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Dear Clients and Friends,

     Tax season is officially over for year 2006.  As we all catch our breath and begin to reflect on how the tax season went for us, I wonder how the tax season went for all of you.

     The four months, defined as “tax season,” challenge us to maintain and provide efficient and quality service to each one of you in spite of the “workload compression.”  During these four months each year, we virtually see every one of our clients.  Our promise to you is that we will not use “tax season” as an excuse.  We vow to meet your financial, tax, and general business needs in a timely and professional manner through all the seasons of the year.

     So, how did your tax season go?  Did we provide the kind of service we profess?  Were we courteous, timely, and professional?  Did we answer your questions in a satisfactory manner?  Did we help you solve other business problems?  Were our fees fair?  How did we do?  We would appreciate your comments and suggestions.  You can contact us through our website at www.ngcpa.com, or e-mail me directly at nnolan@ngcpa.com.

     This is also a perfect time for us to say thank you for the confidence you have placed in us and for choosing us to be your business partner.

     Keep us in mind as we approach the summer months.  This is the time when various business projects and opportunities occur.  We can help you analyze whatever issues you face to help you make informed decisions.

     We look forward to working with you through the rest of 2007 and beyond.

Sincerely,

     There are three components to the tax gap: nonfiling, underreporting, and underpayment. The tax gap does not include taxes that should have been paid on income from illegal activities.

     Underreporting accounts for about 80% of the tax gap. The largest sub-component for underreporting involves individual taxpayers understating their income, taking improper deductions, and overstating business expenses. Noncompliance is highest where there is no third-party reporting and/or withholding such as there is with W-2s and 1099 information slips.

     The current IRS measurement of the tax gap was done under the National Research Program. The study involved the review of over 45,000 tax returns. The information gathered will assist the IRS in selecting tax returns for audit. The intent is to select those tax returns that will lead to the greatest amount of additional tax. This not only improves IRS efficiency, but it also demonstrates to taxpayers that others will be paying according to the tax laws.

     Total audits of all tax returns exceeded one million in 2004. That represents an increase of 37% over the number of 2001 audits.

     What does all this mean to you? If a large portion of your income is not subject to third-party reporting, you may be in a group that is on a potential tax return audit list this year.

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Professional Accounting Expertise

Are You a Fireman or a Business Manager? 

       In your business are you constantly putting out fires caused by cash shortages? How well you manage your cash flow affects your business’s profitability and longevity. Here are a few “fire prevention” suggestions.

· Create a cash flow projection. A cash flow forecast should be one of the quarterly reports prepared in every small business. It consists of your beginning cash balance plus your expected receipts minus your expected disbursements. A forecast allows you to anticipate cash shortfalls in order to give you time to carefully consider all your financing options.

· Collect your money as fast as possible. Send invoices as soon as you ship goods instead of billing at the end of the month. Your invoices should clearly show the payment due date and any penalty for late payment.

· Follow up on delinquent receivables. The longer an account remains unpaid, the greater the chances are that you’ll never see your money. Once an account becomes delinquent, make no more credit sales to that customer until the account is brought up to date.

· Postpone paying your bills. Take early payment discounts when it makes sense, but otherwise use the full grace period to pay your bills.

· Don’t let inventory build up. If your inventory includes slow-selling and high-cost items, consider making them special order items. Get rid of obsolete inventory to free up cash and valuable shelf space.

· Track your expenses. At least once a month, compare your spending with your budget. If you are spending more than you planned, it’s a good indicator that you may need to take corrective action.

     A new law signed last December makes Health Savings Accounts (HSAs) more attractive to taxpayers. The Tax Relief and Health Care Act of 2006 offers new ways to create an HSA and increases the amount you can contribute.

     Health Savings Accounts are designed to help taxpayers pay the out-of-pocket medical expenses associated with certain health plans. The concept is fairly simple: You make tax-deductible contributions to an HSA and later withdraw the funds tax-free to pay for qualified health care costs. To participate, you must be under 65 and covered solely by a health insurance policy that is deemed a High Deductible Health Plan (HDHP).

     With the new law comes two additional options for opening an HSA. Those who have funds in an employer sponsored Flexible Spending Account (FSA) or a Health Reimbursement Account (HRA) can now make a onetime transfer to an HSA. In addition, the taxpayer may make a one-time transfer from his or her IRA into an HSA. This powerful feature allows you to use IRA dollars to pay medical bills without the income tax and 10% penalty normally associated with early IRA withdrawals. Keep in mind that the transfer is limited to the annual HSA contribution limit.

     The maximum that you can put in an HSA has been increased as well. Before the new law, contributions were limited to the amount of your health plan’s annual deductible. Now, you can put in up to $2,850 for single coverage and $5,650 for family coverage. You can also contribute up to the full annual limit at any point during the year — even on the last day.

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How to Build a Business Web Site That Works 

     The primary purposes of business Web sites are to attract customers and motivate them to take action. The action might be initiating contact, ordering something, bookmarking the site for future reference, or referring others to the business. If a site simply entertains without motivating, it’s not doing its job. To build a site that will work for you, consider the following suggestions:

·   Define your customers. Determine who is most likely to want your products or services, and why.

·   List your customers’ needs and concerns in order of importance. Then create headlines and text that relate your products or services to those needs, in the same order.

·   Clearly describe the nature, characteristics, capabilities, or parameters of your products or services.

·   Include prominent links for navigation, questions, and order placement on each page of your site.

·   Provide product reviews and/or references.

·   Answer inquiries promptly, and/or respond immediately with automated e-mails stating when you will follow up.

In building your Web site, avoid the following pitfalls:

·   Too much flash, sound, and fury.  You’re trying to bring in customers, not win a design award. It’s better to minimize on-site confusion and focus on explaining how you’ll meet your customers’ needs.

·   Too much detail. Voluminous pages and files load slowly, which tends to make customers move on. For the same reason, minimize graphic files and high-resolution images wherever possible.

·   Complicated navigational systems. Navigation should be simple and obvious, with consistent and prominent navigation bars on each page.

·   Obscuring essential information. Present information in order of its importance to the customer. The text should be clear and concise.

Should You Be Making Estimated Tax Payments?  

     During the tax year you must prepay a substantial amount of the taxes you will owe for that year, or you risk being hit with an underpayment penalty. If you are an employee, that is usually not a problem. Your employer will withhold taxes from each paycheck. You can adjust the amount withheld so that it covers your total tax bill, even if you have extra income from moonlighting or investments. But if you are self-employed or retired, you might need to make estimated tax payments.

     To avoid a penalty, the total of your withholding and estimated tax payments must generally be at least 90 percent of your tax liability for the year, or 100 percent of your last year’s tax liability. There is no penalty if your underpayment is less than $1,000. Special rules apply to farmers, fishermen, and higher-income taxpayers.

     You pay your estimated taxes by making four payments, due in April, June, and September of the current year, and in January of the next year. You cannot just wait until the last date to pay what you owe. You must start paying estimated taxes as you earn taxable income. You can either pay all the tax you owe on each quarter’s earnings, or you can pay it in installments over the remaining periods. But you must be sure to pay enough to avoid an underpayment penalty for each period. Again, special rules apply to farmers and fishermen.

     Please contact our office if you think you may be required to make estimated tax payments.

     Congratulations to the following staff members on their recent or upcoming anniversaries with our firm:

     Nick Nolan, President         30 years

     Stephanie Hubbard, Administrative Assistant          10 years

     Kathy Jent, Supervisor          9 years

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.