Energy Credit Advantages

Here's the latest update from the IRS on homeowner energy tax credits.

Expanded Recovery Act Tax Credits Help Homeowners Winterize their Homes, Save Energy; Check Tax Credit Certification Before You Buy, IRS Advises


Home Energy Video: English | Spanish | ASL

Audio File for Podcast: English | Spanish

Video: Money in Your Pocket

IR-2009-98, Oct. 29, 2009

WASHINGTON — People can now weatherize their homes and be rewarded for their efforts. According to the Internal Revenue Service, homeowners making energy-saving improvements this fall can cut their winter heating bills and lower their 2009 tax bill as well.

The American Recovery and Reinvestment Act (Recovery Act), enacted earlier this year, expanded two home energy tax credits: the nonbusiness energy property credit and the residential energy efficient property credit.

Nonbusiness Energy Property Credit

This credit equals 30 percent of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $1,500 for the combined 2009 and 2010 tax years. The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items does not count.

By spending as little as $5,000 before the end of the year on eligible energy-saving improvements, a homeowner can save as much as $1,500 on his or her 2009 federal income tax return. Due to limits based on tax liability, other credits claimed by a particular taxpayer and other factors, actual tax savings will vary. These tax savings are on top of any energy savings that may result.

Residential Energy Efficient Property Credit

Homeowners going green should also check out a second tax credit designed to spur investment in alternative energy equipment. The residential energy efficient property credit, equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. Generally, labor costs are included when calculating this credit. Also, no cap exists on the amount of credit available except in the case of fuel cell property.

Not all energy-efficient improvements qualify for these tax credits. For that reason, homeowners should check the manufacturer’s tax credit certification statement before purchasing or installing any of these improvements. The certification statement can usually be found on the manufacturer’s website or with the product packaging. Normally, a homeowner can rely on this certification. The IRS cautions that the manufacturer’s certification is different from the Department of Energy’s Energy Star label, and not all Energy Star labeled products qualify for the tax credits.

Eligible homeowners can claim both of these credits when they file their 2009 federal income tax return. Because these are credits, not deductions, they increase a taxpayer’s refund or reduce the tax he or she owes. An eligible taxpayer can claim these credits, regardless of whether he or she itemizes deductions on Schedule A. Use Form 5695, Residential Energy Credits, to figure and claim these credits. A draft version of this form is available now on IRS.gov.

Happy Halloween From Attorney Taylor

As Halloween is fast approaching, my thoughts go to countless amounts of chocolate and treats. So, in honor of this cavity-induced holiday, I thought it would be a perfect time for a tasty trademark issue, even if it is about bunnies, and not pumpkins.

The issue involves whether a chocolate bunny can in fact be trademarked.

Currently, Switzerland’s Lindt & Sprungli are battling chocolate maker Hauswirth of Austria over the gold-wrapped chocolate rabbits, with ribbons around their necks that we all know so well. In 2001, Lindt received a trademark on the three-dimensional shape of its bunny. Following its trademark ruling, Lindt went into full-scale legal attack on many companies which make similar-looking items.

Hauswirth has stayed its ground and questioned the trademark’s validity, arguing that Lindt’s trademark was granted in bad faith (“bad faith” occurs when the applicant knew that identical or similar products already existed in other parts of the European Union, or if the applicant intended to prevent other companies from selling such products).

Historically, three-dimensional trademarks have been surrounded by a slew of controversy. There have been similar problems with chocolate bars, bars of soap, and even Lego toy blocks. And while Americans and Europeans allow logos, graphics, words, and even shapes (in theory), to be trademarked, courts have been hesitant to go down the three-dimensional route. Trademark law does not allow a three-dimensional shape to be registered if the shape is functional. In support of its mark, Lindt says its bunny deserves a chance, and that it is quite complicated to manufacture, citing considerations of structural integrity and high-speed foil wrapping devices.

