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Unhelpful vs. antagonistic actions against Money Island NJ

Untangling the bureaucratic mess that hampers Sandy recovery is undoubtedly a complicated task. A number of well-intentioned people continue to work on the issue bet we’ve not seen any results here at Money Island NJ. From a pragmatic perspective we can break down the problems we face at Money Island into two categories: those that are merely unhelpful and those that are antagonistic. The unhelpful actions simply mean that we need to look for alternate sources of financing and support. The antagonistic actions hurt morale, contribute to ongoing poverty and mental stress and discourage new investors from entering the community.

1) NJ Department of Banking and Insurance refusal to take action against enforcement action against homeowners insurance companies that denied claims of the basis of no wind endorsement and flood insurance companies that denied claims for damage caused by floating and water-borne debris smashing into homes.

2) FEMA’s decline of aid applications.

3) SBA’s decline of small business loan applications.

4) State of New Jersey redlining Cumberland County as ineligible for federally funded aid programs.

5) NJ SeaGrant’s decline of pump out station grant applications.

6) NJ Economic Development Authority decline of aid applications.

1) Downe Township’s refusal to issue building permits for repairs based on a pre-existing zoning defect unrelated to Sandy or recovery efforts.

2) NJ Department of Environmental Protection issuance of property liens in April 2013 for pre-existing problems unrelated to Sandy or the recovery effort. In addition, the liens are based on errant information. (It is unclear whether the error was unintentional or a deliberate action).

3) State of New Jersey issuing a stop work order and $2,000 building code fines for repair work performed without a permit.

4) Cumberland County Health Department’s eviction of residents who used a temporary garden hose water supply while a water well was repaired and refusal to allow another homeowner to reconnect to water and septic after storm repairs.

5) Downe Township’s issuance of foreclosure warnings against properties. (Tax funds were used for emergency repairs and have not yet been replaced).

6) NJ Department of Environmental Protection issuance of a menacing report on local water quality based on atypical data collection procedures and errant identification of contamination sources.

As a result, Money Island NJ remains in a state of crisis. None of the houses damaged by the storm are occupied today. The Money Island Marina suffers from a lack of worker housing. The only homeowner who was able to afford to replace his home has been denied a certificate of occupancy.

The message from Money Island residents to NJ government is clear: “if you aren’t going to help us then at least get out of the way to allow us to rebuild our lives to where we were before the storm”. My strategy is to continue to be the ‘squeaky wheel’ to publicize this issue until we see some progress.

reading notes from “How Google Works”

2014 by Eric Schmidt and Jonathan Rosenberg

I picked up this book in the first month after it was published and conditioned by other things Google, was expecting big things. After setting that high expectation the book fell short. I made a handful of notes that hit a chord:

new terms: tenurocrats and HiPPOs (highest paid person’s opinion)

p. 73 giving the customer what he wants is not as important as giving him what he does not yet know he wants.

p. 77 the value of insight

p. 177 OKR = Objectives and Key Results

p. 180 it must be safe to tell the truth

p. 212 optimism is essential for innovation

p. 223 70/20/10 rule for allocating resources

p. 246 impact of technology on business strategy

p. 247 Google+

p. 251 What could be true in 5 years?

p. 254 government’s choice

p. 257 the cost of information

p. 258 the future is bright

50-something and not saving for retirement? There are plenty of us

A Wells Fargo report printed in the LA Times says 41% of people in their 50s are not saving for retirement in any 401(k), IRA or similar vehicle. At age 54, I’m squarely in the middle of this demographic and served as an example of the results. Over the last two years I’ve had to empty every account to rebuild after super storm Sandy and still have over $150,000 in high interest rate debt to repay before I can begin rebuilding my retirement accounts. I made the mistake of thinking that insurance reimbursements, SBA loan FEMA, state funds or commercial loans through mortgage refinance would be available. I was wrong on all accounts. So now I fall into this category of non-savers.

Now I figure that one of five things will happen, listed here in order of most preferred to least preferred: 1) the commercial lending market will eventually ease and I can refinance and pay off my business debt in a normal manner and then return to a “traditional” cash flow that includes retirement savings, 2) I’ll be financially strapped paying off this debt for at least another five years and another decade to rebuild retirement funds, 3) I’ll be able to sell or otherwise cash in on my business for retirement income in about 15 years at age 70 (an unknown at this point), 4) I’ll not live to retirement age so I won’t need to worry about it, or 5) I’ll not get to actually retire and will need to keep working until I need to become dependent on someone else (my kids). Laying it out like this serves as eye-opening reality check for me.

