New Mileage Rates for 2009

With the price of gas dropping so to will the mileage rates for 2009.

The new rates will be:

Business Miles - 55 cents per mile
Medical Miles - 24 cents per mile
Charitable Miles - 14 cents per mile

As always you should keep a mileage log in order to substantiate the tax deduction.

Book Review: The Knack by Norm Brodsky

Every now and again I come across a book that can be helpful to a business owner. The Knack by Norm Brodsky is one of those books.

Brodsky writes a monthly column for Inc. magazine and is the founder of Citi Storage in New York. He's owned businesses his entire life and has the ability to break down complicated issues in very easy to understand terms.

A great example of this is his discussion on why gross margin is the most important factor to the success of a business and how the gross margin relates back to such things like capital needed and break even points.

Brodsky also throws a few unique ideas out there as well. He's of the opinion that a salesperson should be on a salary versus a commission structure and lays out a strong case for this. He's also of the opinion that a new business owner should make several financial statement calculations by hand versus computer as that leads to a better understanding of the numbers and I can't disagree with him on that point. We've become such an automated society that many people don't really understand what is going on behind the numbers.

At times the book gets into some of the "E-Myths" sappiness as Norm tells stories of helping a business owner, but even that weakness doesn't detract from some of the very good points he makes.

Will State Apply Sales Tax to Services?

With the State of Wisconsin facing an unprecedented budget deficit there is legislative talk of removing the sales tax exemption for services.

Under current law the general rule is that only "tangible personal property" is subject to the sales tax. In other words anything you can buy that you can touch is subject to the tax and things like services are exempt. Of course there are many nuances to the law which make compliance difficult, but it is clear that the State leaves plenty of money on the table by not taxing things like legal and accounting services.

So will services be taxed in the future? I think they will even though plenty of lobbyists are against it. If I've observed one thing in life it is that politicians love to spend money and it's rare that they leave money on the table. The fact that the exemption for services exists is something that surely bothers plenty of legislators. The fact that this can be spun as a "leveling" of the playing field and a tax that will imposed on people like attorneys this will surely get some traction. It is also important to remember that taxpayers seem to have no problem with higher sales taxes. In the past election, the County of Milwaukee voted to TRIPLE its county sales tax.

Yes, we will see some opposition from the lobbyists, but I just don't see a great groundswell of public opposition to a change in the law like this. Assuming they will keep most groceries, prescriptions and medical services exempt from the tax I believe that other services will start to be subject to the sales tax.

What Government Can Do to Help the Automakers

If you saw any of the coverage of the congressional hearings today you were treated to quite a bit of unintentional comedy. It's no wonder the country is in trouble. With that said, what could really be accomplished to help?

1) Repeal the CAFE Standards
Our government mandates that automakers produce a fleet of vehicles that meet minimum mileage standards. This is a noble cause, but it also means that the automakers are forced to produce a number of cars that people don't want (sub compacts) in order to produce cars that people do want (SUV's). Most of my environmentally conscience friends drive SUV's so if they are not buying the cars that actually get good mileage who is?

Yes, Toyota can thrive in this environment due to the Prius, but that leads me to my next point.

2) Give the Automakers the Money to service their Legacy Costs
What has killed the auto industries and is killing government spending is the high amount of people who are still on the payroll long after they have retired. The Pension system is from another era and does not work in today's global economy. When pensions were in vogue we did not have serious competition from automakers in Japan and Korea.

This allows the companies to honor their commitments to the people who are retired and also frees up cash that they can then plow into research and development. As Toyota does not have these costs they have been able to crush our automakers in this department and have advances like the Prius.

3) Force the UAW to Assist
If we secure the pensions of those who are retired and those employees over a certain age and with enough years of service the UAW needs to help out by giving up pensions to newer employees and adjusting their benefits to a reasonable level. The Big 3 can't survive if Toyota's employee costs are 60% of theirs. So the pensions need to go and the health insurance benefits need to be scaled back.

4) Tax Credits to those who Buy a Car from the Big 3
Why not? We gave out tax credits for the purchase of a hybrid car. The least we can do is encourage people to buy cars from the Big 3. For whatever reason no one seems to want to buy an American car these days. It seems to have something to do with the perception that our cars are somehow inferior to the foreign cars. I've owned 2 cars in my adult life. The first was a Mercury Tracer (which my wife felt was an upgrade from a Ford Escort) and it was just over 100,000 miles before getting totaled in an accident. Aside from basic maintenance and wear and tear replacements like the brakes and tires, I had zero problems with that car. I now have a Ford Taurus that has exceeded 125,000 miles. Not to jinx anything, but aside from usual maintenance I've never had a problem. In other words, our cars are probably just as good as the imports, but people have the perception that they are not and buy a Toyota or a Hyundai instead.

At the end of the day if we give the Big 3 a blank check with no strings attached my bet is that it merely prolongs how long they are able to stay in business rather than solve any problems.

What Am I Missing on the KRM Line?

It seems these days I cannot look at the Milwaukee Journal-Sentinel's editorial page without being told how critical the KRM line is to the region. I want to be good and support things like this, but the accounting side of my brain kicks in and asks if this is something we really need as opposed to something we really desire. I am at a conference this week in Chicago so I've had plenty of time to think about this while riding the train.

In case people didn't know we already have two train options that can get you to Chicago. The first is the Amtak that has a station in downtown Milwaukee and one at the Airport. The other is the Metra which has a station in Kenosha.

I have ridden them both many times and each has their pros and cons. Amtrak, which still needs an operating subsidy, is extraordinarily expensive at $44 a round trip and the Kenosha Metra is slow moving and inconvenient to get to, but it is relatively inexpensive. The Amtrak is a faster moving train whereas the Metra has the feel of being on a bus due to the frequent stops and people getting on and off.

I believe people use mass transit for a few reasons. They have to, it is convenient, it is less expensive than a car trip. As the vast majority of people in our region own a car, let's throw out that a large amount of people will have to use this because they have no other option.

In order to become a great alternative the KRM line then will have to be a more convenient and a less expensive trip than a car ride in order to be successful.

Having rode the Chicago Metra several times I have no doubt this is more convenient to a person working in the Chicago area. Driving to Chicago is a nightmare. The Metra makes sense in Chicago. However, has anyone ever said that driving to Kenosha is a nightmare? I know I never have. In fact, it is one of the easiest commutes that one can make. So I can't see the KRM line being more convenient especially as you will have to be on their schedule and you will need to use an additional form of transit like a bus or taxi unless the place you are going is near the line.

Then we look at cost. I have no idea what the charge for a ride will be, but I do know that the ride down to Chicago is currently $12 round trip. If I'm to go to Kenosha from my house it is a roughly 20 mile commute. Using the Federal mileage rate which takes depreciation of your vehicle into account that trip costs me $11.70. So the cost of the train will likely be cheaper assuming I will not have to use a bus or can to get to my destination. While it will likely be cheaper, I'm not convinced that the cost savings offset the inconvenience factor of using the train.

In any event I would suspect most people would continue to use their cars to commute from Milwaukee to Kenosha.

Supporters will say that you know have the opportunity to take a lower cost train from Milwaukee to Chicago now and that will be true. However, that overlooks two key things. The first thing is what will the annual operating subsidy be? Amtrak isn't profitable at a $44 round trip cost, so it's imperative we know how high that cost is especially in this time of high government spending. You also have to consider the convenience factor. The Metra train from Kenosha take 1.5 hours to get to Chicago which is what it takes the Amtrak to get there from the downtown station. Given the number of proposed stops the trip to Chicago may take in excess of 2 hours which makes it a more unattractive option despite its costs.

Supporters of the plan fall back on two other positions that I really do not get. One is that train lines spur economic development and the other is that other cities are doing this so why don't we.

Having travelled the Metra to Chicago many times I've noticed that the stations are almost exclusively surrounded by residential area. They are not linked to job centers. The Metra train exists largely to get people into downtown Chicago which is a massive economy. It is far different than even Milwaukee in it's economic power. I'd encourage anyone to visit the Kenosha station (assuming you find it) and let me know what economic development is happening anywhere near that station. I just don't think all sorts of good paying jobs are going to come into Oak Creek and such just because there's a train that connects the OC to Milwaukee and Racine.

Sure other cities have trains, but other cities have much worse traffic than we have. We seem to have a crush on Portland. We were there last year and the car traffic stinks and it's not exactly easy to get around on public transport. When we were in Seattle car traffic was also an issue, but they had a great public system that was largely anchored by the use of buses.

I like to think I'm forward thinking, but I'm just not seeing this one.

Rupena's is Coming to Public Market

While walking through the Market this morning I noted that in the space vacated by Ceriellos, Rupena's was readying to open.

This is great news for the market on a few fronts.

Obviously, it fills a huge need in the market in both space being filled and a huge gap in their product offerings.

The second great thing about this is that all the business in the Public market are Locally based. I believe this is important because the mission of the Market should be to highlight businesses that are unique to Milwaukee.

You can still get a stimulus check

In 2007 taxpayers were eligible for an economic stimulus payment based on their filing status, number of children and income. If your income was too high you were disqualified from getting a check.

If your circumstances have changed in 2008 you may still get a check. The IRS will be giving out checks to people whose income has dropped below the maximum threshold imposed in 2007 or those who had additional children.

Something to keep in mind as tax season approaches as it has not been a publicized part of the law.

