Friday, June 22, 2007

Microsoft Coffee Table PC

Is there really a market for this thing; I can't imagine having such an intrusive thing in my living room...

Microsoft to unveil 30-inch touch screen computer - May. 30, 2007

Microsoft unveils coffee table 'surface computer'
Software maker will introduce a coffee-table-shaped computer that has a 30-inch display, allowing people to touch and move objects on the screen.
May 30 2007: 2:42 PM EDT

SEATTLE (Reuters) -- Microsoft Corp. will unveil a coffee-table-shaped "surface computer" Wednesday in a major step towards co-founder Bill Gates's view of a future where the mouse and keyboard are replaced by more natural interaction using voice, pen and touch.

Microsoft Surface, which has a 30-inch display under a hard-plastic tabletop, allows people to touch and move objects on screen for everything from digital finger painting and jigsaw puzzles to ordering off a virtual menu in a restaurant.
Microsoft's coffee-table-shaped "surface computer" hopes to one day replace the mouse and keyboard with voice recognition, pen and touch.

It also recognizes and interacts with devices placed on its surface, so cell phone users can easily buy ringtones or change payment plans by placing their handsets on in-store displays, or a group of people gathered round the table can check out the photos on a digital camera placed on top.

Microsoft (Charts, Fortune 500), the world's largest software maker, said it will manufacture the machine itself and sell it initially to corporate customers, deploying the first units in November in Sheraton hotels, Harrah's casinos, T-Mobile stores, and restaurants.
Microsoft's 150-lb computer: What's the point?


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Thursday, June 21, 2007

Mistakes that Kill Small Business

Another interesting list I found on  As an accountant, I'll try not to be offended by Mistake #3...just kidding...accounting controls are the key.

Bottom Line's Business Secrets

Dumb Mistakes that Kill Small Businesses And what you can do instead Ruth King Published: July 1, 2007 Y ou have a strong work ethic, a solid business plan and a great reputation in your field. Your small business ought to be a success. Yet a single seemingly minor mistake might be all it takes to make a thriving young company go belly up. Fatal small business mistakes often can be avoided, but only by business owners who recognize the danger in time. Common errors that can doom small companies...

Mistake 1: Relying too much on one customer. New businesses sometimes start out with just one or two clients. When these clients provide all the work the business can handle, the customer list doesn’t expand. After all, why search for new clients when the dance card is already full? However, short client lists increase the odds of disaster. Small companies often collapse when a customer that accounts for 50% to 100% of their income decides to use another supplier... eliminate a product line... or handle a previously outsourced function in-house. What to do: Continue to search for additional customers even if one or two big clients already give you all the work your business can handle. If necessary, add an employee. Avoid letting any customer make up more than 25% of your revenue.

Mistake 2: Losing key employees to competitors. A small business might have only a few employees. It can be a crippling blow if one or two of the best quit to join a rival. Not only are the company’s most productive people now working for the other team, but the owner often must do the work that these former employees would have done. On top of that, he/she has to hire and train replacements, all of which can distract him from leading the company. The departed employees even might take some of the company’s best customers with them. Example: Several top-producing employees of a small Nevada mortgage brokerage company were hired away by a new rival that was attempting to enter the sector. The mortgage brokerage owner could not find adequate replacements and was forced to scale back his operations despite surging demand. What to do: To keep your employees loyal, do everything in your power to keep them happy. Remember to praise employees and thank them for their efforts. Keep the attitude of the office upbeat. An enjoyable working environment is at least as important for employee retention as hefty salaries.

Mistake 3: Trusting a bookkeeper too much. Even an honest-seeming bookkeeper could be an embezzler. Example: A Georgia contracting company hired a grandmotherly bookkeeper whom everyone loved -- until they learned that she had cooked the books and forged $100,000 in checks. What to do: Maintain personal control over your company’s money whenever possible. Do not give a bookkeeper check-signing privileges. Have bank statements sent to your home so you see them before your employees do. Each quarter, print out lists of receivables and payables and scan them for unusual entries. Divide any financial tasks that you can’t handle yourself among several employees so no one employee can steal without another noticing a problem.

Mistake 4: Turning a hobby into a business without understanding what’s involved. Coin collectors often dream of owning coin shops... skilled amateur photographers hope to open their own studios. Unfortunately, many people turn their hobbies into small businesses without first considering the time and money required, the risks and their lack of practical business skills. Example: A woman interested in Native American jewelry opened two jewelry stores -- one in Colorado, the other in Arizona. She had a great eye for jewelry, but she had no knowledge of the local markets... didn’t know how to write a business plan... and had never worked in retail. Both shops failed. What to do: Before launching your business, work for someone who has a comparable business so you can learn about the field. (This business either should be a few towns removed from where you intend to start your business or have a slightly different focus so that you won’t later be in direct competition.) Try to master mundane back-office tasks that are unfamiliar to you, such as balancing the books and negotiating with distributors and suppliers. To reduce your risk, try to launch your business part-time before leaving your current job. This means working very hard for a while, but it’s better than taking the leap without a safety net.

Mistake 5: Having a relationship with just one bank. Most small businesses depend on loans and lines of credit to get them off the ground and avoid cash-flow shortfalls. When a business builds a relationship with only one bank, that credit can dry up if the bank’s policies or management change. What to do: Try to do business with at least two local banks so they get to know you and believe in your company.

Mistake 6: Thinking you’ll never get sick. A long-term health problem, even if it is not life-threatening, could mean the demise of your business, particularly if it is a sole proprietorship. Example: A Georgia hairdresser broke his arm in a motorcycle accident and could not cut hair for more than a month. He contracted with another hairdresser to cut his clients’ hair for the time his arm was in a cast. Had his customers gone elsewhere, his business might not have recovered. What to do: Do not work yourself so hard that your health deteriorates. Quit any risky hobbies. Consider signing an agreement with a friendly, respected competitor to look after each other’s businesses in the event of extended health problems. Make sure this agreement includes a promise not to poach customers. If you can afford it, buy disability insurance.

Mistake 7: Failing to share the workload with employees or partners. Some small business owners find it psychologically difficult to give anyone but themselves important assignments. Their unwillingness to accept assistance limits their companies’ growth, and eventually they burn out. What to do: If your current employees can’t handle the work, hire or train employees who can.

