Sunday, January 20, 2008


As I am sure you have heard, the federal government is in the process of negotiating a repayment to us of some of the taxes that we have paid in to stimulate the economy and hopefully avoid a recession. The House of Representatives passed a bill and, as I write this, the Senate is crafting their version.

The point I want to make is how the government, the House in this case, can make something fairly simple seem very complicated. Below is an illustration of the House version and the Senate version. If the House version passes we are going to need a computer to calculate the refund.

What a mess. Just give us our money back.

For 2007, married taxpayers filing jointly have $175,000 adjusted gross income (AGI), two qualifying children, and a net tax liability of $31,189.

Under the House bill, the recovery rebate credit before the phaseout would be $1,800 [$1,200 (i.e., greater of $600 or net tax liability not to exceed $1,200) + $600 ($300 × 2 children)]. However, the phaseout reduces the $1,800 amount to $550 [$1,800 − $1,250 reduction, i.e., ($175,000 AGI − $150,000) × 5%].

Under the Senate bill, the taxpayers would receive a stimulus rebate credit of $1,600 [$1,000 for married taxpayers filing jointly + $600 (i.e., $300 × 2 children)].

Eligible individuals. Under both bills, an eligible individual would be any individual other than: a nonresident alien; an estate or trust; or a dependent.

Eligible child. Under both bills, for purposes of the additional $300 rebate, a qualifying child would be based on the definition of a qualifying child for the Code Sec. 24 child credit. Under Code Sec. 24, an individual can claim a child credit of $1,000 for 2008 for each qualifying child under the age of 17. Generally, a qualifying child must have the same principal place of abode as the taxpayer for more than one-half the tax year and satisfy a relationship test. To satisfy the relationship test, the child must be the taxpayer's son, daughter, stepson, stepdaughter, brother, sister, stepbrother, stepsister, or descendant of any such individual. A child who is not a citizen, national, or resident of the U.S. can't be a qualifying child.

Friday, January 18, 2008


Hello Larry, I'm sure you don't remember me. I have heard you many times and always have enjoyed your knowledge of the business. I opened my salon 6 years ago at the age of 53. I have an employee that came to me a year ago with her husband and said she wanted to get a business and if I thought I wanted to sell part or all of my business in the next 5 or 6 years she was interested.

I am now 59 and I work behind the chair 2 to 3 days a week. But I know in the next 10 years I want to back off. I know I don't want to sell the salon yet but might consider letting her in on maybe 10% the first year with a gradual increase in the future years. Could you give me some ups and downs to think about or things I should be aware of? My daughter and son are lawyers and can help me to some extent. Thank you-Myra

Myra, thank you for your kind words. It is our hope that through our blog and seminars we can help salons be better business people. We truly understand the challenges you have.

I think you have an opportunity here with a person that would like to own a portion of the business. We worked with several salons over the years where we have brought a stylist into an ownership position. I have always felt that, if done properly, this becomes somewhat a win-win situation for everyone.

One of the advantages to a situation where someone is coming through over a period of time is that you can teach them the ins and outs of the business so they don’t make some of the rookie mistakes that are normally made.

You might want to talk to your son or daughter about the possibility of some type of a "phantom stock" purchase, or what is technically known as a "non-qualified deferred compensation plan." Using this type of arrangement they use their "sweat equity" to serve as a downpayment for the business. In additon, it serves as "golden handcuffs" to make it hard for them to leave the salon. We have used these in the past as a way to bring people into the salon.

Another way to do this is to sell them a portion of the business and use the profits of the salon to pay you that portion of the business. In order to determine whether or not this technique would work really depends on your profitability. I would have to look at your financial statements to determine if this method is workable.

