TAX COURT HOLDS MEDICAL MARIJUANA RETAILER UNDERREPORTED INCOME

The owner of a California medical marijuana dispensary was found to have underreported income. Moreover, he was precluded from deducting most of the expenses he claimed because the business consisted of trafficking in controlled substances.

BRAID BARS

We hope you didn't miss a recent article from the Chicago AP regarding salons who are offering 'Braid Bars'.  What a great idea!

To read the article: CLICK HERE

SPA STAFF EARNING STATISTICS

Spa Magazine just released their annual survey on spa operations.

Here is the information on earnings

Approximately How Much Does Your Staff Earn?	$0 to $35,000	$35,001 to $70,000	$70,001 or More
Esthetician	74%	23%	3%
Massage Therapist	76%	23%	1%
Nail Technician	86%	13%	1%
Spa Director/Manager	44%	41%	15%
Stylist	69%	30%	1%

MASONRY WORKERS WERE EMPLOYEES, NOT INDEPENDENT CONTRACTORS

There are many salons that use "independent contractors" in their operation as opposed to treating their workers as employees.  The IRS and the states are cracking down on the misclassification of workers. 

 

This is an example of just that:

The Tax Court has held that a S corporation operating a masonry subcontracting business failed to properly treat its workers as employees. Although the workers were hired by the job and were free to work for others, a factor indicating independent contractor status, almost all of the other factors weighed in favor on employee status. For example, they were controlled by the subcontractor when they were on the job, and had no significant investment in facilities.                                                   Atlantic Coast Masonry, Inc., TC Memo 2012-233

TEN TAX TIPS FOR INDIVIDUALS SELLING THEIR HOME

The Internal Revenue Service has some important information for those who have sold or are about to sell their home. If you have a gain from the sale of your main home, you may be able to exclude all or part of that gain from your income.

Here are 10 tips from the IRS to keep in mind when selling your home.

1. In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.

2. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).

3. You are not eligible for the full exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.

4. If you can exclude all of the gain, you do not need to report the sale of your home on your tax return.

5. If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.

6. You cannot deduct a loss from the sale of your main home.

7. Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.

8. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.

9. Special rules may apply when you sell a home for which you received the first-time homebuyer credit. See Publication 523, Selling Your Home, for details.

10. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive mail from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.

For more information about selling your home, see IRS Publication 523, Selling Your Home. This publication is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

TAX LAW CHANGES THIS YEAR

This year Congress has only passed 54 bills and sent to the president the following:

•       14 to rename post offices

•         9 to approve real estate transactions

•         6 to renew existing leases

THE FORMULA FOR "SUCCESsful" IDEAS

I read a lot of business books. I'm a big believer in "one good idea," so I'm happy if I actually get one good useable idea from a book. But every so often, I come across a book that just spills ideas. And that was the case with Made to Stick: Why Some Ideas Survive and Others Die, by brothers Chip Heath (a professor at Stanford University) and Dan Heath (founder of an adult-education company).

The Heaths examine how to make ideas stick. And their answers hold lessons for all businesses. In fact, they've actually created a formula for launching an idea with "SUCCESs": a Simple Unexpected Concrete Credible Emotional Story. Let's look at each of these in turn:

• Simple: Strip the idea down to its core. For example, military commanders draft complex battle plans, specifying "scheme of maneuver" and "concept of fires" (what each unit will do, how it will replace munitions, and so on) even though they realize no plan survives contact with the enemy. So they also announce a broader "Commander's Intent" that lets them improvise where needed.
• Unexpected: Use surprise to engage your audience and generate interest and curiosity. For example, Nordstrom's department store trains new employees with stories about employees who ironed a shirt for a customer who needed it for a meeting that afternoon, gift-wrapped a present bought at competitor Macy's, and refunded a customer money for a set of tire chains — even though Nordstrom's doesn't sell tire chains.
• Concrete: Explain your ideas with concrete images, not abstract concepts or meaningless generalities. In the example above, Nordstrom's could brag about "world-class customer service" -- or they could make it concrete with the story about the tire chains. Which communication is more effective?
• Credible: Give your ideas credentials to impress your audience. Where possible, use authority figures, social proof, and vivid details to strengthen your case.
• Emotional: Make your audience feel something about your ideas. It's one thing to solicit money for "Save the Children." It's another thing entirely to solicit money for "Reika, a seven-year-old girl in Guatemala who was born with no fingers, who spends her days sewing blankets for the unfortunate children in her village who were born with no arms."
• Stories: Tell stories that teach your audience how to act and motivate them to do so. For example, firefighters tell their stories after every blaze as a way to share the lessons they learned.

