How to Ruin Relationships in 2013

Here are some phrases guaranteed to help you win friends and influence people in 2013, with my apologies to Dale Carnegie for ripping him off.  He shouldn't care much.  He's dead.  So my relationship with him will remain intact.  I do like his deli sandwiches.

"Don't take this the wrong way, but..."
"I just thought you should know..."
"I probably shouldn't tell you this, but..."
"You aren't going to like this, but ..."

What happens to your blood pressure when you hear one of these phrases?  These phrases all include the unspoken "Don't blame me." attitude of those who don't really have your interests at heart.  Competent business owners don't use these phrases with  customers, employees, or family members for that matter.  These phrases guarantee and deliver unnecessary drama.

I have written posts about why you should shoot the messengers, who regularly deliver bad news.   These minions of glad tidings use the phrases above.  That's how you know they aren't on your side, and how you know they likely create a substantial portion of their urgently delivered misery.

My objective isn't to teach you to lead them a little more and allow for the wind before you pull the trigger on your soon to be outlawed assault rifle.  My objective is to keep you from getting shot or from standing next to someone about to get shot.  Step one, don't use the above phrases.  Step two, wear a bullet proof vest...

Nike is correct.  When you have bad news to deliver, just do it.  Avoid all the weasel words.  When the boat is sinking, no one has time for elegant prose and witty turns of phrase.

One great way to avoid crossfire when you deliver bad news is to deliver a bonus gift, a solution or path to mitigate the effects of the news.  When the boat is sinking, the sooner the bailing starts and the more hands involved the better.  In a sinking boat, no one shoots the guys doing the bailing.  They shoot the vermin scampering into the life rafts.

Poorly worded commands also kill relationships for business owners.  Do you ever use the following approach when you want something done?

"Do you mind getting me the financial results for last month?"

Don't ask a question when you don't care about the answer.  You don't really care if she minds, do you?  You just want the damn financial results.  The following is better and reinforces that you are the boss, not some poor supplicant asking the headmaster for a little more porridge.

"Please get me the financial results for last month."

I was a major offender in asking questions instead of issuing orders.  Then one day I realized that I'm not a nice person.  My ex-wife would regularly ask our kids if they minded doing their chores.  Surprise, surprise, sometimes they did mind.  Maintaining good relationships requires clearly defining the terms of those relationships.  You are in charge.  Act that way.

This Sunday the Redskins play the Dallas Cowboys in a game that will determine a spot in the NFL playoffs.  The Cowboys are misnamed.  They should be called the Dallas Narcissists.  Their star receiver, Dez Bryant, epitomizes the team's attitude and approach.  Bryant will give you a fine performance on Sunday, if he has nothing better to do, like partying.  The Cowboys so trust Bryant that they hired a full time babysitter to keep him out of the strip joints and bars.

Their owner, Jerry Jones, is no better.  The biggest danger Bryant faced leaving strip joints was running into Jones entering the parking lot.   A book a few years ago told the story of Jones competing for the affections of strippers with players like Michael Irvin.

Sunday's game is a morality play, if ever a football game could be one.  You can root for RGIII, a man who graduated from college in three years and eats humility for breakfast each morning.  Or you can root for Dez Bryant, king of the narcissists.  Do the right thing.

As always for real tax and accounting advice, please visit the main S&K web site at www.skcpas.com.  Also, please like the "How to Screw Up Your Small Business" Facebook page.  I post daily stories of small business misery as well as the occasional business tip.

Until next time, let's do it to them before they do it to us.

How the Grinch Stole Your Tax Refund

On Sunday, the Redskins backup rookie quarterback, Kirk Cousins, put up thirty-eight points on the Cleveland Browns.  Cousins was a fourth round draft pick from Michigan State, whose selection was roundly blasted by Skins fans as unnecessary and wasteful after giving up so much in draft picks to select RGIII.  Cousins has got to be singing, "How do you like me now?" after more than three hundred yards passing.

I won't say I told you so, but I told you so.  Before the beginning of the season, I posted that I was more excited about having Cousins than RGIII.  After the preseason, that seemed justified.  Yes, you might argue that I was just a little bit wrong about the importance of RGIII, but why bring up such unpleasantness at Christmas?

