GROWTH PROSPECTS

 Economic Downturns Call for Innovation

 
 There is a clear link between entrepreneurship, innovation and economic growth, especially during recessions, according to an Ernst & Young white paper.  Findings in the report include:

 Historically, entrepreneurs have thrived in recessions, and have helped to bring about a return to economic health.  According to a recent Ernst & Young survey, 67% of entrepreneurs are focused on pursuing new market opportunities brought on by the downturn.

 Innovation is often disruptive, but it is also critical to maintaining and sustaining market leadership.  Strong organizations embrace this notion.

 Today’s market leaders will not necessarily be tomorrow’s market leaders.  Globally, all the major indexes turn over ever five years.  For Example, the Global Forbes 200 has experienced a 51% turnover; the HDAX (Germany), 50%; the FTSE 350 (U.K.), 50%; the KOSPI 200 (South Korea), 49%; and the Bombay 200 (India), 91%.  Entrepreneurial-minded enterprises grow with incredible speed and quickly enter the ranks of the world’s largest corporations.

  “Those with an innovative mind-set can unlock the hidden opportunities in this recession”.  James S. Turley, global chairman and CEO of Ernst & Young, said in a news release.  “New companies will spring up that will revolutionize whole industries”.

 
Source: Entrepreneurship and innovation: The keys to global economic recovery,

Ernst & Young, ey.com

Congress Passes 2 Month Extension of COBRA Premium Subsidy

APRIL 21, 2010
Late on April 15, Congress passed H.R.4851, the Continuing Extension Act of 2010, and sent it to the President for his signature. 

The Continuing Extension Act of 2010 extends the eligibility period for the COBRA continuation premium subsidy for two months. Under prior law, the eligibility period had ended on March 31, 2010.

Under the new law, the eligibility period for the subsidy is retroactively extended for two months and will end on May 31, 2010. The Continuing Extension Act of 2010 also carries extended election procedures for those who were involuntarily terminated after March 31, 2010, and before the date of enactment of the new law, and new notice requirements for plan administrators.

The Continuing Extension Act of 2010 also extends a number of other programs, such as unemployment insurance.

© 2010 Thomson Reuters/RIA. All rights reserved.

SBA Warns Small Businesses of Scams to Help Obtain Government Loans

APRIL 1, 2010
The U.S. Small Business Administration (SBA) warned that the agency has received several complaints from small businesses about abusive marketing practices, scams and exorbitant fees charged by companies offering to help businesses get a loan, grant or other federal funds from the SBA. Complaints received by the SBA's Office of the Inspector General (SBA OIG) include:

• Companies charging small businesses high fees to provide assistance applying to SBA funding programs. Some companies allegedly guaranteed that the small business would obtain SBA funding if they paid the fee. The SBA does not endorse or give preference to specific private companies or their clients.
• Companies charging small businesses for services never requested after the small business gave bank account and routing information to a caller claiming to be a company offering assistance.
• Companies alleging that a small business would be issued a "forfeiture letter" that would make the small business ineligible for any SBA funding for three years if the small business refused to use the company's services.

Health Care Reform: A Timeline

In November and December 2009, then Senate and House both passed their own versions of health care reform legislation, and there was much anticipation that a final bill would be reconciled and delivered to the President.

On March 21, 2010, the US House of Representative approved the Senate version of the health care reform bill and the bill was signed into law by President Obama on March 23, 2010.