The authors cite John F. Kennedy's 1961 call to "put a man on the moon and return him safely by the end of the decade" as a classic "sticky" idea:

"Simple? Yes. Unexpected? Yes. Concrete? Amazingly so. Credible? The goal seemed like science fiction, but the source was credible. Emotional? Yes. Story? In miniature."

And it sure sounds better than becoming "the international leader in the space industry through maximum team-centered innovation and strategically developed aerospace initiatives"!

So about how you can apply the formula to growing your business or personal life? 

WORSE ECONOMIC WRECKAGE FORECAST FROM "FISCAL CLIFF"

Even the Congressional Budget Office is worried about the financial cliff the U.S. is approaching.  Here is an summary from Reuters

By David Lawder

WASHINGTON Aug 22 (Reuters) - Massive spending cuts and tax increases due next year will cause even worse economic damage than previously thought if Washington fails to come up with a solution, Congress's budget office said on Wednesday.

Without congressional action to avoid a "fiscal cliff," Americans should expect a "significant recession" and the loss of some 2 million jobs, Congressional Budget Office director Doug Elmendorf said in his gloomiest assessment yet.

He said the economy was already being "held back" by the mere anticipation of the cliff and the uncertainty surrounding it. "The sooner that uncertainty is eliminated, the better," Elmendorf said.

The report could intensify pressure on Congress and the White House to resolve their differences. But the likelihood of a resolution any time soon, particularly before the November election, is seen as slim. Chances could improve after the election for action during the lame-duck session of Congress, but that's unpredictable as well.

Neither Democrats nor Republicans have shown a willingness to back away from fixed positions on either budget cuts or extension of tax cuts originally enacted during the administration of President George W. Bush.

The "cliff" refers to the impact of expiring tax cuts and automatic spending reductions set for 2013 as a result of successive failures by Congress to agree on some orderly alternative method of addressing the deficit.

The CBO said failure to avoid the cliff would deliver a shock to the economy that would cause U.S. gross domestic product to shrink 0.5 percent in 2013. Previously, the CBO had forecast full-year GDP growth of 0.5 percent.

1099K QUESTION

Q: I attended one of your seminars in Orlando and you mentioned the 1099K forms that credit card companies are sending. You mentioned that we do not need them; however, use them for internal purposes because IRS are getting them anyway. Can you give us the information in regards to that new change?

A: 1099K’s have been really confusing. First the Government says it’s one way, then it’s another way, then they make another change. As I mentioned to you, right now the 1099K’s still have to be prepared by the credit card companies and copies sent both to the IRS and to their customer. As I mentioned originally, we were supposed to reconcile these 1099K’s to Gross Income. Finally, they recognized that it was going to be very prohibitive to businesses because of sales tax that are added in, tips, cash backs and many other items.

Accordingly, they changed their rules. First of all, it was supposed to go into effect for 2011 returns and then they said no, wait on 2011. Now they say it’s not included at all.

As I mentioned to you, you’re still going to get copies of the 1099K’s and if you are audited, the IRS will still have access to that. Whether the IRS tries to reconcile this back to gross income, some commentators say they will, some commentators say they will be ignored.

