putting in place a disciplined savings program to diversifying portfolios and benefitting from the latest tax changes, these comprehensive tips and advice will help investors start 2012 on the right financial footing.

#1. Get Started Today

If you spent much of 2011 in denial or ignoring what you know you needed to do financially, don't be embarrassed; you had plenty of company. The best way to come to grips with your financial future is to review your financial plan. If you don't already have one, make a plan. You'll want to analyze your asset base, your earning potential, and your spending. Most importantly, you'll want to review your goals. Are they still attainable, or even reasonable? You can do it yourself, but a professional financial planner has the knowledge and the tools to calculate what it will take to reach your goals while helping you manage your finances along the way to help you get there.

#2. Spend Less. Save More.

The best way to provide -- or recoup -- the money you will need in the future is to save more now. Here's a good way to start -- pay yourself first through payroll deductions into your 401(k) or savings account. Another place to look is at your credit cards. Instead of paying high credit card rates, you'll be earning market-beating 9, 12, 18, or an even higher percent. That's your return on every dollar you don't have to pay to a credit card company.

#3. Got lemons? Make Lemonade.

There is a positive side to stock market losses. Take advantage of the down market this year to harvest tax losses. Any losses not used to offset capital gains can reduce ordinary income by up to $3K in 2011, and the excess is carried forward into future tax years.

#4. Keep on Contributing to Your 401k

Continue putting away as much as possible into your employer retirement plan. If the contributions are on autopilot, you're less likely to come to a sudden stop when current events are discouraging. Also, dollars are invested throughout the year, so in a market that is up one month and down the next, you won't buy all your shares at high points and you'll get more shares at low points.

#5. Keep an Eye on a ReFi

With interest rates at all-time lows, it's a good time to explore if refinancing makes sense. You may find it preferable to refinance from a 30- year loan to a 15-year loan, as some institutions are offering 15-year loans at less than 4%. Run the numbers. You may find that the payment on a new 15-year mortgage is similar to an existing 30-year mortgage and would significantly reduce the amount of interest paid over the life of the loan.

#6. Assess a Reassessment

With the continuing decline in home values in many locations, homeowners should consider applying for a reassessment of their home value for property tax purposes. This is a relatively easy process that might save significant money, especially for those in expensive areas. The county assessor's office can provide you with the forms and process for requesting a reassessment.

#7. Update Your Estate Plan

Take a fresh look at your estate planning documents. The annual gift limit remains at $13,000 per donor per person in 2012, but the lifetime exemption of $5,000,000 in 2011 has been adjusted for inflation and will be $5,120,000 in 2012.Your financial planner and your estate attorney will know what these changes mean for your specific situation.

#8. Give a Gift or Make a Loan

Want to help out a family member who may be in dire straights, but don't feel comfortable making an outright gift? Loans to family members must use government-approved rates, or they will be taxed as gifts. It's called the Applicable Federal Rate, or AFR, and our low interest rate environment could make 2012 an excellent time to make loans. The current long-term AFR for loans more than nine years is 2.80% (compounded annually), and the short-term AFR for loans less than three years is only 0.2%

#9. Resolve to Review Beneficiaries

Use the start of the New Year to review all beneficiary statements for 401k plans, IRAs, and life insurance policies. Remember that retirement account assets pass by beneficiary statement and not by will; the same is true for life insurance policies. Every financial planner has stories of clients who divorce and never revise their beneficiary statements; the client dies and a life insurance policy or 401k is paid to the ex-spouse, leaving a current spouse or children with nothing.

#10. Keep Up with Contribution Limits

Take advantage of 2012 increases in retirement account contributions. The maximum 401k, 403b, 457 contributions increase to $17,000. Catch-up contribution for the over-50 set is an additional $5,500

#11. Keep Your Cool

Listening to the financial news wasn't easy in 2011 and we may face the same cacophony of doomsayers in 2012. Selling stocks when prices are down is not a successful long-term investment strategy. And remember -- when media headlines proclaim, "investors are dumping stocks," someone else is buying them.

#12. See a Financial Planner

Financial planners can help you navigate your way through these perilous economic times. No one knows what the future will bring, but a good planner can provide the kind of experience and objectivity that can bring clarity to difficult financial decisions.

If you have a financial planner, and you haven't updated your plan in light of recent economic realities, it makes sense to check if you're still on track, or if there are course-corrections you could make to improve the situation.

The Benefits of Working Longer .

When it comes to saving for retirement, many Americans are playing catch-up. If you—or a relative—are among them, here is some good news: The belt-tightening required may not be as painful as you might think, provided you are willing to delay retirement for a few years.

According to a new study by the Center for Retirement Research at Boston College, a 45-year-old with no savings who earns $43,000 a year—the nation's average wage—would have to set aside about 18% of pay annually to maintain his or her current standard of living in retirement. (The math assumes a 4% return on savings.)

Such a target isn't much higher than the 12% to 15% annual savings rate many financial advisers recommend for clients in their 20s.

There is a catch, though: In order to maintain his or her standard of living in retirement, the 45-year-old must continue to work until age 70. In contrast, a 25-year-old who consistently saves 15% per year is likely to be able to afford to retire by age 65.

Part of the explanation has to do with Social Security. By putting off retirement until age 70, an individual would receive a benefit that is 75% higher than what he or she could claim at age 62, the earliest date of eligibility. Postponing retirement also gives 401(k)s and other retirement savings accounts additional years to grow. And it shortens the amount of time a nest egg must last.

To make it easier to meet your target savings rate, take advantage of any matching contributions your employer offers in a 401(k) or other workplace retirement plan.

And beware of shortcuts. In a bid to boost retirement savings, some may be inclined to ramp up exposure to equities, in the hope of earning a higher return over time. But such a move will expose them to greater downside risk—without delivering much additional retirement security should stocks fare well.

According to Boston College, a 35-year-old who sets aside 18% of his or her pay and earns a 4% rate of return will be able to retire at age 67; a 6% rate of return lowers the age to approximately 65.

12 Year-end Tax Planning Tips for Businesses and Individuals

Managing a tax burden has never been more difficult, whether you’re managing your individual tax rates, the rates on your investments, the taxes on your privately held or pass-through business, or the income of executives and shareholders at your company. Lawmakers have been aggressively using the tax code to try to get the economy back on track, and there are now more ways than ever to reduce your tax liability – however, all of them take planning.

Fortunately, there’s still plenty of time to put last-minute planning techniques into play. But remember to consider your individual circumstances and consult a tax adviser. With that in mind, Grant Thornton offers the following 12 last-minute tax planning tips for individuals and businesses owners:

Accelerate deductions and defer income.
Why pay tax now when you can pay tomorrow? Deferring tax is a cornerstone of tax planning. Generally this means you want to accelerate deductions into the current year and defer income into next year. There are plenty of income items and expenses you may be able to control, and business owners and self-employed taxpayers often have the best opportunities. Consider deferring bonuses, consulting income or self-employment income. On the deduction side, you may be able to accelerate state and local income taxes, interest payments and real estate taxes. But beware of the alternative minimum tax, which can affect timing strategies.

Bunch itemized deductions.
Many expenses can be deducted only if they exceed a certain percentage of your adjusted gross income (AGI). Bunching itemized deductible expenses into one year can help you get over these AGI floors. Consider scheduling your non-urgent medical procedures all in one year to clear the 7.5 percent AGI floor for medical expenses. To overcome the 2 percent AGI floor for miscellaneous expenses, bunch your pass-through business’s professional fees such as legal advice and tax planning, plus any unreimbursed business expenses such as travel and vehicle costs.

Maximize “above-the-line” deductions.
Above-the-line deductions are especially valuable because they reduce your AGI, and AGI is used to test whether you’re eligible for many tax benefits. Common above-the-line deductions include traditional Individual Retirement Account (IRA) and Health Savings Account (HSA) contributions, moving expenses, self-employed health insurance costs, alimony payments and any bank penalties you may have had to pay for early account withdrawals.

Consider charitable contributions carefully.
Think about giving appreciated property to charity so you can deduct the full value without paying capital gains taxes. But don’t donate depreciated property. Sell it first and give the proceeds to charity so you can take the capital loss and a charitable deduction. If you’re 70½ or older, consider making charitable donations directly from any traditional IRA distributions so the gift/distribution will not be included in your AGI. This provision is scheduled to expire at the end of this year. As always, double-check the limits and substantiation rules before making any contributions.

Leverage retirement account tax savings.
It’s not too late to maximize contributions to a retirement account. Traditional retirement accounts like 401(k)s and IRAs still offer some of the best tax savings in the tax code. Contributions reduce taxable income at the time you make them, and you don’t pay taxes until you take the money out at retirement. The 2011 contribution limits are $16,500 for a 401(k) and $5,000 for an IRA (not including catch-up contributions for those 50 and older). Remember that 2011 contributions to your IRA can be made as late as April 15, 2012.

Roll over into a Roth account.
“Roth” versions of traditional retirement accounts, such as 401(k)s and IRAs, also provide a great savings opportunity. You don’t get a tax break when you put money into a Roth account, but the money grows tax-free and is never taxed again if distributions are made properly. Rolling over into a Roth account now may make sense. Tax rates are low, and the value of many accounts has been artificially depressed by the economic downturn. Paying tax on the rollover now could save you if tax rates go up and your account recovers. The $100,000 AGI limit on these rollovers was recently lifted, so even high-income taxpayers can convert. Understand that you will be required to pay tax on the converted amount and plan accordingly.

