Overview of the Tax Provisions in the 2010 Tax Relief Act

The recently enacted “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010″ is a sweeping tax package that includes, among many other items, an extension of the Bush-era tax cuts for two years, estate tax relief, a two-year “patch” of the alternative minimum tax (AMT), a two-percentage-point cut in employee-paid payroll taxes and in self-employment tax for 2011, new incentives to invest in machinery and equipment, and a host of retroactively resuscitated and extended tax breaks for individuals and businesses. Here’s a look at the key elements of the package:

• The current income tax rates will be retained for two years (2011 and 2012), with a top rate of 35% on ordinary income and 15% on qualified dividends and long-term capital gains.
• Employees and self-employed workers will receive a reduction of two percentage points in Social Security payroll tax in 2011, bringing the rate down from 6.2% to 4.2% for employees, and from 12.4% to 10.4% for the self-employed.
•  A two-year AMT “patch” for 2010 and 2011 will keep the AMT exemption near current levels and allow personal credits to offset AMT. Without the patch, an estimated 21 million additional taxpayers would have owed AMT for 2010.
• Key tax credits for working families that were enacted or expanded in the American Recovery and Reinvestment Act of 2009 will be retained. Specifically, the new law extends the $1,000 child tax credit and maintains its expanded refundability for two years, extends rules expanding the earned income credit for larger families and married couples, and extends the higher education tax credit (the American Opportunity tax credit) and its partial refundability for two years.
• Businesses can write off 100% of their equipment and machinery purchases, effective for property placed in service after September 8, 2010 and through December 31, 2011. For property placed in service in 2012, the new law provides for 50% additional first-year depreciation.
• Many of the “traditional” tax extenders are extended for two years, retroactively to 2010 and through the end of 2011. Among many others, the extended provisions include the election to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction for state and local income taxes; the $250 above-the-line deduction for certain expenses of elementary and secondary school teachers; and the research credit.
•  After a one-year hiatus, the estate tax will be reinstated for 2011 and 2012, with a top rate of 35%. The exemption amount will be $5 million per individual in 2011 and will be indexed to inflation in following years. Estates of people who died in 2010 can choose to follow either 2010′s or 2011′s rules.
• Omitted from the new law: Repeal of a controversial expansion of Form 1099 reporting requirements.

Also not included: Extension of the Build America Bonds program, which permits state and localities to issue federally-subsidized municipal bonds.

Contact us for questions, clarification or proactive planning.

Everyone is still discussing the hottest topic in the media circuit—social media. As I observe what has happened in this arena in the past year or so, it seems like an explosion has taken place, but has it had positive or negative results, or both?

Many of my friends and co-workers spend hours upon hours in this digital media communication. Businesses have, in most cases, embrace one form or another of social media and seem to be using it primarily for reconnecting, building new connections and for generating opportunities. As a matter of fact, businesses that have not jumped on the social media bandwagon are now viewed as behind the times. Even Facebook, which had a slow start in the business environment has begun to take off, as Facebook traffic has grown exponentially since it launched early 2004. As of last report, there are more than 500 million Facebook users.

As business owners, managers and leaders, what does this phenomenal growth mean for how we communicate with other businesses and our clients? Are we becoming more social beings because of social media? Does this make us better connected? Does it lead to stronger relationships? Will social networking ever really replace tried and true business networking?

Research has recently shown that Twitter, for example, is not a very social network for business folks. After analyzing more than 41 million user profiles, only 22 percent of connections are reciprocal, meaning that 78 percent are one-way relationships.

From my experience, face-to-face encounters still generate the best relationships and are more capable of building loyalty among businesses. Occasionally I hear about companies that discover each other through social media, but much more often, it is face-to-face experiences that lead them to do business together. That’s not to say that you shouldn’t use social media. Just be careful of how much time you spend on one-way communications.

Dress for Success

First impressions are formed in the first few seconds in a face-to-face meeting. All of us can get into bad habits, or just become plain lazy. Here are a few reminders that may help us differentiate ourselves in prospect meetings.

