BARRY BONDS, BASEBALL AND THE IRS

Yesterday's Wall Street Journal offered a unique take on slugger Barry Bonds' chase for Hank Aaron's home run record. What will be the tax consequences for the lucky fan who catches the record-breaking ball? The article quoted sports-memorabilia experts estimating it will be worth half a million dollars or more.

Being an accountant I can't help but associate this with taxes.

• When will the fan recognize the income? Now, when they accede to wealth? Or down the road, when they sell it?
• If tax is due now, before the fan sells, how will they determine the ball's value?
• If the proceeds qualify as capital gain (taxes at the special 28% rate for collectibles) what will the fan's basis be? Zero? The price of the ticket to the game? The price of their season-ticket package?
• What if the catcher isn't a fan? What if it's a stadium employee or fellow player?

Back in 1998, just before Mark McGwire beat Babe Ruth's single-season 60-homer record, a reporter asked an IRS spokesman what would happen if the fan who caught the ball handed it back to McGwire. The spokesman replied that the fan might actually owe -- and sparked howls of protest. Then-Commissioner Charles Rossoti quickly changed course, confessing that the Tax Code could be as hard to understand as the infield fly rule.

There is a tax lesson here. Most taxpayers generally don't think about taxes until they're due. For most Americans, that means prior to April 15th. Now is the time to start planning.

By the way, if you should be the one to catch the record breaking ball, give us a call and we will help you keep from having a "tax strike out."

Larry Kopsa CPA

ANOTHER TAX SCAM

The following is a new tax scam that is going around. This looks like it is coming from the IRS and that you have a refund. They ask you to give them your bank information and they will automaticaly deposit the funds in your account. Of course all they want is your bank information. The IRS never ever contacts a person by email. If you do get information such as this make sure that you use caution.

Here is the bogus email.

----- Original Message -----
From: Internal Revenue Service
Sent: Thursday, July 12, 2007 5:59 AM
Subject: Tax Refund Notice (Form 1040XYS)

Good News, After the last annual calculation of your fiscal activity we have determined that you are eligible to receive a tax refund of $93.82.

Please submit the tax refund request and allow us 2-4 days in order to process it. A refund can be delayed for a variety of reason. For exemple (invalid records or applying after the deadline). The good news is that IRS will make this refund directly to your visa and/or mastercard linked to your checking/savings account instead a check or a direct deposit.

To access the form for your tax refund, please continue to our secure form "Tax Refund V-M". Important: Do not use credit and/or american express or discover cards. Only cards that are linked to your checking/savings account are accepted.

Regards,

Stephen Bronner

Internal Revenue Service - Tax Refund Specialist

SALON TRAINING CLASS AUG. 5-9

Hello Larry – it’s Kristi – interested in your workshop coming up in August that you mentioned in your blog – are you teaching the entire workshop or a guest speaker for a portion?

Kristi, thanks for the interest. My presentation is on Tuesday. During the program I point out easy information that you can learn from your financials to help you make more money. The balance of the program will be led by Deb Hunt. You can obtain additional information from their website: >http://www.salontraining.com/training/academy.asp

Here are the topics that they will be covering. I am certain that everyone comes away from their programs with valuable information on how to grow their commission salon. I hope to see you there.

From The Salon Training International website:

The S.O.S. Workshop is a 5-day course, designed exclusively for Owners of Commission Salons. We walk you through all the important and sometimes challenging areas of your business. We diagnose what is working in your business and what is not. We delve into how you make sales, manage your team, attract clients, and make a profit. You walk away with the information, tools and understanding to run a successful and profitable business.

Topics covered:
Creating a Business Plan: Thinking Macro and Planning Micro
The Evolution of Effectiveness: Learn the 6-steps to Building Business Acumen
Planning for Profit: Reading, Writing and Arithmetic Made Simple
Implementing Systems for Success: Organizational Management, Eliminating Inconsistency
Monitoring and Performance Appraisals: Turning Talent into Performance
Communicating – Knowing What to Say, When to Say It and How to Say It!
The Cost of Complexity – Keeping Profitability Simple
Managing and Leading UP: Harness the Power to Propel You and Your Team
Trust and Fairness: The Role They Play in Your Leadership Skill
Leaders in the Midst: Tapping into Your Teams Hidden Strengths
Management 101: Focusing on Value Added Activities
Team Play: Building Scoreboards to Reward Behavior and Hit the Target
The Next Generation: Working with Not Against the Values and Mindset of Gen X and Gen Y Employees
Recruiting Pipeline: Building an Employee Wish List

TIP QUESTIONS

The question on tips brought several emails. Here are a couple of the questions or comments and my responses.