Expense business investments
Business owners have been given a great opportunity to save on taxes while investing in their businesses this year. Legislation enacted in 2010 doubles a bonus depreciation tax benefit for property a business places in service before the end of the year. Under this provision, you can fully deduct the cost of eligible equipment on this year’s return if you place the equipment in service by Dec. 31. To qualify for bonus depreciation, the property you place in service must be new and generally have a useful life of 20 years or less under the modified accelerated cost recovery system (MACRS).

Consider your salary as corporate employee-shareholder
If you own a corporation and work in the business, you need to think carefully about your salary structure. Your tax treatment will vary depending on whether you’re organized as a traditional C corporation or an S corporation (in which corporation income is “passed through” and taxed at the individual level). Distributions of corporate income are generally not subject to Medicare tax. That means if your business is an S corporation, you will pay Medicare tax only on business income received as salary, not income received as a distribution. C corporation distributions also escape Medicare tax, but are subject to a 15 percent dividend tax rate. So many C corporation owners will pay less overall tax on income received as salary (which is deducible at the corporate level), while S corporation owners will do better with more income received as dividends. But remember to tread carefully. You must take a reasonable salary to avoid potential back taxes and penalties, and the IRS is cracking down on misclassification of corporate payments to shareholder-employees.
Make up a tax shortfall with increased withholding.

Don’t forget that taxes are due throughout the year. Check your withholding and estimated tax payments now while you have time to fix a problem. If you’re in danger of an underpayment penalty, try to make up the shortfall through increased withholding on your salary or bonuses. A bigger estimated tax payment can still leave you exposed to penalties for previous quarters, while withholding is considered to have been paid ratably throughout the year. To avoid any penalties, the best action plan is to make sure you pay estimated taxes equal to 110 percent of your estimated tax liability.

Don’t forget to use annual gift tax exclusion.
If you may have to pay estate taxes eventually, consider establishing a gifting program for your children and grandchildren to take advantage of the annual gift tax exclusion. Gifts of up to $13,000 per donee ($26,000 for married couples) are generally excluded from gift tax in 2011 and will be removed from your estate, with no limit on the number of donees. In addition, tuition payments to an educational institution for the benefit of your children or grandchildren are excluded from gift tax.

Watch out for the “kiddie tax.”
The “kiddie tax,” which requires a portion of a child’s unearned income to be taxed at the parents’ marginal rate, has been expanded to apply to full-time students under the age of 24 whose earned income does not represent at least one-half of their support. Be careful transferring income-producing assets to your kids.

Perform an overall financial checkup.
The end of the year is always a good time to assess your current financial situation and your plans for yourself and your business. You should think about cash flow, health care, retirement, investment and estate planning. Check wills, powers of attorney and health care proxies for changes that may have occurred during the year. Use the open enrollment period to reconsider employer-sponsored programs that could reduce next year’s taxable income. HSAs and flexible spending accounts for dependent care or medical expenses allow you to use pre-tax dollars. Remember, it’s never too early or too late to start planning for the future!

Keep in mind that these tax tips are general tax advice and may not be applicable to your particular circumstances. Make sure that you consult with your personal tax adviser before implementing any changes or additions to your tax planning strategy.

Should Your Clients Have Children Pay for Stock in the Family Business?

Three strategies ensure how they can learn to earn and appreciate stock gifts.

Many parents who are business owners struggle not only with whether they want their children to take on ownership of the family business, but also with how to best transfer their ownership. The two obvious options are to gift or sell stock to the next generation.

This decision can be complicated further due to the circumstances leading up to the point when the next generation is ready to take on ownership. For instance, if the parents have been required to pay for their interest in the business, they may feel it should work the same way for their children. Another factor is the children themselves, who may be more or less interested in or capable of assuming ownership. Child A may have demonstrated strong potential and been even more successful than their parents in terms of operating the family business profitably, while Children B and C are less than fully engaged in the family business and thus have a lower probability of success.

I have even seen parents with multiple children who have started or bought additional businesses that are more in line with their children’s individual interests. In other cases, parents have established separate but equal leadership roles for their children within the family business to try to keep their children engaged in the parents’ dream of making them second-generation entrepreneurs. All of these variables can have an impact on whether parents decide to sell or gift ownership to children.

Some thoughts or emotions that may enter into having a daughter or son pay for interest in the family business include:

•They will value it more if they pay for it;

•We need our children to pay for the stock in order to fund our retirement needs;

•Siblings and co-workers may more fairly view the ownership transition if those receiving ownership have to pay for it.
In terms of gifting ownership, the overriding emotion is the pleasure that gift-giving provides to both the giver and the receiver. However, considering that many successful entrepreneurs provide a higher standard of living for their children than they personally experienced, gifting stock may exacerbate parental concerns about providing excessively for their children. Typical concerns along these lines include worries about creating a generation that is too materialistic; that continually expects bigger and better things; that has lost a sense of gratitude and may even have developed a sense of entitlement and boastfulness that is offensive to others and damaging to personal and business relationships.

What’re the Best Tax and Economic Approach to Stock Transition?

The short answer is that gifting is hands down the best approach to transferring ownership to the next generation. In fact, this option became even more attractive for gifts in 2011 and 2012, as a result of changes made by the 2010 Tax Relief Act. For these particular years, individuals with substantial wealth can take advantage of the $5 million gift-tax exclusion and the generation-skipping tax exemption in passing stock along to children. With the value of many companies depressed as a result of the economic recession we have experienced, the $5 million exclusion goes a long way.

A quick example may help demonstrate why selling stock to family members is not a good economic decision. Suppose you decide to sell your business to a child for $2 million. The selling price is subject to a federal capital gains tax of 15 percent plus state-income tax (let’s assume that the state income tax at five percent and that you have little or no stock basis). Your child has to earn approximately $3.3 million (assuming they are in a 40 percent tax bracket) to have $2 million to pay for the stock. Additionally, at your death, your estate will need to pay approximately $0.934 million in estate tax. The math on this transaction is reflected below to clarify what your client, the parent, really gets from the sale:

Gross sales proceeds $2,000,000
Less: Capital gains tax (1) (400,000)
Less: Estate tax (2) (700,000)
Net Proceeds $900,000

1.Note that the top marginal federal rate on stock sales is scheduled to increase to 20 percent beginning January 1, 2013, which will increase this amount in the future

2.Note that the above example uses a marginal federal estate tax rate of 35 percent that applies for 2011 and 2012, however the rate is scheduled to revert to 55 percent in 2013
When coupled with the $1.2 million dollars of tax the child will pay to get the $2 million of gross proceeds paid to the parent(s), it’s clear that this is an all-around losing proposition. Not only are your client and their children out the dollars paid in taxes, but they will both have lost the time value of money on the tax dollars.

How to Ensure Children Appreciate Stock Gifts?

A key ingredient seems to be developing successor leaders that have a solid understanding of what it takes to be successful in business as well as having them bring some valuable experience to the business. Possible ways to have them “earn” their equity and not officially pay for it include:

•Requiring them to work outside the family business before they can officially enter (after completing their college degree in a field relevant to the family business.)

•Setting milestones of commitment and achievement through an individual development plan designed to guide their career and growth as leaders in the business over an extended period of time.

•Easing children into greater ownership over time, such as awarding them non-voting shares so they can learn how to handle the privileges and responsibilities of ownership.
Conclusion

Having a well-conceived succession plan will address both the financial and leadership development aspects of the business for all generations of the family. With solid planning, the shares the parent gifts will feel a lot more like shares that their children have “earned”.

Since not all family businesses are interested or able to pass on ownership to children, in an upcoming issue I will divulge how an employee stock ownership plan can be used as an
employee- and tax- favored vehicle to facilitate succession.

Robert Half Releases 2012 Salary Guides

The newly released 2012 Salary Guides from Robert Half International show U.S. starting salaries will increase an average of 3.4 percent next year.

Technology positions are projected to see the largest gains among all fields researched, with an anticipated 4.5 percent increase in base compensation. Accounting and finance professionals can expect starting salaries to rise an average of 3.5 percent, according to the research.

"Businesses seek professionals who can help them enhance their technology and accounting infrastructures," said Max Messmer, chairman and CEO of Robert Half International. "For many firms, the question isn't whether to implement improvements but how quickly they can find the talent to do so."

Following is an overview of hiring trends in the fields covered by the Salary Guides:

Accounting and Finance

The 2012 research forecasts an average starting salary increase of 3.5 percent for accounting and finance positions. Companies are hiring professionals who can identify and support growth opportunities, such as financial analysts and business systems analysts. Tax accountants who can help firms navigate complex corporate tax laws also are in demand.

Technology

Overall, base compensation for information technology (IT) professionals is expected to increase 4.5 percent in the coming year. Systems and networking engineers are in particularly strong demand as businesses look to expand their capabilities and transition to cloud computing. Mobile applications developers also are seeing demand for their services, given the proliferation of mobile devices.

