Homebuyer tax credit: No e-file and four-month delays

Homebuyer tax credit: No e-file and four-month delays

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Working From Home

By COLLEEN DEBAISE
Adapted from THE WALL STREET JOURNAL COMPLETE SMALL BUSINESS GUIDEBOOK (Three Rivers Press).
So maybe 2010 will be the year that you finally break out on your own. Voluntarily or not.
As we continue to dig ourselves out of the deepest recession since the Great Depression, many of us have lost corporate jobs. Others worry that layoffs are lurking. We're taking on free-lance assignments, contract work and short-term projects -- and getting them done in the extra bedroom, eat-in kitchen or spare corner in the utility room.
Flexibility -- and Distractions
The home is the new hotbed of entrepreneurial activity.
For those who have temporarily joined the ranks of the self-employed, a home office is the natural (and cheapest) place to get work done. For others who are using severance packages to take a shot at entrepreneurship, the home can be an ideal incubator to test out ideas. Many a successful venture began life in a garage (Hewlett-Packard, in 1938) or launched from a living room (LinkedIn, in 2003).
In many cases, it makes sense to grow the business at home before moving into a separate physical location. Other times, your new venture, career or sideline is simply well-suited to be run out of your home. And in a tough economy, a business owner who has rented office space might return to a home office to trim costs.
About 52% of all small businesses are home-based -- representing a broad swath of industries, from software development and mail-order sales to plumbing and general contracting -- according to statistics from the Small Business Administration's Office of Advocacy.
Is it Right for You?
If you're thinking about a new career as a home-based entrepreneur, consider these questions first:
1 Am I passionate about my product or service? The start-up phase is stressful. You'll need zeal to get through the rough patches, especially in the early days when hours are long and initial profits (if any) are lean.
2 What is my tolerance for risk? There's no guarantee of success -- or even a steady paycheck. If you're risk-averse, entrepreneurship probably isn't the right path for you.
3 Am I good at making decisions? No one else is going to make them for you. Consider how you might handle these early decisions: Do I incorporate? Do I advertise? Do I borrow money from friends or family?
4 Am I willing to take on numerous responsibilities? A start-up entrepreneur must juggle many roles -- from chief salesperson and bookkeeper to head marketer and bill collector.
5 Will I be able to avoid burnout? Many entrepreneurs find it hard to step away. You'll need to develop a work/life balance to avoid working seven days a week, losing touch with friends and upsetting loved ones.
What are the advantages of working from home? The easy commute, for starters, followed by the flexibility and the informal dress code. There also are tax write-offs: As long as you use a portion of your home exclusively and regularly for business, you can deduct a percentage of your rent or mortgage interest, utility bills, repairs and other costs.
Yet there are some distinct disadvantages, too. Most frequently cited is the lack of social interaction. For others, the home is one giant distraction. A pile of dirty dishes, a screaming child or even a sunny patio might compete for attention. Often, friends and family who don't understand you are truly working might call or stop by.
The home can be a difficult place to meet customers or clients, especially if you don't have an extra room or an appropriate place for a business discussion. When it comes to hiring employees, some home-based entrepreneurs say there isn't enough space or that it feels too invasive to have staff in the house. Most home-based businesses (about 93%) don't have employees, according to SBA statistics. Often, it's the need to hire employees that forces home-based entrepreneurs to rent space elsewhere. Lastly, the line between work and personal life can easily blur when working from home.
The Ground Rules
As such, it's important to come up with a set of practices to maintain some degree of separation between your work and personal life. Here are some ways to do so:
Have a separate office space. Ideally, your work space is in a separate room, with a door that closes, good ventilation and lighting. The bedroom is the worst place for a home office, as work becomes the first and last thing you see each day. If you don't have a spare room, screens or cabinets can help divide your work and living spaces.
Install office equipment. Make sure you have a phone line and a computer (with high-speed Internet access) dedicated to your business. Install any necessary business software on the PC, and consider other office-grade equipment as needed: copiers, scanners, work desks, filing cabinets and the like.
Set a timetable. Keeping regular business hours (such as 8 a.m. to 5 p.m., Monday through Friday, with weekends off) will assist you in dealing with clients, customers, suppliers and vendors -- and make it easier for you to have a social life.
Fashion work hours around logical periods of productivity, such as when a spouse leaves for work or kids go off to school. If you live by yourself, set a finite end of the day.
Take breaks. A big challenge for home-based business owners is setting aside time for small breathers or lunch. Short breaks can reduce stress, improve productivity and prevent burnout.
Limit household tasks. Be disciplined about not letting household errands and chores interfere with your work day. Consider getting housekeeping help to free up more time and energy for work.
Get child care. While many parents choose to be home-based to be closer to their kids, young ones can easily distract you from work. Consider getting full- or part-time child-care help, or sharing responsibilities with a spouse or family members.
Communicate to others that you are really working. Make sure those close to you respect your decision to work at home. Ask friends and family not to call or stop by during the day, or if they do, to keep it brief.
Chris Russell, founder of the job-posting site AllCountyJobs.com in Trumbull, Conn., says even his wife, who works outside the home, sometimes forgets that he's trying to work. "My wife will say to me, 'Can you go to the dry cleaners for me? Can you start dinner early?' " he says. "I give her a little friendly reminder: 'I'm working, dear.' "
—Adapted from "The Wall Street Journal Complete Small Business Guidebook" by Colleen DeBaise. Copyright 2009 by Dow Jones & Co. Published by Three Rivers Press, an imprint of the Crown Publishing Group, a division of Random House, Inc., New York. Used with permission.
Write to Colleen DeBaise at colleen.debaise@wsj.com