So, what was the ultimate decision in this delectable chocolate-covered fiasco? Well, that is still being decided by Austria’s high court, which must rule on the bad faith issue, specifically when filing the application for trademark, the relevant factors to consider are:

--the fact that the applicant knows or must know that a third party was using an identical or similar sign for an identical or similar product cable of being confused with the sign for which registration is sought;

--applicant’s intention to prevent that third party from continuing to use such a sign;

--the degree of Legal protection enjoyed by the third party’s sign and by the sign for which registration is sought.

So, before we peel off those foil and plastic wrappers from all those tiny little candies, perhaps we should give a thought to what is inside and how it got there. And perhaps maybe we will get a decision on that very thing just in time for the Easter Bunny.

Kelly L. Swan Taylor, Esq.

Help For Non-Profits From The IRS -- Really.

I'm always on the lookout to see what the IRS has to say on issues that affect my clients. And, now the IRS has a video that is designed to help not-for-profit corporations understand the new Form 990 requirements. I've found that when my not-for-profit clients understand what will be required come filing-time, it is much easier for them to manage their bookkeeping functions so that they can work most effectively and efficiently with their accountants.

In addition to the video series,you can read a case study about getting started with the new 990, and there is even a five-part interactive course on how to stay exempt. Of course, the IRS' site for charities is always a great resource.

All of us at Shoffner & Associates are committed to helping each of our not-for-profit clients keep their financial and tax operations functioning smoothly and efficiently so that you can focus on what is really important -- Helping. We are always ready to answer your questions and to lend a hand. Call us. Write to us. Visit our website: shoffnerassociates.com.


Here's what the IRS published just last week:

New Video Series Helps Exempt Organizations Understand Redesigned Form 990 Requirements

IR-2009-92, Oct. 14, 2009 WASHINGTON — The Internal Revenue Service has launched a new case study and video program to help exempt organizations and their tax preparers better understand the newly revised Form 990 series which must be filed for the 2008 tax year. The Form 990 series, redesigned for the first time in nearly 30 years, requires more disclosure and transparency by exempt organizations. With some exceptions, organizations that are exempt for federal taxation are required to file the Form 990 information return. The additional information will give the IRS and the public a better view of how the exempt organizations work, especially in terms of expenditures and executive salaries. To help illustrate key points and answer important questions about the new Form 990, the IRS’ Exempt Organizations Division developed “The New Form 990: Getting Started,” a case study about a hypothetical organization – Exempt Organization for Disaster Relief (EODR). The hypothetical case study includes a set of facts describing organizational and financial aspects of EODR, and a completed Form 990 based on those facts. A video series walks you through key reporting issues common to most organizations required to file Form 990. Before starting the videos, people should read the hypothetical EODR case study and review the example Form 990. The series of videos, each between five and ten minutes long, cover a key area of the Form 990, using facts from the case study. The videos are listed in an order based on the sequencing list found on page 5 of the Form 990 instructions. However, they can be viewed in any order. Included in the video series are: Overview This video is a good place to start for people who have questions about the redesigned Form 990. It looks at some of the key things to consider about the Form 990 and the various schedules that exempt organizations may need to complete, particularly Schedule R. Revenue and Expenses This segment covers two of the financial statement portions: Part VIII, Statement of Revenue, and Part IX, Statement of Functional Expenses. It looks at how to fill out the required columns of information for revenue and expenses. Balance Sheet, Supplemental Financial Statements, and Schedule D This video, reviews Part X of the Form 990, the Balance Sheet, and Part XI, which covers Financial Statements and Reporting. It explains some differences between the redesigned and previous version of Form 990. It also focuses on parts of Schedule D, Supplemental Financial Statements. Program Services, Other IRS Filings and Tax Compliance This video focuses on Part III, which allows an organization to “tell its story” and describe its program services, and Part V, which covers other IRS filings and areas of tax compliance. Part V will alert organizations if they have other filing obligations besides the Form 990 and will help them to determine if they engage in activities that raise tax compliance concerns. Compensation This segment reviews the Form 990 compensation reporting in Part VII. It explains who needs to be listed in Part VII and explains the three types of compensation to report. It also highlights Schedule J, the compensation continuation schedule. Governance This segment describes how to complete Part VI of the redesigned Form 990, which requests information about the organization’s governing body, management, policies and procedures and disclosure practices. It also focuses on Schedule L, which requests information on transactions with interested persons, such as directors, officers, key employees and their family members. Summary, Schedules, Signatures This segment covers Parts I, II and IV of the Form 990—Summary, Signature Block and Checklist of Required Schedules. It also provides an overview of several new schedules to the Form 990. “The New Form 990: Getting Started” is only one of the online resources the IRS offers for 990 filers. There is a five-part interactive course at www.stayexempt.irs.govand a series of 990 filing tips, plus the 990 form, schedules and instructions at www.irs.gov/charities.