Creative and Marketing

Professionals in creative fields can expect average starting salary gains of 3.5 percent in 2012, the research suggests. Those with interactive skills, such as user experience (UX) designers, are especially sought after as firms look to improve their web presence and transition many of their marketing programs online.

Legal

In the legal field, starting salaries are anticipated to rise 1.9 percent, on average, in the coming year. Lawyers with four to nine years of experience in high-growth practice areas -- such as litigation, labor and employment, real estate, and corporate law -- are seeing greater demand, the research shows.

Administrative and Office Support

Overall starting salaries for administrative professionals are expected to rise 3.4 percent in 2012. Companies that had streamlined support staff are now adding experienced executive and administrative assistants who can increase efficiencies, support key company projects and provide excellent customer service. Growth in the healthcare industry also is fueling demand for administrative personnel with experience in this sector.

About the 2012 Salary Guides

The newly released Salary Guides include:

-- 2012 Salary Guide from Robert Half for accounting and finance (www.roberthalf.com/salarycenter)

-- Robert Half Technology 2012 Salary Guide (www.rht.com/salarycenter)

-- The Creative Group 2012 Salary Guide (www.creativegroup.com/salarycenter)

-- Robert Half Legal 2012 Salary Guide (www.roberthalflegal.com/salarycenter)

-- OfficeTeam 2012 Salary Guide (www.officeteam.com/salarycenter)

All of the guides can be accessed at http://www.rhi.com/SalaryGuides. Salary calculators that can be used to determine average starting salaries in hundreds of local markets also can be accessed via the links to the Salary Guides above.

The Myth of Work/Life Balance

The Myth of Work/Life Balance
Seven Ways to Rethink Your Approach to the Daily Grind

If you've been killing yourself trying to achieve daily work/life balance, Jon Gordon warns that it may be a pipe dream. He offers up another (better) solution.

In a perfect world, “work” and “home” would balance out neatly. We’d work from 8 to 5 each day, take an hour-long lunch, and then come home and spend uninterrupted time with our families. But for those of us here in the wake of the Great Recession, firmly entrenched in an “always on” society, this notion seems hopelessly outdated. Most of us are working longer, more stressful hours, and work is spilling over into evenings and weekends. No wonder a recent survey of North American employees found that 87 percent of respondents say their work/life balance (or lack thereof) is negatively affecting their health!

With so many people suffering from this problem, you would think the natural solution would be to encourage businesses to help their stressed-out employees find more balance in their lives. Not so, says best-selling author Jon Gordon.

“Work/life balance, at least in the sense that most of us think about it, is a myth,” says Gordon, whose new book is The Seed: Finding Purpose and Happiness in Life and Work (Wiley, 2011). “It does not exist. For many people, it never has. Personally, I have never been able to balance the scales of work and life on a day-to-day basis. Rather, I’ve come to realize that the dance between work and life is more about rhythm than balance.”

Gordon compares the rhythms of work and life to the rhythms of nature. There’s a time and a season for everything.

“For me and for most people, there are seasons when hard work and extra hours are a necessity, and seasons when there is more time for rest,” he explains. “And guess what? It’s okay. When you love what you do—and I truly believe there is meaning and even joy to be found in every job—you’ll thrive during the busy seasons and fully appreciate the down time.”

Gordon’s latest book—a business fable in the same vein as his Wall Street Journal bestseller The Energy Bus—follows Josh, an up and comer in his company, who has lost his passion at work. Challenged by his boss to take two weeks and decide if he really wants to work there, Josh takes off for the country, where he meets a wise farmer who gives him a seed and a promise: find the right place to plant the seed, and his purpose will be revealed.

This sense of purpose, asserts Gordon, is the natural remedy for the crushing guilt that many working parents in particular experience. (You know the drill: when you’re working late, you feel guilty that you’re not home with the kids; when you’re at home, you feel guilty about all the work not getting done.)

“When you believe your job has no meaning, of course you’re going to feel guilty for spending so much time there,” he notes. “It’s the realization that you are making a difference in the lives of others that lets you let go of the guilt and truly immerse yourself in what you’re doing during both seasons.”

Read on for Gordon’s advice on rethinking the concept of work/life balance and finding passion and purpose in both arenas:

First, let go of the work/life balance notion. Instead, think “purpose and passion.” It’s true that work/life balance is a topic that seems to be on many minds, says Gordon, citing a recent NPR segment titled “In America, Too Much ‘All Work, No Play’?” But in many ways, he insists, a perfectly balanced life is a perfectly tepid life. How much balance do you think Bono has when U2 is on tour? What about an Olympic athlete preparing for a competition? Or the leadership team at Facebook? Probably not much, but their passion and purpose fuel them to work harder and longer with more joy and satisfaction in both work and life.

“When your goal is to achieve work/life balance, you’ll be constantly disappointed and so will your loved ones,” says Gordon. “But when you approach every day with passion and purpose, whether you’re working long hours to prepare an important presentation or staying up late with your daughter to work on her science project, you can find joy and happiness in whatever it is you’re pursuing at that moment.”

Look at your work/life blend over the past year. Consider it as a whole. Rather than thinking of your work and life day to day, think of it as a whole. How many times did you get away with your family last year? Were there particular weeks/months where you worked really, really long hours? Were there times you were less busy? You might find that, when viewed that way, you did have a balanced life. Or you might realize you need to make a change in the way you do things during the upcoming year.

“It is going to be virtually impossible to achieve complete balance every day of your life,” says Gordon. “There will simply be days and weeks when your work requires more time from you. There will also be days when your family requires more of your time. Instead of driving yourself crazy trying to achieve a work/life balance every day, look at your life on a weekly, monthly, and yearly basis. Schedule times to work hard, recharge, renew, play, and engage with your family and friends.”

Identify the “seasons” in your company’s work flow. In nature there’s a season for everything. Spring (planting season) and fall (harvest) are times of extreme work. But there’s a slow down in the summer when plants are growing, and, of course, winter is when farmers do other things (repair work on house and equipment, etc.).

Most industries/companies work this way, too. They have busy seasons (when they’re getting ready for major industry events or peak sales times, for instance) and not-so-busy seasons. It might be easy for you to plan your work/home life flow around these times. Not just in terms of when you plan vacations, but also in terms of daily work hours. During the slow time, it’s okay to leave a little earlier each day if you know you’re going to be working long hours once busy season arrives.

“For me, there is a time to be on the road and a time to be at home with my family,” notes Gordon. “My wife and I look at our year as a whole. We plan our schedule according to the seasons of our life knowing that I’ll be slammed in August, September, and October and slower in December and July. We plan for when I’ll be working and when I’ll be more engaged with the family. You can do the same. Everyone’s rhythm is a little different, but when you find the right one for you and your life, you’ll be able to achieve a lot more at work and at home.”

Keep in mind your family’s “seasons” too. Of course, you can’t base everything on work schedules. There are times your family needs you more than others: birth of a new baby, when a child starts school, or when an older parent is having a crisis and needs you to care for him/her.

“At times like these, you will want to put in the family time and make it up when you can at work,” says Gordon. “Just as with your work, you can plan for some of these seasons, but other busy seasons might pop up unexpectedly—such as a sick parent. You have to be ready to adjust to the season. You have to go where you are needed. If you are worried about work at those times, you can take comfort in knowing that there will be a period when you can apply more of yourself to the job.”

Build up a “hard work” bank account with your company. When the company needs you to really push, push hard. (And do it cheerfully.) This way, when you need to slow down the pace or take time off, they’ll be willing to work with you. Gordon suggests you think of it as making deposits into a bank account.
“By willingly and happily accepting the challenge of a difficult project or client or by working long hours to meet an important deadline, you make deposits in the company’s ‘hard work’ bank account,” he explains. When you need to make a withdrawal, whether it’s for a family emergency or just a much-needed break, you’ll have plenty of goodwill with the higher-ups in your account and they won’t begrudge you for taking the time off.”

When you’re at work, really engage. Fully commit to whatever you’re doing at work. Don’t complain—positivity goes a long way. And don’t feel guilty that you are not at home. Feeling guilty is a recipe for misery and poor performance on the job and unhappiness at home. Commit fully to your season of hard work while planning for your season of rest and recharging.

“When you commit to your season of work, you won’t be tempted to watch the clock, dreading each hour that will pass before you finally get to leave work for the day,” says Gordon. “You’ll be more successful at work and feel more fulfilled.”

When you’re at home, really BE at home. Throw yourself into those precious family relationships. Don’t spend family time thinking about work or zoning out in front of the TV or computer. It’s not about the amount of time we spend with our families, says Gordon. It’s about how engaged we are during the time we do have with them.

“When you focus on planning your life around the rhythms of work and home, you have to be fully committed to the demands of the specific season,” he says. “So when you’re in a family season, don’t constantly check your BlackBerry. Don’t take work calls during dinner. Devote as much of yourself as possible to your family. Use the time that you wouldn’t get to spend with them if you were in a work season to do something special. Read to your child each night. Take your family on a surprise weekend trip.

“When you live your non-work season to the fullest, you’ll be all the more motivated to give 110 percent when you’re at work,” he adds.

