Small business groups have complained that they got short shrift from the economic stimulus bill. It seemed like small business was completely ignored. Now as the government finally starts to deal with unemployment, President Obama now seems to agree. The problem is that some of the rhetoric that is being discussed to help small business clashes with his policy goals like health care reform, cap and trade and the card check bills.
Forbes magazine recently had a good article articulating the issues.
Click the link below to read the full story:
http://www.forbes.com/2009/12/08/barack-obama-credit-small-business-washington-obama.html?partner=alerts
Thursday, December 31, 2009
Wednesday, December 30, 2009
THE TRUTH ABOUT TIPPING
What are the guidelines on reporting tips? Do you have to report it all or is there a % of the tips that has to be reported? I have been told by an employee, former salon owner, that she will only report 50%. Please give me the truth.
Thanks,
Olivia
Olivia, as Jack Nicholson’s character Colonel Nathan Jessep said in the movie A Few Good Men, “you don’t want to know the truth.”
All tips are considered income and an employee is required to report their tips to the employer in writing (there is an IRS form 4070A that you can use). There is no 50% rule and in the salon industry (there is a percent that you can use in the restaurant industry) there is no set percent. The tips are considered additional wages paid by the employer to the employee even though the employee received the monies. The employer is to withhold from the employee based on the tips and is required to match the required payroll taxes.
Thanks,
Olivia
Olivia, as Jack Nicholson’s character Colonel Nathan Jessep said in the movie A Few Good Men, “you don’t want to know the truth.”
All tips are considered income and an employee is required to report their tips to the employer in writing (there is an IRS form 4070A that you can use). There is no 50% rule and in the salon industry (there is a percent that you can use in the restaurant industry) there is no set percent. The tips are considered additional wages paid by the employer to the employee even though the employee received the monies. The employer is to withhold from the employee based on the tips and is required to match the required payroll taxes.
The good news is that the employees need to voluntarily report the tips to you and if they under report you do not have an issue unless the IRS audits the tips and determines that the employees did not report all of their tips. At that time you would owe the additional tax but no interest and penalty. You would need to have the form 4070A or a similar signed document on file. The employee would have a bigger problem because they would owe 7.65% social security plus income tax and interest and penalty. In effect, they would be committing tax fraud by not reporting all of their income.
There is the truth.
Let me know if you have any further questions. It is a pleasure serving you.
Larry Kopsa CPA
DO I HAVE TO PAY TAXES ON BACK CHILD SUPPORT?
I am a single mom. My ex-husband did not pay support for his daughter for more than 5 years. He just came into some money and has recently paid almost all of his back support to me. Now I’m worried because my mom says I have to pay taxes on that money. I was hoping to use it to pay bills but I don’t want to use it if I need to save some for taxes.
Thank you for taking the time to answer my question.
Mandy
Good for you Mandy, plus I have some good news for you. My mom used to say, “moms are always right,” but fortunately for you, that’s not the case here.
For federal purposes, child support is tax neutral, meaning that you don’t claim it as income and your ex-husband does not get to take a deduction for paying it.
Note that my answer would be different if this was back payment of alimony.
Larry Kopsa CPA
Thank you for taking the time to answer my question.
Mandy
Good for you Mandy, plus I have some good news for you. My mom used to say, “moms are always right,” but fortunately for you, that’s not the case here.
For federal purposes, child support is tax neutral, meaning that you don’t claim it as income and your ex-husband does not get to take a deduction for paying it.
Note that my answer would be different if this was back payment of alimony.
Larry Kopsa CPA
Tuesday, December 29, 2009
QUOTE OF THE WEEK
Christmas is the time when
kids tell Santa what they want
and adults pay for it.
Deficits are when adults tell
government what they want
and their kids pay for it.
~Richard Lamm
kids tell Santa what they want
and adults pay for it.
Deficits are when adults tell
government what they want
and their kids pay for it.
~Richard Lamm
HOW THE GOVERNMENT WORKS
Once upon a time the government had a vast scrap yard in the middle of a desert.
Congress said, "Someone may steal from it at night." So they created a night watchman position and hired a person for the job.
Then Congress said, "How does the watchman do his job without instruction?" So they created a planning department and hired two people, one person to write the instructions, and one person to do time studies.
Then Congress said, "How will we know the night watchman is doing the tasks correctly?" So they created a Quality Control department and hired two people. One to do the studies and one to write the reports.
Then Congress said, "How are these people going to get paid?" So They created the following positions, a time keeper, and a payroll officer, Then hired two people.
Then Congress said, "Who will be accountable for all of these people?" So they created an administrative section and hired three people, an Administrative Officer, Assistant Administrative Officer, and a Legal Secretary.
Then Congress said, "We have had this command in operation for one Year and we are $18,000 over budget, we must cutback overall cost."
So they laid off the night watchman.
NOW slowly, let it sink in..
Does anybody remember the reason given for the establishment of the DEPARTMENT OF ENERGY.... during the Carter Administration?
Anybody?
Anything?
No?
Bottom line. We've spent several hundred billion dollars in support of an agency...the reason for which not one person who reads this can remember
Ready??
It was very simple...and at the time, everybody thought it very appropriate.
The Department of Energy was instituted on 8-04-1977. To lessen our dependence on foreign oil.
Hey, pretty efficient, huh???
And now it's 2009 -- 32 years later -- and the budget for this "necessary" department is at $24.2 billion a year. They have 16,000 federal employees and approximately 100,000 contract employees; and look at the job they have done! This is where you slap our forehead and say, "what was I thinking?"
Ah, yes -- good ole bureaucracy.
And, now, we are going to turn the banking system, health care, and the auto industry over to the same government?
HELLOOO! Anybody Home?
Congress said, "Someone may steal from it at night." So they created a night watchman position and hired a person for the job.
Then Congress said, "How does the watchman do his job without instruction?" So they created a planning department and hired two people, one person to write the instructions, and one person to do time studies.
Then Congress said, "How will we know the night watchman is doing the tasks correctly?" So they created a Quality Control department and hired two people. One to do the studies and one to write the reports.
Then Congress said, "How are these people going to get paid?" So They created the following positions, a time keeper, and a payroll officer, Then hired two people.
Then Congress said, "Who will be accountable for all of these people?" So they created an administrative section and hired three people, an Administrative Officer, Assistant Administrative Officer, and a Legal Secretary.
Then Congress said, "We have had this command in operation for one Year and we are $18,000 over budget, we must cutback overall cost."
So they laid off the night watchman.
NOW slowly, let it sink in..
Does anybody remember the reason given for the establishment of the DEPARTMENT OF ENERGY.... during the Carter Administration?
Anybody?
Anything?
No?
Bottom line. We've spent several hundred billion dollars in support of an agency...the reason for which not one person who reads this can remember
Ready??
It was very simple...and at the time, everybody thought it very appropriate.
The Department of Energy was instituted on 8-04-1977. To lessen our dependence on foreign oil.
Hey, pretty efficient, huh???
And now it's 2009 -- 32 years later -- and the budget for this "necessary" department is at $24.2 billion a year. They have 16,000 federal employees and approximately 100,000 contract employees; and look at the job they have done! This is where you slap our forehead and say, "what was I thinking?"
Ah, yes -- good ole bureaucracy.
And, now, we are going to turn the banking system, health care, and the auto industry over to the same government?
HELLOOO! Anybody Home?
Monday, December 28, 2009
MORE ON CHARITABLE CONTRIBUTIONS
Thanks for the information on charitable contributions. My mother has been making some contributions to some weird supposedly child care organization.
How do I find out if this is a legitimate charity?
Opy
Opy, it is good to double check if you are not sure. Not only on the “weird” groups but also on groups that you think would qualify. I recently had a client give money to a local Children’s Workshop only to find that they had not done the paperwork to make them a legitimate tax exempt charity. Not checking cost them the deduction.
Here is how you can check to see if the organization is qualified. As you know, only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions. The searchable online version can be found at IRS.gov under Search for Charities. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.
Larry Kopsa CPA
How do I find out if this is a legitimate charity?
Opy
Opy, it is good to double check if you are not sure. Not only on the “weird” groups but also on groups that you think would qualify. I recently had a client give money to a local Children’s Workshop only to find that they had not done the paperwork to make them a legitimate tax exempt charity. Not checking cost them the deduction.
Here is how you can check to see if the organization is qualified. As you know, only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions. The searchable online version can be found at IRS.gov under Search for Charities. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.
Larry Kopsa CPA
MORE ON THE TANNING TAX
I bet Hollywood is happy by the fact that the cosmetic surgery tax is off the table in the race to pay for health care reform.
But don’t start laughing just yet, George Hamilton. 
It’s been replaced with a 10% tax on tanning services.
It’s been replaced with a 10% tax on tanning services. And yes, it won’t raise as much money as the plastic surgery tax. That tax, referred to as the Botax, was expected to raise $5.8 billion in revenue. The tax on tanning? A measly $2.7 billion. The tanning industry, not surprisingly, opposed the tax. There is no truth to the rumor that the proposed potentially discriminatory Botax sent the wives/girlfriends/companions of our Congressional officials into a mad panic.
The problem is that most tanning salons and salons and spas tanning are small businesses. We see the numbers and we know that tanning has been down during the recession. Many of the tanning only salons are just barely keeping their head above water. This measure could be the “straw that breaks the camel’s back.”
What is next? Will salons and spas be the next victims? You wax ’em we’ll tax ‘em.
But why stop there? If they are going to impose a tax on indoor tanning why not impose a tax on outdoor tanning? It would be fairly easy. Just add a tax to all lounge furniture. The tax would be higher in those states that have more sun light and lower here in the Midwest. Maybe some type of tariff on people that vacation in Hawaii and the Caribbean?
Wait a minute. Maybe I shouldn’t give them ideas. They have enough dumb ideas the way it is.
PHONE BOOKS
Readers Digest says, "A few simple steps will keep those tree-toppling phone books from being delivered to your door. Go to yellowpagesoptout.com and plug in your zip code, suggests Rob Pegoraro of the Washington Post. You'll get a short list of companies to call to make the door stoppers stop."
Saturday, December 26, 2009
GUIDELINES FOR MONETARY DONATIONS
Now is the time when many people make year-end donations. Here is a reminder of the guidelines.
To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements.
Unfortunately, the cash you donate is no longer deductible because you would need a written confirmation. The Santa Clause ringing the bell at the Salvation Army bucket always looks at me funny when I ask for a receipt. To get a deduction I must write a check and drop it in the bucket.
These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.
Remember that contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2009 count for 2009. This is true even if the credit card bill isn’t paid until 2010. Also, checks count for 2009 as long as they are mailed in 2009 and clear shortly thereafter.
Larry Kopsa CPA
To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements.