Mistake 8: Working with unstable suppliers or distributors. When a small business’s supplier or distributor has problems, the small business itself has problems. Example: A California writer lost her stream of income and her entire inventory of books when her book distributor went bankrupt. What to do: Work with multiple suppliers and distributors whenever possible. Watch for signs of financial problems in these companies, such as bounced checks or slow-to-arrive payments. Ask your lawyer to look over your contracts with distributors to make sure that you will still own your products if the distributor goes bankrupt. For more information about protecting your small business:

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Good News for Coffee Drinkers

I have read in Mens Fitness that no more than 3 cups of coffee can't do you any harm and will actually help.  I found this article on the bottomlinesecrets website which expands on the issue.  As with most things in life...moderation is the key.

Bottom Line/Health Secrets

Health Secrets... the best in non-biased health information,
from Bottom Line/Health.
The Amazing Healing Power of Coffee
Fight heart disease, diabetes, memory loss and more... with coffee

Joe Vinson, PhD
University of Scranton

Published: June 1, 2007

W hen most people think of a healthful diet, fresh fruits and vegetables typically top the list.

Surprising: An eight-ounce cup of caffeinated or decaffeinated coffee contains more disease-fighting antioxidants than a typical serving of fresh blueberries or oranges.

Although coffee does not contain some of the other nutrients found in healthful foods, it is the main source of antioxidants in the American diet (followed by tea and chocolate, respectively). Of course, the stimulating effects of coffee’s caffeine are not always desirable -- some people experience nervousness, insomnia or even spikes in blood pressure.

But most people who drink moderate amounts of coffee (typically defined as one to three cups daily) seem to have a lower risk for a number of chronic conditions, including heart disease, diabetes and age-related cognitive declines.


The amount of caffeine that is found in coffee varies, depending on how the coffee is prepared.

Examples: One ounce of espresso contains about 50 mg... an eight-ounce cup of instant coffee has 95 mg... and eight ounces of plain, brewed coffee has 150 mg.

A serving of espresso, instant or brewed coffee each contains roughly the same amount of antioxidants. In fact, coffee contains hundreds of antioxidants, particularly polyphenols -- plant compounds that can inhibit cell damage or inflammation, two of the main causes of many chronic diseases. The addition of milk and/or sugar does not appear to affect the antioxidant levels.

Important: Most of the research linking coffee to reduced disease rates is based on epidemiological studies, in which scientists have analyzed the past dietary habits of large groups of people.

This type of research helps to develop hypotheses that deserve further study, but definitive answers won’t be possible until scientists conduct more large-scale clinical studies, in which factors such as coffee consumption are tightly controlled (rather than merely self-reported by test subjects).

What the newest research on coffee consumption tells us...


New finding: In a study published in the American Journal of Clinical Nutrition in May 2006, Norwegian researchers found that postmenopausal women who drink one to three cups of coffee daily are 24% less likely to develop cardiovascular disease than non-coffee drinkers.

Theory: The antioxidants in coffee -- like those in fruits and vegetables -- are thought to inhibit the damaging effects of free radicals on cells lining the arteries.

Result: A decrease in inflammation, now thought to be the underlying cause of heart disease.

Caution: Because of the stimulating effects of caffeine, blood pressure rises temporarily (for about one hour) when regular coffee is consumed. People who drink several cups in a row may keep their blood pressure elevated, thus increasing the risk for heart disease or a heart attack.

Helpful: Space out coffee consumption. For example, have one cup in the morning and another at lunch or in the afternoon. Or switch to decaf, which doesn’t cause the blood-pressure spikes of regular coffee -- but offers the same health benefits, except for those that improve cognitive function.


New finding: An analysis published in the American Journal of Clinical Nutrition in February 2007 found that older adults (age 65 and over) who have four or more daily servings of caffeine -- in the form of coffee, soft drinks, etc. -- have less than half the risk of dying of heart disease than those who consume smaller amounts.

Theory: Older adults are prone to occasional hypotension (low blood pressure). They are especially vulnerable to drops in blood pressure after meals, which can increase the risk for heart attack. Caffeine, by quickly raising blood pressure, appears to reduce the risk for such coronary events.

Caution: The oils found in steeped coffee, such as that made in a French press (a glass beaker to which hot water and ground coffee are added... then a plunger is depressed, filtering out all the grounds and sediment), can significantly raise cholesterol and increase the risk for elevated blood pressure.

Better for health: Coffee that is drip brewed (water is poured over ground coffee and seeps through a filter into a pot). The filter traps most of the oils.


New finding: Research published in the June 26, 2006, Archives of Internal Medicine found that among 28,812 postmenopausal women studied, those who drank four to five cups of coffee (especially decaffeinated) per day were 16% less likely to develop type 2 diabetes than women who didn’t drink any coffee.

Theory: The antioxidants in coffee may protect the pancreas’s insulin-producing beta cells from oxidative damage.


New finding: Coffee appears to slow the rate of cognitive decline in elderly adults. In a study published in the European Journal of Clinical Nutrition in August 2006, researchers gave memory tests to 676 healthy men in Finland, Italy and the Netherlands, then repeated the tests 10 years later. Non-coffee drinkers had four times more cognitive decline than men who drank three cups of coffee a day.

Theory: The antioxidants in coffee reduce age-related damage to brain cells (neurons) and/or cause beneficial changes in the hormones/neurotransmitters that are involved in cognitive function.

Scientific studies also suggest that moderate consumption of coffee reduces the risk for Parkinson’s disease as well as Alzheimer’s disease. Researchers have yet to explain why coffee reduces risk for these two diseases, but the mechanism is thought to be similar to that associated with reduced cognitive decline.


New finding: According to research published in the June 12, 2006, Archives of Internal Medicine, coffee may reduce the risk for cirrhosis (irreversible liver scarring that, in severe cases, can be life-threatening without a transplant), especially in alcoholics. This link may be due to the anti-inflammatory effects of the antioxidants in coffee.

In addition, coffee may help protect against gallstones. Specifically, data from the ongoing Harvard Nurses’ Health Study found that women who drank four or more cups of coffee daily required fewer operations for gallstones than women who didn’t drink coffee.

Theory: Caffeine stimulates gallbladder contractions, which cause the gallbladder to empty more often and may reduce the risk for gallstone formation.

