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Tax Tip of the Week | No. 420 | Where Ohio Ranks for Taxes August 16, 2017

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Tax Tip of the Week | Aug 16, 2017 | No. 420 | Where Ohio Ranks for Taxes

The following is a summary of a report recently issued by the Buckeye Institute:

About a dime out of every dollar Ohioans earn, on average, is taken by local and state taxes.

How does that compare to other states? 

The Buckeye Institute in Columbus and the Tax Foundation in Washington, D.C., partnered to produce a report that attempts to answer that question and provides other interesting facts and tidbits.

The Tax Foundation is a think tank that does research and analysis of tax policies. The foundation describes itself as independent, but often advocates conservative policies.

The Buckeye Institute is a conservative-leaning think tank that advocates for “free-market public policy in the states.”

But what’s good from one political viewpoint might be bad from another.

For example, the Buckeye Institute said in releasing the report that “Ohio’s growing tax burden has resulted in slower economic growth for the state over the past several decades.”

Combined taxes; Ohio ranks 19th highest

Adding up state and local taxes, Ohio ranks 19th highest in the country. Ohioans pay nearly a dime in taxes out of every $1 earned.

Ohio’s rate of 9.8 percent for state and local taxes on average is close to the rates in the neighboring states – Michigan (9.4 percent), Indiana (9.5 percent), Kentucky (9.5 percent), West Virginia (9.8 percent) and Pennsylvania (10.2 percent).

Credit given for city income taxes paid where people work

Most Ohio cities and villages don’t impose their income taxes on residents who pay equal or more income taxes to the city where they work, instead granting the residents a 100 percent “credit.”

For example, the city of Centerville has a 2.25 percent income tax, but collects nothing from residents who work in Oakwood and pay Oakwood’s 2.5 percent income tax.

But some cities in the area such as Xenia and Springboro, give only partial credit. So, workers end up paying income taxes to the communities where they work and taxes to the communities where they live.

Ohio’s sales tax is nearly double original rate

Ohio’s sales tax was established in 1935 and went unchanged at 3 percent for 32 years, then increased to 4 percent in 1967. The rate most recently increased in 2013, to 5.75 percent.

Each county also tacks on additional sales taxes. Once the county and state taxes are combined, rates range from 6.75 percent from Greene and Warren counties, to 7.25 percent from Montgomery County, to a high of 8 percent in Cuyahoga County.

Ohio and U.S. local and state revenue sources

The sources of Ohio and local tax revenue is similar to the national trends. The biggest chunk is from sales taxes. In Ohio, 36 percent of the money is raised through sales taxes. That compares to a national average of 35 percent.

Ohio collects a little more through income taxes than most places – 27 percent versus the U.S. average of 23 percent. And Ohio collects a little less from property taxes – 29 percent versus 31 percent nationally.

Average property tax rates by county

The study rated Ohio ninth highest in the country with property taxes amounting to 1.57 percent of the home values on average. The highest property tax rates are in the state’s two largest counties – 2.13 percent in Cuyahoga County and 2.04 percent in Franklin County.

Sales taxes by state

Combining state and county sales taxes, the average rate in Ohio is 7.14 percent.

The 7.14 percent average rate ranks Ohio near the middle nationally, 19th among the 50 states and the District of Columbia.

Two of the states that impose no state income taxes have some of the highest sales tax rates – Washington at 8.92 percent and Texas at 8.19 percent.

A handful of states have no sales tax – Alaska, Delaware, New Hampshire, Montana and Oregon.

State, local tax collections in Ohio above national average

State and local tax collections per capita in Ohio have been above the national average since the mid-1980s, though the gap has closed in recent years.

Ohio and local governments collected $1,138 per capita in 2014, up from an inflation-adjusted total of $210 in 1974.

Ranking Ohio’s business taxes

The Tax Foundation and the Buckeye Institute created a ranking for various types of taxes on businesses and concluded that Ohio ranks low for unemployment insurance taxes (fourth lowest) and property taxes (11th), but high for individual income taxes (47th) and corporate taxes (45th).

Note: included for corporate taxes was Ohio’s commercial activities tax.

Other findings

The Tax Foundation and the Buckeye Institute included in its report a profile of Ohio on a variety of other topics. Some highlights are below.

Ohio is a cheap place to live, according to the report. In comparison to other states, $100 in Ohio is really worth $112. Just six states were identified as better bargains – Alabama, Arkansas, Kentucky, Mississippi, South Dakota and West Virginia.

