Ever think to yourself: The first of the year marks the end of this bloat? And mean your business budget?  If you think you’ve overindulged and need to get your budget back under control, here are a few of our favorite places to look to find ways to cut expenses while improving your company’s efficiency.

1. Look at those mailing lists.  If your holiday cards were returned or your target list hasn’t been refreshed, take a close look.  At the per-piece rate to mail, you could cut your budget by eliminating old contacts while maintaining your sales results.

2. Contact technology cell phone and internet providers and ask to review your terms and renegotiate your current rates. Review cell phone, internet, email and website providers.

3. Look at space.  If you are happy with your current location and still have 2-3 years on the lease, consider renewing the lease early but at a new rate. Ask for a reduction in utility rates, community access fees (landscaping, snow plowing) or other service fees that may be added to your base lease rate. Some landlords will be happy to have you stay put for 7 years in return for a reduced rate.  Otherwise, begin looking for another location.  If you have too much space, consider subleasing space to get a return.  Even if it is not the same as your current rental rate, some income is better than nothing.

4. Review your software needs.  Can you move to using more freeware? Can you dump expensive servers and move to a pay per month model with backup and memory in the cloud?  Are you really going to pay for Windows 8?

5. Review your advertising and see how you can piggyback on other people’s.  Combine your mailing with others to create a larger mailing list AND a lower cost per piece.  That will stretch your budget and raise awareness.

We try to keep up with the times and for most of our clients that means complete electronic banking. Debit cards instead of checks. Pdf bank statements instead of mail. Auto bill payments.

But the truth is we are seeing more clients hit with expensive bank fees when the balance goes negative before they check their accounts.  And it is happening more than ever before.  According to the website StatisticBrain.com, 69% of all people say they “NEVER” balance their checkbook.  Our clients tell us they don’t feel the need to update a paper check register when they can look at their accounts online and see the “up to the minute” balance.

But for people who rely on a constant flow of cash into their accounts to cover their auto-payments, just one hiccup along the way can lead to hundreds of dollars of fees.  With overdrafts regularly charged at $35 per day, it can sap an account quickly.

What to do?

1. Chart out the monthly inflow and outflow of cash from your account.  Know which day of the month deposits and withdrawals are made and by whom.  If you cannot know the exact amount because it varies (like utility bills) remember to budget high for withdrawals and budget low for deposits to stay safe.

2. Connect your checking account to a savings account or other asset (like a line of credit) within the bank to protect yourself from overdrafts.

3. Beware of bank HOLDS on deposits.  Bank policies can vary in holding checks from 1 to 5 business days before releasing funds depending on the kind and amount.

4.  (And I know 69% of you wont like to hear this) Balance your checkbook each month – not to prevent overdrafts, but to become intimately aware of where your money is going and review your spending habits.

We want all of our clients to practice smart money management.

Since the economy collapsed, one major benefactor to federal tax credits has been homeowners who have installed energy efficient upgrades to their homes.  Examples have included more energy efficient windows, doors, garage doors, insulation and any alternative energy producing units such as wind turbines or solar panels.  Those credits are about to expire and pundits expect that in the heat of the current fiscal cliff battle, they are not expected to be renewed.

To learn more about the credits, check out the energy star fact sheet here.

We are advising current clients to contact us to find out if you have already met your federal maximum levels for any energy efficient home improvements you have made to your primary OR second home location.  We can help ensure that you get full credit by moving planned upgrades into the current tax year.  We want to make sure that homeowners don’t miss out on their tax credit because they missed a deadline they were not aware of.

It’s just one more way that we do more than taxes!

As the end of the year approaches, you may want to make some gifts to relatives (who may be hurting financially) and/or favorite charities. Make some smart choices about how to make your gifts in conjunction with an overall revamping of your stock and equity mutual fund holdings. Here’s how to get the best tax results from your generosity:

Gifts to Relatives.

We advise that you Do Not give individuals loser shares (Those stocks that are currently worth less than what you paid for them.) Instead, sell the shares and take advantage of the resulting capital losses. Then, give the cash sales proceeds to the relative.

We advise that you Do give away winner shares to relatives when they will pay lower tax rates than you would pay if you sold the same shares. In fact, relatives who are in the 10% or 15% federal income tax brackets will generally pay a 0% federal tax rate on long-term gains from shares that were held for over a year before being sold in 2012. (For purposes of meeting the more-than-one-year rule for gifted shares, you get to count your ownership period plus the recipient relative’s ownership period, however brief.)

A Word of Caution: Before employing this give-away-winner-shares strategy remember gains recognized by a relative who is under age 24 may be taxed at his or her parent’s higher rates under the so-called Kiddie Tax rules (contact us if you are concerned about this issue).

Gifts to Charities.