Caution: Caffeine interacts with certain medications, causing some to become more potent or increasing the amount of time caffeine remains in the body. These drugs include certain selective serotonin reuptake inhibitors (SSRIs), such as fluvoxamine (Luvox)... anti-arrhythmics, such as mexiletine (Mexitil)... and bronchodilators, such as theophylline (Theovert). Caffeine also may interact with the herbal dietary supplement ephedra. In addition, consumption of more than five cups of coffee daily has been linked to higher risk for bone fractures in postmenopausal women.

Special from Bottom Line/Health

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Out of State Sales Into California - Applying for Temporary Resale

Thought I'd jot down my findings real quick since the issue came up...

The company I work for has a potential sale coming up with a customer in California (we're in New York).  We'd like the vendor we are purchasing the equipment from to drop-ship into CA for us (to avoid having the equipment cross the country twice).  The vendor has nexus in CA and wants a resale certificate or must charge CA sales tax. 

I found on the CA sales tax website form BOE-400-SPA which is the Application for Sellers Permit.  This form allows you to apply for a permit as a temporary seller.  The way the form is worded, though, it is generally for vendors selling at a trade show or event.  Another concern about the form is that the instructions say that you may be required to put up a security deposit.

I decided to call the CA Out-of-State District office (916-227-6602) to ask a couple questions.  By the way, I found their number in Publication 77:  Out of State Sellers (worthwhile to read through).  After explaining the situation to her that this is a one time sale to an individual customer she said that I should fax in form BOE-400-SPA as a temporary vendor (fax #916-227-6641) and in the section titled 'Temporary Permit Event Information' simply enter the address of your customer (so that the county can get its share of tax collected).

On that note, you will be responsible for filing a CA sales tax return and you will have to collect CA sales tax from your customer unless they provide you with an exemption certificate. 

I was told that after you fax in the application, it will take 2-3 days for you to get the identification number to provide to your vendor on a resale certificate (also available on the CA website).  A bit of work for just one sale, so it would have to be worthwhile.

On my website I have links to all the states tax or department of revenue websites.  Find them here:  AccountingHelpDesk Sales Tax Sites. 

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Possible FASB Changes Upcoming for Net Income

From an article in the Wall Street Journal on-line...

Profit as We Know It Could Be Lost With New Accounting Statements -

In coming months, accounting-rule makers are planning to unveil a draft plan to rework financial statements, the bedrock data that millions of investors use every day when deciding whether to buy or sell stocks, bonds and other financial instruments. One possible result: the elimination of what today is known as net income or net profit, the bottom-line figure showing what is left after expenses have been met and taxes paid.

It is the item many investors look to as a key gauge of corporate performance and one measure used to determine executive compensation. In its place, investors might find a number of profit figures that correspond to different corporate activities such as business operations, financing and investing.

Another possible radical change in the works: assets and liabilities may no longer be separate categories on the balance sheet, or fall to the left and right side in the classic format taught in introductory accounting classes.

What's this mean for accountants...

Well that falls in the wait and see category. What they are talking about could mean substantial changes in the way financial statements are presented. If the expected changes do go through, there is going to have to be a lot of re-education needed...

  • textbooks re-written
  • accounting systems modified
  • bookkeepers and accountants re-trained to compile data needed
  • executives and investors will need to learn to use the new data
The article states that this move is in part due to a change in who uses financial statements...originally created for bankers and lenders but now looking for better measures for investors. Will replacing net income with several different numbers reflecting profit from various activities be helpful or will this just create more confusion? I don't think we'll see quite the widespread changes noted in this article, but we will probably see additional financial indicators on the face of the financial statements sometime soon.

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Wednesday, June 20, 2007

Did Blockbuster settle the Blu Ray / HD DVD Debate?

Those of us who have been waiting for a standard to be established in the HD marketplace may have finally gotten the answer. Blockbuster announced a couple days ago that they are giving their endorsement to the Blu-ray standard. Up to this point, they had been carrying both versions of the HD movies (Blu-ray and HD-DVD) on a test basis in select stores; now, they have put their backing behind Blu-ray. With the impact that Blockbuster has on home movies, this could be a huge blow to the HD-DVD format. I guess its too bad that there wasn't a middle ground to settle on, but when there are two incompatible formats, consumers can't support both of them (how many sections can we deal with in the video store...vhs, dvd, blu-ray, hd-dvd, beta...what?). Well I expect we'll see a large push on the Blu-ray players from the electronics retailers. Unless HD-DVD can win over Hollywood Video...

Here's an article on CNN: Blockbuster Back Blu-ray

Friday, June 15, 2007

Roth IRA vs Traditional IRA

This is another article from the BottomLineSecrets newsletter. I haven't researched the facts to double check their accuracy, but I think they are on-track. This article was titled and written by:

Roth IRA or Traditional IRA?

Ed Slott, CPA
Ed Slott's IRA Advisor

If you have money to save in an IRA, should you do so using a Roth IRA or a traditional IRA? Here are factors to consider to arrive at the best decision. You'll see that a Roth IRA is likely to be the best deal for a great many -- but not in every case...

they start out equal

A traditional IRA provides a deduction on contributions, but distributions from it are taxable as ordinary income.

A Roth IRA provides no deduction on contributions, but distributions after retirement age can be totally tax free.

In a hypothetical world, when "all other things are equal," these two arrangements are exactly equivalent, giving the same after-tax value to retirement savings in the end.

Example: A person in the 25% tax bracket today earns $100 that he uses to fund an IRA contribution. It earns a 7% return for 20 years, and then it and the compound earnings on it are distributed while the individual is still in the 25% tax bracket. With a...

Traditional IRA, the full $100 is contributed to the IRA (unreduced because of its deductibility), then grows over 20 years to $387 -- which, after 25% tax on distribution, leaves $290.

Roth IRA, the initial $100 is reduced by 25% tax, leaving $75 to put in the IRA, which grows over 20 years to $290 tax free.

So with all other things equal, the traditional and Roth IRA give the same result. But in reality, it's very unlikely that all other things will be equal.

difference makers

Expected changes in your future tax bracket can make either kind of IRA more attractive than the other. With a...

Traditional IRA, if one is in a higher tax bracket when deductible contributions are made than when taxable withdrawals are taken, one saves tax-wise. But if one is in a higher bracket when withdrawals are taken, one loses tax-wise.

Roth IRA, it's the reverse -- the advantage accrues to one who is in a lower tax bracket when contributions are made than when withdrawals are taken.

Thus, Roth IRAs are generally advantageous for children and persons in their low-tax-bracket, early earnings years, who expect to be in a higher tax bracket later in life.