“What I’m really talking about is making the most of your time however you spend it—of making each and every moment really count,” says Gordon. “Understanding your rhythms and planning and committing to the seasons of your life may not help you achieve perfect work/life balance. But you will create a life that is more passionate, more productive, and happier in every way.”

IRS to Track Online Sales in Search of Unpaid Taxes

People who make money selling items online will face extra scrutiny from the Internal Revenue Service when they file income tax returns for this year.

For the first time, payment processing networks such as PayPal will tell the IRS about sellers who use credit cards and debit cards to collect at least 200 payments that total more than $20,000 during 2011.

People who sell more than that amount online should take steps now to track their business expenses, said Mark Patrick, a Jacksonville certified public accountant. He said people who think they're making money from a tax-free hobby will discover the IRS is treating them as a taxable small business.

"They need to start keeping at least a spreadsheet or ledger of all the expenses they have," he said.

The stricter IRS oversight is part of the federal government's attempt to track down unreported income and boost the amount of taxes paid. By requiring the payment processing networks to report when a seller has garnered $20,000 in sales from online payments, the IRS can check whether the seller has fully disclosed his amount of sales.

"They suddenly find they have a business they didn't think they had," Patrick said.

Sellers should keep accurate records of their expenses so they can claim deductions that will lower their net taxable income, Patrick said.

For instance, he said people who sell online obtain many items at garage sales and flea markets.

"I've seen the guys come by garage sales and they've got a roll of $20 bills in their pockets," he said.

They will be totally unprepared for the new IRS enforcement if they don't keep track of how much it cost to buy the items that are later resold online. Another cost of doing business is mileage from driving to garage sales and flea markets. Any other overhead expenses should be tracked as well for deductions, he said.

The new regulations will require the payment networks to compile information about sales exceeding $20,000 on 1099-K forms. One copy of the 1099-K will go to the taxpayer and another copy will go to the IRS.

Few Homeowners Benefiting from Federal Short Sale Program

More than a year after the federal government rolled out a national program to help streamline the short sale process, few homeowners are benefiting from it, and Realtors wonder whether it will ever gain traction.

The Home Affordable Foreclosure Alternatives program, known as HAFA, has disbursed just $9.5 million out of $4.1 billion from April 2010 to December 2010, according to a Government Accounting Office report in March. Through May of this year, only 8,541 short sales were completed nationwide through HAFA.

HAFA offers a short sale option to homeowners who don't qualify for a loan modification. If approved, the difference between what the house sells for and the loan balance is forgiven.

The majority of short sales are still handled through individual lenders' programs because HAFA doesn't allow lenders to collect on the loan balance, and incentives -- including $1,500 to the lender -- aren't enough to entice banks to go along with the program.

HAFA expires at the end of next year, and by then, the U.S. Department of the Treasury hopes to help more homeowners by having a standardized process and uniform documents for lenders, said Laurie Maggiano, director of policy for the department's Homeownership Preservation Office.

It's a gargantuan task that Maggiano likens to turning the Titanic on a dime.

"It's not a rowboat. It is a very complex machine. It takes time to get these processes ingrained," she said. "It is beginning to happen."

The government's Home Affordable Foreclosure Alternatives program was meant to give homeowners an alternative if they don't qualify for a loan modification.

But most banks are unwilling to go along with HAFA short sales, in part, because the program forgives the homeowner's loan balance. Lenders, in some circumstances, would much rather try to recoup their money.

Experts say incentives the program offers -- including $1,500 to the lender -- aren't enough to make some banks want to participate.

There were just 320 HAFA short sales pending last September. Currently, there are 18,000 pending nationwide.

"Is it where we want to be? No," said Laurie Maggiano, director of policy for U.S. Department of the Treasury's Homeownership Preservation Office.

Ellen Mahoney, president of Complete Title Services' loss-mitigation division in Birmingham, said the majority of short sales are put through banks' programs. That way, lenders avoid HAFA's rule that won't allow them to force homeowners to repay part of the loan balance. "If the borrower is collectable, I don't see the banks wanting the little enticement from the treasury," Mahoney said.

Mike Sher, associate broker for Max Broock Realtors in Bloomfield Hills, said he's doing more HAFA short sales lately. "With them, everything is black and white. You either are eligible, or you aren't."

HAFA requires homeowners to have lived in the home in the last 12 months, have a financial hardship and have a first mortgage less than $729,750, obtained before Jan. 1, 2009. When homeowners don't qualify, lenders will usually try to put them through their own short sale program.

"One of the big benefits of the program is they go in and assess the value of the property and they give you the price," Sher said. "So when you get an offer you've already done three-fourths of your work."

In addition to the $1,500 incentive to the lender, HAFA offers homeowners $3,000 to help with moving expenses and $2,000 to the investors who hold the loan.

The HAFA program expires at the end of next year and by then, the U.S. Treasury hopes to have a model process and uniform documents that banks could use to speed the process and avoid greater losses that come with foreclosure.

Changes ahead

Program changes could be announced as early as this week. The policy changes grew out of meetings with 50-60 representatives from the real estate and banking industries this spring, Maggiano said.

She said changes to the year-old program include easing eligibility requirements that industry players have said would widen appeal.

Not being able to force borrowers to repay part of the loan balance is a huge stumbling block to getting more lenders on board. Another is the $6,000 cap on claims from second lien holders.

Maggiano said that while the first mortgage holder receives 65 to 80 cents on the dollar after the property is sold, the second and other lien holders get less than 6%, and they want to retain the rights to go after homeowners for more. But the change is not likely to happen, she said.

"We don't want taxpayer dollars going to a transaction where a borrower still has contingent liability," Maggiano said.

The help will come too late for homeowners like Celso Martinez, who would have been happy to benefit from a program like HAFA.

The 44-year-old bought a Royal Oak bungalow in 2008 for $164,000, then lost his job and moved to Collierville, Tenn., for a new one last fall. He spent almost 10 years in Michigan, working at the General Motors Tech Center in Warren.

Laid off, Martinez exhausted his savings and unemployment benefits trying to keep up with the mortgage, but he fell behind. He got a short sale offer of $80,000 this spring, but his bank rejected it. He got another offer in June for $104,500, but that didn't go through, either.

The house is now for sale at $102,500, but as a foreclosure.

"It was my first time buying a home, living the American dream," said the native of El Salvador. "But it isn't as good as it sounds. Now I am kind of messed up with bad credit for seven years."

His Realtor, Janet Graham with Hall & Hunter in Birmingham, tried hard to sell the home. There were 87 showings. "It is just not right," she said. "They don't see all the energy that goes into trying to make these situations right."

What lenders say

It is estimated that lenders and servicers may lose $375 million this year on short sale transactions, according to a May short sale report from CoreLogic, a data firm.

Lenders do a lot more loan modifications than short sales.

At Chase, a major Michigan lender, the breakdown is about 60% modifications to 20% short sales, said spokeswoman Mary Kay Bean.

The bank has an average response time of 30 days from request to approval on the transactions and has completed more HAFA short sales than any other lender, with 2,686 through May. It has completed 120,000 short sales using its own process nationwide since June 2009.

"When a modification isn't possible, we approve appropriate short sales for customers because they provide a better outcome for the borrower, the bank, the investor and the neighborhood than a foreclosure would," Bean said.

Jason Root, a loss mitigation director for Freddie Mac who specializes in short sale policy, said one of the biggest obstacles he's seeing is when the second lien holder wants more than the $6,000 cap imposed by HAFA.

"If the second wants more than the cap allows, those will automatically move to a regular short sale," he said. "We are constantly looking at those to see which part of the HAFA is stopping them from getting done. We have met a few times with the Treasury Department to troubleshoot that."

Freddie Mac and Fannie Mae purchase loans from lenders, then repackage and sell them to investors. Together, they guarantee about 70% of conventional loans written in the country.

A Kinder, Gentler IRS is Ready to Help

With talk of the possibility the economy could take a second dip into recession, it may be some comfort to know that the Internal Revenue Service feels your pain.

The federal agency charged with dunning taxpayers for their annual contributions has actually streamlined some procedures and softened some requirements to make it easier for folks to cope in these hard times.

Joseph A. Pancerella said he has seen evidence of a kinder, gentler IRS firsthand.

Pancerella, a certified public accountant and financial planner with offices in Shillington and Exton, Chester County, said he has recently seen people lose 90 percent of their business in just a year.

"Imagine going from doing $5 million to $6 million a year to not quite $1 million," he said.

The same is true for a homeowner who loses a job and is struggling to make mortgage payments.

"Not everybody is irresponsible," Pancerella said. "Not everyone is going to walk away from their mortgage."

Those who don't can, in the process of trying to do the right thing, dig themselves an even bigger hole in the form of unanticipated taxes, he said.

The IRS has tried to make it easier for taxpayers to settle up by making a so-called offer-in-compromise.

If you're not familiar, an offer-in-compromise is just what it sounds like.

If you owe federal taxes and, because of a financial setback, there is little if any chance of you paying the debt, you can ask the IRS to accept a portion of what you owe to settle your tax bill. This year, the agency has made it easier to qualify for the program.

The IRS took the measures because it is aware that some taxpayers have been struggling to meet their obligations in the wake of the country's economic downturn, said Jennifer A. Jenkins, an agency spokeswoman.