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

THE INTERNET RUMORS ARE NOT TRUE - MOST HOUSE SALES ARE NOT SUBJECT TO THE 3.8% MEDICARE TAX

The impending 3.8% Medicare surtax has fueled a spate of chain e-mails regarding a federal "real estate transaction tax" on home sales, and I have been hearing from worried clients.

Here are the facts:

  Gain on the sale of your house is not taxable unless your gain is greater than $250,000 for singles or $500,000 for married taxpayers.

That's the facts Jack.

YEAREND PLANNING: MAKING THE MOST OF QUICK WRITE-OFFS FOR CAPITAL GOODS

Although bonus first-year depreciation and more-generous Code Sec. 179 expensing limits have been extended before, another lease on life for these tax breaks is far from certain this time around.

Unless Congress acts, additional depreciation deductions under Code Sec. 168(k) in the placed-in-service year equal to 50% of the adjusted basis of qualified property won't be available after this year.

Also, the Code Sec. 179 expensing limit is set to plummet to $25,000 for property placed in service next year.

Because of this uncertainty, business owners planning to purchase machinery and equipment during the remainder of this year or early the next should try to accelerate their buying plans, if doing so makes sound business sense.

DO OLYMPIC ATHLETES PAY TAX IF THEY WIN GOLD?

In response to exaggerated figures floating around the web, Snopes.com has an interesting look at the income tax consequences for those who win medals in the Olympics.  Click here for article.

Basically, the winners do report the cash prizes they receive as income; but their deductible expenses to train, and attend the Olympics would most likely be more than enough to cancel out that income on their tax returns.

Thats the facts Jack.

MEDICAL PREMIUMS ON W-2

Q: Larry, I heard for someone that we are going to have to put any medical/dental premiums that we pay for our employees on the W2s starting this year.  Do you have any information about this or know where I would be able to look that up?  We just want to make sure that we have it covered sooner rather than later.

A: As long as a business had less than 250 employees in 2011, then there is relief, in that, there will not be a requirement to report in 2012.

Use this link to see Q and A sheet on IRS website - CLICK HERE

 

QUICKBOOKS SETUP ERROR & HOW TO FIX IT #3

Most errors can be avoided simply by planning your setup and knowing what your business needs are. Here is another QuickBooks setup error that we see the most AND how to fix it.

Vendors

Redundant or duplicate: The same as with the Chart of Accounts, you don’t want bloated Vendors list. So periodically review the list for duplicates and merge the Vendors.

Vendors properly not set up for 1099 reporting: Check with your accountant/tax profession regarding the necessary paperwork and filing requirements but you can (and should) track 1099 amounts in QuickBooks. When done properly, year-end 1099 filing is simple.

Remember, standing in a garage, doesn’t make you a car… knowing a bit about QuickBooks and being able to navigate it, does not make you an accounting expert. Don’t be afraid to look for or ask for some help.

CHANGES IN THE TANNING TAX FOR SINGLE MEMBER LLC’S

The tanning tax deposit rules are changing for some types of businesses.  Starting after June 30, 2012, one-owner LLCs must deposit tax under the entity’s name and ID number.

Previously, these entities had been allowed to make deposits using the owner’s name and ID number. The change affects one-owner LLCs and qualified S firm subsidiaries that are otherwise treated for tax purposes as entities not separate from their owners.

So these firms will have to obtain their own tax identification numbers from IRS before filing Form 720. The change affects 720s due on or after Oct. 31, 2012.

IT IS NOT THE 1% THAT ARE STRANGLING THE ECONOMY

Everybody should have a favorite economist. Mine is Professor Ernie Goss of Creighton University.  The following is from his July newsletter.