Reading between the Lines a Wisconsin Tax Increase is Coming

In today's Milwaukee Journal-Sentinal, Governor Jim Doyle announced that the State would be facing a 5 BILLION dollar deficit by 2011 which would make it the largest deficit in State history. A short time ago Doyle announced that the deficit would be in the neighborhood of 3 billion dollars.

The State is faced with a few options here:

- Cutting state aid to municipalities: While this helps to close the State's gap it would mean that local property taxes would likely skyrocket.

- Making Big Cuts in the budget: It could happen, but you usually do not see governments make massive cuts in spending.

- Attracting More Business to Wisconsin: If we cut corporate rates it could be done, but the impact would not be felt in the short-term.

- Raise User Fees: As Doyle notes, raising tuition in the UW system is an option, but he does not want to price people out of it. Other user fees can be raised, but that would only make a small dent.

- Raid a restricted fund: The last two budgets have been balanced by raiding the transportation fund. It's possible to raid a new fund, but that only prolongs the problem.

- Raise taxes: This is what I expect them to do. I would expect Wisconsin to implement a more progressive income tax. Under current law Wisconsin essentially has a flat tax rate of 6.5%. I could see that rate be increased for taxpayers making over some arbitrary amount.

The real problem all governments are facing are the same ones the Big 3 automakers are facing. Until we change the way governmental employees are paid, legacy costs will be a huge issue as people live longer and therefore stay on the public dole longer. The pension system cannot sustain itself and it would be in governments interests to increase current pay as a tradeoff to eliminate some of the legacy costs.

Boo Yah! Cramer is pushing dividend yielding stocks

Jim Cramer may be the most influential person in the stock market today. He is the host of Mad Money on CNBC and is known to make contraversial statements and has a frenetic on camera persona complete with sound effects and the viewers wondering if this guy is sane.

Cramer has been making a big push for investors to buy stocks based on their dividend yield for weeks now. Is this good advice? It depends.

If wealth preservation and safety fit your investment profile Cramer's advice makes a lot of sense. The reasoning is that at least you are earning some money off the dividends. As stock prices have gone done, some of the dividend yields have become pretty attractive in today's uncertain market.

If you are a young investor this may be a viable strategy but you may also be costing yourself capital appreciation. In general, dividend yielding stocks tend to be more stable in price. Investors make their money off of the yield rather than the appreciation of the stock. Therefore, you may get a safer investment in exchange for a lower rate of return.

As always, you should talk with your advisor before you simply follow the advice of Cramer.

Understanding the LLC

If you've started a business one of the questions you need to answer is should you incorporate and if you do is a corporation or a LLC the best way to go about it.

If the business you start has any exposure to liability or if it's going to be your full time job I believe it is best to incorporate. A separate entity helps to insulate you from liability and creates a division between your business and you.

Once you've made that decision I believe in most cases it is best to become a Limited Liability Company (LLC). While a LLC can sometimes cost more to setup they reap benefits in the long term. Namely:

- A LLC can make an election with the IRS regarding how they want to be taxed. You can keep it simple and be taxed directly on your 1040 or you could choose S-Corporation status. You can even choose to be taxed as a regular corporation if you want. If you choose to form a corporation you are limited to being taxed as a corporation or a S-Corporation.

- LLC's do not need to compile shareholder minutes and have a board of directors like a regular corporation has making it much easier to maintain. You can lose the limited liability aspects of a corporation if you fail to comply with the standards so picking a LLC makes it very easy to be in compliance.

In any event this is a question you do not need to answer alone. We can help you make your decision and many attorneys have a great deal of knowledge in this area.

Not Paying Taxes is Not a Good Way to Protest

In a recent blog post Melissa Etheridge stated that she did not plan on paying her California State Income Taxes due to the passage of Proposition 8 which bans gay marriage. In Etheridge's view she is not treated as an equal person in California see the tax as "taxation without representation".

While I am sympathetic to her cause and believe that she has a point it is never a good idea to not pay your taxes because you disagree with a government policy. It's something that you cannot win and all you will do is add interest and penalties and perhaps even jail time on the amounts that are owed. Charles Merrill, of the Merrill Lynch family, is currently facing 3 years in prison for refusing to pay taxes after the passage of the Defense of Marriage act.

While Etheridge's stand is sure to get some attention, this is not the first time people have refused to pay income taxes over a dispute with governmental policy. The Iraq War spurred some to refuse to pay Federal taxes. There is a group of people who believe the income tax law to be unconsitutional and refuse to pay.

While any of these causes may have a good rationale behind them it is important to note that they never win.

Most Overrated Bands of All Time

This Tuesday, Pitchfork releases its book about the 500 best songs from the Punk era through today. For those who don't know Pitchfork is a music website known for their somewhat snarky reviews and their love of some bands that are just unlistenable. In honor of their book I figured it might be a good time to come up with a list of some overrated bands that they will no doubt be fawning over.

NIRVANA
I actually like Nirvana and thought they were a good band, but much like Jimi Hendrix they are given too much respect because the early demise of each causes people to wonder what might have been. In that vein Nirvana has been given complete and total credit for the birth of alternative music and causing the death of hair metal. A few problems with that theory.

- Groups like Guns and Roses and Metallica had already become hugely popular before the dawn of Nirvana and their success caused the hair metal bands to change their approach and adopt a different style.

- Alternative acts such as Jane's Addiction, Faith No More and the Red Hot Chili Peppers had already broken into the mainstream. Not to the extent of Nirvana, but change was upon us.

I'm not going to say that Nirvana is a lousy band and undeserving of praise, but when you see polls listing Kurt Cobain as one of the all time greatest guitarists there is clearly a disconnect between perception and reality.

MY BLOODY VALENTINE (MBV)
If you look at any list of best CD's from the 90s you are sure to see MBV's "Loveless" in the top 2 or 3. I've listened to this CD several times and simply do not get it. The songs have no melody and the lyrics cannot be understood. It seems like a case where people want to say this is a great CD simply to show you that they are more musically enlightened than you are because it can't be because this is truly a great CD.

U2
Never has a band gotten more mileage from essentially recycling the same riff over and over again.

SCOTT WALKER
He shouldn't be confused with Milwaukee's County Executive, but my guess is our County Executive could create a better CD. If Walker releases a CD it's sure to be in any lists Top 10 of the year. I'm thinking this is another case of trying to be on a higher plane than the unwashed masses, but I challenge you to get through one of his CD's. I know I failed in my attempt.

HONORABLE MENTIONS
Jimi Hendrix - For many of the same reasons Nirvana is
The Ramones - If The Clash had no talent they might sound like these guys
The Fleet Foxes - I liked it the first time when it was Crosby, Stills and Nash
Bruce Springsteen - Great live, but not very many truly memorable songs for the amount of output he has

Should the Auto Makers be Saved?

The next economic bailout to be on the plate of our government appears to be GM, Ford and Chysler. All 3 companies are facing daunting challenges and the reality is that all three of them could feasibly go out of business. Because these are iconic American companies and because they are deemed "too big to fail" it is expected that the government will offer low cost loans or even infuse these companies with capital in exchange for preferred stock. So should the government bailout these companies. In a word, no.

The challenges that the auto companies face cannot be addressed by simply infusing them with capital and I believe that the current economic model they must follow cannot survive. Consider the roadblocks they face:

1) Our country has the second highest corporate tax rate in the industrialized world. This makes it very difficult to conduct business in America as they face stiff competition from foreign manufacturers who do not face this obstacle. The simple fact is that not only does Japan and Germany make desirable cars, but Korea has also entered the fray.

2) The regulations regarding fuel standards that our companies face are well intentioned, but it also leads to producing a fleet of cars that the American consumer has decided that they do not desire.

3) The legacy costs faced by the automakers are crippling. In a competitive industry it is hard to match the research and development of the competition if your retired workers account for a higher cost than their existing employees.

I believe that these companies will not be able to overcome these challenges and an infusion of capital will only delay the inevitable. It is time to let these companies go and perhaps a new automaker can rise up in our country.

Milwaukee Sick Pay - The Details

Now that the Milwaukee Sick Pay Referendum has passed, it's important for businesses located within the City to be familiar with the provisions of this new mandate.

How is Sick pay Accrued?
Employees will earn one hour of sick pay for every 30 hours that they work and can accrue up to 72 hours of leave which translates into 9 days of leave. If you are an employee of a business than has less than 10 workers you will only be allowed to accrue up to 40 hours of sick pay.

What defines being sick?
Employees will be allowed to utilize their sick pay if they are sick, if a family member is sick or if you want to receieve "preventative care". All definitions are very broad such as what constitutes preventative care. Family member is also very loosely defined and can include friends. At the end of the day the employee can take off for any reason they deem necessary. The law is that broadly defined.

Other Provisions
Employees will be able to start taking sick pay once they are employed for 90 days. Sick pay will roll over from year to year, but employees will be limited to taking the annual maximum accrual of days.

Employers
Employers cannot require unreasonable documentation if an employee takes a sick day for their own benefit and the employer cannot require documentation if the employee takes off for a family member.

As the language is the ordinance is vague, most attorneys I have talked to believe that it is in the employers interest not to challenge an employees use of the sick time.

Employers will now have to review their compensation and benefit structure in order to add this mandate. I would suspect that they will simply grant paid time off rather than vacation days.

It will be interesting to see what employers who have multiple locations do with this. If you give 9 days of sick pay to your employees in Milwaukee can you get away with not doing the same for employees who might be in a suburb?