Bringing in a successor can be a great way to sell your business. It is really too complicated to explain in great detail. You are lucky to have attorneys in the family to assist you. If you would like a more detailed explanation, give my office a call 800.975.4829 or contact Carrie at

Larry Kopsa CPA

Thursday, January 17, 2008


We were one of the exhibitors at the PBA Symposium in January. Once again, it was a wonderful Symposium with great vendors. If you would like to look these vendors up, their information is below. If you don't belong to PBA, you should. Visit their website at

White Sands Products:
Nude Like Feel
Design Freedom
Performance on Demand
Soft Touchable Beautiful Hair

Contact Aarron Salas at

*Comment from Amanda- amazing products!!!

Nail Tek
Natural is real- all else imitates nature

At Nail Tek we employ what we call Assistive Science- that is, science that assists the body in the natural processes of growth, development, and repair. We never mimic nature- we facilitate it. Our products are based on real science designed to deliver natural results.

Voted "Best Natural Nail Treatment" by salon professionals.

Contact Peggy at or Judith at for more information about these products.

Profound Beauty Co.
Profound Beauty is committed to delivering state-of-art hair care products, utilizing the most innovative technologies available. We partner only with prestige salons who share our devotion to create better beauty results through personalized beauty. Everything we do personalizes the beauty experience and encourages individual style.

Contact Angela at

Rusk, Babyliss Pro, Forfex, and Conair Professional
If you are not familiar with these lines or want to find out more about them- then Please contact Jennifer at

Tuesday, January 15, 2008


Wouldn't you like to know what each customer costs you? It's easier than you think to figure out. You simply divide your expenses by the number of clients that walk through your doors.

Dollars Per Customer is a new free service we are offering our full-service clients. It is an interesting study of your financial information that allows you to view your income and expenses broken down per client. These numbers will obviously change over time, but the dollars per client should remain fairly constant. As more people come through your doors the numbers of clients will increase, but the dollars will as well, so this will give you a fairly good average.

Here's an example: Let's say you pay $10,000/month in rent. In the last month you served 1,000 clients. Divide $10,000 by 1,000 clients and you get $10.00. This means that each customer costs you $10/month in rent.

This gives you a good idea of how Dollars Per Customer works. Granted, each individual salon's rent and number of clients will be different. Click on the following link to access Dollars Per Customer on our website; select Forms & Publications: Dollars Per Customer

If you need help or have any questions, shoot me an email at


For those of you that might be on the board of a small non-profit organization, the IRS has new filing requirements. I find it interested that the IRS asks for non-profit websites. I have seen one court case where the IRS did refer to information from a non-profit website. So be aware...they are watching.

What is the 990-N?

  • Beginning in 2008, small tax-exempt organizations have a new filing requirement.
  • The 990-N is know as the e-Postcard
  • The Pension Protection Act of 2006 added this filing requirement to ensure that the IRS and potential donors have current information about your organization.

Who has to file the 990-N?

  • If you are a tax-exempt organization that normally has annual gross receipts of 25,000 or less and does not have to file Form 990 or 990-EZ, you must file the e-Postcard.

Who is exempt from the mandatory filing of the 990-N?

  • Organizations that are included in a group return.
  • Churches, their integrated auxiliaries, and conventions or associations of churches.

When is the 990-N due?

  • The e-Postcard is due by the 15th day of the 5th month after the close of your tax year.
  • For example, if your tax year ended on December 31, 2007, the e-Postcard is due May 15, 2008.
  • Note you cannot file the 990-N until after you tax year ends.

What happens if you don’t file a 990-N?

  • You risk losing your tax-exempt status.
  • Failure to file for three years will result in revocation of your tax exempt status.

How do I file the 990-N?

What will I need to file the 990-N?

  • Employer identification number (EIN)
  • Tax year
  • Legal name and mailing address
  • Any other names the organization uses
  • Name and address of a principal officer
  • Web site address if the organization has one
  • Confirmation that the organization’s annual gross receipts are normally $25,000 or less
  • If applicable, a statement that the organization has terminated or is terminating (going out of business)

Where can I get more information?