"To ease the burden on some who are feeling the financial pinch the most, the IRS streamlined and expanded its offer-in-compromise program," Jenkins said.

For example, in the past taxpayers needed to have a tax liability of less than $25,000 to participate in the program. The tax liability limit is now $50,000. Also, taxpayers must have incomes of $100,000 or less to be considered for the program.

"OICs still are subject to acceptance based on legal requirements and consideration of the taxpayer's ability to pay the tax owed," she said.

Another added benefit helps taxpayers already making payment on an offer-in-compromise who are now having trouble making their payments.

Taxpayers can now apply to renegotiate an existing offer to get more manageable payments based on their current financial situation.

Pancerella said taxpayers often run into trouble when they dip into their retirement savings to pay bills or make mortgage payments.

The fund trustee is responsible for taking a 20 percent tax bite out of funds withdrawn from a 401(k) or other retirement account, but the taxpayer also is responsible for income tax and another 10 percent penalty for withdrawing money before retirement age.

The total tax on a withdrawal of $100,000, for example, is about $21,000, but the trustee deducts only about $12,000. The taxpayer still must pay income tax and the excise tax, which amounts to another $9,000 in federal taxes, Pancerella said.

"Believe me, if you're taking money out of your retirement account you don't have $9,000 to pay the IRS," he said.

That is why taxpayers should consider all of the remedies available to them, including an offer-in-compromise, before taking cash out of their retirement funds.

IRS employees are now permitted to consider a taxpayer's current income and potential for future income when deciding on an offer-in-compromise, Jenkins said.

Normally, the standard practice is to judge an offer amount on a taxpayer's earnings in prior years. This new step provides greater flexibility when considering offers-in-compromise from the unemployed.

The IRS may require that a taxpayer entering into such a plan agree to pay more if the taxpayer's financial situation improves significantly, Jenkins said.

A Dozen Big Changes in Perceptions About Retirement

Middle-income baby boomers have spent the past few years battening down the hatches for futures they expect will be uncertain but turbulent. In the process, their definitions of what retirement looks like have changed dramatically. A new poll sponsored by Bankers Life and Casualty Co. provides a detailed look at the changing financial profile of people born between 1946 and 1964, with household incomes ranging from $25,000 to $75,000 a year.

It's no secret that the middle class has been under enormous financial stress. The value of this study, "Middle-Income Boomers, Financial Security and the New Retirement," is in the detailed portrait it provides of specific boomer actions and attitudes. See how your own outlook compares with its findings.

Before the recession and market declines, Americans seemed to be on a debt-financed spending spree, often using their home equity as a piggy bank. No more. Since the downturn, middle-income boomers have sharply curtailed discretionary spending on most leisure-time items. Here are the percentages of respondents saying they are now spending less on:

Going out to restaurants: 63 percent

Vacations: 62 percent

Movies: 62 percent

Clothes and shoes: 60 percent

Gifts for birthdays and holidays: 58 percent

Electronics and tech gadgets: 56 percent

Hobbies: 55 percent

Cable television: 26 percent

Nearly 3 of every 4 boomers say they've been forced to rethink their retirement date. Of these, nearly 80 percent (that's more than half of all middle-income boomers) said they would delay retirement—by an average of five years—and 14 percent said they feel they can never retire. Retirement used to be linked with a person's age. "Today, more than ever, a new number has emerged in its place—the amount of one's personal savings," the study said. "On the new road to retirement, Americans can now retire only when they feel they can afford to do so."

The survey found that middle-income boomers had increased their contributions in employer retirement programs but still felt they would come up short in having enough money to retire. "Uncovered healthcare expenses (80 percent), inflation (79 percent) and living longer than their money lasts (71 percent) are the top three financial concerns that middle-income boomers have about retirement."

Asked what they expected their retirements to be like, boomers projected huge differences between their experiences and their perceptions of how previous generations had fared in retirement. In financial terms, at least, the Silent Generation had nothing to squawk about because it retired with pensions and other sources of guaranteed income.

6 Ways to Plan for Your Later Years

Coming to terms with the realities of your later years can be one of the toughest challenges of aging. America is geared to youth and even acknowledging the inevitability of aging may be considered a form of cultural disloyalty.

So let's accept and applaud that 80 can be the new 60, that millions of baby boomers will reinvent themselves during their 60s and 70s, and that stereotypes about being old in America will be tossed out in favor of more positive images of vibrant old age.

[See 10 Bargain Retirement Spots.]

Even so, we will still get old. After all, isn't that the goal of today's enhanced emphasis on taking better care of ourselves? To age successfully, however, we also will need to contemplate important aspects of our later years, up to and including plans for our death.

The Longevity Project, a current book on traits of people who have lived long and successful lives, notes that conscientious people are favored to live long and well. One reason is that they do not leave things to chance. They tackle future needs today. Having plans in place, they are more prepared and less stressed about what their futures may hold. Such an approach does not, of course, guarantee successful aging. But it sure raises the odds.

Here are some of the key planning needs that nearly everyone will face as they age and retire. Some are practical and financial; others are very subjective but no less important. In every case, the sooner you begin to build these plans, the better off you'll be in the future. How many of these life "boxes" have you checked off?

Achieve retirement self-sufficiency. Generating the largest possible retirement income often seems to be the only financial goal of retirement planning. But it's really just a very visible element of a more complex set of calculations, many of which are emotional, not financial. The goal of all this work is to produce self-sufficiency in retirement. We don't want to worry about making ends meet every month, and we certainly don't want to be a burden on our families. Reaching self-sufficiency is a process that should begin well before you turn 65. It often can require some very difficult and perhaps uncomfortable admissions about how much money you will have to live on in retirement. While we're balancing future expenses and income, we're also adjusting our dreams to reflect the reality of our likely future circumstances. It is hard work, but ignoring it doesn't make it easier or lead to better outcomes.

[See 3 Steps to Turn Nest Eggs Into Retiree Income.]

Do worst-case planning. Unless you're really wealthy, there are adverse life events that can devastate your finances. Take suitable precautions. For example, I just bought an additional life insurance policy that will be in force until I'm 80 years old. Its sole purpose is to help my wife (and me) sleep better at night knowing she will have an extra cushion if something happens to me. For the same reason—sleeping well at night—we're also going to strengthen our long-term care insurance, adding to our coverage limits (particularly for in-home care) and also getting what's called a state "partnership" policy. Under this policy, if one of us requires extensive care—most likely for Alzheimer's—we would seek Medicaid coverage after exhausting our insurance policy benefits and, most likely, a good portion of our wealth. If this happened, we would not have to deplete our assets totally to qualify for Medicaid. Instead, we'd be able to shield an amount equal to the total of our private insurance benefit payments. In our case, we are fortunate to be able to afford to divert our current income into these insurance payments. But we're also willing to reduce current consumption to do so. You may have your own worse-case planning to do.

[See Don't Take Life Insurance Payouts for Granted.]

Decide where to live. Most people want to age in place in their homes. If this applies to you, take a careful and hard look around your house and imagine how well it would suit you if you were in a wheelchair. That's the reality you need to consider. Further, is your home in a supportive neighborhood? Once you no longer can drive, how would you get out to shops and doctors' offices? If, instead, you opt for a seniors-only retirement community, what's your geographic preference and why? What kind of community can you afford?

Keep solid records. If you died tomorrow, how hard would it be for your loved ones to get access to your key legal documents (will, trusts, and the like) and financial accounts? Do you even have the basic legal documents drawn up? You should have multiple copies of key documents plus account information (and online access passwords). Increasingly, these are going to be computer files. Keep one set on your home computer, and back it up either on an external hard drive or on a "cloud" computing back-up service. Provide access information to the appropriate family members. Then—and this is much easier said than done—regularly update these files so they are always current.

Consider your legacy. There is no common yardstick to use in measuring the impact we've had on the world during our lives. Most likely, however, you have your own yardstick. What does it tell you? How do you measure up to your own standards? Are there things you still believe you should be doing to satisfy your expectations? Believe me, this is not something you want to wait to do until your final days. Maybe a frank look in the mirror will cause you to make some major changes in your life. Maybe it will reaffirm you've been on the right path all along.

Determine your final wishes. Social scientists who have studied people in their final days report how helpful it is when a person has made the key decisions about the end of their life well in advance. Often, people are not able to make sound decisions as they near death. They often have physical and mental impairments that make such work impossible. Their families may have to make these calls for them, adding a lot of stress to what is already a difficult situation. So, would you like to die at home, in a hospital, or perhaps in a hospice facility (you probably can have hospice at home or in a hospital setting as well)? Have you executed the proper documents providing your spouse or a family member with the authority to make medical decisions should you become incapacitated? Does this person know your preferences for end-of-life care? Do you want to be buried or cremated, or perhaps donate your body to science? Is there a final resting place you have in mind? Who's going to provide an obituary to your hometown newspaper, and what do you want it to say? Setting aside time to make these decisions will hardly rank among your happiest memories. But you will be providing your family an invaluable gift—allowing them to focus on the loving aspects of your life, not the hassles of wondering how you'd like things handled when you die.

Tax Tips Offered

No one wants to think about taxes following the April 18 deadline. But experts suggest that preparing now could make next year that much easier.