Unfortunately, the cash you donate is no longer deductible because you would need a written confirmation. The Santa Clause ringing the bell at the Salvation Army bucket always looks at me funny when I ask for a receipt. To get a deduction I must write a check and drop it in the bucket.
These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.
Remember that contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2009 count for 2009. This is true even if the credit card bill isn’t paid until 2010. Also, checks count for 2009 as long as they are mailed in 2009 and clear shortly thereafter.
Larry Kopsa CPA
Thursday, December 24, 2009
WE SUPPORT PBA
We at Kopsa Otte are strong supporters of the Professional Beauty Association. We wish everyone belonged. Check out their website for membership information at: http://www.probeauty.org/.
PBA is definitely the "voice" for the Salon & Spa Industry in Washington. Here is a link to their video on The Power of Networking: http://www.youtube.com/watch?v=Y0g_tMHI388.
PBA is definitely the "voice" for the Salon & Spa Industry in Washington. Here is a link to their video on The Power of Networking: http://www.youtube.com/watch?v=Y0g_tMHI388.
QUESTION ON DEDUCTING USED CLOTHING
I am cleaning closets and will be giving a lot of clothing to the Salvation Army. Can I deduct this off of my taxes?
Amid
Amid, good idea if you are itemizing your deductions, which is sometimes called the “long form.” If you do itemize then the fair market value of the clothing will be deductible. This would also include household items such as old furniture.
To be deductible, clothing and household items donated to charity generally must be in good used condition or better. If it is not in “good” condition you would need an appraisal if the value is over $500. I don’t know how to get an appraisal of old clothing, but those are the rules. You would also need an appraisal if the fair market value is over $10,000.
Larry Kopsa CPA
Amid
Amid, good idea if you are itemizing your deductions, which is sometimes called the “long form.” If you do itemize then the fair market value of the clothing will be deductible. This would also include household items such as old furniture.
To be deductible, clothing and household items donated to charity generally must be in good used condition or better. If it is not in “good” condition you would need an appraisal if the value is over $500. I don’t know how to get an appraisal of old clothing, but those are the rules. You would also need an appraisal if the fair market value is over $10,000.
Larry Kopsa CPA
SOME YEAR-END REMINDERS
There are several deadlines for retirement plans, IRAs and Coverdells.
Generally, employer plans must be established by Dec. 31 to get a 2009 deduction. This includes Keoghs. But note the difference for SEPs; you have until the due date for filing your return, plus any extension. That lets you deduct 2009 payments as late as Oct. 15, 2010. There is another alternative for self employed taxpayers that missed the Keogh setup deadline. They still have time to open SEP-IRAs.
The plans have the same deduction amounts, 20% of net self-employment earnings. This is the net profit shown on your Schedule C less one-half of your SECA tax liability.
Regular IRAs must be established by April 15, 2010 for 2009 deductions. Payments are also due by April 15th even if you should extend your return.
Nondeductible payments to IRAs and Roth IRAs are also due by April 15. The same is true for contributions made to Coverdell education savings accounts.
Another reminder… if you have a flexible spending account you must clean it out by December 31st if your employer has not adopted the 2½-month grace period that the IRS now permits. If you don’t spend the money - it is lost.
Also remember to mail checks for deductible items before year-end to ensure a 2009 write-off. You get to claim the deduction this year even if the checks do not clear until January. Make sure you know the rules if you are charging deductible items. For charges that you make with a retail store credit card, you are allowed to claim the deduction for the item only in the tax year in which you pay the bill. For transactions made with a bank credit card, you take the deduction in the tax year that you charged the goods, even though you pay the bill next year.
Generally, employer plans must be established by Dec. 31 to get a 2009 deduction. This includes Keoghs. But note the difference for SEPs; you have until the due date for filing your return, plus any extension. That lets you deduct 2009 payments as late as Oct. 15, 2010. There is another alternative for self employed taxpayers that missed the Keogh setup deadline. They still have time to open SEP-IRAs.
The plans have the same deduction amounts, 20% of net self-employment earnings. This is the net profit shown on your Schedule C less one-half of your SECA tax liability.
Regular IRAs must be established by April 15, 2010 for 2009 deductions. Payments are also due by April 15th even if you should extend your return.
Nondeductible payments to IRAs and Roth IRAs are also due by April 15. The same is true for contributions made to Coverdell education savings accounts.
Another reminder… if you have a flexible spending account you must clean it out by December 31st if your employer has not adopted the 2½-month grace period that the IRS now permits. If you don’t spend the money - it is lost.
Also remember to mail checks for deductible items before year-end to ensure a 2009 write-off. You get to claim the deduction this year even if the checks do not clear until January. Make sure you know the rules if you are charging deductible items. For charges that you make with a retail store credit card, you are allowed to claim the deduction for the item only in the tax year in which you pay the bill. For transactions made with a bank credit card, you take the deduction in the tax year that you charged the goods, even though you pay the bill next year.
Tuesday, December 22, 2009
WALL STREET JOURNAL OPINION
'Health Care Bill Represents Change Nobody Believes In'
(Wall Street Journal editorial) -- In its Dec. 21 editorial, The Wall Street Journal writes that the Senate health care bill "is so reckless that it has to be rammed through on a partisan vote on Christmas Eve." The editorial states, "Barring some extraordinary reversal, it now seems as if (Senate leaders) have the 60 votes they need" to approve "the 2,100-page bill." The editorial notes a cost analysis that was recently released by the insurer WellPoint, finding "that a healthy 25-year-old in Milwaukee buying coverage on the individual market will see his costs rise by 178%. A small business based in Richmond with eight employees in average health will see a 23% increase. Insurance costs for a 40-year-old family with two kids living in Indianapolis will pay 106% more." The editorial predicts "steep declines in choice and quality," resulting from actions such as the health care bill's "$2 billion annual tax — rising to $3 billion in 2018 — that will be leveled against medical device makers, among the most innovative U.S. industries." Finally, the bill will "blow up" the federal deficit, the editorial states. "Even though Medicare's unfunded liabilities are already about 2.6 times larger than the entire U.S. economy in 2008, Democrats are crowing that ObamaCare will cost 'only' $871 billion over the next decade" as it "sets up government-run 'exchanges' that will subsidize insurance for those earning up to 400% of the poverty level, or $96,000 for a family of four in 2016." <http://online.wsj.com/article/SB10001424052748704398304574598130440164954.html?mod=WSJ_hpp_MIDDLENexttoWhatsNewsTop>
(Wall Street Journal editorial) -- In its Dec. 21 editorial, The Wall Street Journal writes that the Senate health care bill "is so reckless that it has to be rammed through on a partisan vote on Christmas Eve." The editorial states, "Barring some extraordinary reversal, it now seems as if (Senate leaders) have the 60 votes they need" to approve "the 2,100-page bill." The editorial notes a cost analysis that was recently released by the insurer WellPoint, finding "that a healthy 25-year-old in Milwaukee buying coverage on the individual market will see his costs rise by 178%. A small business based in Richmond with eight employees in average health will see a 23% increase. Insurance costs for a 40-year-old family with two kids living in Indianapolis will pay 106% more." The editorial predicts "steep declines in choice and quality," resulting from actions such as the health care bill's "$2 billion annual tax — rising to $3 billion in 2018 — that will be leveled against medical device makers, among the most innovative U.S. industries." Finally, the bill will "blow up" the federal deficit, the editorial states. "Even though Medicare's unfunded liabilities are already about 2.6 times larger than the entire U.S. economy in 2008, Democrats are crowing that ObamaCare will cost 'only' $871 billion over the next decade" as it "sets up government-run 'exchanges' that will subsidize insurance for those earning up to 400% of the poverty level, or $96,000 for a family of four in 2016." <http://online.wsj.com/article/SB10001424052748704398304574598130440164954.html?mod=WSJ_hpp_MIDDLENexttoWhatsNewsTop>
QUOTE OF THE WEEK
"Speaking of the budget, in his speech on the economy, President Obama said that we have to 'continue to spend our way out' of the recession. Now, I don't know much about economics, but aren't we like a trillion dollars in debt? Spending our way out of the recession? Isn't that like trying to drink your way out of alcoholism? I'm just saying." ~Jay Leno Monologue
Monday, December 21, 2009
OPINION: 'WHEN IT COMES TO CLIMATE CHANGE, FOLLOW THE MONEY'
(Wall Street Journal) -- Wall Street Journal columnist Bret Stephens writes that citizens should employ "follow-the-money methods" when it comes to concerns regarding leading climate scientists who have worked "in tandem to block freedom of information requests" and "obscure, destroy or massage inconvenient temperature data—facts." Stephens writes: "Consider the case of Phil Jones ... the man at the heart of climategate. (B)etween 2000 and 2006, Mr. Jones was the recipient (or co-recipient) of some $19 million worth of research grants, a six fold increase over what he'd been awarded in the 1990s." More than $94 billion in government money has been spent globally this year on "green stimulus," according to one estimate. See more at <http://online.wsj.com/article/SB10001424052748703939404574566124250205490.html?mod=WSJ_hp_mostpop_read>
TAX ON TANNING
According to an article in the Los Angeles Times, Senate Democrats inserted a last-minute provision into their health care overhaul that would tax the use of tanning beds. This tax would replace a proposed excise tax on elective cosmetic surgery that previously had been included in the bill.
Read the entire article at: http://www.latimes.com/news/nation-and-world/la-na-health-botax20-2009dec20,0,1616650.story.
Read the entire article at: http://www.latimes.com/news/nation-and-world/la-na-health-botax20-2009dec20,0,1616650.story.
Thursday, December 17, 2009
TAX BREAK FOR TIRADE?
Serena Williams, verbally attacked a line judge during the U.S. Open Championship and was hit with at $175,000 fine. The question is “can she deduct the fine?” Here is a interesting analysis. (Maybe this is just interesting to us tax people.)
STATUS OF ESTATE TAXES
Around ten years ago, congress passed a law stating that in the year 2010 there would be no estate taxes. Nobody in the tax industry felt that this would really happen. Imagine this, Warren Buffett, whose worth billions of dollars in 2010, dies and he completely escapes estate taxes. The joke in the industry was to “advise your clients to die in 2010.” That’s the kind of humor that we tax people have.
Well, everybody thought the law would change and then five years passed; and now we are here three weeks before the end of the year and congress is now starting to say, “We’re going to lose a lot of money if there are no estate taxes in 2010; maybe we should change the law.”
Now they are discussing the possibility of making sure that there is an estate tax in 2010. Best guess is that they’ll pass a law sometime before the end of the year. Maybe they’ll leave the estate tax rate at three and one half million dollars. Who knows?
Oh, that’s not all, if congress does nothing the estate tax rate will revert back to $1,000,000 in 2011 with a high rate of 55%.
