STIMULUS CHECK PROBLEMS

There are a number of our clients that have been receiving incorrect economic stimulus refunds. In most cases they were shorted the $300 per child. We have already received a couple of calls on this and we’ll probably hear from more. The issue was on the IRS’ side and they are correcting it. They will be issuing checks/direct deposits for the difference. Fortunately, our software has identified clients that will most likely be receiving incorrect stimulus checks. If you receive the incorrect amount, be patient; the IRS has a glitch in their system and you should be receiving the difference in the future (we do not know the timing).

ZERO TAX RATES ON CAPITAL GAINS

Sometimes our elected officials like to provide deferred gifts. Back in 2003, Congress passed and the President signed into law a provision that provides a zero percent tax rate for certain types of income received by eligible taxpayers. Because the provision wasn’t effective until 2008, it didn’t receive a lot of attention except by us professional tax advisers. Since 2008 is quickly passing we want to alert you to this chance for tax free income. Although this opportunity is scheduled to be around beyond this year, it’s hard to predict what may happen after this fall’s elections. Thus, while the availability of the 0% tax rate seems all but certain to remain unchanged for 2008, after that, there are no guarantees.

How Do You Qualify for the Favorable Rate?

You need to have the right type of income. The 0% rate applies to most long-term capital gains (i.e., gain from selling something such as stock that you’ve held for more than a year) and qualified dividend income (generally dividends from U.S. corporations and certain eligible foreign corporations).

You also need to have the right amount of qualified income and the right mix of other income and deductions to maximize the savings from the 0% rate.

Depending on your filing status, the 0% rate can apply to up to $65,100 of income this year. However, it could also apply to none of your income (even if you have long-term capital gains and/or qualified dividend income), if your other income and deductions don’t net to a small enough number. As a result, qualifying for the favorable 0% rate is very fact specific.

Most Dependents Won’t Benefit

When the 0% tax rate was originally enacted, college aged kids (who perhaps received a gift of appreciated stock from their parents to sell and help pay for college) were expected to be prime beneficiaries of the favorable rate. However, because of a recent change in the so called kiddie tax (a provision that generally taxes dependents’ investment income at their parents’ tax rate), individuals through age 23 are now much less likely to benefit from the 0% rate unless they’re either not a full-time student or a full-time student whose earned income for the year is greater than half the cost of their support.

Conclusion

Because qualifying for the 0% rate is so fact specific, low-income taxpayers (such as an older child who is no longer a student or who is beyond age 23 or a parent that you’re helping support) as well as certain very high-income taxpayers who have mostly capital gain or qualified dividend income and little in the way of other taxable income can all potentially qualify.

As you might imagine they don't make this easy. The key is to understand the rules and the options, if any, that are available to improve the changes of qualifying. As you plan your year end moves make sure you take into consideration this 0% tax free opportunity. Let us know if we can help.

GROWTH IN THE HAIR COLOR BUSINESS

If you're in the color business, we thought you might be interested in an article from the March issue of Modern Salon - HAIR COLOR BUSINESS: GREAT GROWTH by Cyrus Bulsara. Below are some highlights.

During the 2002-2007 period, when the all hair care products taken together grew only 3.2 percent, hair color product sales grew at 6.3 percent, nearly double the overall market growth rate.

At $644 million in 2007, it is the largest salon hair care product category.

In the salon, hair color is projected to grow at approximately 5.5 percent over the next five years, with most of the business, understandably, on the service side.

In 2007, hair color services at salon level grew by 5.3 percent from $12.54 to $13.20 billion.

In 2007, dollar shipments of permanent hair color in both liquid and creme/gel form together total $343 million and constitute 53 percent of hair color sales.

Cremes and gels constitute 30.1 percent of the category and permanent liquids contribute 23.1 percent.

Semi- and semipermanent products are now rather flat, although at 20.2 percent they form the second largest segment of salon color.

Bleaches and lighteners rank third and constitute a 10.4 percent share of hair color with sales of $67 million.

Color refreshers also show good growth for a segment share of 8.4 percent. These mainly consist of salon retail products for use between hair color services.

