Texas Economy, Manufacturing Industry, Mexico's Economy and Venture Capital
2/22/2007
DALLAS, Feb 22, 2007 --Texas' economy, the state's manufacturing industry, Mexico's economic outlook and ...

DALLAS, Feb 22, 2007 --Texas' economy, the state's manufacturing industry, Mexico's economic outlook and venture capital spending in Texas are examined in the latest issue of the Federal Reserve Bank of Dallas' Southwest Economy.

Expect 2007 to be a good -- but not a banner -- year for the Lone Star State, according to economist Fiona Sigalla in "The Texas Economy: Almost a Boom."

A recent rise in exports and strong activity in energy and construction will help drive the Texas economy but shortages of skilled workers in the state and a weaker national economy could weigh it down, she says.

"Somewhat slower growth in the U.S. economy in 2007 will soften demand for Texas products and services," Sigalla writes. "Still, strong global ties should boost Texas sales."

Sigalla points out that changes in world trade will have a greater impact on Texas than the rest of the country.

The Dallas Fed's Texas Manufacturing Outlook Survey is proving itself an effective tool for signaling shifts in the economy.

Preliminary statistical analysis over the past 30 months suggest the survey may have some "predictive power" for understanding the U.S. and Texas economies, according to "The Texas Manufacturing Outlook Survey: A Tool for Understanding the Economy."

"The employment diffusion index appears to help explain changes in U.S. and Texas employment," the authors write. "The general business activity index seems useful in understanding movements in U.S. and Texas industrial production. The future business activity index also appears to have some predictive power for understanding movements in U.S. industrial production over the next two months."

Texas manufacturing is outperforming the nation in most sectors, including chemicals, machinery, computers and electronics, write economist Fiona Sigalla and economic writer Danielle DiMartino in "Made in Texas: The Natural Selection of Manufacturing."

"Between 1990 and 2005, a time frame long enough to encompass an entire business cycle, the state's factory output grew an average of 5.8 percent a year, eclipsing all other major manufacturing states," they write.

The state is positioned to be a manufacturing leader due to its central location, good distribution facilities, flexible labor force, low living costs, and low land and construction costs, according to the authors. The presence of Mexico also drives Texas' manufacturing growth, as maquiladoras across the border allow manufacturers to effectively globalize their supply chains.

The Mexican economy should grow at a decent pace over the next few quarters, according to "The Mexican Economy at a Crossroads," in which vice president William C. Gruben and senior economist and policy advisor Erwan Quintin, both Latin America specialists, discuss the nation's economic progress.

"The main risk to this outlook remains the possibility of a marked slowdown in U.S. manufacturing," Quintin says.

Gruben points out that Mexican President Felipe Calderon is inheriting a stable economic system but reforms are needed.

"He faces the challenges of an ineffective educational system, a legal structure in need of repair and excessive government interference in the private sector," he writes.

"The good news is there are signs of progress, especially the apparent formation of bipartisan coalitions in Mexico."

In "Texas Venture Capital: Revived Spending Ends Prolonged Lull," assistant economist Laila Assanie and economic analyst Raghav Virmani find that venture capital spending in Texas may break out of its slump.

Austin leads all Texas metropolitan areas in venture capital spending with 43 percent of Texas' share since 2000, the authors write. Austin's share is greater than venture capital spending in Dallas-Fort Worth, Houston and San Antonio combined.

SOURCE Federal Reserve Bank of Dallas

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Task force would look at Hispanic education
2/17/2007
Feb. 17--The Hispanic population is booming in Washington and across the country, but Hispanic students continue to lag in test scores and college attendance.

Feb. 17--The Hispanic population is booming in Washington and across the country, but Hispanic students continue to lag in test scores and college attendance.

"Things have been the same for Hispanics for a long time," said Gabriel Portugal of Pasco, vice chairman of the state Commission on Hispanic Affairs.

"They continue to score the lowest of all the groups," compared to white, black and Asian students, he said.

Hispanic students trail behind their peers in meeting state standards for reading, writing and math, according to a recent state Senate report.

A 2003 study reported 45 percent of Hispanic high school graduates went on to attend college.

A recent proposal by state Sen. Ken Jacobsen, D-Seattle, would shed light on such disparities and prescribe steps for closing the gap. Jacobsen proposed forming a legislative task force, a joint committee of House and Senate members working with the state Commission on Hispanic Affairs, to work on the problem.

The task force would report its findings to the 2009 Legislature.

State Sen. Jerome Delvin, R-Richland, said Washington's future is linked to the success of its Hispanic population. Delvin is the ranking minority member of the Senate Committee on Higher Education, which held hearings on Jacobsen's proposal last week.

