IS THIS STIMULUS WORTH ALL THE HASSLE?

As I have discussed before, there has been a lot of confusion as to whether or not the advance rebate checks would affect the amount of refund or tax due with the 2008 1040. The IRS website has had conflicting info on this. If you check the IRS's draft release of the 2008 1040 form, you can plainly see on Line 71 that there is a place for the "Recovery rebate credit" which should be a positive number for those people who did not receive the full amounts as checks during the year, and either a zero or negative amount for those who received checks.

This will obviously end up affecting the amount of refund or tax due. As I have been saying, this is exactly the same mechanism as we had for the similar advance rebate payments that we had to deal with a few years ago. People were claiming that the 2008 rebate checks were free money and would not affect the bottom lines on the 1040s. Apparently this is not correct.

PROBLEMS WITH RECEIVING YOUR STIMULUS CHECK

Hi Larry,
I found your blog thru a google search on "stimulus check problems". After waiting now for a long time the IRS finally has an online tool to check the status.

Surprisingly I had to find out that I was not "eligible" because my SSN or ITN do not match their records. I have a SSN and my wife has an ITN.

The interesting thing is that I filed my TAX return electronically with that same info and had no issues in getting my refund in March.

What am I missing? Have you heard about this issue as well, and is there any possible solution?

Thanks for your help.

Richard

Richard, I am sorry that you are having problems with the IRS and your stimulus check. I think you have two choices. One choice is you can continue to contact the IRS to try to resolve the problem. We understand that the IRS is receiving numerous calls and have reallocated staff to the stimulus questions. Although I have not personally been involved with any contact with the IRS regarding stimulus questions, I am sure this would be a long frustrating process.

The other choice that you have is to simply wait until you file your 2008 return and increase your refund or decrease the amount of tax due when you file the 2008 return. As you may know, the stimulus refund is really a reduction of your 2008 tax, not a reduction of your 2007 tax. They are just doing this early to supposedly heat up the economy. I am not sure if it worked, but that was the thought.

On many returns that were extended, they will not receive the stimulus refund until they file the 2008 return.

If it were me, rather than hassle with the IRS, I would probably just wait until you file your 2008 return and make sure your tax preparer understands that you did not receive your stimulus check and reports it correctly on your 2008 return.

Sorry I could not be of more help. If you have any questions, please contact me.

Larry Kopsa CPA

Hi Larry,
Yea your feedback helps. I think I stimulate the economy then next year :) even though I had planned with the money this year.

It just shows the state the IRS is in.

Thanks again!

Richard

QUESTION ABOUT INCENTIVE REBATE

Larry, I filed electronically, received my refund via direct deposit but, despite my SS# ending in 15, I have not yet received any deposit for the economic incentive initiative which according to reports, should have been deposited 5/2. Turbo Tax indicated I would get the $600.00. Thanks for your response, Erin

Erin, You are not the only one that has not received their refund. I am assuming that you filed your return by April 15th. If you go to the IRS web site www. IRS.gov on the first page at the top there is a link to the stimulus dates. Your date depends is you had a paper or electronic payment. Let me know if you get your electronic deposit. If you don’t receive it, let me know and we will see if the IRS has set up any procedures to track.

It is a pleasure serving you.

Larry Kopsa CPA

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

Erin, Good for you!

REBATE CONFUSION

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

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

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

Here is the real deal...

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

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

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

STIMULUS CHECK PROBLEMS

There are a number of our clients that have been receiving incorrect economic stimulus refunds. In most cases they were shorted the $300 per child. We have already received a couple of calls on this and we’ll probably hear from more. The issue was on the IRS’ side and they are correcting it. They will be issuing checks/direct deposits for the difference. Fortunately, our software has identified clients that will most likely be receiving incorrect stimulus checks. If you receive the incorrect amount, be patient; the IRS has a glitch in their system and you should be receiving the difference in the future (we do not know the timing).

WHERE IS MY REBATE CHECK?

