The end of tax season is finally upon us.  As you rush to prepare and file your individual tax return by midnight on April 15th, keep in mind these five suggestions for streamlining the process and saving money:

1. File electronically.  Consider filing electronically instead of using paper tax forms. If you file electronically and choose direct deposit, you can receive your refund in as few as 10 days.
2. IRA contribution. It isn’t too late to make a contribution to your IRA and take a deduction for 2008.  Make sure your contribution is made before April 16th and you tell the investment company to consider it a 2008 contribution.
3. Refinancing expenses.  With low mortgage interest rates, the past year saw a flurry of refinancing transactions, as homeowners sought to lock in the lower rates.  If you refinanced a mortgage in 2008, you can deduct the points paid, but you must deduct them over the life of the loan.  If your new loan is a 30-year mortgage, that means you can deduct 1/30th of the refinancing points this year.  It may not equate to much, but don’t throw it away.
4. Check your personal information carefully.  This seems simple, but as the old saying goes, the devil is in the details.  The IRS receives untold numbers of tax returns with simple errors or omissions each year.  So, check your return one last time to make sure your names, social security numbers, addresses and bank information are correct.  Also, make sure to sign the return if you file by mail.
5. File an extension.  If it just isn’t humanly possible to finish your return and deliver it by midnight tomorrow, file an extension.  By filing an extension, you will have six more months (until October 15th) to file your return.  The key, though, is that the extension is for filing not paying.  When filing an extension, you must estimate your total tax liability for 2008 and submit payment for that liability along with your extension request by midnight on April 15th. 

“Thank you for calling (insert big corporation name). My name is (insert random, faceless name) and I’ll be your customer obstruction representative.  How may I inhibit your progress today?”

This is the essence of the message people receive when calling most big business’ customer “service” phone numbers.  Many large businesses have forgotten the fundamentals of good customer service and how vital each interaction with the purchasing public is.  Otherwise, those businesses would have offices full of yes men and women interacting with their customers instead of cubicle farms filled with apathetic employees who are only empowered to say no.

But, therein lies your advantage as a small business.  You are in a position to make real-time decisions to satisfy your customers in each interaction.  You are also in a position to empower your employees to actually satisfy customers.  You and your people have the flexibility to be creative and collaborate with customers on solutions, instead of worrying about filling a form or obtaining permission from a corporate bureaucracy.

The sad truth is that people have such low expectations when approaching a business for customer service that it doesn’t take much to create a good lasting impression.  Customers these days expect to be forced to fight for their interests when contacting a “customer service” department.  It doesn’t take a whole lot to stand out from the crowd, to wow a customer and to create a long-term relationship.  By actually listening to a request, apologizing for any inconvenience and immediately moving to correct the situation, your business will vastly exceed any expectations that customer had prior to contacting you, and he or she will likely be buzzing about the experience.         

Customer service is the best form of marketing you could ever execute. With every interaction, you have the opportunity to directly influence a person’s perception of your business.  Taking even the smallest of extra steps will create good will, happy customers and differentiate you from the big guys and your other competitors.

Good people strengthen themselves ceaselessly.
-Confucius.

External success, whether personally or for your business begins with success on the inside.  The easiest and most effective way to improve internally is through the practice of continuous, measured self-improvement.  The Japanese call this constant and never-ending process of improvement Kaizen.

Kaizen vs “Innovation”
Most people are looking for the next get-rich-quick scheme.  Consequently, those people and organizations do not invest the time and effort required to create truly sustainable success.  Read any business magazine or go to a local entrepreneurial event and you will likely hear the word innovation bandied about repeatedly.  Generally, innovation in these contexts is meant to mean revolutionizing existing systems or introducing novel new products with the goal of creating a great leap forward.  Entrepreneurs speak of innovation as creating a one-shot, dramatic change.  Kaizen, on the other hand, is a more gradualist approach that is often subtle and unexciting.  Kaizen processes nurture small and ongoing changes that bring about incremental progress.