Example: A young person in a 15% tax bracket who funds a Roth IRA can withdraw funds later in life (after age 59½) tax free, even when he/she may be in a much higher tax bracket.

Traditional IRA planning: Most people in their high earnings years may expect to be in a lower tax bracket after retirement -- an argument for the traditional IRA. But...

Not everyone expects to be in a lower bracket after retirement, even under current law.

Today's tax brackets are at historic lows, especially for higher earners. With massive budget deficits projected in the future due to Medicare and Social Security costs, tax bracket rates may well go up in the future, to the detriment of holders of traditional IRAs.

Roth advantages

Other differences that favor Roth IRAs...

Contribution rules. These are more liberal for Roth IRAs.

A person who is a participant in an employer's qualified retirement plan can make a deductible maximum contribution to a traditional IRA only if modified adjusted gross income (MAGI) is less than $50,000 on a single return or $75,000 on a joint return for 2006 (with the deduction completely phased out as MAGI rises to $60,000 and $85,000, respectively). But the "covered by an employer plan" limitation doesn't apply to Roth IRAs, and anyone with MAGI as large as $150,000 (there is a phaseout at $160,000) can make a maximum Roth contribution.

For persons not covered by an employer plan, there are no income limits for traditional IRAs, but the Roth limits continue to apply.

Minimum annual distributions. With a traditional IRA, after reaching age 70½, annual distributions become mandatory, with the amounts based on life expectancy. If you don't really need the money to live on, this forces taxation on unwanted distributions at top rates.

No minimum distribution requirement applies to Roth IRAs. Thus, you can leave funds in them as long as you desire to receive additional tax-free compound investment returns.

Bequest possibilities. Because of the lack of any lifetime minimum required distributions, one can plan to leave a Roth IRA to children or grandchildren who then may receive totally tax-free income from it at any age over their entire lives. Even a small amount left in such a Roth to compound over such a long time -- perhaps several decades -- may provide huge total returns to the children.

In contrast, predeath mandatory annual required distributions from traditional IRAs reduce amounts that can be left to children through them -- and if a traditional IRA is left to heirs, it will pay distributions that are taxable to them at top ordinary rates.

Long-term capital gains and dividends. In a taxable account, long-term capital gains and qualified stock dividends are taxed at a top rate of 15%.

In contrast, if you hold stocks for long-term gains and dividends in a...

Traditional IRA, it will increase the tax rate paid on capital gains and dividends to top ordinary rates.
Roth IRA, it will reduce the tax rate due on them to 0%.

Early withdrawals. Distributions taken out of a traditional IRA funded with deductible contributions are subject not only to income tax, but also to a 10% penalty if withdrawn before age 59½.

But contributions made to a Roth IRA can be withdrawn at any time tax free and without penalty -- only earnings on contributions are subject to penalty if withdrawn prematurely.

Moreover, withdrawals from Roth IRAs are deemed to be made up of contributions first, until all are withdrawn.

Result: A Roth IRA can serve as a tax-free source of funds at any time before retirement if necessary.

Note: When a traditional IRA is converted to a Roth IRA, the converted amount can be withdrawn without penalty after five years.

Travel Tips - Packing Light

We all need to travel at some point (whether personal or business). Not sure if I'm disciplined enough to follow some of these tips (especially the outfit coordination), but some ideas to keep in mind. This came from the BottomLineSecrets website and was titled and written by:

Pack for a 10-Day Trip in One Carry-On Bag

Joanne Lichten, PhD

You can pack everything needed for a 10-day vacation into a single 22"-x-9"-x-14" bag that complies with today’s strict airline carry-on rules. Of course, you won’t be able to wear a different outfit every day or get really dressed up for dinner, but frequent travelers find the convenience worth it. What to pack...


In addition to the clothes you wear, you need pack only a core wardrobe of two outfits if you do the following...

Pick one color scheme. Select a neutral color -- black, navy, brown or olive -- and pack only clothing in this color or that goes well with this color. This makes it easy to create new outfits by mixing and matching pants, skirts, shirts, etc. Avoid lighter neutrals, such as tan and white, which are more likely to show dirt.

Buy wrinkle-resistant clothes. Garments made from high-tech fabrics that resist wrinkles can be worn several times during a trip without looking messy. A wrinkle-resistant T-shirt is particularly versatile for men and women -- it looks great with jeans or under a sport coat.

You may want to bring a microfiber T-shirt and a pair of shorts as workout clothes. Microfiber is breathable and fast-drying. You can wash it and wear it again the next day. A large microfiber T-shirt works as a nightshirt and a bathing suit topper. You also may want to bring microfiber socks and underwear (enough for each day of the trip).

Good sources of travel clothing include Magellan’s (800-962-4943, TravelSmith (800-950-1600, and L.L. Bean (800-441-5713,

Wear a pair of sneakers or walking shoes, and pack one pair of dressier, but still comfortable, shoes in your carry-on bag.

Examples: SoftWalk shoes for women (888-218-7275, Johnston & Murphy “Signature Comfort System” dress shoes for men (800-424-2854,

If you must bring a coat, make it a compact, wrinkle-resistant, all-weather raincoat. With a sweater underneath, it’s good even in 20-degree weather if you’re not outside too long. Examples: TravelSmith’s Men’s Packable Classic Raincoat ($169 to $179) or Women’s Packable Microfiber Classic Raincoat ($149) provides lightweight wrinkle-resistant warmth.

If you need a suit or sport coat, check for wrinkle resistance. Roll or knot the suit sleeve. If it still looks good when it’s straightened out, it should work well during your trip.


Buy travel-size bottles for toiletries, if you’re not staying in a hotel that supplies them. The Container Store sells plastic bottles perfect for small supplies of shampoo, conditioner, body lotion and aftershave. Cost: 79 cents and up, depending on size (888-266-8246, www.containerstore.
). Small bottles comply with new US air travel rules, which ban bottles that hold more than three ounces of fluid from carry-on luggage.

Helpful: Magellan’s sells compact brushes, curling irons, toothbrushes, etc., that save additional room.

Bring paperbacks or magazines -- reading material that you can throw away when you’re done.

Wear a watch with an alarm if you don’t want to rely on a hotel alarm clock. Or use a cell-phone alarm.

