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<body topmargin=0 leftmargin=0 marginheight=0 marginwidth=0> <table cellpadding=0 cellspacing=0 border=0><tr> <td valign="top" colspan=2 height=90 BGCOLOR="#006699" TEXT="#080000" bgproperties="fixed" background="11f285a1erlcgo.png"> <div> <FONT SIZE="5" COLOR="#FFCC66" FACE="Arial" ><B>Stewart N. Grant, CPA, P.C.</B></FONT><B>    </B><B> |     </B><A HREF="index.htm" TARGET="_top" TITLE="Stewart N. 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TEXT="#080000"> <div> <I>Articles and Information</I></div> <div>  <A NAME="article"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="1" ALIGN="bottom" WIDTH="1" HSPACE="0" VSPACE="0" ></A></div> <div> <I>Scan down the page for older articles... an index will be added in the near future...</I></div> <bR> <div> <I><B><U>So Vista Finally Arrives, Should you upgrade?</U></B></I></div> <bR> <div> After billions of dollars and years in development, the long awaited Vista operating system from Microsoft is finally availabe.  Should you upgrade or wait?</div> <bR> <div> Eventually, we will all be running it since it will almost certainly be pre-loaded on most new computers.  Thus, by taking the early adoption route you will become familiar with the operating system that you will likely be using at some point.</div> <bR> <div> However, consider the fact that every new software release will have some problems (rumor has it that Microsoft is already working on service pack one for Vista).  Versions of QuickBooks prior to 2007 won't work with Vista and that's just a single application.  There are also hardware problems and considerations since many companies have not developed drivers.  There have been reported problems when networking with XP computers etc.   How equipped are you to deal with these problems?</div> <bR> <div> The cost to upgrade can be significant.  The hardware requirements to run Vista Premium are steep and using the minimum requirements will result in slower that current operating system performance.  That's a pretty harsh reality.  Thus, you have the cost of the Vista upgrade which isn't cheap, the cost of additional hardware to run it properly, and then the cost of applications etc that must be upgraded, followed by the time to do all this and learn the new system.</div> <bR> <div> If you do a search for the new features in Vista, one thing you will almost certainly note is that there doesn't appear to be any compelling reason to upgrade.  While there are certainly new bells and whistles, there doesn't seem to be any major application or feature that makes it a "no brainer" to move to Vista.</div> <bR> <div> It would appear (to this writer anyway) that if your current computer and operating system are meeting your needs the best tactic would be to simply pass on any upgrade to Vista until it is necessary to buy a new computer.</div> <bR> <div> The release of Vista may finally start more people asking why we all aren't running Linux.  It's free, more stable, more secure, and will run just fine on older equipment (did I mention that it's free?).  Oh well....</div> <bR> <bR> <div> <I><B><U>I</U></B></I><I><B><U>f it seems like there is never enough storage - Think NAS</U></B></I></div> <bR> <div> Recently I bought a new computer.   It's a real gem.   I got it on eBay for $30 shipped to my front door.  It's an old beat up IBM Pentium III with 256mg ram and a 10 gig hard drive.</div> <bR> <div> What would I want with this old door stop you ask?  Well, my basic requirement for this new computer was that it have a network card and be able to handle the 300 gig hard drive(s) that I am going to install in it.   Do you now see the purpose?  This is going to be a (N)etwork (A)ttached (S)torage device.  Basically, I am going to connect this computer to my network, set it up to share all its files, etc. and let it serve as a common storage area and file server.</div> <bR> <div> It will be a place where all common files (photos, music, video, etc) that take up a lot of room can be stored and retreived from any computer on the network and it will be an ideal place to backup all the network computers.  This will free up a lot of room on the network computer's hard drives and thus eliminate the need for bigger or external drives.  Thus, it is more cost effective.</div> <bR> <div> But wait... if I really want to be secure, I can toss in a second large drive and mirror it on to the other creating a simple yet sophisticated secure file storage and backup system.  Thus, I can automatically backup an entire network computer to the server at night using the Windows task scheduler, then I can backup the server itself.  This kind of redundancy provides great security against data loss.  This is much easier than it sounds using either a cloning software or adding a  RAID controller.  Both solutions will cost about the same but the hardware solution (RAID) is a bit more complex.  However, both methods sure beat burning CD's or trying to keep up with whatever is on those expensive flash drives.