BRRRR! SNOW BLANKETS LONDON AS HOUSE OF COMMONS APPROVES GLOBAL WARMING BILL

(The UK Register) -- Snow fell as the UK's House of Commons debated Global Warming yesterday -- the first October snow fall in the London metropolis since 1922. The Mother of Parliaments was discussing the Mother of All Bills for the last time, in a marathon six hour session. In order to combat a projected two degree centigrade rise in global temperature, the Climate Change Bill pledges the UK to reduce its carbon dioxide emissions by 80% by 2050. The bill creates an enormous bureaucratic apparatus for monitoring and reporting, which was expanded at the last minute. In the Commons, there wasn't an out-and-out skeptic to be found. It was 90 minutes before Member Peter Lilley, in amazement, asked why there hadn't been a cost/benefit analysis made of such a major change in policy. He was told to shut up by the Deputy Speaker. Lilley was one of only five out of 653 Members to vote against the Climate Bill in its second reading.

WORDS OF WISDOM

The happiest people don’t necessarily have the best of everything. They just make the best of everything. - Author Unknown

RENTING YOUR HOUSE TO YOUR CORPORATION

Larry, is it possible to rent out my vacation home for a business? Tina

Tina, I received your note about the possibility of renting your house to your corporation and taking a deduction. I think this is an excellent idea, as long as we follow the rules.

First of all, the tax law allows you to rent out your house for 14 days tax free. The income that is received for those 14 days is not taxable to you. At the same time, you do not have to reduce any of your interest or real estate taxes as a deduction. This 14 day rule is what is referred to as de minimus (meaning so small, not worth the effort to keep track of).

An important element of audit proofing this deduction is making sure that you have good documentation; documentation at the time that you’re using the house for your staff training. You can attain this with the following:

• Pictures of the event


• An agenda for items that are going to be covered during each of the days


• A signed log of people in attendance

The other item that you need to do is document the fair market value of the rental. You can do this by going to different venues that offer space for daily meetings and determine what that reasonable cost would be. Keep a file of this in case the IRS ever wonders how you arrived at the fair market rental. You want to be aggressive but remember the old saying, “Pigs get fed and hogs get slaughtered.”

You would want the corporation to write a check to you personally. This check would then be deposited into your personal account.

Remember that 100% of the food and beverages that you provide at those meetings would be deductible. Many times people erroneously only deduct 50% of the food and beverages. Keep this separate in your QuickBooks.

If you have any other questions on this or other matters, please feel free to contact me.

It is a pleasure serving you.

Larry Kopsa, CPA

SWITCHING FROM EMPLOYEE TO INDEPENDENT CONTRACTOR

Larry, payroll taxes are killing me. Now I find out that I am supposed to pay payroll taxes on the tips that my staff is receiving. A friend of mine told me to just make all of my workers independent contractors. She said that she changed her people over and it is working great. Before I switch I thought I would see what you thought. Valerie

Valerie, I hope this finds you well. You recently emailed me asking about switching your people to becoming 1099’s or independent contractor as apposed to employees. I concur with you that this would be great if you could avoid paying payroll taxes and fringe benefits on all the people that work there, unfortunately this is not legal.

I know that you can find several salons in California that do this. Unfortunately, we are seeing a lot of activity now, not only with the IRS looking at the status of individuals but also the EED coming in. I personally have one new client that we just started working with that had the EED come in and they had to write a check for $30,000 in penalties. We are still working on that case to see if we can get those penalties reduced. I also have talked to other salons that have the same problem. It seems like the State of California, in their effort to find money, is looking under every rock and this is a rock where they can easily find money. You don’t want to go there.

In addition to this, the IRS is looking at independent contractors. If you would go to www.IRS.gov and key in Form SS-8 you would find a form that gives you an idea of what the IRS looks at when they are determining whether a worker is an independent contractor or an employee. You can see by the twenty or so questions that if you have any control of the individuals at all, then they are probably your employees. As we say out here in the Mid-West, “if it walks like a duck and talks like a duck, it’s probably a duck.” In addition to this, the IRS has several other weapons that they are using to identify misclassified workers. One of the new items they are using is red flagging every company that has over five 1099’s greater than $25,000.

If you would like to discuss this with me, please feel free to give me a call.

It is a pleasure serving you.

