For example, suppose your firm makes an estimate of an asset’s life at time of purchase, then a new estimate several years later. How does the change affect annual depreciation expense? Here is the answer.

Example: On Jan. 1, 20X5, DryCo acquires for $40,000 a machine with an estimated useful life of 10 years and no residual value which will be depreciated under the straight-line method. On Jan. 1, 20X9, DryCo changes the machine’s estimated useful life to 12 years. What is depreciation expense on the machine for 20X9 and subsequent years?

To compute:

* Depreciation for the 4 prior years

On Dec. 31, 20X9, DryCi records the following entry:

* 12 years (new estimated life) – 4 years already depreciated = 8 years to be depreciated

$24,000/8 yrs. = $3,000 new annual depreciation expense. Thus, depreciation expense for 20X9 and future years is $3,000 a year.

Major New Release Addresses Online Banking and Much More

Last week Intuit enabled Intuit® QuickBooks® 2009 Release 8 (QB09-R8) as an automatic update. Clients who have enabled automatic updates will be prompted to complete the update.

Note: This is a significant update covering many issues, but most importantly to some QuickBooks accounting professionals will be upgrades to online banking in two ways:

• QB09-R8 provides users the ability to switch to the exact same online banking functionality (and register view) that was in QuickBooks 2008 or use the default approach to Online Banking in previous releases of QuickBooks 2009.
• The default approach to Online Banking provides many new enhancements and restoration of previously missing functions.

Users can toggle between the two views without affecting data at this interface:

Edit > Preferences > Checking > Company Preferences

Users can toggle between the two views without affecting data at this interface:

For a sense of all of the many changes in QB09-R8, read the release notes here.

One Wrinkle: The QuickBooks 2008 uses an aliasing approach for names of financial institutions, while the QuickBooks 2009 uses renaming rules.

Password protection for sensitive personal and other data is only as good as the password itself. Easily accessed “cracker,” “breaker,” or “recovery” software runs millions of passwords per second through a log-on box. A password of even 6 characters combining numbers, symbols and upper- and lower-case letters can be broken in 5 hours; only numbers, symbols or letters, in minutes.

Your password should:

• contain a minimum of 8 characters;

• not use any word found in a dictionary (dictionaries in any language can be downloaded to be used in cracking software);

• combine numbers, symbols and upper- and lower-case letters;

• not include personal information—it’s too easy to obtain a user’s name, address, birthday, and names of relatives.

• lock users out of the system after a few tries at the correct password fail (prevents hacking software from trying 1,000s of passwords per second).

Lastly, compartmentalize electronic files and allow access only to those authorized to use each file.

The Internal Revenue Service today announced its first successful prosecution related to fraud involving the first-time homebuyer credit and warned taxpayers to beware of this type of scheme.

On Thursday July 23, 2009, a Jacksonville, Fla.-tax preparer, James Otto Price III, pled guilty to falsely claiming the first-time homebuyer credit on a client’s federal tax return. Price faces the possibility of up to three years in jail, a fine of as much as $250,000, or both.

To date, the IRS has executed seven search warrants and currently has 24 open criminal investigations in pursuit of potential instances of fraud involving the credit. The agency has a number of sophisticated computer screening tools to quickly identify returns that may contain fraudulent claims for the first-time homebuyer credit.

 “We will vigorously pursue anyone who falsely tries to claim this or any other tax credit or deduction,” said Eileen Mayer, Chief, IRS Criminal Investigation. “The penalties for tax fraud are steep. Taxpayers should be wary of anyone who promises to get them a big refund.”

Whether a taxpayer prepares his or her own return or uses the services of a paid preparer, it is the taxpayer who is ultimately responsible for the accuracy of the return. Fraudulent returns may result not only in the required payment of back taxes but also in penalties and interest.

First-Time Homebuyer Credit

The First-Time Homebuyer Credit, originally passed in 2008 and modified in 2009, provides up to $8,000 for first-time homebuyers. The purchaser, however, must qualify as a first-time homebuyer, which for purposes of this credit means someone who has not owned a primary residence in the past three years. If the taxpayer is married, this requirement also applies to the taxpayer’s spouse. The home purchase must close before Dec. 1, 2009, to qualify, and the credit may not be claimed on the purchaser’s tax return until after the taxpayer closes and has purchased the home.

 Different rules apply for homes bought in 2008.

Full details and instructions are available on the official IRS Web site: http://www.irs.gov

In 2006, your firm purchased a copier for $20,000. To date, depreciation expense of $12,000 has been taken. In 2009, your firm trades in the copier for a new one costing $25,000. The trade-in allowance is $3,000. What is the journal entry to record the trade-in?