FASTEST GROWTH

Service Type

Cutting & Styling: In 2006 25.85; In 2007 26.55; 2.7 % Increase

Hair Coloring: In 2006 12.54; In 2007 13.20; 5.3 % Increase

Perming & Relaxing: In 2006 8.64; In 2007 8.81; 2.0 % Increase

Total of hair care services: In 2006 47.0; In 2007 48.6; 3.3 % Increase

COLOR BY NUMBERS
Segments in 2007

Permanents - creme: 194 Million; 30.1 % of Total

Permanents - liquids: 149 Million; 23.1 % of Total

Semi-Demipermanents: 130 Million; 20.2 % of Total

Bleaches/lighteners: 67 Million; 10.4 % of Total

Color refreshers: 54 Million; 8.4 % of Total

Temporaries: 32 Million; 5.0 % of Total

Toners: 18 Million; 2.8 % of Total

Total: 644 Million; 100.0 $ of Total

THE LOTTERY IS JUST ANOTHER TAX

Over the years, many people have described lotteries as taxes on stupidity and taxes on people with no math skills. I still got a kick out of this scene from the most recent episode of Reaper, where Ray Wise as the Devil claims that he invented the lottery and has a familiar nickname for it.

WHERE IS MY REBATE CHECK?

We have received questions lately from people that have not received their rebate check. I think we have already posted just about every bit of information available regarding the Stimulus Rebate, but there are a few items worth repeating.

To view these items, go to our website at www.kopsaotte.com. Click on Forms and Publications, and then select Answers to Your Stimulus Payment Questions.

GAS $10.00 PER GALLON

I remember the "good old days" when gas was less than $1.00 per gallon. That's not all. An attendant would come out to your car; fill your tank; wash your windows; check your oil; air your tires... and you would get a set of silverware as a promotion. Those days are gone.

Here is an interesting article that estimates what would happen if gas went to $10.00 per gallon. There is a calculator in the article that estimates your gas cost should this happen. What If Gas Cost $10 A Gallon?

SALON SOFTWARE

If you are looking at installing or changing salon software, there is a very interesting article you should look at in the May 2008 issue of Modern Salon. In this two page article, they feature SalonBiz, Salon Transcripts, and Millennium Software by Harms. We have clients that use all three of these software programs, and they are all excellent.

Also, we have on file a comparison from an earlier magazine on the various software programs. If you are interested, let me know, and I would be glad to email you the information.

Larry Kopsa CPA

SALON RETENTION RATES

Every once in a while we are asked about Retention Rates for new and repeat business. We are looking into compiling a list with a new population of numbers. If you could send us your retention rates (and if we get enough of a response) we'll post the averages so you can compare with other salons of your size.

Remember, confidentiality is very important to us. We would never disclose client names or any client information without permission.

TAX BREAKS FOR HYBRID VEHICLES

As the price of gas continues to go up we have been receiving questions about hybrid vehicles.You may find the following information helpful.

A purchaser of a hybrid passenger automobile is allowed a tax credit of from $400 to $3,400 depending on the model. A credit is usually more advantageous than a deduction because a tax credit is subtracted dollar-for-dollar off the bottom line of your federal tax bill, while a deduction simply reduces taxable income. The credit applies to both business and personal vehicles.

The amount of the hybrid credit depends on the fuel efficiency of the vehicle. The more gas it saves, the higher the credit. However, calculating the credit is a bit complicated, with the exact amount of your credit depending on three separate factors: the weight of the vehicle, its fuel economy, and its lifetime fuel savings. IRS has certified various hybrid models made by Ford, General Motors, Toyota, Honda, Nissan, and Mazda as qualifying for the credit. In each case, the certification specifies the amount of the credit for the particular model.

However, the law limits the credits to 60,000 hybrid vehicles from each automaker. This total includes all brands sold by the particular automaker. Thus, for example, the Ford total includes Ford and Mercury hybrids. Once a manufacturer has sold 60,000 hybrid vehicles, the tax credit for that manufacturer's hybrids is slowly reduced over the next five consecutive quarters, eventually dropping to zero.

Honda hybrid sales reached the 60,000-vehicle limit during the calendar quarter ended Sept. 30, 2007. As a result, the credit for Honda hybrid vehicles is being phased out. For Honda hybrid vehicles purchased after Dec. 31, 2007 and before July 1, 2008, the credit is 50% of the otherwise allowable credit amount. Honda hybrids purchased after June 30, 2008 and before Jan. 1, 2009 qualify for 25% of the otherwise allowable credit. Toyota hybrid sales reached the 60,000-vehicle limit during the calendar quarter ended June 30, 2006. Accordingly, the credit for Toyota hybrids has completely phased-out. After Sept. 30, 2007, purchasers of Toyota (including Lexus) hybrid vehicles cannot claim the related tax credit. Hybrid vehicles built by the other hybrid manufacturers haven't yet reached the 60,000-vehicle limit, and thus continue to qualify for the maximum credit allowable.

