INEPTOCRACY

I couldn’t find it in the dictionary, so I Googled it, and discovered it is a recently "coined" new word.

Read this one over slowly and absorb the facts that are within this definition!

I love this word, and believe that it will soon become a fully recognized English word. At last, we have a word to perfectly describe our current political situation......

INEPTOCRACY

(in-ep-toc'-ra-cy)- a system of government where the least capable to lead are elected by the least capable of producing and where the members of society least likely to sustain themselves or succeed, are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers.

BOOTH RENTAL/INDEPENDENT CONTRACTOR

Q: My daughter-in-law recently attended a seminar at the Peel’s Show in IA where you talked about the IRS and Beauty Salons.  She came away with some information (or her interpretation of same) that has me somewhat confused.  Can you answer the following two questions for me to help clarify her understanding?

We have a Booth Rental-Independent Contractor Agreement that we purchased some time ago to be used in the Beauty Salon Business. With this agreement we allow our stylists to schedule their own time.  We want to be sure that the information we fill in on these contracts does not in any way jeopardize the relationship we have with our stylists. The stylists pay us a rent check.  However, the newer stylists would prefer their rent be a percentage of their sales, as opposed to a flat fee.  We want to be sure there is no problem with doing that.

(1) When having a stylist sign a Booth Rental/Independent Contractor Agreement, is it possible to have a % of the business the stylist does during the week be the Booth Rental amount, or is it required that this be a specific figure?

(2) When having a stylist sign that same Booth Rental/Independent Contractor Agreement is it possible to require a certain number of minimum hours to be spent at the salon without jeopardizing the integrity of the agreement, i.e. maintaining the Independent Contractor status for the stylist?

Obviously, we want to be sure we are following the correct procedures to stay within IRS guidelines, so answers to these questions will allow us to determine our direction with any stylists we retain.  Thanks in advance for any clarification you can provide.

A: Great questions!  When IRS or Department of Labor looks at a worker, they apply common law principles.  What this means is based on the “facts and circumstances” does the owner have so much control over this person that it makes the person an employee.  The main factors are:

·         The degree of control

·         The workers investment

·         The workers opportunity for profit or loss

·         Can the worker be discharged

·         Is the worker part of the regular business

·         The permanence of the relationship

·         What relationship did they think they were creating

There are several cases where the courts have ruled on worker versus independent contractor.  In all the cases except one when the worker paid rent based on a percent of income that person was determined to be an employee. 

Here is information from the IRS Audit Guide of Salons:

Revenue Rulings and Court Cases

The following revenue rulings and court cases address the employee vs. independent contractor issue:

Revenue Ruling 57-110, 1957-1 C.B. 329
Facts: Fixed weekly fee; owner furnished heat, light, water and supplies; barber provides own tools; barber sets own hours of work; and barber collects his own money and does not account to the salon owner for revenue earned. Determination: Independent contractor
Revenue Ruling 70-488, 1970-2 C.B. 219
Facts: Barber is paid a percentage of the money from services performed; salon sets hours of work; required to wear a uniform. Determination: Employee
Revenue Ruling 73-591, 1973-2 C.B. 337
Facts: Salon agrees to furnish, repair, and maintain all equipment; hair stylist is paid on a percentage of gross receipts; no credit work or free work can be done without the approval of the salon owner; working hours are set; hair stylist furnished a report each day to the owner reflecting the day's receipts. Determination: Employee
Revenue Ruling 73-592, 1973-2 C.B. 338
Facts: Rents for a fixed monthly fee; the salon furnished heat, light, water, and supplies, hair stylist retains the money collected; hair stylist sets own hours of work. Determination: Independent Contractor
Wolfe v. United States, 77-1 U.S.T.C ¶ 9346 (D.N.D. 1977)
Facts: Hair stylists are paid on a percentage of gross receipts; hair stylists handle own clients; hair stylists provide own supplies; appointments are made through one receptionist; hair stylists set their own hours and have their own keys to the shop; money from services is paid to the salon; hair stylist decides what prices to charge; hair stylists are responsible for bounced checks; and hair stylist are not required to work on salon's customers. Decision: Employee
A Henry, d.b.a Center Beauty Shop, 78-1 U.S.T.C. ¶ 9433 (E.D. Tenn 1978)
Facts: Rent is based on a percentage of gross receipts; no receptionist; anyone in the salon will answer the phone; salon furnishes the supplies; hair stylists collect own money; hair stylists set own hours of work; prices were set by an agreement among the hair stylist; and minimum rent payment is $50. Determination: Independent Contractor

Following is Tax Management's summary of the issue based on revenue rulings and court cases.
"… the one factor which appears to hold overriding persuasive value in the case of hair stylists is the nature of the remuneration under the agreement between the hair stylist and the shop owner… the factors tending to show an employee relationship seemed to predominate over independent contractor type factors in those situations where the remuneration is based on a percentage of earnings, whereas the opposite is true in those situations where the hair stylists rents the chair for a fixed monthly fee."