Kaizen in a slow economy
The Kaizen philosophy in business is better suited to a slow-growth economy, whereas innovation is better suited to a fast-growth economy.  While Kaizen advances incremental progress relying on many small efforts, innovation leaps at the hope of landing at a much higher plateau, fueled by heavy investment costs.  In a slow-growth economy characterized by high costs and stagnant markets, the capital needed to make that giant leap is not readily available.

Most business owners and managers have little regard for incremental improvement in a business.  Instead, they take an offensive posture, armed with professional expertise geared toward making big changes in the name of innovation.  The innovation they speak of is intended to bring about immediate and considerable gains and instant recognition.  Developing break-through products and services based on new technology is much more sexy than slow, patient efforts for improvement.  Measured improvement is eventually pushed to the side as an ineffective use of time and assets when compared to the ROI of a big leap forward.  This type of thinking fails to properly account for the risks involved in making a big leap and the effect of stagnation on existing processes.

Mental Toughness
I’m not suggesting that business owners sit back and not take chances.  The essence of the entrepreneurial spirit is based upon mental toughness and the courage to accept risk.  Without a healthy willingness to take on risk, none of us would have pursued this entrepreneurial path.  The part I suggest we concentrate on is the mental toughness that comes from the willingness to slug it out day after day in the trenches, making incremental progress.  That type of progress is not sexy and many times it isn’t fun, but it is crucial for laying the foundation for success and for taking that risk when an opportunity presents itself for greater rates of growth.

Constant and never-ending improvement is the hallmark of every man and woman living a fulfilling and self-aware existence.  Long-term success depends on the willingness to put off short-term pleasure for the sake of long-term fulfillment. I think the same can be said for organizations.  Those that are willing to invest in their people and are willing to sacrifice immediate returns will be the organizations poised to take advantage of their preparedness and take off when the opportunity to do so presents itself.

Remember - Luck favors the prepared mind.

The choice is yours.

The textbook definition of a corporation is “a body of persons granted a charter legally recognizing them as a separate entity having its own rights, privileges, and liabilities separate from those of its members.” Essentially, the corporation is a legally recognized entity separate from its members formed with the permission of the state. As a legally recognized entity, it enjoys most of the rights and responsibilities of individuals - ownership of property, to sue or be sued, etc.

Formation: A corporation is formed when a person, the incorporator, files a document with the state known as the Articles of Incorporation. This document contains the basic information about the corporation including the name and principle place of business, the corporation’s period of duration, the corporation’s stock, the registered agent, the directors and the incorporators of the company. Most states maintain lengthy and detailed laws relating to the formation of corporations and may require the submission of materials in addition to the Articles of Incorporation.

Management: Although a corporation is a separate entity with rights of its own, it can’t think or act for itself but does so through its Board of Directors. Directors are appointed by the shareholders and act like trustees, overseeing the business affairs of the corporation. The directors generally oversee the strategic management of the corporation. To manage the day to day operations, the directors appoint and hire officers.

Taxation: Since a corporation is an entity separate from its owners, the income of the corporation is taxed to the corporation itself at the applicable corporate tax rate. In addition to the corporate tax, employees pay income tax on salaries and shareholders pay tax on dividends. Thus, the revenue of the corporation is subject to taxation at two different levels before landing in the employee or shareholder’s bank account.

Liability: Generally no shareholder can be held personally liable for the debts, obligations or acts of the corporation beyond the amount of share capital he or she has contributed.

Transferability: Because the corporation is a separate legal entity, its existence does not depend on the continued membership of any of its members. This trait makes transferring corporate ownerships fairly easy, subject to the rules the corporation subscribes for its shareholders in its organizing documents.

Dissolution: Dissolving a corporation can be a lengthy and complicated process. At a minimum, the following steps are required:
• Formal corporate action
• Filing with the appropriate state offices
• Statutory notice to creditors
• Processing of all creditor claims
• Sale and distribution of all remaining assets

Pros: Limited liability; possible tax advantages; clear management authority; ownership is transferable; continuous existence; easier to raise capital.

Cons: Highly regulated; Expensive formation and compliance; extensive record keeping necessary; double taxation of dividends; personal guarantees undermine limited liability advantage.