R.I.P. Ceriello's at Milwaukee Public Market

As I went over to the Milwaukee Public market today I was sad to see that Ceriello's at the Milwaukee Public Market had closed shop. I had read rumors of their demise, but it seemed like it was just rumors as they seemed to be plugging along in recent weeks.

While Ceriello's is technically a national chain they did offer one thing that I felt was unique to the Milwaukee marketplace and that was the dry aged steak.

If you like steak and haven't had a dry aged one you are really missing out. They are incredibly expensive in the restaurants that offer them so the ability to purchase them and grill them yourself made them affordable.

They were also a good vendor who seemed to fit in well with what the Market is trying to offer. They will be missed.

On a positive note I think the Public market has made some positive changes and will continue to refine its format. El Rey will be opening up a Taqueria and Kehr's Candies and The Spice House are expaning their offerings, so good things are continuing to happen.

Election Fallout

The results yesterday were resounding and here's what I think the fallout to business will be:

President and Congress
Barack Obama won a convincing victory yesterday. He ran a great campaign and like other great presidents in our past he has the ability to communicate to the masses. He has the potential to be a great president, but it will come down to how he decides to govern. If he can stay to the center he will be an effective president, but he could also take the country on a hard left turn.

Congress has large democratic majorities right now and the members have made no secret of the legislation they want to pass that will not be friendly to business. The Republicans appear that they will be able to use the filibuster in the Senate, but they are significantly weakened and I believe Congress will essentially be able to pass any law it wants to.



Sick Pay in Milwaukee

The sick pay benefit in Milwaukee passed by an overwhelming margin. The law states that businesses with more than 10 employees will now be required to give their full time employees 9 days of sick pay. Part time workers will get a lesser amount based on the number of hours they work. Employers of 10 or less people will have to offer their full timers 5 days of sick pay and their part time employees a pro rated amount.

The fallout of this could be huge. I would expect businesses to change their time off policies to mitigate for the passage of this law, but it's not clear at this time if they will be able to do this.

Businesses that can easily relocate may consider doing so as even employers who offer sick pay rarely offer as much as 9 days.

County Sales Tax
The advisory referendum passed by a workable margin. Now the State must approve the increase. I expect that they would as we voted for the increase. Then the County Board will revote on the increase and Scott Walker will likely veto the measure which will not matter as the board has a veto proof majority.

This will not have a huge impact on business except for those who sell high priced items such as cars and major appliances. Put it this way, you can now buy a car for a few hundred dollars less in Waukesha County.

Get Out and Vote

One of the things that makes our country great is the transfer of power we have. Regardless of who wins the election they will become the president in a peaceable manner. Much has been sacrificed so that we have the ability to vote, so get out there and do it.

Regardless the outcome, one thing that we should all be able to agree on is it will be nice not having to watch and hear political advertisements ad nauseam.

More Good CD's from 2008

Here's a few more good ones:

Metallica - Death Magnetic (really)
Cold War Kids - Loyalty to Loyalty
The Stand Ins - Okkervil River
The Replacements - (All Their CD's have been reissued)
TV on the Radio - Dear Science

County Sales Tax Referendum

If you live in Milwaukee county one question you will be faced with is whether or not to raise the county sales tax by 1 cent per dollar spent. This translates into a tripling of the current tax rate from .5% to 1.5%.

The increase in the tax will be ostensibly to offset property taxes. This is the same rationale that was used in the early 1990s when the County first imposed the tax. If you haven't noticed, property taxes have skyrocketed throughout the 90s and into the 00s. So trusting the County Board to provide long lasting property tax relief is a bit of a stretch.

So why is the tax being proposed and is it a good idea?

Not unlike the automakers that are currently in crisis, Milwaukee County is burdened by massive legacy costs. Legacy costs are defined by pension payments and health insurance payments to employees who have retired. This issue became an even bigger problem a few years back when the Board and Tom Ament passed a nice pension sweetener that they are now taking advantage of. A huge percentage of the County's budget is to pay for people who are no longer serving the County.

Like any proposal to increase tax the Board has said that we need this for Parks and Transit. Parks and Transit are two things that most of us like and would like to be supported. What is interesting is that the budgets for these two areas has remained stable that last few years. So do either of these areas need an isolated tax stream? I'm a person who uses the parks quite a bit for biking and golf and i have not seen a real decline in the quality of the park system.

I would argue that if it wasn't for the pension scandal, county finances would be in good shape. So I'm not sure giving the Board more money is a real sound idea as they created the mess that we are in.

The next issue to consider is assuming the board could be trusted, is it better to shift the tax burden to sales tax rather than property tax. I believe this has some merit as I believe the most effecient way to tax is through consumption. You also get the added advantage of collecting the tax from visitors who are not in the area. Yes, some businesses who deal in high price items such as cars could be adversely impacted, but I do not think people will change the vast majority of their shopping problems and the impact to business has probably been overstated by some of the critics of the increased sales tax.

The other positive of shifting the burden away from property taxes is the one tax people tend to pay real attention to is their property tax. Property tax is one of the few taxes that people actually write one lump sum check for. Therefore people tend to notice when it goes up and perhaps they will pay increased attention to their bill if the provision passes. The trouble is the increase in property taxes have far outpaced inflation and taxpayers have done little to stop that.

Shifting the tax burden has merit, but unfortunately one can't trust the board to be responsible in their spending and hold the line on property taxes, so I wouldn't recommend voting for this. I think if it passes we will simply have a higher sales tax and property taxes will continue to go up.

Supporting Local Business - The Spice House

With the seasons changing it's not uncommon to start making things like Chili. With that in mind I'd suggest making a stop to The Spice House. They have two locations. Their Flagship is on Old World Third Street near the Bradley Center and they have a location in the Milwaukee Public Market.

The great thing about the spice house is you will find all sorts of options that you won't in the grocery store. This means instead of using the same old chili powder you've been using you could change things up items like: ancho chili powder, new mexico chili powder, habanero powder and many others.

They have all the basic spices you'd want for any type of cooking and also have some unique blends that can be used as a rub for chicken and beef.

So if you enjoy cooking at all this is a great place to stop by.

What Can Business Do in Tough Times

At a meeting today one of my clients wanted me to address what they could do in these difficult economic time. It's a great question and here are my thoughts:

1) Tighten Company Procedures: When times are going well it's easy to let things slip through the cracks. The things that slip through the cracks are often the things that can lead to more business or improve the bottom line. You need to be focused on the business every day and doing the little things.

2) Marketing: One of the first expenses to be cut when the economy weakens is marketing expense. I believe this is the exact opposite of what needs to be done. You will need to refine your marketing plan and make sure that you are targeting the right customers. You will also be able to get your message out more clearly as many companies will cut their marketing budgets.

3) Focus on the Customer: Think of what you do through the eyes of your customer. Make sure that they are having a good experience every time you deal with them. This will ensure that you retain these customers.

Brewers Hire Ken Macha

The Brewers announced the hiring of Ken Macha as their new manager today.

Macha proved to be a good manager in his 4 years with the Oakland A's leading them to two playoff appearances and two near misses. He clashed with GM Billy Beane in Oakland and that was a big reason for his ouster there.

So one would think that I might be excited about this hire. I can't say that I am though because of a few of the details surrounding the deal.

The first issue is the Brewers will be retaining most of their coaching staff from last year, Nothing against these guys, but you'd think Macha would be allowed to assemble his own staff. To compound this problem the Brewers intend on bringing back Dale Sveum who was their interim manager and passed over for the job. Sveum made it no secret that he was crushed by not getting the job.

The other issue is Macha was only given a two year deal. This means that if the Brewers falter early on Macha could be on the hot seat as the Brewers wouldn't have to eat too much of a contract to dismiss him.

I think these factors cast Macha as a weak manager and I can envision a divided clubhouse if a player has an issue with Macha as he will appear weak in their eyes.

This could all work out well, but it's not hard to see trouble spots from the outset.

Gift Exclusion to rise to $13,000

The Gift exclusion will rise to $13,000 for 2009.

The exclusion is the amount you can give to any other person without having to file a gift tax return. If gift splitting is employed a married couple can give any person up to $26,000 without filing a gift tax return.

Wall Street Journal Series on Election Issues

Over the last week the Wall Street Journal's editorial page has been running articles on the various economic issues in the presidential race and laying out each candidates proposals. The series can be seen at www.opinionjournal.com.

While the wall Street Journal has a conservative editorial page they have done a good job of not allowing their bias to come across in this series. They also provide enough depth to these issues that you should come away knowing where each of the candidates stand on these issues and you can make an informed decision.

Consider Making a Part of Your Business Debt Variable

When a business goes out and borrows money for equipment and expansion the most common form of borrowing I see is fixing the interest rate on the loan for 5 years. The benefit to the business in this scenario is that they know exactly what their interest rate will be for the next five years and the banks benefit because they can go out and borrow 5 year funds and make their profit.

I would suggest that in given the economic issues of today to tie a portion of any borrowing to the prime interest rate. The prime rate as of today is 4.5% and unless things drastically turn around I cannot imagine the rates jumping back up. In fact, I think it's reasonable to think that the rates may even drop. Contrast this to the rates on 5 year money right now. If you lock a rate today for five years you will get a rate of 6.25% to 7% depending on your credit worthiness.

Tying a portion of the debt to the prime interest rate may allow you to take advantage of the lower interest rates while tying the bulk of the borrowing to a 5 year rate offers protection on rate increases.