We’ll keep you posted as congress deals with this issue at the last minute.
The Washington Post has more information on the Estate Tax. Click here to read: Extending The Estate Tax.
Well, everybody thought the law would change and then five years passed; and now we are here three weeks before the end of the year and congress is now starting to say, “We’re going to lose a lot of money if there are no estate taxes in 2010; maybe we should change the law.”
Now they are discussing the possibility of making sure that there is an estate tax in 2010. Best guess is that they’ll pass a law sometime before the end of the year. Maybe they’ll leave the estate tax rate at three and one half million dollars. Who knows?
Oh, that’s not all, if congress does nothing the estate tax rate will revert back to $1,000,000 in 2011 with a high rate of 55%.
We’ll keep you posted as congress deals with this issue at the last minute.
The Washington Post has more information on the Estate Tax. Click here to read: Extending The Estate Tax.
Wednesday, December 16, 2009
QUOTE OF THE WEEK
"Old age is like climbing a mountain.
The higher you get, the more tired and
breathless you become, but your view
becomes much more extensive."
Ingmar Bergman,
quoted in the Victoria, British Columbia, Advocate
The higher you get, the more tired and
breathless you become, but your view
becomes much more extensive."
Ingmar Bergman,
quoted in the Victoria, British Columbia, Advocate
Tuesday, December 15, 2009
ADDING BACK TO YOUR W-2
As you know, it is necessary to add back to your W-2 the personal use of your corporate vehicle as well as the amount of Health Insurance the corporation paid on behalf of a greater than 2% shareholder and their families.
Here is a link to the letter we sent out to all of our clients regarding this issue: W-2 Add Back.
Here is a link to the letter we sent out to all of our clients regarding this issue: W-2 Add Back.
Monday, December 14, 2009
NEW RULES FOR DISCLOSING TAX RETURN INFORMATION TO THIRD PARTIES
Federal law already strictly prohibited the IRS from making disclosures of taxpayer return information within its control to third parties except with taxpayer consent. Now there are new rules that apply only to tax return information held by income tax return preparers.
So, if you would like your income tax preparer to send copies of your tax return to a third party, i.e.-your bank, your attorney..., a specific form will need to be completed, signed and returned to your tax preparer's office. This form will be held on file for one year unless specified otherwise.
You may access the Kopsa Otte consent form on our website at www.kopsaotte.com. Here's a direct link to our Third Party Consent Form for your convenience.
Below is an explanation of the rules. Please be sure to contact us if you have any questions. (800-975-4829)
Among the new rules:
So, if you would like your income tax preparer to send copies of your tax return to a third party, i.e.-your bank, your attorney..., a specific form will need to be completed, signed and returned to your tax preparer's office. This form will be held on file for one year unless specified otherwise.
You may access the Kopsa Otte consent form on our website at www.kopsaotte.com. Here's a direct link to our Third Party Consent Form for your convenience.
Below is an explanation of the rules. Please be sure to contact us if you have any questions. (800-975-4829)
Among the new rules:
- Generally, preparers must obtain taxpayer consent, either by paper or electronically depending on how the return is being filed, before tax return information can be disclosed to any third party or used for any purpose other than filing the return.
- If the taxpayer consents to the disclosure and use of his information, the consent must identify the intended purpose of the disclosure, identify the recipients and describe the particular authorized disclosure or use of the information.
- Mandatory language informs individual taxpayers that they are not required to sign the consent; that if they sign the consent, federal law may not protect their information from further disclosure; and that if they sign the consent, they can set a time period for the duration of that consent. If taxpayers fail to set a time period, the consent is valid for a maximum of one year.
- To prevent consent requests from individual taxpayers from being buried in fine print, the rules require the paper consent documents to be in 12-point type on 81/2 by 11 inch paper and require electronic consent requests to be in the same type as the Web site’s standard text, all to prevent consent requests from being too difficult to read for individual taxpayers.
- If a taxpayer declines to provide consent for an unrelated tax preparation disclosure or use request, the preparer cannot make a similar consent request. The intent is to protect taxpayers from being pressured with repeated consent requests regarding the same issue.
- Mandatory consent from taxpayers also is required if the tax information is going to be disclosed to a tax preparer located outside the United States. This provision is intended to ensure taxpayers are informed if their tax information is being sent off-shore for return preparation. The individual taxpayer’s Social Security Number also must be redacted.
Friday, December 11, 2009
FORM 1099 AND W-2 LETTER
Here is a letter that we sent reminding our clients to issue the proper forms to all Independent Contractors. If you need more information regarding this issue, please feel free to contact us.
Re: Forms 1099 and W-2
It is that time of year again to issue 1099 forms. In order to determine this, it is necessary for employers to have a signed W-9 form on file for all Independent Contractors they hire. The IRS requires that you send a Form 1099 to all individuals (not corporations) to whom you paid $600.00 or more for services, interest or rent. There is one exception to this. Any payments to a corporation for legal fees in excess of $600.00 are reportable on Form 1099-MISC. This is very important since the IRS will match 1099’s to the individual income tax returns in order to determine whether or not all income was properly reported.
Our past experience is that, if your income tax return is audited, one of the first items reviewed is whether you submitted all of the necessary Form 1099’s. This is an easy way for the IRS to raise revenues (by charging you a penalty) and force you to comply with the law.
The penalty for not complying with the filing of Form 1099’s ranges from $15.00 to $100.00 for each form not properly completed and timely filed. If the IRS can determine that a Form 1099 was intentionally not filed, the penalty is $100.00.
Nebraska is requiring all employers to report newly hired and rehired employees to the state within 20 days of date of hire. Effective January 1, 2010 employers will be required to report all Independent Contractors in addition to the new hires and rehired employees.
Another important issue is the filing of the W-2 forms. These forms must be given to your employees by February 1, 2010.
If you would like our firm to compile the necessary information and/or prepare the necessary Form 1099’s and W-2’s for you, please sign and return the enclosed engagement letter along with the completed, appropriate 1099 and W-2 worksheets to our office. Since the first returns are due February 1, 2010 we are offering a discount if you provide us with the information on or before January 11, 2010. Of course, there is no fee for the 1099 we prepare for us. That 1099 is free. If you wish to fax your information to us, our fax number is (402) 362-5475.
If you have any questions, please contact Jane Rosenau or Cheryl Harlow at our office at (402) 362-6636 or (800) 975-4829.
Kopsa Otte
Certified Public Accountants
Re: Forms 1099 and W-2
It is that time of year again to issue 1099 forms. In order to determine this, it is necessary for employers to have a signed W-9 form on file for all Independent Contractors they hire. The IRS requires that you send a Form 1099 to all individuals (not corporations) to whom you paid $600.00 or more for services, interest or rent. There is one exception to this. Any payments to a corporation for legal fees in excess of $600.00 are reportable on Form 1099-MISC. This is very important since the IRS will match 1099’s to the individual income tax returns in order to determine whether or not all income was properly reported.
Our past experience is that, if your income tax return is audited, one of the first items reviewed is whether you submitted all of the necessary Form 1099’s. This is an easy way for the IRS to raise revenues (by charging you a penalty) and force you to comply with the law.
The penalty for not complying with the filing of Form 1099’s ranges from $15.00 to $100.00 for each form not properly completed and timely filed. If the IRS can determine that a Form 1099 was intentionally not filed, the penalty is $100.00.
Nebraska is requiring all employers to report newly hired and rehired employees to the state within 20 days of date of hire. Effective January 1, 2010 employers will be required to report all Independent Contractors in addition to the new hires and rehired employees.
Another important issue is the filing of the W-2 forms. These forms must be given to your employees by February 1, 2010.
If you would like our firm to compile the necessary information and/or prepare the necessary Form 1099’s and W-2’s for you, please sign and return the enclosed engagement letter along with the completed, appropriate 1099 and W-2 worksheets to our office. Since the first returns are due February 1, 2010 we are offering a discount if you provide us with the information on or before January 11, 2010. Of course, there is no fee for the 1099 we prepare for us. That 1099 is free. If you wish to fax your information to us, our fax number is (402) 362-5475.
If you have any questions, please contact Jane Rosenau or Cheryl Harlow at our office at (402) 362-6636 or (800) 975-4829.
Kopsa Otte
Certified Public Accountants
Wednesday, December 9, 2009
KOPSA OTTE STRIVING FOR CONSTANT IMPROVEMENT
We are proud to announce that Theresa Fritz has earned the distinguished designation of Enrolled Agent.Theresa, an accountant with Kopsa Otte since November of 2006, recently passed this three-part test administered by the IRS to earn her EA.
As an Enrolled Agent, Theresa has technical expertise in the field of taxation and is empowered to represent taxpayers before all administrative levels of the IRS for audits, collections, and appeals.
Congratulations Theresa! We're proud of your accomplishment!
TIP REPORTING IS STILL EASIER FOR RESTAURANTS
Here is what the food industry gets to do to report tips. Not for the salons and spas. Maybe someday Congress will pass legislation to give us equal footing.
IRS Extends Food Industry Tip Reporting Program
WASHINGTON — The Internal Revenue Service today extended for an additional two years its program that simplifies the record keeping burden for reporting tip income in the food and beverage industry.
The Attributed Tip Income Program (ATIP) was first announced in 2006 in Revenue Procedure 2006-30. The program, which was originally set to expire Dec. 31, 2009, has been extended to Dec. 31, 2011, under Revenue Procedure 2009-53 issued today.
Employers who participate in ATIP report the tip income of employees based on a formula that uses a percentage of gross receipts, which are generally allocated among employees based on the practices of the restaurant.
Both employees and employers benefit from participation in the ATIP program. The IRS will not initiate a tip examination during the period the employer and employee participate in ATIP. Participating employees do not have to keep a daily tip log or other tip records.
Enrollment is simple. Employers elect participation in ATIP by checking the designated box on Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips. Employees who work for a participating employer can easily elect to participate in ATIP by signing an agreement with their employer to have their tip income computed under the program and reported as wages.
IRS Extends Food Industry Tip Reporting Program
WASHINGTON — The Internal Revenue Service today extended for an additional two years its program that simplifies the record keeping burden for reporting tip income in the food and beverage industry.
The Attributed Tip Income Program (ATIP) was first announced in 2006 in Revenue Procedure 2006-30. The program, which was originally set to expire Dec. 31, 2009, has been extended to Dec. 31, 2011, under Revenue Procedure 2009-53 issued today.
Employers who participate in ATIP report the tip income of employees based on a formula that uses a percentage of gross receipts, which are generally allocated among employees based on the practices of the restaurant.
Both employees and employers benefit from participation in the ATIP program. The IRS will not initiate a tip examination during the period the employer and employee participate in ATIP. Participating employees do not have to keep a daily tip log or other tip records.
