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!

NEW MILEAGE RATES

Due to rising gas prices, the mileage rate will increase by eight cents to 58.5 cents a mile for all business miles driven from July 1 through Dec. 31, 2008. The new rate for computing deductible medical or moving expenses will also increase by eight cents to 27 cents a mile. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile. See news release IR-2008-82 and Announcement 2008-63.

Although this is good news, depending on what you drive this may not cover the cost of the business use of your vehicle. The mileage method is commonly used by taxpayer, but with the high cost of gas, calculating your auto expense using the actual method may keep you from wasting money on taxes.

MY DAD ALWAYS TOLD ME, "SON DON'T TALK ABOUT RELIGION OR POLITICS"

Although I try to take my fathers advice not to talk about politics, I think that it is important for you to know what the two presidential candidates are proposing as changes to the federal tax system.

The 2008 presidential election promises to be a spirited campaign. Now that the Democrats have voted Hillary off the island, we can watch Barack Obama and John McCain explore their differing visions for America in a dignified, intellectual manner, reminiscent of the famed "Lincoln-Douglas" debates that set such a responsible tone for presidential politicking. Unless, of course, the campaign consultants have their way, in which case we can expect a slug fest that makes the "Thrilla in Manila" look like a local school board race.

I'm looking forward to seeing each candidate's Vice-Presidential pick. Obama should probably look to someone older and more conservative, with a military background -- in other words, John McCain! (Just a little humor).

To help you see the differences, we've prepared a chart outlining each of their main proposals in the areas of income taxes, employment taxes, estate taxes, and health care financing.

You'll find McCain's proposals, for the most part, to be what you'd expect from a reputed "maverick" Republican looking to shore up support with his party's base. Make the Bush tax cuts permanent. Require a three fifths Congressional majority to raise taxes. Cap the estate tax at 15% and apply it only to estates topping $10,000,000. But McCain also proposes to eliminate the deduction for employer-provided health insurance (currently a $90.6 billion annual tax preference) and replace it with a credit of $2,500/person and $5,000/family for health insurance premiums. (This would likely eliminate the deduction for Medical Expense Reimbursement which is a great tax break for many small businesses.)

Similarly, Obama's proposals are mostly what you'd expect from a progressive Democrat. Keep the "best" part of the Bush tax cuts benefiting married couples, families with children, and small businesses. Restore the 36% and 39.6% marginal rates on the highest earners, and raise the capital gains rate back to 20% or even 28%. Establish new, refundable tax credits for students and homeowners who don't itemize. But Obama's plan includes a wild card too -- specifically, eliminating the current $102,000 "wage base" on income subject to Social Security (and self-employment) tax.

Of course, merely proposing a specific change doesn't mean we'll actually see it become law. If McCain wins, he'll likely face a Democrat-controlled Congress, which would greet his proposals skeptically. If Obama wins, he's unlikely to enjoy veto-proof majorities in either house.

To make sure that I am following the wisdom of my father, I am talking policy here not politics. I certainly don't want to intimidate or offend anyone.

Please let me know if you have any questions.

Larry Kopsa CPA

"CAMPAIGN 2008" TAX COMPARISON

RATES

Obama

• Expand 10, 15, 25, and 28% rate brackets
• Restore 36% and 39.6% rates for highest incomes
• Increase capital gains rates from 5% to 10% and from 15% to 20 or 28%
• Tax "carried interest" earned by private equity & hedge fund managers as ordinary income

McCain

• Make Bush tax cuts permanent
• Require 3/5 Congressional majority to raise taxes

CUTS/CREDITS

Obama

• Permanently adopt current rules for marriage penalty relief, expanded Child Tax Credit, and expanded Adoption Tax Credit
• Eliminate tax on seniors earning < $50,000
• Expand EITC
• Create refundable "Universal Mortgage Credit" equal to 10% of interest payments for non-itemizers
• Expand Saver's Credit; make refundable
• Create refundable "American Opportunity Tax Credit" for first $4,000 of college costs
• Make R&D Credit and R&E Credit permanent
• Expand Production Tax Credit for 5 years; add incentives for renewable energy

