A few things have changed with the coming of a new year—below are some tax items to be aware of.

Estate and gift taxes: The basic federal estate-tax exemption increased to $3.5 million from $2 million in 2008. The increase in the basic estate-tax exemption amount to $3.5 million stems from a 2001 law. Transfers from one spouse to the other typically remain tax-free. The lifetime gift-tax exclusion amount remains unchanged at $1 million.

The annual gift-tax exclusion jumped to $13,000, up $1,000 from 2008. This means you can give as much as $13,000 this year to anyone you want without having to worry about taxes or even file any forms. You can give more than that by paying directly for someone else’s tuition or medical expenses—just be sure to pay the institution directly.

Retirement savings: The maximum amount that someone under age 50 can contribute to a 401(k) plan for 2009 rose to $16,500 from $15,500. Those 50 or older can put away an additional $5,500 this year, for a total of $22,000, up from $20,500.

Social Security taxes: The maximum amount of earnings subject to Social Security taxes rose to $106,800, up 4.7% from $102,000 in 2008.

Mileage rates: Taxpayers who use their vehicles for work can deduct their actual costs or rely on the IRS’s optional standard mileage rate. This year, the IRS rate for using your car for business will be 55 cents a mile.

First-Time Homebuyer Credit: Those who bought a principal residence recently or are considering buying one should take note. This credit of up to $7,500 works much like a 15-year interest-free loan.

The Recovery Rebate Credit: Most people already received their full benefit in the form of the 2007 Economic Stimulus Payment. However, a taxpayer may qualify for the Recovery Rebate Credit, if, they did not get an Economic Stimulus Payment, had a child in 2008 or had a change in income level. If you receive this credit, it will be included in your refund and will not be issued as a separate payment.

Mortgage Workouts and Foreclosures: Eligible homeowners can exclude debt forgiven on their principal residence if the balance of the loan was less than $2 million.

Record Keeping: The links below are helpful when deciding how detailed your records need to be.

Record Keeping for individuals
http://www.irs.gov/pub/irs-pdf/p552.pdf
Starting a business and keeping records
http://www.irs.gov/pub/irs-pdf/p583.pdf
Travel, Entertainment, Gift, and Car Expenses
http://www.irs.gov/pub/irs-pdf/p463.pdf

Michael Bartholomew is a CPA and the owner of A Plus Tax and Accounting. He can be reached at mike@aplusbenefits.com.

One of the many services A Plus Benefits provides to clients is sending out W-2’s to all employees at the end of the year.

Year 2007 W-2’s will be sent out the third week in January to the home address listed on each employee’s pay stub. Employees can expect to receive their W-2 by the end of the month.

If your address is incorrect in the system please notify your supervisor and call 1-800-748-5102 to request that your W-2 be sent to your new address. You will be transfered to a voicemail system where you can leave your information to be processed for the next mailing.

Employees who have set up their online access through www.aplusbenefits.com can go online and print their W-2.

If you have any other questions regarding your W-2 please feel free to contact us at 1-800-748-5102.

Samantha Bushard is an HR Employee for the Idaho office of A Plus Benefits, Inc.

In this blog I would like to entertain a high-level discussion of valuing a business by employing the Discounted Cash Flow methodology. Creating a discounted cash flow model does require some basic understanding of the principle of “time value of money,” discount rate and some skill in Excel. The intention of this blog is not to teach these principles in detail, rather to serve merely as an “eye-opener” and encourage small business owners to think more critically about valuing their business.

Discounted Cash Flow analysis consists of two steps. The first is to determine future cash flows for the business or entity being valued. In determining future cash flows there are a few things that should be taken into consideration.

1. What is cash flow? The definition of cash flow, sometime called “free cash flow” can vary slightly depending on the desired approach. However, cash flow is typically defined as cash flow after removing all expenses necessary to run and grow a business over time. Mathematically cash flow can be calculated by taking cash flows after all operating expenses less taxes less necessary investments in working capital and property plant and equipment plus all non-cash expenses (i.e. depreciation).

2. How many years of cash flow should I use in my analysis? Typically the further out you forecast cash flows the less accurate they become. This is where your judgment and expertise in your industry will come into play. If you feel strongly that you understand the industry and that the industry is relatively stable, you may be able to project further into the future. Although somewhat arbitrary, most practitioners limit cash flow projections to 5 years.
As with all analysis, the old adage “Garbage in, Garbage out” holds true with Discounted Cash Flow analysis. The validity of your analysis depends on your ability to make solid cash flow projections. Doing so will require you to understand the drivers of your business as well as industry dynamics.

The second step in the Discounted Cash Flow methodology is to determine a discount rate. A discount rate represents the rate of return you require on an investment and it is the rate at which you will discount future cash flows. It is derived by understanding two things: what is my cost of capital and what is the appropriate risk premium for this organization. Both cost of capital and risk premium will be unique to each individual organization.

1. Cost of capital is a function of the sources of capital an organization chooses to use in order to finance its operations. For example if an organization funds all of its capital expenditures by taking out debt, the cost of capital would simply be the cost of interest paid on that debt. If however, an organization uses equity, the cost of capital on the equity would be the “opportunity cost” of investing the capital in another opportunity. Typically your cost of capital can be calculated by taking a weighted average of the cost of debt and equity financing.

2. Risk premium is much less lucid than cost of capital and will vary greatly with the perspective of the investor or entity valuing your business. For example you may assign a lower risk premium to your business because you understand the industry in which you compete and have existing expertise. However, for a potential acquirer lacking similar expertise, your business may pose more risk, thus requiring the use of a higher risk premium.

After determining cost of capital and risk premium, the sum of the two will comprise your discount rate. Per the principles of “time value of money,” the higher the discount rate used to discount cash flows, the less those cash flows will be worth. So a higher risk premium will lower the value of your business.

The intricacies and nuances of developing a sound Discounted Cash Flow analysis clearly can not be captured in one short blog. However, there are various resources including templates available online that will walk you through, in more detail, the steps of developing a solid analysis. Your effort to value your business before you sell it will empower you when it comes time to negotiate a selling price.

Richard Zollinger is a finance manager at American Express.

In a previous blog I discussed what HSAs are and who qualifies to participate in them. Now I would like to discuss some of the benefits for HSAs in a series of blogs.The first benefit of HSAs is the tax savings associated with the program. Contributions to your HSA are made with pre-tax money which decreases your overall taxable income and any earnings made on money in your HSA are not considered a part of your gross income.Additionally, all distributions from your HSA used for qualified medical expenses for you, your spouse or your eligible dependents are also tax free. Consider the money you could save in taxes by using an HSA.

Samantha Bushard is an HR employee for the Idaho office of A Plus Benefits, Inc.

Summer is upon us and its time to load up the wife and kids and head out on vacation. If you’re anything like most of my clients, you are looking for ways to turn personal expenses into legitimate business expenses—there are many ways to accomplish this when combining personal and business travel. As always when dealing with saving taxes, planning in advance and good record keeping is key.

Mixing Business and Pleasure with Travel

Michael Bartholomew is a CPA at Jensen & Keddington, P.C. in Salt Lake City, UT. He can be reached at (801) 262-4554 or mikeb@jensenkeddington.com.