Bottom Line: A corporation is usually the most expensive and administratively complex entity to form, run and dissolve. But, the corporate form offers the most definite division between ownership and the entity and therefore may provide the most liability protection for business owners. Additionally, most investors prefer the corporate form as a barrier to personal liability and for its specificity of ownership and control via stock.

What is cancellation of debt income?

The Internal Revenue Code defines gross income as all income from whatever source derived.  Discharge of indebtedness income is included in gross income.  Discharge of indebtedness income arises when a debt is canceled or forgiven, or if a creditor accepts less than the full amount of the unpaid balance on a debt as payment in full of the obligation.  The amount of gross income is the difference between the amount of the debt being canceled and the amount paid to settle the debt.

What is a debt?

One must have a true debt to have income from the cancellation of indebtedness. A true debt exists when there is an unconditional and legally enforceable obligation to repay a loan.

Not all transfers of money are true debt and therefore do not result in gross income if the debt is forgiven. For instance, if a parent loans money to a child with a schedule of payments and interest but thereafter refuses payment, it is possible that the cancellation of any duty to repay may qualify as a gift under applicable tax laws.  In a business context, the question of whether a transfer of money or property is debt or equity will dictate whether failure to fully repay the transferor will create cancellation of indebtedness income.

How to calculate cancellation of debt income.

The amount of cancellation of indebtedness income is generally the difference between the amount of debt being canceled minus the amount paid to settle the debt.

Relief from cancellation of debt income.

The Mortgage Forgiveness of Debt Relief Act of 2007 may allow homeowners to exclude forgiven debt income if it is due to a discharge of debt secured by a primary residence. Income derived from restructuring a mortgage and debt forgiven in the restructuring is included. This law applies the debt forgiven between 2007 and 2012 on amounts up to $2 million. To qualify, the money derived from the debt must have been used to buy, build or substantially improve a principal residence. Funds used to refinance a home may also qualify.

The American Recovery and Reinvestment Act of 2009 provides additional relief for taxpayers facing cancellation of debt income. The new law allows taxpayers to elect to defer cancellation of indebtedness income earned between January 1, 2009 and December 31, 2010.  Instead of being recognized in the year of the cancellation of debt, this law permits a taxpayer to spread the income, and the tax burden from that income, over a five year period.

The exclusions also include provisions relating to debts discharged during bankruptcy and debts of taxpayers who are insolvent prior to the cancellation of debt.

If a taxpayer qualifies for an exclusion of debt forgiven, he or she must file an IRS Form 982 in addition to the 1099-C issued by the creditor upon a forgiveness of debt for less than full value.

The bottom line.

Be aware of and prepare for cancellation of indebtedness income when negotiating forgiveness of debt with creditors. Knowing the amount of income that will be reported to the IRS will help you plan ahead and prevent an unexpected tax bite next year.

As a follow-up to my recent articles on how fear might be a benefit to us as entrepreneurs, below is an insightful presentation by Pamela Slim of Escape from Cubicle Nation.  Pam does a great job of pointing out that much of what we fear is simply a reptilian response to the stimuli we are faced with each day and that there is an upside to fear.

We are all aware of the economic turbulence that surrounds us, but the news you see on the television doesn’t equate to a future of living in a van down by the river or eating garbage out of a dumpster.  Those thoughts are derived from your lizard brain and the external stimuli with which you are exposed on a daily basis.  If we detect danger in the environment - a snake, a violent person, a vehicle bearing down on us - we act without thought (and hopefully take the right action).

Unfortunately, the same split-second reactions are frequently triggered in everyday life and are not nearly as useful as they are when handling physical danger.  The challenge is to bring one’s cognitive powers into play to manage reactivity.  The lizard is just doing his job.  He’s there to warn you of potential danger lurking around the corners of life.  The key is to not let the reptile take over.  Instead, learn from what he has to offer and use it to your advantage.

Instead of freaking out, shift your focus to understanding and questioning the reptilian triggers.  What are you reacting to when you feel that fear, and what can you do to proactively address that situation?

Here’s an idea: Turn off the doom and gloom media, figure out what the lizard is trying to warn you about and concentrate on the actions you can take now to improve your life, your business and your career.