Small Business Retirement Plans... Simplified

For most of my small business and professional clients, establishing and maintaining a company retirement plan is a major pain. To make things easier, the IRS created a tool that should help. Here's what the IRS Newsroom has to say:

New IRS Retirement Plan Navigator Aims to Help Small Businesses

IR-2009-91, Oct. 13, 2009 WASHINGTON — The Internal Revenue Service has created a new Web-based tool to help small business owners determine which tax-favored pension plan best suits their needs and how to keep their plans in compliance. The IRS Retirement Plan Navigator is intended to provide employers with an easy-to-use guide that focuses on three areas: choosing a plan, maintaining a plan and correcting a plan. By using the navigator, employers may find that choosing and maintaining a pension plan is not as daunting as they thought. Some plan types are less costly and easier to establish than others. The navigator does not suggest which plan may be best for a specific employer but it does lay out the options to allow them to choose one that best fits their situations. The navigator includes a side-by-side comparison of pension plans and their requirements. The navigator provides a checklist and suggested resources for maintaining compliance. Pension laws change frequently. Employers can minimize problems by doing a once-a-year review to ensure they maintain compliance. The IRS also recognizes that mistakes can be made unintentionally, and many errors can be corrected without notifying the agency. The navigator offers suggested options to employers seeking to correct errors and bring their plans back into compliance. Although the Retirement Plan Navigator is aimed at small business owners, it also can help mid-size businesses review their options as well. Individuals who want to better understand their employer’s plan may also find it of use. The Web-based guide will be kept up to date as pension laws and regulations change.

And, as always, our attorneys are ready and able to help you make the most of every tax advantage. Call us --- anytime.

Non-Compete Agreements Clearly Not Dead In Massachusetts

In the current state of the economy, receiving an employment offer may seem like the best news that could be delivered, especially once you finally receive the offer officially in writing. However, that moment could certainly be diminished by a contract provision, carefully crafted and positioned within the document that could significantly affect your future, even past this current employment. That provision is called a non-compete clause.

A Non-compete clause or covenant not to compete (CNC), is used when one party (usually an employee) agrees not to pursue a similar profession or trade in competition against another party (usually the employer), and usually requiring a reasonable geographic restriction and timeframe. Most states legally allow these contract provisions, including Massachusetts. California is one state that completely prohibits the use of them, except in limited circumstances (for instance, in the sale of the business).

Therefore, largely based upon what some call non-compete “abuse” by employers, Massachusetts’ Representative William H. Brownsberger introduced legislation (H. 1794) that called for the prohibition of non-compete agreements, except in limited circumstances (similar to the California law). Of course, this has lead to many discussions regarding the danger of these agreements and whether they diminish labor mobility or innovation within the market. This is certainly a concern for those professionals who wish to strike out on their own and form start-up companies, only to find out that they are restricted or subject to tremendous litigation fees from their efforts.