Enrollment is simple. Employers elect participation in ATIP by checking the designated box on Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips. Employees who work for a participating employer can easily elect to participate in ATIP by signing an agreement with their employer to have their tip income computed under the program and reported as wages.
Tuesday, December 8, 2009
MORE ECONOMIC NEWS
Spending will be hurt by another dip in consumer debt
Consumer spending is expected to remain weak after the release Monday of a Federal Reserve report that showed consumer borrowing falling for a ninth straight month in October. Consumer credit was down at an annual rate of $3.5 billion in October. Economists had predicted a $9.3 billion decline. BusinessWeek/The Associated Press (12/7)
Next crisis to be in commercial real estate, experts say
A crisis looms for the commercial real estate market in 2010, then for the government-debt market, particularly in the U.S., investment managers said. "I think the next shoe to drop, which will be the world's biggest shoe, is the continued decline of the dollar and ultimately the breaking of the U.S. government market, which will set the other markets on another terrible path," said Steve Shenfeld, president of MidOcean Credit Partners. The danger of default on commercial real estate also is a major threat, Shenfeld said. Reuters (12/7)
Consumer spending is expected to remain weak after the release Monday of a Federal Reserve report that showed consumer borrowing falling for a ninth straight month in October. Consumer credit was down at an annual rate of $3.5 billion in October. Economists had predicted a $9.3 billion decline. BusinessWeek/The Associated Press (12/7)
Next crisis to be in commercial real estate, experts say
A crisis looms for the commercial real estate market in 2010, then for the government-debt market, particularly in the U.S., investment managers said. "I think the next shoe to drop, which will be the world's biggest shoe, is the continued decline of the dollar and ultimately the breaking of the U.S. government market, which will set the other markets on another terrible path," said Steve Shenfeld, president of MidOcean Credit Partners. The danger of default on commercial real estate also is a major threat, Shenfeld said. Reuters (12/7)
INFORMATION ON THE EXTENDED 1ST TIME HOMEBUYERS CREDIT
I just got the information below from the IRS. I have discussed this before, but thought you might be interested. Note that the IRS is going Hi Tec… there is a U Tube link below.
10 Important Facts about the Extended First-Time Homebuyer Credit
If you are in the market for a new home, you may still be able to claim the First-Time Homebuyer Credit. Congress recently passed The Worker, Homeownership and Business Assistance Act Of 2009, extending the First-Time Homebuyer Credit and expanding who qualifies.
Here are the top 10 things the IRS wants you to know about the expanded credit and the qualifications you must meet in order to qualify for it.
1. You must buy – or enter into a binding contract to buy a principal residence – on or before April 30, 2010.
2. If you enter into a binding contract by April 30, 2010 you must close on the home on or before June 30, 2010.
3. For qualifying purchases in 2010, you will have the option of claiming the credit on either your 2009 or 2010 return.
4. A long-time resident of the same home can now qualify for a reduced credit. You can qualify for the credit if you’ve lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the new home is purchased and the settlement date is after November 6, 2009.
5. The maximum credit for long-time residents is $6,500. However, married individuals filing separately are limited to $3,250.
6. People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after November 6, 2009. The full credit is available to taxpayers with modified adjusted gross incomes up to $125,000, or $225,000 for joint filers.
7. The IRS will issue a December 2009 revision of Form 5405 to claim this credit. The December 2009 form must be used for homes purchased after November 6, 2009 – whether the credit is claimed for 2008 or for 2009 – and for all home purchases that are claimed on 2009 returns.
8. No credit is available if the purchase price of the home exceeds $800,000.
9. The purchaser must be at least 18 years old on the date of purchase. For a married couple, only one spouse must meet this age requirement.
10. A dependent is not eligible to claim the credit.
For more information about the expanded First-Time Home Buyer Credit, visit IRS.gov/recovery.
Links:
· First-Time Homebuyer Credit
· IR-2009-108, First-Time Homebuyer Credit Extended to April 30, 2010; Some Current Homeowners Now Also Qualify
YouTube Videos:
· Recovery: New Homebuyer Credit - November 2009
10 Important Facts about the Extended First-Time Homebuyer Credit
If you are in the market for a new home, you may still be able to claim the First-Time Homebuyer Credit. Congress recently passed The Worker, Homeownership and Business Assistance Act Of 2009, extending the First-Time Homebuyer Credit and expanding who qualifies.
Here are the top 10 things the IRS wants you to know about the expanded credit and the qualifications you must meet in order to qualify for it.
1. You must buy – or enter into a binding contract to buy a principal residence – on or before April 30, 2010.
2. If you enter into a binding contract by April 30, 2010 you must close on the home on or before June 30, 2010.
3. For qualifying purchases in 2010, you will have the option of claiming the credit on either your 2009 or 2010 return.
4. A long-time resident of the same home can now qualify for a reduced credit. You can qualify for the credit if you’ve lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the new home is purchased and the settlement date is after November 6, 2009.
5. The maximum credit for long-time residents is $6,500. However, married individuals filing separately are limited to $3,250.
6. People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after November 6, 2009. The full credit is available to taxpayers with modified adjusted gross incomes up to $125,000, or $225,000 for joint filers.
7. The IRS will issue a December 2009 revision of Form 5405 to claim this credit. The December 2009 form must be used for homes purchased after November 6, 2009 – whether the credit is claimed for 2008 or for 2009 – and for all home purchases that are claimed on 2009 returns.
8. No credit is available if the purchase price of the home exceeds $800,000.
9. The purchaser must be at least 18 years old on the date of purchase. For a married couple, only one spouse must meet this age requirement.
10. A dependent is not eligible to claim the credit.
For more information about the expanded First-Time Home Buyer Credit, visit IRS.gov/recovery.
Links:
· First-Time Homebuyer Credit
· IR-2009-108, First-Time Homebuyer Credit Extended to April 30, 2010; Some Current Homeowners Now Also Qualify
YouTube Videos:
· Recovery: New Homebuyer Credit - November 2009
UPCOMING NUPTIALS
We are pleased to announce that one of our very own talented accountants will be changing her status to "Married - Filing Jointly."Megan Munsell, will be united in marriage this Saturday the 12th to Mark Blinde, a Network Technician at Cornerstone Bank Technology Center.
Megan, who graduated as valedictorian of her college class, has been an accountant with Kopsa Otte since January of 2008; and she is a true asset to our Team. Remember, Megan's email address will change after this weekend to: mblinde@kopsaotte.com.
Our best wishes go out to Mark and Megan for a lifetime of happiness!
AMERICAN EXPRESS SAYS PAY YOUR CREDIT CARD BILL ON TIME OR YOU WILL LOSE YOUR POINTS
In case you haven’t heard, starting in January, American Express says that any credit cards that are cobranded with Delta JetBlue, Hilton or Starwoods won't receive reward points if you are late paying your bills. In other words, pay your bill on time or forfeit the miles or points you thought you earned for making purchases on your card during that month. To get the rewards back, it's going to cost you. You'll be hit with a $29 reinstatement fee if you want the rewards back. That fee is on top of the late-payment fee — $19 or $38 depending on your balance. A penalty interest rate, currently 27 percent, would be assessed on future balances.
Monday, December 7, 2009
CLOSING THE DEFICIT
A couple weeks ago I posted the Tax Foundation's estimation of where tax rates will have to go to close the deficit. The foundation also calculated the average federal income tax payments that would be necessary to close the deficit. This exercise is even scarier. Right now the federal government takes in roughly $19,000 per household and spends $33,000. How much more would different taxpayers earning different incomes have to pay to close that gap?
These dollar amounts really put the gap into perspective. This reinforces what I've been saying all along...TAX PLANNING IS MORE IMPORTANT NOW THAN EVER. Larry Kopsa CPA
These dollar amounts really put the gap into perspective. This reinforces what I've been saying all along...TAX PLANNING IS MORE IMPORTANT NOW THAN EVER. Larry Kopsa CPA
DUBAI REJECTS ASSUMPTION IT IS RESPONSIBLE FOR DUBAI WORLD DEBT
Imagine this, a government rich with cash saying that creditors should be responsible for their actions and don’t depend on the government to bail them out. Maybe the guys in Washington should take note.
As creditors assumed that Dubai, United Arab Emirates, would guarantee the debt of Dubai World, the emirate rejected the idea. "Creditors need to take part of the responsibility for their decision to lend to the companies," said Abdulrahman al-Saleh, director general of the Department of Finance in Dubai. "They think Dubai World is part of the government, which is not correct." Dubai World said it is looking at a $26 billion debt restructuring, which would affect its property firms the most. Reuters (11/30) , The Wall Street Journal (11/30)
As creditors assumed that Dubai, United Arab Emirates, would guarantee the debt of Dubai World, the emirate rejected the idea. "Creditors need to take part of the responsibility for their decision to lend to the companies," said Abdulrahman al-Saleh, director general of the Department of Finance in Dubai. "They think Dubai World is part of the government, which is not correct." Dubai World said it is looking at a $26 billion debt restructuring, which would affect its property firms the most. Reuters (11/30) , The Wall Street Journal (11/30)
Friday, December 4, 2009
'HACKED E-MAILS FUEL CLIMATE CHANGE DEBATE'
(Wall Street Journal) -- WSJ.com repots, "The scientific community is buzzing over thousands of emails and documents ... that some say raise ethical questions about a group of scientists who contend humans are responsible for global warming." According to the story, the emails -- which were obtained by a group of hackers -- "include discussions of apparent efforts to make sure that reports from the Intergovernmental Panel on Climate Change, a United Nations group that monitors climate science, include their own views and exclude others. In addition, emails show that climate scientists declined to make their data available to scientists whose views they disagreed with." See the WSJ.com story at <http://online.wsj.com/article/SB125883405294859215.html>
SHOULD THE GOVERNMENT GET INVOLVED?
Do you know someone who thinks the government should be running health care and our banks? The next time you talk to them, read them the following list:
- Up to 12 different agencies are responsible for administering more than 35 food-safety laws.
- There are 541 clean air, water, and waste programs spread out over 29 agencies.
- 40 different programs aimed primarily at job training are administered by at least 7 different federal agencies.
- 50 different programs to aid the homeless are administered by at least 8 different federal agencies.
- 9 different agencies operate 27 teen-pregnancy programs and 11 agencies administer at least 90 early-childhood programs.
These are just a few government-run programs. I'm sure you could think of some yourself.