"Planning for taxes is just good financial strategy," said Michael Devine, an Internal Revenue Service spokesman. "If you had trouble this year, that should tell you that you need some sort of filing system."

Keeping track of receipts and any other tax records can be as simple as putting everything in a box, drawer or file folder. Anything that might possibly be a deduction should be placed in that spot throughout 2011 and questioned later.

From a marriage or divorce to moving expenses and new windows or appliances, all of these things could be important come tax season.

"There are more things you can do ahead of time than after the fact," said Charles Schwichtenberg, a certified public accountant with Sumner Carter Hardy & Schwichtenberg.

Mr. Schwichtenberg stresses the importance of communication with whoever is preparing your taxes. More often than not, those tax professionals can provide vital answers to questions about life changes or big purchases through the year.

"Just thinking occasionally about how this will affect your taxes next year might help you plan legally to reduce tax liability," Mr. Devine said.

Another idea to consider before next year deals with withholdings. According to the IRS, if an individual paid in more taxes than expected or received a large refund, he or she may want to complete a new Form W-4 withholding statement with their employer.

"If you only think about taxes in April, then you might miss out on the ability to save some money," Mr. Devine said.

There may be an alternative to record-keeping, too. Mr. Schwichtenberg said there are many applications for smart phones to keep track of mileage using the internal global positioning system, as well as an app to store pictures of receipts and working lunches.

"(Mileage) is something that we see people having a tendency to be lackadaisical about," he said. The apps can help with that. There are also apps to keep track of non-cash donations.

"The bottom line is that there are apps out there to keep record-keeping easier," he said. "I think as we go forward, we're going to see more of that."

Parents Taking Due Credits Save Thousands in Taxes

Consumers seek coupons for $25 deals on everything from massages to restaurants, but what about tax deals?

Parents who pay attention to their tax return can often recover thousands of dollars for everything from raising children to sending them to day care or college. Yet taxpayers leave billions of unclaimed credits on the table, according to federal figures.

Maybe it's a lack of knowledge. Maybe it's intimidation from the rules and regulations that come in tax forms and publications. But tax software such as TurboTax or TaxAct, which are free on the IRS site (freefile.irs.gov) for people with an adjusted gross income of $58,000 or less and available in stores for others, will help you hunt for the credits that fit your situation and do the number crunching for you.

Whether you do taxes on paper or online, watch for these potential deals. And take advantage of them because many could be reduced in a couple of years as short-term tax laws expire. Here are ways to save money:

CHILD TAX CREDIT: Parents can cut their tax bill by as much as $1,000 a child, up to a total of $3,000. Children must be under age 17, and there are income requirements to meet. The credit starts to phase out when married couples' incomes top $110,000 and single parents' exceed $75,000. But parents still might qualify for some limited credit with incomes up to $130,000 for couples and $95,000 if single, said William Massey, a tax analyst with Thomson Reuters. Typically, this credit reduces your regular taxes, but for some low-income families it is possible to get some money back from the government even if their income is too low to pay taxes.

Use Publication 972 and Form 8812 to qualify for a refund that exceeds what you owe in taxes.

EARNED INCOME TAX CREDIT: This credit is intended to help people who work but earn little. The amount of the credit is influenced by the number of children you have. For example, a couple with three children could have an income up to $48,362 and qualify, but a single person with no children would have to have an income under $13,460. The maximum credit with three children is $5,666, but if you are childless, it's $457. To find out if you are eligible, use the table in IRS Publication 596.

SENDING KIDS TO COLLEGE: The American Opportunity Tax Credit can take some of the sting out of paying college tuition and fees. You can get a credit of up to $2,500 per student per year for each of four years for college. To get the full benefit, income for a couple must be no more than $160,000; for singles, $80,000. But some credit is available for couples with income up to $180,000, or $90,000 for singles. The rules are covered in Publication 970.

Keep in mind that recent tax changes allow you to use the credit for each year of a four-year education up to the end of the 2010 tax year. Previously, the Hope Credit for college applied only to the first two years.

Massey notes that parents may be able to claim the credit if a grandparent pays a student's college costs directly to the college. In addition, if a student borrowed with student loans, either they or their parents can deduct the interest payments they make on the loans.

ADOPTED CHILD: Recent tax changes have enhanced the credits available to parents who adopt children, said Mark Luscombe, a tax analyst for CCH. Parents can receive a credit for up to $13,170 for expenses, such as legal fees, incurred while adopting a child. In some cases, travel costs may also be covered if the adoption was done away from home. Parents adopting special needs children may be able to get the full $13,170 credit even if they did not spend that much. Use Form 8839.

CHILD CARE EXPENSES: If you pay someone to care for a child under age 13 while you work, you can get a credit for up to 35 percent of the costs up to $3,000 per child or $6,000 for two children. This can cover care in your home as long as it's not provided by a spouse or one of your other children. The benefit can also extend to facilities such as day camps but not overnight camps. See Publication 503.

INSURING THE KIDS: If you were self-employed in 2010 and bought health insurance for yourself and your family, you will be able to deduct the premiums you paid for children under 27, even if you don't claim the child as a dependent, said Massey. This is a result of health care overhaul. Dates matter, however. Massey notes the deduction is possible only for the portion paid from March 30 to the end of 2010.

New 1099 Reporting Requirements for Landlords

Congress in 2010 expanded the information return reporting requirements contained in Code Sec. 6041. Generally, Code Sec. 6041 requires payments of $600 or more to a single recipient in the course of a trade or business to be reported by the payor to the IRS and the payee, usually on Form 1099-MISC. There are exceptions to the general reporting requirements but these exceptions begin to disappear in 2011.

One of these disappearing exceptions to the reporting requirements involves landlords. The Small Business Jobs Act of 2010 (2010 Jobs Act) (P.L. 111-240) amended the definition of trade or business to include renting real property. Before 2011, most landlords were not subject to the reporting requirements because renting real property was not considered to be a trade or business. Under the new version of Code Sec. 6041, real property rental is now considered a trade or business but only for purposes of the reporting requirements.

There are some exceptions to the general rule requiring landlords to report payments of $600 or more made in the course of renting real property. The first exception is for those who receive substantially all of their rental income from the temporary rental of their primary residence. The second exception is for individuals who receive "minimal" rental income, which amount will be determined by regulation. Similarly, the third exception applies to individuals receiving rental income if compliance with the reporting requirements would cause hardship. What constitutes hardship will also be defined by future regulations.

Like all returns, Forms 1099 must accurately identify the payor and the payee, as well as the total amount paid. Accurate identification includes the name, address and taxpayer identification number (TIN) of the payor and payee. The telephone number of the payee is also required.

It is the payor's obligation to request this information from the payee and Form W-9 may be used for this purpose. A landlord should request that Form W-9 be completed before making any payments to the payee because, if the payee fails or refuses to provide the correct taxpayer identification number, the payor is usually required to collect backup withholding from any payments due to the payee. The payor may be liable for a penalty for failure to backup withhold so withholding the correct amount from the payee is crucial. Also, a $50 penalty is imposed on a payee who fails to provide a correct TIN upon request.

Since landlords have not, until now, been "engaged in a trade or business," the reporting requirements create a problem. According to the instructions for Form 1099, sole proprietors and others, like landlords, who are not otherwise required to have an employer identification number (EIN) should use their Social Security number (SSN) for reporting purposes. Moreover, the instructions state that the filer's name and TIN should be consisted with the name and TIN used on the filer's other returns. This opens up the opportunity for identity theft.

Fortunately, landlords have a few options to protect themselves. The landlord can organize a separate company or LLC to perform management services for the property, including making payments to contractors. As the payor, the management company or LLC would be responsible for reporting any payments on Form 1099 and could use its own EIN, thus shielding the landlord's SSN. Another option is for the landlord to hire an employee. A spouse or child could be hired and an EIN obtained in order to report the wages of the new hire. This EIN could then be used on Form 1099, again shielding the landlord's SSN. Or, the landlord may be able to place the real property in a trust and use the trust's EIN for reporting purposes.

The deadline for providing Forms 1099 to payees is January 31 of the year following the year of payment. The deadline for filing the returns with the IRS is February 28 of the year following the year of payment. There is an extended deadline, March 31, when the returns are filed electronically.

The 2010 Jobs Act also increased the penalties for failing to file Forms 1099 with the IRS, for filing Forms 1099 late and for failing to provide copies of Forms 1099 to the payee. The increased penalties apply to information returns required to be filed after December 31, 2010.

Tax Tips for Contractors

The flurry of recent tax legislation and the lingering effects of the economic downturn make this tax planning environment one of the most challenging in recent memory. Contractors need to do what they can to improve cash flow by effectively managing their tax burdens and leveraging any available new tax incentives.

Tax planning over the next two years will require thoughtful and nimble analysis.

In order to help contractors with their planning, Grant Thornton LLP’s Construction group has developed eight tax tips for contractors. Below is a sampling of some of the things construction contractors should keep in mind:

1)Double bonus depreciation — full expensing! Lawmakers have extended and doubled bonus depreciation, allowing full expensing for many assets placed into service through 2011. Property qualifying for bonus depreciation that is placed in service after Sept. 8, 2010, and through the end of 2011 will be eligible for full 100% expensing.

