**SECTION 179 INCREASED TO $500,000**

Were you one of the many small business owners anxiously awaiting an increase on Section 179 and other tax extenders? If so, then I have great news for you! Last night, by a vote of 76 to 16, Congress finally passed a bill to extend many of the expired tax provisions. Please note that, unfortunately, they only passed them for 2014—meaning they will be retroactive to Jan. 1 and will expire again Dec. 31.

In order for these to become law, the President must also sign the bill (H.R. 5771 “The Tax Extenders Bill”) but that is expected to occur later this week.

Here are a few highlights of tax deductions you may be able to now take advantage of for 2014:

• Section 179 Equipment Tax Deduction: this has been increased from only $25,000 to $500,000

 

• Home Mortgage Insurance Premiums Deduction: if you itemize your taxes, you will be allowed to take a tax deduction for PMI

 

• State and Local Sales Tax Deduction: if you itemize your taxes, you will now be able to take a tax deduction for these taxes. This is especially helpful if you live in a state that does not have an income tax

 

• Tax Free IRA Withdrawals for Charity: anyone over 70 ½ will be allowed to donate up to $100,000 from his or her traditional IRA, without incurring taxes, if the money is distributed directly to an eligible charity

 

• Tuition Deduction for Education: even if you do not itemize your taxes, you will be able to deduct up to $4,000 spent on qualified tuition, fees, and related expenses for post-secondary education

 

• Tax Free Savings for Disabled Individuals: this is attached to the extender bill and is called the Achieving a Better Life Experience (ABLE) Act. With this Act, those who were disabled prior to age 26 will be able to contribute up to $14,000 a year, tax free, into an ABLE account. Not only that, but this provision will also apply to their family and friends!At the Willeford Group, we are continually researching tax law changes so that you do not have to do it yourself! We are committed to helping our clients improve their cash flow through saving money on taxes, amongst other methods, so that they can improve their quality of life as well.

  Please give us a call to ask us ways in which we can help you use the tax extenders to save more in taxes!

  Kate Willeford, CPA

Sales & Use Tax; Excise Tax Update!

We have continued to stay up-to-date on the latest regulations relating to Sales and Excise Taxes and would like to share a brief summary with you so that you can stay informed and ask your vendors any questions you may have before you receive your first monthly bill for 2013.

 Sales & Use Tax Returns Due Jan. 20 for Most States

 Please remember that Annual Sales Tax Returns are due Jan. 20 each year—unless you are required to file them Monthly (due the 20^th of each month) or Quarterly (due the last date of the month in Jan, Apr, Jul, Oct).  Which type filer you are is dependent upon how old your business is—if you filed for a Sales Tax ID Number and your business is less than 1 year old, you should be filing monthly).  This year, due to the holiday weekend, the return is due Jan. 22.

 Sales Tax Returns are very easy to complete and it is typical for a dentist to have $0 taxes due on the Sales Tax Return, which is why we recommend your office fill them out instead of hiring us to do it for you.

 Use Taxes are due on anything you buy across State lines for which you were not charged Sales Tax when buying the item.  Double check your invoices, especially when doing online shopping, to make sure you are paying the Use Tax when appropriate.

 Georgia has a Sales Tax Exemption for Durable Medical Equipment—please read below for more information.

 Federal Excise Tax: An Update

 You have heard us talking about the Federal Excise Tax and many of the State Dental Associations, as well as the ADA, have been keeping you informed as well, due to the fact they have been vigorously fighting the legislation.

 Dentists are NOT responsible for assessing, collecting, filing, or paying the Medical Excise Tax.  This new tax, of 2.3%, is being charged by suppliers and labs on some materials and finished dental devices that you purchase from them.  It is these suppliers and labs that have a responsibility to file the taxes with the government.

 We highly recommend you double check your invoices to make sure the vendor is charging you the 2.3% tax only on the appropriate items and are not simply applying the 2.3% tax to all items you purchase from them.

 Items you purchase, for which this tax does NOT apply, are items known as more “traditional” items: crowns, bridges, dentures, etc.  Whether the lab chooses to pass the cost of the 2.3% they will now have on their supply purchases is up to the lab and I encourage you to have a conversation with them to ask them how they are interpreting the new law.  Make sure to ask them how they will handle Sleep Apnea devices.

 Beware that if you import crowns, bridges, dentures or other items you use for patients from a foreign dental lab, the law indicates that you are what is known as an “importer” and you could very well be subject to having to pay this tax as an importer. 

 Georgia Sales Tax Exemption

 For those who operate a business in Georgia, please be aware that the regulations we have been expecting since 2011 are now completely in effect as of Nov. 19, 2012.  These regulations state you do not owe Sales Tax for prosthetic devices (implants, crowns, dentures, fillings, etc) and you do not owe Sales Tax to the vendor from whom you buy the device if it has been prescribed by the dentist to be permanently transferred to the patient.

Sincerely,

Your Willeford Group Team of Advisors

 

Tax Deal Passed! Key Points to Know Now!