Company Loans to Business Owners

Here's another article relevant to this blog from BottomLineSecrets. It discusses options that business owners have to get their hands on cash with tips on how to structure it for tax purposes. This article was titled and written by:

Make the Most of a Loan from Your Company

Albert Ellentuck, Esq., CPA
King & Nordlinger, LLP

Business owners may find themselves short of cash while the company has ample liquid reserves. If that’s the case, it might be tempting to borrow money from the business.

Such tactics may make sense, especially if the alternatives are taking a bank loan or running a credit card balance. But proceed cautiously to avoid tax traps and other dangers...


Avoid simply transferring funds from the company’s bank account to your own, making a mental note that this is a loan.

Trap: If the IRS examines your personal or business records, the transfer might be considered a dividend.

Result: The entire amount could be taxable income to you. A $50,000 “loan,” for example, could add $50,000 to your income for the year.

Moreover, dividends are not deductible for the company. If you run your business as a regular C corporation, the amount of the transfer could be subject to both personal and corporate income tax.

Strategy: Any loan between a company and an employee (especially if the employee is a shareholder) should be formalized.

The loan document should state an interest rate, repayment terms, and procedures to be followed in case of default. If you’re the borrower, adhere to the terms of the loan.

Added protection: To defend against a possible future charge that the transfer was a dividend, record the loan in your corporate minutes. Make a note to the effect that a loan is being made to a corporate executive to relieve personal financial pressures and thus facilitate performance of business-related responsibilities.

A loan will look more realistic if some interest is charged, even at a below-market rate, and if that interest is paid on schedule.


As mentioned, a company-to-shareholder loan will be on safest ground if interest is charged and paid. For the best tax outcomes, such interest will be at a market rate -- it will be treated as a loan rather than a taxable gift or dividend.

However, you might prefer to pay a below-market rate of interest, or no interest at all.

Tax treatment: With few exceptions, interest in such cases will be imputed by the IRS on loans between employers and employees.

Example: Walt Smith is the 100% owner of ABC, Inc. He borrows $50,000 from the company, interest free. At the time of the transaction, the applicable federal rate (AFR) published by the IRS is 4%.

Result: Imputed interest of $2,000 (4% of $50,000) will be included in Walt’s income each year.

Walt might be able to take an offsetting $2,000 deduction... but he might not. If he uses the loan proceeds for personal purposes, other than acquisition of a residence, no interest deduction will be allowed. If he uses the money for investing, interest deductions will be allowed only if Walt has taxable investment income to offset.

Below-market loans: Instead of an interest-free loan, Walt might have agreed to pay, say, 2% interest to his company. In that case, the loan is two percentage points below the AFR and the annual imputed interest would be $1,000 (2% of the $50,000 loan amount).


Suppose that Walt uses the proceeds for personal expenses. He will owe tax on $2,000 worth of “income” from imputed interest and get no tax deduction. Even so, such a transaction might be advisable.

Reason: Assuming an effective 40% tax rate (federal, state, local), Walt would owe $800 per year in tax on the $2,000 of imputed income.

If Walt borrowed the same $50,000 from a bank, in today’s interest rate environment, he might have had to pay 8% interest, or $4,000 per year.

Even worse: Putting $50,000 worth of debt on credit cards would probably have cost much more interest.

Bottom line: Using a no-interest or low-interest loan from your company might be the best way to get your hands on needed cash.

Try to start repaying the loan as soon as possible. If no repayment has been made after several years, the transaction may start to look like a dividend, with the undesirable tax treatment described above applied retroactively.


In some situations, no-interest or below-market loans between employers and employees are exempt from the imputed interest tax rules.

Exception 1: Loans that total no more than $10,000 won’t trigger imputed interest.

Exception 2: Relocation loans also may be exempt from these rules.

Example: XYZ Corp. moves its headquarters from Wyoming to Arizona. Beth Jones, the sole shareholder of XYZ, also moves to a new home in Arizona.

XYZ makes Beth an interest-free loan to help her buy her new home. No interest will be imputed.

Required: To avoid imputed interest, the loan must be secured by Beth’s new residence. The note will say that the house will be sold in order to pay off the loan, if necessary.

The relocation must involve a move of at least 50 miles. The loan must not be transferable (the company can’t sell the note to another party) and must oblige the borrower to perform future services (the borrower promises to work for the company).

In addition, the rules state that the borrower must certify to the employer that he/she expects to itemize deductions each year the loan is outstanding (see Reg. Sec. 1.7872-5T[c]).

Exception 3: In some cases, the imputed interest rules can be avoided on bridge loans that are used to buy a new home while an existing residence is on the market.

Required: All the above conditions for relocation loans must be met. In addition, the loan agreement must state that the loan will be repaid in full within 15 days after the sale of the old home.

The amount of the loan can’t be more than the borrower’s reasonable estimate of the equity in the old home. Moreover, the old home must be sold rather than converted to business or rental property.

Strategy: For a relocation or bridge loan, the borrower should open a separate bank account for handling the borrowed funds. Then the loan proceeds can be traced to the purchase of a new residence, strengthening the case for exemption from the imputed interest rules.

Sources to Borrow From in a Pinch

This is another article from the BottomLineSecrets newsletter I receive. Those of us that have gone through certain life challenges (divorce, illness, etc.) should find these useful. Problem is, when the crisis strikes, have to think clearly enough to get through without committing financial suicide. This article was titled and written by:

How to Get Cash in a Flash

Madeline Noveck, CFP
Novos Planning Associates, Inc.

Suppose life throws you a curve ball and you need money fast. Where can you get the cash? Options -- and traps to watch out for...


1. Ask your employer for an advance. The terms may be informal or written as a promissory note. This option works best when the need for immediate cash is very small and the boss is approachable.

2. Borrow from your relatives. This quick fix comes with emotional potholes. If you don’t repay the money, there may be resentment from the lender, as well as from other relatives who may feel slighted or jealous.

What to do: Use a formal promissory note stating the interest rate and repayment terms.

Trap: Without such a written note, the IRS may bar the lender from writing off a bad loan on grounds that it was a gift.

Caution: Such a loan doesn’t have to bear interest. But if it does, the lender must report that interest as income. If the loan exceeds $10,000, and the interest is below the applicable federal rate (AFR) -- currently just under 5% -- the lender must report not only the actual interest, if any, but also the “imputed interest,” which is the difference between the actual interest and the AFR.

More information: At the IRS Web site,, type “applicable federal rate” into the search box.