</div> <bR> <div> OK, but I may need to access this storage computer from time to time and I don't really want another monitor, keyboard, etc cluttering things up.  No problem, I picked up a VGA switch and cables for about $10 that allows two computers to share the same monitor, keyboard, and mouse.  Just when you think it can't get any better....</div> <bR> <div> ... along comes a media player.   This is a device that connects your network with your home theater either by cable or wireless and will allow you to play music and video, show your photos, or even surf the net from the comfort of your home theater.  When using a media player, the advantage of having all of those files in a central location becomes obvious.</div> <bR> <div> OH, but all this technology costs a lot of money right?</div> <bR> <div> Well, as I already said,  the computer with the switch was about $40.  The 300 gig drive was less than $100 and the media player (In this case a Pinnacle Showcenter) was snagged off eBay for around $60.  That's not too bad given what this technology cost just a few years ago and the fact that MP3 storage devices can cost much more.</div> <bR> <div> Network servers used to be restricted to a large business environment but clearly that isn't the case anymore.  If you do a Google search for a NAS device, you will see that these remain somewhat expensive but there are solutions (such as presented here) that can be very cost effective for the home or small business.</div> <bR> <div> A side note on backups.....</div> <bR> <div> I get asked all the time how and when I back up my important files and anyone who has had a drive fail or corrupted by a virus knows how important this can be.  If you turned on your computer tomorrow and the drive was dead, how much grief would that cause you?  If you don't want to think about it, you need a good recovery strategy.  The simple fact is that a hard drive is a mechanical device and it <B>will fail.</B>  It is just a question of when.</div> <bR> <div> Having been there and done that, here is what I do.</div> <bR> <div> First, on mission critical computers, I always have two identical drives and they are mirrored.  Thus, if the main drive fails,  I can simply swap the drives and I'm back in business.   Second, I use Windows task scheduler to do a complete backup of the drive to another network computer (or storage server) on a nightly basis.  Thus, if I have complete computer failure, I still have the files.  Finally, I create permanent archives of important data to move off site in case of a true disaster.</div> <bR> <div> On workstation computers and laptops, backups become less important because any failure (while inconveneint) wouldn't be critical.  Files deemed important are simply copied (or stored) on the network storage drive which is mirrored.</div> <bR> <div> There have been many occassions when I have received calls from anxious clients wanting to know if I still had a copy of their QuickBooks file because they had lost all of their data.   Believe me, it does happen.  The only question is how long is it going to take you to recover from it.</div> <bR> <bR> <div> <I><B><U>Investing & Savings 101 - Getting back to the Basics</U></B></I></div> <bR> <div> <I>Preface - Investing and savings are for the consumer debt free.   If you have consumer debt, your goal should be very simply to get out of debt as quickly as possible.</I></div> <bR> <div> I am amazed at the number of folks who generate interest income instead of dividends, refuse to fully fund pensions because of fear or lack of understanding of the markets, and/or who still actively trade what should be a basic or foundation portfolio.  It's time to get back to some basics.</div> <bR> <div> First, there should only be enough cash in regular savings or money markets to cover short term cash shortages.  Savings accounts are not currently generating significant returns and because interest is taxed at ordinary tax rates, the returns are probably not even keeping pace with general inflation.  Folks should consider moving this money into accounts that generate dividend income instead of interest.</div> <bR> <div> With sites like EquiServe.com, you can buy and sell shares directly from a variety of companies.  Some of these companies pay all the fees, allow little or no initial investment, and allow a monthly purchase plan.  Using monthly investing will "dollar cost average" the purchases and allowing selling of the securities from time to time without worry.  Some dividend rates can be as high as 6-8% and because dividends are taxed at capital gains rates, the returns remain very attractive.  Everyone should have a Dividend Reinvestment Plan (DRiP) portfolio as part of their taxable savings strategy.  If you don't, consider starting one today.</div> <bR> <div> Second, try to fund your pension to the<U> maximum extent possible</U>.  The tax savings from funding a pension is one of the best returns you can get and tax deferred growth allows for very real return growth.  Pension funds should <B>not </B>generally be traded or invested in individual stocks.  