House approves $125M boost for SBA

Last night, by a wide margin, the House of Representatives passed a $626 billion military spending bill. And tucked deep within that legislation — on page 149 of a 161-page document — is $125 million to resurrect the Recovery Act provisions that bolstered Small Business Administration lending.
Those provisions, which eliminate fees for the major S.B.A. loan guarantee programs and increase the guarantee for the 7(a) program to 90 percent, ran out of money in late November. According to the S.B.A., they’ve been responsible for $14 billion in loans to small businesses and have increased the weekly S.B.A. loan volume by more than 75 percent since last February. The defense bill extends them through February 2010.
The S.B.A. provisions are paid for by rescinding $128 million from the stimulus package to pay for digital television converter box coupons, a program that is now winding down.
As I mentioned, the bill passed overwhelmingly, 395-34 — no doubt in large part because the House then adjourned for the holiday last night. As National Public Radio’s Andrea Seabrook reported today, Republicans who might normally oppose such add-ons (among others: extensions of unemployment insurance and Cobra health insurance subsidies for people who’ve lost their jobs) did not object. “We think that that is perfectly acceptable,” said Bill Young, a Florida Republican. “In fact, I think it’s a good idea in some of the cases.”
In fact, more Democrats than Republicans voted against the measure — and curiously, among the 23 Democratic naysayers was one Nydia Velázquez, the mercurial chair of — wait for it — the Small Business Committee! An aide to Ms. Velázquez said she has “consistently opposed funding for the war,” but that wouldn’t explain why she voted in favor of the original defense appropriations bill, back in late July, which had much the same war funding but no S.B.A. funding.
The bill now heads to the Senate, which also passed an earlier version of the bill, and appears poised to pass this one as well. “The House is out, so essentially we have to pass the bill unamended,” said a spokesman for the Senate Appropriations Committee, noting that current funding for the Defense Department expires Friday at midnight. Look for a vote in the Senate by early Saturday morning at the latest.
With the House now on holiday, action on Mr. Obama’s broader proposals (see here and here) to bolster small-business lending will have to wait until next year.

Are You Sure You Want a Business Credit Card?

