Tuesday, November 30, 2010


As you may know the life of many people in my family was impacted by a drunk driver that killed my daughter in law and seriously injured my son. I received this video from a friend. It is very graphic and touching. I think that it should be played at every bar and party as a strong reminder of how driving impaired can really not only kill but also ruin lives.

Click below to view:


Monday, November 29, 2010


I hope everyone had a great Thanksgiving weekend. I had an experience that I wanted to share with you. For Thanksgiving my wife Maggie, my 13 year old son, Ryan and I went to Kansas City. We went to watch them turn on the lights at the Plaza.

I always enjoy looking at the different salons and spas. I like to notice their in-store advertising, the appearance, the products they sell, product placement and the overall look of the business. One spa really caught my attention which was located right on a corner- a prime location. When I walked by the first time, I noticed that they had posted that they were open until 10:00pm every evening. I was impressed with this as they are apparently double booking.

The next time I walked by, I came from another direction and looked through the corner window. What a mess! This was an office or maybe the call center. The desk was haphazard with a 32oz convenience store cup, a stack of mail and bills with papers and magazines lying on the window shelf. The computer screen was on and if you looked closely, you could see the schedule of appointments- needless to say, very unprofessional.

This experience made me come back and look at my accounting office. Sometimes you need to step back and look at yourself from a client’s prospective.

Thursday, November 25, 2010

"A government program is the nearest thing to eternal life we'll ever see on this earth."

Ronald Reagan


Congress convened this past week as time is running out on the current Congress and as many tax issues were left hanging earlier in the year. This session takes place in the wake of the historic Congressional elections that recently took place, but the newly elected members will not be sworn in until January 3, 2011 as a part of the 112th Congress. That means the members of the 111th Congress remain in control and will be the ones called on to make some of these difficult decisions.

In the meantime, Congress will adjourn for the Thanksgiving holiday and is expected to begin consideration of many of these proposals upon its return on November 29th.

The difficult issues include:

Extension of the Expiring Bush Tax Cuts

If Congress fails to act by January 1, 2011; many Internal Revenue Code provisions expire, and return to what they were in 2001. A few of the affected items include:

1. Increasing all income tax rates, dividend tax rates, capital gains tax rates, eliminating marriage penalty relief in all brackets
2. Increased Federal withholding taxes- Should Congress fail to extend the Bush tax cuts the higher tax rates would normally require the IRS to issue new withholding tables for employers.
3. Reinstatement of itemized deduction limits
4. Reinstatement of personal exemption phase-out
5. Reduction in child tax credits
6. Reductions in IRA contribution limits

Reinstating the Estate Tax

If Congress does not act, the estate tax is automatically reinstated but at the rates and exemption levels that were in the law in 2001. The rates that existed in 2001 included a top estate tax rate of 55%, and a personal exemption level of $1 million, significantly lower than the $3.5 million exemption that was in effect in 2009 and the maximum rate of 45%.

Expiring Provisions and Extenders

Expect that votes in the House and Senate will take place but also expect the early votes to be more for politics than substance. Success on extending these issues and enacting a bill the President will sign is uncertain as of this date. Following is a partial list of expiring provisions and extenders that either expired at the end of last year or will expire at the end of this year. In some cases the credit or deduction is reduced.

1. Alternative Minimum Tax Indexing- currently not indexed for 2010
2. Education Tax Credits
3. Employment Tax Credits
4. Deduction for State and local Sales taxes in lieu of property taxes
5. Energy tax credits
6. Bonus depreciation rules

Extension of Unemployment Benefits

Congress must act to extend unemployment benefits for the long term unemployed, meaning those who have been unemployed for 99 weeks. Congress must act on this by December 1, 2010 as that is the date that benefits begin to run out under current law.

Enacting a Federal Budget

Congress has yet to enact any of the appropriations legislation necessary to allow for the continued funding of the federal government. The usual deadline for this is September 30 of the year, but Congress was unable to act and so deferred this deadline until December 3, 2010. Failure to either enact the appropriations bills or extend the continuing resolution would have a severe impact on every activity of the federal government.