2012 is the strangest year for tax planning in my twenty-three years in practice.  For the first time in my memory, and my kids tell me I go back to the dinosaur era, we are advising people to pay more in taxes.  Why?  Because, the Grinch has stolen most of our tax breaks for 2013.  For this post, I will concentrate on how the Grinch is affecting your non-qualified stock options.

Non-qualified stock options are options to purchase your employer's stock at a set price for a set period of time.  I used the term, non-qualified, to refer to options that are not incentive stock options.  Yes, all options are supposed to be incentives, but the term, incentive, has a special meaning when applied to stock options.

Incentive stock options are intended to be exercised, and then you hold the resulting stock for more than one year.  Incentive options have some special tax aspects regarding alternative minimum tax and capital gains rates.  I may cover these in a future post.  The Grinch is stealing your tax benefits for these as well.

Non-qualified options are simply any options that aren't incentive options.  For instance, let's assume you have the option to buy 100 shares of your employer at $100 per share, and that you can exercise those options anytime in 2012 or 2013.  Let's also assume that the current stock price is $125 per share.  If you exercise these options and sell the stock immediately in what is known as a cashless exercise, you will have income of $25 per share or $2,500, which is the difference between the price at which you sold the stock and the exercise price.

Because the options are non-qualified, the income is considered compensation income just like any other salary and is subject to all of the normal tax withholding, including Social Security and Medicare.  The income will be recorded on your year-end W-2 tax statement as well.  If you had the choice between exercising the options in the current year or next year, normally I would advise you to choose the next year to defer taxes as long as possible.

However, 2012 is different.  The Grinch will be visiting us in 2013 and stealing many of our tax breaks we have enjoyed since 2001.  The first goodie he has stolen from under our Christmas tree is our low tax rates.  Rates are going back to 2001 levels effective January 1, 2013.  If you household income is over $200K, expect to feel some pain, maybe not gunshot wound level pain, but a dull toothache kind.

Second, the Grinch is giving us a gift we'd like to return, but he'll give us no return receipt.  There is a new .9% Medicare surcharge on earned income over $250K for married taxpayers ($200K for those smart enough to be single).  So if you exercise your non-qualified options in 2013, and your income is over the threshold either before the options income or after it, you will be subject to this new tax.

Finally, the Grinch is stealing the current alternative minimum tax (AMT) exemption, brackets, and rates.  He is replacing them with the 2001 version of the AMT.   AMT is a tax within a tax.  It takes your regular taxable income, throws out many of your deductions, and then applies a two tiered rate structure to your AMT taxable income.  You then get to pay either your regular tax or your AMT, whichever is higher.

AMT tends to afflict taxpayers making from $200K to about $500K.  It has been a pain in the ass since the late 1970's, but it didn't affect many taxpayers until around the year 2000.  Up through 2001, the tax had never been indexed for inflation.  Finally, the math caught up to six figure earners and many of us incurred substantial AMT tax balances.  Since 2001, Congress has engaged in an annual ritual temporarily indexing the AMT brackets and rates to mitigate some of the effects of inflation on the AMT.  In 2013, the party ends.  In fact, it really ended in 2012, but most Congress watchers expect one more round of indexing before year end.

So, if you have stock options, qualified or non-qualified, exercise them in 2012.  Sell your virgin daughters to pay the additional taxes if necessary.  You have eleven shopping days left before the Grinch takes your money or your daughters.

Recently, constitutional scholars discovered some e-mail messages from the 1780's that suggest the second amendment has a typo.  Tommie Jefferson thumb typed a draft of the amendment to Jimmie Madison using his iPhone 5.  When he typed, "right to bare arms," Apple's auto correct feature turned it into "right to bear arms."  So sun dresses are constitutionally protected.  Assault rifles are not.

The next time you see a woman wearing something hideous in public, remember that thousands upon thousands of American soldiers fought and died for her right to make poor fashion choices.

As always, thanks for reading.  For real tax and accounting advice, visit our main S&K web site at www.skcpas.com.  Also, please like the "How to Screw Up Your Small Business" Facebook page.  I post a screw up of the day there.

Until next time, let's do it to them before they do it to us.

Tax Gifts from Santa (Were You Naughty or Nice)

Who will be the better quarterback long term, Andrew Luck or RGIII?  As always, I bring you the definitive answer.  I definitively have no clue.  Before the season began, I would have given you 100 to 1 odds Luck would be better.  Now after thirteen games, I'm not certain the question is even relevant.  If I'm a defensive player, I can choose death by air (Luck) or death by land and air (RGIII).  Thirty plus points is the result either way.