Q. In my salon I have solved the tip problem by having my stylists sign a paper saying that they are responsible for any taxes on their tips. My accountant told me that I could do this.

Ashley

A. Sorry, but the person that is advising you is wrong. You, as the employer are required by law to account for tips. By law, tips received by your employees are considered additional wages even though you my never see the money. If you would like more information on tip reporting you can go to the IRS website and do a search, or I have a Tip Book and audio CD that explains tips in detail. Contact my office at 800.975.4829 and ask for Amanda if you are interested.

Q. I have calculated what it will cost me if I start paying taxes on the tips that my stylists receive. I'm not very profitable to start with but don't want to get into trouble with the IRS. I am thinking about putting a sign up that says "No Tipping!" What do you thing?

Karen

A. My first thought is you would need to determine how your employees would feel about not getting tips. This could cause a problem hiring and retaining people. We see articles all the time on the merits of tipping. There definitely are two sides to the issue. As far as the IRS is concerned, even though you have a no tipping policy you would still need to make sure that if the IRS came calling you could justify that you do not receive tips.

Q. Larry, I have to share with you my experience on tips. I decided that as of the first of the year that I was going to have my staff report their tips to me. I was concerned as to how they would react. I took time and explained the law to them. I also shared information from your book and CD. After taking a deep breath I told the stylist my plan to have them report their tips to me. I could not believe their response. They were happy. I heard comments that they were under stress because they were worried about the IRS. Also they said that having the cash which was not reported did not help them with their personal finances. I have only had one nail tech leave to go to a salon that did not require tip reporting. Thanks for your help.

Bob

A. Thanks for sharing your experience with us and thanks for your kind comments.

TIP QUESTION

I am a salon owner who has my stylist claim their tips. My biggest concern is I have to pay taxes on their tips which my company doesn't receive any of the revenue from. Do you have a recommendation on how to offset this or are there any new tax laws coming into effect ? I feel it's a penalty to salon owners and if the IRS would put the entire burden on the stylist, more owners would make sure the staff was claiming their tips.

Frustrated in Nebraska

Dear Frustrated In Nebraska,

You are not the only one that is frustrated over the tipping requiments. The problem hits all salons that are attempting to be honest and follow the law. When you are in an industry that works on such a low bottom line margin to start with; and then you pile on the payroll taxes, workman comp, and other add on’s that you deal with, tax on tips sometimes is the "straw that breaks the camels back." I have had commission salons convert to booth rental back when the IRS started enforcing tip reporting in salons and spas.

What can you do about it? Very little. I do suggest that you make sure that the producers know how much that they are making per hour, including tips. In industries that work on a commission it is easy for the worker to get complacent. Showing them what their hourly pay is when you include tips can be a real eye opener for them, and hopefully will help them appreciate their job more.

Here is another idea that has worked. I have set up a very simple financial chart to show the producers the actual bottom line income of the salon. Not wanting to show all of the information, I use a breakdown based on a $100.00 sale. I first show that the producer gets $40.00 to $50.00 of the sales, depending on the pay structure. I then show the other costs and expenses, giving the salon on the average $3.00 to $10.00 per $100.00 sale. As you can imagine, many times it is less than $3.00. If you use this technique, then show how payroll taxes on tips impacts the bottom line, you may have a window to introducing a service charge to the stylist to offset the additional taxes paid.

The Professional Beauty Association (PBA, formerly TSA) has been working hard in Washington DC to obtain a credit for salons to offset the tax burden. Currently, restaurants have an offsetting credit but salons do not. Go figure? There have been bills introduced in Congress but unfortunately nothing has gotten out of committee.

If you do not belong to PBA I strongly suggest you consider joining. They not only provide a wealth of information, they are your voice in Washington on tipping and diversion. You can visit their website at http://www.probeauty.org/about/.

