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Maximizing the Sales Tax Deduction
By Leslie Daane, CPA
For taxpayers who can itemize deductions (when the total of itemized deductions is greater than the standard deduction), a choice can be made to deduct state and local sales taxes instead of state and local income taxes. This choice would be made if the sales tax deduction is greater than the income tax deduction. In states that don’t have state income taxes, like Nevada, you will naturally be deducting sales taxes. While this new law is applicable for tax years 2004 and 2005 only, legislation already has been introduced to make it permanent.
If you elect the deduction for state and local sales taxes, a choice between two methods of computation must be made between the actual expense method or the IRS's optional state sales tax tables method.
Actual Expense Method. Under the actual expense method, you total the sales taxes on all purchases made during the year. When using this method, you must be prepared to prove the actual amount of sales taxes paid; and while actual sales receipts are the most convincing method of proof, other means may be available, such as credit card receipt statements. Since credit card statements may show totals for expenditures in each of several merchant categories (for example, groceries, car repairs, restaurants, department stores), you need to apply the correct rate based on the item purchased and the location of the purchase.
Optional State Sales Tax Tables Method. Under this method, you do not need to retain receipts. However, sales taxes on certain large purchases can be added to the amount taken from the table, and the receipts for these items must be retained. The optional state sales tax tables reflect what the IRS has determined to be the average state sales tax paid by the resident of a given state, based on both income level and on the number of exemptions claimed on Form 1040.
The definition of income for purposes of using the IRS tables is "adjusted gross income (AGI), plus certain nontaxable income, such as tax-exempt interest; veterans' benefits; nontaxable combat pay; workers' compensation; nontaxable part of Social Security and railroad retirement benefits; nontaxable part of IRA, pension, or annuity distributions (except rollovers); and public assistance payments." Since the amounts allowed in the IRS tables rise by income increments of either $10K (on up to $100,000 income) or $20K (from $100,000 to $200,000 income), adding such nontaxable amounts to AGI may result in moving up to the next level of deductible sales taxes in the tables.
Local sales taxes are not reflected in the IRS tables. Therefore, you need to determine the local rate and then compute the local sales taxes that you paid. The combination of the statewide and local rates is the total that can be applied in determining the deduction. For Nevada, the state sales tax rate of 6.5% is reflected in the table. If you live in Washoe County, the combined state and local tax rate is 7.375%.
Special Additions. As discussed above, you may deduct the actual amount paid or use the IRS tables. However, in either case, you can add sales taxes paid on the purchase (or lease) of a motor vehicle, boat, aircraft, home or building materials.
Market Watch
By Robert Jorgensen, CIMA, of Legacy Advisors, LLC
Domestic Equity Forecast for 2005: Get Ready for a Downturn
Many Wall Street Economists are forecasting anywhere from +8% to +12% for the U.S. Stock Market this year. Our work suggests otherwise. We expect the next two years to be rough.
The Dow Jones Industrial Average peaked on January 10, 2000 at 11,722 and the NASDAQ peaked on March 6, 2000 at 5048. As of this writing, the Dow Jones Average is still 9.1% below its high 5 years ago and the NASDAQ is still 57% below its high from 2000. What this means is we are almost half way through the first decade of the new millennium and fully invested equity investors in these indices have little or no returns for the past five years.
How will your portfolio look if we begin another 18-22 month Bear Market Decline? This is exactly what our work is forecasting. Be prepared to make some defensive changes in your equity portfolio soon.
Buy Stuff not Stocks, Commodities on the Move
Since 1999 The Commodity Research Bureau Index is up 36% vs. the S&P 500 which is down over 20%. In the last 12 months Sugar, Coffee, Crude Oil, and Copper are all up over 30%. There are many factors driving this rise in prices like the recent war. Wars increase demand for iron, steel, lead, and copper (all of these prices have soared in the last two years). Another big factor that has driven up commodity prices has been the industrialization of China which is currently on a consumption binge.
The bottom line is all these rising price signals in commodities is not good news for stocks. Rising commodities means higher expenses for most companies. Higher expenses mean lower earnings, which in turn translates to lower stock prices. This rising price trend for global commodities I believe will continue for several years. Make sure your portfolio is positioned to take advantage of these moves.