Other Critical Issues for Congress

1099 Burdens

In the past year Congress enacted legislation that requires the IRS to impose a significant expansion of the rules to determine when a business owner must provide a 1099 to a business, incorporated or not, when providing goods and or services to a business. This included requiring providing 1099s to corporations for the first time, and for owners of rental property to provide a 1099 for each service provider or repair service. Recently legislation has been introduced to repeal this requirement, but it is unclear whether the revenue would have to be raised somewhere else.

Extending the Medicare Reimbursement Rates (Doc Fix)

The Health Care act enacted by Congress earlier in the year was unable to agree on a way to extend the Medicare reimbursement rates for seniors and it was extended through November 30. A permanent solution for this may not take place until next year.

Wednesday, November 24, 2010


The IRS has to publish the 2011 withholding rates so that employers know how much to withhold for payrolls starting in 2011. The problem is what will Congress do in the "lame duck" session? If Congress does nothing and tax rates go up, employers will have to start withholding higher rates.

Bloomberg.com reports, "Employers in the U.S. are starting to warn their workers to prepare for slimmer paychecks if Congress fails to vote on an extension of Bush-era tax cuts." The article notes that "lawmakers won’t start debating whether to extend the cuts, which expire Dec. 31, until after the Nov. 2 elections" -- and that regardless of what takes place, the IRS "will probably have to assume the cuts will expire and direct employers to increase payroll deductions starting Jan. 1." Bloomberg also reports that "allowing the tax cuts to expire, even temporarily, would deal a blow to disposable income and could curtail the consumer spending that accounts for about 70 percent of the economy," according to economists.



If you have been following my blog you know that I am a fan of decreasing taxes. By working with clients I know that as tax rates go up they lose the incentive to invest. Here is an example of what I have witnessed during my career.

A few weeks ago I was talking to a client. He told me that he was working really hard (70 to 80 hours per week) all summer to create a new line for his business. If this goes the way he wants in the next year he would have to build or rent a new warehouse and hire another 6 people. As we worked through the numbers, it looked like there was potential for another $40,000 in annual revenue.

Later in our conversation we started talking about the uncertainty of tax rates. He said "You know if tax rates went to 70% (Federal, State and Social Security), I would not have sacrificed my time or the financial sacrifices that I went through this summer." See what I am talking about?

Here is a very good article from the National Review that better summarizes my thoughts along with historical examples.


Tuesday, November 23, 2010


As part of the Obama administration’s stimulus plan, Social Security mistakenly sent 89,000 checks for $250 each to people who were either dead or in jail. About half the checks have been returned, but most of the prisoners will get to keep theirs. Source The Washington Post

Monday, November 22, 2010


May your stuffing be tasty
May your turkey plump,
May your potatoes and gravy
Have never a lump.
May your yams be delicious
And your pies take the prize,
And may your Thanksgiving dinner
Stay off your thighs!

From our office to yours, we wish you a blessed Thanksgiving!
Kopsa Otte Staff


For those of you who are interested on an update about Tony, please click on the link below:


Thursday, November 18, 2010


Question: I heard that the government is going to impose a 1% transaction tax. Is this true?

Response: There are a lot of proposals to reduce the deficit. There has been a bill introduced in Congress, but the chances of being passed are slim. See the information in Snopes.


Larry Kopsa CPA


You may have heard a lot of news lately about the Brazilian Blowout product. Here is the latest I have run across. Fact or marketing... you have to decide for yourself.



IRS has stated during its Nov. 10 payroll industry conference call that it is unlikely that any 2011 withholding tables will be issued this month. The percentage method withholding tables are usually issued in November to give payroll professionals sufficient time to get the tables into their computer systems before the new rates go into effect in January.

However, this year the tables will not be issued until Congress decides whether to adjust the tax rates.

Tuesday, November 16, 2010


Even though there was no estate tax in 2010, many estates still have to file an estate tax return. Those estates with non cash assets exceeding $1.3 million must file Form 8939 with the IRS. The reason for this is that the IRS wants to know how the executor allocated the basis to heirs. In addition the heirs will need to know the basis of the inherited assets so that when the inherited property is sold they can calculate their gain or loss. In addition, if the property is business property, the heirs can take depreciation if there is a basis step up.