The funniest moment from last week's Redskins vs. Ravens game was a Raven's outside linebacker chasing and tackling Alfred Morris on the other side of the field.  There was just one problem.  RGIII had the ball, charging through the hole left by the departed linebacker.  I'll bet the linebacker felt great this week in practice watching the play on video.

This year the pedophile, who hangs out at the mall dressed in red and judges us naughty or nice, brings us gifts wrapped in dollars.  He has brought us some tax planning gifts to unwrap before the end of the year.

Th key point Santa wants us to remember for 2012 is that all of our usual year end tax planning tricks are wrong.  Usually, we accelerate expenses and deductions and defer income.  Santa knows that some of you are naughty and don't unwrap and deposit checks you receive the last week from customers.  For 2012, all of that is wrong, because if there is one tax certainty for 2013, it is higher taxes.

So bribe the mailman to bring you more customer checks to deposit before year end in 2012.  Don't mail a year of rent checks to your landlord on December 31st, unless I'm your landlord.  In 2012, we want more income and less in deductions, because our taxes will be lower in 2012 than 2013.  Here is what Santa is bringing all of you naughty high income taxpayers for 2013.

 Santa considers you a high income taxpayer if you are married with more than $250K in adjusted income.  If you are wise enough to still be single, the income amount is $200K.  For 2013, Santa wants you to remember that the true meaning of Christmas is the spirit of giving - giving to Uncle Sam.

His first red wrapped goodie is a .9% Medicare surcharge on earned income above $250K (again $200K if you're too homely to marry or are otherwise single).  If you get wage or self-employment income this applies to you.  You can, however, return at least part of this gift if you keep the receipt.  You can accelerate salary from 2013 into 2012.  That means take a couple extra paychecks, that you would have received in 2013, in 2012.

The red pedophile's next goodie is a 3.8% Medicare surcharge on investment income received by taxpayers with adjusted gross income over $250K ($200K if you divorce the wife beater by 12/31/12 or are otherwise single).  The income included in this dried out fruitcake of a present is interest, dividends, capital gains, net rental, and any other investment income.  The way to minimize this joy to the world tax is to get all the income you can in 2012.  While you cannot do much about making Apple pay an extra dividend in 2012, you can sell the stock and pay taxes on the gain in 2012 instead of 2013.  Also, this isn't the year to repair the roof on your rental property.  The deduction will be worth more in 2013.

Not only is Santa bringing us some unwanted tax goodies for 2013, the fat bastard is taking away some of the gifts he (and George Bush II) gave us in the early 2000's.  First, the 15% maximum tax rate on dividends and capital gains will be gone effective January 1st.  Dividends are slated to be taxed as ordinary income, and capital gains taxed at a maximum rate of 20%.  Happy New Year!  So if you own a C corporation that normally pays you dividends, pay yourself as much extra as you can afford in 2012 to get the 15% rate.

Earlier, I mentioned taking capital gains in 2012 when possible.  There are some other implications to this.  Don't sell real estate in 2012 using a 1031 exchange.  You will be exchanging the 15% tax rate for a higher rate in a future year.  If you sold your business in 2012 and will be receiving the payments over a number of years, elect out of the installment method of reporting the income.  Report all of the profit in 2012 and pay the taxes now.  If you are still negotiating the sale, get enough cash in 2012 to pay all of the taxes.  Your wife's fur coat purchase can wait.

The alternative minimum tax (AMT) will cost most of us making more than $200K more.  The exemption and tax rates are going back to 2001 levels.  I expect this to cost me about $12K in additional taxes, if you'd like a look at my personal pain.  I'm so happy to pay for Tiny Tim's health insurance.

Finally, for really high income taxpayers, itemized deductions and personal exemptions will phase out as they did before the Bush tax cuts.  Tax rates will also rise to pre-George W levels.  Running some rough numbers for 2013, I have seen average tax rates for people making over $400K raise by 15% or more.  That is combining all of Santa's goodies that we know he is delivering for 2013 before we even know what new tax legislation he will bring after the new year.

On Thursday night I hit a deer on the way home from work.  I didn't feel at all sad. I hope it was Rudolph.  Given the tax presents the old, fat, eggnog swilling, cookie stealing, red pedophile is bringing me for Christmas this year, I feel justified.  I'll try, and you should too, to hit some more.  If we get all twelve of his antlered buddies, maybe we can stop Christmas from coming,  Yes, I am the Grinch and I approved this message.

