PRESENTING AT IBS

I am honored to have been asked to speak at the IBS Symposium. I will be in New York City through next week to meet with clients, and I'll also be presenting programs on taxes and finances for IBS. I'm very excited to have this chance to talk with students and to help them mold their careers.

I will be back from New York for one day, and then I head out of town again for our Staff Retreat. Due to my travel schedule, there will be no further postings until I return. Keep sending me your questions and comments and I will be happy to respond on our blog when I return.

Larry Kopsa CPA

CLIENT NEWS

CHECK OUT OUR CLIENT PETER ISHKHANS ON THE STYLE NETWORK

You have heard of stylists being referred to as “stylist of the stars.” Well now I can be referred to as “accountant to the stylist of the stars.” My good friend and client Peter Ishkhans has his own TV show.

The Style Network debuted a new series on April 19th with celebrity stylist Peter lending his expertise to help languishing businesses turn things around with a complete image makeover.

As the press release says, from a far-from-chic hair salon to an outdated dog groomer to a struggling coffee shop, Ishkhans is up to the challenge of transforming each business. Whether it's training unmotivated employees, redesigning hideous staff attire or revamping gloomy marketing materials, no task is too large or too small to take these businesses to their full potential. Peter gives the spaces, as well as the business owners and employees, a complete face lift and floor to ceiling makeover.

Ishkhans embodies a fashion-forward style that has made him the stylist of choice for celebrity royalty from Hollywood's hottest stars to many rock n' roll legends. His client roster includes Eva Mendes, Eva Longoria, Amy Adams, Alyssa Milano and Benjamin Mackenzie among others, and began with George Harrison, Bill Wyman, Billy Idol, Robert Plant, Marianne Faithful and Sarah Ferguson, Duchess of York.

Check it out. Very funny.

Larry Kopsa CPA

HAPPY TAX FREEDOM DAY - APRIL 23, 2008

America Will Work Three Days Less to Pay Taxes in 2008 than in 2007; Stimulus Rebates Push Date of Celebration Up

Tax Freedom Day will arrive on April 23 this year, the 113th day of 2008 (ignoring Leap Day). That means if you are an average American you will work nearly four months of the year, from January 1 to April 23, before you have earned enough money to pay this year's tax obligations at the federal, state and local levels.

Per the Tax Foundations report, Americans, as a whole, work a significant number of days each year to pay for things other than government, but nothing else is so expensive. Americans will work longer to pay for government (113 days) than they will for food, clothing and housing combined (108 days). In fact, Americans will work longer to afford federal taxes alone (74 days) than they will to afford housing (60 days). As a group, Americans will also work longer to pay state and local taxes than they will to pay for food.

Tax Freedom Day had arrived later for the four previous years, but due to an expected slowdown in the nation's economy and a massive one-time fiscal stimulus tax cut passed earlier this year, Tax Freedom Day is projected to arrive three days earlier this year compared to last year.

(Click here to read the full study). Tax Freedom Day is three days earlier than in 2007. Stimulus rebates and a projection of slow growth in 2008 are the principal reasons for the earlier celebration.

The study is Tax Foundation Special Report No. 160, “America Celebrates Tax Freedom Day®,” by Tax Foundation senior economist Gerald Prante and Tax Foundation president Scott Hodge.

In addition to announcing the nation’s Tax Freedom Day®, the new study compares tax payments to other major consumer expenditures, traces the course of America’s tax burden since 1900, examines the composition of today’s tax burden by type of tax, and calculates a Tax Freedom Day for each state.

LAUGH A LITTLE

Just want to thank all of you for your educational E-mails over the past year.

Thanks to you, I no longer open a public bathroom door without using a paper towel.

I can't use the remote in a hotel room because I don't know what the last person was doing while flipping through the adult movie channels.

I can't sit down on the hotel bedspread because I can only imagine what has happened on it since it was last washed.

I can't enjoy lemon slices in my tea or on my seafood anymore because lemon peels have been found to contain all kinds of nasty germs including feces.