On property that is not given a basis step up, the basis of the decedent is the basis for the heir.

In 2010 executors can increase the basis of estate assets by $1.3 million plus an extra $3 million for assets that go to a surviving spouse. The filing of the Form 8939 is due by April 18, 2011, although the Service may extend the deadline because the agency has not yet issued any public guidance on the allocation rules.


Firms face a stiff penalty if their insured health plans are discriminatory. You will owe a $100-a-day excise tax for each person discriminated against. In the past, only self-insured medical plans were subject to nondiscrimination rules, but the health reform law expanded the rules reach to insured group health plans.

Generally, plans must benefit 70% or more of employees, not counting workers with fewer than three years of service and those under age 25 and part-time workers. Additionally benefits for highly compensated workers,...one of the five highest paid officers, the top 25% of paid workers or owners of over 10% of the firm...must also be given to the rank and file.

The rules are effective for plan years beginning after September 22, 2010. Existing plans are protected unless they are changed significantly, such as by raising the percentage of medical bills that employees are responsible for or boosting deductibles by more than 15% plus the rate of inflation for health care.

All insured health arrangements should be checked in light of these rules, including employment and severance agreements giving execs special health benefits.

Friday, November 5, 2010


In a result that surprised me, the Tax Court ruled that service providers at spa were booth renters not employees. In the past if the rent was not a fixed amount and if the service provider did not collect the cash, then they were considered employees. The Tax Court overlooked this precedence and ruled that the workers were booth renters.
Cheryl A. Mayfield Therapy Center, TC Memo 2010-239

The Tax Court has held that cosmetologists, nail technicians and massage therapists who performed services at a spa were not its employees but rather were independent contractors. Accordingly, the spa did not owe employment taxes and penalties as IRS had contended.

Upon audit the IRS determined that cosmetologists, nail technicians and massage therapists (collectively, service providers) who performed services at a spa in exchange for payments were employees of the spa.

• The service providers received no set salary or wages and no fringe benefits.
• As a general rule, the spa charged each service provider weekly “booth rent” equal to the greater of approximately $80 “base rent” or 25% of the gross revenues the service provider generated that week.
• The service providers set their own hours. Some of them worked full time; others were part-time workers who were students or had jobs elsewhere.
• The spa posted prices for various spa services on brochures and on its Internet site. But the service providers were not required to charge these posted prices; they often charged less and occasionally provided free services for repeat customers, family, and friends.
• Clients paid for services at a central point as they left the spa. The spa accepted payment by cash, check, gift certificate, or credit card.
• Cash payments were kept in a wicker basket beneath the receptionist's desk. When low on funds, a service provider would sometimes take money from the basket and leave a handwritten note.
• Service providers generally provided their own supplies. Each service provider purchased his or her own work clothing, which generally consisted of shirts with the spa logo and either khaki, black or white slacks or shorts.
• Each week the spa would prepare payout sheets for the service providers. These payout sheets listed each service provider's clients and the total amount that each client paid for services rendered. From these amounts the spa would deduct booth rent, expenses for products the service providers might have purchased from the spa, and any amount that the service provider might have taken from the basket money.

The spa did not file Forms W-2, Wage and Tax Statement, with respect to any individuals listed in the notices of determination. Nor did it report any compensation payments to employees during the years at issue on Forms 941, Employer's Quarterly Federal Tax Return, or Forms 940, Employer's Annual Federal Unemployment (FUTA) Tax Return.

In the notices of determination, IRS classified as employees the receptionists, massage therapists, cosmetologists and nail technicians who worked at the spa during 2002 through 2004 and an instructor who worked at the massage school during 2003 and 2004.

Spa prevails in Tax Court. Before the Tax Court, the spa conceded that the receptionists and instructor were employees but it argued that the massage therapists, cosmetologists and nail technicians were independent contractors. The Tax Court agreed. Although it was a close case, more factors supported a finding of independent contractor status than of employment status.
The following factors supported the spa's contention that the service providers were not employees:
• The spa generally did charge, and the service providers did generally pay, weekly rent of at least $80.
• The service providers were compensated on a straight commission basis, with no minimum guaranteed level of payment.
• The spa did not pay service providers' business or travel expenses.
• Many of the massage therapists made significant investments in outfitting and decorating their massage rooms. Thus, the service providers bore the risk of suffering net losses.
• Several service providers believed that they had a non employee relationship with the spa; and
• The spa did not tell the service providers how to provide their services to the clients. The service providers were all licensed professionals, possessing skills as required by their licensing. They set their own hours. Although the spa posted prices for various services, the service providers were free to charge less and sometimes provided services for free.