We have received questions lately from people that have not received their rebate check. I think we have already posted just about every bit of information available regarding the Stimulus Rebate, but there are a few items worth repeating.

To view these items, go to our website at www.kopsaotte.com. Click on Forms and Publications, and then select Answers to Your Stimulus Payment Questions.

ONE YEAR TAX BREAK FOR SALONS

The following is an article that I wrote for the PBA newsletter. I thought you might find this interesting.

Larry Kopsa CPA

PBA Tax Update - April 2008

April/2008

LATEST NEWS - Special Edition

Big Tax Write-offs for Businesses in the Economic Stimulus Act - But You Must Act Quickly

There is more to the Economic Stimulus Act than the rebates that most of us will be receiving this summer. Included in the Economic Stimulus Act are two provisions to help small businesses. These opportunities are only available in 2008, so if you want to take advantage you must act quickly.

These provisions have not received as much press as the rebates have. But, overlooking these provisions could be a costly mistake. Here is what you need to know to take advantage of the new law.

Leasehold Improvements

If, in the future, you are planning any leasehold improvements for your salon/spa or OTC, consider accelerating the project into 2008.

Before the Stimulus Act, leasehold improvements were depreciated and deducted over 39 years regardless of the term of the lease. Here is the new law. For 2008, and 2008 only, the taxpayer can deduct 50% of the cost in 2008.

A couple of examples will show how important this can be for your business.

Example 1: Normal Law

Hairball Beauty is planning to spend $78,000 for a major remodel (not including fixtures and equipment). Under the normal laws, Hairball Beauty will be able to deduct $2,000/year ($78,000 ÷ 39 years). Assuming a 33% tax bracket, Hairball Beauty will save a measly $660 per year for 39 years.

Example 2: Stimulus Act

Same facts as Example 1, except that Hairball Beauty does the remodel in 2008. Because of the Economic Stimulus Act, Hairball Beauty can deduct 50% in 2008, plus normal depreciation on the remaining 50%. So in 2008, Hairball Beauty has a write-off of $39,000 (78,000 x .50) + $1,000 (39,000 ÷ 39 years). This causes a tax savings of $13,200, plus $330 for the next 38 years.

So, if you are planning to remodel in the near future, consider accelerating the remodel into 2008 to get a huge tax write off and, at the same time, help stimulate the economy.

There are some specific rules that must be followed, so make sure you check with your tax advisor if you are considering any major purchases.

Fast Write-off of Equipment

Another Stimulus Act enhancement enacted by Congress is a higher deduction if you purchased equipment. This is commonly referred to as a "Section 179 Deduction." The deduction allowed in the pre-stimulus law was quite generous, so this may or may not impact your business.

Under the pre-stimulus law, if you purchased equipment you could elect to write off up to $128,000 of business equipment in the year that you placed the equipment in service, versus depreciating the equipment over 5 to 7 years. The Stimulus Act increases this amount to $250,000 for 2008.

If you are making major equipment purchases, this could provide you with a large tax write-off.

Once again, there are some detailed rules that you must focus on, so contact your tax advisor to see how this fits your fact pattern.

---

Larry Kopsa CPA is a partner in Kopsa Otte CPAs. Larry is a frequent speaker at beauty industry programs, including the PBA Symposium. He will be a presenter at PBA's upcoming Learning Lounge in Las Vegas this July.

Disclaimer: The information provided does not constitute legal, tax, accounting, or financial advice and is offered as an information service only. Those seeking specific advice should contact a professional advisor. No liability whatsoever is assumed in connection with the use of this information.

PBA SMART STAT
Voice of the Beauty Industry
"Representation on Capitol Hill/Government Affairs" was identified as the most valuable member benefit by PBA survey respondents.

91% of total respondents said Government Affairs was "valuable", while 66% of those said Government Affairs was not only valuable...but "extremely valuable".
Source: PBA 10th Anniversary Survey Report

The Washington Update is a publication of PBA's Government Affairs Committee.

