L'Oréal USA ACQUIRES PEEL'S SALON SERVICE

As you may have heard, L’Oréal USA, the world’s largest beauty company, has announced the acquisition of the operations of Peel’s Salon Services. Peel’s, headquartered in Omaha, NE, will become part of SalonCentric, the professional products distribution operation of L’Oréal USA.

Peel’s is a fourth generation business. Founded in 1937 as a small barber-only supply store in Hutchinson, KS. Peel's has grown to a business with revenues of over $100 million, 57 professional-only stores, over 90 sales consultants and more than 500 employees. In addition to warehouse and office operations in Kansas, Colorado, and Nebraska, Peel’s also has a distribution center in Nebraska, which will provide a logistical hub for SalonCentric in the U.S.

“We are very pleased to welcome Peel’s to SalonCentric,” says Paul Sharnsky, president of SalonCentric. “There is a sharing of common values in both our businesses, including a passion for hairdressers and the salon industry as well as a longstanding commitment to this business. This acquisition will provide SalonCentric with the opportunity to fully serve professional hairdressers in the mid-U.S. as Peel’s territory includes North and South Dakota, Wyoming, Oklahoma, Montana, Colorado, Nebraska, Kansas, Iowa, New Mexico, Minnesota and Missouri.” This latest development, consistent with the strategic intent of all the distributorship acquisitions, provides SalonCentric with a distribution territory covering the vast majority of the United States.

“The decision to sell to L’Oréal was a natural one for the family,” adds Bill Peel, president of Peel’s. “Our two companies have been linked for a very long time. Our father, Bob Peel Sr., was one of the first Redken distributors in the U.S. back in the ‘60s. About 10 years later, our company also became the first Matrix distributor in the U.S. Both Redken and Matrix are now L’Oréal brands. We’ve built our success on one simple philosophy: ‘Help the salon customer to be a better business person and you will earn all their business.’ That’s a philosophy we share with SalonCentric.”

Peel’s is the fourth acquisition for SalonCentric over the past 12 months, including CB Sullivan, Maly’s Midwest and Marshall Salon Services.

STATUS OF THE OBAMA TAX BILL COMPROMISE (AS OF 12.12.10)

This one isn’t going down without a fight. After Democrats in Congress publicly defied President Obama by refusing to endorse the tax deal he negotiated with Republicans, the measure is going to another vote. On Monday (12.13.10), the Senate will take up a procedural vote to attempt to bring the deal to the floor. In response, Democrats have threatened a filibuster. However a test vote seemed to indicate that it would be easy to get the 60 votes needed to overcome a filibuster.

The House, and especially Nancy Pelosi, remains firmly opposed to the deal as written. A caucus vote by Democrats overwhelmingly opposed the compromise package. The major source of consternation? Tinkering with the federal estate tax. Democrats felt blind-sided at the deal which not only increased the personal exemption to $5 million per taxpayer (well above the $3.5 million per taxpayer under the so-called Bush tax cuts) but slashed the tax rate to a top rate of 35%, a rate not seen since the 1930s.

So what’s next? Here’s what will probably happen (though, in all honesty, nothing would surprise me much at this point):

• The Senate will approve the deal pretty much as is with perhaps some concession on energy tax credits.
• The House will grudgingly approve most of the deal, likely tweaking the estate tax rates and exemptions, scaling them back to the 2009 levels.
• That would force the hand of Republicans in the House by giving them the option of voting down the entire deal based on the federal estate tax rates since the deal, more or less, has already given them everything else that they claimed they wanted (tax cuts for everyone, etc.).
  

Here’s a synopsis of the various components of Obama's compromise of taxes:

Federal Estate Tax. 35% – the lowest since 1931 – with estates over $5 million per person. It’s effectively a repeal for most Americans since, with a little bit of decent estate planning, a married couple can pass $10 million to their heirs without being subject to the tax.