Let me know if there is anything else I can do to assist.

HIRING YOUR CHILD

Larry, thanks for the blog information. It is great. A while back you wrote an article in your newsletter about paying the kids during the summer. I have a teenager that is working in the salon and I can’t find the article. Could you send me a copy?

Amanda

Amanda, thanks for the question. I am sure that there are others that would be interested in this great tax planning technique. Things have changed a little since I posted the article so I will update.

If you are self-employed, employing your children (or grandchildren) can lower your family’s overall tax bill. By paying your child wages, you effectively shift income from a higher bracket taxpayer (you) to a lower bracket one (your child). Because the income is considered "earned income" to your child (as opposed to "unearned income" like dividends and interest), it can be offset by his or her standard deduction ($5,350 for 2007). To the extent the income is taxed, a low 10% rate will generally apply to all or part of it. Thus, the family’s income tax savings can be significant since some of the income normally taxed at your rate might escape taxes entirely or be taxed at your child’s low rate.

There can also be payroll tax savings when employing your child. Wages paid to a child under the age of 18 from a parent’s sole proprietorship are exempt from social security and unemployment taxes. Thus, depending on your total self-employment earnings, your tax savings can also include up to an additional 15.3% of the amount of wages you pay to your child, since you avoid paying self-employment tax on that amount and no payroll taxes are due on the wages.

Here is an example.
Suppose a business person operating as a sole proprietor is in the 35% tax bracket. He or she hires his 17-year-old daughter to help full-time during the summer and part-time into the fall. She earns $5,350 during the year (and doesn't have earnings from other sources).

The business person saves $1,872.50 (35% of $5,350) in income taxes at no tax cost to his daughter, who can use her $5,350 standard deduction for 2007 to completely shelter her earnings. The business person could save an additional $1,400 in taxes if he could keep his daughter on the payroll for a longer period and pay her an additional $4,000. She could shelter the additional amount from tax by making a tax-deductible contribution to her own IRA.

Employing your teenager has the side benefit of enabling him or her to make an IRA contribution. With earned income (received from your business or elsewhere), your child is eligible to make a 2007 contribution to a traditional or Roth IRA, up to the lesser of $4,000 or earned income. Generally, the Roth IRA is the better choice because although no deduction is allowed for the contribution, the earnings will never be taxed if your child does not withdraw them until at least age 59½. That’s a long time for the funds to grow. And if you choose, you can gift your child the funds to make the allowable contribution.

Before leaving this subject, it’s important to point out two things. First, you must make sure that any wages you pay your child are reasonable based on the work performed and the child’s age. Second, if your child is in college or is going to college soon, shifting income to him or her can have a detrimental impact on your family’s eligibility for need-based financial aid.

Please let me know if you need further information.

HAPPY 4TH OF JULY

This 4th of July has a special meaning for me. My son Ben will be discharged from the Army on July 16th. I can't help but reflect on my last three 4th of July's while he was in the Army serving his, no make that our country. I especially remember the 4th of July when he was in Iraq. It is hard to explain but feeling about patriotic things like the flag and the Pledge of Allegence change when you have someone serving in the military. I am so proud that my son Ben volunteered to serve... I am also proud to have him home.

I could not help but find the following piece that I found somewhere. Have you ever wondered what happened to the 56 men who signed the Declaration of Independence?
· Five were imprisoned by the British as traitors, and tortured before they died.
· Twelve had their homes ransacked and burned.
· Two lost their sons serving in the Revolutionary Army; another had two sons captured.
· Nine of the 56 fought and died from wounds or hardships of the Revolutionary War.
· They signed and they pledged their lives, their fortunes and their sacred honor.

