Wednesday, December 26, 2007


I often have people tell me that they wonder what our staff looks like. If you go to our website we now have pictures of our staff. Simply click on the following link and then on the person's name to see what a great looking staff we have. By the way, the pictures on the website are pictures of our office. Our office is in an old library building and historical landmark. The office with the brick wall is where I spend my time.

Larry Kopsa CPA

Wednesday, December 19, 2007


I read your posting about year end inventory purchases. How do I know what my method of inventory is? Jody

Jody, your method of accounting is set when you file your first tax return. Your tax preparer marked a box on the return establishing your method of accounting. You are stuck with that method unless you file an application with the IRS for a change of accounting method. The process of obtaining a change in method is fairly complicated so make sure that you study this carefully and get professional help if you want to make a change.

You can determine your method of accounting by looking at your tax return and finding the box that tells your method. Where to find the box depends on your type of business. On the Kopsa Otte website I have posted a chart to show you where to look. Simply click on this link to take you to the chart.

It is a pleasure serving you.

Larry Kopsa CPA

Saturday, December 15, 2007


My income is up this year. I was planning on buying some inventory to bring my taxes down. If I purchase $10,000 inventory before the end of the year would that save me some tax money? Karen

Karen, Maybe. There are two different types of inventory purchases

· Inventory for resale
· Inventory for back bar

If you purchase inventory for resale, that purchase would never be deductible. You are required to take a physical count of your retail inventory on hand at the end of the year, and whatever the cost of that inventory is, it is not deductible until the inventory is actually sold.

The purchase of your back bar inventory is another story. Whether or not this purchase is deductible depends on your method of accounting. If you are on the cash receipts and disbursements method of accounting I have good news. You can deduct the purchase even if the back bar inventory is still on the shelf.

Example 1: Jan Clipper is on the cash basis of accounting. On December 27, 2007 she receives an order of color in the amount of $2,000.00 and $3,000.00 of product for resale. Before the end of the year Jan writes a check to the distributor for $5,000.00. Since Jan is on the cash method of accounting she can deduct the $2,000.00 for the color. Jan would only be able to deduct that portion of the $3,000.00 that was sold before the end of the year.

My answer to the back bar purchases is different if you are on the accrual method of accounting. If you are on the accrual method of accounting you are required to take an inventory of back bar along with retail and are not able to deduct until the back bar is used up.

Example 2: The same facts as above but in this case Jan Clipper is on the accrual method of accounting. In this case she would be required to inventory the back bar inventory and only that amount that is used before the end of the year would end up being deductible.

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

Larry Kopsa CPA

Thursday, December 13, 2007


Got this address on the internet........I have a general question. Would really appreciate an answer. I have a C Corp...... I am planning on buying some expensive equipment........and I can buy it in Dec 2007. The salesperson told me that this would save me a considerable amount of taxes.

Is there any reason I can't pay for it and then Section 179 the depreciation in order to offset some profit.........even if I am not yet using the equipment. Robert

Robert, As your own personal professional tax advisor should have told you, the Section 179 law is very specific about the new equipment needing to be purchased and placed into service during the tax year. Just prepaying for something and not actually using it in your business until the next year will not fly. Any salesperson who told you otherwise is not telling you the whole truth and cares more about his/her commission than being honest. As you apparently understand, if you meet certain criteria you can expense out $125,000 in the year of purchase. You do not need to depreciate the equipment.

The good thing is that when the items are placed into service during the year isn't relevant. Starting to use a new piece of equipment on December 31 is just as good for the Section 179 eligibility as any other date during the year, assuming it is a calendar tax year. I have a primer on the section 179 on our website that explains in detail the fast depreciation rules. Check it out for more information.

It is a pleasure serving you.

Larry Kopsa CPA

Wednesday, December 12, 2007


IRS Announces 2008 Standard Mileage Rates; Rate for Business Miles Set at 50.5 Cents per Mile

IR-2007-192, Nov. 27, 2007
— The Internal Revenue Service today issued the 2008 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning Jan. 1, 2008, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:

50.5 cents per mile for business miles driven;
19 cents per mile driven for medical or moving purposes; and
14 cents per mile driven in service of charitable organizations.

The new rate for business miles compares to a rate of 48.5 cents per mile for 2007. The new rate for medical and moving purposes compares to 20 cents in 2007. The rate for miles driven in service of charitable organizations has remained the same.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile; the standard rate for medical and moving purposes is based on the variable costs as determined by the same study. Runzheimer International, an independent contractor, conducted the study for the IRS.

The mileage rate for charitable miles is set by law.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS), after claiming a Section 179 deduction for that vehicle, for any vehicle used for hire or for more than four vehicles used simultaneously.

Monday, December 10, 2007


If you are offering Medi Spa treatments you might be interested in the following. I just happened to be reading American Medical News and ran accross this article. Actually I don't read the American Medical News, one of my doctor's clients sent the magazine to me. Simply click on the link below to get an idea what the medical profession is doing.

Thursday, December 6, 2007

Saturday, December 1, 2007


Hello - I have a question....State Board of Equalization recently did a surprise visit to the salon and fined several of the hairdressers for different minor violations. The owner would like to open the salon on a Sunday and give all the proceeds to those stylists to help them pay their fines. Is there a way to give them the $ without them having to pay taxes? Can we just classify the payments under Penalties, since ultimately that is what the money is going to?

Hope you are well!

-M-, Sorry for the problems that you had. I hope the fines were not too stiff. I have bad news for you regarding the very nice gesture that you want to do for your staff. Anytime an employer gives the employees cash, it is considered wages and is subject to federal, state, FICA and Medicare withholding. If the salon is the one that is being penalized then the salon should be the one paying the fines. If that were the case, then it would not be income to the staff. The penalties are not a deductible expense to the salon or to the employees. If you have any questions on this let me know.

It is a pleasure serving you.

Larry Kopsa CPA