"They're a growing population within this state," Delvin said. It's important for the state to improve its college rates, "especially looking at the type of work force we need: educated and in technology," he said.

Local educators and advocates for the Hispanic population have welcomed the call for a task force on Hispanic education.

"The fact that there is concern in Olympia shows good awareness on their part," said Evangelina Galvan Holt, vice president for diversity and grants administration at Community Basin College in Pasco. But she hoped the task force would seek public input while carrying out its mission.

She said the college has insights that would benefit other colleges in the state. CBC recently doubled its Hispanic graduation rate and increased its Hispanic population from 9 percent in 2001 to 29 percent now.

Having a Hispanic student population greater than 25 percent of its overall student body earned CBC federal designation as a "Hispanic Serving Institution." As such, the college is eligible for funding and programs that benefit the entire student body and faculty, Holt said.

For example, a Native American student recently was selected for a leadership program she was eligible for because she attends a "Hispanic Serving Institution."

Despite CBC's successes, the college still faces obstacles in serving Hispanics. One large challenge is the number of undocumented students coming out of high school, Holt said.

And further work remains to improve the number of CBC's Hispanic students going on to four-year institutions, said Frank Murray, college spokesman.

In 2006, 11 percent of the students receiving transferable associate's degrees were Hispanic. That figure is up from 3 percent seven years ago, but it's still less than half the total percentage of Hispanic students attending CBC.

Even students who get their associate's degree don't always go on to a four-year school, Murray said. Affordability is a hurdle for some, as is knowledge of how to access financial aid, he said.

Portugal said impediments to college success go back as far as primary and secondary education. The educational system doesn't target some of the skills inherent in the Hispanic population, he said.

Hispanic cultures are more people-oriented in their approach to solving problems, Portugal said. For example, a merchant may ask a Spanish-speaking shopper about his family, where he's from, where he went to school and so forth. The English-speaking shopper, on the other hand, might only be interested in the product and its cost.

"The English language is more task-oriented," Portugal said. "It's more about, 'How long do we have to do it?' and 'Let's get it done because something else is coming up.' "

In the current educational system, Hispanic students are at a disadvantage as they have to learn a new set of skills and thought processes from the ones they grow up with, he said.

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If you are among the millions of homeowners and renters who operate a profitable part-time or full-time business from your home, don't forget to claim your home-business tax deductions to reduce your income taxes. It doesn't matter if you are self-employed or you are an employee expected to work from home, such as an outside salesperson or a telemarketer.

Purchase Bob Bruss reports online.

However, if your employer provides suitable workspace, but you prefer working at home, then you don't qualify for Uncle Sam's generous work-at-home tax deductions. For example, if you are a computer programmer who prefers to work from home so you can supervise your pre-school child, you don't qualify for home-business deductions if your employer provides suitable office workspace.

SELF-EMPLOYEDS MUST PASS THE PRIMARY BUSINESS LOCATION TEST. If you are self-employed, such as an independent contractor real estate sales broker, to qualify for the Internal Revenue Code 280A home-business tax deductions, your residence must be used either (1) to meet with clients, customers or patients or (2) as your primary business location for administrative activity if you have no other fixed business location.

In 1999, Congress changed the tax law to allow self-employeds working from home to deduct business expenses if their residence is their "primary business location." Examples include a self-employed bookkeeper who travels to offices of her clients, a handyman who works at various job sites, and a computer repairman who works at many business offices during the week.

This tax law change was the result of the 1993 U.S. Supreme Court decision denying anesthesiologist Dr. Nader Soliman (113 Sup.Ct. 701) any home-business tax deductions although he worked many hours at his condominium reading professional medical journals and handling administrative details. Because he spent most of his work time at different hospitals, the court denied his home-business deductions. Today, however, he is entitled to deduct his home office expenses because his condo is his primary business location.

WORK-AT-HOME EMPLOYEES HAVE A SPECIAL TEST. If you are a salaried employee working at home, the IRS imposes a special rule called "the convenience of the employer test." You probably meet this test if your employer doesn't provide suitable workspace, or expects you to work from home. Examples include outside salespeople, computer entry clerks and telephone order takers.

PART-TIME BUSINESSES CAN QUALIFY. If you operate a part-time business from your residence and you can meet the "primary business location" or "convenience of the employer" tests above, then part of your home operating costs are tax-deductible.

To illustrate, suppose you operate a profitable part-time home business selling books on the Internet about your passion, horse training. Or perhaps you sell Avon, Amway or Mary Kay products from your home where you have an office and store inventory and supplies. Then you can qualify for the home-business tax deduction.