Most of us have heard that dressing appropriately and being well groomed is important in many business situations, but recent studies have shown that it means much more than that—it means the difference between sealing the deal or not differentiating yourself enough to make a difference.

For males, there are four basic levels of dress: Casual—jeans, casual shoes and shirt; Business Casual—Dockers/slacks, nice shoes and nice shirt; Enhanced Business Casual—same as Business Casual, but with a tie and/or sport coat; and Formal—suit and tie. Ladies follow similar levels, with Formal being a professional business suit or dress possibly with jacket, etc. Ladies have many more potential combinations, but it is safe to say that in most prospect or client meetings, Formal is the best choice.

The basic rule is to be at the prospect’s level or one above. They are making a decision, a very important and personal decision and they want to choose a winner, a professional, and expect no less than that in the services you will be providing.

It is also important to be cognizant of your posture. This gives a first impression too. Good posture has been validated by extensive research to identify you as someone who is credible, with something to say that is worth hearing. If you are asked to be seated, sit straight in the waiting room or lobby, face the door where you think your prospect will appear and avoid any appearance of slouching or excessive casualness. When you arise, stand straight and look directly into the prospect’s eyes for at least three seconds, no more than about five.

Research has found that these few elements are vital when a first impression is being formed.

All of us need reminders for working with prospects that we want to convert to customers. What is difficult at times, is taking control of the meeting and creating the opportunity to have your priorities rise to the top and not let the prospect steer the discussion. So how do you start? You should assume that you will be the first to speak, but you must make this meeting highly individualized so that you can really tune into the prospect’s needs.

Most of your competitors, no matter what the industry, but especially in professional services, can competently discuss their services and most prospects believe that they are all competent. No matter how well you discuss your firm and its services and the cost, you have done nothing to differentiate yourself.

There is only one way to accomplish this—by learning their motivations, wants, and needs. You need to ask the overview question, which will, in your own words ask where they are and where they are going. You want to know their wants so you can illustrate and make a personal connection. This will allow you to individualize your services and easily differentiate you from the competition.

Amoeba Management requires each group or a unit (normally consists of 20 or less people for a manufacturing/distribution company) to have a group based income statement. As previously stated in an earlier post, the Amoeba Management has three main objectives. They are:

1. Establishing a system of group-based profitability analysis. This system must be directly connected to the current market conditions.
2. Developing leaders of each group by giving opportunities to treat his/her group as an independent company. It is a superb tool to develop future leaders.
3. Ensure that every member of the organization pays attention to improve the profitability of his/her unit.  It fosters a strong sense of teamwork.

Typically, a manufacturing department pays attention to how to minimize their cost structures. However, they do not often think about how to maximize sales. On the other hand, the sales department usually tries hard to maximize sales, but tends to neglect minimizing expenses. Under the Amoeba, each unit pays attention to both aspects of business, i.e., maximizing revenues and minimizing expenses. Under the Amoeba, the manufacturing section records sales to the sales department. The sales department buys inventory from the manufacturing section and sells them to the market.

The concept appears very cumbersome. However, the essence of Amoeba is to give a sense of contribution margin (unit profit) to each unit. Each unit makes efforts to maximize the contribution. When all of the P/L of each unit is presented, the top management can clearly see where the issue is. As you can tell, Amoeba is a massive amount of data and a massive consolidation process. When each small unit pays keen attention to its expenses as well as sales, this will lead to a significant company-wide profit maximization.

When a company fully adopts Amoeba Management, it should enjoy over 10% of operating margin.  In addition, the company should enjoy far greater profit margin than its competitors.

Koh Fujimoto, Principal in Charge, International Practice
kfujimoto@cdhcpa.com

David Maister recently stated, “I don’t want to work with anyone: I want to work with people who share my philosophies. I really am a believer that , Passion, People and Principles are the keys.”

Maister goes on to say that as a leader, speaker, or other influencer—your views and values (passion, people, and principles) resonate with others, and that is when you have synergy and begin building a team or a following, as it were.