3. Borrow from your 401(k). If your plan allows it, under federal law, you can borrow up to 50% of your vested account balance or $50,000, whichever is less. You usually have up to five years to repay the loan.

Advantages: You can’t be rejected for the loan -- you may only need to make a phone call to the plan administrator or complete a short loan form... the interest rate, set by the plan, will be relatively low -- usually a couple of points above the prime rate, currently 8.25% (this is low compared with credit card rates, which can be up to 25%). The interest you pay goes back into the account.

Disadvantages: The money borrowed diminishes what could be saved for retirement... if you leave the company before repaying the loan, you must pay it back -- any outstanding balance will otherwise be treated as a taxable distribution (and subject to a 10% penalty if you’re under age 59½).

4. Tap your IRA. Pledging an IRA as collateral for a loan or “borrowing” from it is treated as a taxable distribution (subject to a 10% penalty if you’re under age 59½). But you can use money from your IRA for 60 days, tax and penalty free.

Big danger: You must replace (redeposit) the money in any of your IRA accounts within 60 days, or pay tax on it. Whatever isn’t put back becomes taxable as ordinary income.

Caution: You can make only one such withdrawal/redeposit, called a rollover, within a one-year period.


5. Borrow against your life insurance policy. If you have a cash-value life insurance policy (whole or universal life), you can borrow against the amount accumulated in your account. Just call your insurance agent or insurance company to receive a check within 48 hours to two weeks.

Borrowing limit: The cash value in the policy.

In today’s market, the annual interest rate on such a loan is about 7%, but many companies will reduce the dividends they credit to your account for as long as you have the loan -- in effect, upping the interest rate. Usually, you can repay funds when and to the extent you choose, but if payments don’t at least cover interest, the cash value of your policy continues to be further depleted because the interest not paid is subtracted from the cash value.

6. Use a margin account. Margin borrowing allows you to leverage securities you hold at a brokerage firm to access a convenient line of credit -- using checks issued by the firm to access your line or by receiving a broker’s check (often the same day you ask for it). You can even have the funds wired to your bank account. All you need to do for this kind of borrowing is sign a margin account agreement.

Limit: 50% of the current market value of a stock... 90% for Treasury and agency bonds... 70% for corporate bonds... and 60% for municipal bonds. Some securities (e.g., equities trading below $3 a share) are excluded.

Interest rates, which are based on the broker call rate (the broker’s cost of money), vary and the more you borrow, the lower the interest rate.

Example: Fidelity’s rate for borrowing less than $10,000 is currently 11.075%, but borrowing $500,000 or more has a 6% rate.

Note: Interest on margin accounts may be tax deductible as investment interest by those who itemize deductions. You must use the money to buy or carry investments, and you must have investment income at least equal to the investment interest. You must also not be borrowing against tax-exempt securities.

Caution: If the value of the securities falls below a certain level while your loan is outstanding, you’ll get a margin call -- a demand from a broker to provide money or securities to bring the value of the account back to the required level. You’ll have to sell some of your holdings to cover the shortfall if you don’t find other money to pay down the margin debt.

7. Get a home-equity line of credit (HELOC). Your bank will approve you for a specific amount of credit. Many lenders set the limit on a HELOC by taking a percentage of a home’s appraised value and subtracting the balance on the existing mortgage, if any. The process can take a week or more to arrange, but once the line is in place, you can write checks against it.

HELOCs typically use variable interest rates based on the prime rate (current HELOC rates are around 7.5%). Look for a lender that will waive all costs of establishing the loan, such as an application fee, an appraisal fee and closing costs.


8. Take a cash advance from a credit card. Drawbacks: Very high interest rates -- rates for advances typically range from 20% to 25%, in contrast to the average rate on credit card purchases of around 16% to 17%. In addition, cash advances usually carry an up-front fee of 2% to 4% of the amount advanced.

9. Borrow from a pawnshop. Pawnshops are in the business of making short-term, small-money loans, with personal items used as collateral. A pawnbroker will appraise your jewelry, small appliances, musical instruments or other items and typically lend 50% of the retail value. Interest rates and fees for these loans are state regulated, but the term of the loan is usually 30 days to several months and the fees are generally high.

Example: New York pawnbrokers have a collateral loan period of four months, and the interest rate is 4% a month, which means an annual percentage rate (APR) of 48%. There may also be a service charge -- the maximum charge for loans between $50 and $100 is $3 (loans above $100 are $5). If you don’t pay back on time, your collateral can be sold.

10. Take a “payday” loan. If your employer won’t give you a wage advance, consider a payday or “fast cash” loan.

These loans (offered at payday loan stores and at such sites as, and are popular because they’re easy and quick to arrange -- you can get funds in as little as one hour.

These loans don’t require a credit check -- they’re based on just a few criteria, such as the applicant’s monthly wages (usually a minimum of $1,000). The maximum loan amount is between $500 and $1,500, and the loans are for short periods, usually one to four weeks.

These loans are pricey -- finance costs (fees) run from $25 to $45, regardless of the size of the loan. Sounds reasonable? It’s not. Charging $45 for a two-week loan is the equivalent of $1,170 for a year. If you borrowed $300, that’s an APR of 390%!

Household money saving secrets

I receive this email newsletter from Had a nice summary on cost cutting and cost controlling moves for any household (including mine). This articles title and authors are:
Money-Saving Secrets from America's Cheapest Family

Steve & Annette Economides
The HomeEconomiser Newsletter

Many people think it is stressful to keep an eye on spending, but being frugal reduces the stress in our house. Unexpected financial setbacks, which rarely occur, can be remedied without major lifestyle changes. Our family members have learned to work together toward common goals. Our favorite strategies...

Plan and save in advance for all expenses. We divide our checking account into 20 subaccounts on paper -- though it could be done using a computer -- to save for all regularly occurring household expenses, such as mortgage and auto insurance payments, as well as such categories as recreation, gifts, home repair, savings and even pets.

Every other week, we spend two hours recording our expenses and dividing our total paycheck into the subaccounts. For instance, we anticipate the cost for gas and maintenance on two cars is about $2,700 a year, so we set aside $103 per paycheck for those needs. Money in a subaccount that is not completely spent accumulates with each paycheck. This way, it's never a financial strain when the car needs new brakes -- we have the money saved to cover it.

This system takes discipline, but it gives us peace of mind. We know exactly how much money we have to spend in each category. No more robbing Peter to pay Paul.