Thursday, December 3, 2009
'HEALTH CARE SURTAX WOULD HURT ECONOMY, HEALTH CARE'
(Budget & Tax News) -- The Heartland Institute reports that "the top tax rates in 39 states would climb above 50% under a plan to overhaul the nation’s health care system, according to an analysis by the nonpartisan Tax Foundation." "'This proposed tax increase will be levied at a time when Americans can least afford it and will affect countless small businesses that file individual returns,' including sole proprietorships, S Corporations, and partnerships, said economist Jonathan Williams, director of the Tax and Fiscal Policy Task Force of the American Legislative Exchange Council. ... 'This tax increase is a job killer, plain and simple,' Williams added." See more at <http://www.heartland.org/publications/budget%20tax/article/25914/Health_Care_Surtax_Would_Hurt_Economy_Health_Care.html
IRS ANNOUNCES 2010 STANDARD MILEAGE RATES
The Internal Revenue Service today issued the 2010 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study.
Revenue Procedure 2009-54 contains additional details regarding the standard mileage rates.
Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
- 50 cents per mile for business miles driven
- 16.5 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study.
Revenue Procedure 2009-54 contains additional details regarding the standard mileage rates.
Wednesday, December 2, 2009
ONLY IN AMERICA (CANADA IS PART OF AMERICA YOU KNOW)
'Being ‘happy’ on Facebook leads to denial of claim for depression'
(Insurance & Financial Advisor Web News) -- IFAwebnews.com reports that "when a Canadian woman posted photos of herself on a beach vacation and partying at a Chippendale’s club, the insurance company that had been paying benefits for nearly 18 months because of her inability to work due to major depression found the postings to be anything but 'mundane.'" The insurance company "halted benefits payments to the Quebec woman after an investigation found photos of her in less-than-depressed situations. ... Nathalie Blanchard is fuming because she says that vacations and partying are part of her therapy." See the story at <http://ifawebnews.com/2009/11/23/being-happy-on-facebook-leads-to-denial-of-claim-for-depression/>
(Insurance & Financial Advisor Web News) -- IFAwebnews.com reports that "when a Canadian woman posted photos of herself on a beach vacation and partying at a Chippendale’s club, the insurance company that had been paying benefits for nearly 18 months because of her inability to work due to major depression found the postings to be anything but 'mundane.'" The insurance company "halted benefits payments to the Quebec woman after an investigation found photos of her in less-than-depressed situations. ... Nathalie Blanchard is fuming because she says that vacations and partying are part of her therapy." See the story at <http://ifawebnews.com/2009/11/23/being-happy-on-facebook-leads-to-denial-of-claim-for-depression/>
Tuesday, December 1, 2009
MORE ON THE HEALTH CARE BILL
'Governor: Health Care Bill Represents $624 Million in Unfunded Mandates for Neb.'
(Governor's release) -- On Friday, Gov. Dave Heineman sent a letter to Nebraska’s U.S. senators and congressmen regarding the health care reform proposal being considered in the U.S. Senate. The Governor's letter reports that one version of the Senate health care bill would create an estimated unfunded mandate of more than $127 million during the bill's first five years. If the state provided optional expanded coverage during FY 2011-13, costs to the state would total more than $497 million, for a combined total exceeding $624 million. See the release at <http://www.governor.nebraska.gov/news/2009/2009_11/20_health_care_bill.html>
(Governor's release) -- On Friday, Gov. Dave Heineman sent a letter to Nebraska’s U.S. senators and congressmen regarding the health care reform proposal being considered in the U.S. Senate. The Governor's letter reports that one version of the Senate health care bill would create an estimated unfunded mandate of more than $127 million during the bill's first five years. If the state provided optional expanded coverage during FY 2011-13, costs to the state would total more than $497 million, for a combined total exceeding $624 million. See the release at <http://www.governor.nebraska.gov/news/2009/2009_11/20_health_care_bill.html>
QUOTE OF THE WEEK
"The White House and the Senate
Democrats are working on a new
jobs bill. The White House said this
new jobs bill could create twice as
many non-existent fake jobs as
the last one."
Jay Leno
Monday, November 30, 2009
KEEP UNCLE SAM OUT OF YOUR POCKET
Salon Today recently published an article I wrote on year-end tax planning. Keep Uncle Sam Out Of Your Pocket includes some effective tax strategies to use by the end of 2009 to help save on next year's taxes. Click on the link to read the article in its entirety.
Also, don't forget to check out Salon Today at www.salontoday.com.
Larry Kopsa CPA
HAVING PROBLEMS BORROWING MONEY? YOU ARE NOT THE ONLY ONE.
Quarterly decline in bank lending is largest since 1984
Banks cut back the amount of money loaned to customers by $210.4 billion in the third quarter, the Federal Deposit Insurance Corp. said. The 2.8% reduction marks the sharpest drop since at least 1984. The biggest banks, which received billions of dollars in taxpayer bailouts, accounted for a disproportionately large part of the drop. "We need to see banks making more loans to their business customers," said Sheila Bair, the FDIC's chairwoman. The Washington Post (11/25) , CNNMoney.com/Fortune (11/24)
Banks cut back the amount of money loaned to customers by $210.4 billion in the third quarter, the Federal Deposit Insurance Corp. said. The 2.8% reduction marks the sharpest drop since at least 1984. The biggest banks, which received billions of dollars in taxpayer bailouts, accounted for a disproportionately large part of the drop. "We need to see banks making more loans to their business customers," said Sheila Bair, the FDIC's chairwoman. The Washington Post (11/25) , CNNMoney.com/Fortune (11/24)
Wednesday, November 25, 2009
JUST FOR FUN
In case you missed it, the following blurb was published in this month's Reader's Digest.
'My Friend was at the beauty parlor when she overheard another woman rattle on to the manicurist about the sad state of her marriage. "Things have gotten so bad," she said, "I think I might ask for a divorce. What do you think?"'
"That's a serious matter," came the reply. "I think you should consult another manicurist."'
'My Friend was at the beauty parlor when she overheard another woman rattle on to the manicurist about the sad state of her marriage. "Things have gotten so bad," she said, "I think I might ask for a divorce. What do you think?"'
"That's a serious matter," came the reply. "I think you should consult another manicurist."'
PLASTIC SURGERY TAKES A HIT IN HEALTH CARE DEBATE
Plastic Surgery Takes A Hit In The Health Care Debate and You Can’t Believe How They Do This
If I ran my business like the Congress I would be applying for unemployment right now.
It appears that the Senate, in its effort to tax everything possible to pay for health care reform (you’re right, I’m exaggerating) is forging ahead with its plan to tax cosmetic surgery.
Sen. Harry Reid (D-NV) has introduced a 5% excise tax on cosmetic surgeries that are “not necessary to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma or a disfiguring disease.” In case you’re keeping score, that’s just half of the original tax that was earlier proposed.
I highly encourage you to read the various proposals involving health care reform floating around in the House and Senate. Only… it is really impossible to read since it’s a moving target.
This latest one? It’s actually a Senate Amendment to a House Bill. Follow me for a moment.
The bill number is HR 3590 – but there are four versions (!?) of this bill.
According to THOMAS (Library of Congress), the bill was introduced as the Service Members Home Ownership Tax Act of 2009 on September 17, 2009. It passed the House in October 2009 and was moved to the Senate. On November 21, 2009, a motion to proceed to consider the bill was passed, 60-39 (you can view the roll call here). That same day, Senator Reid proposed Amendment S.AMDT.2786 to the bill – a 247 page amendment. That amendment “in the nature of a substitute” is the Patient Protection and Affordable Care Act, introduced in the bill as follows:
SA 2786. Mr. REID (for himself, Mr. Baucus, Mr. Dodd, and Mr. Harkin) submitted an amendment intended to be proposed by him to the bill H.R. 3590, to amend the Internal Revenue Code of 1986 to modify the first-time homebuyers credit in the case of members of the Armed Forces and certain other Federal employees, and for other purposes; which was ordered to lie on the table; as follows:
An amendment “in the nature of a substitute” is a substitution of the body of a piece of legislation. The Senate describes it as “an amendment that would strike out the entire text of a bill or other measure and insert a different full text.” And yet, keep the name.
Huh? Now the bill is even longer. And better yet, it’s attached to popular items like modifying the first-time homebuyers credit for members of the Armed Forces. Who’d vote no to that?
Which brings me to my cynical question: Was the health care reform bill amended to another bill for purposes of consolidation and simplification? Or something else I don’t know.
As to the cosmetic surgery excise tax is specifically included in the Act at Section 9017 which adds, you guessed it, another amendment. It says, “Subtitle D of the Internal Revenue Code of 1986, as amended by this Act, is amended by adding at the end the following new chapter: CHAPTER 49–ELECTIVE COSMETIC MEDICAL PROCEDURES.” The specific language regarding the tax can be found at Section 5000B(a).
For those of you that have read this far… if any of you, I have serious concerns about substituting and amending parallel bills with a number of versions especially when the title you retain is not related to the most meaty part of the bill. Why? Because it renders it virtually impossible for the average taxpayer to follow along.
Do I think that’s purposeful? I’m not saying that it is. But is it transparent? Absolutely not.
If I ran my business like the Congress I would be applying for unemployment right now.
It appears that the Senate, in its effort to tax everything possible to pay for health care reform (you’re right, I’m exaggerating) is forging ahead with its plan to tax cosmetic surgery.
Sen. Harry Reid (D-NV) has introduced a 5% excise tax on cosmetic surgeries that are “not necessary to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma or a disfiguring disease.” In case you’re keeping score, that’s just half of the original tax that was earlier proposed.
I highly encourage you to read the various proposals involving health care reform floating around in the House and Senate. Only… it is really impossible to read since it’s a moving target.
This latest one? It’s actually a Senate Amendment to a House Bill. Follow me for a moment.
The bill number is HR 3590 – but there are four versions (!?) of this bill.
According to THOMAS (Library of Congress), the bill was introduced as the Service Members Home Ownership Tax Act of 2009 on September 17, 2009. It passed the House in October 2009 and was moved to the Senate. On November 21, 2009, a motion to proceed to consider the bill was passed, 60-39 (you can view the roll call here). That same day, Senator Reid proposed Amendment S.AMDT.2786 to the bill – a 247 page amendment. That amendment “in the nature of a substitute” is the Patient Protection and Affordable Care Act, introduced in the bill as follows:
SA 2786. Mr. REID (for himself, Mr. Baucus, Mr. Dodd, and Mr. Harkin) submitted an amendment intended to be proposed by him to the bill H.R. 3590, to amend the Internal Revenue Code of 1986 to modify the first-time homebuyers credit in the case of members of the Armed Forces and certain other Federal employees, and for other purposes; which was ordered to lie on the table; as follows:
An amendment “in the nature of a substitute” is a substitution of the body of a piece of legislation. The Senate describes it as “an amendment that would strike out the entire text of a bill or other measure and insert a different full text.” And yet, keep the name.
Huh? Now the bill is even longer. And better yet, it’s attached to popular items like modifying the first-time homebuyers credit for members of the Armed Forces. Who’d vote no to that?