Larry Kopsa CPA

SOME THINGS NEVER CHANGE

Did you possibly think that we were the first to have problems? Some things never change!!

“The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest we (Rome) become bankrupt. People must again learn to work, instead of living on public assistance.” Cicero — 55 BC

STAY ON TOP OF THE SALON INDUSTRY

I read all of the salon magazines. My wife thinks I just like to look at the pictures; but the truth is, it's a great way to stay on top of the Salon Industry.

One publication that gives me the best insight into the industry (but no pictures or fluff) is the Beauty Industry Report Newsletter. Editor, Mike Nave, provides straight information and facts without all the glitter. It is one publication that I read the day that it hits my desk. If you're interested in receiving the BIR Newsletter, email bironline.com for a free copy.

AUTO DEDUCTIONS

The attached is a good summary of the rules for auto deductions. Let me know if you have any questions: Maximizing Car and Truck Deductions.

It is a pleasure serving you.

Larry Kopsa CPA

EVERYTHING YOU WANTED TO KNOW ABOUT AIRLINE FEES BUT WERE AFRAID TO ASK

Here is the perfect list that puts together all the fees that the airlines now charge their customers.

One click to:
http://www.swabiz.com/travel_center/pod_chart.html
and you can see what each airline charges for everything from making a reservation by phone to checking in oversized baggage.

Here’s how you can pay $702 in fees on your next $120 flight from Omaha to Chicago.

If you looked at the chart above at all the fees, you can see how crazy they are. To illustrate, I thought I would build a hypothetical flight to go golfing in Chicago taking my golf clubs on the trip. The cheapest airfare is a bargain for about $120 roundtrip. Now come the extras. First, lets assume you check in two bags each way ($15 for the 1st and $50 for the 2nd = $65 each way = $130 total); select a special seat assignment ($25 each way = $50); have a meal ($5 each way = $10); enjoy a drink ($6 each = $12) plus add $125 each way ($250 total) for an oversized bag (golf clubs) and add $125 each way ($250 total) for one of your bags being over 50 pounds. Add all those fees up and you could actually pay an extra $702 in fees (585%) to fly the friendly skies. Maybe in the future the airlines should give away seats if you pay all the fees.

US TREASURY HUMOR

Treasury released the new US Dollar bill today.

2008 ELECTION

My dad always said don't talk about religion or politics, but I just had to pass this on.

EMPLOYERS TO PROVIDE COMMUTER BENEFITS IN SAN FRANCISCO

If you're an employer in the San Francisco area, you might be interested in the following information.

San Francisco is requiring employers to provide commuter benefits if they have 20 or more employees. In the first such mandate in the U.S., firms have these choices: Give out transit passes. Offer pretax payments of $110 per month to be used for transportation. Or provide transportation themselves.

DO SPOUSES THAT ARE COLLEAGUES QUALIFY FOR BUSINESS DEDUCTIONS?

Larry,

I read your September 18th blog: Eat, Drink, & be Deductible. What if your spouse is a partner in the business? Am I not a professional colleague?

Margaret

Margaret,

I hope that this finds you well. In answer to your question you are correct that your spouse is a colleague and there for qualifies for business deductions. Of course the IRS is always a little perspicuity when looking at related party meals and entertainment therefore we need to make sure we have adequate documentation to "audit proof" the deduction. Also we need to make sure that we are not deducting every meal. An example would be in a recent case where the taxpayer was a legal firm and they had noon meetings and therefore deducted all of their noon lunches (think the television show LA Law). In this court case the IRS won because it was every meal. We want to be aggressive but make sure that you pass the "smell test."

Let me know if you have any other questions.

It is a pleasure serving you.

Larry Kopsa CPA

QUESTION ON FILING TAXES OUTSIDE THE US

Larry,

I hope this finds you well. I have enjoyed reading your messages and am so happy I took your class. Thank you! I have a dilemma that I am looking for some incite or suggestions. My fiance and I just got married this last Friday, for many reasons, one most important is because he got a job in Thailand. We currently have a ceremony arranged for us in Mexico next year which we will still embark upon. The point is that it is almost the end of the year. He leaves at the end of this week and I go in about 5 weeks. The company he will be working for is going to be paying our social security for the U.S. But what should I do to file my taxes and then his for 2008? I will have computer and web access to file if need be. Though still I am worried on what my options are. Any words of wisdom??