The strategies for gifts to relatives work equally well for gifts to IRS-approved charities. Sell loser shares and claim the resulting tax-saving capital loss on your return. Then, give the cash sales proceeds to the charity and claim the resulting charitable write-off (assuming you itemize deductions). This strategy results in a double tax benefit (tax-saving capital loss plus tax-saving charitable contribution deduction).

Give away winner shares to charity instead of giving cash. Here’s why. For publicly traded shares that you’ve owned over a year, your charitable deduction equals the full current market value at the time of the gift. Plus, when you give winner shares away, you walk away from the related capital gains tax. This idea is another double tax-saver (you avoid capital gains tax on the winner shares, and you get a tax-saving charitable contribution write-off). Because the charitable organization is tax-exempt, it can sell your donated shares without owing anything to the IRS.

It is like the federal government has a year-end sale for businesses looking to make some equipment purchases!  That means businesses need to buy new equipment and software in 2012 before these tax breaks expire!  Section 179 is one of the few incentives included in any of the recent Stimulus Bills that truly helps small businesses. Although large businesses also benefit from Section 179 or Bonus Depreciation, the original target of this legislation was much needed tax relief for small businesses – and millions of small businesses are actually taking action and getting real benefits.

Bigger Section 179 Deduction. Your business may be able to take advantage of the temporarily increased Section 179 deduction. Under the Section 179 deduction privilege, an eligible business can often claim first-year depreciation write-offs for the entire cost of new and used equipment and software additions. All businesses that purchase, finance, and/or lease less than $560,000 in new or used business equipment during tax year 2012 should qualify for the Section 179 Deduction. If a business is unprofitable in 2012, and has no taxable income to use the deduction, that business can elect to use 50% Bonus Depreciation and carry-forward to a year when the business is profitable. For tax years beginning in 2012, the maximum Section 179 deduction is $139,000. For tax years beginning in 2013, however, the maximum deduction is scheduled to drop back to only $25,000.

CAUTION: Watch out if your business is already expected to have a tax loss for the year (or close) before considering any Section 179 deduction. Why? You cannot claim a Section 179 write-off that would create or increase an overall business tax loss. Please contact us if you think this might be an issue for your operation.

This expiring business tax ruling will expire on 12/31/2012 . We advise taking action between now and year-end!

50% First-year Bonus Depreciation. Your business can claim first-year bonus depreciation equal to 50% of the cost of most new (not used!) equipment and software placed in service by December 31 of this year. For a new passenger auto or light truck that’s used for business and is subject to the luxury auto depreciation limitations, the 50% bonus depreciation break increases the maximum first-year depreciation deduction by $8,000 for vehicles placed in service this year. The 50% bonus depreciation break will expire at year-end unless Congress extends it. Contact us if you want more details about this generous, but temporary, tax break.

Note: When applying the 50% bonus depreciation deductions – you can create or increase a Net Operating Loss (NOL) for your business’s 2012 tax year. You can then carry back the NOL to 2011 and/or 2010 and collect a refund of taxes paid in one or both those years. Please contact us for details on the interaction between asset additions and NOLs.

Here is a smart strategy for tax payers who have  2012 itemized deductions that are likely to be just under, or just over, the standard deduction amount. Consider the strategy of grouping together expenditures for itemized deduction items every other year, while claiming the standard deduction in the intervening years. For guidance, the 2012 standard deduction for married joint filers is $11,900; the magic number for single and married filing separate filers is $5,950; it’s $8,700 for heads of households.

For example, let’s say you’re a joint filer whose only itemized deductions are about $4,000 of annual property taxes and about $8,000 of home mortgage interest. If you prepay your 2013 property taxes by December 31 of this year, you could claim $16,000 of itemized deductions on your 2012 return ($4,000 of 2012 property taxes, plus another $4,000 for the 2013 property tax bill, plus the $8,000 of mortgage interest). Next year, you would only have the $8,000 of interest, but you could claim the standard deduction (it will probably around $12,500 for 2013). Following this strategy will cut your taxable income by a meaningful amount over the two-year period (this year and next). This is a completely viable strategy and you can repeat the drill all over again in future years.

Examples of other deductible items that can be bunched together every other year to lower your taxes include charitable donations and state income tax payments.

A Word of Caution: Because of the upcoming election or changes to your living situation, if you think you’ll pay a higher tax rate next year, you may want to claim the standard deduction this year and bunch your itemized deductions into 2013 where they can offset the higher taxed income. This will boost your overall tax savings for the two years combined.