Which brings me to my cynical question: Was the health care reform bill amended to another bill for purposes of consolidation and simplification? Or something else I don’t know.
As to the cosmetic surgery excise tax is specifically included in the Act at Section 9017 which adds, you guessed it, another amendment. It says, “Subtitle D of the Internal Revenue Code of 1986, as amended by this Act, is amended by adding at the end the following new chapter: CHAPTER 49–ELECTIVE COSMETIC MEDICAL PROCEDURES.” The specific language regarding the tax can be found at Section 5000B(a).
For those of you that have read this far… if any of you, I have serious concerns about substituting and amending parallel bills with a number of versions especially when the title you retain is not related to the most meaty part of the bill. Why? Because it renders it virtually impossible for the average taxpayer to follow along.
Do I think that’s purposeful? I’m not saying that it is. But is it transparent? Absolutely not.
Tuesday, November 24, 2009
HEALTHCARE REFORM BILLS WOULD REQUIRE RESTAURANTS TO DISCLOSE CALORIES
US News Weekly reports that for the "most part, the Democrats' healthcare reform legislation focuses on insurance coverage and insurance reforms," but "there are proposals on the table, experts say, that at least begin to address the obesity problem. In one of the more far-reaching approaches, both the House bill...and Senate Majority Leader Harry Reid's bill...would require that all large fast-food chains and restaurants put calorie labels on their menus and displays."
QUESTION ON 1099s
Larry,
Could you answer a quick question? Several elderly friends have asked me to help them with administrative work in their home. I would probably do this on an ongoing basis and I am sure each would end up paying me more than $600 a year. I would report all of this money but am concerned for the people I would be doing the work for. Do they have to issue a 1099 for the work I would do for them? Could I just report the money quarterly without ever getting a form from them and have it be legal, I don’t want to get them into trouble?
Alison
Alison, if I understand it, you’re going to be kind of like a Girl Friday? Opening mail, paying bills, that sort of thing, at times that are convenient for you – and for a number of different people? Assuming that you can’t be classed as a household employee (which I think you’re not if my understanding of your situation is correct), then there is no obligation for your customers to report payments made to you.
Forms 1099-MISC are generally issued when payments are made in the course of trade or business. You do not need to report payments for personal items on a 1099.
For example, a painter paints my office for $1,000. I must give him a 1099. A painter paints my house for $1,000. I do not need to give them a 1099.
If your customers are making payments to you for services in much the same way that they would pay their hairdresser or a kid that occasionally mows the lawn, there’s no reason to submit a 1099 to you. Again, this assumes that you’re self-employed and that you control how the work is done. A self-employed worker also usually provides his or her own tools and offers services to the general public in an independent business – which sounds like what you’re doing.
If, however, you could be classified as a household or other employee (which would result in a form W-2 issued to you), or if you’re performing services for your customer’s trade or business (which would result in a form 1099-MISC issued to you), that’s a different story. I hope that helps. Good luck with your business!
Larry Kopsa CPA
Could you answer a quick question? Several elderly friends have asked me to help them with administrative work in their home. I would probably do this on an ongoing basis and I am sure each would end up paying me more than $600 a year. I would report all of this money but am concerned for the people I would be doing the work for. Do they have to issue a 1099 for the work I would do for them? Could I just report the money quarterly without ever getting a form from them and have it be legal, I don’t want to get them into trouble?
Alison
Alison, if I understand it, you’re going to be kind of like a Girl Friday? Opening mail, paying bills, that sort of thing, at times that are convenient for you – and for a number of different people? Assuming that you can’t be classed as a household employee (which I think you’re not if my understanding of your situation is correct), then there is no obligation for your customers to report payments made to you.
Forms 1099-MISC are generally issued when payments are made in the course of trade or business. You do not need to report payments for personal items on a 1099.
For example, a painter paints my office for $1,000. I must give him a 1099. A painter paints my house for $1,000. I do not need to give them a 1099.
If your customers are making payments to you for services in much the same way that they would pay their hairdresser or a kid that occasionally mows the lawn, there’s no reason to submit a 1099 to you. Again, this assumes that you’re self-employed and that you control how the work is done. A self-employed worker also usually provides his or her own tools and offers services to the general public in an independent business – which sounds like what you’re doing.
If, however, you could be classified as a household or other employee (which would result in a form W-2 issued to you), or if you’re performing services for your customer’s trade or business (which would result in a form 1099-MISC issued to you), that’s a different story. I hope that helps. Good luck with your business!
Larry Kopsa CPA
Monday, November 23, 2009
THE JOB - URINE TEST (THIS IS A GREAT IDEA)
I don't know if any of you have seen this email that's going around. It's an interesting concept. The only thing that I would add is that if someone flunked the test, we would assist them in getting help as opposed to cutting them off cold turkey. Here is the email that has popped up on my machine.
"Like most folks in this country, I have a job. I work, they pay me. I pay my taxes and the government distributes my taxes as it sees fit. In order to get that paycheck in my case, I am required to pass a random urine test (which I have no problem). What I do have a problem with is the distribution of my taxes to people who don't have to pass a urine test.
So, here is my Question: Shouldn't one have to pass a urine test to get a welfare check, because I have to pass one to earn it for them? Please understand, I have no problem helping people get back on their feet. I do have a problem with helping someone sitting on their a** - taking drugs while I work. . . . Can you imagine how much money each state would save if people had to pass a urine test to get a public assistance check? I guess we could title that program, 'Urine or You're Out'.
Hope you will pass this along. Something has to change in this country, and soon!!!!"
"Like most folks in this country, I have a job. I work, they pay me. I pay my taxes and the government distributes my taxes as it sees fit. In order to get that paycheck in my case, I am required to pass a random urine test (which I have no problem). What I do have a problem with is the distribution of my taxes to people who don't have to pass a urine test.
So, here is my Question: Shouldn't one have to pass a urine test to get a welfare check, because I have to pass one to earn it for them? Please understand, I have no problem helping people get back on their feet. I do have a problem with helping someone sitting on their a** - taking drugs while I work. . . . Can you imagine how much money each state would save if people had to pass a urine test to get a public assistance check? I guess we could title that program, 'Urine or You're Out'.
Hope you will pass this along. Something has to change in this country, and soon!!!!"
Friday, November 20, 2009
DEFICIT MAY SIGNAL HIGHER TAXES
We all know that our government has a huge deficit. This year alone is $1.8 trillion. Remember from one of my previous postings, just counting to a billion would take 31.5 years. Be prepared, some day taxes are going to go up.
The Tax Foundation just issued a report estimating where tax rates will have to go to close the deficit. And it's not someplace any of us want to visit. The sad reality is that - all other things remaining the same - Washington would have to nearly triple every tax rate to close the deficit with income taxes alone. And while that's clearly not possible, the numbers do show that painful tax hikes in some form lie ahead. Take a look at the following rates.
The Tax Foundation just issued a report estimating where tax rates will have to go to close the deficit. And it's not someplace any of us want to visit. The sad reality is that - all other things remaining the same - Washington would have to nearly triple every tax rate to close the deficit with income taxes alone. And while that's clearly not possible, the numbers do show that painful tax hikes in some form lie ahead. Take a look at the following rates.
Thursday, November 19, 2009
RECESSION NOT OVER FOR SMALL BUSINESSES
According to all the business publications, the recession is supposed to be over. How come most of my small business clients would not agree? Well, surprise surprise! As stated in the article below, the business magazine economists forgot about the importance of us small business people. We do make up a large part of the economy.
Small-business recession is still holding back recoveryhttp://www.smartbrief.com/images/briefs2/common/storyicons/icon_analysis.gifGoldman Sachs economist Jan Hatzius has argued that troubled small businesses aren't being taken into account in the official estimation of gross domestic product. "We have argued that the weakness of the small business sector may mean that real GDP in the third quarter in fact grew more slowly than the 3.5% 'advance' estimate," Hatzius wrote, according to this blog post quoting him. In fact, Justin Fox writes, the unemployment numbers for small business are substantially worse than those for big business. Small business isn't getting the credit it needs, and is still suffering in the recession, Fox argues. TIME/The Curious Capitalist blog
Small-business recession is still holding back recoveryhttp://www.smartbrief.com/images/briefs2/common/storyicons/icon_analysis.gifGoldman Sachs economist Jan Hatzius has argued that troubled small businesses aren't being taken into account in the official estimation of gross domestic product. "We have argued that the weakness of the small business sector may mean that real GDP in the third quarter in fact grew more slowly than the 3.5% 'advance' estimate," Hatzius wrote, according to this blog post quoting him. In fact, Justin Fox writes, the unemployment numbers for small business are substantially worse than those for big business. Small business isn't getting the credit it needs, and is still suffering in the recession, Fox argues. TIME/The Curious Capitalist blog
Wednesday, November 18, 2009
'MEDICAL-LEAVE CHANGES WILL AFFECT EMPLOYERS'
(Capitol Media Services/Arizona Business Gazette) -- Capitol Media Services reports that "some new changes in federal law will require employers to provide free time off to workers in more situations." According to the story, Attorney Jennifer Keyser, "whose law firm specializes in labor law, warned that companies that don't alter their policies to comply could find themselves in hot water." The Family Medical Leave Act (FMLA) already required employers with at least 50 workers to grant 12 weeks of unpaid leave during any 12-month period under certain circumstances, such as the birth of a newborn. A new change to the FMLA "allows a worker to take up to 26 weeks off to provide care for a veteran family member who is undergoing treatment for a condition that stems from their military service. ... The condition has to arise within five years after discharge." "People need to start reviewing their policies to be sure they're compliant with the new law," Keyser said. "The problem is, we have no direction on what being compliant means."
See more at <http://www.azcentral.com/business/abg/articles/2009/11/12/20091112abg-leave1112.html>
See more at <http://www.azcentral.com/business/abg/articles/2009/11/12/20091112abg-leave1112.html>
Tuesday, November 17, 2009
TAX CREDIT MAY HAVE BEEN TOO BIG
Remember the increase in your paycheck back in April? This was because instead of sending you a $400 check the government decided to just decrease your withholding. What did that mean? Just less withheld.
I said at that time that you might have to pay for this additional money when you file your return because your withholding was less, therefore your refund would be less or, heaven forbid you might actually have to pay in. Well now the government has figured this out. Below is an article from Money.
Tax credit may have been too big for some recipients
As many as 15.4 million tax filers may have received too much under the Making Work Pay tax credit, the Treasury Department says. As a result, those people will get a smaller refund or may even have to repay some of the over-payments when they file their 2009 taxes. The tax credit was part of the stimulus package passed in February. CNNMoney.com (11/17)
I said at that time that you might have to pay for this additional money when you file your return because your withholding was less, therefore your refund would be less or, heaven forbid you might actually have to pay in. Well now the government has figured this out. Below is an article from Money.