I have trouble shaking hands with someone who has been driving because the number one pass-time while driving alone is picking your nose (Although cell phone usage may be taking the number one spot)

Eating a Little Debbie sends me on a guilt trip because I can only imagine how many gallons of trans fats I have consumed over the years.

I can't touch any woman's purse for fear she has placed it on the floor of a public bathroom. Yuck!

I must send my special thanks to whoever sent me the one about poop in the glue on envelopes because I now have to use a wet sponge with every envelope that needs sealing.

Also, now I have to scrub the top of every can I open for the same reason.

I no longer have any savings because I gave it to a sick girl (Penny Brown) who is about to die in the hospital for the 1,387,258th time.

I no longer have any money at all, but that will change once I receive the $15,000 that Bill Gates/Microsoft and AOL are sending me for participating in their special e-mail program.

I no longer worry about my soul because I have 363,214 angels looking out for me, and St. Theresa's novena has granted my every wish.

I no longer eat KFC because their chickens are actually horrible mutant freaks with no eyes or feathers.

I no longer use cancer-causing deodorants even though I smell like a water buffalo on a hot day.

Thanks to you, I have learned that my prayers only get answered if I forward an email to seven of my friends and make a wish within five minutes.

Because of your concern I no longer drink Coca Cola because it can remove toilet stains.

I no longer can buy gasoline without taking someone along to watch the car so a serial killer won't crawl in my back seat when I'm pumping gas.

I no longer drink Pepsi or Dr Pepper since the people who make these products are atheists who refuse to put 'Under God' on their cans.

I no longer use Saran wrap in the microwave because it causes cancer.

And thanks for letting me know I can't boil a cup of water in the microwave anymore because it will blow up in my face...disfiguring me for life.

I no longer check the coin return on pay phones because I could be pricked with a needle infected with AIDS.

I no longer go to shopping malls because someone will drug me with a perfume sample and rob me.

I no longer receive packages from UPS or FedEx since they are actually Al Qaeda in disguise.

I no longer shop at Target since they are French and don't support our American troops or the Salvation Army.

I no longer answer the phone because someone will ask me to dial a number for or which I will get a phone bill with calls to Jamaica, Uganda, Singapore and Uzbekistan .

I no longer buy expensive cookies from Neiman Marcus since I now have their recipe.

Thanks to you, I can't use anyone's toilet but mine because a big brown African spider is lurking under the seat to cause me instant death when it bites my butt.

And thanks to your great advice, I can't ever pick up $5.00 dropped in the parking lot because it probably was placed there by a sex molester waiting underneath my car to grab my leg.

I can no longer drive my car because I can't buy gas from certain gas companies!

If you don't send this e-mail to at least 144,000 people in the next 70 minutes, a large dove with diarrhea will land on your head at 5:00 PM this afternoon and the fleas from 12 camels will infest your back, causing you to grow a hairy hump. I know this will occur because it actually happened to a friend of my next door neighbor's ex-mother-in-law's second husband's cousin's beautician...

Have a wonderful day...

Oh, by the way.....

A German scientist from Argentina , after a lengthy study, has discovered that people with insufficient brain activity read their e-mail with their hand on the mouse.

Don't bother taking it off now, it's too late.

I DID NOT FILE MY RETURN... NOW WHAT?

Okay I admite it I am a procrastinator. I did not file my return nor did I file for an extension. What are my fines? Am I going to jail ?

Julie

Julie, I am sorry you put this off. You are not going to jail but you should cut your losses and file your return as soon as possible. Here are the penalties you are looking at:

• The failure to file penalty is usually 5% per month for each month that you don't file, up to a maximum of 25%.
• That is not all, if you owe money you are a subject to a 1/2 of 1% penalty of your unpaid amount per month, or part of month.
• That is not all, if the IRS sends you a notice demanding payment the failure to pay penalty increases to 1 persent per month for any tax that remains unpaid the day after the demand.