2)Review deferred compensation plans. Most contractors are struggling to remain profitable in this difficult environment. If your company cannot afford large bonuses to retain key employees, now is the time to revisit alternative compensation arrangements.

3)Certain S corporations should consider taking gains in 2011. If you converted to S corporation status in 2004 or 2005, consider sales of “gain” property in 2011. Special provisions enacted over the last two years provide a reduced seven-year period for sales that take place in 2009 or 2010 and a five-year period for sales of property during 2011.

4)Take full advantage of capital asset expensing deductions. Rules originally intended for small businesses were significantly expanded to allow contractors to expense up to $500,000 of 2010 fixed asset costs, provided less than $2 million of assets were placed in service throughout the year. Unlike bonus depreciation, this applies to new or used assets.

5)Maximize Section 199 deductions. The Section 199 domestic production activities deduction is a unique tax incentive available to most contractors. This incentive allows taxpayers to deduct 9% of qualifying production activities, which includes the construction or substantial renovation of domestic real property.

Small Biz to Congress: Deep-Six the 1099 Expansion

Small-business owners enumerate the costs that will come with more tax reporting.

The expansion of Form 1099 reporting requirements that lawmakers buried in the health-care reform bill has caused no shortage of anxiety among business owners and executives, many of whom already feel buried in paperwork. Following the Senate's vote last week to repeal the measure and President Obama's indirect endorsement of a repeal in his January State of the Union address, the House Committee on Small Business held a hearing this week to let executives air their concerns. Not surprisingly, the testimony universally encouraged Congress to drop the new requirements, and quickly.

Currently, a business must provide a 1099 form to the Internal Revenue Service for any services it receives from an unincorporated firm, such as a partnership. Last March the Patient Protection and Affordable Care Act broadened the requirement so that a business would have to file the form for every vendor it uses, regardless of incorporation status, both for services and goods that exceed $600 in a year. The measure, scheduled to take effect January 1, 2012, was intended to generate additional tax revenue to help fund health-care reform.

Business owners have complained that tracking all corporate purchases to determine when to file would be an overwhelming and expensive job, not to mention collecting hundreds of tax identification numbers from vendors. For example, "the simple task of tracking fuel purchases from multiple gas stations . . . is not as simple as collecting receipts," testified Mike Kegley, a Kentucky-based builder who appeared at the committee hearing on behalf of the National Association of Home Builders. Instead, "businesses must determine the taxpayer identification numbers for each gas station, as they are likely owned by different franchise owners. Many businesses will be forced to hire additional staff to comply, and few home builders are in the position to do that."

Kegley said his bookkeeper estimated that his company would likely spend at least $9,000 in the first year the new rules take effect, not including software costs, and at least $1,900 per year after that.

John "Mark" Eagleton, a restaurant franchisee in Colorado who testified on behalf of the National Restaurant Association, noted that the new rules mean he would have to file forms for the fresh lettuce he buys each day at the local grocery store, as well as his miscellaneous purchases at dollar stores, among the other 200 to 300 vendors he deals with, since those purchases typically exceed $600 in a year. The 1099 expansion "may seem like a simple edict, but it could put me out if business," said Eagleton, whose restaurant was slightly cash-flow negative last year after debt payments.

While repeal of the 1099 expansion looks like a distinct possibility, the main obstacle right now is money. "The budget has been based on this additional revenue coming into the coffers, so the argument right now is, 'If we repeal and don't bring in this additional revenue, what are we going to do to offset it?'" says James Guarino, a partner with Boston-based tax and accounting firm Moody, Famiglietti & Andronico.

Some relief has already come in the form of the IRS agreeing to exempt any credit-card transactions from the requirement. However, that's not enough, business owners say, since not all purchases can be made, or accepted, with a credit card.

Still, there's good reason to hope. Congress "may drag [the repeal] out," says Guarino, "but I sense that one way or another it's going to get passed."

Facebook Overvalued at $50B in Global Poll of Investors

Only 10 percent of respondents say Facebook's valuation is appropriate while 51 percent say valuation signals the 'beginning of dangerous new bubble'.

Facebook Inc. isn’t worth $50 billion, according to a poll of global investors that shows skepticism about Goldman Sachs Group Inc.’s recent estimate of the largest social-networking site’s value and concern that a bubble may be forming in the technology sector.

Sixty-nine percent of investors say Facebook is overvalued after Goldman Sachs invested $450 million in a deal that put the company’s worth at $50 billion, according to the quarterly poll of 1,000 Bloomberg customers who are investors, traders or analysts. Only 10 percent of respondents say Facebook’s valuation is appropriate; 4 percent say it’s worth more. The full story is online here.

The poll conducted Jan. 21-24 shows that investors disagree with Goldman Sachs’ assessment that Facebook is worth more than Web pioneers such as Yahoo! Inc., the biggest web portal, and eBay Inc., owner of the biggest online retail marketplace. Palo Alto, California-based Facebook surpassed Yahoo! in October as the third most visited website in the world.

Facebook raised $1.5 billion in a Goldman Sachs-led financing round this month. In addition to Goldman Sachs’ $450 million investment, Russia-based Digital Sky Technologies put up $50 million and Goldman Sachs clients outside the U.S. snapped up a $1 billion stake in the company. Goldman Sachs, which retained the right to sell $75 million of its stake to Digital Sky, had originally offered Facebook shares to its U.S. clients in a private placement. That was called off after details became public because the offering risked running afoul of U.S. securities laws.

Stephen Cohen, a spokesman for New York-based Goldman Sachs, declined to comment. A Facebook spokesman, Jonathan Thaw, declined to discuss the valuation. “We’re focused on creating a useful service and building our business for the long term,” he said in an emailed statement.

The Bloomberg poll shows that the Facebook deal has made investors uneasy about internet companies in general. More than half the respondents (51%) say the firm’s valuation signals the “beginning of a dangerous new bubble” in the market, while only 17 percent saw it as the foundation of a lasting boom.

Investors worldwide have doubts about the Facebook deal, and those outside the U.S. were most pessimistic. Seventy-two percent of non-U.S. respondents say the company was overvalued. Among U.S. investors that number is 63 percent.

The $50 billion valuation puts Facebook in league with the publicly-traded Tencent Holdings Ltd., the Shenzhen, China-based internet company whose services include online games and instant messaging that is worth more than $42 billion on the Hong Kong stock exchange. Tencent trades at about 15 times revenue. The Facebook valuation is about 25 times its 2010 revenue. Google’s price-to-sales ratio is 9, analysts estimate. eBay’s market value is $40.5 billion and Yahoo!’s is $21.2 billion.

LinkedIn Corp., a Mountain View, California-based professional networking firm, filed yesterday with the Securities and Exchange Commission to raise as much as much as $175 million in an initial public offering. The company is valued at $2.5 billion on SharesPost Inc., a San Bruno, California-based online marketplace for trading shares in private companies.

Among European investors in the poll, 56 percent say the Facebook deal signals a bubble among online firms while less than half of U.S.-based respondents (47%) agree. About a quarter of Asian investors (24%) see the deal as the start of a new boom in online companies, while overall 17 percent of those polled are positive.

In 2008, Mark Zuckerberg, Facebook’s founder and chief executive officer, became the world’s youngest billionaire at 23 when Forbes Magazine listed his wealth at $1.5 billion. The magazine now says his net worth has reached $6.9 billion. Zuckerberg is the central character in the hit movie “The Social Network,” about the founding of Facebook, which was nominated for eight Academy Awards this month.

Facebook’s social network has more than 500 million members and trails only Google and Microsoft Corp. as the world’s most visited website, according to ComScore Inc.

The company had revenue of $1.2 billion in the first three quarters of last year, up from $777 million, according to a person who had viewed documents sent to potential investors by Goldman Sachs. The company reported profit of $355 million in the first three quarters of last year, compared with profit of more than $200 million for all of 2009.

Time to Start Thinking About 2010 Income Tax Filings

Many Americans will have to wait up to a month to file their 2010 tax returns this year.

That's because Congress' late action in December on extending tax credits is forcing the Internal Revenue Service to update its computer system to process claims.

"A lot of taxpayers will face a delay in filing a return because of the late changes," IRS spokesman Mark Hanson said.

Three groups will have to wait until mid- to late February before they can file. They are filers who itemize deductions; those who claim a higher education tuition and fees deduction; and K-12 educators who claim an out-of-pocket expense of up to $250 even if they don't itemize.

"The majority of taxpayers will be able to fill out their tax returns and file them as they normally do," IRS Commissioner Doug Shulman said in a statement. "We will do everything we can to minimize the impact of recent tax law changes on other taxpayers."

Also, the IRS has started regulating the tax-preparation industry. Paid tax preparers must now register with the IRS and receive a preparer tax identification number.

They can sign up by going to www.IRS.gov/taxpros. This does not affect individuals who fill out their own tax forms.

Filing a tax return is one of the biggest financial dealings people have every year, and they should not have to worry about the preparer not being legitimate, Hanson said.

"Hopefully, this will give taxpayers peace of mind that the tax preparer is registered with the IRS and is professional," he said.

About two-thirds of taxpayers traditionally get a refund, Hanson said. The rest usually have to pay and often are the last to file.