The Senate must now pass a package of changes that will reconcile the differences between the Senate and House bills. If those changes are worked out, here is how health care reforms will affect you:

• Young adults will be able to stay on their parent's insurance until their 26th birthday.
• Seniors will get a $250 rebate to help fill the "doughnut hole" in Medicare prescription drug coverage, which falls between the $2,700 initial limit and when catastrophic coverage kicks in at $6,154.
• Insurers will be barred from imposing exclusions on children with pre-existing conditions. High risk pools will cover those with pre-existing health conditions until health care coverage exchanges are operational.
• Insurers will not be able to rescind policies to avoid paying medical bills when a person becomes ill
• Lifetime limits on benefits and restrictive annual limits will be prohibited
• New plans must provide coverage for preventative services without copays. All plans must comply by 2018.
• A temporary reinsurance program will help offset costs of coverage for companies that provide early retiree health benefits for those ages 55-64.
• New plans will be required to implement an appeals process for coverage determinations and claims.
• Adoption tax credit and assistance exclusion will increase by $1,000. The bill makes the credit refundable and extends it through 2011.
• Businesses with fewer than 50 employees will get tax credits covering 35 percent of their health care premiums, increasing to 50 percent by 2014.

• Medicare will provide free annual wellness visits and personalized prevention plans. New plans will be required to cover preventative services with no copay.
• States can offer home and community based services to the disabled through Medicaid rather than institutional care beginning October 1.
• A 50% discount will be provided on brand name drugs for Prescription Drug Plan or Medicare Advantage enrollees. Additional discounts on brand name and generic drugs will be phased in to completely close the "doughnut hole" by 2020
• Additional tax for heath savings account withdrawals before age 65 for non qualified medical expenses will increase from 10% to 20%. Additional tax for Archer medial savings account withdrawals not used for qualified medial expenses will increase from 15% to 20%.
• A plan to provide a vehicle for small businesses to offer tax free benefits will be created. This would ease the small employer's administrative burden of sponsoring a cafeteria plan
• The Medicare payroll tax will increase from 1.45% to 2.35% for individuals earning more than $200,000 and married filing jointly above $250,000

• Health plans must implement uniform standards for electronic exchange of heath information to reduce paperwork and administrative costs.
• Contribution to flexible savings accounts will be limited to $2,500 per year, indexed by the Consumer Price Index in subsequent years
• The employer Medicare part d subsidy deduction will be eliminated. Employers will lose the tax deduction for subsidizing prescription drug plans for Medicare part D eligible retirees.
• There will be increases to the income threshold from 7.5% to 10% of adjusted gross income. Those older than 65 can claim the 7.5% deduction through 2016.
• The hospital insurance tax is increase .9 % for those earning more than $200,000 ($250,000 for married filing jointly) and it includes net investment income.
• A 2.9% excise tax on the first sale of medial devices will be established. Excepted are eyeglasses, contact lenses, hearing aids or other items for individual use.

• Citizens will be required to have acceptable coverage or pay a penalty of $95 in 2014, $325 in 2015, $695 (or up to 2.5% of income) in 2016. Families will pay half the amount for children up to a cap of $2,250 per family. After 2015, penalties are indexed to Consumer Price Index
• Workers who are exempt for individual responsibility for coverage but don't qualify for tax credits can take their employer contribution and join an exchange plan
• Companies with 50 or more employees must offer coverage to employees or pay a $2,000 penalty per employee after their first 30 if at least one of their employees receives a tax credit. Waiting periods before insurance takes effect is limited to 90 days. Employers who offer coverage but whose employees receive tax credits will pay $3,000 for each worker receiving a tax credit.
• Insurers can no longer refuse to sell or renew policies because of an individual's health status. Health plan can no longer exclude coverage for pre-existing conditions. Insurers can't charge higher rates because of health status, gender or other factors
• Health plans will be prohibited from imposing annual limits on coverage
• Health insurance exchanges will open in each state to individuals and small employers to comparison shop for standardized health packages
• Credits will be available through exchanges for those whose income is above Medicaid eligibility and below 400 percent of poverty level who are not eligible for or offered other acceptable coverage
• Medicaid eligibility will increase to 133% of poverty for all non elderly individuals to ensure that people obtain affordable health care in the most efficient and appropriate manner. States will receive increased federal funding to cover these new populations
• An annual health insurance provider fee will be imposed across the health insurance sector according to insurer's market share to companies whose total premiums exceed $25 million.