POINTS OF INTEREST:
LOW-COST LABOR - The average manufacturing worker in cities throughout China made $1.06 per hour in 2002 compared to $21.11 for the average American factory worker. $1.06 an hour is 21% of the minimum wage in the USA. (source: Business Week, Judith Banister)
STOCK MARKET IS OFF TO A SLOW START - The S&P 500 was down 2.4% (total return) in January 2005. In calendar years since 1950, the positive or negative performance of the S&P 500 in January has predicted the overall year’s result 80% of the time (source: BTN Research, Stock Trader Almanac).
FED ACTION - The Fed has raised short-term rates at 6 consecutive meetings, moving the overnight lending rate between banks from 1.0% to 2.5%. The Fed last had 6 consecutive rate hikes (although not in 6 consecutive meetings) in 1999-2000. Before that the Fed upped rates 7 straight times in 1994-1995. 4.0% is the median prediction of economists for the Fed funds rate 1 year from now (source: Federal Reserve, USA Today).
SOCIAL SECURITY MATH - The President’s plan for private accounts for a portion of an individual's Social Security dollars (4% of wages annually up to a maximum $1,000 initially) would produce a greater retirement benefit if the personal account generates at least a 3% rate of return after inflation and after expenses. Modeling done to support the President’s plan suggests a 50/50 stock/bond mix would return +4.6% after inflation and expenses (source: The White House).
REVENUE FLAT, EXPENSES UP - Total revenue collected by the US government in fiscal year 1999 was $1.83 trillion. Five years later (fiscal year 2004), total revenue was $1.88 trillion, up 3% in 5 years. Total expenditures over the same period went from $1.70 trillion to $2.29 trillion, an increase of 35% (source: Treasury Department).
If you have questions for Robert or would like a complete copy of his newsletter and investment kit, he can be reached at (775) 324-7606 or rjorgensen@legacynv.com
Divorce Using The Collaborative Approach
By Richard Teichner, CPA, CVA
Chances are that you know someone who has gone through a divorce and it was not a pleasant experience for them, to say the least. The process of a divorce can take its toll emotionally and financially. If the couple has children, they are invariably affected.
Naturally, the best way for a couple to handle a divorce is for them to amicably work out the division of marital property, the amount for alimony and, most important, the care and custody of the children. Sometimes, when the couple separates or plans to separate, they both intend for the divorce to go as smoothly and expeditiously as possible. However, as we all know, this often does not happen, for a variety of reasons. Anger sets in, and one’s anger frequently feeds the other’s anger. Each spouse thinks about having to fend for himself/herself, and what is fair; and, of course, the anger can create a desire for revenge and cause each to act irrationally and make unreasonable demands. The children suffer, because not only do the younger ones not understand why their parents are breaking up, but they are often used as vehicles by one or both spouses to “get even” with the other spouse.
The attorneys representing the respective spouses in a divorce each have an obligation to advise their clients as to what is best for each of them, and usually the advice is to settle, thus avoiding what can be grueling and costly litigation. Unfortunately, when the attorney believes that a settlement can be arrived at, or at least that every effort should be made to effect a settlement, the client does not always listen. If the client or the attorney does not think that negotiating a settlement can work, based on what each spouse is demanding, then the attorney generally will need to be aggressive in doing whatever is necessary to protect the interest of the client and achieve the best possible result, even if that means going to trial.
So what can be done to assuage the agony of a divorce? Well, first, as mentioned above, once the spouses have hired their respective attorneys, arriving at a settlement should be attempted. Another alternative is for the couple to try to mediate a settlement by hiring a qualified independent mediator. A mediation settlement is frequently attempted even when the spouses have already hired their attorneys.
A relatively new process is collaborative family law, also known as collaborative divorce or merely collaborative law. Variations of the collaborative process have been practiced by some attorneys for a number of years. However, the term collaborative family law (or the similar terms mentioned) refers to a more structured process whereby the attorneys, and often other professionals, all work together in (of course) a collaborative environment. The team approach is used to resolve the issues typically encountered in a divorce.
Even though the process is a team effort and not adversarial, each spouse would normally have his/her own attorney, as divorce is a legal procedure and the attorneys need to work as legal advisors to their clients. Other members of the team often include (1) a mental health professional for each spouse to coach them as needed, because collaborative or not, divorce can still be an emotionally trying experience, (2) a child specialist when there are children involved, and/or (3) a financial specialist, especially when the financial issues are a major factor in the divorce.