Are You Sure You Want a Business Credit Card?
By Lee R. Phillips

I have students asking about establishing business credit. It’s a myth. As a small business, real estate investor, or general entrepreneur you don’t have a prayer of establishing “business credit.” You will always sign personally for any “credit” your business gets.

The major competitor I had in do-it-yourself asset protection packages went bankrupt a couple of years ago. (Beware! His products are still out there being sold by a half dozen groups. The products are out of date and there is no support – in spite of what you are told.) His company was a ton bigger than mine. It was doing tons of seminars, and the back end sales were huge (ruthless). He had signed personally for all of the company credit cards. That’s the only way you will ever get a business credit card. When his company went bankrupt, he was on the hook for over $10 million. NOT HAPPY! (Not a good asset protection technique either.)

You actually shouldn’t have a business credit card. They are dangerous. Just use a personal card for everything and then pay it each month the way the IRS wants you to.
Your personal credit card is governed by the Credit Cardholders Bill of Rights, but those laws don’t apply to business credit cards. BIG RED FLAG!

Business cards are subject to the whims of the credit card company. The interest rates can be raised at will, even retroactively. Billing cycles can be changed at will. The rules just aren’t the same at all. The real threat a business card represents is the liability of fraud. You lose your card, and you are toast. With a personal card you are liable for $50, but with a business card there is no liability limit. You’re stuck, as a business and personally, because I will guarantee you have signed personally for the card.

So, don’t use a business card. Use a personal card. You will charge everything (personal and business) on the one card. But wait, you can’t comingle money and expect your corporate (LLC) shield to protect you. Comingling money is the number one no no. You’re not comingling money by charging the card. How you make the payment to the card is the issue.

When you get your credit card statement, go down the list and check each charge. (You should always do that anyway.) By each charge, write whether it is business or personal. In my case there are a number of companies, so I have to designate which company the charge applies to. Then add up the business and personal charges. Enclose two checks in the payment envelope; one from your business account and one from your personal account. The credit card company will cash each check and apply it toward the monthly bill. Sometimes we write half a dozen checks and put them in the same envelope.

The IRS actually wants to see the money coming out of each account. If you do it that way, there is no question you are not comingling money. Your asset protection shield is safe. Yes, you could cut one check to the credit card company and then reimburse yourself from your company, but just do the multiple check thing. You can follow the same concept if you pay online. You now have the protection of a personal card, your asset protection shield is intact, and the IRS is happy. Don’t you love a happy IRS?

For other asset protection information and articles of interest, check out my website at www.phillipsassetprotection.com.

To Your Success,

Lee Phillips
LegaLees Corporation
556 East 1400 South
Orem, UT 84097
800-806-1998

Another $1 billion in small business credit vanishes

By Catherine Clifford, staff reporterDecember 16, 2009: 5:42 PM ET
NEW YORK (CNNMoney.com) -- The small business credit crunch is still deepening: Major banks cut their small business loan balances by another $1 billion in October, according to a Treasury report released late Tuesday.
The 22 banks that got the most help from the Treasury's bailout programs have decreased their small business lending by a collective $11.6 billion since April, when the Treasury began requiring them to file monthly reports. The banks' total lending has fallen 4.3% in that six-month period, to $257.7 billion.

