Thursday, January 28, 2010

Whistle Blower Policy

We had some big business scandals in the early part of the new millennium. Accounting fraud at companies like Enron and Worldcom, and theft from companies like Tyco were in the headlines almost daily. Business executives were treated to the “perp walk” on a regular basis, partly to prove that the government was doing something about them. The end result was a lot of people lost a lot of money because of a few arrogant #$%^&*.

Non-profits were directly affected by these scandals. There is now more scrutiny of how non-profits do their work, and concern when any individual at the non-profit gets a salary over $150,000. (Maybe the big banks should get some of this scrutiny. But that’s off topic.) There has always been a concern when a non-profit spends more than 20% of its revenue on administration and fund raising.

The law passed to deal with business ethics, Sarbanes-Oxley, now requires that non-profits have a Whistle Blower Policy. A Whistle Blower Policy details the organization’s response to someone who reports alleged inappropriate activity within the organization. It protects the Whistle Blower from retaliation and gives a process for reporting the questionable activity. Many organizations do not know that this requirement exists, but the new IRS Form 990 now has a question about this.

What’s a non-profit to do? They can spend thousands of dollars with an attorney to create a customized policy. This is appropriate for large organizations like colleges and the United Way. There even are companies that enable an organization to outsource their response to people who report inappropriate activity.

Smaller organizations have an alternative. They can use a template to establish a policy. Here is a good site where you can get such a template.

Take a look and try it out.

Tuesday, January 26, 2010

Charity for Haiti

Who says the government cannot move quickly?

Congress passed a new law that allows you to deduct the charitable contributions you make to Haiti relief in 2010 on your 2009 tax return. President Obama has signed the bill into law.

This means write the check now and get the tax benefit on the return you will file shortly.

Wednesday, January 20, 2010

File Free With the IRS

This is a repeat blog from a year ago. The only thing that changed was the dollar limitation.

Do you have a simple federal tax return to file? You can do it on-line free through the IRS. You qualify if you receive a W-2 from your employer, and have some interest and dividend income. You even can own a home and qualify. The major restriction is that all of your income must be below $57,000.

You can file your return through an IRS partner, or you can complete the tax forms found on the IRS Web site at This is a fast, easy, and free way to file your return. Would you like to have your refund in less than 3 weeks? You can have it deposited directly into your checking account. Have a personal check in front of you when you file your return so you have the numbers they require to take advantage of direct deposit. This system is appropriate only for uncomplicated returns.

This link to the IRS Web site can help you file your return.,,id=118986,00.html?portlet=4

Massachusetts also offers a webfile alternative. Access it here

If the link does not work. Please copy and paste it into your browser

Sunday, January 10, 2010

The Estate Tax

2010 is a great year to die.

One of the Bush administration tax cuts enacted early in his presidency was a phase out of the Estate Tax. Each year the taxes collected by the estate tax was reduced as larger and larger estates were protected by a rising exemption. Well, this is the year of the final phase out.

What is the estate tax? It is a tax on the value of all your assets less any liabilities, such as your home mortgage, when you die. So if you have a house worth $400,000 and a mortgage of $100,000 (you wish), plus some investments worth $500,000, you have an estate worth $800,000. Check my math if you wish.

Once you figure out the value of your estate, you go to a chart and calculate what your estate tax will be. Someone dying in 2009 would need a net estate of $3,500,000 before they would pay any estate tax. (Don’t you wish you had an estate that large?)

2010 is the year that the estate tax goes completely away. So no matter what the size of your estate, there will be no estate tax on it. For anyone with a taxable estate, that is good news. For someone with an estate less than $3,500,000, it is bad news.

Let me explain. Up until 12/31/09, assets you inherited got a step up in tax basis. Supposed your grandfather paid $1 per share for 1000 shares of IBM stock back in 1955. It now sells for about $130 per share. So the stock that your grandfather bought for $1000 is worth $130,000. If your grandfather died on 12/31/09and you inherited his stock, your tax basis would be stepped up from $1 per share to $130 per share. So if you sold it for $140 per share you would only pay tax on $10,000 ($140 per share minus the ‘cost” of $130 per share times 1000 shares). Under current tax law your tax would be about $2000.

If he died on 1/1/10 your tax cost would be what he paid for it or $1 per share. So you would pay tax on a $139,000 gain if you sold it for $140 per share. The tax would be about $28,000. This is quite a difference.

Back in the middle of the Great Health Care Debate, Congress considered changing the law to freeze the Estate Tax at the 2009 level. The change got lost in the GHCD. I expect some sort of change to occur this year but who knows what form it will take. Watch this blog for updates.