THOUGHT FOR THE DAY

OPEC sells oil for $136 a barrel.

OPEC nations buy U.S. grain at $7 a bushel.

Solution: Sell grain for $136 a bushel.

Can't afford it?

Tough!

Eat your oil!

Ought to go well with a nice thick grilled fillet of camel!!!

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, Erin

Erin, You are not the only one that has not received their refund. I am assuming that you filed your return by April 15th. If you go to the IRS web site www. IRS.gov on the first page at the top there is a link to the stimulus dates. Your date depends is you had a paper or electronic payment. 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

Larry, I received my incentive check today. I did hear from the govt. (by mail) that electronic filers who paid a fee would receive via regular mail, and with my social ending in '15', it would be mailed out on the 23rd - and to expect it by 3 days later, so sure enough. Sure relieved, as I had spent it in advance. Thanks for taking the time to reply. Erin

Erin, Good for you!

NEW MILEAGE RATES

Due to rising gas prices, the mileage rate will increase by eight cents to 58.5 cents a mile for all business miles driven from July 1 through Dec. 31, 2008. The new rate for computing deductible medical or moving expenses will also increase by eight cents to 27 cents a mile. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile. See news release IR-2008-82 and Announcement 2008-63.

Although this is good news, depending on what you drive this may not cover the cost of the business use of your vehicle. The mileage method is commonly used by taxpayer, but with the high cost of gas, calculating your auto expense using the actual method may keep you from wasting money on taxes.

MY DAD ALWAYS TOLD ME, "SON DON'T TALK ABOUT RELIGION OR POLITICS"

Although I try to take my fathers advice not to talk about politics, I think that it is important for you to know what the two presidential candidates are proposing as changes to the federal tax system.

The 2008 presidential election promises to be a spirited campaign. Now that the Democrats have voted Hillary off the island, we can watch Barack Obama and John McCain explore their differing visions for America in a dignified, intellectual manner, reminiscent of the famed "Lincoln-Douglas" debates that set such a responsible tone for presidential politicking. Unless, of course, the campaign consultants have their way, in which case we can expect a slug fest that makes the "Thrilla in Manila" look like a local school board race.

I'm looking forward to seeing each candidate's Vice-Presidential pick. Obama should probably look to someone older and more conservative, with a military background -- in other words, John McCain! (Just a little humor).

To help you see the differences, we've prepared a chart outlining each of their main proposals in the areas of income taxes, employment taxes, estate taxes, and health care financing.

You'll find McCain's proposals, for the most part, to be what you'd expect from a reputed "maverick" Republican looking to shore up support with his party's base. Make the Bush tax cuts permanent. Require a three fifths Congressional majority to raise taxes. Cap the estate tax at 15% and apply it only to estates topping $10,000,000. But McCain also proposes to eliminate the deduction for employer-provided health insurance (currently a $90.6 billion annual tax preference) and replace it with a credit of $2,500/person and $5,000/family for health insurance premiums. (This would likely eliminate the deduction for Medical Expense Reimbursement which is a great tax break for many small businesses.)

Similarly, Obama's proposals are mostly what you'd expect from a progressive Democrat. Keep the "best" part of the Bush tax cuts benefiting married couples, families with children, and small businesses. Restore the 36% and 39.6% marginal rates on the highest earners, and raise the capital gains rate back to 20% or even 28%. Establish new, refundable tax credits for students and homeowners who don't itemize. But Obama's plan includes a wild card too -- specifically, eliminating the current $102,000 "wage base" on income subject to Social Security (and self-employment) tax.

Of course, merely proposing a specific change doesn't mean we'll actually see it become law. If McCain wins, he'll likely face a Democrat-controlled Congress, which would greet his proposals skeptically. If Obama wins, he's unlikely to enjoy veto-proof majorities in either house.

To make sure that I am following the wisdom of my father, I am talking policy here not politics. I certainly don't want to intimidate or offend anyone.

Please let me know if you have any questions.

Larry Kopsa CPA

"CAMPAIGN 2008" TAX COMPARISON

RATES

Obama

• Expand 10, 15, 25, and 28% rate brackets
• Restore 36% and 39.6% rates for highest incomes
• Increase capital gains rates from 5% to 10% and from 15% to 20 or 28%
• Tax "carried interest" earned by private equity & hedge fund managers as ordinary income

McCain

• Make Bush tax cuts permanent
• Require 3/5 Congressional majority to raise taxes

CUTS/CREDITS

Obama

• Permanently adopt current rules for marriage penalty relief, expanded Child Tax Credit, and expanded Adoption Tax Credit
• Eliminate tax on seniors earning < $50,000
• Expand EITC
• Create refundable "Universal Mortgage Credit" equal to 10% of interest payments for non-itemizers
• Expand Saver's Credit; make refundable
• Create refundable "American Opportunity Tax Credit" for first $4,000 of college costs
• Make R&D Credit and R&E Credit permanent
• Expand Production Tax Credit for 5 years; add incentives for renewable energy

McCain

• Raise personal exemption for dependents to $7,000
• Expand first-year expensing for new equipment and technology