The 25%, Not the 1%, Are Strangling the U.S. Economy

It's not the 1 percent that is siphoning U.S. economic resources. It is the 25 percent--the portion of the U.S. population born between 1946 and 1964 or, baby boomers like me. Not only are we 25 percenters leaving the workforce at very high rates, (consuming instead of producing), we are draining the U.S. Treasury via higher Social Security (SS) benefits and greater Medicare spending. Over the past decade, SS outlays soared by 69 percent and Medicare expenditures rocketed by 135 percent, enlarging the nation's debt to $16 trillion. This debt which is the largest in the galaxy and 100 percent of GDP will ultimately be paid for by the 60 percenters (those born after 1964). We need to take steps to reduce this wealth transfer from young to old by: (1) raising the SS retirement age from 67 to 70 by increasing it 2 months per year, (2) increasing the Medicare eligibility age from 65 to 67 and, (3) cut the yearly SS inflation adjustment by 1 percent. Taking these actions would save $360-$400 billion between 2012 and 2021. Additionally to reverse the aging of the nation’s labor market, the U.S. should expand legal immigration allowing younger workers and their families to enter the U.S. Latest U.S. Census data show the median age is 38.3 for Whites, 35.3 for Asians and 27.4 for Hispanics. By increasing legal immigration and slowing the growth in SS and Medicare spending, the U.S. would avoid the stagnation and looming economic calamities threatening Japan and Europe as a result of their aging populations and expanding pensions/healthcare payments to baby boomers. Ernie Goss.

I found his comments on a “fix” to the deficit that the Social Security fund very interesting.  Last fall I attended the National Tax Conference in Washington D.C.  One of the sessions was on Social Security and Medicare, the speaker, Theodore Sarenski echoed some of the advise that Dr. Goss presented.  If this happened, according to Sarenski, no person over 55 would be see their benefits change and people under 55 would still receive at least 85% of their benefits. 

FEDERAL STUDENT AID NEW WEBSITE

Federal Student Aid launched a new streamlined website, StudentAid.gov, which will assist in making it easier for students, parents, and borrowers to navigate the financial aid process. These new resources offer more than just information in an easy-to-read format; they also feature interactive tools, such as videos and infographics, to help answer the most frequently asked questions about financial aid.

StudentAid.gov is the first step to develop a single point of entry for students accessing federal student aid information, applying for federal aid, repaying student loans, and navigating the college decision-making process.

QUICKBOOKS SETUP ERROR & HOW TO FIX IT #2

This is my second Quickbooks tip posting:
QuickBooks is driven by lists – quite a few of them. You have to know your business and know what the lists mean so that you can efficiently and effectively create a database.  Here is another QuickBooks setup error that we see the most AND how to fix it.

Customers and jobs

Customer and job organization not appropriate for reporting needs: Customer/Jobs don’t work for every QuickBooks user. In my experience, I’ve seen it used most often in construction, home improvement or real estate/property management companies where there are multiple & concurrent “jobs” worked for each customer that the business owner would like to track separately (typically for profitability reporting reasons). If this does not describe you and your business, then the extra level of “Jobs” is inappropriate for your reporting needs and is probably overkill.

Redundant or duplicate: Again, the same as with the Chart of Accounts, you don’t want a bloated list of Customers/Jobs. Periodically review the list for duplicates and merge the Customers.

Jobs not properly assigned to customers: If you use Jobs, you want to make sure that they are properly assigned to Customers. Periodically review your customer & job list to make sure that everything is as it should be.

 Don’t be afraid to ask for some help.

THE COST OF A BAD HIRE

If you have employees I am sure that you have at least once made a bad hire.  I know that it has happened to me.  The key is to make sure that you have systems in place and that you do background checks.  I even know of situations (this is plural) where employers have hired employees that have been fired because they were dishonest.   

The costs of a bad hire are staggering. A recent survey by Career Builder reports more than two-thirds of employers were affected by a bad hire last year, according to AOL Jobs. Of nearly 2,700 employers surveyed, 41% estimate a single bad hire cost $25,000; a quarter estimate a bad choice cost $50,000 or more — not to mention the demoralizing effect of the issue on other employees and on the new hire. Losing a job is one of the most stressful events a human can experience. 

Remember to do your homework.