This is a foundation portfolio for retirement that should generally be invested in well managed diversified funds.  The types of funds will vary depending on many factors such as age and risk tolerance but the emphasis here should be on worry free long term growth investing.  Today, the financial markets may be up or down but historically the markets have consistently provided the best overall return.  It's not about timing the markets... it's simply time in the markets.</div> <bR> <div> Next, if you really have the need to try your hand at trading, you should simply open an online brokerage account and fund it with a specific amount for this purpose (many refer to this as "mad money").  This should be an amount that you are willing to lose since online trading has a high level of risk.  Please do not trade in a tax deferred (IRA etc) account with the idea that the gains will be sheltered from tax.  Most traders lose money (it's simply a fact) and the losses will also be sheltered from tax.</div> <bR> <div> Finally, I am often asked to look at insurance products as investments.  Generally, these are lousy investment vehicles and should be avoided.  Insurance serves a specific need and folks should strive to have "just enough" insurance to cover that need.  Dual purpose insurance (e.g. insurance to cover college costs in case of death that also has a cash value feature to help pay for future college expenses) remains a decent (but not necessarily the best) choice for some depending on the product selected since it is a "forced" type of savings for something that might otherwise be ignored.  The only time insurance with investment and/or savings features should be considered is for one of these specific dual purpose conditions.</div> <bR> <div> People like to spend more than they save and so when they do save, they need to get the best possible return.  Hopefully, by returning to some savings and investing basics, they can.</div> <bR> <bR> <div> <I><B><U>Understanding Networking in the Wireless Era</U></B></I></div> <bR> <div> So you have a small wired office network and you are thinking of adding wireless capability but you don't understand how that will work with your current network and/or you are worried about the cost.  Relax.  You probably don't have to change your current network at all and the cost may involve nothing more than buying a single piece of equipment that will cost less than $100.  Here is how a typcial small office network is set up to accomodate wireless access:</div> <bR> <div> <IMG SRC="0fc27100.gif" border=0 width="295" height="272" ALIGN="BOTTOM" HSPACE="0" VSPACE="0"></div> <bR> <div> Please note that the ethernet hub can also be a broadband router with a cable modem plugged into it so that internet access (as well as network access) can be provided to all computers.  The broadband router provides a hardware firewall for the network in conjuntion with software firewalls used on each machine.  See this diagram:</div> <bR> <div> <IMG SRC="1ac34020.gif" border=0 width="308" height="258" ALIGN="BOTTOM" HSPACE="0" VSPACE="0"></div> <bR> <div> Adding wireless capability for laptop (or desktop) computers is very easy by simply plugging a wireless access point into the hub/router if it doesn't already have wireless capability (see diagram).  If the laptop (or desktop) computer has a wireless card, that's all you need with respect to hardware.  Adding wireless security is where things can get rather complicated.</div> <bR> <div> Before talking about security, it is important to point out that there is a LOT of hype and fear out there regarding wireless security issues.  It is very important to understand the type of likely threat you will encounter and what is really necessary to prevent it.  Steps to prevent local kids from using your internet service are much different than those necessary to prevent a dedicated attack on your system to acquire sensative data.</div> <bR> <div> For example: Most people don't put guarded gates and security cameras around their home and instead rely instead on simple locks to prevent intruders. </div> <bR> <div> Remember:</div> <bR> <div> "The goal of security is not to prevent all bad things from happening. You limit the probability of an event occurring. And if it does happen, you limit its impact."</div> <bR> <div> With that said:</div> <bR> <div> Networking makes it easy to share Internet access and data. But you wouldn't want to share your information with just anyone. With a wireless network, your information is traveling through the airwaves—not physical wires, so anyone within range can "listen in" on your network. Here are five essential security measures you should take to secure your wireless network. </div> <bR> <div> Change the default SSID (network name).</div> <div>     <FONT SIZE="1" COLOR="#CC00FF" FACE="Arial" ><I>Minimal security.  Simply keeps 20 wireless networks named "linksys" from tyring to log onto your network.  Also, hackers assume someone too lazy to change the default SSID may also have been too lazy to change passwords or enable encryption and thus they actively seek these defaults.