OBAMA'S SMALL BUSINESS CONUNDRUM

Small business groups have complained that they got short shrift from the economic stimulus bill. It seemed like small business was completely ignored. Now as the government finally starts to deal with unemployment, President Obama now seems to agree. The problem is that some of the rhetoric that is being discussed to help small business clashes with his policy goals like health care reform, cap and trade and the card check bills.

Forbes magazine recently had a good article articulating the issues.

Click the link below to read the full story:
http://www.forbes.com/2009/12/08/barack-obama-credit-small-business-washington-obama.html?partner=alerts

THE TRUTH ABOUT TIPPING

What are the guidelines on reporting tips? Do you have to report it all or is there a % of the tips that has to be reported? I have been told by an employee, former salon owner, that she will only report 50%. Please give me the truth.

Thanks,

Olivia

Olivia, as Jack Nicholson’s character Colonel Nathan Jessep said in the movie A Few Good Men, “you don’t want to know the truth.”

All tips are considered income and an employee is required to report their tips to the employer in writing (there is an IRS form 4070A that you can use). There is no 50% rule and in the salon industry (there is a percent that you can use in the restaurant industry) there is no set percent. The tips are considered additional wages paid by the employer to the employee even though the employee received the monies. The employer is to withhold from the employee based on the tips and is required to match the required payroll taxes.

The good news is that the employees need to voluntarily report the tips to you and if they under report you do not have an issue unless the IRS audits the tips and determines that the employees did not report all of their tips. At that time you would owe the additional tax but no interest and penalty. You would need to have the form 4070A or a similar signed document on file. The employee would have a bigger problem because they would owe 7.65% social security plus income tax and interest and penalty. In effect, they would be committing tax fraud by not reporting all of their income.

There is the truth.

Let me know if you have any further questions. It is a pleasure serving you.

Larry Kopsa CPA

DO I HAVE TO PAY TAXES ON BACK CHILD SUPPORT?

I am a single mom. My ex-husband did not pay support for his daughter for more than 5 years. He just came into some money and has recently paid almost all of his back support to me. Now I’m worried because my mom says I have to pay taxes on that money. I was hoping to use it to pay bills but I don’t want to use it if I need to save some for taxes.

Thank you for taking the time to answer my question.

Mandy

Good for you Mandy, plus I have some good news for you. My mom used to say, “moms are always right,” but fortunately for you, that’s not the case here.

For federal purposes, child support is tax neutral, meaning that you don’t claim it as income and your ex-husband does not get to take a deduction for paying it.

Note that my answer would be different if this was back payment of alimony.

Larry Kopsa CPA

QUOTE OF THE WEEK

Christmas is the time when
kids tell Santa what they want
and adults pay for it.
Deficits are when adults tell
government what they want
and their kids pay for it.
~Richard Lamm

HOW THE GOVERNMENT WORKS

Once upon a time the government had a vast scrap yard in the middle of a desert.

Congress said, "Someone may steal from it at night." So they created a night watchman position and hired a person for the job.

Then Congress said, "How does the watchman do his job without instruction?" So they created a planning department and hired two people, one person to write the instructions, and one person to do time studies.

Then Congress said, "How will we know the night watchman is doing the tasks correctly?" So they created a Quality Control department and hired two people. One to do the studies and one to write the reports.

Then Congress said, "How are these people going to get paid?" So They created the following positions, a time keeper, and a payroll officer, Then hired two people.

Then Congress said, "Who will be accountable for all of these people?" So they created an administrative section and hired three people, an Administrative Officer, Assistant Administrative Officer, and a Legal Secretary.

Then Congress said, "We have had this command in operation for one Year and we are $18,000 over budget, we must cutback overall cost."

So they laid off the night watchman.

NOW slowly, let it sink in..

Does anybody remember the reason given for the establishment of the DEPARTMENT OF ENERGY.... during the Carter Administration?

Anybody?

Anything?

No?

Bottom line. We've spent several hundred billion dollars in support of an agency...the reason for which not one person who reads this can remember

Ready??

It was very simple...and at the time, everybody thought it very appropriate.

The Department of Energy was instituted on 8-04-1977. To lessen our dependence on foreign oil.

Hey, pretty efficient, huh???

And now it's 2009 -- 32 years later -- and the budget for this "necessary" department is at $24.2 billion a year. They have 16,000 federal employees and approximately 100,000 contract employees; and look at the job they have done! This is where you slap our forehead and say, "what was I thinking?"

Ah, yes -- good ole bureaucracy.

And, now, we are going to turn the banking system, health care, and the auto industry over to the same government?

HELLOOO! Anybody Home?

MORE ON CHARITABLE CONTRIBUTIONS

Thanks for the information on charitable contributions. My mother has been making some contributions to some weird supposedly child care organization.

How do I find out if this is a legitimate charity?

Opy

Opy, it is good to double check if you are not sure. Not only on the “weird” groups but also on groups that you think would qualify. I recently had a client give money to a local Children’s Workshop only to find that they had not done the paperwork to make them a legitimate tax exempt charity. Not checking cost them the deduction.

Here is how you can check to see if the organization is qualified. As you know, only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions. The searchable online version can be found at IRS.gov under Search for Charities. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.

Larry Kopsa CPA

MORE ON THE TANNING TAX

I bet Hollywood is happy by the fact that the cosmetic surgery tax is off the table in the race to pay for health care reform.

But don’t start laughing just yet, George Hamilton. It’s been replaced with a 10% tax on tanning services.

And yes, it won’t raise as much money as the plastic surgery tax. That tax, referred to as the Botax, was expected to raise $5.8 billion in revenue. The tax on tanning? A measly $2.7 billion. The tanning industry, not surprisingly, opposed the tax. There is no truth to the rumor that the proposed potentially discriminatory Botax sent the wives/girlfriends/companions of our Congressional officials into a mad panic.

The problem is that most tanning salons and salons and spas tanning are small businesses. We see the numbers and we know that tanning has been down during the recession. Many of the tanning only salons are just barely keeping their head above water. This measure could be the “straw that breaks the camel’s back.”

What is next? Will salons and spas be the next victims? You wax ’em we’ll tax ‘em.

But why stop there? If they are going to impose a tax on indoor tanning why not impose a tax on outdoor tanning? It would be fairly easy. Just add a tax to all lounge furniture. The tax would be higher in those states that have more sun light and lower here in the Midwest. Maybe some type of tariff on people that vacation in Hawaii and the Caribbean?

Wait a minute. Maybe I shouldn’t give them ideas. They have enough dumb ideas the way it is.