The lesson here is simple—be true to your values. Others with like values will be with you and you can accomplish great things.

Corbett, Duncan & Hubly agrees with Maister’s philosophy regarding passion, people and principles, and they know that great things can result. CDH was just named One of the Best Workplaces in Illinois.

Proof that your energy is better spent with similarly-minded people.

If your organization rapidly grows and you are part of the top management team, you have to constantly find ways to better manage an ever-changing organization. One typical method is to divide your organization into divisions and departments and assign a manager to each department. Under Amoeba Management, the differences are (1) department is evenly divided into the Amoeba, a group of about 10 to 20 people, and (2) each Amoeba will have its own Amoeba-based profit and loss statement.

A regular profit and loss statement is often difficult for non-accountants to comprehend. Therefore, the Amoeba-based profit and loss statement is more simplified and is built to present added profitability per hour of each Amoeba.  I call this Ameba P/L. Dr. Inamori, who invented and executed Amoeba Management believed that the essence of management is to maximize revenues and minimize expenses. Dr. Inamori exemplified this essence (he often calls this his management philosophy) in Amoeba P/L.

By using Amoeba P/L, each Amoeba’s profitability (or added value to the entire organization) is easily captured. A leader of each Amoeba can identify specific expenses to improve his/her Amoeba’s contribution to the entire organization. Since Amoeba P/L is so easy to comprehend, all the Amoeba members can understand the profitability of his/her group. This means that each member of an Amoeba can participate in the management of his/her Amoeba.

to be continued…

Koh Fujimoto, Principal in Charge, International Practice
kfujimoto@cdhcpa.com

The passage of the Health Care and Education Reconciliation Act of 2010 (H.R. 4872) (Reconciliation Act) by Congress on March 25, 2010 completed a massive overhaul of the nation’s health insurance and health delivery systems. The new laws include more than $400 billion in revenue raisers and new taxes on employers and individuals.

The health care reform package does not mandate employer-paid coverage, but instead includes “play or pay” language. The package also imposes a penalty on nonexempt individuals who fail to carry minimum essential coverage. On the revenue side, the health care package includes an additional Medicare tax on wages and self-employment income of higher income taxpayers, a new Medicare contribution tax on net investment income, and a delayed excise tax on high-dollar insurance plans, among its $437 billion in new taxes, fees and penalties.

To read the entire special report http://tax.cchgroup.com/legislation/Senate-Healthcare-Fixes-Bill-03-25-10.pdf

2010 Hiring Incentives to Restore Employment (HIRE) Act

President Obama signed his first major tax bill of 2010 on March 18. The new law provides incentives for hiring and retaining workers, along with a one-year extension of expensing and changes to Build America Bonds. The HIRE Act is partially offset by a package of new foreign account tax compliance rules and a further delay in the worldwide interest allocation rules. In addition, certain corporate estimated tax payments are also accelerated to help offset the cost of the tax incentives.

The HIRE Act creates an immediate incentive for businesses to hire unemployed individuals and an increased benefit the longer the new worker is on the payroll. Small businesses get an immediate tax benefit too, from the extension of and expensing extension.

Congress hopes that the HIRE Act’s enhanced tax credit bonds will help pump over $4.5 billion into local economies. For the complete special report, http://tax.cchgroup.com/legislation/Hire-Act-Signed.pdf.

This management accounting is truly unique and extremely interesting. I would like to introduce this management accounting process to you in a series of blog posts.

The amoeba is one of the simplest forms of living creatures. Its shape is constantly changing as it moves along.

The purposes of Amoeba Management Accounting are threefold;

1. Create section based financial statements through which the management can touch and feel the market.
2. Develop true leaders for each amoeba unit (i.e. small section) of the company.
3. Ensure that everyone gets involved to achieve the organization’s success.

Stay tuned for additional posts that further explain the details of the Amoeba Management Accounting process and whether it fits you and your organization.

Koh Fujimoto, Principal in Charge, International Practice
kfujimoto@cdhcpa.com