Friday, January 11, 2008


Dear Mr. Kopsa, I truely enjoyed your class back in November in Lake Geneva, WI. Also I'd like to thank you for the e-mails you have sent. I have one question for you, I am a salon owner and have contracts for my booth renters but it very general and vague. Do you have a copy of a booth rental agreement form that I could use as a base to write a new one? I would appreciate any info you could give me on this. Thank you, Mary

Mary, it is nice to hear from you. I hope everything is going well. Thank you for your kind comments. I think I will be back in Chicago and Lake Geneva this next year. Please stop by and say hi.

In your email you asked me about a contract for booth renters. Since this is a legal matter and I am an accountant, not an attorney, I do not have anything I can send to you. I would recommend that you consider going out to the following website: This website has leases and different contract information. Ken Cassidy educates salons and spas extensively on booth rental and many other topics.

Since this is a legal matter and since most attorneys are not familiar with the salon industry, my recommendation is to purchase Ken Cassidy’s lease and the run it by your attorney.

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

Larry Kopsa CPA

Thursday, January 10, 2008


We try to stay somewhat nonpolitical in our postings but I thought you would enjoy the attached essay by George Will. If you watch the news programs you know that Mr. Will is a conservative. Even so, I thought this piece called Ready, Fire, Aim was alarming. To give you a sample...

A Seattle day-care center banned Lego building blocks because the beastly children "were building their assumptions about ownership and the social power it conveys, assumptions that mirrored those of a class-based, capitalist society." The center reinstated Legos but allowed the children to build only "public structures" dedicated to "collectivity and consensus."

Read George Will's essay by clicking on the link below.

Wednesday, January 9, 2008


Larry, I love reading your blog, thanks for all the great info.

The part about the section 179 caught my attention. I recently installed a new boiler in my building that houses my salon plus 2 rental apartments. I had planned to expense the $14000 boiler & baseboards as a repair cost on the building on my schedule E and then the new $7000 vinyl & rugs in the salon as repairs on my schedule C for the salon. I looked at these items as replacements for existing faulty or worn out parts.

Do I have to depreciate the 2 items, or can I expense them all in one year? I would appreciate any advice that you can give to me. Thanks, Joe

Joe, thank you for your kind words regarding our blog. We appreciate getting questions like yours too. We hope these things help the entire industry in becoming better business people and being more profitable. Let us know if there is anything we can do for you.

Your question is actually quite complicated and I strongly recommend you discuss this with your tax preparer. I can give you some basics, but you cannot rely on these basics, because I do not know enough about your situation to properly answer you.

Here are the basics. First of all, the section 179 I talked about which allows you to expense out personal property does not qualify on rental property. Therefore, if you own the building and then rent the building to your salon and to the tenants of the rental apartments, you would not qualify to start with.

The next issue you would have to deal with is whether or not this is actual an acquisition or a repair and maintenance. If it were considered an acquisition it would not be considered personal property so you would not qualify for section 179 and therefore would be required to depreciate the property over 39 years.

If it were considered a repair, then you would deduct under repairs and maintenance. Sometimes it is hard to distinguish a repair from a capital improvement. If the expenditure does not increase the value of the property nor lengthen the life, then you could possibly argue repairs.

This is where your tax preparer has to help you.

I know I haven’t been able to give you a straight answer on this, but I thought I would give you as much information as I could based on the information you gave me. Best of luck.

Larry Kopsa CPA

Tuesday, January 8, 2008


The biggest gift that Congress has given us is something they call an HSA for Medical Expenses. Click on the link below to read the summary I have posted on our website.

Saturday, January 5, 2008


The IRS knows where to look to find easy money. The first things the auditor normally asks to see are your 1099 forms. You are required to send a 1099 MISC form to any noncorporate client that you pay over $600 for business services and/or services and materials. The penalty can be up to $100 for every 1099 form you fail to file.

These forms are required to go to the recipient by January 31, with copies going to the IRS by the end of February. The 1099 requirements have been around for a while. 1099’s are the way, in effect, we audit ourselves. You are telling the IRS you paid someone money for services. They can then match the 1099 forms to the individual’s tax return to see if they are properly reporting their income.