Tax credit may have been too big for some recipients
As many as 15.4 million tax filers may have received too much under the Making Work Pay tax credit, the Treasury Department says. As a result, those people will get a smaller refund or may even have to repay some of the over-payments when they file their 2009 taxes. The tax credit was part of the stimulus package passed in February. CNNMoney.com (11/17)
Monday, November 16, 2009
SEEKING CONSULTATION
Hi Larry,
I have employee questions concerning an unemployment claim given to me from a contractor.
History: My family has temporarily relocated to Houston Texas since June. I had a skin studio in Denver Colorado that I had to close in October, 2009 due to a contractor that could no longer work on Thursday, Friday or Saturday performing facials, chemical peels, body waxing, makeup and lash extensions during my absence in Denver until my return. The claimant is my sister-n-law so I never made a contract.
Starting date - 5/6/09. Ending date - 10/21/09. Business closing date - 10/29/09.
She was paid gross payment from reported hours at $12-$14 per hour. She never worked more that 30 hours in a week and requested cash (or no taxes taken out) until the 7th pay period when I held $285.62 from four pay periods -numbers 7,8,9, 10.
When the claimant informed me she would no longer be able to keep business running at any time in the month on Thursday, Friday or Saturday it ended in a result of more client loss. The claimant requested I stay open only on Monday, Tuesday or Wednesday and force scheduling then. This decision was made by her because she picked up another job on those days. We were unable to meet that request as some clients could not visit in that time of the week. The loss of business was too overwhelming to keep up and running.
I did not apply for unemployment insurance as I saw her as a contractor most of her pay time. She ended with 13 pay periods in all in gross payment including tips. I wanted to ask you if I am filling out the paper work properly and what other rights I might have.
The paper work needs to be tomorrow. Sorry for the rush. What are your prices for phone consultations?
Carol
Carol, what a mess. As I understand it, the person is filing an unemployment claim against you. If I am reading this correctly, you paid her as an independent contractor for a while and then in the last few months withheld from her but did not file a payroll tax report as of yet.
The real question is, “is this person an employee or an independent contractor?” Since she apparently filed for unemployment she thinks that she was an employee, at least for the last few months when you were withholding. My experience with state Departments of Labor is that they always side with the worker so you may just be stuck.
I presume that you need to file the payroll tax reports for the time that you withheld and pay the necessary payroll, unemployment and workman's comp. On the amounts that you paid cash you need to make sure that you provide her with a 1099 for those amounts and also a W-2 for the wages. As I said… quite a mess.
If you need some assistance with the reports we can help but it is going to be somewhat expensive. Normally this would be a couple hundred dollars but with your situation there is going to be more work involved. We may need to file for ID numbers in addition to the various reports and W-2 and 1099. I would imagine that we are looking at fees in the $600 to $700 range. Let us know if you are in need of assistance.
Larry Kopsa CPA
I have employee questions concerning an unemployment claim given to me from a contractor.
History: My family has temporarily relocated to Houston Texas since June. I had a skin studio in Denver Colorado that I had to close in October, 2009 due to a contractor that could no longer work on Thursday, Friday or Saturday performing facials, chemical peels, body waxing, makeup and lash extensions during my absence in Denver until my return. The claimant is my sister-n-law so I never made a contract.
Starting date - 5/6/09. Ending date - 10/21/09. Business closing date - 10/29/09.
She was paid gross payment from reported hours at $12-$14 per hour. She never worked more that 30 hours in a week and requested cash (or no taxes taken out) until the 7th pay period when I held $285.62 from four pay periods -numbers 7,8,9, 10.
When the claimant informed me she would no longer be able to keep business running at any time in the month on Thursday, Friday or Saturday it ended in a result of more client loss. The claimant requested I stay open only on Monday, Tuesday or Wednesday and force scheduling then. This decision was made by her because she picked up another job on those days. We were unable to meet that request as some clients could not visit in that time of the week. The loss of business was too overwhelming to keep up and running.
I did not apply for unemployment insurance as I saw her as a contractor most of her pay time. She ended with 13 pay periods in all in gross payment including tips. I wanted to ask you if I am filling out the paper work properly and what other rights I might have.
The paper work needs to be tomorrow. Sorry for the rush. What are your prices for phone consultations?
Carol
Carol, what a mess. As I understand it, the person is filing an unemployment claim against you. If I am reading this correctly, you paid her as an independent contractor for a while and then in the last few months withheld from her but did not file a payroll tax report as of yet.
The real question is, “is this person an employee or an independent contractor?” Since she apparently filed for unemployment she thinks that she was an employee, at least for the last few months when you were withholding. My experience with state Departments of Labor is that they always side with the worker so you may just be stuck.
I presume that you need to file the payroll tax reports for the time that you withheld and pay the necessary payroll, unemployment and workman's comp. On the amounts that you paid cash you need to make sure that you provide her with a 1099 for those amounts and also a W-2 for the wages. As I said… quite a mess.
If you need some assistance with the reports we can help but it is going to be somewhat expensive. Normally this would be a couple hundred dollars but with your situation there is going to be more work involved. We may need to file for ID numbers in addition to the various reports and W-2 and 1099. I would imagine that we are looking at fees in the $600 to $700 range. Let us know if you are in need of assistance.
Larry Kopsa CPA
QUOTE OF THE WEEK
"If the only tool you have is a hammer,
you tend to see every problem as a nail."
Abraham Maslow, American psychologist
Friday, November 13, 2009
GOVERNMENT TRUE-ISMS
I don't make jokes. I just watch the government and report the facts. -Will Rogers
BUSINESSES WITH A LOSS THIS YEAR GET A TAX BREAK
Don’t get too excited. It’s not a huge tax break – but it’s not a bad one either. A bill that was recently passed in Congress, known as The Worker, Homeownership and Business Assistance Act of 2009, will allow businesses to apply losses retroactively.
The bill, which was tacked onto the homebuyer’s credit extension/expansion, would allow businesses which suffered losses in 2008 or 2009 to retroactively apply those losses to any five years prior to 2008. Known as a “net-operating loss carryback” or “NOL carryback”, those losses could previously only be carried back for two years. It’s an expansion of the NOL provisions under the American Recovery and Reinvestment Act (ARRA).
There are some restrictions. The one that’s been getting the most press bars businesses which have accepted TARP money from utilizing the expanded NOL carryback. That is, of course, so that Congress appears to be taking a hard-line against those businesses (all while allowing them to engage in the same kinds of risky behaviors as before).
The expansion is estimated to cost just over $10 billion over 10 years. The homebuyer’s credit is estimated to cost about $10 billion over 10 months.
The bill, which was tacked onto the homebuyer’s credit extension/expansion, would allow businesses which suffered losses in 2008 or 2009 to retroactively apply those losses to any five years prior to 2008. Known as a “net-operating loss carryback” or “NOL carryback”, those losses could previously only be carried back for two years. It’s an expansion of the NOL provisions under the American Recovery and Reinvestment Act (ARRA).
There are some restrictions. The one that’s been getting the most press bars businesses which have accepted TARP money from utilizing the expanded NOL carryback. That is, of course, so that Congress appears to be taking a hard-line against those businesses (all while allowing them to engage in the same kinds of risky behaviors as before).
The expansion is estimated to cost just over $10 billion over 10 years. The homebuyer’s credit is estimated to cost about $10 billion over 10 months.
Thursday, November 12, 2009
COMMENT ON CASH FOR CLUNKERS
Hi Larry,
I also enjoyed your cash for clunkers article. This is in response to the comment you posted in the last blog. Someone mentioned "selling" all the clunkers causing sales of auto parts for repairs. My understanding was the opposite. All the cars had to be destroyed, thus less sales of auto parts and fewer repairs.
Conner
Conner, you are correct - they did have to be destroyed. We have yet to see the total impact. As you know, most of the sales were foreign cars. Thanks for your kind comment.
Larry Kopsa CPA
I also enjoyed your cash for clunkers article. This is in response to the comment you posted in the last blog. Someone mentioned "selling" all the clunkers causing sales of auto parts for repairs. My understanding was the opposite. All the cars had to be destroyed, thus less sales of auto parts and fewer repairs.
Conner
Conner, you are correct - they did have to be destroyed. We have yet to see the total impact. As you know, most of the sales were foreign cars. Thanks for your kind comment.
Larry Kopsa CPA
IS THIS ANY WAY TO RUN A BUSINESS?
I wonder if you think this is the way a business should be run. Let’s assume that you are purchasing a piece of furniture. After shopping around for some time, in negotiating with the furniture store, you find the perfect couch for $4,000. You agree with the furniture store that you’ll pay $4,000 for the couch and all they have to do is deliver it. You haven’t written the check yet, but as soon as that couch is in your living room, you will. Everyone is happy with the deal but then the furniture store owner calls you up and says, “Hey, I changed my mind, I’m only going to charge you $3,000 for the couch.” "Why," you ask? He replies, “If I sell that couch for only $3,000, I think I’ll sell more couches.” You explain to the furniture dealer that it’s fine and you’d be glad to save $1,000 but you don’t get why he’s doing this. It doesn’t seem like good business.
That’s actually what’s happening right now with the federal government. Just yesterday, a person stepped into my office and said, “You’re not going to believe this?” We’ve been building our house since this summer. We’re planning on moving in sometime before the end of the year. We did not qualify for the new home buyer credit because we own a house. Now with the new home owner credit that was just passed, we do qualify for the $6,500 credit. When we file our tax return, we get $6,500 off on our taxes and we didn’t do anything.
That just does not make sense to me. Our deficit is going up because of the new home buyer credit that was just passed by 10 billion dollars. The person who came into my office was building a house without the credit. They’ll take the $6,500. More power to them, but what was the government thinking when they passed this law? Is this any way to run a business? I’m sure that furniture store dealer who keeps discounting below cost on his furniture won’t be in business long. I hope our country is.
That’s actually what’s happening right now with the federal government. Just yesterday, a person stepped into my office and said, “You’re not going to believe this?” We’ve been building our house since this summer. We’re planning on moving in sometime before the end of the year. We did not qualify for the new home buyer credit because we own a house. Now with the new home owner credit that was just passed, we do qualify for the $6,500 credit. When we file our tax return, we get $6,500 off on our taxes and we didn’t do anything.
That just does not make sense to me. Our deficit is going up because of the new home buyer credit that was just passed by 10 billion dollars. The person who came into my office was building a house without the credit. They’ll take the $6,500. More power to them, but what was the government thinking when they passed this law? Is this any way to run a business? I’m sure that furniture store dealer who keeps discounting below cost on his furniture won’t be in business long. I hope our country is.