We have a tax deal waiting for signature by President Obama!  The House passed the American Taxpayer Relief Act late Tuesday evening.  In the end, the House voted very close to what we had predicted.  Here are some of the key aspects of the bill you need to know now:

•       Tax bracket rises for those over $450,000.  The higher 39.6% tax bracket will affect families making over $450,000 Adjusted Gross Income (Single filers $400,000)—this will affect about 0.6% of the country.  This is an increase from 35%.
•       The payroll tax holiday has NOT been extended.  Meaning, FICA taxes now rise back to the 7.65% we had prior to 2012.  This means an immediate decrease in the net pay for your paycheck as well as your employees, if you have employees.  You may want to recommend your employees fill out a new Tax Withholding form to change their withholdings to offset this net check reduction.  In other words, if they always get a refund on their tax return, they could reduce their withholdings now and keep more cash in their pocket during 2013.
•       Alternative Minimum Tax has finally been permanently “patched” or fixed to reduce the number of those affected by this tax.  If you are a client of ours, we had already assumed this would be the case in our tax projections.
•       Capital gains and dividends return to 20%. The Act would raise the top rate for dividends and capital gains from 15% to 20% for taxpayers who would be subject to the new 39.6% bracket.
•       Depreciation and Special Depreciation extended.  Use of the Section 179 Depreciation deduction will remain at the high levels we have been used to for 2011 and 2012, indexed for inflation.
•       Deduction limitations for individuals with income over $250,000. The Act would reinstate the Pep and Pease limitations on the personal exemption and itemized deductions for families with Adjusted Gross Income over $300,000.
•       Estate tax exemption remains at $5 Million. The Act prevents steep increases in estate, gift and generation-skipping transfer (GST) tax that were slated to occur for individuals dying and gifts made after 2012 by permanently keeping the exemption level at $5,000,000 (as indexed for inflation). The Act also permanently increases the top estate, gift and GST rate from 35% to 40%.
•       Extends Unemployment Insurance Benefits for 1 year. This affects over 2 million Americans.
•       Individual Extenders.  The Act extends a host of individual provisions, including the treatment of mortgage insurance premiums as qualified residence interest, deductions for State and local general sales taxes, and the above-the-line deduction for qualified tuition and related expenses.
•       Business tax extenders. Many key business tax breaks would be extended including depreciation provisions, notably including bonus depreciation, and the research and work opportunity tax credits.
•       Other items. The Act extends unemployment insurance and many health and energy-related provisions, as well as  extend farm legislation.  The Act pushes consideration of the sequester down the road for a few months.

Have any questions about how the new tax bill will affect you?  Please call us at 770-552-8500 or email us at katew@thewillefordgroup.com

Wishing you a very successful and rewarding 2013,

Kate Willeford, CPA & Rick Willeford, CPA, CFP

Inflation Fears Overblown?

It seems that “everyone” knows that hyper-inflation is coming. “Common sense”–and the radio–say so. The Government bail outs, etc. are going to sink us all! The printing presses are running!! (Truth: The Government printed $974 million last year, but 95% is just to replace worn out dollars. So, be careful with partial information. To put it in perspective, $30 billion in Monopoly money is printed every year!)

In theory, inflation could soar, but the evidence suggests that the risks are overstated according to this CBS News article by Larry Swedroe, director of research at BAM Advisor Services we work with. He points out that we are not seeing the same factors that stoked the fires of inflation in the ’70s and early ’80s. His main points are:

• Americans’ disposable income and bank credit was growing by double digits back then. Those are now in low single digits or negative.
• With official unemployment in excess of 8%, and unofficial rate much higher, there is no pressure coming from wage increases. Wages and housing prices are a much larger component of inflation than are commodities, like oil, that are attracting all the media attention.
• Although the Fed has been injecting a lot of money into the economy, it isn’t being felt in the system because people are not spending and banks aren’t lending.
•  If the investors, economists and financial markets were concerned about runaway inflation, the yield (interest) on 30-year Treasury bonds would be a lot higher than their current 3.3%. The consensus for 2.2% inflation over the next 10 years is reflected by the fact that 10-year Treasuries are yielding 2.2%
• Finally, the Fed is keenly aware of the risks if consumer spending increases dramatically and if the banks begin to lend freely again. The central bank is constantly trying to strike a balance between tightening too quickly (the mistake made during the Great Depression) and not tightening fast enough (increasing interest rates, etc.).

The bottom line is that your investment portfolio should be properly diversified to have some protection against unexpected inflation. That is why our clients all have a small portion of their investments in commodity funds and inflation-protected Treasuries (TIPs).

Investing: Are You Playing the Loser’s Game – And Don’t Know It?!?

Active money management fails once again!

This means investors are leaving tens of billions of dollars on the table.

Is this you!?!

Or someone you know?

 

Click HERE to read Larry Swedroe’s article about the semi-annual report from the S&P showing that over a 5-year horizon the vast majority of active fund managers failed – again – to beat their benchmark averages.