Copier (new)                                Debit 25,000
Accumulated Depreciation   Debit 12,000
Loss on Trade-In                       Debit   5,000

Copier (old)                                             Credit    20,000
Cash                                                            Credit    22,000*

* $25,000 for new copier – $3,000 trade-in allowance for old copier = $22,000 cash required

The new copier is recorded at list price. The cost of the old copier and its related, accumulated depreciation is removed from the books, and the loss is recorded.

Here are some useful tips to cut your company’s losses in the recession.

Although the downturn has changed normal payment patterns, when you see any of these signs, management would be well advised to act before it’s too late.

1. Loss of contact. Defined as two broken promises to pay. Accept one promise. The second time, ask in a direct, friendly way if this isn’t the second promise, why it’s late and exactly when you’ll be paid. Other loss of contact: NSF checks, never in, no answer, on hold too long.

2. Abrupt personnel changes. Your contact leaves. Nonpayment is blamed on personnel shifts. Always assume the worst. Say: “Let me talk to your superior or whoever pays the bills.” (It may be the boss.) Pros call daily to get the right person. If they promise to call back, set a firm schedule. No call is loss of contact.

3. Any banking change. If nonpayment is blamed on changing banks, ask for the name of the bank and bank officer. (Refusal is a red flag.) Call the bank: “I’m confirming that _____ opened an account.” Pros also ask if it’s “a satisfactory situation” (bank may have denied financing), and what banking business is being done.

4. Unusual disputes (stalls). At 30 days: “The check is in the mail.” At 60 days: “Wasn’t that the shipment that. . .?” Probe and question. Genuine complaints are usually prompt and detailed (invoice numbers, etc.). The vaguer a complaint, the more suspicious it is. Ask: “Why haven’t I had something on this in writing?”

5. Intimidation. Debtors sensing a non-pro calling may be rude to deter future calls. Ignore it. Stick to the business at hand: nonpayment. Keep probing. “Will you pay? when? etc.” Try humor (“Get up on the wrong side of the bed?”). If it fails, the intimidation is deliberate. Don’t be afraid to report intimidation to management. These cases end up with collectors (bosses hate intimidation, too).

6. Change in payment pattern, especially one following an earlier change when the recession began. For example, a regular 45-day payer starts paying in 70 days and only after two phone calls. Act now or the next check will come in 120 days. Say: “You’ve been great about paying, always on time. Now, 45-day payments come in 70 days. Where are we going?” If there’s no good reason (e.g., a temporary problem), it’s a red flag.

What to do when it’s already too late

Too often, management makes unrealistic demands on debtors who can’t possibly pay (“We want it all now“). The debtor then avoids talking to you at all. Why lose money, and possibly a good customer, due to a customer’s temporary, unexpected reversal?

The solution: Focus on your cash flow, not the customer’s debt, regardless of whether it is $1,000 or $10,000, by setting up a realistic payment schedule as follows:

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Is your company or client properly covered?

Most owners think they are “insured.” But it is coverage a firm does not have that can put it out of business. Check this list from Gaebler Ventures, a venture capital firm:

Payment card industry compliance is confusing for many ecommerce merchants. But it potentially affects every merchant that accepts credit card payments. Failure to understand the PCI compliance standards could result in higher merchant account fees and fines from the credit card issuers.

Merchants oftentimes have similar general questions on PCI compliance. We posed some of them to Tim Erlin, principal product manager for nCircle, a security consulting and compliance firm that offers PCI-related services, among other compliance services. Those questions, and his answers, are below.

What is PCI?

Erlin: “PCI generally refers to the Payment Card Industry Data Security Standard, or the PCI DSS. This standard was developed by the PCI Security Standards Council, which is a consortium of the major credit card brands (Visa, Mastercard, American Express, and Discover). It represents the combination of two previous separate programs: the Visa Cardholder Information Security Program (CISP) and MasterCard’s Site Data Protection program (SDP). The goal of the PCI DSS is to specify a common standard for protecting cardholder data from compromise.”

How does PCI compliance affect my ecommerce business?

Erlin: “If you accept credit cards as a form of payment, you are required to be compliant with the PCI DSS. In most cases, smaller merchants can achieve compliance by using compliant shopping carts and payment gateway services. If, however, you choose to collect and store credit card data as part of your business, you’ll need to carefully consider the requirements of the PCI DSS.”