Let's say you are going to borrow $500,000. If I were in that position I would likely borrow $100,000 of the debt with the prime interest rate and the rest tied to a 5 year note. My belief would be that I could aggressively pay down the $100,000 debt as there is very little interest on it while paying the remainder over the 5 years.

Has Oprah Dealt a Serious Blow to Bookstores?

It can be argued that there exists no greater marketing force in our country than Oprah Winfrey. For better (getting people interested in reading) or worse (foisting Dr. Phil on us) the Oprah seal of approval has a dramatic impact. Put it this way, she made William Faulkner a best selling author again.

I just read that Oprah has endorsed the Amazon Kindle as her new favorite thing. For those of you who don't know the Kindle is essentially an iPod for books. It is roughly the size of a book and allows the user to digitally download an entire book. Unlike the iPod, the Kindle has yet to gain any real traction in the marketplace and book stores have breathed a sigh of relief as it appeared they were going to avoid going the way of the record store.

Does all of that now change? Will Oprah's endorsement be the tipping point to make the Kindle the next iPod? If the Kindle can gain that kind of popularity it will not be good news for the book stores out there.

Section 179

If you own a business that buys equipment you have no doubt been told by your equipment salesperson that you need to take advantage of Section 179. There is quite a bit of misinformation out there regarding the deduction so this will hopefully set everything straight.

Section 179 allows a business to expense purchases of capital equipment instead of depreciating it over the useful life. Most equipment businesses buy are paid with current dollars but are depreciated over 5 or 7 years on an accelerated basis as prescribed by the IRS.

The current Section 179 rules state that a business can expense up to $250,000 of equipment purchases provided that their total capital expenditures are less than $800,000. The $800,000 limitation was put into place to keep this deduction limited to small businesses.

So at the end of the day a business can immediately expense an asset instead of expensing it over 5 or 7 years. The rule speeds up WHEN YOU CAN TAKE THE DEDUCTION AND IS NOT A SPECIAL DEDUCTION ON TOP. This distinction seems to have missed most salespeople. Another thing that is often not included in this conversation is the the State of Wisconsin has not followed the changes in Federal law and has a Section 179 limitation of $25,000.

So is Section 179 a good thing and should you use it? In tax planning we try to either defer taxes or avoid them. Section 179 helps a taxpayer defer taxes and that is a good thing. However, if you are in a low tax bracket it may make sense to spread the depreciation over 5 to 7 years especially if you expect to be more profitable in the future. In that case it would be wise to save your deductions for higher tax years when they can provide you more tax relief.

Candidates Tax Plans in Detail

With the election nearing and more details on the candidates tax plans are now known we can look at them side by side.

Income Taxes
McCain's plan essentially keeps the current tax rates in tact. The only real change he has proposed is to is to raise the individual exemption amount from $3,500 to $6,000.

Obama's plan is to repeal the changes in the tax rates that were passed during the Bush administration. In that vein the 33% rate would jump to 35% and the 35% bracket would go to 39.6%.

Obama is not proposing any income tax cuts per se, rather his intention is to use a system of "refundable" credits to reduce taxes. A refundable credit is a tax credit that you receive regardless of if you pay any income taxes. The centerpiece of his refundable credit plan would be a $500 credit for Social Security taxes paid. There would also be a provision to convert the Child Care Credit to a refundable credit and make 50% of those costs eligible for the credit rather than the current 20%.

There is also talk of increasing the Social Security Tax on those making over $250,000. Currently, once an individual earns over $102,000 they are no longer subject to the FICA tax. This limitation has been increased on an inflation basis in past years. Specifics of this idea have not been released. The most concrete idea has been Charles Rangle's idea of a 4% tax surcharge on those making over $250,000.

Both candidates propose fixing the Alternative Minimum Tax by indexing the standard deduction to inflation.

Capital Taxes

McCain is proposing keeping the rate at its current 15%. He has also proposed temporarily allowing all companies to expense their capital purchases rather than depreciate them. Think of this as Section 179 expanded to all businesses.

Obama has proposed raising the Capital Gains Tax to 20%. There has been no talk of making any changes to Section 179.

Estate Taxes

McCain proposed to raise the current exclusion to $5,000,000 and then tax the excess at a flat 15% tax rate.

Obama has proposed raising the exclusion to $3,500,000 and then tax the excess of 45%.

Current law on estate taxes is a bit confusing as it completely goes away in 2010 and then returns in 2011 with a $1,000,000 exclusion and a 55% tax rate if nothing is done.

Corporate Taxes

McCain has proposed lowering the top rate from 35% to 25%.

Obama would make no changes to the rates, but has proposed taxing a company's worldwide income. Currently, companies only pay income taxes on their United States earnings. He has also proposed a "windfall" profits tax on the oil companies.

Why Does Health Care Cost So Much

In any presidential campaign we hear quite a bit about health care and its high cost. So why does it cost so much and why is it that neither proposal on the table will fix the problem?

I believe their are a few fundamental problems with our current system.

The first problem is insurance companies themselves. They serve as a middleman between you and your care. Anytime a middleman is involved in a transaction you can rest assured that the cost of that transaction will be higher. Why? It's because you are now paying two entities that need to make a profit in order to survive. While doctors will complain that the insurance companies have hurt their business you do not see many doctors out there looking at alternative ways to do business nor do you see many doctors in the soup line so to speak. So we know that the doctors are getting their profit. That is fine in the ordinary course of business but we also have a system that requires the insurance company who is in the middle be profitable.

The next problem is how we use insurance. The system has been designed that those who have insurance use it for every one of their health care transactions. We use it for a simple office visit to a low cost prescription. This all comes with a cost. Since we have already paid our premium and the insurance company will then cover the costs we have no idea how much our care costs and if a doctor suggests additional testing or services it's no skin off of our backs. The insurance company in our mind is footing the bill.

So what can be done?

I think the perfect system would offer health insurance for big events such as cancer treatment, surgeries and other dramatic care. We would then pay for our general health care services out of pocket which would force the providers of these services to truly compete for our services. This will give us more choice in our care and should lower prices. Our insurance costs would be lowered as we would not use it except in the event of a serious health issue. We could then look at making changes to the tax code to allow people to fund health savings accounts en masse and make the out of pocket costs more affordable.

There is already an example of how the lack of insurance has helped healthcare. One needs to look at the LASIK surgery industry. Very few insurance companies will pay for this service so if you want the procedure done it will come out of your pocket. In the 5 years since I've had my procedure done I have watched prices come down and the technology improve. Why is this? I believe it's because the doctors can make their profits without having to pay the middle man insurance company. It's also because the doctor truly has to compete for your business and needs to have the latest technology and competitive prices because you as the patient will not simply go where your insurance tells you to.

Keeping Good Records

Most clients I have are deathly afraid of an Internal Revenue Service audit. They have heard the horror stories and fear an audit could be the death knell of their business.

While going through an audit is not a barrel of laughs, there are things you can do to make it as easy as possible.

The best thing you can do is keep all of your receipts and more importantly keep them in some sort of logical order. For my business I have an accordion file and I simply file the receipts by the month they were incurred in. So if an auditor were to come in I could easily find a receipt if needed.

Another easy way to do this is to file your receipts by vendor by having a file for each letter of the alphabet or a file for each vendor. Again, this will make it easy to find a receipt if its needed.

You have to keep in mind that if you are audited you are essentially guilty until proven innocent. Having your receipts organized and easy to find will make it much easier to prove your innocence.

Will a New Brewers manager be the difference?

The Brewers announced that they will not bring back Dale Svuem next year. My opinion is the decision to make a change is motivated by going out to get a "name" coach to give fans something to feel excited about should the Brewers lose CC Sabathia and Ben Sheets to free agency.

The question is will the change make a difference?

My feeling is that the team has some shortcomings. They are a talented group of hitters with good power and that has propelled them into the playoffs. The trouble is they do not have players who are good at drawing walks and too many of their hitters run very hot or very cold. Will a new manager turn Mike Cameron into a contact hitter? I doubt it as Cameron has played for several managers and has the same flaws. can a new manager make Bill Hall a productive player? Can he stop Corey Hart from swinging at too many first pitches?

I'm not sure that a new manager can do any of this.

The key to next year will be Doug Melvin's ability to craft a better balanced lineup that will be able to grind out runs when the balls are not flying out of the park.

Paid Sick Leave in Milwaukee

On election day voters in the City of Milwaukee will be asked if private businesses should be mandated to pay sick leave to its employees. The proposal grants up to 9 days of sick leave to full time employees and also grants sick leave to part time and seasonal employees. I live in Oak Creek so I will not have a vote on this matter.

My business is based in the City of Milwaukee and I will be employing seasonal employees through tax season and also employ part time help. I have a vested interest in this topic.

I don't see this law as something that will be a real difference maker in my business because it is not labor intensive at this point but it's not hard to see who a requirement like this may hurt.

I see this provision as being a killer to a business that is starting out that is labor intensive. As anyone who has started a business knows the cash flow in the first few years of the business can be extraordinarily tight. These businesses must scratch by until they can mature into a business that has some breathing room and can offer more fringe benefits to their employees such as paid vacation, healthcare and sick pay. Many will do this in due course because they will have the means to do so and they will need to compete to retain their employees and grow their business.

That said, adding a cost like this could be very detrimental to many businesses who are in their infancy. I don't know that it's enough to put them out of business, but I believe it's an added stress that they do not need. For a full time employee the law would have the impact of adding 3.8% to their benefits. It doesn't sound like much, but many new businesses need every dollar they can get.