“Active” management (vs. buy-and-hold “passive” management) is where an investment advisor (they used to be called “stock brokers”) uses your money to chase their egos in search of the next hot stock. This goal of Wall Street to keep things stirred up is what we call the “Loser’s Game”.

While active management is exciting (to the broker), academic studies show time and again that passive management is the superior (boring) way to accumulate wealth.You may think that you are a buy-and-hold investor because you seem to stick with the same funds over time. But unknown to you is that the manager inside the fund may be buying and selling like crazy. This eats up your return due to trading costs, bid/ask spreads, etc.

Let me know if you have any comments or questions after reading the article.

A Word About Gold

Every 15 minutes it seems that there is an ad on the radio to buy gold. That kind of continual hype should be a red flag in itself. Just like there used to be ads about easy riches in flipping houses…. True, gold has had a nice run up in recent years; but it goes up and down like everything else! Although it has been a store of value over the very, very long term (i.e., longer than a lifetime!), it has gone through very long periods where it lost value in real terms (i.e., after inflation). For example, gold traded at $850 per ounce in 1980, then traded at only $900 per ounce in 2009 – 29 years later. (And, in fact, dropped to $343 in the interim, in 2003!) During those 29 years, inflation averaged 3.55% per year. So the real, purchasing price “value” after inflation was only $315 in 2009!!

I read a practical example that stated it would take the same amount of gold to buy a good suit of clothes today as it would have in 00 AD! Essentially kept up with inflation, and no more.

While it is wise to invest a portion of your money in something that often moves independently of the financial markets and also serves as protection against inflation, academic research shows that a broadly diversified basket of commodities is typically better than gold. In fact, many of our clients’ portfolios include about a 5% allocation to such a basket of commodities.

Taxes: Buffet “Rule” or Buffet “Ruse”?

As expected in politics, rhetoric often flies faster than facts. The “outrage” over billionaire Warren Buffet saying he pays less tax (15%) than his secretary (30%) is a good example. Buffet knows better.

As with most falsehoods, there is enough element of truth to make it believable. But Buffet conveniently forgets to mention that taxes are actually paid twice on investment income. That is one reason capital gains tax rates are lower than taxes on wages, which are only taxed once.

For example, assume a corporation has $1,000 of profit before taxes. It will pay 35% tax on that, leaving $650 that it pays to shareholders as non-deductible, after-tax dividends. The shareholder, like Buffet or Romney, then pays 15% tax on the $650 = $97.50. After both taxes, there is only $552.50 left over. So the effective tax rate on that $1,000 was  44.75%! (That is why most doctors use S corporations to avoid this dreaded “double taxation”.)

Back to the secretary. If she actually paid 30% in income taxes, the tax tables show that she would have to have earned between $500,000-$1M. That it doubtful. So folks probably get the 30% figure by adding payroll taxes on top of her income taxes.

The Congressional Budget Office says that, counting all income taxes, the top 1% pays an effective income tax rate of 29.5% while the average middle class taxpayer pays 15.1%. (Of course it is a different discussion to note that the top 1% pays in about 38% of all tax dollars….)

Willeford Group 12/31/11 Dental Production Index

DENTAL PRODUCTION INDEX 2007, 2009, 2010, 2011 The Most Reliable Dental Index in the Profession!

Why is this important to me?  What do I do with this information?  These statistics show you what your Doctor Production level could have been—the difference between that and your actual number tells you how much higher your Cash Flow could have been if your practice was running at optimum efficiency.      December’s Production Per Doctor was $73,000    On average, Doctors worked 14 days in December or produced about $5,200 per day     What was your production?  If your office produced only $4,200 per day & worked 14 days then: Ø You could have produced $1,000 more per day Ø Meaning an additional $14,000 could have been produced in December Ø An average of $12,500 Net Profit could have gone into your pocket! Ø If this happens every month, then an additional $150,000 per year could go into your pocket!   Do you have room for improvement?  If so, call us—we can help you put more cash in your pocket, which helps you achieve the income you need to support your Quality of Life!   Our Dental Production Index tracks practice trends Per Doctor for same set of practices over four years so the results are comparable. (These are all stable, predominantly fee-for-service, general practices open 5 years or more.)   Rick Willeford  RickW@TheWillefordGroup.com        Kate Willeford  KateW@TheWillefordGroup.com

Sales & Use Tax Return Reminder!

Remember to file your Sales & Use Tax Return.  As we shared in our letter, it is due Jan. 20 if you want to take advantage of the “Vendor’s Compensation” (a 3% reduction in whatever tax you owe…this is supposed to cover administrative costs you may have incurred for having to fill out the return).  If you don’t owe any tax, then the deadline is Jan. 31.

Any questions?  Just give us a call at 770-552-8500

Your Advisors at the Willeford Group

Great WSJ article: “If Your Teeth Could Talk”

In case you missed it, here is the link to a great article in WSJ on 12/27/11 re the systemic link between teeth and your overall health. It is a great piece for you and/or your hygienist to discuss with your patients. That is better than having a discussion with their attorney later…..!

http://online.wsj.com/article/health_journal.html