When loan and credit lines dry up, small businesses have trouble launching, expanding, and funding their daily operations. President Obama met Monday with CEOs from a dozen of the nation's biggest banks to pressure them to do more to rebuild the economy they helped blast apart.
"We expect some results," Obama told the bankers. "I'm getting too many letters from small businesses who explain that they are credit worthy, and banks that they've had a long-term relationship with are still having problems giving them loans."
President Obama is planning another banker gathering next week. On Tuesday, he'll host a discussion with representatives of several community banks, according to a White House spokeswoman. The White House has not yet made any additional details available about the meeting and its agenda.
'Wait till next year': Banks are beginning to respond to the heat they're getting from administration officials. Bank of America (BAC, Fortune 500), which whittled its small business loan balance down further every month since April, said Monday that it will loan $5 billion more in 2010 than it did this year.
In the past six months, the bank has reduced its outstanding small business credit balances by $2.6 billion, a 6% decline.
Wells Fargo (WFC, Fortune 500) also pledged to be more active next year.
The bank has clipped a bit more than $3 billion off its loan portfolio since April, a 4% drop. But at $73.5 billion, its small business loan balance dwarfs that of any other bank, and Wells Fargo was the top lender this year through the Small Business Administration's primary loan program.
Next year, the bank will increase its new loan originations by 25% over 2009 levels, to $16 billion, according to Marc Bernstein, a Wells Fargo executive vice president and the head of its small business unit. Wells Fargo is on track to make about $13 billion in new loan originations in 2009, he said.
Like many banks, Wells Fargo says it's had a tough time lately finding creditworthy borrowers. Sales are down for most businesses, and depressed property values means business owners have less equity to borrow against in their homes and other assets.
"It just wouldn't be responsible to lend more money to those people as they are struggling to make their existing payments," Bernstein said of his bank's shrinking loan portfolio. "We want to make as many loans as we possibly can, but we require a reasonable likelihood that it is going to be repaid."
The bank is forecasting a lending pickup next year because it's optimistic about economic recovery. "There have been very clear improvements over the last six months," Bernstein said.
JPMorgan Chase (JPM, Fortune 500) is also hopping on the bandwagon. The bank said last month that it will increase its small business lending by up to $4 billion in 2010 -- though much of that may come through its new Ink line of small business credit cards. The bank said it will hire 325 additional small business specialists to work with customers and source new business.
Other efforts in limbo: President Obama's administration has been trying all year to revive the small business credit market. Most of the initiatives are currently either stalled or out of gas.
In October, Obama unveiled a collaborative effort between the Treasury Department and the Small Business Administration to make capital cheaper for community banks. The administration wants to use the Treasury's Trouble Asset Relief Program (TARP) funds to make ultra-low-interest loans to banks that will use the money to expand their small business lending.
But nearly two months after Obama's announcement, the Treasury is still hashing out the details. "We expect the program to kick off very soon," Treasury spokeswoman Meg Reilly said.
Meanwhile, a popular Recovery Act measure to boost the Small Business Administration's loan programs has run out of money and awaits Congressional action to replenish its funding pool. More than 700 SBA loan applications, totaling $390 million, are in the queue and on hold.
Washington's policymakers are attacking the lending problem from multiple directions, but haven't yet gained traction.
"This is a very hard problem to solve," Treasury Secretary Timothy Geithner said at a small business lending forum in Washington last month. Speaking to a room filled with small business owners and lenders, Geithner was candid about the struggle.
"It's not something we can easily fix," he said. "It takes a coordinated mix of different strategies and policies."

First-Time Homebuyer Credit UPDATE!