It is important that we grow the job base in Milwaukee and I can't see mandating sick pay as being a positive step in this direction when many businesses are portable and can choose to locate just outside of the City.

Even if Law Changes, Keep money in Retirement Plans

Both candidates for president are proposing allowing people to withdraw funds from their 401(k) without penalty due to the economic problems we are having. They are also discussing taxing these withdrawls at a lower rate than what the taxpayer's normal rate might be.

Under current law if you withdraw money from a retirement plan before age 59 1/2 you not only pay taxes on the amount you withdraw at your ordinary rate, but you pay an additional 10% penalty on the amount withdrawn assuming you do not meet one of the few exceptions that are available to withdraw from the account.

The reason a penalty exists in current law is to discourage people from dipping into funds that should be for retirement. If you pull money out it makes it difficult to catch up to the earnings you have lost and you lose out on the interest you could have earned on the money.

The problem I have with waiving the penalty is this. If we make it painless to withdraw money from retirement it could have a terrible impact in two areas. The first issue is that people will have made the mistake of withdrawing funds that they will need later. We could have a lot more people who are not ready for retirement because of this. The second impact is that if a substantive amount of people withdraw from the market it could make the drops we've had in the market seem like nothing.

It needs to be remembered that you have options in how your assets are allocated within a retirement plan. All of your funds need not be in the stock market. You can use cash funds or bond funds to limit your risk. By all means people should review their asset allocation, but letting people easily withdraw their retirement funds would be a disaster.

What to do with your investments

Now that many of you have picked yourself off of the floor after reviewing your third quarter retirement plan statement it's useful to consider what you may want to do in the immediate future with your nest egg.

I'm not a financial planner by any stretch and would never suggest a certain stock to buy, but I think as a CPA I view things through a different prism than a financial planner or perhaps you do.

If you are within 10 years of retirement right now I don't think it's unreasonable to get most of your money out of stocks right now. Some may say that you are panicking but if the market continues to bottom out it's very possible that you will never have a chance to earn that money back.

If you have more than 10 years until retirement I think you should continue doing what you are doing. If one looks at the historic performance of the Dow Jones it's useful to note that over a 10 stretch in any period that the market is up. You will have enough time to make your money back and I wouldn't want to lose out on buying shares of stocks that may be undervalued right now.

Obviously you should talk to your planner and make the best decision for you, but if you have several years until retirement I don't think you need to panic. The economy bounces back. It did after 1987 and it did after the depression and it will this time.

Roth vs. Traditional IRA

In recent days I've heard many commercials on the radio that discuss the differences between the Roth IRA and the Traditional IRA. These commercials are spot on regarding the facts, but the question most people have is which IRA is best for them.

In making a decision it is best to know something about how each IRA works.

A traditional IRA allows most taxpayers to contribute up to $4,000 each year. If you are not a part of an employer plan such as a 401(k) you are generally allowed to take a tax deduction for the amount that you contribute. The money placed in the account will not be subject to tax until the taxpayer begins to withdraw money at some point in the future. If you pull the money out after age 59 1/2 you will include the distribution in your ordinary income and pay taxes on it. If the money is withdrawn before age 59 1/2 and you meet none of the exceptions you pay not only the ordinary tax on the amount taken, but a 10% penalty on top of that.

A Roth IRA is different in that you do not receive a deduction for the amount that is placed into the plan, however the amounts placed in the plan grow tax free and you do not have to pay any tax on amounts taken out after 59 1/2. The Roth does allow a person an opportunity to get the money before 59 1/2 tax free if the funds are used for the first time purchase of a home, education expenses and a few other exceptions.

Either IRA is includible in Estate Tax calculations, however the person who receives the proceeds of a Traditional IRA will pay ordinary taxes on that amount whereas they would receive a Roth IRA without that burden.

So which one works best?

A good rule of thumb is to consider the tax bracket you are in. If you are in the 15% or less tax bracket it makes sense to go with the Roth IRA. Why? If you contribute $4,000 to the plan you would save $600 in taxes right now based on your tax bracket. That's a nice savings, but I'd rather have the money grow tax free over several years and have the money taken out tax free under the Roth plan. You may also consider that it might be likely that you would be in a higher tax bracket in the future and therefore not paying any taxes on your Roth IRA provides more tax savings for you.

The next thing I would look at is age. In my opinion, the younger you are the more likely I think it will be that you should use a Roth IRA. I believe this because the more years your money grows tax free the more tax savings you have. If you are under 40 years old a Roth IRA is probably your best option because you will have 20+ years of tax free growth before you need to access the money.

A traditional IRA is best used if you are in a higher tax bracket because the amount saved with the contribution is greater at the outset. A person in the 35% bracket who makes a $4,000 contribution immediately saves $1,400 in taxes. This translates to a 35% return on investment in year one.

The other issue is that if one makes over $110,000 it is unlikely they can contribute to a Roth IRA and the Traditional IRA becomes the best option by default.

In any event you should speak to your CPA to determine which one is right for you.

Supporting Local Business : Tyranena Brewery

I had the opportunity to take part in Tyranena Brewery's annual Oktoberfest Bike ride this week in Lake Mills, Wisconsin. Lake Mills is approximately 1 hour away from Milwaukee and is near the Madison area off of Exit 259 on I-94.

I've always known Tyranena to make outstanding beers that are on par with the Sprecher Brewery and Lakefront Brewery in our own backyard. Both of those are outstanding breweries as well. They have many traditional beers, but their Brewers Gone Wild series is what sets them apart. The series features unique twists on classic beer styles such as their Scurvy IPA whicg introduced orange peel to a traditional IPA.

The reason I wanted to highlight these guys is they have done a great job of giving back to their community. They host three large scale charitable events each year and make their space available to charitable groups through out the year. The bike event was flawless in its execution and a pleasure to be at.

You can find their bee at Three Cellars in Oak Creek who we've spotlighted before in our blog. I've also seen their beer at Thief Wine Company and Sheridan's Wine in the Milwaukee Public market. Their Rocky's Revenge beer has also been available at Brewers games.

You can visit them at www.tyranena.com

Why the economy could be in real trouble

As everyone no doubt knows right now we are having a few financial difficulties in this country. It started with higher energy prices and a plunging dollar. Depending on your economic views neither of these issues were a big problem.

Now we are being hit over the head with the current banking crises and it's a huge deal. The stock exchange has been plunging and it's hard to blame anyone who is close to retirement selling much of their stock right now which will lead to the market going down further.

The real issue right now is bank liquidity. Banks are strapped for cash right now and borrowing is becoming difficult. If Banks overcorrect and make lending too difficult it will make it harder for business to expand. If business does not expand it falls behind and people are laid off and costs are cut. If business cannot expand new opportunities for constructions and other services becomes limited.

In short the economy stops growing and we end up in a recession.

Health Care Plans Part 2 - Obama

The biggest difference in the Obama and McCain plan comes down to who the onus is on to choose their insurance. Obama proposes to create a system where employers would either offer health insurance to their employees OR be subject to a payroll tax that would be used to offer health insurance to those not covered. Rather than the individuals making the choice on what they do with insurance the businesses would have the choice to either continue their current plans or pay the tax. To an employee this plan would be very similar to the system they are used to having now.

This might be a better plan for large businesses depending on how much the payroll tax is going to be. If the tax is less than the premiums there is no doubt that an employer would choose to not offer healthcare and put the burden on government to provide the health insurance.

Small businesses should be protected in this plan. The Obama plan offers exemptions for small business and allows them to take advantage of tax credits in order to offer health insurance if they choose to. This step of the plan is a smart one because an additional payroll tax on small business who currently do not offer health insurance would be very difficult for them to bear.

If you do not have any health insurance the Obama plan would offer a subsidy in order for someone to obtain insurance.

The strength of this plan is that it offers to cover anyone and does exempt smaller businesses from the plan.

The one weakness I see in it is that it could lead us to Nationalized Health Insurance as I could see large companies simply paying the tax and getting themselves out of the health insurance business. These people would then be part of a National system.

Can this plan pass? If Obama wins and has a majority in both houses it will be hard to stop.

In any event both plans are a drastic departure from our current system.

Health Care Plans Part 1 - McCain

One of the bigger issues in any presidential election is health insurance. We've heard talk of nationalizing health care like Canada to continuing the status quo. Both candidates for President have ambitious plans and hopefully this will help you understand what it is actually being proposed.

As a starting point it is helpful to understand the current law. Under current law if you receive health insurance from your employer you do not have to count this as income and your employer gets to deduct the amount paid in premiums. Employers are not compelled to offer health insurance and employees are not compelled to take health insurance.

McCain's plan changes that approach drastically. If you receive health insurance from your employer it would now be considered taxable income. So if you are part of a family that has a $12,000 policy and were in the 25% tax bracket your taxes would go up by $3,000. Employers would still be able to deduct the costs of premiums.

The tax deduction lost would be replaced with a tax credit. A tax credit is a dollar for dollar reduction in taxes whereas a deduction only reduces taxes by the amount of your deduction multiplied by your marginal tax bracket. A single person would receive a credit of $2,500 and a family would receive a credit of $5,000. So using my example above (which is a pretty normal example) the family would be $2,000 ahead.

The strength of this plan is it puts the insurance decision largely in the hands of the individual as in the vast majority of the cases the credit received by the individual would be more then the deduction they currently receive. The only people who would lose out on this from a tax perspective would be families who are in the 33% or higher tax bracket. It also addresses a discrimination issue in the tax code today. If you have employer insurance you pay no tax on that benefit, however if you insure yourself you get no deduction or benefit. So the tax credit certainly will help those who get no assistance with their current healthcare.