For example, the auditor comes into your salon or spa and determines you are not filing 1099’s. Suppose you should have done ten 1099’s. VIOLA! Ten forms times $100 equals $1,000 penalty times three years, that the audit would be, and you now have a $3,000 penalty before the auditor even gets his briefcase open.

Lesson learned: make sure you have 1099 forms filed. For more information on this, please contact me, or you can get more information from

In my last posting, I informed you about the 1099 forms. I have had the following follow up questions:

Q - I was rather interested in your posting on 1099 forms. What if I pay someone $400 at the beginning of the year for services, and then later in the year I pay the same person $300. Both of those amounts are under $600, am I still required to do a 1099?

A - Yes, the total amount for the year is over $600. Therefore, you are required to do a 1099 form.

Q - I am a C corporation and have a June 30th year end. When should I do my 1099’s?

A - Even though you are on a June year end for your corporation, the 1099’s are to be submitted on a calendar year end. Therefore, they are required to be from January 1st through December 31st.

Q - I paid an individual to do some plumbing repairs in my salon. The amount of services was $500 and the materials were $1,100. Since the services were under $600, do I have to do a 1099?

A - Since the bill is for services and materials combined on the same bill, you would be required to do a 1099 form for the full amount of $1,600.

Q - I paid someone $1,100 to paint my salon. Later in the year the same person did some painting at my house and charged me $1,200. How do I do a 1099 on this person?

A - You are only required to file a 1099 for business expenses. Therefore, you would only have to file a 1099 on the $1,100 painting the person did to your business. Nothing has to be done for the personal portion this person did.

Q - I looked at the 1099 form and I see I am supposed to put the ID number or social security number of the recipient. I did not get the number, what do I do now?

A - In actuality, for people you give 1099 MISC forms to, you should have a form I-9. I am addressing that along with this blog posting. If you cannot get a 1099, I would go ahead and write the person’s name, address, and write that you could not get the individual's ID number. In the future, you should do the I-9 forms to make sure this problem does not occur.

Q - You mentioned in your article that 1099’s are only required for non corporate individuals. I do not understand.

A - For some reason, the IRS feels that corporations must have procedures in place to make sure they report all of their income. Therefore, if the business you are paying is a corporation, you do not have to give them a 1099. For example, if your garbage service that you pay over $600 to is a corporation, you do not have to do a 1099. On the other hand, if it is an LLC, partnership, or a sole proprietorship, a 1099 is required.

Q - I don’t know if the business is a corporation or not. I do have their ID number. What do you suggest?

A - If you can’t get the information on whether or not the business is a corporation, I would go ahead and file the 1099 form. There is no penalty for filing a 1099 form you don’t need to file, so I would play it safe and file the form.

Larry Kopsa CPA


Tax Refunds To Be Delayed
If you are expecting a refund when you file your tax return, it looks like you are going to have to wait until mid February before you see the check. The holdup is that Congress failed to act in correcting the Alternative Minimum Tax problem until late this month (December). President Bush signed the legislation on December 26, 2007.

Now the IRS has to go back and reprogram all of their computers before they can process returns. By the way, now all the tax forms are wrong. In order to send the tax packages out after the first of the year, the IRS has to send the drafts to the printers by the middle of November.

What a mess.

The IRS Will Be Cashing Your Check Sooner

In the past when I wrote a check to the IRS I usually had 10 to 15 days before the check cleared the bank. No more. The Service is reducing the "float" on checks mailed with income tax returns. It will convert checks into direct debits so it gets the money right away. Be sure the funds are in your account.

More Medical Expenses Allowable In Your Flex Plan
Good news for those of you that have a flex or cafeteria plan. The cost of many diagnostic medical procedures is deductible as a medical expense, even though the patient has no symptoms of illness, the IRS says. This includes the cost of pregnancy test kits and electronic body scans as well as annual physicals (
Rev. Rul. 2007-72).

As a result, the costs can be covered by flexible spending plans and health reimbursement arrangements.