THE NEW HOMEBUYER CREDIT - EXPANDED
On November 6, the President signed into law H.R. 3548, the ''Worker, Homeownership, and Business Assistance Act of 2009.'' The new law extends and generally liberalizes the tax credit for first-time homebuyers, making it a much more flexible tax-saving tool. It also includes some crackdowns designed to prevent abuse of the credit. These important changes could make it easier for you or someone in your family to buy a home. And because the changes generally aid buyers and aim to improve residential real estate markets nationwide, they also could make it easier for you or someone in your family to sell a home. Here is what you need to know about the first-time homebuyer credit.
Homebuyer credit basics. Before the new law was enacted, the homebuyer credit was only available for qualifying first-time home purchases after April 8, 2008, and before December 1, 2009. The top credit for homes bought in 2009 is $8,000 ($4,000 for a married individual filing separately) or 10% of the residence's purchase price, whichever is less. Only the purchase of a main home located in the U.S. qualifies. Vacation homes and rental properties are not eligible. The homebuyer credit reduces one's tax liability on a dollar-for-dollar basis, and if the credit is more than the tax you owe, the difference is paid to you as a tax refund. For homes bought after Dec. 31, 2008, the homebuyer credit is recaptured (i.e., paid back to the IRS) if a person disposes of the home (or stops using it as a principal residence) within 36 months from the date of purchase.
Before the new law, the first-time homebuyer credit phased out for individual taxpayers with modified adjusted gross income (AGI) between $75,000 and $95,000 ($150,000 and $170,000 for joint filers) for the year of purchase.
Your guide to the revised homebuyer credit. The new law makes four important changes to the homebuyer credit:
(1) New lease on life for the homebuyer credit. The homebuyer credit is extended to apply to a principal residence bought before May 1, 2010. The homebuyer credit also applies to a principal residence bought before July 1, 2010 by a person who enters into a written binding contract before May 1, 2010, to close on the purchase of the principal residence before July 1, 2010. In general, a home is considered bought for credit purposes when the closing takes place. So the extra two-months (May and June of 2010) helps buyers who find a home they like but can't close on it before May 1, 2010. They can go to contract on the home before May 1, 2010, close on it before July 1, 2010, and get the homebuyer credit (if they otherwise qualify). Note that certain service members on qualified official extended duty service outside of the U.S. get an extra year to buy a qualifying home and get the credit; they also can avoid the recapture rules under certain circumstances.
(2) The homebuyer credit may be claimed by existing homeowners who are “long-time residents.” For purchases after November 6, 2009, you can claim the homebuyer credit if you (and, if married, your spouse) maintained the same principal residence for any 5-consecutive year period during the 8-years ending on the date that you buy the subsequent principal residence. For example, if you and your spouse are empty nesters who have lived in your suburban home for the past ten years, you are potentially eligible for the credit if you “move down” and buy a smaller townhome. There's no requirement for your current home to be sold in order to qualify for a homebuyer credit on the replacement principal residence. Thus, the replacement residence can be bought to beat the new deadlines (explained above) before the old home is sold. For that matter, you can hold on to your prior principal residence in the hope of achieving a better selling price later on.
The maximum allowable homebuyer credit for qualifying existing homeowners is $6,500 ($3,250 for a married individual filing separately), or 10% of the purchase price of the subsequent principal residence, whichever is less.
(3) The homebuyer credit is available to higher income taxpayers. For purchases after November 6, 2009, the homebuyer credit phases out over much higher modified AGI levels, making the credit available to a much bigger pool of buyers. For individuals, the phaseout range is between $125,000 and $145,000, and for those filing a joint return, it's between $225,000 and $245,000.
(4) There's a new home-price limit for the homebuyer credit. For purchases after Nov. 6, 2009, the homebuyer credit cannot be claimed for a home if its purchase price exceeds $800,000. It's important to note that there is no phaseout mechanism. A purchase price that exceeds the $800,000 threshold by even a single dollar will cause the loss of the entire credit.
The new purchase price limitation applies whether you are buying a first-time principal residence or are a qualifying existing homeowner purchasing a replacement principal residence.
Other homebuyer credit changes. The new law includes a number of new anti-abuse rules to prevent taxpayers from claiming the homebuyer credit even though they don't qualify for it. The most important of these are as follows:
... Beginning with the 2010 tax return, the homebuyer credit can't be claimed unless the taxpayer attaches to the return a properly executed copy of the settlement statement used to complete the purchase of the qualifying residence.
... For purchases after Nov. 6, 2009, the homebuyer credit can't be claimed unless the taxpayer has attained 18 years of age as of the date of purchase (a married person is treated as meeting the age requirement if he or his spouse meets the age requirement).
... For purchases after Nov. 6, 2009, the homebuyer credit can't be claimed by a taxpayer if he can be claimed as a dependent by another taxpayer for the tax year of purchase. It also can't be claimed for a home bought from a person related to the buyer or the spouse of the buyer, if married.
... Beginning with 2009 returns, the new law makes it easier for the IRS to go after questionable homebuyer credit claims without initiating a full-scale audit.
What hasn't changed. The tax law still gives you the extraordinary opportunity to get your hands on homebuyer credit cash without waiting to file your tax return for the year in which you buy the qualifying principal residence. Thus, if you buy a qualifying principal residence in 2009, you can treat the purchase as having taken place this past December 31, file an amended return for 2008 claiming the credit for that year, and get your homebuyer credit cash relatively quickly via a tax refund. Similarly, you can treat a qualifying principal residence bought in 2010 (before the new deadlines) as having taken place on December 31, 2009, and file an original or amended return for 2009 claiming the credit for that year.
What also hasn't changed is the need for getting expert tax advice in negotiating through the twists and turns of the new beefed-up homebuyer credit. Please call us today for details on how the homebuyer credit can help you or your family members.
Homebuyer credit basics. Before the new law was enacted, the homebuyer credit was only available for qualifying first-time home purchases after April 8, 2008, and before December 1, 2009. The top credit for homes bought in 2009 is $8,000 ($4,000 for a married individual filing separately) or 10% of the residence's purchase price, whichever is less. Only the purchase of a main home located in the U.S. qualifies. Vacation homes and rental properties are not eligible. The homebuyer credit reduces one's tax liability on a dollar-for-dollar basis, and if the credit is more than the tax you owe, the difference is paid to you as a tax refund. For homes bought after Dec. 31, 2008, the homebuyer credit is recaptured (i.e., paid back to the IRS) if a person disposes of the home (or stops using it as a principal residence) within 36 months from the date of purchase.
Before the new law, the first-time homebuyer credit phased out for individual taxpayers with modified adjusted gross income (AGI) between $75,000 and $95,000 ($150,000 and $170,000 for joint filers) for the year of purchase.
Your guide to the revised homebuyer credit. The new law makes four important changes to the homebuyer credit:
(1) New lease on life for the homebuyer credit. The homebuyer credit is extended to apply to a principal residence bought before May 1, 2010. The homebuyer credit also applies to a principal residence bought before July 1, 2010 by a person who enters into a written binding contract before May 1, 2010, to close on the purchase of the principal residence before July 1, 2010. In general, a home is considered bought for credit purposes when the closing takes place. So the extra two-months (May and June of 2010) helps buyers who find a home they like but can't close on it before May 1, 2010. They can go to contract on the home before May 1, 2010, close on it before July 1, 2010, and get the homebuyer credit (if they otherwise qualify). Note that certain service members on qualified official extended duty service outside of the U.S. get an extra year to buy a qualifying home and get the credit; they also can avoid the recapture rules under certain circumstances.
(2) The homebuyer credit may be claimed by existing homeowners who are “long-time residents.” For purchases after November 6, 2009, you can claim the homebuyer credit if you (and, if married, your spouse) maintained the same principal residence for any 5-consecutive year period during the 8-years ending on the date that you buy the subsequent principal residence. For example, if you and your spouse are empty nesters who have lived in your suburban home for the past ten years, you are potentially eligible for the credit if you “move down” and buy a smaller townhome. There's no requirement for your current home to be sold in order to qualify for a homebuyer credit on the replacement principal residence. Thus, the replacement residence can be bought to beat the new deadlines (explained above) before the old home is sold. For that matter, you can hold on to your prior principal residence in the hope of achieving a better selling price later on.
The maximum allowable homebuyer credit for qualifying existing homeowners is $6,500 ($3,250 for a married individual filing separately), or 10% of the purchase price of the subsequent principal residence, whichever is less.
(3) The homebuyer credit is available to higher income taxpayers. For purchases after November 6, 2009, the homebuyer credit phases out over much higher modified AGI levels, making the credit available to a much bigger pool of buyers. For individuals, the phaseout range is between $125,000 and $145,000, and for those filing a joint return, it's between $225,000 and $245,000.
(4) There's a new home-price limit for the homebuyer credit. For purchases after Nov. 6, 2009, the homebuyer credit cannot be claimed for a home if its purchase price exceeds $800,000. It's important to note that there is no phaseout mechanism. A purchase price that exceeds the $800,000 threshold by even a single dollar will cause the loss of the entire credit.
The new purchase price limitation applies whether you are buying a first-time principal residence or are a qualifying existing homeowner purchasing a replacement principal residence.
Other homebuyer credit changes. The new law includes a number of new anti-abuse rules to prevent taxpayers from claiming the homebuyer credit even though they don't qualify for it. The most important of these are as follows:
... Beginning with the 2010 tax return, the homebuyer credit can't be claimed unless the taxpayer attaches to the return a properly executed copy of the settlement statement used to complete the purchase of the qualifying residence.
... For purchases after Nov. 6, 2009, the homebuyer credit can't be claimed unless the taxpayer has attained 18 years of age as of the date of purchase (a married person is treated as meeting the age requirement if he or his spouse meets the age requirement).
... For purchases after Nov. 6, 2009, the homebuyer credit can't be claimed by a taxpayer if he can be claimed as a dependent by another taxpayer for the tax year of purchase. It also can't be claimed for a home bought from a person related to the buyer or the spouse of the buyer, if married.
... Beginning with 2009 returns, the new law makes it easier for the IRS to go after questionable homebuyer credit claims without initiating a full-scale audit.
What hasn't changed. The tax law still gives you the extraordinary opportunity to get your hands on homebuyer credit cash without waiting to file your tax return for the year in which you buy the qualifying principal residence. Thus, if you buy a qualifying principal residence in 2009, you can treat the purchase as having taken place this past December 31, file an amended return for 2008 claiming the credit for that year, and get your homebuyer credit cash relatively quickly via a tax refund. Similarly, you can treat a qualifying principal residence bought in 2010 (before the new deadlines) as having taken place on December 31, 2009, and file an original or amended return for 2009 claiming the credit for that year.
What also hasn't changed is the need for getting expert tax advice in negotiating through the twists and turns of the new beefed-up homebuyer credit. Please call us today for details on how the homebuyer credit can help you or your family members.
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