At this point, everyone has heard of the new Emergency Economic Stabilization Act of 2008 (EESA), more commonly known as the “Bailout Plan.” This plan authorized the US government to spend up to $700B to rescue US financial institutions from the lingering effects of the sub-prime mess (to put it lightly). But the Bailout reached further than the banks and brokerage houses:  deeply rooted within the plan are tax provisions that will affect a large number of taxpayers.

One such provision is Alternative Minimum Tax (AMT) relief, which increases the exemption amounts to $69,950 for married filing jointly, and $46,200 for individuals (pre-EESA, the amounts were $45,000 and $33,750, respectively). The provision will also allow for personal credits against AMT. The cost of this provision is estimated at approximately $62B over ten years.

Also included are extensions expiring after December 31, 2007. For individual income tax some of the popular incentives include:

1.  the deduction for state and local sales taxes for those who elect to deduct sales tax in lieu of the state income tax deduction,

2.  deduction for qualified tuition expenses for higher education (subject to adjusted gross income limitations,

3.  teacher’s education expense deduction of $250,

4.  additional standard deduction for real property taxes for nonitemizers, and

5.  tax free contributions of IRA plans to qualified charitable organizations.

Extensions for some of the popular business tax incentives include:

1.  extension of the Research and Development Credit,

2.  15 year straight line depreciation for qualified leasehold, restaurant and retail improvements,

3.  section 199 deduction for Domestic Production Activity in Puerto Rico, and

4.  extension of Work Opportunity Tax Credits for Hurricane Katrina Employees.

The Bailout  also includes a number of renewable energy incentives enacted to encourage investment in this area, as well as  some revenue generating provisions. One provision that will affect many taxpayers is the new mandatory requirement for brokers to furnish basis information to the IRS relating to sales of publicly traded stock. In prior years, brokers were only required to report gross proceeds and it was up to the taxpayer to report the appropriate cost basis. It will be extremely important that taxpayers confirm that their broker has the correct basis on their portfolio, especially if funds were transferred to a new broker. This provision is expected to raise close to $6.7B in revenue over the next 10 years.

There is no question that the bailout, from a macro level, will ultimately cost Americans as Wall Street is slated for the bulk of the economic attention. Some studies have estimated the cost at around $5,000 per working American. However, the tax incentives included within the plan allow some relief for taxpayers and businesses.

Is the bailout plan perfect? This will likely be debated for some time, but one thing that is for certain is that the tax incentives were a necessary addition to the overall plan.

We have said before that despite the difficult market environment, “hunkering down” may invite even more trouble.  While prudence is a virtue, we always believe - in good times or bad - that efficient use of cash and resources is imperative to a successful business.  This is a time to be aggressive, not passive, in establishing a position of strength.

However, it must be acknowledged that there will be some adjustment to the times, and one area that companies can address is collections. Before considering cuts that could stall your company’s momentum, be certain that you are collecting on the profits you have already earned.

Here are a few tips on collections from Charlie Colarullo of Transworld Systems, a profit recovery agency:

1.  Regularly review all customer accounts and send written demands for accounts that are less than 6 months overdue. If you work with a collection agency, submit past due accounts on a consistent basis to ensure the recovery effort is always in motion.

2.  If you use an agency, become familiar with all the reporting tools that are available online and regularly view them to keep up to date on the performance of your account.

3.  Use verbal demands for accounts 6 months overdue and beyond.

4.  Don’t accept “payment arrangements” on accounts that are in the verbal demands stage. The debtor has already ignored your efforts to collect and written demands, therefore accepting payment arrangements now could only further delay the collection of the debt owed to you.

While it shouldn’t need to be said, please remember to take care of your business by remaining proactive on issues such as collections, business development, marketing and innovation.

Forward thinking activities are the differentiators in an otherwise difficult economy, and will set the stage now for future wealth creation and success.  Staying active in these areas will prevent stagnation, because once a business is stalled, it can be difficult to climb back into motion, regardless of market conditions.

Big news from Duane Reade, as the drug store chain is facing fraud charges that allegedly account for a $17.5 million overstatement of pre-tax income. Interesting, but more important are the fraud cases that we are not seeing publicized.

In fact, the Duane Reade article in Accounting Today is just the kind of high profile case that prevents executives of small to mid-sized private companies from recognizing that fraud is a much greater danger to them than to large publics.

The truth is that the large majority of fraud is committed against these smaller companies, and is extremely damaging. In fact, companies with less than 100 employees are most prone and often see losses eclipsing $200,000 – a crippling hit for a small company.

We always encourage owners and financial executives to understand where the opportunity lies for fraudsters and how to mitigate the risks. This presentation, which is a condensed version of a recent seminar, tells a compelling story.  Feel free to let us know if you think fraud is taken seriously enough at your company.