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Dear Clients and Friends,

     With the coming of Fall we are once again reminded of the changing of seasons.  Here in Ohio the change is easy to see and feel.  The leaves on the trees turn bright and beautiful colors and eventually fall from the trees to be cleaned up or blown away with the wind.  The air becomes cooler and frost reappears as a reminder of the cold winter days to come.

     In nature, change is constant as it is in both our personal and professional lives.  As we go to press with this newsletter, new tax legislation has once again been introduced in the U.S House of Representatives.  The proposed legislation, if passed into law, would make changes to the existing tax rates for individuals and corporations as well as sweeping changes to the alternative minimum tax that could affect millions of taxpayers.  If this proposed legislation is passed, it would join the Small Business and Work Opportunity Tax Act of 2007, signed by the President in May of this year, as new tax law for 2007.  Introduction of this new legislation would continue the pattern of constant change in this area with three major tax bills signed into law in 2006 and two in 2005.

     Another area of change that affects our personal and professional lives is information technology.  Everything from personal computers for the business or home, cell phones, hand held electronic devices, and televisions, to the way we shop and perform business transactions, like banking and investing, is changing on what seems to be a daily basis.  These frequent changes seem to turn what was extraordinary into the ordinary.

    Changes in the area of information technology have greatly affected the way we do our business here at Nolan, Giere & Company.  Many years ago we began to file tax returns electronically rather than sending paper copies to the IRS and other taxing authorities.  As of last year, virtually all returns that were filed by our office were done that way.  Also last year we converted all our business client workpapers to an electronic format using software designed to hold and manage those files in that manner.  Gone from our office are rows of filing cabinets to hold those files as well as the tedious task of maintaining them.  Better yet, we now have instant access to client files from our desktops and laptops.

     This year we are currently in the process of implementing a firm wide document management system to handle, in an electronic format, all documents that flow through our office.  Our goal is easier access and management of our electronic files.  Ultimately this will make us more productive and efficient in serving our clients.

     Although change is inevitable it is not always easy.  Many times we are faced with abandoning an old familiar way in order to make room for a new and better approach.  Some times this makes us uncomfortable but we have found that accepting change has been very rewarding as we move forward.

     So as we rake leaves this Fall, put away the garden tools, and check the storm windows and the furnace in anticipation of the changing seasons, remember change is constant and all around us and should be embraced as part of our world.

Sincerely,

Nick

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Professional Accounting Expertise

Do An Annual Business Review

     You get an annual checkup from your physician to monitor and manage your personal health.  Shouldn’t you do the same for your business?  To keep your operation in top shape, consider an annual business review.  The benefits of such a review are holding your company accountable and evaluating current performance to better plan and execute future operations.

     Some things you should evaluate in an annual business review:

· Revisit your business strengths, weaknesses, and opportunities.  Is your competitive position improving, or are you losing ground?

· How did you perform relative to your business plan? Did you meet or exceed your objectives?  Are sales, profit margins, and cash flow improving?

· Get a pulse on your customers.  An annual customer satisfaction survey is a great way to assess performance, obtain insight on potential new products or services, and to let your customers know how much you value their business.

· Evaluate your team.   Are you developing a superior team, employing their unique talents, and training them to improve performance?  Do you reward on merit or simply on seniority?

· How effective is your marketing?  Are your current methods and channels working well, or are you simply doing what you’ve always done?

· Meet with your insurance agent.  Is your coverage adequate and appropriate for changes in your business activities and acquisitions?

· How is your scorekeeping?  Do your measurements track your progress or do they measure things that don’t matter?  What are the key performance measures that drive your business?

· Is your value growing?  Do you annually monitor the value of your business?

     Many business owners hire their children, their spouse, or other family members to work in the business.  Sometimes this works out well; sometimes it causes problems.  Let’s look at the pros and cons. 

· Hiring your children.  Hiring your kids for a part-time job usually has more tax advantages and fewer drawbacks than hiring other relatives.  The financial advantage is that if you’re paying your child to do useful work, the business gets a tax deduction for the wages paid.  Your child will probably pay little or no income tax, and the after-tax wages stay in the family.  Also, if your child is under age 18 and your business is unincorporated, neither the child nor the business need pay federal payroll taxes.  This exemption also applies to a partnership or LLC if the only partners are you and your spouse.