In his annual report to Berkshire Hathaway shareholders, Warren Buffett didn’t raise any eyebrows with his comments on the dire state of the economy and the markets.

As the year progressed, a series of life-threatening problems within many of the world’s great financial institutions was unveiled. This led to a dysfunctional credit market that in important respects soon turned non-functional. The watchword throughout the country became the creed I saw on restaurant walls when I was young: “In God we trust; all others pay cash.”

By the fourth quarter, the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country. A freefall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. – and much of the world – became trapped in a vicious negative feedback cycle. Fear led to business contraction, and that in turn led to even greater fear.

Despite the negative outlook for the remainder of 2009, Buffett remained positive.

Amid this bad news, however, never forget that our country has faced far worse travails in the past. In the 20th Century alone, we dealt with two great wars (one of which we initially appeared to be losing); a dozen or so panics and recessions; virulent inflation that led to a 21 1⁄2% prime rate in 1980; and the Great Depression of the 1930s, when unemployment ranged between 15% and 25% for many years. America has had no shortage of challenges. Without fail, however, we’ve overcome them.

In fact, Buffett went on to suggest that the current state of the economy has opened doors of opportunity for those with the vision and wherewithal to capitalize upon them.  With regard to GEICO, one of Berkshire’s companies, Buffett alluded to the abundance of juicy targets and that he and his Berkshire partner feel “like two hungry mosquitoes in a nudist camp.”

Sure, there are once-in-a-generation-type economic challenges out there, but that certainly isn’t an excuse to throw in the towel.  The forces at work tearing down the old ways of doing business have created new problems requiring unconventional and innovative solutions.  If you are an entrepreneur or an aspiring entrepreneur, many of the business models of the past will not likely work now.  What is required today is a fresh look at society’s new problems and development of solutions to meet the current needs.  If you can alleviate an economic pain point for people today, you will have more customers than you know what to do with.

There is opportunity all around us, but you won’t find it using yesterday’s business perspectives.  Is it time for you to change your lenses?

I’m talking to the mirror when I say that, because at this particular time in my life, I’m stressed out of my mind quite often.  As an entrepreneur, an economy in ruins is a frightening proposition.  I don’t sleep well; I usually have to talk myself down a few times a day; and everywhere I look, I see little triggers that remind me that this economy is scary as all hell.

But in spite of that, I keep telling myself that fear is good.  Because without fear, most of us don’t change course.  We get comfortable, and we do what we’ve always done.  While “what we’ve always done” may be ok, it usually doesn’t get us where we want to be.

I know from personal experience.

Upon leaving the military in 2007 after 17 years, I did what simple inertia told me to do. I went out and picked up a job at a downtown Seattle law firm.  After all, successful attorneys work in suits and high-rise buildings downtown, right?

Man did that job suck.  I don’t want to offend anyone who chooses that career path, but there is no way that I could find counting every 6 minutes of each day fighting with people worthwhile.

My job at the firm entailed taking on whatever crappy little research and writing projects the partners didn’t want to bother themselves with and turn them around in time to meet the noon deadline that the supervising attorney knew about for three weeks.  Unfortunately, I was good at it and became a go-to guy when the chips were down.  “Hey, there’s this minor issue I need your help with. Can you put together a little 30-page brief and drive down to Olympia to litigate it this morning? That would be great.”

So, I sucked up my pride, shoved out of my consciousness all of the life experience I had gained to that point and put my nose to the grindstone as a grunt.  Lots of coffee and long seven-day work-weeks were the routine.  My only salvation was the bicycle commute to and from work, during which I could blow out some of the stress.

The job was terrible.  Dealing with a number of pompous and antagonistic attorneys was terrible.  To top it all off, the pay wasn’t that great for what I had to put up with.  But, it was a job and it was what I knew, so I stayed with it.

After a few months, I reached an anxiety boiling point and started having panic attacks.  They were the most horrible experiences ever.  I couldn’t concentrate; I couldn’t sit still; I felt like someone was squeezing the air out of my lungs.  At one point, I had to pull off to the side of the freeway while driving home from work, because I felt like I was going to black out.  I started taking time off and staying home but still felt depressed and lifeless every day.