Other factors supported employment status for the service providers: their services were integrated into the spa's operations; they provided their services mostly on the spa's premises; the spa provided at least some informal training to new service providers; there was no showing that the service providers made their services available to the general public (other than by working at the spa) regularly and consistently; they were assisted in booking appointments and in receiving payments by receptionists that the spa employed and supervised; clients paid the spa rather than the service providers; and the spa kept the payments until it distributed the service providers' weekly checks.

Other factors were neutral. For example, the Tax Court regarded as neutral the fact that the service providers rendered their services personally since this was dictated by the nature of the services and the licensing requirements.

Bottom line. The Tax Court acknowledged that it was confronted with a close case. But weighing all the evidence, it concluded that factors indicating the service providers' autonomy predominated over those indicating the spa's control over them. Accordingly, it held that the service providers were independent contractors rather than employees.

To review the entire Tax Court Case see the attachment below.


It's finally official. The Republicans have taken over the House of Representatives and clawed away much of the Democrats' edge in the Senate. As I gaze into my crystal ball, here are my latest thoughts on what we can expect from the new Congress. But don’t take this to the bank… remember I was the guy that said the Congress would never allow the estate tax to lapse in 2010. Boy was I wrong. Here are my thoughts:

• Most tax accountants have been skeptical that Congress would get their act together and extend the 2001 and 2003 Bush tax cuts (even just for those earning under $250,000) in the lame duck session of Congress convening on November 13. But White House Press Secretary Robert Gibbs announced just today that the administration is open to extending the cuts for all. http://www.cnbc.com/id/40007621

• Word on the street suggests we may see a one-year extension for everyone, then fight it all out again with the new Congress in 2011. However, the Republicans may wait until the new Congress convenes in January to address the issue. In that case, clients can expect to see less take-home pay as the IRS adjusts withholding tables to reflect the new, higher rates.

• If Congress reaches the consensus necessary to resolve the Bush tax cuts question, they'll also manage to "patch" the AMT to avoid soaking millions of unsuspecting Americans. We have been doing several pre tax appointments and so far, if they do not do the patch, we only had one client that was not paying the additional Alternative Minimum Tax. It could get ugly.

• The new Republican House makes it unlikely that we'll see the estate tax roar back with a vengeance like it's scheduled to on January 1. But Congress isn't going to come up with a compromise imposing it retroactively for 2010, either. At this point, the smart money is betting on a compromise with a unified credit in the neighborhood of $3.5-5.0 million and rate of 45%.

• Republican leaders insist they plan to repeal the Legislation that Washington refers to as Healthcare Reform. But even L. Ron Hubbard can't imagine an alternate universe that gives them the votes they need to overcome a Senate Democratic filibuster or presidential veto. However, prospects are good that they can cherry-pick some of their least-favorite provisions — specifically; the requirement that all business file 1099s for all purchases over $600.

Some clients are breathing sighs of relief that the Republican victory will keep taxes low. But that view ignores the reality that deficits are still going up — and taxes will ultimately have to follow. This week's elections may have postponed that day of reckoning, but they haven't eliminated it. Don’t bury your heads in the sand. Recognize this economic inevitability and realize that continued gridlock means uncertainty — and even mere uncertainty not only makes it hard to tax plan, but impacts the economy.

Wednesday, November 3, 2010


The IRS remains unclear about 1099 reporting implementation.
The Internal Revenue Service is still avoiding questions about how it will implement the controversial 1099 reporting rule, a provision of the health care reform law that requires a business to file a 1099 when a vendor is paid more than $600. IRS Commissioner Douglas Shulman has declined to provide information on the rule after requests for clarity, says Rep. Sam Graves, R-Mo. See the article and comments from The Hill.