“Larger volume merchants (more than 20,000 credit card transactions annually) will need to complete some specific validation requirements to demonstrate compliance with the PCI DSS. The requirements range from filling out a self-assessment questionnaire to an onsite audit from a qualified auditor. You can find out more details about merchant levels here.”

Where can I learn more about PCI?

Erlin: “The PCI Security Standards Council is the authoritative source for information. You can find their website at http://www.pcisecuritystandards.org. You can also look to the card brands themselves for additional information.”

My annual sales are very small. Do I still have to comply with PCI?

Erlin: “Every merchant that accepts credit cards must comply with PCI, but smaller merchants often achieve compliance by using compliant services. If you don’t store, transmit or process any credit card data, then your systems are out of scope for PCI DSS compliance.”

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The Internal Revenue Service today issued its 2009 “dirty dozen” list of tax scams, including schemes involving phishing, hiding income offshore and false claims for refunds.

“Taxpayers should be wary of scams to avoid paying taxes that seem too good to be true, especially during these challenging economic times,” IRS Commissioner Doug Shulman said. “There is no secret trick that can eliminate a person’s tax obligations. People should be wary of anyone peddling any of these scams.”

Tax schemes are illegal and can lead to problems for both scam artists and taxpayers who risk significant penalties, interest and possible criminal prosecution.

The IRS urges taxpayers to avoid these common schemes:

Phishing

Phishing is a tactic used by Internet-based scam artists to trick unsuspecting victims into revealing personal or financial information. The criminals use the information to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name.

Phishing scams often take the form of an e-mail that appears to come from a legitimate source, including the IRS. The IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues. Taxpayers who receive unsolicited e-mails that claim to be from the IRS can forward the message to phishing@irs.gov. Further instructions are available at IRS.gov. To date, taxpayers have forwarded scam e-mails reflecting thousands of confirmed IRS phishing sites. If you believe you have been the target of an identity thief, information is available at IRS.gov.

Hiding Income Offshore

The IRS aggressively pursues taxpayers and promoters involved in abusive offshore transactions. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through other entities. Recently, the IRS provided guidance to auditors on how to deal with those hiding income offshore in undisclosed accounts. The IRS draws a clear line between taxpayers with offshore accounts who voluntarily come forward and those who fail to come forward.

Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans. The IRS has also identified abusive offshore schemes including those that involve use of electronic funds transfer and payment systems, offshore business merchant accounts and private banking relationships.

Filing False or Misleading Forms

The IRS is seeing scam artists file false or misleading returns to claim refunds that they are not entitled to. Frivolous information returns, such as Form 1099-Original Issue Discount (OID), claiming false withholding credits are used to legitimize erroneous refund claims. The new scam has evolved from an earlier phony argument that a “strawman” bank account has been created for each citizen. Under this scheme, taxpayers fabricate an information return, arguing they used their “strawman” account to pay for goods and services and falsely claim the corresponding amount as withholding as a way to seek a tax refund.

Abuse of Charitable Organizations and Deductions

The IRS continues to observe the misuse of tax-exempt organizations. Abuse includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property. The IRS also continues to investigate various schemes involving the donation of non-cash assets, including easements on property, closely-held corporate stock and real property. Often, the donations are highly overvalued or the organization receiving the donation promises that the donor can purchase the items back at a later date at a price the donor sets. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and new definitions of qualified appraisals and qualified appraisers for taxpayers claiming charitable contributions.

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The Internal Revenue Service today reminded individual and business taxpayers that many energy-saving steps taken this year may result in bigger tax savings next year.
The recently enacted American Recovery and Reinvestment (ARRA) of 2009 contained a number of either new or expanded tax benefits on expenditures to reduce energy use or create new energy sources.

The IRS encouraged individuals and businesses to explore whether they are eligible for any of the new energy tax provisions. More information on the wide range of energy items is available on the special Recovery section of IRS.gov. For a larger listing of ARRA’s energy-related tax benefits, see Fact Sheet 2009-10.

Tax Credits for Home Energy Efficiency Improvements Increase

Homeowners can get bigger tax credits for making energy efficiency improvements or installing alternative energy equipment.

The IRS also announced homeowners seeking these tax credits can temporarily rely on existing manufacturer certifications or appropriate Energy Star labels for purchasing qualifying products until updated certification guidelines are announced later this spring.

“These new, expanded credits encourage homeowners to make improvements that will make their homes more energy efficient,” said IRS Commissioner Doug Shulman. “People can improve their homes and save money over the long run.”

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