</I></FONT></div> <div> Disable the SSID broadcast option. </div> <div>     <FONT SIZE="1" COLOR="#CC00FF" FACE="Arial" ><I>Minimal security and may cause network problems especially if a laptop must roam from one AP to antoher.  The SSID (whether on or off) should not identify you or your location (don't use a business name).  </I></FONT></div> <div> Change the default password needed to access a wireless device. </div> <div> <FONT SIZE="3" COLOR="#000000" FACE="Arial" >    </FONT><I>Very important and it should be a long complex password (letters and numbers).  NOT a word found in the dictionary.</I> <FONT SIZE="3" COLOR="#FF0033" FACE="Arial" > </FONT><FONT SIZE="3" COLOR="#000000" FACE="Arial" >  </FONT></div> <div> Enable MAC address filtering to specify which computers may access the network.</div> <div>     <FONT SIZE="1" COLOR="#CC00FF" FACE="Arial" ><I>Minimal security.  More of a speed bump than a wall.</I></FONT></div> <div> Enable the highest level of encryption supported by the wireless device.</div> <div>     <FONT SIZE="1" COLOR="#FF0033" FACE="Arial" ><I>WEP  encryption is no longer deemed secure and WAP encryption must be used.  If your equipment doesn't support WAP, it is time to upgrade your equipment.  If you don't consider your network to be much a risk to an attack,  at least use WEP 128 with a very complex pass phrase (very long with no common words or 11111111 etc).</I></FONT></div> <bR> <div> The above measures will generally provide acceptable security for a typical small buisness network.  Larger networks or those with particularly sensative data will generally require additional security measures.  A very simple security measure is to simply turn off the wireless devices when not in use.  For instance, unplugging them at the end of the work day.</div> <bR> <div> The other issue with wireless devices is range.  Just as you can walk out of range with a cordless phone, you can do the same with the wireless network.  As with all radio signals, the range of a wireless network device can vary significantly from place to place.  You may find that the wireless device provides adequate coverage of the entire home or office or you may find that you lose the signal in the very next room.  You will need to experiment with the placement of your wireless devices but if all else fails, there are always additional devices that you can buy to extend the range.</div> <bR> <div> Wireless technology is changing the way networks are put together and providing greater access and freedom.  However, care must be taken to be certain that it is also providing security and reliability.</div> <bR> <div> _______________________________________________________</div> <bR> <bR> <div> <I><B><U>The computer, to upgrade or not to upgrade, that is the question:</U></B></I></div> <bR> <div> Computer technology is a wonderful thing but it can be a bit overwhelming for a lot of people.  Each year everything is new, faster, and better and these technology leaps can leave you feeling frustrated and left behind.</div> <bR> <div> Before you spend a large sum of money on the “latest thing” you should recognize that most people don't need the “latest thing” for day to day computer use and the latest “power machine” probably will not add a great deal to your current productivity or computing “experience”.  This is especially true if the problem doesn't lie with the computer itself but rather by the way it is configured and maintained.</div> <bR> <div> For instance, the computing “experience” for a lot of people would be greatly enhanced by a better quality monitor that is easier on the eyes or by an ergonomic keyboard as opposed to a faster processor or CD drive.  I am amazed at how people will try to save money on their new computer by getting the cheapest (and I don't just mean least expensive) monitor, keyboard, etc. when these parts can actually cause fatigue, headaches, and very real pain in the wrists, shoulders, and neck.</div> <bR> <div> Trust me when I say that the latest 3GHz Pentium 4 will not run Microsoft Word or QuickBooks any better than your old machine.  You will still be waiting on the printer and your machine has no control over the speed of the Internet.</div> <bR> <div> Here are some things to consider before running out to buy that new computer….</div> <bR> <div> <B>What to do with that slow PC?  Don't give up and scrap it just yet….</B></div> <bR> <div> I once had a colleague at my office and I was showing him something on the computer and I was stunned when he commented on how fast my PC's were compared to his because I knew that he had much better equipment.  You see, most people simply don't “optimize” or “clean-up” their computers and this causes them to perform poorly.</div> <bR> <div> Ask yourself the following:</div> <bR> <div> 1) When was the last time you went into “add/remove programs” and removed all the programs that you no longer need or use?</div> <bR> <div> 2) Is your Windows system optimized for performance or do you have every gadget available running?  (Control Panel -> System -> Advanced -> Performance)</div> <bR> <div> 3) Have you turned off indexing? (My Computer -> Right click on drive -> Properties)</div> <bR> <div> 4) Is your desktop loaded with Icons and do you have a host of tasks loaded at start-up or do you just have those you really need?</div> <bR> <div> 5) Are you running nightly maintenance via task scheduler to remove all those Internet files and to defragment your hard drives?</div> <bR> <div> 6) Do you regularly run programs such as Ad-aware and Spybot to remove all of the Internet parasites and spyware from your computer?</div> <bR> <div> 7) If you are running XP, is your drive formatted with the NTFS or the FAT32 file system? (hint: NTFS is MUCH better).</div> <bR> <div> 8) When was the last time you searched for and installed all the latest updates, patches, drivers, etc for all the software that you are running?</div> <bR> <div> These are just a few very important performance steps.  There have been entire books written on optimizing Windows 95/98/XP etc but taking just a few of the above steps (especially 5&6) can dramatically improve system performance for FREE. So before making a decision to buy new equipment to improve performance, you should make certain that your current system is running at its peak performance.</div> <bR> <div> Ok, you have done all the above and you still think you need something else right?</div> <bR> <div>  </div> <div> <B>Should you try and upgrade or simply buy a new Computer?  </B></div> <bR> <div> My family PC (purchased in 1998) was a Generic box Pentium II MMX 350 MHz with 128meg RAM. It had an old video card with only 8 megs of memory and a slow 8 gig hard drive (it was certainly cutting edge back then but ancient by today's standards).  Basic computing tasks were taking way too long (switching programs meant you simply had to wait while the hard drive thrashed for several minutes) and the kid's games with heavy graphics would give errors or simply refuse to run.  The machine barely met the absolute minimum system requirements to run Windows XP (home edition) and have high speed Internet access.  The only good news is that the computer had a really nice monitor, an Internet keyboard, an optical mouse, a decent sound card, a zip drive, old but useable USB ports, and a 32x CD-ROM.  </div> <bR> <div> My wife and kids were really nagging at me to buy a new PC but I really didn't want to spend $500 to $1000 for a new computer so my wife could do simple photo editing and the kids could play games and surf the net but I could see no way out of it since everything that I had read suggested that a system over three years old and less than a Pentium III could not be upgraded and that I should just buy a new computer..…</div> <bR> <div> Well, as luck would have it I had recently upgraded a business machine to 512 Megs of RAM and had pulled two 128 Meg RAM chips from it that couldn't be used and were now sitting on my desk.  I wondered if these chips would work in the family machine so I popped off the case cover and snapped in these chips (leaving in one existing 64 meg chip to fill all three banks) and fired up the machine.  BINGO! 320 Megs of RAM memory!</div> <bR> <div> Now, if I did nothing else, the change from 128 Megs of RAM to 320 Megs was nothing short of dramatic.  While this upgrade cost me nothing, these chips are very inexpensive (I've seen them almost free with rebate offers) and this is probably the first upgrade that should be considered as Windows programs just love having more RAM.</div> <bR> <div> Ok, this got me thinking about what else I could do to extend the life of this old machine and I searched the Internet and found a 64 meg AGP video card for $40 to replace the old 8 meg card and a fast 20 gig hard drive for around $50 to replace the old slow 8 gig drive (I left the old drive in the machine to store all the kids music files giving the machine a total storage of 28 gig).  I'll sell the old graphics card and extra memory chip on eBay to recoup a couple bucks.</div> <bR> <div> At this point I had acheived my goal.  The machine had been brought back to life.  It was running at an acceptable speed and the kids games were loading and running just fine.  Take note that the upgrades to dramatically improve this system's performance to this point had nothing to do with the processor speed.  In addition, the new drive came with software to copy everything from the old drive so nothing had to be re-installed and/or reconfigured and the new drive was formatted with the new NTFS instead of the old FAT32.  Ok, everyone was happy…. everyone except me.  I started wondering if the old Pentium II processor could be upgraded without having to change out the the main board (which was certainly an option with the generic ATX case).</div> <bR> <div> Enter into the picture.... PowerLeap whom I found on the Internet.  They have a really nice web program that will analyze your system and recommend upgrades.  