Plan how to spend large sums. People often squander large payouts, such as work bonuses and tax refunds. Instead, determine the most effective use for the money before it comes in. For instance, when we were paying off our first house (within nine years), we decided that extra money would be divided as follows -- 30% to extra payments of our mortgage principal, 30% to retirement and other savings accounts, 20% for house projects, 10% for charitable giving and 10% for recreation. We always allow some money for fun while working toward a goal. It makes it easier to stick with the plan.

Budget and pay bills together as a couple. Many financial experts suggest that spouses keep their money separate. We don't. Working together has built incredible unity in our marriage, as we have worked toward and accomplished our financial goals. We both know exactly where we stand financially. There are fewer arguments and more determination to persevere.

Avoid the ATM. This cash usually evaporates as quickly as ice on a hot griddle. Instead, to take control of the most common areas of overspending -- food, recreation and clothing -- we withdraw predetermined amounts in cash from each paycheck. Putting a set amount of cash into three separate envelopes minimizes overspending. When the cash is gone, the spending stops. It is amazing to see how easy it is to get control of your money this way.

Plan dinner menus for the coming week. This habit will encourage you to eat dinner at home more often, rather than at restaurants. With practice, a weekly menu can be created in as little as 15 minutes. You will make fewer trips to the grocery store and will save time and money. We have a list of more than 90 different dinner meals that we rotate from month to month. A favorite resource is The Good Housekeeping Illustrated Cookbook, which includes pictures of many of the dishes.

Give up your "sacred cows" for a month to reach your goals. Sacred cows are the little extravagances that you refuse to forgo even when you're under financial pressure. If you're comfortable enough without your sacred cows for 30 days, consider giving them up for good. For many people, these include premium cable channels, bottled water and Sunday brunches at restaurants.

We had a friend in financial trouble who insisted on continuing his newspaper subscription for $30 a month. He couldn't imagine living without it. We challenged him to give it up for 30 days, just to see what happened. When you let go of something, you often find a creative way to meet that need. In this case, our friend discovered that someone at his office brought in the paper each day and left it in the break room.

Make a game of being thrifty. Find a creative solution that costs less than the obvious one.

Example: We saved $400 for a dishwasher. After consulting Consumer Reports, we called several appliance stores in our area looking for a particular brand and model. We discovered that most large distributors have "scratch and dent" and discontinued units, so we called more stores looking for these deals. We struck pay dirt at Maytag and walked out of its downtown warehouse with a brand-new, $800 stainless steel dishwasher (in an open box) for $400. We stayed within our budget and got a much better quality dishwasher than we expected.

Keep your eyes open -- deals are everywhere. Most Sam's Club warehouses have discount/closeout areas in the back of the store. We always check there for deals. One day, we found a twin pack of Xerox Toner cartridges for our copier. They retail for $130 each. We have bought them on eBay for as little as $60, but Sam's Club had discontinued this particular item and marked it down to $10. Of course, we scooped them up. The deal got even sweeter when we remembered that inside each box was a certificate for a $5 rebate when we mailed in our empty toner cartridge (postage paid).

Decide on your "time versus money" threshold. If one phone call will resolve a small error on our bank statement, we go for it, but we're always careful to balance our drive to save money with our time for family and friends.

Our rule: If the resolution of an issue can't yield us at least $10 to $15 per hour of our time, then it probably isn't worth pursuing.

Thursday, June 14, 2007

Cash Flow

Steps to monitor and control cash flow:
  1. Do at least a summarized cash flow out to 12 months. I do a highly detailed cashflow for 2 months.
  2. Offer customers incentives for early payments (sometimes the cash discount lost is worth the quicker pay...especially if vendors are pressing you).
  3. Lease equipment instead of buying. Allows cash outflow to be spread out.
  4. Monitor your inventory. Only keep on hand that which is needed for the short term.
  5. Monitor spending...goes without saying.
  6. Postpone hiring until absolutely necessary.
  7. Avoid waste; recycle wherever possible.
  8. Cap owners salaries to that which is reasonable for work done.
No one likes to do it; but whether it is a lean year or a good year, take a look and plug leaks before it is too late.

Home Business - Is it a Hobby or a Business?

Everyone likes the word write-off, but especially in the case of home based business', care should be taken. The IRS is kind enough to allow deductions for expenses which are ordinary, necessary and reasonable. In Treasury Reg. 1.183-2 are listed 9 factors that the IRS uses to determine whether an activity is a hobby or a business. Nicely summarized on the tax almanac website, the 9 factors are as follows:
1) Manner in which the taxpayer carries on the activity. The fact that the taxpayer carries on the activity in a businesslike manner and maintains complete and accurate books and records may indicate that the activity is engaged in for profit. Similarly, where an activity is carried on in a manner substantially similar to other activities of the same nature which are profitable, a profit motive may be indicated. A change of operating methods, adoption of new techniques or abandonment of unprofitable methods in a manner consistent with an intent to improve profitability may also indicate a profit motive.

(2) The expertise of the taxpayer or his advisors. Preparation for the activity by extensive study of its accepted business, economic, and scientific practices, or consultation with those who are expert therein, may indicate that the taxpayer has a profit motive where the taxpayer carries on the activity in accordance with such practices. Where a taxpayer has such preparation or procures such expert advice, but does not carry on the activity in accordance with such practices, a lack of intent to derive profit may be indicated unless it appears that the taxpayer is attempting to develop new or superior techniques which may result in profits from the activity.

(3) The time and effort expended by the taxpayer in carrying on the activity. The fact that the taxpayer devotes much of his personal time and effort to carrying on an activity, particularly if the activity does not have substantial personal or recreational aspects, may indicate an intention to derive a profit. A taxpayer's withdrawal from another occupation to devote most of his energies to the activity may also be evidence that the activity is engaged in for profit. The fact that the taxpayer devotes a limited amount of time to an activity does not necessarily indicate a lack of profit motive where the taxpayer employs competent and qualified persons to carry on such activity.

(4) Expectation that assets used in activity may appreciate in value. The term profit encompasses appreciation in the value of assets, such as land, used in the activity. Thus, the taxpayer may intend to derive a profit from the operation of the activity, and may also intend that, even if no profit from current operations is derived, an overall profit will result when appreciation in the value of land used in the activity is realized since income from the activity together with the appreciation of land will exceed expenses of operation. See, however, paragraph (d) of §1.183–1 for definition of an activity in this connection.