I hope that this is helpful.

Larry Kopsa CPA

90 DAYS AWAY: FEDERAL TAX HIKE WILL AVERAGE $3,500 PER HOUSEHOLD, STUDY FINDS

The impending "fiscal cliff" continues to dominate the political news media. The AP reports that unless Congress and President Obama agree to change current law, "a typical middle-income family making $40,000 to $64,000 a year could see its taxes go up by $2,000 next year." A new report by the Tax Policy Center finds that nine out of 10 households would be affected by the expiration of current tax rates -- although the top 20% of earners would bear 60% of the overall cost. Across all households, the tax increases would average almost $3,500, according to the study. The AP notes that "economists warn the looming tax hikes, combined with $109 billion in automatic spending cuts scheduled to take effect in January, could throw the fragile economy back into recession."

PENALTY FOR FILING LATE BUSINESS RETURN

Q: I am late filing my business return.  What is the penalty?

A: The penalty for a late 1120S & 1065 is $195 for each month multiplied by number of shareholders.  So, if there are 5 partners or shareholders and the tax return is 6 months and a day late the penalty is $6,825 (5 partners x $195.00 x 7 months).  Why 7 months you may ask?  One day over counts as a full month.

ASSOCIATED HAIR PROFESSIONALS

We understand dealing in niches as our salon and spa team, here at Kopsa Otte, deals 100% in this niche. By doing this our knowledge and understanding of the industry assists our clients in all aspects of their business. At a hair show this summer, we had the pleasure of meeting Jenny Flanagan, with Associated Hair Professionals (AHP). Jenny also deals in this niche and we want to share with you information about AHP. 

AHP is a national association dedicated to supporting individual hairstylists, barbers, and nail professionals with business resources, marketing materials, liability insurance, and community.

Included in membership for $179/year:

·         Marketing resources to help you get the word out about your business. You’ll receive a free website builder with templates and hosting, a free email address, access to articles about marketing best practices, and discounted printing on marketing materials.

·         Discounts on products and services that help you succeed. Save money on industry magazines, cell phone service, computers, office supplies, online scheduling, and more, with new discounts constantly being added.

·         Liability insurance coverage to protect you from sue-happy clients. We offer the highest aggregate coverages available—$2 million per incident and $6 million total per policy year. You invested time and money in your business. Why put your present and future earnings at risk?

Visit www.Insuringstyle.com to complete an online application, or call 800-575-4642 to join.

THE IMPORTANCE OF ACCOUNTANTS MENTIONED IN THE PRESIDENTIAL DEBATE

Finally us accountants are getting the respect we deserve.  President Barack Obama and Republican presidential nominee Mitt Romney traded barbs about tax policy and how they would control the budget deficit, with Romney telling Obama at one point that he might need to get a new accountant.

Later Obama said he wanted to end corporate tax breaks for companies that ship jobs overseas, Romney responded, “You said you get a deduction for taking a plant overseas. Look, I've been in business for 25 years. I have no idea what you’re talking about. I maybe need to get a new accountant.”  I wonder what the country's financial situation would be like if us accountants ran the country?

5 TIPS ON GAMBLING INCOME AND LOSSES

Do you bet on the ponies, play cards or enjoy slot machines, then you should know that as a casual gambler, your gambling winnings are fully taxable and must be reported on your income tax return. You can also deduct your gambling losses…but only up to the extent of your winnings.

Here are 5 important tips about gambling and taxes:

1. Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and the fair market value of prizes such as cars and trips.

2. If you receive a certain amount of gambling winnings or if you have any winnings that are subject to federal tax withholding, the payer is required to issue you a Form W-2G, Certain Gambling Winnings. The payer must give you a W-2G if you receive:

• $1,200 or more in gambling winnings from bingo or slot machines;
• $1,500 or more in proceeds (the amount of winnings minus the amount of the wager) from keno;
• More than $5,000 in winnings (reduced by the wager or buy-in) from a poker tournament;
• $600 or more in gambling winnings (except winnings from bingo, keno, slot machines, and poker tournaments) and the payout is at least 300 times the amount of the wager; or
• Any other gambling winnings subject to federal income tax withholding.

3. Generally, you report all gambling winnings on the “Other income” line of Form 1040, U.S. Federal Income Tax Return.

4. You can claim your gambling losses up to the amount of your winnings on Schedule A, Itemized Deductions, under ‘Other Miscellaneous Deductions.' You must report the full amount of your winnings as income and claim your allowable losses separately. You cannot reduce your gambling winnings by your gambling losses and report the difference. Your records should also show your winnings separately from your losses.

5. Keep accurate records. If you are going to deduct gambling losses, you must have receipts, tickets, statements and documentation such as a diary or similar record of your losses and winnings.