Individual Income Tax Rates. The same rates created as 2010. If this passes we have avoided a 3% hike – for a family making $50,000, that means you’ve avoided a $1,500 bump in tax for 2011.

Alternative Minimum Tax (AMT). We got our patch. I haven’t seen the numbers but I’ve been told that it’s similar to the 2009 numbers for 2010 and 2011. No word on 2012 and beyond. We were doing a pretax for a client on Friday that owed $357 if they fix the AMT. If no fix, he owed over $9,300 in tax. He is going to be watching the news.

Capital Gains Rates. Lower capital gains always, always means heightened investments and a better economy. Always. It’s worked so far, right? Cause we have the same rates for the next two years (meaning a top rate for long-term gains of 15%).

Dividends. Same story as on capital gains rates: current rates are extended.

Payroll Tax “Holiday.” With the administrative nightmare that was the Making Work Pay Credit gone, we needed a little something else to challenge preparers and the IRS. Enter the payroll tax “holiday.” It’s a one year (just one, not two like much of the other provisions) cut in Social Security taxes for workers. For 2011, you’ll pay in 4.2% on the first $106,800 of wages rather than 6.2%. That means a 2% cut so that a worker earning $50,000 would pay $1,000 less in 2011. But only for 2011. I am glad that I am not a computer programer working on payroll tax programs. If this passes, I would be burning the midnight oil between now and January 1st rewriting computer programs.

Child Tax Credit. The child tax credit had been bumped under Bush to $1,000 per child with a $3,000 earned income floor to make it refundable. That will stand for the next two years.

Earned Income Tax Credit (EITC). The EITC is probably the most controversial of the tax credits. It cost taxpayers $42.9 billion in 2008. The EITC base remains the same as for 2010.

American Opportunity Tax Credit (AOTC). We heard all about how great this extension was from Obama, who pushed hard for the renewal. The modified version of the Hope Credit allowed a slightly bigger credit ($2,500 versus $1,800) for students pursuing a degree.

State and Local Sales Tax Deduction. The option to deduct sales and local sales taxes on your federal income tax return – even if you don’t itemize – ended in 2009. Rumor has it that the new tax deal brings the deduction option back, retroactively, so that it will apply to 2010 and 2011.

Transfers of IRAs to Charities. Also rumored to be in the plan. The option to allow those taxpayers over the age of 70-1/2 to roll their IRAs directly to charity.

So that’s the summary of what’s in the tax deal (allegedly – remember, the ink isn’t dry yet).

RULES ON THE DEDUCTION OF BUSINESS GIFTS

As a business owner, you may find yourself giving gifts to clients and customers in the course of your business, particularly around the holidays. What a lot of people don’t realize is that the IRS only allows you to deduct part of the cost of certain gifts as a business expenses.

Dollar limitation. Basically, the IRS will let your business deduct only $25 or less for business gifts you give to any one person during your tax year. Any amount of expense in excess of $25 is disallowed as a deduction.


For example, if you give a client a $50 dollar watch as a gift, you can only deduct $25. In addition, if you and your spouse both give gifts, you're both going to be treated as one taxpayer. Consequently, the deduction both you and your spouse, together, will be able to claim is $25 per donee. This is true even if you have separate businesses, are separately employed, and each of you has an independent connection with the gift recipient.

Incidental costs. The $25 limit for business gifts doesn't include incidental costs — for example, packaging, insurance, and mailing costs, or the cost of engraving jewelry. Related costs are considered incidental only if they don't add some kind of substantial value to a gift.



For example, let's say you send someone a fruit basket as a gift. If the basket has a substantial value as compared to the value of the fruit, the cost of the basket is not incidental and it must be included in the $25 limit. On the other hand, the cost of gift wrapping is incidental and doesn't have to be included in the $25 limit.


Items excepted from the gift limitations. key chains or pens with your business name on them to customers and clients, are excepted from the $25 limit for business gifts and their cost is deductible without limitation. The main exception are for items that cost $4 or less, have your name clearly and permanently imprinted on them, and are one of a number of identical items you widely distribute.