Here are some additional points about the credit:

In general, the credit is allowed to the vehicle owner, including the lessor of a vehicle subject to a lease. Thus, if you lease a hybrid (rather than purchase it), you won't qualify for the credit.

The credit is allowed in the year the vehicle is placed in service.

The vehicle must be used predominantly in the U.S. to qualify for the credit.

The original use of the hybrid auto must begin with you, i.e., the vehicle must be new.

The credit isn't allowed if you buy the hybrid auto for resale.

No credit is allowed for the portion of the cost of any property taken into account under Code Sec. 179, the expensing election provision.

Please email us at lkopsa@kopsaotte.com if you would like to receive additional general information about hybrid vehicles, or if you would like to be advised in connection with a specific purchase.

FUEL FOR THOUGHT

With the average gas prices climbing up to $3.79 per gallon, we thought a little humor might help us to make the best out of an expensive situation.

LEASEHOLD IMPROVEMENTS

Hi Larry,

Do you get many salons that utilize Section 179 deductions for leasehold improvements? Thanks, Ben

Ben, We use §179 whenever it is to the client's advantage. The problem with leasehold improvements is that, by statute, it does not qualify for §179. Only personal property qualifies. Therefore, with the exception of the 50% up front write off provided by the 2008 Stimulus Bill, leasehold improvements are 39 year property and must be taken over that period of time regardless of the lease term.

One planning technique that we use is what is referred to as Component Depreciation. In essence, we analyze the leasehold improvement to determine if there is any part of the improvement that would qualify as personal property and therefore be subject to §179. We are usually pretty successful in finding that most salons and spas that do leasehold improvements are missing this tax planning opportunity and overpaying their tax.

Let me know if I can be of further assistance.

Larry Kopsa CPA

RETAIL COMMISSION SCALE

Larry, I like the scale your prepared for me. Here's the major problem we have in our salon with retail. From the stylist's perspective: They see service as 50%, and retail as 10%. They know that $500 a week in service commissions corresponds to about $25 a week in retail. Their tips are even greater than the retail! They don't want to risk losing services, tips or customers by "pushing" retail without a justifiable reward. Jim

Jim, This is a problem that most salons have. In most salons that I work with the services pay for the fixed costs and a majority of the profit comes from retail. I think that the solution to selling retail is to have systems in place so that everyone knows that it is their job to offer retail during, and at the end of the service.

Festoons has two salons, one in Berkley and one in San Francisco. Their selling systems are so good that they can't keep products on the shelf. You might want to check out their video and workbook. In my opinion it says it all about having systems.

http://festoonsalon.com/edu_profitability.html.

Festoon owners, John and Melissa Ryan, spoke at the PBA Symposium. They realized people only heard a small percentage of what they were talking about, so they and created The Festoon Retail Video and Workbook. The video is for anyone in the industry who wants to learn how to connect with the client through a systematic way of retailing. The workbook covers everything in the video as well as how to evaluate your current retail situation, from the products you're selling to your relationship with your companies.

Having systems in place also lets the people that work for you (don’t forget that) know that giving the clients an opportunity to buy is important and not an option.

The other thing you might consider to counteract the % difference is to put it in an hourly perspective. For example, a stylist works 32 hours and sells $400 of product. The commission is $40.00 or, to put it another way, $1.25 per hour. What would they do if their spouse got a $1.25 per hour raise? Celebrate I am sure.

Let’s take that another step. Let’s make sure they know what they could do with that money. Ask this, “If you had $2,000 what would you do with it? Vacation, pay down credit cards, savings, pension, clothes, gifts for kids… the answers go on and on. Well it is easy… if you sold $400 of retail a week, in just $80 per day you would have your wish.

Finally, the thing I don’t like but sometimes will jumpstart retail is contests. I hate having to do a contest to have people do what they should be doing anyway, but maybe this would give them the confidence to know that they can sell the products.

Keep me posted.