New Legislation
New legislation, the Worker, Homeownership and Business Assistance Act of 2009, which was signed into law on Nov. 6, 2009, extends and expands the first-time homebuyer credit allowed by previous Acts. The new law:
Extends deadlines for purchasing and closing on a home.
Authorizes the credit for long-time homeowners buying a replacement principal residence.
Raises the income limitations for homeowners claiming the credit.
Under the new law, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return.
For the first time, long-time homeowners who buy a replacement principal residence may also claim a homebuyer credit of up to $6,500 (up to $3,250 for a married individual filing separately). They must have lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the replacement home is purchased.
People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after Nov. 6, 2009. The credit phases out for individual taxpayers with modified adjusted gross income (MAGI) between $125,000 and $145,000 or between $225,000 and $245,000 for joint filers. The existing MAGI phase-outs of $75,000 to $95,000 or $150,000 to $170,000 for joint filers still apply to purchases on or before Nov. 6, 2009.
Several new restrictions apply to homes purchased after Nov. 6, 2009.
Purchasers must attach a properly executed settlement statement to their return.
No credit is available if the purchase price of the home exceeds $800,000.
The purchaser must be at least 18 years old on the date of purchase. For a married couple, only one spouse must meet this age requirement.
A dependent is not eligible for the credit.
The new law gives the IRS broader authority to deny first-time homebuyer credit claims, without having to first audit a taxpayer’s return. Known as math error authority, this authority applies, retroactively, to credits claimed on original and amended 2008 returns, as well as to claims yet to be filed.
Additionally, there are new benefits for members of the military and certain other federal employees:
Members of the uniformed services, members of the Foreign Service and employees of the intelligence community serving outside the U.S. have an extra year to buy a principal residence in the U.S. and qualify for the credit.
In many cases, the credit repayment (recapture) requirement is waived for members of the uniformed services, members of the Foreign Service and employees of the intelligence community.
More information on these new benefits for the military, Foreign Service and intelligence community serving outside the U.S. is available.
General Information
Homebuyers who purchased a home in 2008, 2009 or 2010 may be able to take advantage of the first-time homebuyer credit. The credit:
Applies only to homes used as a taxpayer's principal residence.
Reduces a taxpayer's tax bill or increases his or her refund, dollar for dollar.
Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.
The credit is claimed using Form 5405, which you file with your original or amended tax return.
For 2008 Home Purchases
The Housing and Economic Recovery Act of 2008 established a tax credit for first-time homebuyers that can be worth up to $7,500. For homes purchased in 2008, the credit is similar to a no-interest loan and must be repaid in 15 equal, annual installments beginning with the 2010 income tax year.
For 2009 Home Purchases
The American Recovery and Reinvestment Act of 2009 expanded the first-time homebuyer credit by increasing the credit amount to $8,000 for purchases made in 2009 before Dec. 1. However, the new Worker, Homeownership and Business Assistance Act of 2009 has extended the deadline. Now, taxpayers who have a binding contract to purchase a home before May 1, 2010, are eligible for the credit. Buyers must close on the home before July 1, 2010. [Added Nov. 12, 2009]
For home purchased in 2009, the credit does not have to be paid back unless the home ceases to be the taxpayer's main residence within a three-year period following the purchase.
First-time homebuyers who purchase a home in 2009 can claim the credit on either a 2008 tax return, due April 15, 2009, or a 2009 tax return, due April 15, 2010. The credit may not be claimed before the closing date. But, if the closing occurs after April 15, 2009, a taxpayer can still claim it on a 2008 tax return by requesting an extension of time to file or by filing an amended return. News release 2009-27 has more information on these options.

U.S. House Abandons Small Business in Midnight Vote

FROM NFIB:

Late Saturday night, the House of Representatives passed H.R. 3962, "The Affordable Health Care for America Act," a deeply flawed attempt at healthcare reform.Lawmakers who voted "yes" for the bill supported Washington politics at the expense of supporting the small businesses in their communities.Click here to see how you member of Congress voted on H.R. 3962The bill fails to lower costs, increase choice or provide real competition for America's small businesses. Instead, this bill will actually make things worse, not better.Susan Eckerly, senior vice president at NFIB, said, "H.R. 3962 will punish small employers with mandates, payroll taxes and a new government-run insurance program paid for on the backs of small businesses."Read our statement on how the U.S. House Voted 'NO' on lower costs and 'YES' on higher taxes for small business.Spread the Word: H.R. 3962 fails Small BusinessGovernment mandates are a common theme in the Affordable Health Care for America Act. Download and share our H.R. 3962 worksheet to see if your small business passes the government's "healthcare test."What's next for Small Business? The healthcare debate now moves to the U.S. Senate. We must remain vocal and demand that the Senate address our needs for responsible insurance market reforms and increased competition in the small group and individual private market.As the stakes grow higher and debate becomes more intense, stay tuned for updates on how you can stay involved and make a difference.Sincerely,
The Solutions Start Here TeamP.S.
Read more on how the small business community reacted to the passage of H.R. 3962 in a recent Wall Street Journal article.