They indicated that my system could indeed be upgraded and they could sell me an Intel Celeron 1.4 GHz chip to replace the old Pentium II 350MHz for around $100 (these sell on eBay for much less but I decided to buy directly from the manufacturer in case something went wrong). In any case, I just couldn't pass on this upgrade and changing the chips was as easy as replacing the video card.</div> <bR> <div> To summarize, the machine is now an Intel Celeron 1.4 GHz with 320 Megs of RAM, it has 28 gigs of fast storage and 64 Meg of very fast accelerated AGP video RAM.  It is not such an outdated machine anymore and the total cost to me was around $190.00.  In addition, the old processor fan and hard drive were very noisy while the replacements are whisper quiet.</div> <bR> <div> Even if I would have had to buy the 128 Meg RAM chip (giving the machine 256 which I believe would have been enough) the total cost of the upgrade would have still been close to $200 (much less if I didn't insist on new parts vs used such as those found on eBay).</div> <bR> <div> So what's next?  Well, I see that they now sell PCI cards that you can pop in that will give you four of the latest fast 2.0 USB ports for around $10.  This will allow the PC to run the USB CDRW-DVD and the kids can burn their own music CDs and watch DVDs (the new video card can support two monitors and even has a TV output). Maybe I'll even spring for one of those $10 3D Sound Cards.  Anyway,  it's probably back to the store again for more upgrades to take full advantage of this new more powerful machine that just a few weeks ago looked like a good candidate for the Goodwill bin.</div> <bR> <div> If you are one of those that would never dream of actually opening the case on your PC and you break out into a sweat just thinking about it, don't despair as most computer stores will install the items they sell for free.  If you are inclined to have an anxiety attack when asked if you want PC100 or PC133 memory chips, then I recommend taking advantage of this service.</div> <bR> <div> OK, so by now you are probably thinking that Dell currently has a bottom of the line 2 GHz with 128 Meg of RAM for around $500.   In reality a properly configured machine would probably cost a couple hundred more and you would have all the grief associated with a new propriety machine.  In this case and at this point in time, the upgrade path was definitely a better option than simply ordering a new PC.</div> <bR> <div> It is worthy of note that my “generic” machine built for me by a local computer store provided me with the ability to upgrade and not all machines can be upgraded. Proprietary machines such as those made by Dell and Gateway (while inexpensive) may not provide you with an easy upgrade path as almost everything may be built right into the main board.  For instance, the main board used in the "generic" computer back in 1998 contained an AGP Video slot and supported memory upgrades to 768meg in very flexible 3 slot chip combinations ranging from 8meg to 256meg.   A Gateway computer purchased in late 2002 contained "on board" sound, video, no AGP slot, no ISA slots, fewer PCI slots, and the memory maxium was 512meg using only identical chips in 2 slots.  Compared to the "generic" machine, the Gateway power supply is obviously more cheaply made and provides less power.  Obviously Gateway wanted to restrict the upgrade path.  It's something to think about when the time comes to actually buy a new machine.  </div> <bR> <div> Of course, it these machines are truly becoming disposable items, it doesn't really matter.  Obviously, I don't think we are there….  just yet.</div> <bR> <div> <I><B>____________________________________________________________</B></I></div> <bR> <div> <I><B>Are you complying with corporate law?</B></I></div> <bR> <div> Many clients incorporate their business themselves as a way to save money and there is certainly nothing wrong with doing so.  However, that's not where the process ends and the "do it yourself" incorporator needs to remain informed about his/her responsibility with regard to corporate law.</div> <bR> <div> First, the incorporator needs to go to a site such as www.corpkit.com and order a corporate book.  This will usually contain the corporate seal, stock certificates, blank forms for minutes and meetings, corporate instructions and forms, etc.  It will also provide a nice place to store your important corporate papers.</div> <bR> <div> Corporations are required to hold annual meetings, keep minutes, etc. and the failure to do so is to fail to comply with corporate law.  It is generally very easy to comply with the law as most corporations are very simple in formation (usually only 1 or 2 directors, officers, and shareholders) and the incorporator should be certain that all requirements are met.</div> <bR> <div> There can be severe consequences to having a corporation disregarded and since it is very easy to comply with the law, there is no reason for this to happen.  If you have incorporated, you should be aware of your responsibility as a director and/or officer of that corporation.