Frank Zona Zona Salons, Committee Chair
Serena Chreky Andre Chreky, the salon spa
Eric Schwartz OPI
Max Wexler Beauty Craft Supply

WHERE IS MY STIMULUS CHECK?

More than a quarter of those receiving economic stimulus payments this year should have their money in mid-May, according to information from the IRS. The date stimulus payments will be distributed will be based on the last two digits of the filer's Social Security number. Those who opted to receive their federal income tax refund via direct deposit will receive their stimulus payment sooner than those who will be sent their money by paper check. Direct deposits will be made from May 2 to May 16, while paper-check mailings will run from May 16 to July 11. Individuals who make at least $3,000 in qualifying income can receive a stimulus payment. Here is the schedule for economic stimulus payments:

Direct deposit

Last two digits of SSN Stimulus payment sent by:

· 00-20 ...........................May 2
· 21-75 ...........................May 9
· 76-99 ...........................May 16

Paper checks

Last two digits of SSN Check in the mail by:

· 00-09 ...........................May 16
· 10-18 ...........................May 23
· 19-25 ...........................May 30
· 26-38 ...........................June 6
· 39-51 ...........................June 13
· 52-63 ...........................June 20
· 64-75 ...........................June 27
· 76-87 ...........................July 4
· 88-99 ...........................July 11

THE STIMULUS REFUND DATES ARE NOW SET

The first rebates will be wired on May 2 to taxpayers who had their 2007 refunds deposited directly to their bank accounts. The IRS will finish wiring these rebates by May 16. The order depends on the last two digits of the Social Security number of the primary filer...the lower the number, the quicker the payment.

Paper checks will start going out May 16 as well to nondirect depositors, based again on the last two digits of their Social Security numbers. The initial round of mailouts will be completed by July 11. Of course, if any back taxes are owed, the Service will grab a filer's rebate.

Returns must be filed by April 15th or you go to the back of the line.

SUMMARY OF THE ECONOMIC STIMULUS PACKAGE

Here is a handy three-page PDF summary of the Economic Stimulus Act of 2008 that can be downloaded for free. I think this summary, plus examples, covers the new law in easy to understand terms.

MORE ON THE STIMULUS REFUNDS

The IRS will move fast on tax rebates. The checks will start going out in early May, once the Revenue Service finishes processing returns filed around April 15. Rebates will be keyed to tax liability. Marrieds will get a maximum rebate of $1,200... singles-$600. But there is a catch. You must have had at least some federal income tax liability to receive the refund. More good news, filers with dependents under 17 get $300 per child extra.

Filers with small income tax liabilities will also get rebates. Marrieds paying $1 or more of tax will get at least $600 if their income topped $17,500. Singles will get at least $300 if they made over $8,750.

Even those who don’t pay any income tax can get rebate checks. Marrieds with at least $3,000 of earned income will get a minimum of $600, plus $300 per child. Singles with $3,000 of earnings will receive $300 plus $300 per child. This includes seniors and disabled veterans. For rebate purposes, Social Security benefits and veterans’ disability count as earned income.

But, there is no good news for those people paying high taxes. High-incomers won’t get checks. Rebates will start to phase out at $150,000 of adjusted gross income for couples and $75,000 for singles, falling by $50 for each $1,000 over these amounts. For example, a couple with two children won’t get a rebate if their AGI is $186,000 or more. Nor will anyone who can be taken as a dependent by another filer.

You will have to file a 2007 tax return to get a rebate check, because the rebates will be based on the data shown on 2007 returns. Filing on an extension will delay your check. On your 2008 return, you’ll reconcile your rebates with your 2008 tax situation.

Technically, the rebate is an advance payment of a special 2008 tax credit. For most, the rebate will equal the tax credit allowed. Taxpayers whose credit exceeds their rebate will claim the balance on their 2008 tax return. If your rebate is bigger than the credit, you needn’t repay the Service.

The IRS has a special way to fill out Form 1040A if you need to file just to get the rebate. Go to http://www.irs.gov/ for a copy.