Cafeteria Plan Relief May Be On the Way
Firms with cafeteria plans are requesting the IRS be more understanding. Recent IRS regulations adopt a strict all-or-nothing rule on mistakes made in cafeteria plans. Any error, no matter how small, disqualifies the plan and causes employees to owe tax on all benefits elected under the plan.
It appears that this ruling is unreasonable. Look for the IRS to agree with them sometime in 2008 but until it does, watch your plan carefully.

S Corporations Can Have Health Insurance In Owner's Name
In the past we have been struggling with the IRS’s position on health insurance for owners of small S corporations. The IRS’s position was that the health insurance policy had to be in the corporation's name or the premiums did not get a tax advantaged treatment. The problem was that in some states corporations can't buy a group plan with one participant.

Good news. The IRS has solved the health insurance problem for one-person S firms by clarifying that the premiums they pay are deductible for policies bought in the owner's name.

List Of Vehicles Qualifying for a Tax Credit
Wondering if your alternative fuel vehicle qualifies for a credit? Check the IRS' latest list, which has makes and models of vehicles eligible for a credit of up to $12,000 a year if they are powered by fuels such as liquefied natural gas, hydrogen or 85% methanol. In addition, hybrid trucks, buses and other vehicles with gross vehicle weight ratings over 8,500 pounds qualify for a separate tax credit of up to $32,000.

Go to,,id=175456,00.html to see the list.

This is an interesting bit of IRS trivia:
The IRS received $48.7 billion in tax receipts from individuals on April 24, 2007, a one-day IRS record.


I thought you might enjoy reading David Letterman's Top Ten. I'm sure you can all relate to number four.

Thursday, January 3, 2008


We have a new tool on our website that I think will interest you. We have created an earnings projection for someone attending salon school for one year, compared to the earnings of someone paying college tuition for four to five years.

You may change the numbers in red to make up your own examples. We kept this example simple by not taking into consideration the time value of money nor the interest on the education debt. This would have made the spread even greater.

Check it out at:


Can an S Corp salon owner also be a booth renter sole proprietor for tax purposes for their hair styling business? Jim

Jim, yes it is possible for a person to have multiple entities. We have numerous clients with multiple entities. To answer you properly I would have to know exactly what your S corporation is doing. We do have situations where S corporations, or partnerships, or limited liability companies own booth rental operations with several booth renters and then the owner of the operation also rents a booth from the S corporation. If this is what you are referring to you can do this but there may be other options that are better for you.

Check with your tax advisor. A competent tax professional should be able to give you the advise on the best method for you to organize your operation to save taxes and limit your liability.

It is a pleasure serving you.

Larry Kopsa CPA


Congress recently passed three new tax laws that include significant tax changes. They are:

  • The Tax Increase Prevention Act of 2007

  • The Mortgage Forgiveness Debt Relief Act of 2007

  • Limitation on Tax Return and Information Disclosures to Partners, S Corporation Shareholders, and Estate and Trust Beneficiaries

I have posted a memo on our website explaining these changes. Please click on the link below to access the memo.


How much do you know about women in the U.S.? Learn about your female clientele with these statistics.

  • The U.S. counts about 140 million women, compared with about 134 million men.

  • Whereas boys under age 20 outnumber girls of that age 105 to 100, after age 85 there are only 50 men for every 100 women.

  • Women college graduates under age 30 now outnumber men of that age holding degrees.

  • 58 percent of women work in three occupational categories: 24 percent are in administrative/clerical positions, 18 percent have professional specialty jobs and 16 percent work in service jobs. Men’s categories are more diverse.

  • 67 percent of women report experiencing moderate or high stress regarding the rapid pace of change.

  • 75 percent of caregivers who care for people age 50 and older are women.

  • About 20 percent of wives in two-income families earn more than their husbands.

  • A majority of women prefer female physicians.

  • About 80 percent of women business travelers never take their children along on business trips.

Sources: 2000 U.S. Census; Docrates and Rasmussen Research; GLS Consulting, Inc.; Wyndham Hotels & ResortsSalon Today Business Builders Magazine