Rep. Brownsberger’s bill seemed to be generating enough momentum and support for his bill, that many thought these agreements might finally be dead in Massachusetts. However, this summer, Rep. Brownsberger seems to have backed-down a bit from his strict stance and joined with Rep. Lori Ehrlich to draft a new, compromised bill, that is not as restrictive on these agreements. Surprisingly, the bill introduces many features that some say may make these agreements even MORE prevalent, including the use of presumptive reasonableness within the endorsed parameters. Consequently, if the legislation so clearly and particularly outlines what is considered reasonable, then drafting these provisions will be essentially easy for the employers, and will further promote them (the exact opposite a result that Rep. Brownsberger intends). We will have to wait to see how the legislature ultimately votes on this issue this fall.

So, what is the ultimate lesson to be learned here? First, Non-compete agreements are not things to be ignored, when looking over your contract. You would be advised to have a reputable attorney look over your agreement, to determine if it is reasonable and suits your needs. Second, remember that non-competes are still fully alive in Massachusetts, until further notice, and could significantly affect your employment prospects in the future. And in today’s economy, no one wants to be left out in the cold when it comes to the future of his or her employment.

By Attorney Kelly L. Swan Taylor

IRS Update On Record Keeping

One of the most common questions I receive from my clients is "what do I have to keep for the IRS?" And, as you know, I'm always on the lookout for information from the IRS that will help my clients. In a recent IRS update, the authors answer this perpetual question, and I thought you'd be interested.

What kind of records should I keep?
You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes. Your recordkeeping system should also include a summary of your business transactions. This summary is ordinarily made in your business books (for example, accounting journals and ledgers). Your books must show your gross income, as well as your deductions and credits. For most small businesses, the business checkbook is the main source for entries in the business books. Supporting Business Documents Purchases, sales, payroll, and other transactions you have in your business will generate supporting documents such as invoices and receipts. Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. These documents contain the information you need to record in your books. It is important to keep these documents because they support the entries in your books and on your tax return. You should keep them in an orderly fashion and in a safe place. For instance, organize them by year and type of income or expense. For more detailed information refer to Publication 583, Starting a Business and Keeping Records. The following are some of the types of records you should keep: Gross receipts are the income you receive from your business. You should keep supporting documents that show the amounts and sources of your gross receipts. Documents for gross receipts include the following: Cash register tapes Bank deposit slips Receipt books Invoices Credit card charge slips Forms 1099-MISC Purchases are the items you buy and resell to customers. If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Your supporting documents should show the amount paid and that the amount was for purchases. Documents for purchases include the following: Canceled checks Cash register tape receipts Credit card sales slips Invoices Expenses are the costs you incur (other than purchases) to carry on your business. Your supporting documents should show the amount paid and that the amount was for a business expense. Documents for expenses include the following: Canceled checks Cash register tapes Account statements Credit card sales slips Invoices Petty cash slips for small cash payments Travel, Transportation, Entertainment, and Gift Expenses If you deduct travel, entertainment, gift or transportation expenses, you must be able to prove (substantiate) certain elements of expenses. For additional information on how to prove certain business expenses, refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses. Assets are the property, such as machinery and furniture, that you own and use in your business. You must keep records to verify certain information about your business assets. You need records to compute the annual depreciation and the gain or loss when you sell the assets. Documents for assets include the following: When and how you acquired the assets. Purchase price Cost of any improvements. Section 179 deduction taken. Deductions taken for depreciation. Deductions taken for casualty losses, such as losses resulting from fires or storms. How you used the asset. When and how you disposed of the asset. Selling price. Expenses of sale. The following documents may show this information. Purchase and sales invoices. Real estate closing statements. Canceled checks. Employment taxes There are specific employment tax records you must keep. Keep all records of employment for at least four years. For additional information, refer to Recordkeeping for Employers and Publication 15, Circular E Employers Tax Guide. References/Related Topics Recordkeeping

Sell Your Business To An Insider – With Proper Planning You’ll Both Win.

Whether your succession plan includes a sale to a third party, or to an insider, there are significant risks involved. Selling your business to someone on the inside is usually safer than selling to a stranger. And, when you and your skilled advisors execute a carefully designed and implemented sale to an insider you can reduce the risk most significantly.