If you would have filed on time but did not pay the tax the failure to pay penalty rate would have been reduced to 1/4 of 1% per month.

Larry Kopsa CPA

ONE YEAR TAX BREAK FOR SALONS

The following is an article that I wrote for the PBA newsletter. I thought you might find this interesting.

Larry Kopsa CPA

PBA Tax Update - April 2008

April/2008

LATEST NEWS - Special Edition

Big Tax Write-offs for Businesses in the Economic Stimulus Act - But You Must Act Quickly

There is more to the Economic Stimulus Act than the rebates that most of us will be receiving this summer. Included in the Economic Stimulus Act are two provisions to help small businesses. These opportunities are only available in 2008, so if you want to take advantage you must act quickly.

These provisions have not received as much press as the rebates have. But, overlooking these provisions could be a costly mistake. Here is what you need to know to take advantage of the new law.

Leasehold Improvements

If, in the future, you are planning any leasehold improvements for your salon/spa or OTC, consider accelerating the project into 2008.

Before the Stimulus Act, leasehold improvements were depreciated and deducted over 39 years regardless of the term of the lease. Here is the new law. For 2008, and 2008 only, the taxpayer can deduct 50% of the cost in 2008.

A couple of examples will show how important this can be for your business.

Example 1: Normal Law

Hairball Beauty is planning to spend $78,000 for a major remodel (not including fixtures and equipment). Under the normal laws, Hairball Beauty will be able to deduct $2,000/year ($78,000 ÷ 39 years). Assuming a 33% tax bracket, Hairball Beauty will save a measly $660 per year for 39 years.

Example 2: Stimulus Act

Same facts as Example 1, except that Hairball Beauty does the remodel in 2008. Because of the Economic Stimulus Act, Hairball Beauty can deduct 50% in 2008, plus normal depreciation on the remaining 50%. So in 2008, Hairball Beauty has a write-off of $39,000 (78,000 x .50) + $1,000 (39,000 ÷ 39 years). This causes a tax savings of $13,200, plus $330 for the next 38 years.

So, if you are planning to remodel in the near future, consider accelerating the remodel into 2008 to get a huge tax write off and, at the same time, help stimulate the economy.

There are some specific rules that must be followed, so make sure you check with your tax advisor if you are considering any major purchases.

Fast Write-off of Equipment

Another Stimulus Act enhancement enacted by Congress is a higher deduction if you purchased equipment. This is commonly referred to as a "Section 179 Deduction." The deduction allowed in the pre-stimulus law was quite generous, so this may or may not impact your business.

Under the pre-stimulus law, if you purchased equipment you could elect to write off up to $128,000 of business equipment in the year that you placed the equipment in service, versus depreciating the equipment over 5 to 7 years. The Stimulus Act increases this amount to $250,000 for 2008.

If you are making major equipment purchases, this could provide you with a large tax write-off.

Once again, there are some detailed rules that you must focus on, so contact your tax advisor to see how this fits your fact pattern.

---

Larry Kopsa CPA is a partner in Kopsa Otte CPAs. Larry is a frequent speaker at beauty industry programs, including the PBA Symposium. He will be a presenter at PBA's upcoming Learning Lounge in Las Vegas this July.

Disclaimer: The information provided does not constitute legal, tax, accounting, or financial advice and is offered as an information service only. Those seeking specific advice should contact a professional advisor. No liability whatsoever is assumed in connection with the use of this information.

PBA SMART STAT
Voice of the Beauty Industry
"Representation on Capitol Hill/Government Affairs" was identified as the most valuable member benefit by PBA survey respondents.

91% of total respondents said Government Affairs was "valuable", while 66% of those said Government Affairs was not only valuable...but "extremely valuable".
Source: PBA 10th Anniversary Survey Report

The Washington Update is a publication of PBA's Government Affairs Committee.

Frank Zona Zona Salons, Committee Chair
Serena Chreky Andre Chreky, the salon spa
Eric Schwartz OPI
Max Wexler Beauty Craft Supply

JUST FOR LAUGHS

WHERE'S MY REFUND?