EMPLOYMENT TAXES

Obama

• Impose Social Security tax on employment income over $250,000
• Create refundable "Making Work Pay" tax credit of 6.2% of earnings up to $8,100]

McCain

• No Changes

ESTATE TAX

Obama

• Freeze tax at 2009 levels

McCain

• Cap tax at 15% on estates over $10MM

ADMINISTRATION

Obama

• Give taxpayers option to accept IRS-completed forms to verify, sign, and return

McCain

• No Changes

AMT

Obama

• No Changes

McCain

• Permanently repeal AMT

HEALTHCARE

Obama

• Create national public plan for individuals and small employers

McCain

• Eliminate tax breaks for employer-provided health insurance; replace with tax credits (($2,500/individuals, $5,000/families) for buying insurance

WATCH OUT FOR THIS SCAM

There are scam artists all over, taking advantage of us as people. I just received a form from one of my clients in California with “Disclosure Statement Board of Business Compliance Annual Minutes Division” requesting they fill out the information about the corporation and submit $125.

The clients sent it on to me, and in looking at this I had not heard of it before. I have done some checking on the internet and read the instructions much closer, and this was basically a scam.

It seems all you need anymore is a printer that can print a legal looking form and a post office box and you can rip people off.

My warning is don’t take everything for granted. Check very closely before you pay these amounts that are fairly immaterial, but certainly add up.

If you are concerned that you are being scammed, it pays to Google the entity to see if there is information. Here are some online resources that you can use:

http://www.fraud.org/

http://www.ftc.gov/

http://www.bbb.org/

YOUR BUILT IN TAX SHELTER - HIRE YOUR KIDS

The New York Times recently reported that the 2008 job market is shaping up as the weakest in 50 years for teenagers seeking summer work. (Welcome to the real world, kids!) But if you own a business you can create real savings by hiring your kids for the summer or maybe even for the entire year.

Here are the rules:

· Wages you pay to children (or grandchildren, and even parents) are a deductible business expense if you pay them to perform bona fide work for your business and you pay them reasonable compensation for that work.
· Your child can earn up to the standard deduction for single taxpayers ($5,450 for 2008) before they owe regular tax on their income. The next $8,025 is taxed at just 10%. Earned income is not subject to the "kiddie tax" for children under 19, or dependent full-time students under 24.
· The Tax Court has approved payments to children as young as seven years old. Several commentators have suggested paying children under that age to model for your marketing materials -- but that is untested, and would require you to determine a "reasonable compensation" for that work. (Better have an awfully cute kid!)
· Your child's work should be directly related to your business.
· "Reasonable compensation" is an amount that would be similar to amounts paid for similar services by similar businesses under similar circumstances -- with adjustments made for the employee's age and experience.
· To verify your a child's employment, keep a time sheet showing dates, times, and services performed.
· Pay your child by check (to verify payment from the business) and deposit the check in an account in the child's name (to verify payment to the child). The account could be a Roth or regular IRA, Section 529 College Savings plan, or even a custodial account where you manage funds yourself.
· You can't use funds from a custodial account for obligations of parental support. However, private and parochial school, summer camps, and similar "extras" aren't considered "obligations" of parental support. You've got lots of places to put those wages besides your kids' "pizza and Nintendo" fund.
· If your business is taxed as a proprietorship or partnership (and, in the case of a partnership, you and your spouse own all of the partnership interest), no FICA is due on your child's wages until they turn 18. No FUTA is due until they turn 21.

Hiring family members creates obvious tax savings by shifting income to lesser-taxed children. But it also may let you establish employee benefit programs, like the Section 105 Medical Expense Reimbursement Plan and Education Assistance Plan, on their behalf if you have the right fact pattern.

Hiring kids should be a key year-round strategy.

DID YOU MISS THE TELESEMINAR?

If you missed the Independent Contractor Teleseminar on June 16th, check out Spalutions to see when the interview will be posted: Spalutions Career Success Teleseminar.

QUESTION ON COLLEGE VERSUS SALON SCHOOL

Larry, I remember reading something about how much money I could make as a stylist vs going to college. Could you tell me where to find this information again? Thanks - Carla

Carla, You're right. This information was published on our blog back in January. We have a tool on our website that shows 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: College Versus Salon School.

It's a pleasure serving you.

Larry Kopsa CPA

JUST FOR LAUGHS

John was a salesman's delight when it came to any kind of unusual gimmick. His wife Marsha had long ago given up trying to get him to change. One day John came home with another one of his unusual purchases. It was a robot that John claimed was actually a lie detector.

It was about 5:30 that afternoon when Tommy, their 11 year old son, returned home from school. Tommy was over 2 hours late.

'Where have you been? Why are you over 2 hours late getting home?' asked John.'

Several of us went to the library to work on an extra credit project,' said Tommy.

The robot then walked around the table and slapped Tommy, knocking him completely out of his chair.

'Son,' said John, 'this robot is a lie detector, now tell us where you really were after school.'

'We went to Bobby's house and watched a movie.' said Tommy.

'What did you watch?' asked Marsha.

'The Ten Commandments.' answered Tommy.

