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.
Friday, August 29, 2008
Wednesday, August 27, 2008
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.
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.
Tuesday, August 26, 2008
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.
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.
Monday, August 25, 2008
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
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.
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.
Thursday, August 21, 2008
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
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
Wednesday, August 20, 2008
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.
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.
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.
Monday, August 18, 2008
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.
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.
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.
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