Let’ look at some steps that you and your professionals can take.

Take Your Time. You and your buyer will need between 3 and 8 years to plan, implement and pay for the transfer of your company. No Kidding. If you don’t have that kind of time – or you don’t want to take that time, work with your advisors to design a different type of exit strategy.

Learn. This is no time to make things up as you go along. Choose professionals – an accountant and a lawyer among others – who know the ins and outs of company transfers. Look for networking groups and seminars that will boost your know-how. Beware of learning just enough to be dangerous. Make the commitment to become an expert.

Build Your Cash Flow. When you transfer your business to an insider, the company’s cash flow will be—at least at the beginning—the only source of the money that you will receive. Really, it is like paying a no-show employee. If you business can’t generate the cash now to pay an absent, highly compensated employee, then you have some serious work to do before you make that transfer.

Maximize Your Value Drivers. Evaluate these 8 key factors because your inside buyer can only succeed if the business’ value keeps growing:

1. Your Customer Base. What is their buying trend? How much of your customer base is junk? What is their buying trend over the last five years? How many new customers have been acquired annually over those same five years? How stable is that customer base? What vulnerabilities exist?

2. Your Recurring Revenue. Your repeating revenue is much more valuable than your one-time sales. Build those repeat sales.

3. Your Product Line. Is it varied? Is it well integrated? Are your products complimentary and competitive?

4. Your Gross Margin. That’s the most important line item on your Profit & Loss.

5. Your Intellectual Property. That includes your patents, trademarks, and copyrights but it also includes things like a unique way to generate sales leads, or an effective way to close Internet sales. What do you know that your competitors don’t? That’s Intellectual Property and it can help your inside buyer be successful.

6. Your History and Your Reputation. This is also known as “good will.” If your company has a great reputation with customers, competitors, and the community, your buyer has a better chance of success and you have a better chance of getting paid.

7. Your Sales and Marketing Effectiveness. Are you using the same old sales strategy that you put in place in 1983? That won’t help your inside buyer. Make sure that your marketing techniques are state-or-the art. Check those close ratios – is your sales force still the super team that it was five years ago? If so, make it better.

8. Your Ability To Fight The Competition. The longer your inside buyer can hold off the competition, the more likely the business is to succeed long after you’ve gone. What are your products true advantages? Do you have a big technical edge? Build your stash of secret weapons.

Make Yourself Expendable. If you’re going to sell to an insider, your buyer should be better at what you do -- than you are. Not only that, but they must be ready, able, and hungry to take on the debt necessary to own the company themselves.

Define Your Goals. Know what your really want, and what you won’t settle without. When your plan is properly designed, your goals will be met before you make the transfer. Write down what you want, and think about these:

· Financial Security

· A set “walk away date”

· Keeping the company legacy

· Rewarding your key people

· Using someone else’s money to bring the company to the next level.

Keep Taxes To A Minimum. You must structure the sale to make sure that the company’s tax in cash flow is kept to a minimum. Otherwise, your buyer is effectively taxed twice. If you do it right, you can save about 1/3 of the company’s cash flow, which increases your chances of getting paid.

Transfer Ownership One Step At A Time. Make sure that you stay in – or near—the driver’s seat until you’ve received the entire sales price. Maintain voting and operational control and shift the risk the new owners. That way, if performance falters, or the new owners decide to throw in the towel, your company will survive.

Write It Down. Once you’ve thought through your plan, you need to write it clearly and communicate it to your eventual owners. Otherwise, nobody will take it seriously. Also, and more importantly, the written plan is what you and your professional advisors will use to coordinate what you do to make your plan a reality. When you include a time line in your plan, you are even more likely to see it succeed.

Don’t Forget To Dream. Every once in a while, sit back and imagine how wonderful it will be when you successfully transferred the business that you started to the next generation. What a success!