On the flip side, $100 is only worth $86.43 of spending power in New York State.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 419 | You Make The Call – Head of Household August 9, 2017

Posted by bradstreetblogger in : Deductions, General, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | Aug 9, 2017 | No. 419 | You Make The Call – Head of Household

You Make the Call is a monthly format of questions and answers our office faces on a daily basis.  We hope you will find these tips to be a quick and fun read.

QUESTION: The taxpayer’s mother lives in her home and she has provided care for her for several years. Her mother’s only income is from social security. The taxpayer pays over half of the living expenses for her mother, therefore she is her dependent. If her mother dies in January, can the taxpayer still claim head of household in the year of death?

ANSWER: Yes, as long as the taxpayer is eligible to claim her mother as a dependent. For head of household purposes, “The taxpayer and such other person must occupy the household for the entire taxable year of the taxpayer. However, the fact that such other person is born or dies within the taxable year will not prevent the taxpayer from qualifying as a head of household if the household constitutes the principal place of abode of such other person for the remaining or preceding part of such taxable year”. There is a similar explanation for dependency purposes that states, “The fact that the dependent dies during the year shall not deprive the taxpayer of the deduction if the dependent lived in the household for the entire part of the year preceding his death.”

Please note that the question and answer provided does not take into account all options or circumstances possible.  Call us if you find yourself in a similar situation.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 418 | A Closer Look at the Upcoming Sales Tax Holiday August 2, 2017

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Tax Tip of the Week | Aug 2, 2017 | No. 418 | A Closer Look at the Upcoming Sales Tax Holiday

Ohio shoppers have probably started to become accustomed to this “back to school” seasonal sales tax holiday, and they certainly won’t be disappointed this year. The Ohio sales tax holiday will begin at 12:01 a.m. Friday, August 4 and end at 11:59 p.m. on Sunday August 6, 2017. Expect heavier than normal traffic at some of your favorite stores, though hopefully it won’t be as raucous as a typical Black Friday in November.

The intention of the sales tax holiday is to boost sales while giving taxpayers a break on back to school items such as pens, notebooks, jeans and shoes. During the 2015 sales tax weekend, Ohio consumers saved $3.3 million in taxes on $46.75 million worth of back-to-school purchases, according to research by the University of Cincinnati Economics Center, with the average family saving about $40.

During this time period only, you can buy certain items and not pay any sales or use tax. Those items fall into the following categories: an item of clothing priced at $75 or less; a school supply item priced at $20 or less; and an item of school instructional material priced at $20 or less.

Unfortunately, items used in a trade or business are not exempt under the sales tax holiday, so you will not be able to take advantage for your business.

These are a few of the questions we are asked most frequently about the sales tax holiday:

Can retailers/vendors choose not to participate in the sales tax holiday? No. The sales tax holiday is set by law and vendors must comply.

Can multiple qualifying items be purchased in a single tax-exempt transaction? Yes. There is no limit on the amount of the total purchase. The qualification is determined item by item. So, if you purchased two pair of pants, a pair of shoes and a jacket and each item cost $50, the total purchase of $200 would be tax exempt.

What clothing items qualify? For the sales tax holiday “clothing” is defined as all human wearing apparel suitable for general use and covers more than you might expect. Traditional items such as shirts, pants, skirts, sweaters, dresses and shoes are included, but so are disposable diapers, formal wear and wedding apparel. For a full list of clothing items that qualify visit www.tax.ohio.gov. Items purchased to be used in businesses or trades are not eligible for the sales tax holiday.

If the selling price of an item of clothing is $90, is the first $75 exempt from the sales tax? No. The exemption applies only to items selling for $75 or less. Therefore if an item of clothing sells for more than $75, tax is due on the entire selling price. In addition, retailers cannot split items that are normally sold together in order to fall under the sales price threshold. In other words, if the store is selling a pair of shoes for $100, they cannot sell the shoes separately at $50 each.

What qualifies as a school supply? “School supplies” are very specifically defined and include items like binders, book bags, calculators, composition books and notebooks. You can find a complete list of qualifying items at the Ohio Department of Taxation website. Items not specifically listed are subject to sales and use tax.

How are coupons and discounts handled? If a retailer offers a discount to reduce the price of an eligible item to $20 or less (school supplies) or $75 or less (clothing), the item will qualify for the exemption. This applies to all discounts even if a retailer’s coupon or loyalty card is required to secure the discount.

Does the exemption apply to mail, telephone, e-mail and internet orders? Yes. Qualified items sold to consumers by mail, telephone, e-mail, or internet do qualify for the sales tax exemption if the consumer orders and pays for the item and the retailer accepts the order during the exemption period for immediate shipment, even if delivery is made after the exemption period.

So make your list, check it twice, and schedule some time the first weekend in August to hit the stores!