The weakness of the plan is the potential that employers will use this to stop offering health insurance. That is a real possibility and the $5,000 credit is not enough to go out and purchase a reasonable plan for a family. That said, when an employer makes a decision on how much you will be paid it's not unrealistic to think that they offer a lower wage in exchange for health benefits. In other words, I would expect wages to rise if a Company were to cut health insurance assuming they want to be competitive in attracting employees.

The plan is certainly focused on creating more of a free market for insurance whereby you can customize your insurance based on your specific needs.

Could McCain pass something like this? I think it is more passable than Obama's plan simply because it comes at very little cost to the government and it does not mandate insurance.

Fannie Mae and Freddie Mac

Now that the government has bailed out Fannie Mae and Freddie Mac we may see lower interest rates for the short term. In some transactions I am currently dealing with I've seen rates drop by as many as 30 basis points. I'm not sure where rates mights fall to, but I think it is reasonable to conclude that rates may be entering a period where they stabalize. This contrasts sharply to the last few months where volatility in rates made it difficult to advise a client on when the best time to lock rates was.

Supporting Local Business: Patio Bike Shop and The BikeSmiths

One of the hobbies I have is riding my road bike on a nearly daily basis. As anyone who shares the same hobby knows, bike maintenance is an important thing.

I've been impressed with the service I have received from both The Bikesmiths (located on Locust Avenue in the UWM area) and the Patio Bike Shop (on Forest Home Avenue in Hales Corners).

The staffs at each store are extremely knowledgable and take the time to listen to your questions and concerns. So you get a solution from them that suits your needs and not a generic answer. Customer service is also tremendous in both places. They address your needs in short order and in most cases will make minor repairs as you wait.

The bike and gear selection in both stores is not on the level of Wheel and Sprocket (which is another good local business), but both stores have enough options to suit most needs.

As both stores have small staffs you always get a person who knows exactly what they are talking about and is passionate about what they are doing which is not always the case at the bigger stores.

Subprime and the Economy

For a long period of time the news media has been telling us that the economy is in horrible shape and that we are in a recession.

To be sure things like high energy prices are putting a crimp on a persons disposable income, but I fear that the banking industry may be the factor that could potentially push us into recession.

Many of the businesses that I represent are still doing pretty well. They are doing well enough that many want to expand their business. The problem is that most banks have been unwilling to fund this expansion as they have in the past. The problem with this is that rather than having the businesses grow they remain stagnant at their current level of business. If they are not able to grow they cannot add jobs and purchase more goods and services.

So I believe the true key to the economy growing is simply banks getting back into the business of borrowing money.

The Subprime Impact on Borrowing

In the last few months the "sub-prime" mortgage problems have received a lot of attention from the media. We are finally seeing how the shakeout of these problems is impacting businesses in a real way.

It seems to me that most of the larger banks in the market have really tightened up their lending practices. They are taking passes on projects that they would have easily approved a short while ago and are much more demanding in the information that they need from a CPA like myself. I don't think the demands that are being made are unreasonable and it does cause a client to really think out their business plan before presenting it to a bank, but the era of easy loans may be over for awhile.

The cautiousness of the large banks has opened an opportunity for some of the smaller banks in the region to fill the void. These banks didn't suffer much of the impact of "sub-prime" and have been very agressive in trying to land business. While they still require a degree of documentation to get a loan done they seem more willing to take a chance on a proposal that their larger counterparts have been. This is almost the exact opposite of the way things used to be where larger banks tended to be willing to take a chance and smaller banks were extremely conservative.

The morale of the story is to be sure to have your ducks in a row before attempting to get financing and be prepared to present your plan to several banks as there's a good chance you might be turned down by a bank or two.

Supporting Local Business - Jimmy Wade's Heaven City

In the interest of full disclosure this restuarant is owned by my wife's second cousin.

Having said that, Jimmy Wade's Heaven City offers an upscale and unique experience. Located in Mukwonago the building is said to be haunted and is a former hangout of Al Capone. It's done in a unique "Florida" architecture style and is unlike any other restuarant that I have been to. As an added bonus, the old National Liquor sign is now in the parking lot. The sign is an old southside landmark and it's nice to see it being used.

The menu focuses on steak and seafood and the chefs seem to put an emphasis on using top quality ingredients. The steaks are good enough to rival any of the downtown steakhouses (and those are all almost universally great), but I generally go for the seafood au gratin which is a comfort dish that fuses shrimp and scallops with an au gratin finish.

They have an extensive wine and spirit list to go with the menu.

Again, this is an upscale style restuarant and is priced accordingly. It's something for a special occasion and is different from the usual places one would consider going.

If you are looking for a more casual night to go they do "Tapas Tuesday" each Tuesday where the menu features smaller dishes and the also have a "Friday Fish Try" which is a different twist on the usual Wisconsin fish fry.

They are located at S91 W27850 National Avenue in Mukwonago and can be visited on the web at www.heavencity.com.

Good CD's From 2008 thus far

A few good ones:

Attack and Release - The Black Keys
Viva La Vida - Coldplay
Narrow Stairs - Death Cab for Cutie
Stay Positive - The Hold Steady
Challengers - The New Pornographers
The Slip - Nine Inch Nails
3rd - Portishead
Accelerate - REM
Consolers of the Lonely - The Raconteurs
Asleep at Heaven's Gate - Rogue Wave

Charitable Contributions Update

The IRS has been pretty vocal in letting tax preparers know that they intend on cracking down on charitable contributions from now on. The gap between what taxpayers have reported for their charitable contributions and what the charities have reported receiving has become quite large. So what do you need to keep in mind:

1) DOCUMENTATION: The IRS requires that you have proof for any donation. This proof should at minimum be in the form of a cancelled check or other bank documentation. Any donation in excess of $250 requires a letter from that charitable organization. If you lack documentation, the donation will be disallowed.

2) GOODWILL DONATIONS: The IRS requires you to show that non-cash donations to organizations like Goodwill be in "good condition". In other words you must be able to demonstrate that the donation is essentially not junk and that someone else could use it. So how does one prove this? The best way is to have photographed evidence of your donation. While this might be unrealistic, it is what the IRS wants. My advice would be to write down exactly what you have donated and take a minimal deduction on the tax return.

Supporting Local Business - Three Cellars

The one thing that I may be a bit of a snob about is beer. I know plenty of people love Miller Lite, Bud and Coors, but I can't stand any of those brands.

So for any beer fan or beer snob, Three Cellars, located at 6955 South 27th Street (27th and Rawson) is a godsend.

You can build your own 6 pack by choosing from the more than 400 varieties of bottled beer they have. So if you are thinking of trying something there's no fear because you don't have to buy a full 6 pak. They feature several microbrews from the Midwest and carry an extensive selection of Sprecher and Lakefront including some limited edition brews that are difficult to find.

In addition, the staff of the store is extremely knowledgable and has the ability of suggesting new stuff if you let them know what your taste is.

They host free tastings every Saturday and also have brewery night where brewers from the region host a tasting.

Three Cellars is not just for the beer lover. They also have a good selection of wines and spirits.

Check them out at www.threecellars.com

Supporting Local Business - Alterra

Alterra Coffee has become one of the more visible coffee chains in town the past few years. While it doesn't have as many locations as Starbucks it is not hard to find their coffee shops or even their products in many local grocery stores.

I'm not a coffee drinker, but I often stop in there for a chai or for lunch/dinner. The prices are reasonable and the only knock I have with Alterra is sometimes the hipsters they have staffing the store can be a bit indifferent towards your presence.

The thing I respect about Alterra has been their committment to the Milwaukee area. They have opened up shops in buildings that have been abandoned and they have opened up shops in locations that did not yet have a huge retail presence. They have taken risks in developing locations and while it has worked out for them one has to appreciate the fact that they appear to put some thought into what they are doing for the community. They have also been a leader in their support for several community events and that should be lauded.

There are other good coffee shops in Milwaukee, but I can't think of one that does more for the community.

What Tax Law Changes Would I Make

As the election gets closer we will continue to analyze any specific tax proposals laid out by the candidates. I know it's easy to criticize, so I thought it would be a good idea to lay out some of the changes I would propose if I were running for President.

1. ELIMINATE OR MINIMIZE ESTATE TAXES
There's something that strikes me as patently unfair about taking a large chunk of someone's estate upon death. It also strikes me as unfair that the estate tax can be minimized or eliminated if a taxpayer has the foresight to pay a bunch of money to get their estate in order well in advance of their death and have the good fortune of living long enough to enact that plan.

Life never goes exactly as planned and there are too many cases where a person dies before they can put forth or execute an estate plan. Put it this way, no one wants to think of their mortality and that is especially so for persons under 50 years of age and often times no one thinks about the estate tax until it's too late.

My suggestion would be to elimininate the tax or at least make some major modifications to it. One modification I would want to make is to exempt privately held businesses from the estate tax as well as family homesteads provided those assets stay in the family for at least 5 years. At minimum, no one should have to sell a family home or business just to pay the estate taxes.

2. ELIMINATE THE ALTERNATIVE MINIMUM TAX (AMT)
This tax is getting more and more attention as more taxpayers become subject to it. In short, the AMT is an alternate tax system that eliminates deductions for children and deductions for state taxes paid among other things. If this calculation results in a higher tax than the ordinary system the taxpayer pays the higher tax. Just so you have this straight it means that you could potentially pay more in Federal taxes by having a few kids and by living in a high tax state like Wisconsin. Does that make any sense at all? Nope, and that's why it should be gone.