</div> <bR> <div> _____________________________________________________________</div> <bR> <div> <I><B>S-Corps must pay adequate compensation</B></I></div> <bR> <div> In a recent tax court case, a tax preparer was found to be paying inadequate compensation to himself and taking excess distributions from his S-Corporation.  The preparer was assessed for back payroll taxes and related penalties and interest.  The IRS then found that he was advising clients to follow a similar tactic and assessed those taxpayers for back payroll taxes as well.</div> <bR> <div> While S-Corporation income and the related distributions are not subject to employment taxes, those who provide services to the corporation must be fairly compensated.  Officers of a corporation must be compensated for their services as a matter of law.</div> <bR> <div> If you have any questions regarding this or any other payroll related  issue, please contact us.</div> <bR> <div> ______________________________________________________________</div> <bR> <div> <I><B>The Home Office deduction is back once again!</B></I></div> <bR> <div> We had previously cautioned taxpayers about taking the home office deduction as it could have made part of the home sale gain taxable (remember that home sale gains are generally no longer taxable) but in an unexpected change the IRS has issued final regulations indicating that the home office will <B>not</B> make the gain taxable except to the extent of depreciation taken.</div> <bR> <div> Taxpayers who had previously reported a taxable gain or that failed to take the home office deduction may wish to amend prior year's tax returns.</div> <bR> <div> The following is the full IRS press release regarding this issue.  If you have any questions regarding this, please do not hesitate to contact us.</div> <div> __________________________________________________</div> <bR> <div> <TABLE BORDER="0" CELLPADDING="1" CELLSPACING="1" WIDTH="506" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="VOID" RULES="NONE" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=CENTER HEIGHT= 2447 WIDTH="502"><div> IR-2002-142, Dec. 23, 2002</div> <bR> <div> WASHINGTON – The Internal Revenue Service today issued guidance in the form of both final and temporary regulations related to excluding gain on the sale of a principal residence. A 1997 law substituted an exclusion of up to $250,000 ($500,000 for a married couple filing jointly) for the old “replacement residence” rules. Unlike a previous once-in-a-lifetime exclusion for senior citizens, the new exclusion may be claimed repeatedly, but usually only once every two years.</div> <bR> <div> The final regulations cover such topics as:</div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">how to determine if a home is a principal residence; </div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">when gain from the sale of vacant land that was used as part of the residence may be excluded; </div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">when and how to allocate the gain between residential and business use of the property; </div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">how the exclusion applies to joint owners who are not married; and </div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">how to fulfill the requirement that the taxpayer own and use the home as a principal residence for two of the five years before the sale. </div> <bR> <div> For taxpayers with multiple homes, the regulations list several factors relevant to determining which home is the principal residence. Among these are amount of time used; place of employment; where other family members live; the address used for tax returns, driver’s license, car and voter registration, bills and correspondence; and the location of the taxpayer’s banks, religious organizations or recreational clubs.</div> <div> The home sale exclusion may include gain from the sale of vacant land that has been used as part of the residence, if the land sale occurs within two years before or after the sale of the residence.</div> <bR> <div> Taxpayers need not allocate gain between business and residential use if the business use occurred within the same dwelling unit as the residential use. They must pay tax on the gain equal to the total depreciation they took after May 6, 1997, but may exclude any additional gain on the residence, up to the maximum amount. If the business use property was separate from the dwelling unit, they would allocate the gain and be able to exclude only the gain on the residential unit.</div> <bR> <div> For joint owners who are not married, up to $250,000 of gain is tax-free for each qualifying owner.</div> <bR> <div> To exclude gain, a taxpayer must both own and use the home as a principal residence for two of the five years before the sale. The ownership and use periods need not be concurrent. The two years may consist of 24 full months or 730 days. Short absences, such as for a summer vacation, count as periods of use, but longer breaks, such as a one-year sabbatical, do not. The taxpayer also must not have excluded gain on another home sold during the two years before the current sale.