Entertainment gifts. Maybe you have a choice between calling it a gift subject to the $25 per person per year rule or entertainment subject to the 50% rule. What happens if you give tickets to a play or sporting event to a customer or client? Is this a gift expense or an entertainment expense ? The general rule is that any item that could be considered either a gift or an entertainment expense must be considered an entertainment expense. However, if you give the tickets and do not attend the event yourself, you have the choice of determining whether an item is either a gift or entertainment expense. If you go with the client, you must treat the cost of the tickets as an entertainment expense — you have no choice.


Taking into account the $25 limit for gifts and the 50 percent limitation on entertainment expenses, it's generally better to treat a ticket expense as entertainment when it is over $50.


For example, let's say you gave a client football tickets that cost $140. If you deduct them as a gift expense, your deduction is limited to $25. If you deduct them as an entertainment expense, your deduction is $70. Conversely, if you gave a client tickets to a movie that cost $30, you would get a bigger deduction by claiming a gift expense ($25 as opposed to $15 for an entertainment expense).


Just more rules to follow. Please email if you have any questions.

YOU GET A BIGGER DEDUCTION FROM YOUR HOLIDAY PARTY

Who doesn't love a party? Holiday office parties are a fantastic way to show your employees you appreciate them. Showing appreciation for the people you work with every day is especially crucial during challenging economic times.

Let me get to the best part: The cost of throwing parties for your employees is 100 percent deductible. The food, the beverages, the decorations -- all those expenses can be deducted. The only caveats: The expenses must not be overly extravagant (e.g., champagne, caviar and lobster for a holiday luncheon), and the parties must be infrequent (weekly parties are likely to raise an eyebrow or two at the IRS).

Another common business practice is hosting holiday events for clients. Some choose to throw one big party; others opt to take individual clients out for a meal. Either way, when you entertain clients and potential clients, the tax benefit is the same: You may deduct only 50 percent of the cost. The requirements here are that the expenses not be extravagant, and business must be discussed or conducted either during or adjacent to the meal (e.g., going out to dinner after a meeting).

HAPPY HOLIDAYS

YEAR-END FLEX SPENDING AND HRA REMINDER

Check your flexible spending account balance. You must use all funds by December 31 if your employer has not adopted the 2½-month grace period that the IRS now permits. If you are in this situation, any money remaining in your account is forfeited.

Also remember to purchase over-the-counter drugs this year. For purchases after 2010, flex plans and HRAs can’t reimburse the cost of such medications. Payments will be allowed for prescriptions and insulin only. The same is true for payouts from health savings accounts.

Even if your FSA used the March 15th grace period, be aware that does not give you an extension to purchase over the courter meds. (If your flex plan uses a debit card, you have until January 15, 2011 to make the purchase.)

SKYPING FOR CONSULTATION

Larry,

I really enjoy reading your blog and you know the industry so well that I was hoping you could help me with an idea I have been thinking about. What is your opinion on Skyping consultations for new clients?

All the best,
June

June-
Thank you for the kind words. We have had some of our clients try Skyping for the initial consultation, however it did not work and they did not get the client in after that. Skyping is a great tool but for your initial consultation you need to feel, see and touch the client. You would not be able to detect scalp issues, detect thinning issues, etc with Skyping. Nor would the prospective client to feel the culture of your salon and really isn't what you want.

Here is a way that Skpying might help... what about Skpying a couple of days after the consultation or appointment to follow up with them to see how things are with their hair?

Please keep us posted if you do try Skyping.
Larry Kopsa CPA

YEAR-END CHARITABLE CONTRIBUTION REMINDER

Mail checks for deductible items before year-end to ensure a 2010 write-off. The tax rules allow you to claim the deduction this year even if the checks do not clear until January.

If you are charging deductible items, make sure you know the rules.

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 if you pay the bill next year.