3. ELIMINATE OR DRASTICALLY REDUCE CORPORATE INCOME TAXES
Right now the top corporate tax rate in the United States is 35%. The only industrialized country with a higher rate is Japan. Part of my reasoning to lower the rate is to make us more competitive with the rest of the world. The second aspect of this is that we should all know that corporate taxes are essentially paid by us as individuals. Let me explain this. We either are shareholders in these companies that pay taxes and thereby have the amount of return we get reduced or we pay for it as Companies raise their prices to cover the tax. We are the corporations and higher taxes on them means higher taxes on us.

4. ALLOW GAY/LESBIAN COUPLES TO FILE AS MARRIED FILING JOINTLY OR SOMETHING SIMILAR TO IT
Regardless of one's position on gay marriage it strikes me as equitable to allow people who own a home together the option to be granted this tax status. We could have a "household" option or something of that nature. It would make the compliance on tax returns much easier as the preparer no longer has to split such deductions as mortage interest and real estate taxes.

5. ELIMINATE PHASEOUTS FOR DEDUCTIONS
If it's ok for one person to get a credit on educational costs because their income is under $80,000 it should be ok for anyone regardless of their income. To me, that's fair.

Support Local Business: Cubanitas

One of the features in the blog from this point forward will be to highlight local businesses that Denise or I encourage you to check out. One of the core beliefs of our business is to support local business whenever it's humanly possible so this is one way of doing our part.

Cubanitas, located at 728 N. Milwaukee Street, has become one of the better all purpose dining establishments in the Milwaukee area. It works both as a nice casual spot to grab something to eat before a game or show or a slightly more formal place to take a date to.

While Cubanitas generally has a pretty good crowd it is never much of a wait to get a table. If you have to wait there is a bar area where you can down a mojito.

As expected, the menu features Cuban food, so it is heavy on pork dishes. Among the highlights is the Cuban Sandwich which is a combination of pork, ham, cheese, pickles served on Cuban bread. It is sort of like a panini, but only much better. The plantain chips with guacamole are also very good.

It's a lively atmosphere and the service has always been pretty good any time we've been there.

Parking can be a little difficult on a weekend night and I recommend using the valet service.

The Presidential Election and Taxes

One of the questions that I am asked a lot by clients these days is what is the potential tax effect of the November presidential election.

The only honest answer I can give is that it depends and offer my speculation on what might potentially happen. So let's take a look at the current law and what changes might occure.

THE CURRENT LAW:
Some of the big changes President Bush made over the years are the lowering of the capital gains rate to 15%, taxing certain dividends at 15%, and lowering the marginal tax rates across the board. Other more subtle changes included the elimination of the marriage "penalty" and raising the Section 179 limitations which allow small businesses to expense up to $250,000 of capital equipment rather than depreciating it over several years. Under the Bush administration Corporate taxes have remained essentially unchanged and our top corporate tax rate is higher than every other industrialized nation except for Japan. Many of the Bush tax cuts sunset in 2010 if congress takes no action to extend the cuts.

WHAT IF SENATOR OBAMA WINS?:
Senator Obama is on record that he would likely raise the top marginal tax rate from 35% to 39.6%. He has also talked of raising the capital gains rate to at least 20%. It is expected that he would use tax revenues from these hikes in order to offer a $1,000 tax credit to families with earnings less than $100,000. Senator Obama has been mum on other tax issues. There is a fear that he might raise the FICA taxes, but nothing formal has been proposed to date.

WHAT IF SENATOR McCAIN WINS?:
Senator McCain has reversed course and is on record as wanting to extend the Bush tax cuts. In other words, if McCain wins and he can get congressional support no major changes would be expected in the tax laws. If anything I would expect McCain to possibly push for lower corporate tax rates in order to get our rates in line with the rest of the world, but he's been pretty quiet on that issue.

ANALYSIS:
I believe that the tax situation right now is about as good as it is going to get for small business owners. Given the current political winds a McCain win at best will only hold the line on the current tax situation. An Obama win likely will cause at minimum a rise in the top marginal tax rates and a rise in the capital gains tax. So if I have an option of showing income in 2008 or 2009 I'd want it recognized in 2008 as I believe there is a good chance that the same income will be taxed at a higher rate next year.

Media Consultant Hired for LGBT Campaign

Media Consultant Hired for LGBT Campaign
February, 2008

The 41/26 Venture, a project of Cream City Foundation’s Joseph R. Pabst LGBT Infrastructure Fund, has hired Media and Marketing Consultant, Denise Cawley, principal, Circore Creative. Denise Cawley will help create a media campaign around Lesbian, Gay, Bisexual, and Transgender issues, in particular those represented through the Shall Not Be Recognized, an exhibit featuring same-sex couples who have been together for seven years or more.

The media campaign will include billboards in southeastern Wisconsin, a media kit, as well as an expert’s guide for responding to media that will be made available to all interested LGBT organizations and leaders. Additionally, the consultant will respond to LGBT related stories in the news that reflect the goals of the campaign and coordinate responses to media coverage on behalf of the 41/26 Venture.

“The media campaign was developed after a year of stimulating discussions,” said Angie Guerra, a member of the 41/26 Venture Committee and interim Director of Communications for the Milwaukee LGBT Community Center. “I am very excited about the work Ms. Cawley will do provide visibility a presence for LGBT people through outdoor advertising.”

“The committee obviously put a lot of time and thought into this project, and the hiring of Denise Cawley,” said Tim Clark, President of the Cream City Foundation. “Ms. Cawley knows how to tailor marketing goals the resources of the organization with impressive results. Plus she has been an advocate for our community for more than a dozen years; from her public relations and media work while on the first Board of Directors for the Milwaukee LGBT Community Center, to her work in LGBT arts, and parenting issues, Ms. Cawley has shown her commitment to LGBT rights and interests.”

Photographer, Jeff Percy, one of the creators of the Shall Not Be Recognized, states, “Denise is a natural choice for this media consultant role. She has been a cheerleader for this project from the start.” Denise Cawley, her partner of 12 years, and their son appear as subjects in the Shall Not Be Recognized exhibit.

41/26 Venture members include Joseph Brooks, formerly with AIDS Resource Center of Wisconsin; Maria Cadenas, Executive Director of the Cream City Foundation; Patrick Flaherty, former Director for Center Advocates; Angie Guerra of the Milwaukee LGBT Community Center and Lesbian Fund of the Women’s Fund of Greater Milwaukee; and Michael Johnston, writer for Outbound magazine.

Cream City Foundation serves as a catalyst for social change on behalf of Lesbian, Gay, Bisexual, and Transgender communities in southeastern Wisconsin. Their work includes strategic grant making, education, and media outreach. Find out more at www.creamcityfoundation.org. To find out more about the Shall Not Be Recognized exhibit visit www.shallnotberecognized.org.