</div> <div> The IRS made these final regulations available for public comment in October 2000. Several changes resulted from the comments received, including the treatment of gain on property used for both business and residential purposes.</div> <bR> <div> Today, the IRS invited comments on new temporary regulations on the subject of excluding gain, but with a reduced maximum amount, when the seller does not satisfy one of the time rules. The tax law provides an exception to the two-year rules for use, ownership and claimed exclusion when the primary reason for the sale is health, change in place of employment, or, to the extent provided in IRS regulations, “unforeseen circumstances.”</div> <bR> <div> Taxpayers may establish by the facts and circumstances of their situations that their home sales were for one of these reasons. To make things easier, the IRS has identified various “safe harbors” that will automatically establish that the sale is for one of these reasons.</div> <div> The temporary regulations provide that a home sale will be considered related to a change in employment if a qualified person’s new place of work is at least 50 miles farther from the old home than the old workplace was from that home. This is the same distance rule that applies for the moving expense deduction. The employment change must occur during the taxpayer’s ownership and use of the home as a residence. A qualified person is the taxpayer, the taxpayer’s spouse, a co-owner of the home, or a member of the taxpayer’s household.</div> <bR> <div> A sale will be considered because of health if the primary reason is related to a disease, illness, or injury of a qualified person. If a physician recommends a change in residence for health reasons, that will suffice. In addition to the persons listed above, a qualified person for health reasons includes certain close relatives, so that sales related to caring for sick family members will qualify.</div> <bR> <div> A sale will be considered as occurring primarily because of “unforeseen circumstances” if any of these events occur during the taxpayer’s period of use and ownership of the residence:</div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">death, </div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">divorce or legal separation, </div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">becoming eligible for unemployment compensation, </div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">a change in employment that leaves the taxpayer unable to pay the mortgage or reasonable basic living expenses, </div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">multiple births resulting from the same pregnancy, </div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">damage to the residence resulting from a natural or man-made disaster, or an act of war or terrorism, and </div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">condemnation, seizure or other involuntary conversion of the property. </div> <bR> <div> Any of the first five situations listed must involve the taxpayer, spouse, co-owner, or a member of the taxpayer’s household to qualify. The regulations also give the IRS Commissioner the discretion to determine other circumstances as unforeseen. </div> <bR> <div> For qualifying sellers, the maximum exclusion amount of $250,000 ($500,000 for a married couple filing jointly) is limited to the percentage of the two years that the person fulfilled the requirements. Thus, a qualifying seller who owns and occupies a home for one year (half of two years) – and who has not excluded gain on another home in that time – may exclude half the regular maximum amount, or up to $125,000 of gain ($250,000 for most joint returns). The proportion may be figured in days or months.</div> <bR> <div> A taxpayer who now qualifies for a reduced maximum exclusion and has already reported a gain from the sale of a residence on a prior year’s tax return may use Form 1040X to file an amended return claiming the exclusion. Taxpayers may generally amend returns until three years from the original due date. The law did not require taxpayers to meet one of the exceptions before using the reduced maximum exclusion for homes owned on August 5, 1997, and sold within two years after that date. Thus, nearly all taxpayers qualifying under these regulations should be able to use them by amending a recent year’s return.</div> <bR> <div> Treasury Decision <FONT SIZE="3" COLOR="#0000FF" FACE="Arial" ><U>9030</U></FONT>, the final home sale regulations, and TD <FONT SIZE="3" COLOR="#0000FF" FACE="Arial" ><U>9031</U></FONT>, the temporary and proposed regulations on the reduced maximum exclusion, were published in the <I>Federal Register</I> on December 24, 2002. These regulations will also be published in Internal Revenue Bulletin. The proposed regulations will also be available for comment soon on the IRS Web site at www.irs.gov.</div> </tD> </tR> <tR> <tD VALIGN=CENTER HEIGHT= 19 WIDTH="502"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="502" HSPACE="0" VSPACE="0"></tD> </tR> </TABLE></div> <bR> <bR> <bR> </td> </tr></table></body>