Regards,
Natalie

Natalie,

It is so nice to hear from you. I think this is the first email that I’ve ever received from someone who presumably is on their honeymoon. To be married on Friday and to be contacting an accountant on Monday says a lot for your question.

I believe your question is how to go about filing your 2008 tax return? The tax law is quite clear on this. Since you are married, you will either have to file as married filing jointly or married filing separately. Since you will both be out of the United States on the filing date of April 15, you are given some additional time to file your tax return. There are some special rules regarding people working in foreign countries. It is very possible that your husband may qualify for some tax free income and possibly housing allowance.

I hope this answers your questions. If you have any follow up, please feel free to contact me.

It is a pleasure serving you. Best of luck and congratulations!

Larry Kopsa, CPA

QUESTION ON HANDLING TIPS

Larry, I'd like your advice as to whether we're handling our tips the right way. We add 10% to the service charge and then we add that amount, after deductions, to our staff's checks. Is this the right way? William

William, it’s nice to hear from you. You have asked if the way you are handling your tips are correct. I understand that you are adding 10% to the charge as a tip, doing the deductions and putting the amount in the employee’s regular payroll. Although the way you are doing this really appears efficient and most likely would pass IRS muster should they audit you, technically you still need some additional documentation from your stylist.

The law is quite clear in that you do need to receive a Form 4070A the 10th day of the following month from the employees telling how many dollars in tips they received in the prior month. In your case, I think you could just have them report to you the tips they received that were not run through the cash register. If they do report any additional tips, then you would have to withhold based upon this additional amount.

Having the signed 4070A’s even though they put zero amounts, would protect you in case you had an auditor that was really following the law to the “T”. As I mentioned above, I think that what you are doing is probably more than most, but this additional step would help you to solve this problem. For more information on this you might go to: www.irs.gov and in the upper right hand corner, key in Publication 3138, which gives you a general overview. In addition to this there are publications 531 and publication 1244. The publication 1244 is a booklet that gives you the form 4070A that I discussed above.

If you do have any further questions, please feel free to contact me.

It’s a pleasure serving you.

Larry Kopsa CPA

QUESTION ON PARTIES IN THE HOME

Larry, Are parties in the home for my employees (Employee Appreciation events like BBQ's, Christmas Parties, etc.) deductible as entertainment expenses? If so, at what percentage? Should I track these costs under Entertainment Expense or Meals Expense? What about gifts given to employees at something like a Christmas party? Oh, you might need to know that I'm a Sole Proprietor. Thanks! David

David, Okay, here is the deal. Since you are a sole proprietor you need to determine what the fair value of your home is to rent out for one day. You can document this by checking with a hotel or other venue that rents space. You can then have the business write you a check for that amount. This expense will be deductible to the business but, since you are renting out your home for less than 14 days, it is considered deminimus (big word for small) therefore it is not taxable to you. I would always try to be on the high side of reasonable.

Regarding all of the food and beverages, again have the business purchase. Since this is a company wide event, such as a party or picnic, the entire amount is deductible. It is not subject to the 50% limit for meals and entertainment. Enjoy the leftovers.

Finally, document the event with a written list of who is there. Pictures also serve as good documentation.

It is a pleasure serving you.

Larry Kopsa CPA

ITS NOT ONLY THE IRS THAT IS INTERESTED IN WORKER CLASSIFICATION

We have talked to several salons in California that have had the state come in and challenge their worker classification. All of the states are looking under every rock they can to come up with more money. Worker classification is a pretty easy way to put money in the state coffers.

Here is a good article on what happened in California nail salons. If you are using independent contractors, beware.

http://www.sacbee.com/101/story/817979.html

MORE ON FDIC

RUMORS

I recently published a blog entry on FDIC. There are a lot of rumors going around regarding FDIC Protection. Snopes.com addresses some of these rumors in their article: FDIC AND YOU. I thought you might be interested.

BAILOUT PLAN

You may have already seen the We Deserve It Dividend, an article by T.J. Birkenmeier, proposing to give $85,000,000,000 to America, instead of using this money to bail out banks and lending institutions.

A client who sent this link to me was all for voting this guy in as President. I read the article and, being a "math guy", noticed that the decimal was off three digits, which totally blew Birkenmeier's plan out of the water. Snopes.com realized the error as well. Check it out by clicking on the link above.