Mike is interviewed by law journal

Choosing a business entity is significant decision when starting your own firm
by Jane Pribek
Dolan Media Newswires
MILWAUKEE, WI -- LLC, S.C., LLP...
If you don't practice in the area of business or tax law, you may not know what the alphabet soup after a law firm's name means — or what it means if there's no alphabet soup there. Now that you've decided to start your own firm, however, choosing a business entity, and the tax ramifications that they may bring, is probably one of your first significant decisions.
There's no "perfect" entity, agree a numdber of experts who talked to Wisconsin Law Journal.
So, what's the best for you?
"It depends. I say that a lot," says Michael Bark, a CPA with Circore Business Solutions in Milwaukee, while attorney Nancy Trueblood, of Trueblood Law Office LLC in Wauwatosa, says, "Your choice is going to be (made) mostly for a business reason or tax purposes."
The Sole Proprietorship
The easiest choice, if you're going solo, is the sole proprietorship. There are no filing requirements with the state, the bar or the I.R.S. Just hang the shingle.
A sole proprietorship is not considered a separate legal entity, and there is no legal separation between you as the sole proprietor and your law practice business. In a sole proprietorship, you are financially responsible for all liabilities of your law practice, and all of your personal assets are subject to seizure or lien by creditors, says Trueblood.
Bark explains that when you file your personal tax return every year on Form 1040, you will attach Schedule C to report your profit or loss. In addition to paying income tax on your earnings, you are required to pay a 15.3 percent self-employment tax, also called "FICA," on those earnings. (To be precise, the FICA tax rate is 15.3 percent on the first $97,500 of earnings, and after that point, it drops to 2.9 percent, he says.)
The sole proprietorship is the simplest option, because you do not have to file a separate tax return for your business. "The downfall of being a plain schedule C business is, in a lot of cases, you could be paying too much in self-employment taxes," states Bark.
Sole proprietors also do not have to carry malpractice insurance, as they must with an LLC, for example.
The General Partnership
Trueblood states that, in a general partnership, each partner is jointly and severally responsible for all liabilities of the law practice business, and all personal assets of each partner are subject to seizure or lien by creditors.
Tax-wise, a general partnership must file a federal tax return every year on Form 1065. It is considered a pass-through entity under state and federal tax law, so that a general partnership does not pay tax. The annual profit of a general partnership is reported to each partner on Schedule K-1, and the partners pay income tax on their respective distributive share of the profits reported on that schedule.
The Professional or Service Corporation
A service corporation is formed by filing with the state articles of incorporation, and its owners are called "shareholders," says Trueblood. As a shareholder in a service corporation, you do not have personal liability for liabilities that arise in the ordinary course of business or from the malpractice of other attorneys at your law firm.
From the tax standpoint, a service corporation is taxed either as a C corporation or an S corporation, explains Bark. Your S.C. will be taxed as a C corporation unless you elect tax treatment as an S corporation. (An S corporation cannot have more than 100 shareholders, and all must be "domestic," so a huge, international law firm cannot elect S corporation status.)
In contrast to the C corporation, where owners are essentially doubly taxed, an S corporation is a pass-through entity under federal tax law, Bark continues. With an S corporation, the profit distribution is exempt from the FICA tax that is imposed on compensation income.
For example, if you and another attorney/owner garner $100,000 in profits each, as partners, you'll both pay self-employment taxes on that entire sum. However, as an S corporation, you can take a W2 wage of $80,000 or some other "reasonable compensation" and you'll pay taxes, including FICA on that sum, but not the $20,000 you receive as a distribution. FICA is taxed at 15.3 percent, which would save you upwards of $3,000 per year, or $30,000 over the course of 10 years.
Bark says, "It's not a huge tax savings. But, over the course of many years, it adds up. And if we can do it every year and it's a noncontroversial election, why not? Then again, some people say, "It's only $3,000 a year, what's the big deal?'"
The key here, emphasizes Bark, is to keep the wages "reasonable." Anything less is a red flag to the IRS.
Other Limited
Liability Entities
There are two: the limited liability corporation (LLC) and the limited liability partnership (LLP). As an attorney who is also an owner of a limited liability entity, you're still personally liable for your own professional negligence. But when the business is "limited liability," it can shield you from the negligence of another partner.
LLCs have been available in Wisconsin for attorneys since 1997, when the Supreme Court Rules were amended to allow them, says Trueblood. As an LLC owner, you must register with the State Bar and pay an annual fee, and you must have professional liability insurance, the amount of which is linked to the number of lawyers in the firm. In addition, the firm must make "LLC" — the limited liability status — a part of its name, and must give clients and prospective clients a written, "plain-English" summary of what that limited liability means to them.
An LLC is a legal status, rather than a tax status, reminds Bark. The IRS isn't concerned, per se, about your potential liability.
But one benefit of an LLC is that, under the U.S. Treasury Department's so-called "check the box" regulations, LLC owners may elect how to be taxed. Either the LLC itself may pay taxes, as would a corporation classified for tax purposes as a C corporation, or pass on its income or loss to the owners, resulting in taxation similar to that of a sole proprietor or S corporation shareholder.
With the LLP, like the LLC, there is liability protection from your law partners' negligence, and malpractice insurance is required, among other things.
Your LLP might wish to elect C corporation status, because it gives you more flexibility with regard to how profits are allocated. Profits must be distributed evenly in an S corporation; not so with a C corporation. This is helpful with many partners and someone wants to take a sabbatical, or if there's a two-tiered partnership. If you want to accomplish an uneven compensation with an S corporation, this can still be done by adjusting someone's W2 wages. But remember to keep those wages reasonable, because the IRS will scrutinize this election, cautions Bark.
Some Commonplace Scenarios
For solos: Sole proprietorship, LLC or service corporation?
If your practice is high-volume in nature, and therefore you plan to hire employees and thereby earn profits off their work, Bark says that the LLC or an S.C., electing S corporation status, are probably advantageous to sole proprietorship, because you'll only pay FICA on your reasonable W2 wages.
The requirements to maintain an LLC are not burdensome, Trueblood adds. However, if you prefer the added formalities in operation that an S.C. brings, you might want to go that route. The articles of incorporation, annual reports, and/or limited liability forms can be filed online.
"What I see is that sometimes people file articles of incorporation [to form an LLC], and then forget to put an operating agreement in place," Trueblood observes.
For law partners: We want to put money back into the business.
Maybe you want to pay off some of the expenses incurred in setting up the firm such as computer networks, office furniture, etc.
Bark says the S corporation might make sense for you, because you can put money back into the business as "previously taxed income," thereby creating a basis within the corporation. With a C corporation, it is harder to leave money in the business, because you'll ultimately want it out of the business, and you'll be doubly taxed because the firm has already been taxed on those dollars.
Or, Bark recommends a general partnership, as it is a pass-through entity, tax-wise. Of course, there is greater liability with a partnership.
I want to change to an S corporation.
According to Bark, the S corporation is a newer development in tax law, and firms that have been around for many years might be C corporations because there used to be no other options. Or, some end up in C corporation status unintentionally, because you've neglected to elect S corporation status (You were too busy practicing law, per chance?).
A frequent concern when switching from C to S corporation status is the "built-in gains" tax, he says. Most attorneys use cash-basis accounting, meaning that they recognize their income when the check is in hand, as opposed to accounts receivable, and they recognize expenses when they actually pay them. With built-in gains tax, you are required to restate financials on the accrual basis, so that you list accounts receivable and subtract accounts payable. If the gap between those sums is $100,000, for example, you pay the highest corporate tax rate on that difference, 35 percent, or $35,000, to be paid over four years.
"If your savings on the self-employment tax is not going to outweigh the built-in gains tax, there's no point in doing it right now."
The Bottom Line
Every situation is going to be different. There's no cookie-cutter approach," observes Bark.
When getting started, you need to have a business plan on paper, complete with compensation goals, he says. Barks meets with his clients quarterly, to talk about their businesses' financial goals and ascertain if they're on the way to meeting them.
I chose our business structure because…
"I chose an LLC format because I wanted the pass-through of the financials to my personal level of taxation. I also consulted with a corporate lawyer and was advised to use the LLC, rather than the S.C. status. I don't view there as being a significant difference on the liability of my organization. Also, it's just me at this point, and it suits me fine for my needs."
— John E. Thiel,
Thiel Law Office LLC, Appleton
"My law partner and I previously practiced in a three-person firm where a partner left. Although there were a number of circumstances that influenced our decision, it was just easier from an accounting and tax standpoint to continue with the same business entity as the firm was originally formed, namely, a C corp. It made for an administratively less disruptive and a smoother transition.
"Many established law firms were formed prior to the existence of the limited liability company. I suspect that rather than change their accounting set-up, letterhead, ownership documents and other administrative items, these established firms have decided to keep the status quo.
"However, if we were starting a new firm now, we'd probably elect to form an LLC, in which there are the benefits of an entity with fewer formalities, and a number of tax-status elections from which to choose."
— Jeffrey Alan Santaga,
Hanson & Santaga S.C., Wauwatosa, and
chair of the Law Office Management Section of the State Bar of Wisconsin
"We've been a general partnership since my father started the firm in 1940. It's been our tradition, although we're considering other entities, the LLC or the LLP. On the tax issue, both are treated as a partnership, and there might be an advantage if you had a generalized retirement program. We don't. My dad practiced five and a half days a week until he passed away at age 94, and I guess I plan on doing the same. So a retirement-deductible program is not a consideration. Also, my law partner is my son, so there's less of a concern about liability, and that's what our malpractice insurance is for."
— Terry Rose,
Rose & Rose, Kenosha
"There are several reasons why I elected sole proprietor status for my law practice.
"By default, it was the easiest way to set up my practice when I first began. I wasn't sure how long I would be practicing as a solo, so I took the path of least resistance.
"As time went on, I began looking at other forms of organizing my business. Keep in mind that I have no employees, no staff and no other attorneys with whom I practice. There were two overriding questions that needed to be answered. First, could I, as a sole practitioner, get any liability protection by using a business entity? If so, what would be the ‘cost?' Secondly, could a business entity provide tax savings to a sole practitioner?
"Although I could, on paper, form an entity of some sort to limit my liability, the Supreme Court rules, namely SCR 20:5.7, provide little, if any, relief from personal liability, and no relief for errors and omissions. Furthermore, the rules require attorneys to notify their clients of the limited liability under which they are organized. Such a letter to clients may do more harm than good by scaring off potential clients who think their lawyer is trying to absolve himself of any bad legal advice. Is this being overcautious? Perhaps. But it comes into play, at least for a true solo practitioner.
"As far as tax relief, I have found little advantage to forming a business entity. Some solo attorneys create entities that allow them to pay themselves a lower salary, subject to FICA taxes, and to take the rest of their income as a distribution or dividend issued by the entity. But the question arises whether their salary is ‘reasonable compensation' as viewed by the IRS. Since I have no paid staff, and I am the sole source of revenue for the practice, what I pay myself out of the practice is most likely what the IRS would deem to be ‘reasonable compensation.' Again, I am being cautious."
— Thomas A. Heyn,
Thomas A. Heyn Attorney at Law,
Cottage Grove,
and member of the Law Office Management Section Board of
Directors of the State Bar of Wisconsin
"We chose the LLP for a number of reasons. Mostly, it's conducive to growth, and there's the flexibility of a partnership. Also, there is some liability protection for lawyers, vis a vis their partners. When you get into management issues, however, there isn't a tremendous difference between the corporate forms anymore."
— Jerry Gonzalez, Gonzalez, Saggio & Harlan LLP, Milwaukee
"I went with the sole proprietorship for complete simplicity. It's by far the easiest. I do criminal defense, a lot of public defender cases, so I'm not too worried about liability, although I do carry malpractice insurance. Eventually, I'll probably form an LLC. But for now, I work out of my home, and for tax and paperwork reasons, it just makes sense to keep it simple. I can use my own checkbook."
— Michael E. Covey,
Covey Law Office, Madison