Before this, I never imagined that I’d have debt at this age or not be saving anything. I guess that I always presumed that people with healthy six digit incomes who weren’t saving simply weren’t trying hard enough. Now I know that is not true. But mine is just one story. What about the other millions in this situation? I’d like to read other people’s stories and learn how you plan to handle it.

How I inadvertently contributed to incorrect tax treatment of HRAs

Imagine that you are a mechanic and someone walks into your shop and asks you to put wings on his Honda Civic. You might say, “That’s silly, Civic’s don’t fly” and dismiss the request. Then three more owners walk in with the same question. You think about it some more and say “Well, it might look cool even if it can’t fly; let’s try it”. Then after a few dozen such requests, you assemble a Decorative Civic Wing Mounting Kit that your shop sells to the public. Then one day you get a visit from the Federal Aviation Administration saying that they are investigating a complaint about a Civic stuck on an airport runway that could not take off because the wing mount failed.

Such is the case of my work with Health Reimbursement Arrangements (HRA). I’ve written dozens of articles and produced free resources that have been used and apparently sometimes misused by businesses for about two decades. Then in 2014 federal tax law changed as a result of the Affordable Care Act. Most HRAs are now obsolete and have little practical value in small business planning today. Now the tax problems are coming out of the woodwork as businesses plan to terminate their HRAs. The tax problems we are finding now are not the result of the 2014 changes but are due to mistakes and misinterpretations made well prior to 2014. They don’t have a 2014 tax planning issue but rather a prior year reporting error.

Over the past week I’ve heard from 4 widely different businesses with improperly designed HRAs. All four have prior year tax liabilities as a result of the HRA errors. It is not clear how they will resolve the problems and I am not the accountant for any of these firms. The latest one specifically pointed to  an article I wrote as the source of his misinformation. The passage quoted as the source of his misunderstanding was taken out of context and he apparently ignored the bold type and underscored cautionary portions also included in the same article that would have easily helped  him avoid the tax reporting error.

The specific tax issues that came up in this week’s communications required these clarifications:

1) HRAs can not be used to put away tax-free money for some future health care expenses. (HSAs can be used for this purpose).

2) HRAs can not accept employee contributions or be funded with salary reductions. (FSAs can be used for this purpose).

3) HRAs can not be used in a small LLC where the only employees are a husband and wife.

4) HRAs are usually not useful for small business owners or partners.

5) Beginning January 2014, HRAs can not be used for small business employees who are not covered by the employer’s primary health insurance.

I feel bad that some of my published tax advice was misinterpreted. I admit that part of the reason that I write specific articles it to capitalize on public demand for information on a specific issue. Yet public demand does not always translate into common sense. If a bunch of people ask the same specific question “How do I …” then I’ve been inclined to publish an advisory article on that same tax topic, regardless of whether it makes much sense in the larger scale or context. Going forward, I’m more likely to avoid answering some types of tax question like, for example, “How do I get receipts for my $1 donations to street corner charity collections?”. It’s not that there is anything wrong with answering the question but rather any answer would give undue credibility to some unstated presumption that it is advisable or required to get receipts for small donations. In order to avoid the problem of someone saying “You said I needed receipts to take deductions for $1 charitable donations”, it might be better to not give the advice at all in that context.

In any event, I am available to help with voluntary compliance measures for businesses that have improperly reported HRA transactions. It is always better to take these corrective measures voluntarily rather than wait for an audit. Improper HRA tax treatment is easily detected in any examination of small business records and the potential penalties can be especially severe because the taxes in question represent an under-reporting of wages taxes – something the IRS takes very seriously.

Post-Sandy Government Shame List

In the two years since Sandy, I have found myself on the front line of an unfortunate number of unjustifiable actions taken by government against my small business clients and neighbors in the bayshore region of South Jersey. This list compiles ten of the most terrible government actions taken in the two years since Sandy.