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

Rick Prewit – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 416 | Reap the Benefits of Hiring Your Child for the Summer July 19, 2017

Posted by bradstreetblogger in : Deductions, General, Tax Planning Tips, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | July 19, 2017 | No. 416 | Reap the Benefits of Hiring Your Child for the Summer

Hiring your children to work in your business can be a win-win situation for everyone. Your kids will earn money, gain real-life experience in the workplace, and learn what you do every day. And you will reap a few tax benefits in the process. The following guidelines will help you determine if the arrangement will work in your situation.

• Make sure your child works a real job that he or she can reasonably handle, no matter how basic or simple. Consider tasks like office filing, packing orders, or customer service.

• Treat your child like any other employee. Expect regular hours and appropriate behavior. If you are lenient with your child, you risk upsetting other employees.

• To avoid questions from the IRS, make sure the pay is reasonable for the duties performed. It’s not a bad idea to prepare a written job description for your files. Include a W-2 at year-end.

• Record hours worked just as you would for any employee. If possible, pay your child using the normal payroll system and procedures your other employees use.

• Hiring your children works best if you are a sole proprietor. It has additional tax benefits not  available if your business is organized as a C corporation or an S corporation.

If you have questions, give us a call. Together we can determine if hiring your child is the right course of action for your business and family.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.
Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 402 | Filing for an Extension April 12, 2017

Posted by bradstreetblogger in : Tax Deadlines, Tax Planning Tips, Tax Preparation, Taxes, Uncategorized , add a comment

Tax Tip of the Week | April 12, 2017 | No. 402 | Filing for an Extension

If you haven’t filed your tax return by now, you should probably consider filing for an extension. It is a lot easier to file for an extension than it is to amend a return later for a mistake you made trying to rush your return to completion. Even more costly is if the IRS finds a mistake you made and assesses underpayment penalties and interest.

To file for an extension, you simply need to submit Form 4868. After submitting this form, you now have until October 16, 2017 to timely file your return.  Note, however, an extension of time to file is not an extension of time to pay.  If you suspect you will owe some taxes, you must send a payment along with the extension.  This is true for your federal, state and city returns.

Ohio will automatically accept the federal extension. Some cities, however, require a special city extension form. Also, some cities will not allow extensions if you only have W2 income.  Be sure to check with your work and/or resident cities before April 15th.

Another reason to file for extension is that some speculate your chances for an audit decreases for extended returns. How?  One of the methods the IRS uses to select a return for audit is to select a random sample of returns filed by April 17th.   If your return is not in that sample—then you don’t get picked!

Editor’s Note:  One of the pledges I make to all my clients is that my personal return will be the last one filed each year. When my most procrastinating client’s return is filed on October 16th —-mine is right behind it!  And has been that way for nearly 20 years!

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW…until next week.

Tax Tip of the Week | No. 400 | IRS Offers New Cash Payment Option March 29, 2017

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Tax Tip of the Week | March 29, 2017 | No. 400 | IRS Offers New Cash Payment Option

The Internal Revenue Service has announced a new payment option for individual taxpayers who need to pay their taxes with cash. In partnership with ACI Worldwide’s OfficialPayments.com and the PayNearMe Company, individuals can now make a payment without the need of a bank account or credit card at over 7,000 7-Eleven stores nationwide.

“We continue to look for new ways to provide services for our taxpayers. Taxpayers have many options to pay their tax bills by direct debit, a check or a credit card, but this provides a new way for people who can only pay their taxes in cash without having to travel to an IRS Taxpayer Assistance Center,” said IRS Commissioner John Koskinen.

Individuals wishing to take advantage of this payment option should visit www.irs.gov payments page, select the cash option in the other ways you can pay section and follow the instructions:

– Taxpayers will receive an email from OfficialPayments.com confirming their information.
– Once the IRS has verified the information, PayNearMe sends the taxpayer an email with a link to the payment code and instructions.
– Individuals may print the payment code provided or send it to their smart phone, along with a list of the closest 7-Eleven stores.
– The retail store provides a receipt after accepting the cash and the payment usually posts to the taxpayer’s account within two business days.
– There is a $1,000 payment limit per day and a $3.99 fee per payment.

Because PayNearMe involves a three-step process, the IRS urges taxpayers choosing this option to start the process well ahead of the tax deadline to avoid interest and penalty charges.

The IRS has been partnering with Official Payments since 1999 for taxpayers wanting to use a credit card to pay taxes.

In this new option, PayNearMe is currently available at participating 7-Eleven stores in 34 states. Most stores are open 24 hours a day, seven days a week. For details about PayNearMe, the IRS offers a list of frequently asked questions on www.irs.gov.