As always, thanks for reading.  For real tax and accounting advice, please visit our main S&K web site at www.skcpas.com.  I also publish a business screwup of the day on the "How to Screw Up Your Small Business" Facebook page.  Please like the page.  All proceeds from the page go to the Center for Orphaned Reindeer.  I believe in giving back to the community.

Until next time, let's do it to them (especially reindeer) before they do it to us.

Trust Your Banker

Dear Santa, I don't need any new electronics this year.  I couldn't wait for you and Rudolph.  My iPhone 3 battery was dead.  So I got a new iPhone 5, and since I happened to be at the Verizon store already, I got an iPad as well.

This year, please just heal RGIII's knee.  And if you don't mind, please get the Redskins a head coach, who knows how to use the last four minutes of each half.  This coach  would instill a sense of urgency in his offensive players, so that they don't waste a minute of every last four mulling around aimlessly.  This coach should also comprehend the concept of calling a timeout just before the two minute warning when the other team is trying to run out the clock.  After you've accomplished those two things, then you can work on healing Tiny Tim, that little poser.

Last week, I met with a long time client in the residential construction industry for income tax planning.  Tax planning gets much easier in mid-December, since we only have to crystal ball a few weeks.  They are having a fantastic year, growing by almost a third in what is best described as a challenging year in construction.

However, they are facing the cash flow problems that come with rapid growth.  When you are growing, your receivables grow more rapidly than your payables, and you run out of cash.  So I asked about the size of their bank line of credit and how much they had used already.  They are a very well managed company with involved owners and a good internal bookkeeper.  So they had not used much of their line and had plenty of availability left.

Bringing up the topic of banking led into a discussion of their relationship with their current bank.  Actually I brought up the topic.  I work with a number of great small business banks, and I always look to match clients with banks that will serve them well.  They are happy with their current bank and should be.  However, they told me a story about how their previous bank had treated them.

A few years ago, the company had about $3 million in revenue.  They were profitable, but not wildly so.  They had a small line of credit with a bank, maybe $200K at most.  One day, without warning, the bank called the line of credit for immediate repayment.  The bank had decided to quit lending to residential construction businesses.

On an emergency basis, the company owners went bank shopping and were fortunately able to find a new bank during the worst of the recession.  For 2012, the company will exceed $9 million in revenue.  I'll bet the old bank would love to have them back now.

Your relationship with a bank might end the way Ike and Tina Turner's relationship ended, and you won't be the Ike in the relationship.  So get ready for a beating.

The way to avoid a good Ike Turner style beating from your bank is to cultivate relationships with other banks before you need them.  Emergency shopping for a bank can be a good way to go out of business.  Start networking now with community bankers.  Get to know them and the types of businesses they like.  When you find one that works well with your industry, give them a chance at your business.  Annually reviewing your bank relationship gives you alternatives if Ike gets pissed off.

Last night, I had my hair cut by a Russian spy.  Apparently, the spy business isn't so hot with the end of the Cold War.  So Natasha is working for Hair Cuttery to make ends meet.  I didn't understand a word she said, but she sounded like someone from an old James Bond movie.  I'm pretty certain she planted a bug on me.  When I turn on my car radio, all I get is a Moscow classic rock station that plays nothing but "Back in the USSR."

As always, thanks for reading.  For real tax and accounting advice, please visit our main S&K web site at www.skcpas.com.  Also, "How to Screw Up Your Small Business" is now on Facebook.  Please like the page.  I post a screw up of the day as well as various other short rants.  Once in a great while, I might post something truly educational, but don't count on it.

I'm looking for interesting blog topics.  If you have a subject you would like me to butcher, please leave a comment here or on the Facebook page.

Until next time, let's do it to them before they do it to us.

Irritate Your Customers

Last week, a Kansas City Chiefs professional football player killed his girlfriend and then himself, leaving their infant daughter an orphan.  I will not make light of this tragedy, but I will call to account the idiots using the situation for personal gain.  Tonight, driving home from work listening to the local news station, I heard a segment featuring an expert on concussion syndrome.  The hosts asked the expert to opine whether concussion syndrome had played a part in the player's behavior.