(5) The success of the taxpayer in carrying on other similar or dissimilar activities. The fact that the taxpayer has engaged in similar activities in the past and converted them from unprofitable to profitable enterprises may indicate that he is engaged in the present activity for profit, even though the activity is presently unprofitable.

(6) The taxpayer's history of income or losses with respect to the activity. A series of losses during the initial or start-up stage of an activity may not necessarily be an indication that the activity is not engaged in for profit. However, where losses continue to be sustained beyond the period which customarily is necessary to bring the operation to profitable status such continued losses, if not explainable, as due to customary business risks or reverses, may be indicative that the activity is not being engaged in for profit. If losses are sustained because of unforeseen or fortuitous circumstances which are beyond the control of the taxpayer, such as drought, disease, fire, theft, weather damages, other involuntary conversions, or depressed market conditions, such losses would not be an indication that the activity is not engaged in for profit. A series of years in which net income was realized would of course be strong evidence that the activity is engaged in for profit.

(7) The amount of occasional profits, if any, which are earned. The amount of profits in relation to the amount of losses incurred, and in relation to the amount of the taxpayer's investment and the value of the assets used in the activity, may provide useful criteria in determining the taxpayer's intent. An occasional small profit from an activity generating large losses, or from an activity in which the taxpayer has made a large investment, would not generally be determinative that the activity is engaged in for profit. However, substantial profit, though only occasional, would generally be indicative that an activity is engaged in for profit, where the investment or losses are comparatively small. Moreover, an opportunity to earn a substantial ultimate profit in a highly speculative venture is ordinarily sufficient to indicate that the activity is engaged in for profit even though losses or only occasional small profits are actually generated.

(8) The financial status of the taxpayer. The fact that the taxpayer does not have substantial income or capital from sources other than the activity may indicate that an activity is engaged in for profit. Substantial income from sources other than the activity (particularly if the losses from the activity generate substantial tax benefits) may indicate that the activity is not engaged in for profit especially if there are personal or recreational elements involved.

(9) Elements of personal pleasure or recreation. The presence of personal motives in carrying on of an activity may indicate that the activity is not engaged in for profit, especially where there are recreational or personal elements involved. On the other hand, a profit motivation may be indicated where an activity lacks any appeal other than profit. It is not, however, necessary that an activity be engaged in with the exclusive intention of deriving a profit or with the intention of maximizing profits. For example, the availability of other investments which would yield a higher return, or which would be more likely to be profitable, is not evidence that an activity is not engaged in for profit. An activity will not be treated as not engaged in for profit merely because the taxpayer has purposes or motivations other than solely to make a profit. Also, the fact that the taxpayer derives personal pleasure from engaging in the activity is not sufficient to cause the activity to be classified as not engaged in for profit if the activity is in fact engaged in for profit as evidenced by other factors whether or not listed in this paragraph.

Note that the IRS will disallow:
-personal residence operation costs
-salaries paid to children for 'chore type' work
-excessive car and truck expenses.
-personal furniture, home entertainment equipment, toys, etc.

Thursday, June 7, 2007

Health Care - Rudy Giuliani's Plan

Well, with an election year coming up we will, without a doubt be seeing some new ideas to improve government and the economy. Rudy Giuliani proposed his solution to health care reform. It basically came down to the individual handling the small day-to-day stuff and the health care plan handling the big/non-routine items.

Rudy's quote: “Health insurance should become like homeowners insurance or like car insurance: You don’t cover everything in your homeowners policy. If you have a slight accident in your house, if you need to refill your oil in your car, you don’t cover that with insurance. But that is covered in many of the insurance policies because they’re government dominated and they’re employer dominated.”

Like any idea, it has its merits and its pitfalls. A problem with this idea is that different people will have different definitions of the routine items. A $300 bill to individual A might be nothing; but a $300 bill to individual B could set them back heavily.

I guess from my point of view, I'm always willing to 'raise my deductible' to save some bucks; but there is a lot to be defined in Rudy's proposal. It is an intriguing idea, though. Considering that health care costs are spiraling out of control and us employees may find ourselves paying more of the monthly bill for the service if the costs continue to skyrocket.

Wednesday, June 6, 2007

Most Overpaid CEO's in America

Just don't know what to say to this...

The most overpaid CEOs in America


Dell (DELL, news, msgs),

Kevin Rollins,

Michael Dell*



Eli Lilly (LLY, news, msgs)

Sidney Taurel



Ford Motor (F, news, msgs)

William Ford Jr., Alan Mulally**



Time Warner (TWX, news, msgs)

Richard Parsons



Wal-Mart Stores (WMT, news, msgs)

H. Lee Scott



*2006 = Michael Dell's pay; 2005 = Kevin Rollins' pay.

**2006 = Alan Mulally's pay; 2005 = William Ford's pay.

Pay = base salary, bonus, other pay, gains from exercising options, value of incentive stock that vested and increases in the value of pension plan.

Source: The Corporate Library

blog it

Monday, June 4, 2007

MapQuest Still Competing With Google

MapQuest tries new direction - The Denver Business Journal:

This article states that MapQuest still attracts 49 million unique visitors compared to Google Maps 30 million.

In 2004, MapQuest, uLocate, Research in Motion and Nextel launched MapQuest Find Me, a service that operates on GPS-enabled mobile phones.

On May 29, the company announced the beta launch of a new product, MapQuest Advantage, a suite of mapping tools that it developed with San Jose, Calif.-based Adobe Systems Inc.

The hope is to attract more developers to use its software.

Just wanted to mention it...can’t help rooting for the underdog.

Friday, June 1, 2007

What Not To Bring To An IRS Audit

I came across this little article in a sample issue of Bottom Line magazine titled, 'What You Should NEVER Bring to an IRS Audit'. The article states that the most common audit mistake is to bring (and provide) to the auditor past years tax returns. Doing so, the article says, expands audit risk because you are giving the auditor more to look at and thus allowing him to see patterns in income and expenses that might exist. People often supply past returns because the audit notice says to.

Apparently there is an IRS rule that states that you are required to provide only the information which pertains to the tax year being audited unless there is an issue with carryover items or the like.

I looked at a couple publications briefly on the IRS webpage (Pub #1 and #556) and I didn't come across anything to support this. I'll have to look into it further because I would like to know for certain if this is the case (not that I'm planning on getting audited, but it is always helpful to know what the playing field is like just in case). If anyone has an immediate answer, please comment.