This year, procrastinators will have three extra days to prepare and file their taxes.

That's because the District of Columbia recognizes Emancipation Day, which this year falls on April 15, and it affects tax deadlines in the same way that federal holidays do. So taxpayers will have until April 18 to get their financial documents in order.

The IRS expects to receive more than 140 million individual tax returns this year, with most of those being filed by the April 18 deadline. Taxpayers requesting an extension will have until Oct. 17 to file their 2010 tax returns.

Here are some of the deductions taxpayers could qualify for:

Energy: Homeowners can deduct up to 30 percent of the costs paid or incurred in 2010 for any qualified energy-efficiency improvement. The credit is limited to a total of $1,500. If you claimed part of it in 2009, you can take only the remainder on your 2010 taxes.

College: The American Opportunity Credit allows for up to $2,500 per student. The credit includes books, which did not qualify for deductions in the past. The credit counts all of the taxpayer's first $2,000 spent and 25 of the next $2,000 spent.

Homes: First-time home buyers who bought a house by April 30 and closed on it by Sept. 30 last year are eligible for a credit of up to $8,000. If you claimed the credit on your 2009 form, you can't claim it again.

Electric vehicles: Taxpayers who bought plug-in electric vehicles in 2010 are eligible for a credit of 10 percent of the vehicle's cost or no more than $2,500 per vehicle. Also, those who bought qualifying hybrid cars can claim a deduction as well.

Earned Income Tax Credit: The American Recovery and Reinvestment Act provides a temporary increase in the earned income tax credit for taxpayers with three or more qualifying children. The maximum credit is $5,657 for taxpayers who earned less than $49,000 last year. The credit started in 2009 and is good for 2010 as well.

Standard deductions: The IRS increased its standard deductions in 2009, and they will remain in place for 2010 returns. The exception is for heads of households, whose $8,400 deduction is up $50 from 2009.

Here's what most preparation services suggest you bring to an appointment:

--Prior tax return.

--Photo identification.

--Social Security cards for all people claimed on the return.

--Income statements.

--Child-care information with the provider's Social Security number or tax identification number.

--Proof of bank account for direct deposit or debit.

2011 Tax Filing Season Gets Under Way With Many Changes

The IRS started accepting e-filed and Free File returns on Jan. 14, marking the official start of the 2011 tax filing season. However, many taxpayers will not be able to file until some time in February while the IRS updates forms and reprograms its systems to account for legislative changes made late in 2010.

Individual taxpayers will have until April 18 to file their returns. Although the normal deadline, April 15, falls on a Friday, that day is a legal holiday in the District of Columbia, and because D.C. holidays affect tax deadlines in the same way federal holidays do, all taxpayers are being given an extra three days to file their returns.

The IRS has announced that taxpayers who itemize deductions on Schedule A, as well as those who take certain recently extended deductions, will not be able to file their returns until mid- to late February. See “Tax Law Changes Will Delay Start of Filing Season for Some Taxpayers.”

For the 2011 filing season, the IRS is again making available its online “Where’s My Refund?” tool, which can be found on the front page of its website.

PTINs

For paid tax return preparers, perhaps the biggest procedural change this tax season is that they must obtain and use a preparer tax identification number (PTIN) when preparing returns. The IRS has launched an online PTIN registration site where preparers can obtain or renew their PTIN. PTIN registration costs $64.25. Preparers can also apply using a paper Form W-12, IRS Paid Preparer Tax Identification Number (PTIN) Application.

Generally, on any tax return or claim for refund, the preparer—whether signing or nonsigning—must provide his or her PTIN. However, the IRS recently provided a list of 28 forms or series of forms that are not subject to the PTIN requirement—for a list, see “IRS Exempts CPA-Supervised Nonsigners From New Preparer Rules.”

Many CPAs have reported problems with the PTIN registration process, both online and using the paper form. See “PTINs a Pain for Some CPAs.”

E-Filing

While the vast majority of tax practitioners already e-file, this tax season marks the first year that e-filing is mandatory for individual returns. Specifically, tax return preparers who anticipate filing 100 or more federal individual or trust returns during 2011 are required to e-file them.

2010 Tax Changes

A number of pieces of legislation enacted during 2010 will affect returns filed this season, as will changes enacted in earlier years. The four biggest tax bills enacted in 2010 were the health care reform legislation (the Patient Protection and Affordable Care Act, PL 111-148, and the Health Care and Education Reconciliation Act, PL 111-152), the Small Business Jobs Act of 2010 (PL 111-240), and the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Relief Act, PL 111-312).

Changes Affecting Individual Returns

Itemized deductions and personal exemptions: The itemized deduction limitation is repealed for 2010 (and through 2012). This means that taxpayers can deduct the full amount of their itemized deductions in 2010. The personal exemption phaseout rules also do not apply in 2010 (and through 2012).

Alternative minimum tax (AMT): The 2010 Tax Relief Act included a patch of the AMT exemption amounts for 2010 and 2011. For 2010, the AMT exemption amounts are $47,450 for unmarried individuals and $72,450 for married individuals filing jointly. The 2010 Tax Relief Act also extended (through 2011) the ability to use nonrefundable personal credits to offset AMT (under IRC § 26(a)).

First-time homebuyer credit: The IRC § 36 first-time homebuyer credit expired during 2010. It is available to eligible taxpayers who closed on their home purchase on or before Sept. 30, 2010 (under a binding contract in place before May 1, 2010). The closing date deadline was moved during the year from June 30 to Sept. 30 by the Homebuyer Assistance and Improvement Act.

Rollovers to Roth accounts: The Small Business Jobs Act allows rollovers from elective deferral plans to Roth-designated accounts. If a section 401(k) plan, 403(b) plan or governmental 457(b) plan has a qualified designated Roth contribution program, a distribution to an employee (or a surviving spouse) from an account under the plan that is not a designated Roth account is permitted to be rolled over into a designated Roth account under the plan for the individual. This provision is effective for distributions made after Sept. 27, 2010. The taxable amount of the rollover must be included in gross income (although for rollovers in 2010, the taxable amount is includible in gross income half in 2011 and half in 2012).

Extended Provisions for Individuals

A number of credits and deductions that had expired for 2010 were retroactively extended by the 2010 Tax Relief Act and are therefore available for taxpayers to claim on their 2010 returns. Those available to individuals include the $250 deduction for elementary and secondary schoolteachers for purchasing classroom supplies; the state and local sales tax deduction in lieu of a state income tax deduction; the deduction for tuition and related expenses; and allowance for tax-free distributions from individual retirement plans for charitable purposes.

For a list of extended provisions, see “Congress Resolves Many Tax Issues During Lame-Duck Session.”

Changes Affecting Business Returns

The Small Business Jobs Act introduced a number of changes that may affect 2010 business returns.

Small business stock: The act created a 100% exclusion of gain from the sale of certain small business stock under IRC § 1202. To be eligible, stock must be purchased after Sept. 27, 2010 (this provision has been extended through 2011 by the 2010 Tax Relief Act).

Section 179 expensing: The Small Business Jobs Act increased the maximum amount a taxpayer may expense under IRC § 179 to $500,000 and increased the phaseout threshold amount to $2 million for tax years beginning in 2010 and 2011.

Bonus first-year depreciation: The first-year 50% bonus depreciation available under IRC § 168(k) was extended for one year by the Small Business Jobs Act to apply to property acquired and placed in service in 2010 (or 2011 for certain long-lived and transportation property). This amount was then increased by the 2010 Tax Relief Act to 100% for business property acquired after Sept. 8, 2010, and before Jan. 1, 2012, and placed in service before Jan. 1, 2012 (or before Jan. 1, 2013, in the case of certain property).

Business credits: The carryback period for eligible small business credits under IRC § 38 was extended from one to five years. The Small Business Jobs Act also allows taxpayers to use eligible small business credits to offset both regular and alternative minimum tax liability. Both provisions are effective for credits determined in the taxpayer’s first tax year beginning after 2009.

Self-employed individuals’ health insurance: The Small Business Jobs Act allows self-employed individuals who deduct the cost of health insurance for themselves and their spouses, dependents, and children who have not attained age 27 as of the end of the tax year to take the deduction into account in calculating net earnings from self-employment for purposes of SECA taxes. This provision applies to the taxpayer’s first tax year beginning after 2009.

Startup expenses: The Small Business Jobs Act increased the IRC § 195 deduction for trade or business startup expenses from $5,000 to $10,000 for tax years beginning in 2010. The start of the limitation on the deduction is increased from $50,000 to $60,000. So for 2010 the amount of the deduction is the lesser of: (1) the amount of the startup expenses or (2) $10,000, reduced (but not below zero) by the amount by which the startup expenditures exceed $60,000.

Cell phones: The Small Business Jobs Act removed cell phones from the definition of listed property. Thus, the heightened substantiation requirements and special depreciation rules that apply to listed property under IRC § 280A will no longer apply to cell phones.

Extended Provisions for Businesses

A number of business credits and deductions that had expired for 2010 were retroactively extended by the 2010 Tax Relief Act and are therefore available for taxpayers to claim on their 2010 returns. These include the credit for research and development expenditures and various empowerment zone designations and renewal community tax incentives.