The IRS reminds individuals without the need to pay in cash that IRS Direct Pay offers the fastest and easiest way to pay the taxes they owe. Available at www.irs.gov/Payments/Direct-Pay, this free, secure online tool allows taxpayers to pay their income tax directly from a checking or savings account without any fees or pre-registration.

“Taxpayers should look into the payment option that works best for them,” Koskinen said. Check www.irs.gov/Payments for the most current information about making a tax payment.

The IRS continues to remind taxpayers to watch out for email schemes. Taxpayers will only receive an email from OfficialPayments.com or PayNearMe if they have initiated the payment process. The IRS reminds taxpayers who haven’t taken this step to be watchful of any emails they receive saying there are tax issues involving the IRS or from others in the tax industry.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.
Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 399 | Five Things to Know About Substantiating Donations March 22, 2017

Posted by bradstreetblogger in : Deductions, General, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | March 22, 2017 | No. 399 | Five Things to Know About Substantiating Donations

There are virtually countless charitable organizations to which you might donate. You may choose to give cash or to contribute noncash items such as books, sporting goods, or computers or other tech gear. In either case, once you do the good deed, you owe it to yourself to properly claim a tax deduction.

No matter what you donate, you’ll need documentation. And precisely what you’ll need depends on the type and value of your donation. Here are five things to know:

1. Cash contributions of less than $250 are the easiest to substantiate. A canceled check or credit card statement is sufficient. Alternatively, you can obtain a receipt from the recipient organization showing its name, as well as the date, place and amount of the contribution. Bear in mind that unsubstantiated contributions aren’t deductible anymore. So you must have a receipt or bank record.

2. Noncash donations of less than $250 require a bit more. You’ll need a receipt from the charity. Plus, you typically must estimate a reasonable value for the donated item(s). Organizations that regularly accept noncash donations typically will provide you a form for doing so. Keep in mind that, for donations of clothing and household items to be deductible, the items generally must be in at least good condition.

3. Bigger cash donations mean more paperwork. If you donate $250 or more in cash, a cancelled check or credit card statement won’t be sufficient. You’ll need a contemporaneous written acknowledgment from the recipient organization that meets IRS guidelines.

Special Note About Cash Donations to Churches, Synagogues, etc.:  We continue to see some religious groups simply issue a statement to parishioners showing the annual amount of contributions given.  There have been many court cases showing some very specific language must be included on the receipt for the donation to be classified as a deductible donation if audited.  The statement must include some language like the following: “You did not receive any goods or services in connection with these contributions other than intangible religious benefits.”

Among other things, a contemporaneous written acknowledgment must be received on or before the earlier of the date you file your return for the year in which you made the donation or the due date (including an extension) for filing the return. In addition, it must include a disclosure of whether the charity provided anything in exchange. If it did, the organization must provide a description and good-faith estimate of the exchanged items or service. You can deduct only the difference between the amount donated and the value of the item or service.

4. Noncash donations valued at $250 or more and up to $5,000 require still more. You must get a contemporaneous written acknowledgment plus written evidence that supports the item’s acquisition date, cost and fair market value. The written acknowledgement also must include a description of the item.

5. Noncash donations valued at more than $5,000 are the most complicated. Generally, both a contemporaneous written acknowledgement and a qualified appraisal are required—unless the donation is publicly traded securities. In some cases additional requirements might apply, so be sure to contact us if you’ve made or are planning to make a substantial noncash donation. We can verify the documentation of any type of donation, but contributions of this size are particularly important to document properly.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.
Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 398 | A Review of IRS Penalties March 15, 2017

Posted by bradstreetblogger in : General, tax changes, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | March 15, 2017 | No. 398 | A Review of IRS Penalties

Many people assume that the IRS will not impose penalties if you weren’t actually trying to cheat on your taxes. Taxes are complex, and mistakes happen.  But the burden is on you to show that you acted reasonably (such as relying on professional tax advice).  If you can’t, you will probably end up with penalties.

The size of penalties varies, but often they are 25% of the outstanding tax liability.  Higher penalties or even criminal prosecution is possible.  The burden can be placed on you to prove you are right or that your mistakes were innocent.  If the IRS believes you were trying to cheat, you could face a 75% penalty or even criminal prosecution.  Most criminal tax cases start with routine audits.  Innocent mistakes can often be forgiven if you can show that you tried to comply and got some advice.