Larry, I filed my tax return quite some time ago and still haven't received my refund. Do you know how I can find out when I'll get it?

Finding the status of your tax refund is very simple. Just go to www.irs.gov and click on "where's my refund" on the right hand side of the page. It's quick, easy and secure. Be prepared with the following information: Social Security Number; Filing Status; and Refund amount shown on your return. Let me know if you have any questions.

Larry Kopsa CPA

TAX BILL SIGNING CEREMONY

Above is a picture of the governor, Dave Heineman (on the right), and my wife Maggie and me at the signing of a tax bill passed by the Nebraska legislature. Because I had been asked to testify before the legislature on the merits of this bill, I was honored to be asked to attend the signing ceremony. Besides being a CPA, I am on the board of directors of the Nebraska State Chamber of Commerce and serve as chairperson of the Small Business Committee.

QUESTION ON PREBOOKING

Dear Larry, I am a co-owner of a Salon. I attended three of your classes recently and wanted to thank you for all of the information you provided. I bought into this salon in June of 2007. I have a year and a half of business and accounting education as well, but I really only had a slight clue of what I was getting myself into.

Back to thanking you...All of the information provided in your classes answered so many questions I had in the back of my head that I kept forgetting to write down and get answered. Not only did you help clarify many things, you inspired me to get back on track with all of my goals, business and personal. I have always known I will be successful. However, sometimes I get caught up with what I am currently doing and forget that what I'm currently doing isn't enough. I want to keep pushing through locked doors and realizing my potential more and more everyday.

OK, I'll stop the mushy, inspired speech now and let you get back to a busy day. Just one last thing...I was wondering if you could e-mail me the prebooking slide you showed during the "understanding financial statements" class. Again, thank you so much! Donna

Donna, thank you for your kind comments. I am very pleased to hear that you understand the importance of being a business person first. Many times in dealing with salons, they are so caught up in the artistic side, that they forget that the way to be the best for their clients is to have a successful business. I’m glad I was able to help you, as you said, “get back on track.” You asked for the handout I did on prebooking. I am attaching that for you.

From the prebooking standpoint, I have a couple ideas that have worked very well to increase prebooking. One of them is a simple fishbowl. We have had a couple clients that put out a fishbowl, and every time you prebook you can put your name into the fishbowl. The promotion lasted a couple months and I believe they drew out one name that received free services for a year. This might seem like a lot. They put a cap on it at $600-$800. But, the technique really increased the prebooking. In addition, this is very easy to put together and not very costly.

Another promotion that seemed to work very well, that I found to be very attractive, was a salon put up on all their stations, a very nice picture of an iPod. Underneath this very nice picture of the iPod, was a sign that said, “Ask how you can get a free iPod.” This was at the front desk and all the stations. This caused some chatter and of course, to receive a free iPod you had to prebook and then they had a drawing from those people who had prebooked.

I hope these ideas are good for you. Please let me know if there is anything else we can do for you. By specializing in salons and spas and working with hundreds of salons throughout the United States, we have been able to help our clients to achieve their potential.

It is a pleasure serving you.

Larry Kopsa CPA

HELP - I CANNOT PAY MY TAXES

Please help me. I started booth renting this year and did not realize that I would have to pay my taxes in one big chunk. I don't have the money and I owe over $6,000. Am I going to jail?
LMA

You aren't the only one with this problem. Many, many new booth renters don't realize that there is no withholding so they owe tax. I hate to be the bearer of bad news, but you should also be making your first quarter estimate on 4.15. People that do not have withholding are required to estimate their taxes and then pay one forth on April 15th, June 15th, September 15th and January 15th.

Regarding your current problem, I have good news. If you cannot pay the tax due for 2007 by the October 15, 2008, extension date, you should file your return and attach Form 9465 to request an installment arrangement.