But your home use must be a business, not a hobby or investment. For example, in the famous tax case of Joseph Moller (553 Fed.2d 1071), he earned 98 percent of his income from his investment business. He was a passive stock and bond investor operating from his living room. But the U.S. Court of Appeals denied Moller's home-business deduction for investing which, the court said, was not a business.

However, the opposite result occurred in the U.S. Tax Court decision involving Dr. Edwin Curphey (73 T.C. 61). Dr. Curphey was a full-time dermatologist at a hospital. But he managed his rental properties on a part-time basis from his home office. The Tax Court ruled he was entitled to applicable home-business deductions for his part-time property management business.

THE "EXCLUSIVE BUSINESS AREA" RULE. If your full-time or part-time home business meets the rules explained above, the next test requires an "exclusive business area," which is not also used for personal or family purposes. But the exclusive business area need not be a separate room.

Part of a room can qualify, but it cannot be shared use. To illustrate, if you have your desk, filing cabinet and business supplies in one part of the family room, that area can qualify. However, using your kitchen table to operate your part-time bookkeeping business, or occasionally entertaining business clients in the living room clearly doesn't qualify.

SQUARE FOOTAGE IS THE BASIS FOR HOME-BUSINESS DEDUCTIONS. Your home-business tax deductions are determined by the percentage of your home's square footage that is used for the exclusive business area.

For example, suppose you own or rent a 1,500-square-foot house or condo. One-third, or 500 square feet, is the "business area" where you keep your business supplies and have your office.

The result is 33 percent of applicable household expenses qualify as business tax deductions. If you are a renter, one-third of your rent is deductible on your business tax return. If you are a homeowner, one-third of applicable home expenses such as utilities, repairs, insurance, mortgage interest and property taxes will be deductible on your business tax return, in this example.

However, 100 percent of some expenses are fully deductible, such as your business telephone line (if you also have a personal telephone line), business computer broadband fees, and painting or improvement costs for the business area.

REMEMBER TO DEDUCT 100 PERCENT OF BUSINESS EQUIPMENT. If you purchased business equipment and placed it in service in 2006, such as a new business computer and software, 100 percent of that equipment cost is deductible up to a maximum $108,000 deduction, with a maximum $25,000 deduction for an SUV vehicle used in your business.

Higher equipment expense limits apply in an "enterprise zone" such as $208,000 in the Gulf Opportunity Zone. However, no deduction is available for personal assets converted to business use, such as a home computer bought in 2004 but converted to business use in 2006.

DEPRECIATE YOUR HOME-BUSINESS AREA. If you own your house or condo, the exclusive business area is depreciable. Using the example above, if your home-business area occupies 33 percent of your home's square footage, then you can depreciate one-third of your residence's cost basis (excluding nondepreciable land value) on a 39-year, commercial property, straight-line basis.

IRS Regulation 2002-142 says business use of your home won't affect using the Internal Revenue Code 121 principal-residence-sale exclusion up to $250,000 ($500,000 for a married couple filing jointly). However, the total "business area" depreciation deducted must be "recaptured" and taxed when the home is sold using the special 25 percent federal recapture tax rate.

HOME-BUSINESS USERS GET SPECIAL AUTO EXPENSE TAX BREAK. If you qualify for the home-business-use tax deduction, and you start your work day from your home office, when you use your automobile or truck to visit customers or work locations, your business mileage becomes tax deductible the minute you drive away from home.

For 2006, the business deduction is 44.5 cents per mile. But you must keep a daily log of business miles.

HOME-BUSINESS DEDUCTIONS CANNOT CREATE A TAX LOSS. However, home-business-expense deductions cannot create a tax loss.

That means your home-business deductions, when subtracted from your home-business profit, cannot create a tax loss against your other ordinary taxable income. But unused home-business losses can be carried forward to future tax years.

To illustrate, if your business operating from your home produced a $2,500 profit in 2006, but your tax deductions for your home-business area are $3,200, only $2,500 can be deducted and the remaining $700 is carried over to a future tax year.

CONCLUSION: Whether you operate a full-time or part-time business from your residence, and whether you are a homeowner or a renter, you can deduct applicable expenses to reduce your income taxes. Both self-employeds and employees can qualify. For full details, please consult your tax adviser.

SPECIAL REPORT AVAILABLE: Reprints of the entire "2007 Realty Tax Tips: Eight Chapters of Tax Savings for Homeowners and Realty Investors" are now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010, or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com.