The robot went around to Tommy and once again slapped him, knocking him off his chair once more. With his lip quivering, Tommy got up, sat down and said, 'I am sorry I lied. We really watched a tape called Sex Queen.

''I am ashamed of you son,' said John. 'When I was your age, I never lied to my parents.'

The robot then walked around to John and delivered a whack that nearly knocked him out of his chair.

Marsha doubled over in laughter, almost in tears and said, 'Boy, did you ever ask for that one! You can't be too mad with Tommy. After all, he is your son!'

With that the robot immediately walked around to Marsha and knocked her out of her chair.

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.

Additionally, 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 send you a copy.

Larry Kopsa CPA

MONDAY INDEPENDENT CONTRACTOR TELESEMINAR

I am honored to have been asked to speak for Spalutions Career Success Teleseminar. If you are interested in the Independent Contractor rules, here is the information: Spalutions Career Success Teleseminar Series on Monday, June 16th at 3 PM EST.

Larry Kopsa CPA

SALON DIVERSION FINALLY GETTING EXPOSURE

I received this broadcast and online article from Redken 5th Avenue NYC. It looks as though diverson is finally getting some exposure.

An ABC television station in Phoenix reported on salon diversion – both the broadcast and the online article can be viewed with the link below. The investigative article explains what diversion is, that it ultimately can rip off consumers, and that products may be contaminated. The segment reports that non-authorized stores can charge anywhere from 50% up to $5 a bottle more and the ABC15 Investigators found Redken Color Extend Shampoo for $15.69 at Safeway vs. $11.50 at the salon across the street.

Hair product diversion:
http://www.abc15.com/content/news/investigators/story.aspx?content_id=e51e6e6d-20e3-46d3-ab14-4ef79b353a53> ABC15.com (KNXV-TV) - Phoenix , AZ , USA

REBATE CONFUSION

It seems that there is still a lot of confusion on the rebate. See our website article published a few days ago. I think I have gotten around 20 questions on the stimulus topic.

Not surprisingly, the IRS website has completely contradictory information regarding this, saying both that the rebate will be factored into the net tax on the 2008 1040 and also that it will have no effect whatsoever on the 1040’s bottom line. Obviously, both those claims can’t be true.

It has been my contention from the beginning that this will be handled just as we had to do with the similar advance rebate checks a few years ago. People who did not receive their rebates via checks were able to have that amount credited on their 1040s so that they ended up receiving the same net benefit as those who receive actual checks.

Here is the real deal...

The tax rebate is an advance credit for 2008 and will be calculated on your 2008 return. Now this is important: you are receiving a portion of your 2008 credit EARLY and if you receive it once, you won't receive it again when you file your 2008 return.

And, this is important too: if you're due a higher tax rebate, you'll get the remainder next year when you file. If you received a higher rebate than you should have, you DO NOT have to pay it back. So far, so good.

A tax rebate is not interest, it's not income, it's not a dividend. Pure and simple, and this is worth saying again, the tax rebate payment is an ADVANCE CREDIT for tax year 2008 and will be calculated on your 2008 return when you file in 2009.

IF YOU ARE INVOLVED WITH A NON PROFIT - TAKE NOTE

If you serve on a nonprofit’s board, you should be aware of a recent law change that could put the organization’s tax exempt status at risk. Prior to this change, most exempt organizations other than churches and their affiliated entities, were required to file an annual return with the IRS. However, entities whose average gross receipts are no more than $25,000 annually have traditionally been exempt from this requirement. Beginning in 2008, that’s no longer true.

Small tax-exempt organizations must now electronically file a notice with the IRS called Form 990-N. This new form must be completed by organizations that are exempt from filing the more complex annual returns (Forms 990, 990-EZ, 990-PF, or 990-BL) because their gross income is below the filing threshold for these returns.

Although the Form 990-N should be very easy to file (the IRS refers to it as an e-postcard because it is so short), organizations that fail to file it for three consecutive years will lose their tax exempt status. The only way to regain a tax-exemption at that point will be to spend the time and expense of reapplying to the IRS—obviously not something that anyone will want to do.

The electronic form can be accessed through the IRS website (www.irs.gov/eo, which reroutes you to a third-party vendor, Urban Institute, who handles the filings for the IRS) or by going directly to the filing website: http://epostcard.form990.org/. As with the information filed by large organizations, the information reported on Form 990-N will be available for the public to see. The public can view an organization’s Form 990-Ns at http://www.irs.gov/app/ePostcard/, as well as download the entire database of Form 990-Ns.

The deadline for filing Form 990-N is the 15th day of the fifth month after an organization’s year-end. Thus, for organizations using a calendar-year, the deadline for reporting 2007 information has already come and gone. However, there are no penalties for filing late as long as you don’t miss three years in a row and jeopardize the organization’s exemption. Nonetheless, it’s important to set up procedures within the organization to make sure the annual Form 990-N is filed on a regular basis as each year’s accounting is concluded. In addition, it is now more critical than ever to adequately record the organization’s gross receipts to aid in determining whether the Form 990-N or the more robust Form 990 or 990-EZ must be filed.