McCain

• Raise personal exemption for dependents to $7,000
• Expand first-year expensing for new equipment and technology

EMPLOYMENT TAXES

Obama

• Impose Social Security tax on employment income over $250,000
• Create refundable "Making Work Pay" tax credit of 6.2% of earnings up to $8,100]

McCain

• No Changes

ESTATE TAX

Obama

• Freeze tax at 2009 levels

McCain

• Cap tax at 15% on estates over $10MM

ADMINISTRATION

Obama

• Give taxpayers option to accept IRS-completed forms to verify, sign, and return

McCain

• No Changes

AMT

Obama

• No Changes

McCain

• Permanently repeal AMT

HEALTHCARE

Obama

• Create national public plan for individuals and small employers

McCain

• Eliminate tax breaks for employer-provided health insurance; replace with tax credits (($2,500/individuals, $5,000/families) for buying insurance

WATCH OUT FOR THIS SCAM

There are scam artists all over, taking advantage of us as people. I just received a form from one of my clients in California with “Disclosure Statement Board of Business Compliance Annual Minutes Division” requesting they fill out the information about the corporation and submit $125.

The clients sent it on to me, and in looking at this I had not heard of it before. I have done some checking on the internet and read the instructions much closer, and this was basically a scam.

It seems all you need anymore is a printer that can print a legal looking form and a post office box and you can rip people off.

My warning is don’t take everything for granted. Check very closely before you pay these amounts that are fairly immaterial, but certainly add up.

If you are concerned that you are being scammed, it pays to Google the entity to see if there is information. Here are some online resources that you can use:

http://www.fraud.org/

http://www.ftc.gov/

http://www.bbb.org/

YOUR BUILT IN TAX SHELTER - HIRE YOUR KIDS

The New York Times recently reported that the 2008 job market is shaping up as the weakest in 50 years for teenagers seeking summer work. (Welcome to the real world, kids!) But if you own a business you can create real savings by hiring your kids for the summer or maybe even for the entire year.

Here are the rules:

· Wages you pay to children (or grandchildren, and even parents) are a deductible business expense if you pay them to perform bona fide work for your business and you pay them reasonable compensation for that work.
· Your child can earn up to the standard deduction for single taxpayers ($5,450 for 2008) before they owe regular tax on their income. The next $8,025 is taxed at just 10%. Earned income is not subject to the "kiddie tax" for children under 19, or dependent full-time students under 24.
· The Tax Court has approved payments to children as young as seven years old. Several commentators have suggested paying children under that age to model for your marketing materials -- but that is untested, and would require you to determine a "reasonable compensation" for that work. (Better have an awfully cute kid!)
· Your child's work should be directly related to your business.
· "Reasonable compensation" is an amount that would be similar to amounts paid for similar services by similar businesses under similar circumstances -- with adjustments made for the employee's age and experience.
· To verify your a child's employment, keep a time sheet showing dates, times, and services performed.
· Pay your child by check (to verify payment from the business) and deposit the check in an account in the child's name (to verify payment to the child). The account could be a Roth or regular IRA, Section 529 College Savings plan, or even a custodial account where you manage funds yourself.
· You can't use funds from a custodial account for obligations of parental support. However, private and parochial school, summer camps, and similar "extras" aren't considered "obligations" of parental support. You've got lots of places to put those wages besides your kids' "pizza and Nintendo" fund.
· If your business is taxed as a proprietorship or partnership (and, in the case of a partnership, you and your spouse own all of the partnership interest), no FICA is due on your child's wages until they turn 18. No FUTA is due until they turn 21.

Hiring family members creates obvious tax savings by shifting income to lesser-taxed children. But it also may let you establish employee benefit programs, like the Section 105 Medical Expense Reimbursement Plan and Education Assistance Plan, on their behalf if you have the right fact pattern.

Hiring kids should be a key year-round strategy.

DID YOU MISS THE TELESEMINAR?

If you missed the Independent Contractor Teleseminar on June 16th, check out Spalutions to see when the interview will be posted: Spalutions Career Success Teleseminar.