The lights finally came on for me during a week-long bicycle trip through Colorado.  Each stage of the trip was a grueling test of endurance and lung capacity, but I felt refreshed and energized at the end of each day.  I didn’t understand how I could feel so good, given the circumstances, until the third day of riding when it finally dawned on me - I was actually doing something I loved.  It didn’t matter how badly my legs, lungs or butt ached, because I was right where I was supposed to be doing what I was supposed to do.

After returning to work, I hemmed and hawed over leaving, because I was afraid of jumping ship with no life raft.  But, I couldn’t shake the memory of how I felt during the bicycle trip.  Every time some clown dropped a problem on my desk and my blood pressure went through the roof, I thought of the wonderful zen-like feeling of being on the bike in the Rockies.  I tried to negotiate with my employer to grant me the latitude to try different practice areas that were less antithetical to my personality, but they wouldn’t buy it.  I was a certain type of tool in their tool belt and that was it.  It took me a while to come around, but I finally figured out that the only way out of that job without being dragged out 1) in a straight jacket, or 2) in handcuffs after killing someone was to quit.

I was scared of leaving and not having a steady paycheck for the first time in my life.  On the other hand, the panic attacks and overwhelming stress indicated that something bad was on its way if I didn’t make a drastic change.  Instead of letting the winds of fate dictate my future, I left the job and started my own company.

Today a lot of us are afraid.  The economy stinks, the media is full of terrible stories of economic destruction and everywhere I go I can see the fear in people’s eyes.

My advice: Don’t run from your fear.  It’s here to serve you, and if you can quiet your mind enough to look at the situation objectively, you may be able to see that.  Fear is the voice in the back of your head saying, “Things have to change, or you’re going to get hurt.”  Listen to that voice.  Make that change.

If you move wisely, you’ll look back years later, when you’re on your correct path, and you’ll thank fear for giving you a much-needed shove.

Dealing with commercial landlords and commercial real estate agents can be a challenge.  They are usually much more sophisticated and than potential tenants on lease terms, tenants, shopping centers and other real estate matters.

Here are a few things that you should know when dealing with commercial landlords.

1. They need you more than you need them. Tenants these days frequently have the upper hand in a renegotiation scenario.  With commercial vacancy rates rising each day, landlords are increasingly hesitant to risk an extended vacancy period by losing current tenants.  Landlords and commercial real estate agents go to great lengths to create “demand” for their space, typically by telling potential tenants that there are other people interested in the space or by simply being difficult to reach or return calls.  Don’t let them fool you – they need rent revenue at least as much as you need the space.
2. Everything is negotiable. Landlords will start with their own lease form, which is fine, and will often try a “take it or leave it” attitude to terms in the lease.  Don’t accept that – all of the terms are at least open for discussion and you should never enter into a lease with terms with which you are not comfortable.  If you want something changed, ask for it.
3. Landlords will often throw in a free rental period. It is possible to get 1, 2 or more months of tenancy for no rent if you negotiate for it upfront, especially for the time when you are first setting up your space.    Start by asking for a “rent abatement” for the amount of time it will take for you to set up the space and until you’re open for business.  If you are renegotiating a lease, many commercial landlords will abate your rent for a few months as an incentive to extend or re-affirm a lease.
4. Landlords will often contribute financially to the cost of modifying the space to fit your needs. This is called a “build out” allowance and can save you a significant amount of money up front.  If you have been in your lease for several years, this may be the time to ask your for assistance in renovating the space.  The landlord’s cost of renovation is likely much less than the cost of a prospective long-term vacancy.
5. Landlords are often willing to limit your liability under the lease in the event of default. It isn’t a foregone conclusion that you will be responsible for the entire term of the lease if you know to ask for a cap on potential liability.

In this economy, and as economic conditions remain tough, landlords are likely to be open to lease re-negotiations.  Most commercial landlords these days are willing to accept less cash flow in return for a tenant staying in business and staying in their space.  So, if you’re looking for a way to extend your business dollars, take a look at your lease.  There may be some significant savings available just by simply asking for them.