QUESTION ON UNSELLABLE INVENTORY

Larry, I have a question about what to do with my unsellable inventory. Should I take a deep discount on my boutique items, or should just give the items to charity?

The answer to your question really depends on what method will put the most cash in the salon’s pocket?

The first item you have to consider is whether or not having these items for sale at a heavy discount will take away from your regular salon product sales. What I mean by this is, if someone comes into the salon and instead of buying hair care products that carry a 50% profit margin, buys the boutique items, they are going to be better off and have more money in their pocket at the end of the day by donating the items to charity.

If this is not the case, and the clients will continue to buy hair care products along with the boutique items, the method that would give the most cash to the salon’s pocket would be to sell the items at a deep discount.

An example might explain better:

Assuming the person is in a 20% federal and state tax bracket, let’s further assume they have paid for $2,000 of these boutique items that are sitting on the shelf.

If the salon donates these items to charity, the salon will no longer have these items in inventory, which will drop their income by $2,000. Assuming the 20% tax bracket, this would mean they would pay $400 less taxes when they filed their tax return.

If they are able to sell these items for more than $400, that would give them more cash in their pocket because they would have the cash and at the same time they would have some write off for the products that were sold at a deep discount.

If you have any other questions on this, please contact me. It is a pleasure serving you.

Larry Kopsa CPA

SUMMARY OF THE ECONOMIC STIMULUS PACKAGE

Here is a handy three-page PDF summary of the Economic Stimulus Act of 2008 that can be downloaded for free. I think this summary, plus examples, covers the new law in easy to understand terms.

MORE ON THE STIMULUS REFUNDS

The IRS will move fast on tax rebates. The checks will start going out in early May, once the Revenue Service finishes processing returns filed around April 15. Rebates will be keyed to tax liability. Marrieds will get a maximum rebate of $1,200... singles-$600. But there is a catch. You must have had at least some federal income tax liability to receive the refund. More good news, filers with dependents under 17 get $300 per child extra.

Filers with small income tax liabilities will also get rebates. Marrieds paying $1 or more of tax will get at least $600 if their income topped $17,500. Singles will get at least $300 if they made over $8,750.

Even those who don’t pay any income tax can get rebate checks. Marrieds with at least $3,000 of earned income will get a minimum of $600, plus $300 per child. Singles with $3,000 of earnings will receive $300 plus $300 per child. This includes seniors and disabled veterans. For rebate purposes, Social Security benefits and veterans’ disability count as earned income.

But, there is no good news for those people paying high taxes. High-incomers won’t get checks. Rebates will start to phase out at $150,000 of adjusted gross income for couples and $75,000 for singles, falling by $50 for each $1,000 over these amounts. For example, a couple with two children won’t get a rebate if their AGI is $186,000 or more. Nor will anyone who can be taken as a dependent by another filer.

You will have to file a 2007 tax return to get a rebate check, because the rebates will be based on the data shown on 2007 returns. Filing on an extension will delay your check. On your 2008 return, you’ll reconcile your rebates with your 2008 tax situation.

Technically, the rebate is an advance payment of a special 2008 tax credit. For most, the rebate will equal the tax credit allowed. Taxpayers whose credit exceeds their rebate will claim the balance on their 2008 tax return. If your rebate is bigger than the credit, you needn’t repay the Service.

The IRS has a special way to fill out Form 1040A if you need to file just to get the rebate. Go to http://www.irs.gov/ for a copy.

GREAT CUSTOMER SERVICE

Great Customer Service – Thank You Jessica Bartolome

Last week was my wife Maggie’s birthday and I surprised her with a trip to Las Vegas. On Saturday Maggie and two of her friends went to the spa at Planet Hollywood. After they finished at the spa, Maggie and I went shopping to find a dress for dinner that evening.

As it turned out, the dress we purchased did not work with the shoes that she brought with her. Apparently she needed open-toed shoes.

Now there is more to the story, and we will get to Jessica Bartolome in a second. Anyway, since she had open-toed shoes, the question was...did the polish on her toes match the red dress? Of course that answer was NO, so we went back to the spa. This is where Jessica Bartolome comes in.

Maggie went to the counter and asked the person at the front desk, Jessica Bartolome, if she could see a pedicurist. It was late in the afternoon and everyone was booked. Jessica then said she could help us pick out nail polish to match the dress. Jessica did not just point to the nail polish rack; she walked over to the rack with us. She then looked at the dress, took out several different shades of red, applied the color to her finger and compared it to the dress.

After we selected the color, we went to another counter to check out. Before we could pay, Jessica came out and told Maggie that it would be best if she removed the old color from her toenails. She had cotton swabs and remover with her, and she bent down and proceeded to remove the polish.

NOW THAT IS CUSTOMER SERVICE! Jessica told me that she was in charge of group sales and marketing for the Mandara Spa in Planet Hollywood. Way to go Jessica! You made Maggie feel great and helped us to rave about the service in your spa.

If anyone reading this gets to Las Vegas and has a chance, stop by the Mandara Spa to get a taste of great customer service.

QUESTION ON LAUNDRY DONE IN THE HOME

Larry, One of the things I want to discuss is that we do laundry at our home for the spa. Is this deductible? Thanks!

Actually, the cost of doing laundry at home is deductible. What we normally recommend is to go to the laundry mat and find out how much it costs to wash and dry a load of laundry, along with the cost of the detergent. Then, we recommend that you keep track of how many loads you do for the salon. Take the number of loads times the cost at the laundry mat and there's your deductible amount. Then you can use this as a monthly amount to be reimbursed back for.

Don't forget...Documentation! Documentation! Documentation!

I hope this helps. Let me know if you have any other questions.