     Follow certain steps to make sure the wages are fully deductible.  The child must be doing a real job that helps the business, and the wages must be reasonable for the work performed.  Keep detailed records of hours worked and pay salary regularly, preferably on the same schedule as other employees.  In other words, treat your child just like any regular employee.

· Hiring your spouse or relatives.  Hiring your spouse or other relatives generally doesn’t bring the same payroll tax savings.  However, it does bring other advantages and disadvantages.  The advantages are that you have an employee whom you know well, and who may be more motivated or more flexible than a nonfamily member.  And in many family-owned businesses, it’s a powerful way to train the next generation who will take over leadership.

     That same familiarity can bring disadvantages, however.  Few families are without some internal or inter-generational conflict, and that can be disastrous if it spills over into the workplace.  You must also consider the effect on other employees.  Any sign of favoritism or unequal treatment can cause resentment and ruin the motivation of other employees.

· Be cautious.  So think long and hard before you bring family members into the business.  Talk to them and to your key employees beforehand, and make sure everyone understands and is comfortable with their future roles in the company.

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What Does Your Age Have To Do With Taxes?

     Are you aware of the numerous age-related provisions in the IRS code?  They are probably more plentiful and significant than you thought.  Here are a few examples of the age-related tax rules that could affect you and your dependents.

· At birth through age 19 and even 24: dependency deduction.  Parents can claim a dependency exemption for a child under 19 or for full-time students under the age of 24.

· Under 13: child care credit.  This provision gives parents a tax credit for dependent care expenses.

· Under 17: child tax credit.  If parental adjusted gross income is below a threshold level, parents can claim a child tax credit of $1,000.

· Under 18 (In 2008, age limit increases to 19 and to 24 if child is a full-time student.): kiddie tax. This IRS rule requires a child to pay the same effective tax rate as their parents for investment income over $1,700.

· At 50: retirement contributions.  The government allows extra “catch up” contributions to retirement savings.  This is a helpful provision to encourage savings.

· Before age 59½: early withdrawal penalty. Withdrawals from IRAs and qualified retirement plans, with some exceptions, are assessed a 10% penalty tax.

· At 65: extra standard deduction. Uncle Sam grants an extra standard deduction, but there’s no additional tax benefit if the taxpayer itemizes deductions.

· At 70½: mandated IRA withdrawals.  The IRS requires minimum distributions from a taxpayer’s IRA beginning at this age (doesn’t apply to Roth IRAs).  This starts to limit tax-deferral benefits.

     Awareness of how the tax code affects you and your family at different ages is important. 

Time Is Running Out For 2007 Tax-Cutting

    Even though 2007 is nearly over, shrewd taxpayers can still make last-minute reductions in their tax bill.

     Most people have sought to maximize their personal earnings throughout the year.  Now it’s time to reverse course and look for ways to minimize your taxable income.  For instance, if you sold stocks for a net gain this year, consider offsetting those gains by unloading securities that have lost value.  In addition, you can deduct up to $3,000 of net capital losses against other income.

     If you are thinking about selling appreciated stock in 2007, you should know that taxpayers in the 10% or 15% tax brackets will pay no capital gains tax in 2008.  If you are in either of these tax brackets, you might postpone sales until next year.  On the other hand, taxpayers age 18 to 24 should consider selling appreciated securities this year.  Why? Because in 2008, the new “kiddie tax” rule will require many in this age group to pay tax on unearned income over $1,700 at their parents’ higher tax rate.

     Another tried-and-true tax-cutting strategy is a year-end charitable donation.  But beginning this year, even cash gifts under $250 must be substantiated by a written receipt or bank document (such as a cancelled check) to qualify for a deduction.  Cash gifts of $250 or more still require a written receipt from the charity.  For these gifts, a cancelled check alone is not sufficient.

     Another way to make a contribution is a charitable IRA rollover.  Taxpayers age 70½ and older can donate up to $100,000 directly from their IRA.  What’s more, the donation qualifies as part of the taxpayer’s required minimum distribution from the IRA.  At press time, this provision was set to expire at the end of 2007, so it might be now or never.  For the latest information on this and other tax-saving moves you might consider for 2007, give our office a call.

This newsletter provides general tax, financial, and business information for our clients.  The information should not be acted upon without further details and/or professional assistance.