• Taxing Cadillac Plans: An excise tax will be imposed on high cost, employer provide health plans beyond $27,500 for family coverage and $10,200 for single coverage. It will increase to $30,950 for families and $11,850 for individuals, retirees and employees in high risk professions

Two Manufacturing Companies - One Owner

Cleveland, Ohio
Well-Established metal stamping companies, short run and long run for-sale. Combined annual sales of $6 million. Owners are retiring. Substantial customer lists, non-automotive, non-union, low debt.

Principals only contact Tim McManamon, CPA/CVA, ABV at 440-892-8900, extension 101 for details.

Tax simplification bill introduced in the Senate

On February 23, Senators Ron Wyden (D-OR) and Judd Gregg (R-NH) introduced the "Bipartisan Tax Fairness and Simplification Act of 2010." According to a two-page summary, the bill would put in place a three-rate system (15%, 25%, and 35%), eliminate the alternative minimum tax (AMT), and do away with many of the deductions, credits, and other preferences currently in the Code. The standard deduction would be nearly tripled for taxpayers who aren't high-income individuals, and retirement savings vehicles would be simplified.

Corporations would be subject to a single flat tax rate of 24% and most small businesses would be able to deduct all equipment and inventory costs in one year.  

The bill would create a new 35% exclusion and a progressive rate structure for dividend and long-term capital gains income. Additionally, the holding period for long-term capital gain treatment would be cut to six months for the first $500,000 of a taxpayer's capital gains income.

Fraud Deterrence 101

It wasn't long ago that fraud was most often found by accident! These days fraud is most often discovered by an employee tip. Why is this true? Well, there are some simple things that business owners and their management can do to help deter fraud. The most important element is educating employees about what fraud is and how they can report wrong doing when they see it. Education programs and employee tip lines are an excellent first step.

Please contact Jeff Firestone, CPA, CFE, at jeff@mcmanamonco.com or call 440.892.8900 if you'd like to learn more or if you need help getting started.

Continuing Education Events

Kevin Krantz was invited to present at a series of continuing education events including:

• Wisconsin Society of CPAs - Innovative Tax Planning for Individuals and Sole Proprietors
• New York Society of CPAs - Closely Held Business Taxation – 49 Practical Ways to Cut taxes
• Kolder, Champagne CPAs - Innovative Tax Planning for Small Businesses
• Louisiana Society of CPAs - Innovative Tax Planning for Small Businesses
• Louisiana Society of CPAs - Closely Held Business Taxation – 49 Practical Ways to Cut taxes
• Washington Society of CPAs – Individual and Corporate Income Tax Workshop
• New York Society of CPAs – Best Tax and Financial Planning Strategies for a Bad Economy

Fraud Update

Think identity theft is an equal-opportunity crime?
It turns out that women are hit harder than men by identity theft, according to an Affinion Security Center survey of 808 U.S. households, half of whom had been victims of identity fraud.

The survey found that almost twice as many female victims as male victims experienced unreimbursed losses of $1,000 or more. Women were less likely to report losses, and it took them longer to restore their identities.

The survey also found that women change their behaviors more dramatically after having their identity stolen, with 19% reporting shopping online less often (compared with 13% of men) and 7% saying they refused to shop online at all after the theft. Four times as many women as men who had experienced ID theft in the past said they now keep all of their information locked in a safe.

Source: Affinion Security Center, affinionsecuritycenter.com

Tax Notes

Many financial executives say their companies are using or are planning to take advantage of economic stimulus tax provisions, according to a Grant Thornton survey of U.S. CFOs and senior comptrollers.

Here are the provisions they’re planning to use:

• Bonus depreciation (50%)
• Increased section 179 expensing (46%)
• Net operating loss carryforwards (43%)
• Acceleration of R&D or AMT credits (25%)
• Cancellation of debt income (9%)