If you owe $10,000 or less and certain conditions are met, the IRS must enter into an installment arrangement if you request one. You must show that full payment cannot be currently made, and that in the previous five years you filed income tax returns and paid the tax, and did not enter into an installment arrangement during that period. If the current return is a joint return, your spouse must also meet these tests for the five-year period. You must agree to pay the tax liability within three years.

If you are using an installment agreement to pay the tax due on a timely filed return (including extensions), the late payment penalty is reduced by half from .5% to .25% per month.

Let me know if you have any other questions.

Larry Kopsa CPA

THANK YOU

Mr. Kopsa, Thank you so much for your time and information regarding the TRAC agreement! I was very disappointed to have missed your class at the recent Peel's show. I believe you have answered my question. Thanks again. Linda

QUESTION ON REPORTING TIPS

Mr. Kopsa,

I have attended several of your classes over the years. It has been a while, but in one of the classes I attended you discussed a TRAC sheet which was a form through IRS. I own 2 salons in Kansas. We have began receiving higher tips than we used to even though we state on our menu that "We are professionals and do not expect tips". I want the girls to report their tips but my husband is afraid that to start now will send up a red flag and cause us to be paying taxes on tips from years past. Is the TRAC form an agreement by the IRS to not pursue past taxes if you begin reporting now?

Thank you for your help. Linda

Linda, I hope all is well with you. The TRAC agreement is, as you know, an agreement with the IRS. It states you are going to properly start reporting tips, and in the future, you will make sure you have documentation that you are reporting tips properly. Whether or not this will insulate you from a past audit on tips is a good question.

In talking to the IRS, unofficially they said their objective is just to make sure tips are being reported properly in the future, and, unofficially, anybody entering into a TRAC agreement can anticipate not having an audit. From practical experience, we have worked with numerous clients that have obtained a TRAC agreement, and none of them have had any type of audit. I have had one individual inform me that the IRS did ask them to provide information that they were following the rules in the TRAC agreement, which they did.

I hope this is of some assistance to you. If you need any more information on the TRAC agreement, or where to obtain an agreement from the IRS, please let me know and tell me where you are located and I will direct you to the right person. It is a pleasure serving you.

Larry Kopsa CPA

QUESTION ON GAS MILEAGE REIMBURSEMENT

Hi Larry - I read your blog, followed directions, and now we are logging miles. However the girls feel 30 cents per mile is too little. We are in California and right now the cheapest gas is $3.60 per gallon. Minimally, what is fair to charge them? Thank you. Doris

Doris, I've done some checking and the girls are correct in that you could pay them 50.5 cents per mile and still be within the government guidelines. Triple A says that the cost of driving a car is close to 75 cents per mile.

The costs that are in the mileage rates are not only for gas but are also for repairs, insurance, new tires, oil changes, interest and depreciation of the car. For example, if I drive an old clunker that doesn't need many repairs and it gets 30 miles per gallon, and you drive a new Hummer that cost $85,000 and it gets 8 miles per gallon, we both get, under the government guidelines, 50.5 cents per mile.

Having said all of that, as you know we are looking at ways of cutting costs, and increasing mileage is going to go against the grain. Let’s see how we can explain that to the girls.

If they are getting 20 miles per gallon and the cost of gas is $3.60 per gallon, then the cost of gas per mile is 18 cents per mile ($3.60 divided by 20). Since you are paying them 30 cents per mile you are actually paying their gas plus an additional 12 cents per mile. Sounds fair to me. It would be possible to increase their mileage and decrease their wage which would save them taxes but I don’t think I would go there right now. Just tell them you are being fair and see what they say.

Let me know if you have any other questions.

It is a pleasure serving you.

Larry Kopsa CPA

WORD OF MOUTH MARKETING

One of the books I recommend for Salon people to read is Word of Mouth Marketing by Andy Sernovitz.

With the advent of the Internet, the marketing world is changing. As you know, new business comes from referrals. This is what Word of Mouth Marketing is all about. It's a great book. Here's the link: http://www.wordofmouthbook.com/.