Everyone has heard that “ignorance of the law is no excuse”.  On many key tax subjects, the IRS says that with hardly any effort, you could easily learn the IRS requirements.  The tax laws draw the line between non-willful and willful.  Willfulness can be shown by your knowledge of reporting requirements and your conscious choice not to comply.  Willfulness means you acted with knowledge that your conduct was unlawful—a voluntary, intentional, violation of a known legal duty.  Watch out for conduct meant to conceal, such as:

–    Setting up trusts or corporations to hide your ownership.
–    Filing some tax forms and not others.
–    Keeping two sets of books.
–    Telling your bank not to send statements.
–    Using code words over the phone or in written instructions.
–    Cash deposits and cash withdraws.

Before conducting any actions, ask yourself if your explanations pass the “straight face test”.

Questions, call us BEFORE you do something—not AFTER!

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.
Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 393 | Ten Deductions You Might Miss – Part 1 February 8, 2017

Posted by bradstreetblogger in : Deductions, General, Tax Planning Tips, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | February 8, 2017 | No. 393 | Ten Deductions You Might Miss – Part 1

This is Part 1 of a two part series……..

Take the time to consider the following potential tax deductions. Nothing is more painful than to find out your tax refund could have been higher if you hadn’t overlooked these deductions:

1.  Sales Taxes
If you itemize, you have the option of deducting sales taxes or state income taxes, whichever is greater.  In a state that doesn’t have its own income tax (Ohio does have an income tax), this can be a big money saver.  Even in Ohio, the sales tax deduction might be a better deal if you make some large purchases.  It may also help senior citizens in Ohio if they pay no city taxes and limited state taxes. Note:  you must be able to itemize to take this deduction.

2.  Health Insurance Premiums
If you pay health insurance with after-tax dollars, the premiums would be deductible after they exceed 10% of your adjusted gross income. ( Note: employer provided insurance plans will normally have the employee portion of the premiums paid in before-tax dollars.)   The big winners who can use this deduction are self-employed individuals.  They can deduct 100% of the premium cost on the front page of the tax return and do not need to itemize.

3.  Tax Savings for Teachers
Most teachers will pay for some classroom items out of their own pocket.  If you keep records, K-12 teachers can deduct up to $250 on their tax return. You do not need to itemize to take this deduction.

4.  Charitable Gifts
Most people know they can deduct money or goods given to a qualified charity.  But don’t overlook out-of-pocket expenses you may incur while performing charitable work. For example, if you bake cupcakes for a fundraiser, you can deduct the cost of the ingredients.  Also, don’t forget to keep track of your mileage while performing charitable work because the mileage can also be deducted.

5.  Paying the Babysitter
You may be able to deduct the cost of a babysitter if you are paying them to watch your kids while you volunteer to work for a recognized charity. Once again, keep good records for this deduction.

Please note these are very simplified examples and should not be relied upon without professional consultation.

Five more to come next week!

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.
Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 383 | Traps in Tax Harvesting for Short Sellers November 30, 2016

Posted by bradstreetblogger in : General, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | November 30, 2016 | No. 383 | Traps in Tax Harvesting for Short Sellers

It’s the time of year when investors examine their portfolio and seek to harvest built-in tax losses. But short sellers who wish to harvest their losses should keep a close eye on the calendar.

“Investors looking to sell securities by year end should be aware of the trade date rules,” according to John Kaufmann, of counsel at Greenberg Traurig, a leading authority on the tax aspects of financial instruments.

The trade date rule governs whether the gain or loss from the disposition of a security is taken into account on the trade date – when the seller clicks “sell” or the buyer clicks “buy” – or on the settlement date. For securities traded on U.S. equity exchanges, the settlement date is usually three business days after the trade date, while for bonds, the settlement date is usually one business day after the trade date, explained Kaufmann. Although gain or loss is locked in as of the trade date, the transaction does not close until the settlement date.

While money and property do not exchange hands immediately when you click “buy” or “sell,” the Internal Revenue Service has taken the position that for regular trades placed on an exchange, the securities are treated as being disposed of and a gain or loss is recognized on the trade date, rather than the settlement date.

However, that general rule does not apply to short sales, warned Kaufmann. “Since a short seller’s obligation to deliver shares to a securities lender is not extinguished until the shares are actually delivered, a short position is not closed until the settlement date of the covering trade,” he said. “This means that in contrast to the treatment of long sales, gain or loss from a short sale is generally not recognized until the settlement date.”

Congress changed the rule in 1997 and, as a result, a gain on a short sale is recognized on the trade date, whereas a loss on a short sale is recognized on the settlement date, explained Kaufmann. With January 1 quickly approaching, he cautioned, it behooves investors with short positions seeking to harvest a loss to watch the calendar closely.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.
Rick Prewitt – the guy behind TTW

…until next week.