Last Sunday was Halloween and for some reason we had an exorbitant number of kids dressed up as zombies. It felt like the night of the living dead, which for some reason made me think about taxes and the federal government. You see the federal government does not apparently believe in death. For some reason they keep sending money to dead people. Maybe that's why we had so many zombies at our door begging for candy. Here is proof that the government does not believe that people die.

Remember those $250 stimulus checks? An investigation found that $18 million of those checks were sent to 71,688 deceased individuals. While some percentage of those checks were mailed out because SSA had not been informed that the taxpayers had died, an alarming number of the beneficiaries were actually accurately reported as deceased. In fact, in 2008, SSA paid deceased beneficiaries a whopping $40.3 million in benefits even after being notified of those deaths.

The beleaguered Department of Housing and Urban Development paid out more than $15.2 million in to households in 2008 to program households containing at least one deceased tenant. This included $7 million sent to single-member households whose only “family” was a deceased individual.

Scary, huh? The report goes on to cite examples of poor oversight and waste in other programs, including Medicare and Medicaid.

You can find the report on Senator Coburns oversight link below.


Tuesday, November 2, 2010


Congress passed new legislation which was signed into law September 27, 2010 that gives them talking points for their reelection campaigns for the current elections. While these changes are intended to incite businesses to spend money on capital improvements, it becomes challenging for taxpayers to stay in tune to the latest depreciation rules in effect for the current year.

For those taxpayers that have profited even with the weak economy, these expanded depreciation incentives will enable taxpayers to plan their 2010 and 2011 capital expenditures and obtain very attractive tax results, thus helping to offset some of the taxable income.

This legislation brings the second change of rules we have for depreciation for 2010. The changes enacted by the HIRE Act signed in to law on March 18, 2010 are no longer valid. The Section 179 level for 2010 started off at $134,000 and then went to $250,000 with the passage of the HIRE Act. Until now, 50% bonus depreciation had terminated for asset purchases after December 31, 2009. But that is now all changed.

Here is the New Stuff - Section 179 Allowance for 2010 and 2011
The Small Business legislation enacted in September 2010 increased the Section 179 expensing allowance to $500,000 for taxable years beginning in 2010 and 2011. The expensing allowance phase-out threshold has also been increased for qualifying property additions in the range of $2,000,000 to $2,500,000. The definition of qualified property under Sec. 179 remains virtually unchanged from prior law.

However, IRC Sec. 179(f) now allows Section 179 expensing (subject to a $250,000 expensing limit) for certain Qualified Real Property such as Qualified Leasehold Improvements, Qualified Restaurant Property, and Qualified Retail Improvement Property.

2007 $125,000
2008 $250,000
2009 $250,000
2010 $500,000 **
2011 $500,000 **

** $250,000 limit for Qualified Real Property

Congress has been using Section 179 expensing as a major stimulus provision for the past several years. So trying to guess what Section 179 limits will be in the future may be a futile activity, particularly with the recent tendency to enact these changes retroactively.

NOTE: For the record, IRC Sec. 179(b)(1)(C) now states that for tax years beginning after 2011, the Section 179 expensing limit is $25,000. This scheduled large reduction in the Section 179 level is actually designed to encourage capital investments in 2010 and 2011. If the large reduction actually occurs, it would be a major adjustment for many farm producers.

Retroactive Extension of the 50% Bonus Depreciation
The 50% bonus depreciation deduction is retroactively restored for qualified property acquired and placed in service prior to January 1, 2011. This means that qualified property placed in service after December 31, 2007 and before January 1, 2011 is eligible for the bonus 50% depreciation.

The definition of qualified property for the 50% bonus remains the same as under the law in effect for 2008 and 2009. To qualify, the original use of the property must commence with the taxpayer (i.e., the asset must be new rather than used), and the asset must meet the qualified property definition.

For trades, 50% bonus depreciation may be claimed on the entire adjusted tax basis of the new asset.

As a reminder, the bonus 50% depreciation is mandatory. However, the taxpayer can decline to take the 50% bonus on a class by class basis. An election statement must be placed in the return stating which class lives are being elected out of 50% bonus.

50% Depreciation Available

2007 No
2008 Yes
2009 Yes
2010 Yes
2011 No