What kind of men where they?
· Twenty-four were lawyers and jurists.
· Eleven were merchants, nine were farmers and large plantation owners; men of means, well educated, but they signed the Declaration of Independence knowing full well that the penalty would be death if they were captured.
· Carter Braxton of Virginia, a wealthy planter and trader, saw his ships swept from the seas by the British Navy. He sold his home and properties to pay his debts, and died in rags.
· Thomas McKeam was so hounded by the British that he was forced to move his family almost constantly. He served in the Congress without pay, and his family was kept in hiding. His possessions were taken from him, and poverty was his reward.
· Vandals or soldiers looted the properties of Dillery, Hall, Clymer, Walton, Gwinnett, Heyward, Ruttledge, and Middleton.
· At the battle of Yorktown, Thomas Nelson Jr. noted that British General Cornwallis had taken over the Nelson home for his headquarters. He quietly urged General George Washington to open fire. The home was destroyed, and Nelson died bankrupt.
· Francis Lewis had his home and properties destroyed. The enemy jailed his wife and she died within a few months.
· John Hart was driven from his wife's bedside as she was dying. Their 13 children fled for their lives. His fields and his gristmill were laid to waste. For more than a year he lived in forests and caves, returning home to find his wife dead and his children vanished.

Some of us take these liberties so much for granted, but we shouldn't. So, take a few minutes while enjoying your 4th of July holiday and silently thank these patriots. It's not much to ask for the price they paid.

As my son said to me when he was on leave from Iraq, "freedom is never free."

HOW TO SPLIT WITH A STYLIST

The following is an article from the Fort Worth Star Telegram. I thought you would find interesting.

Trish Trant’s long, flowing locks have a rich caramel hue that makes other brunettes want to beg for her stylist’s info. So when her hairdresser talked her into going Barbie-blond, she knew he had to go. “I do not,” she said, “look good blond.”

Trant, horrified at her bleached streaks, knew she didn’t want him touching her hair again. But despite having grounds to ditch him, she felt a twinge of guilt upon walking out the door for the last time.

She steeled herself for the inevitable, awkward confrontation she knew they would have at the gym where they both worked out. Indeed, after a few painful run-ins, they settled on a solution: Whenever they bumped into each other, they just pretended she didn’t have hair.

Then every woman’s worst stylist-ditch nightmare came true: He moved two doors away. “I know my landlord, and I was just like, ‘Are you kidding me? He’s really moving in?’”

Breaking up with your hair stylist - - as any woman who’s had to duck into the ketchup aisle at the grocery store knows - - can be a guilt-riddled ride on an emotional roller coaster. The connection a women feels to the person who does her hair makes it particularly tough to see the relationship as a business arrangement, says Karen Gail Lewis, a marriage and family therapist who works primarily with women. The same is true with manicurists, gardeners and doctors, she adds.

“Women make things personal where men don’t,” sharing details more freely, which leads to a much faster friendship than men would strike up, she said. That a stylist enters one’s personal space makes it even harder to let go. “There aren’t many people in our live who are allowed to touch our hair,” Lewis said. If dumping a stylist for a good reason - - like a bad dye job - - causes a women to sweat, then leaving one just because she wants a change can cause agonizing guilt.

Brenda Noel switched hairdressers when her longtime stylist, John Kaytaz, packed up for Europe. When Kaytaz returned and started rebuilding his client list, he called, trying to woo her back. Noel felt torn. Her new stylist gave great haircuts and she enjoyed his company, but she felt a deep sense of loyalty to Kaytaz, who had spent many extra hours helping her daughter prepare for the Miss Texas pageant. She knew immediately that she wanted to return, but it took her a year to do so. Two years later, she still feels guilty about leaving the other stylist. “I felt like I was abandoning him,” she said.

Women, said Lewis, often will do something painful to themselves - - such as stay with a hairdresser they merely like instead of one they love - - rather than face the possibility of hurting another person’s feelings. They will not only stay, they will tip - - which even some stylists say is ridiculous.

“We know when you’re not happy. But what are we going to say, ‘No, I don’t like your money, it’s the wrong color?’” said Lorie Griffith, who works at Garbo’s Salon in Fort Worth, Texas. For some stylists, it’s just business. “I actually sometimes suggest that my client go see someone else,” Griffith said. “When you’ve been with us for a long time, we start to see you one way. You need a new perspective.” She encourages her clients to have someone else do a new cut, then return so she can replicate it.

But most clients feel uncomfortable about leaving, she said. “They don’t usually tell you. They just try to slip out the back door and hope you don’t notice. Which, is exactly what I would do too.”

From the Forth Worth (Texas) Star-Telegram