  1. New Jersey state government’s exclusion of Cumberland County and the bayshore region from the nine county recovery funding plan. It was unconscionable for the state government to use a redlining strategy to deny aid to the poorest part of the state.
  2. Issuance of local municipal tax lien foreclosure warnings against those who are struggling to rebuild their homes and businesses since Sandy.
  3. The local municipality charging the usury rate of 18% interest against those who have been unable to catch up on post-Sandy property tax bills.
  4. Cumberland County Health Department’s forcible eviction of lifelong residents who lost their permanent water supply and had to rely on a temporary garden hose supply while their water well was rebuilt.
  5. The state of NJ building inspector’s issuance of stop work orders and resulting fines for even the most basic post-Sandy repair projects.
  6. The local municipality’s insistence on correcting newly discovered zoning deficiencies as a pre-condition of issuing even the most basic storm recovery construction permits even when the previously unknown violations existed for decades before Sandy.
  7. The Small Business Administration’s denial of 98% of all Sandy recovery loan applications.
  8. The New Jersey Economic Development Authority’s denial of aid because IRS pre-Sandy tax transcripts are not in a format acceptable to the Authority (due to no fault of the applicant).
  9. New Jersey Sea Grant’s denial of a waste water pump out grant application because the property owner has not able to obtain insurance after Sandy.
  10. U. S. Treasury’s failure to issue any tax relief to Sandy victims. The only relief offered was an extension of deadlines for the filing tax returns due in 2013. Even the late filing relief was challenged in later IRS enforcement actions against my clients. There was no relief to the casualty loss limitations or the waiver of penalties for those who had to take an emergency withdrawal from their retirement account to repair or relocate.

I’ve already given two interviews and expect to write a few editorials to make the most of 2 year Sandy anniversary. While I don’t like the negative tone of this “shame list” (just as we all hate negative political advertisements), the fact remains that this type of blog post remains the most effective in reaching large number of readers and influencing public opinion. As always, I welcome comments and feedback.

Investment custodian vs. broker/dealer (revisited)

Years ago I wrote a short Q&A format newspaper column, reproduced here, on the topic of  an investment broker/dealer vs. custodian. The topic continues to receive attention today and I presume that the underlying consumer question focuses on safety of investment holdings. Recent inquiries caused me to wonder whether there is an easier and perhaps more useful way to approach the topic from a consumer perspective. This short list is what I came up with:

  1. The basic original distinction was that a custodian firm is responsible for safekeeping client assets. A broker/dealer firm provides trade execution services and insurance.  For most retail investment accounts today, the brokerage firm also serves as custodian so this distinction is lost.
  2. Investment custodians and investment broker/dealer firms are practically indistinguishable from a consumer’s perspective. Collectively, these firms receive and hold your investment dollars, handle transactions and issue periodic reports of your holdings. Combined account services extend insurance provided by  the Securities Investor Protection Corporation (SIPC)  on client assets.
  3.  The line between commissions vs. non-commissioned services is now so blurred now that we should not even bother to list any possible distinction.
  4. It is important to distinguish between an insured firm and an uninsured entity. Almost all of the consumer rip-off cases, like the Madoff case, happened because investor funds were not held by an investment custodian firm or a broker/dealer firm. If you write a check or authorize a wire transfer to “ABC Bank, custodian”, then your assets are insured against embezzlement. If you write your check to “Bernie Madoff Investment Advisers” then you are not insured.
  5. The single most important thing an investor can do to safeguard against embezzlement if investment funds is to receive a statement directly from the investment custodian firm or broker/dealer firm. Do not rely solely on statements received through an adviser, attorney or accountant no matter how much you trust that person.
  6. This discussion has nothing to do with investment risk or market risk. If you buy an investment that later drops in value and then you sell it, you lose money no matter what firm is holding the funds.

New CPA Office Makes a Value Offer for 2014 Tax Preparation

I am pleased to announce the launch my tax return preparation practice for the 2014 tax season. I am prepared with the most advanced software, qualified support staff and ready to handle electronic filing for all types of individual and small business tax returns anywhere in the U.S.

In order to reduce the risk that I’ll be spending valuable time during tax season marketing for new clients, I am making this value offer available now until the end of December:

The first 100 new clients, individuals or businesses, that make an advance reservation for tax return preparation services will be ensured priority scheduling, will be locked in to last year’s median industry rates (this year’s will be higher) and I will include a year-end tax planning session at no additional charge. An advance tax-planning session is the best way to save on taxes and make the filing process as easy as possible. I request a $100 deposit with the reservation for individuals, $200 for business tax returns.

Last year’s industry average tax preparation rates (these include non-CPA services as well) are published on my web site under the title “Managing the cost of accounting services”. I do not plan to accept more than 100 reservations, so this is a first come, first served offer.

If you need an experienced accountant at very reasonable rates, I suggest this is an excellent opportunity to build a professional relationship as one of the first clients of my new CPA practice. Please call or email me to make a reservation.

Tony Novak, MBA, MT
Certified Public Accountant
Mail: P.O. Box 333 Newport NJ 08345
Telephone in NJ: (856) 282-1016 or in PA: (610) 572-1724
Web:  and


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