Larry Kopsa CPA

THE DIFFERENCE BETWEEN TAX PREPARERS AND TAX PLANNERS

In a recent magazine there was an article about taxes, asking which tax preparer gives you the best return. One of the things we at Kopsa Otte pride ourselves in is that we are more than just tax preparers... we are tax planners. As tax planners we use our knowledge, education and creativity to help people minimize their income tax bill. Preparers, on the other hand, just fill out forms.

In the article, Author Jennifer Pellet shadowed "Scott," a freelance photographer, and his wife "Zoe," a government lawyer, as they prepared their taxes with "The Cheap, Do-It-Yourself Time Sucker" (TurboTax), "The Dependable Chain" (H&R Block), and "The Pricey, Fast, Confidence-Inspiring Firm" (Amper, Politziner & Mattia, CPAs). (Click here for the full article.)

Here was the magazine's bottom line:

TurboTax: 6.5 hours and $114 price to calculate a $2,466 refund. Cheap and private, but with "annoyingly chirpy" pop up windows pushing other Intuit offerings.

Block: 2.5 hours and $395 to calculate a $2,442 refund. Fast, predictable, and convenient, but no privacy.

The CPA: 2 hours and $1,000 to calculate a $3,620 refund. Staffers who exude confidence and a closed-door setting that "feels right when you're sharing such private information" -- albeit at a price. Also, the winner!

Why was the client so much happier with the CPA? She took a proactive look at Scott and Zoe's return, writing off the difference between what they were deducting in health insurance as a couple and what they should have deducted for the self-employed husband. That one move dropped their taxable income, and even dropped their AGI low enough to qualify their Roth IRA contributions for the 10% Saver's Credit.

"Sure, her fee was $605 more than Block's, but her value to the client was $1,178 more. So where is the value?"

If you have not done so you should consider our Income Tax Second Opinion package. In this package we review your past tax returns and then talk to you about your tax situation and make recommendations on strategies to minimize the amounts going to the IRS. Why not put a tax planner and a specialist in the industry to work for you? The price is normally $250 but for the first 10 people that contact us we will do the second opinion for a measly $150. Contact Amanda at 800.975.4829 to sign up.

CHANGING OUR STRATEGY

One day, there was a blind man sitting on the steps of a building with a hat by his feet and a sign that read: "I am blind, please help." A creative publicist was walking by and stopped to observe. He saw that the blind man had only a few coins in his hat. He dropped in more coins and, without asking for permission, took the sign and rewrote it.He returned the sign to the blind man and left.

That afternoon the publicist returned to the blind man and noticed that his hat was full of bills and coins. The blind man recognized his footsteps and asked if it was he who had rewritten his sign and wanted to know what he had written on it. The publicist responded: "Nothing that was not true. I just wrote the message a little differently." He smiled and went on his way.

The new sign read: "Today is Spring and I cannot see it." Sometimes we need to change our strategy. If we always do what we've always done, we'll always get what we've always gotten. I hope you have a wonderful day! Spring is finally here and I thank God that I can see it.

STAFF RETREAT

We just returned from our annual Staff Retreat where we held a 3-day meeting at the Embassy Suites in Omaha's Downtown Old Market.

Our goals were to bring our team together for team building and fun, to clearly communicate our company strategy, and to exchange information between staff. Our Retreats play an integral part in helping our Firm to reach our goal of Constant Improvement.

Our guest speaker, Rita Rocker with the Transformation Academy, spoke about the importance of Dining Etiquette, Communicating with Confidence, and the Image of Success. This was entertaining as well as educational, and even included color makeovers.

We spent the next two days discussing our systems and procedures, brainstorming ways to improve upon them, and then setting goals that are tied to our vision statement. Our free time was spent enjoying each other's company, eating wonderful food, and walking through Omaha's historic Old Market.

We came home from the Retreat with a closer knit team and some wonderful ideas that will help to enhance our Firms productivity.

QUESTION ABOUT INCENTIVE REBATE

Larry, I filed electronically, received my refund via direct deposit but, despite my SS# ending in 15, I have not yet received any deposit for the economic incentive initiative which according to reports, should have been deposited 5/2. Turbo Tax indicated I would get the $600.00. Thanks for your response, Carl

Carl, You are not the only one that has not received their refund. The IRS says to wait 60 days. Let me know if you get your electronic deposit. If you don’t receive it, let me know and we will see if the IRS has set up any procedures to track.

It is a pleasure serving you.

Larry Kopsa CPA