The expert expressed doubts that concussions would cause psychotic behavior resulting in an eventual murder - suicide.  Not at all deterred, the hosts continued trying to draw concussion related lessons from the incident.  Soon talking heads will blame concussion syndrome for everything from shingles to syphilis.  They need a few good head slaps themselves.

The most intelligent response to the tragedy came from Doc Walker, a former Redskin from the glory days.  Doc said that all professional football players have dark sides.  You don't become the best of the best at physically attacking 300 lb. behemoths without drawing strength from some dark place.  Expecting someone to practice and play with barely controlled rage and then become a sensitive, caring humanist is unrealistic.

Last week driving home, I turned on the radio in the mood for some classic rock instead of news.  I turned on the radio, hit the satellite button, and waited for some Who, Chicago, or Fleetwood Mac.  Instead I got silence and a subscribe to Sirius radio message on the radio console.  Of course, I was a subscriber or thought I was.  Why did I get the message that I wasn't?

The answer was simple.  My subscription had expired after two years.  But Frank, didn't you get a notice reminding you of the expiration date?  Well yes, I probably did - somewhere in the four e-mail messages a day they send me.  After a month or so as a subscriber, I flagged all Sirius messages as spam.  One of those was probably my renewal reminder.

The best way to hide information is in plain sight.  They hid the renewal message from me in an avalanche of spam just as effectively as if they had never sent it.  Of course, they didn't do this intentionally.  It was just marketing stupidity.  If you bombard your customers with junk messages, you teach them you have nothing important to say.  When you have something truly important to convey, like a service expiration date, they aren't paying attention.  If you irritate your customers enough, they'll avoid the pain you cause by ignoring you.

I subscribed to PC Magazine almost from the time I graduated from college in 1984.  I loved the publication.  It was on top of the PC revolution of the 1980's.  Sometime in the 1990's, they began sending me renewal notices almost from the day I renewed my subscription.  At first, I thought my subscription was about to expire.  Then after reading the notices closely for a couple months, I realized they were just sending me notices every month.  I could always wait until I got closer to the expiration date to renew.

Then one day I realized I hadn't received the magazine for a particular month.  The more I pondered, I realized I hadn't received the magazine for several months.  My subscription had expired, and I hadn't missed the magazine that much.  So I never bothered renewing.  The same thing happened with my INC Magazine subscription.  I recently subscribed to the online edition of INC, but I did that for professional reasons.

The marketing departments of these publications thought that more customer contact is always better contact.  It is not.  Turn the marketing volume up high enough, and your customers will turn you off.  When was the last time, you paid attention to the video ads at a gas station?  Advertising is ubiquitous.  You can't even take a leak at a Major League Baseball game without seeing ads about frequent urination posted over the urinals.  What's next, advertising on the toilet paper?

Web sites trick us into clicking on ads.  Radio and television ads tax our ear drums with piercing volume.  Newspapers intertwine advertising sections with articles, so that we have to tear the sections out to read.  We receive pounds of junk mail every week shouting "Urgent message within" on the envelopes.  Enough is more than enough.  Do you buy from companies that trick you?  Thus, advertising is as dead as Saddam Hussein.  Annoying your customers is bad business.

Effective marketing is no longer about pushing messages at potential customers.  It is about pulling in customers on their terms.  It is opt in marketing.  Offer customers something of real value and they'll listen.  Otherwise, you'll be ignored. 

You can't force someone to like your Facebook page.  You have to attract them with an offer.  Restaurants offer coupons and special events.  You need a value proposition to even get the chance to market to potential customers.  Marketing is now harder and more personal than ever.  Adapt.

Last night RGIII won a basketball game for the Washington Wizards against the defending NBA champion Miami Heat just by attending the game.  Lady Luck is his bitch lover.  After a decade, RGIII has made Redskins games bearable again.  He scores from any field position, running or passing like no other rookie quarterback in NFL history.  The Baltimore Ravens are this week's hapless victims.  Our semi-ignorant Baltimoron neighbors believe they know the secret to stopping him.  Sunday morning, they'll involuntarily attend the doctoral level course in NFL offense.  The final exam is a bitch.

Thanks for reading!  As always, please visit our main S&K web site, www.skcpas.com, for real tax and accounting advice.  Also, like us on Facebook.  We are starting a client of the week post next week.  Until next time, let's do it to them before they do it to us.