The collaborative process is an alternative to the adversarial process or to mediation that can be considered under the appropriate circumstances. Those circumstances where the collaborative process might be seriously considered are, for example, when there are children involved and/or when the marital estate is fairly substantial.
Many professionals who include collaborative family law in their practices have said that the entire process is less expensive than the adversarial route, primarily because there is no formal discovery nor are there motions or other filings that are typical in a traditional divorce proceeding. Moreover, the emotional issues of the spouses and the concerns regarding the children will be attended to by trained professionals.
At the outset of the process, the spouses agree to abide by all terms and conditions, including full disclosure of all financial and other pertinent information. The spouses are obliged to fully express issues that concern them and their perceived needs for both the present and the future. Also, they must agree that, if one or both of the spouses decides to discontinue with the collaborative process, or if he or she fails to cooperate during the process, then all the professionals are to withdraw and none of them can represent either spouse in any further divorce proceedings; and nothing discussed or disclosed in the collaborative process can be used in the new proceedings.
Collaborative law is gaining popularity and acceptance throughout the United States, Canada and even Europe, and is currently being practiced in various states and in other countries. The International Academy of Collaborative Professionals (IACP) is the principal organization that establishes training requirements and sets standards for practicing professionals, and promotes and helps educate other professionals and the public on the practice of collaborative law.
In Nevada, we have formed Collaborative Professionals of Nevada (CPN). CPN has adopted its own training requirements and standards that a professional must follow to become a Practitioner Member. The Practitioner Member also must be a member of IACP. One can join CPN as a General Member without having gone through the training or being subject to all the standards that apply to a Practitioner Member. Please feel free to visit the CPN website at www.collaborativeprofessionals.com.
If you wish to learn more about collaborative family law, please call Richard Teichner at Barnard, Vogler & Co. (775) 786-6141, or send an email to rteichner@barnardvoglerco.com.
Client Profile: Gruner's
By Ed Adkins
La-Z-Boy of Reno, a BV&Co. client for over 25 years, may be a family owned business but it’s not your father’s furniture store. Beginning as Gruner’s Furniture in 1970, Don and Becky Gruner’s La-Z-boy furniture store has seen many changes and improvements over the years.
Don Gruner joined his mother’s full-line furniture store in Sparks two years after she bought it in 1970. Previously an auto mechanic, Don learned the business and within 3 years was running the store. By 1994 Gruner’s had a full-size showroom, a casual dining specialty store and was approached by La-Z-Boy to become one of the first independently owned La-Z-Boy Furniture Galleries in northern Nevada.
Today, Gruner’s is exclusively a La-Z-Boy retailer, and has set out to change the way customers shop for furniture. “We don’t just sell furniture,” says Becky Gruner, "we help people find solutions for decorating their homes.” Becky explains that most people get overwhelmed with buying furniture and end up putting together their home piece by piece, often not satisfied with the results.
“At La-Z-Boy we make sure that every step of the customer experience is taken care of,” says Gruner. Upon entering the new La-Z-Boy location at 9095 South Virginia customers are greeted with an area to plan out their rooms, complete with computers to compose possible selections, an in-house designer who will make house calls, and room sets to give customers ideas.
This year Gruner says he plans on Reno’s La-Z-Boy store being ranked in the top ten nationwide. He credits it to their focus on client satisfaction and a highly trained and motivated staff. BV&Co. wishes them the best and is confident that they will reach their goal.
Employee Profile: Sara Gilligan
Native Nevadan Sara Gilligan recently joined the firm of Barnard Vogler & Co. Sara was born and raised in Elko where she met her husband Shane. They moved to Reno in 2000 to obtain an education at UNR. Sara recently received her B. S. in Accounting and is currently in her second semester for her Master's degree in Accountancy at UNR.
Sara joined BV&Co a year ago, after working as an accountant for the City of Reno's ReTRAC project. When asked why she picked BV&Co, she says it was because of the firm's community focus and the friendly yet professional atmosphere. "What I love about my job at Barnard Vogler & Co is that I'm always challenged."
Sara and her husband love to stay active. Their free time is filled with sporting events as her husband coaches three sports at Proctor R. Hug High School. She says they both love the community feel of Reno and the fact that "there's always so much to do outside."
In the future Sara looks forward to graduating from UNR, earning her CPA license and raising a family. Barnard, Vogler & Co. is proud to have her on our team.