With just 3 more tax months left in the year, most of our clients and business owners have a reasonable idea of where they will end the year.  We advise that NOW is the time to consider if it will pay to defer some taxable income from this year into next year.  Especially if you expect to be in a lower tax bracket in 2013. For example, if you’re in business for yourself and you follow a cash-based accounting method,  you can postpone taxable income by waiting until late in the year to send out some client invoices. Since  you won’t receive payment for them until early 2013, you wont recognize that income until next tax year. You can also postpone taxable income by accelerating some deductible business expenditures into this year – things like new printers, a big office supply spree and purchasing travel tickets now for travel in 2013 are all viable ideas. Both moves will defer taxable income from this year until next year. Deferring income may also be helpful if you’re affected by unfavorable phase-out rules that reduce or eliminate various tax breaks (child tax credit, education tax credits, and so forth). F0r some clients, it makes sense to defer income every other year, so they are able to take advantage of tax rules every other year.

NOTICE: Depending on the election, here is a good chance the Bush tax cuts will be allowed to expire at the end of this year in which case income deferral may not be advisable this time around. That’s because pushing income from 2012 into 2013 could expose you to higher marginal tax rates next year. If you’re convinced you’ll pay higher rates next year, consider taking the opposite of the traditional approach by accelerating income into this year and deferring deductions until next year. That way, more income will be taxed at this year’s lower rates.

With Bush tax cuts set to expire at the end of the year, Investors are looking at tremendous changes: the tax rate on long-term capital gains could increase from 15 percent to 20 percent and the rate on qualified dividends from 15 percent to an effective 44.6 percent. 

Here are my suggestions for ways to avoid or minimize the adverse effects of these changes. Planning for these likely tax changes is a major undertaking and many clients are beginning the process now rather than waiting for the fall elections.

For some investors, it will  make sense to harvest capital gains made to date  in 2012 to take advantage of the current lower rates. To do that: sell appreciated capital assets and immediately reinvest in the same or similar assets. By holding on to the new assets until you would have formerly sold them, there is no change in your investment strategy. You are simply taking gains now, while the tax rates remain the lower 2012 rates.

However, if you are the kind of investor who is currently in the 15% long-term capital gain bracket and you are holding on to your investments with a plan pass it on to heirs, there is probably no reason to recognize the gain now. You would be incurring tax now without any offsetting future benefit.

In any case, NOW is the time to do an analysis and determine what this new change will mean for you and your heirs and to take steps while we remain in the 2012 tax year.  In this case, procrastination is a bad strategy.  Next year, there may be no choices left for you.

For couples or individuals with large estate planning needs, there is only have a very small window of opportunity to make changes or adjustments to their estate plans before federal estate tax exemption levels change and tax hikes set in on January 1, 2013.

During 2012, the current rules provides $5,120,000 per person federal estate tax exemption. Estates over that amount are taxed at a top rate of 35%. The new law which will go into effect on January 1, 2013 is  a $1 million per person federal estate tax exemption and a 55% effective top tax rate!!

Perhaps even more important for some married couples, the current law contains a “portability provision.” During 2012, if one spouse dies without using up his or her federal estate tax exemption, the unused portion may be transferred to the surviving spouse if elected by the executor of the estate of the first-to-die spouse.  This portability provision was once a simple solution for couples who did not want to create complicated trusts or wills.

With the new changes going into effect, smart clients will want to work closely with our estate and tax advisers before the end of the year to discuss your plan and potentially update it to reflect any changes to the law.

Things to consider

States have their own estate taxes. Approximately 22 states (including Minnesota) impose an estate and/or inheritance tax. State estate taxes are separate from the federal estate tax.  Minnesota’s is $1,000,000.Working with our advisers may help minimize the potential impact of state estate and/or inheritance taxes.

Putting a plan into place

In light of the current law and pending changes set to take effect in 2013, you may want to revisit your estate plans with an adviser. Here are some potential next steps to consider.

1. Update your existing estate plan. If you have an existing estate plan in place, you may want to revisit your plan with your adviser in light of the current law, including its portability provisions, with an eye to the pending expirations in 2013. This task may involve drafting new wills and amending existing living trusts. If this is not done prior to your death, your surviving spouse may be limited by elements of your existing estate plan.
2. Establish a plan if you don’t have one.  Put a properly written plan in place before your death. For example, your desire to transfer all of your assets to your surviving spouse may be frustrated if you don’t hold all your assets jointly with your spouse and you don’t have a will in place to transfer your assets to your surviving spouse. Otherwise, your state’s intestacy laws may control the distribution of your estate and, as a result, all of your assets may not transfer to your surviving spouse.
3. Update your beneficiaries and joint ownership. As always, be sure to update the beneficiary designations on any retirement accounts, transfer on death (TOD) accounts, annuities, life insurance policies, and any other financial instruments that have named beneficiaries, to ensure that these accounts are included in your estate plan. Naming your spouse as joint owner or beneficiary of your accounts can potentially provide a simple way to avoid state intestacy laws.

Come in and talk with us about the upcoming tax changes for the next year.  Careful planning at this stage can help you prepare for multiple contingencies, including any potential changes Congress may enact.