Larry Kopsa CPA

ONLY IN AMERICA

An inmate who injured himself breaking out of a Colorado jail is suing on the grounds that guards should have done more to stop him escaping. Scott Gomez Jr. claimes he was badly injured when he fell 40 feet while attempting to scale down the outside wall of the Pueblo County jail. Prison authorities, Gomez complains, "did next to nothing to ensure that the jail was secure and that the plaintiff could not escape."

THE WEEK January 18, 2008

DEDUCTIBLE BUSINESS EXPENSES

One of the things we always want to do is to audit proof your records. We want to make sure that if the IRS ever comes in, we have all of our bases covered so that if you are audited, the audit goes as smoothly as possible.

One of the requirements the IRS has for reimbursing mileage and other business expenses to employees is that you have an "accountable" expense reimbursement plan.

Here is a link to a copy of a blank Accountable Expense Reimbursement Plan. AERP I would recommend you review this, and keep it as part of your permanent records.

I think the document is fairly self-explanatory. If you do have any questions, please feel free to contact me. It is a pleasure serving you.

Larry Kospa CPA

HAVE A CONTINGENCY PLAN IN PLACE

Rising From the Ashes, an article in Launchpad's February 2008 issue, describes how the Richard Scott Salon in Mt. Kisco, New York saved their spa, salon, staff and clients after a two-alarm fire.

Most people think, "this will never happen to us." The truth is, it can happen to you. It is very important to have a contigency plan in place should you experience a tragedy such as the fire mentioned above.

For more information on setting up your contigency plan, contact our office at 800.975.4829 or email ahansen@kopsaotte.com.

ECONOMIC STIMULUS PACKAGE MAY OFFER BUSINESS TAX CUTS

You've probably read that President Bush and Congressional leaders have agreed on a $150 billion stimulus package to prop up the economy and help prevent a recession. News reports have focused on tax rebates for individuals. But you may not realize that the package includes generous incentives for buying business equipment as well.

Want more cash in your pocket? The bill reduces the 10% federal tax bracket to zero for 2008 -- then delivers the savings now in the form of rebates ranging up to $600 for unmarried individuals, $1,200 for married couples, and $300 per child up to a maximum of $600. This break phases out for incomes above $75,000 ($150,000 for joint filers).

If you are in business the bill also gives you a 50% bonus depreciation deduction for new equipment you buy for your business in 2008. It raises the Section 179 first-year expensing limit from $125,000 to $250,000. And it doubles the phaseout for Section 179 deductions from $400,000 to $800,000. This is great news if you're planning to buy vehicles or equipment for you business, or even to renovate business premises.

What you probably care about is how much money you will be getting back in May. Click on the following link to access examples of rebate amounts as caclulated from the taxpayer's 2007 tax return: Examples of Rebate Determination

Here is a calculator that will estimate the rebate you will be receiving from the government: Rebate Calculator

SMART MARKETING SOLUTIONS

Because marketing is something we are constantly doing, it's easy to run out of ideas. Link to Salon Today's February 2008 Issue for a great article on marketing solutions. 30 Smart Marketing Solutions

WHAT EVERY WOMAN WANTS

In January I only spent 12 nights sleeping In my own bed. Between trips to Kansas City, Orlando, Pasadena and Wichita I found myself in hotels. While in Pasadena I turned on the tv and the Mel Gibson movie “What Every Woman Wants” was on. As I laid in bed thinking about the day I had working with one of my salon clients, I asked myself… “What does every salon client want?”

Here is what I came up with…

• They want to be understood – so listen to them.
  Listen, listen, listen. Explain to your clients what you are doing or what you recommend, and then listen to their reaction. Remember the importance of body language. You communicate more with your actions than with what you say… and so do your clients.
• They want to feel welcome – so welcome them.
  Studies show that the first 90 seconds you spend with someone sets their feelings about you and the meeting. It might be hard to welcome your 8:00 pm client on Thursday, but if you are a true professional that is what you do.
• They want to feel important – so make them feel important.
  One of the motivational speakers states that when you communicate with someone you should force yourself to think that this is the most important person in your world, and act accordingly. Ego is a strong emotion.
• They want to feel comfortable - so make them comfortable.
  Comfortable surroundings help to keep people coming back. The type of clientele that you are trying to attract determines what is “comfortable.” To some it is a relaxing place to escape the hustle and bustle of the world, and in other salons it is a fast paced, avant-garde atmosphere. Make sure that you are consistent or you will not meet your client’s expectations. And don’t forget to keep a clean environment and pay attention to detail.
• They want value for money – so give them value.
  Make sure they know that you are a professional and that you are giving them the best service. Let them know that you continue to educate yourself on new styles and products. Recommend products to make them look and feel better about themselves. Make me look better, and you have a client for life.

QUESTION ON EMPLOYEE CONTRACTS

Larry,

I have a question, do you have employee contracts that salons can use a templates? Thank you

Although I have seen many contracts, I cannot provide an example. Contracts are a matter of law and lawyers get a little excited when non-lawyers step into their territory. There have even been some attempts (fortunately unsuccessful) by the ABA to ban accountants from giving tax advice. Their rational is that tax law is law, and therefore anyone charging for tax advice is practicing law without a license.

Additionally, laws vary from state to state and community to community. What might be a good agreement in one location may not work in another. Most importantly, if there is ever a lawsuit you would want the attorney that drew up the contract to stand behind his work representing the salon owner in court. I think that you can see the problem.

Ken Cassidy has a contract for sale on his website: www.kassidys.com. He does make you sign a disclaimer before he will send it to you. My advice if someone is using a “canned” program is to have their attorney review the contract and get their approval.

It is a pleasure serving you.

Larry Kopsa CPA