HOW DO YOU COMPETE WITH THIS?

I won't mention any names here, but I recently talked to a client that was really angry.  She said she just got off the phone with her manufacturer.  She told me that she had recently met three people that were very impressed with her work and the look of her clients.  This was a social gathering and she spent some time talking about her salon and told her that the product they use on their hair is very important.  She bragged about the "salon only" product that she sold.  Big mistake. 

When these three new clients came into the salon, they said that they had went to the manufacturers website and purchased the product on line.  Not only that, they had purchased the product for the same price that she had to pay.  In other words, no markup for her.  If she tried to sell the product, it would be twice as expensive. 

Now I know that not all manufacturers sell on line or at cost, but you can see the potential problem.  First there was diversion then "just like and as good as salon only product," now this.  No wonder retail sales are falling off.

OBAMACARE - WHAT DOES IT MEAN TO YOU

Unless you live in a cave, by now you've heard that the U.S. Supreme Court has upheld the key provisions of the Affordable Care Act, or "Obamacare." In an unexpected twist, the Court ruled that the controversial individual mandate is constitutional, but under the government's power to tax, rather than to regulate commerce.

We don't need to go into the details of the ruling itself -- just turn on your television, and somewhere, somebody is opining on it right now! But we do want to remind you the Court's decision means several new taxes will go into effect as scheduled:

·         On January 1, 2013, the Medicare Tax will go up by 0.9% for individuals earning over $200,000 ($250,000 for joint filers, $125,000 for married individuals filing separately).

·         Also on January 1, there will be a new "Unearned Income Medicare Contribution" of 3.8% on investment income, for those earning more than $200,000 ($250,000 for joint filers).

·         Beginning on January 1, 2014, there will be a new $2,500 limit on tax-free contributions to flexible spending account.

·         Also beginning January 1, 2014 employers with more than 50 employees will face a penalty of $2,000 per employee for not offering health insurance to full-time employees.

·         Finally, the threshold for deducting medical and dental expenses rises from 7.5% of adjusted gross income to 10%. This will make these expenses even harder to deduct without help from advanced strategies like Health Savings Accounts or Medical Expense Reimbursement Plans.

That’s not all.  On January 1, 2013 the so called “Bush Rates” are repealed and we go back to the “Clinton Tax Rates.”  This change impacts every taxpayer.  So, while the constitutional issues of Obamacare may be settled, several planning challenges certainly remain. We'll be following developments carefully in order to help you navigate these new challenges. If you have any questions, don't hesitate to call us at 402.362.6636.  In addition, now that the Supreme Court has ruled we will be planning a local seminar and/or webinar to keep you informed.

HOW DOES A UNMARRIED COUPLE HANDLE A JOINT ACCOUNT FOR TAX PURP0SES

Q:  I want to open a joint savings account with another person.  How do we do this and what is the potential issue with splitting the interest for income tax purposes?
A:  Well, no problem opening the account.  The issue is that the bank will want a W-9 which has one of your Social Security numbers.  That is the person that will get the 1099 showing the full amount of the interest.  If the income is material and you want to split it on the two tax returns, we can do what is called a "Nominee 1099."  With this whoever gets the original 1099 reports all the income and then we subtract half of the income and include that half on the other persons return.  The nominee 1099 is then filed with both returns and with the IRS. 

OCTOBER SURPRISE? U.S. COULD HIT DEBT LIMIT BEFORE ELECTION

The U.S. government's debt is nearing $15.8 trillion. And now there are reports that at the recent pace of debt growth, the U.S. will reach its $16.4 trillion statutory debt limit some time in October — just before the 2012 election. According to a reportby Investor's Business Daily, the government can employ some accounting maneuvers to stay below the ceiling for a few months, giving lawmakers a grace period. But if the economy continues to weaken -- and federal tax receipts decline in growth -- the debt limit deadline could arrive just in time to play a large role "the super-charged environment of a presidential election." In addition to the debt limit, Congress must also decide what it wants to do about the pending tax increases -- which, collectively, would be the largest tax hike in U.S. history -- as well as the automatic spending cuts that were a part of last summer's debt ceiling deal. Already, Fitch has warned that the U.S. will lose its AAA credit rating without a credible deficit-reducing plan. And "paired with last year's Standard & Poor's downgrade, a Fitch cut would add chaos in financial markets and raise U.S. borrowing costs," according to IBD.

NEW INFORMATION ON TIP REPORTING

The Internal Revenue Service just issued a new determination on tip reporting. This does not really have a big impact on salons and is more directed towards restaurants, but there is some good information that reminds us about tips.

In the revenue ruling, they state some background on tips. They list a lot of code sections, etc. but basically what it confirms is that tips received by an employee through the course of employment are considered remuneration for that employment and are deemed to have been paid by the employer for purposes of the employer’s portion of the FICA tax. Nothing new there. The remuneration is deemed to be paid when a written statement including the tips is furnished to the employer by the employee. Again, nothing new there and just a confirmation that as an employer you do not need to worry about the tips until the employee informs you. This is where the 4070A form comes in that you should be receiving on a monthly basis.

The ruling goes on and defines what a tip is. The ruling lists four factors that make a payment a tip:

1. The payment must be made free from compulsion.
2. The customer must have the unrestricted right to determine the amount.
3. The payment should not be the subject of negotiation or dictated by the employer policy.
4. Generally the customer has the right to determine who receives the payment.

This ruling was about restaurants that do an add on tip for parties of ten or more and that type of situation. In that type of situation, this is not considered a tip but rather wages and the employer does not have to get a statement from the employee regarding the tips.

Again, nothing new here but I thought you might be interested in a summary.

STUDENTS AND SUMMER JOBS

School’s out and many students will be starting summer jobs. I want to remind you that  employers may be withholding taxes, so you may not get all of the money that you earn and if you don't take action you may have to file a tax return to get your refund. 

Here is a tip that might help.

When you first start a new job, you must fill out a Form W-4, Employee’s Withholding Allowance Certificate. This form is used by employers to determine the amount of tax that will be withheld from your paycheck.

If you have multiple summer jobs, make sure all your employers are withholding an adequate amount of taxes to cover your total income tax liability. To make sure your withholding is correct, use the Withholding Calculator on www.irs.gov.

If you do not anticipate owing any tax and did not owe tax last year, you can simply indicate on your W-4 and your employer should not withhold.

WATCH SIMPLE CONTRIBUTIONS FOR EMPLOYEES WITH ANNUAL SALARY

Every time I think that I have a good grasp on the tax law I read something that humbles me.   

Recently I read a article on SIMPLE IRA plans which surprised me.  Matches must be based on a participant’s annual salary, according to IRS, even if the employee joins or leaves the plan in midyear. 

For example if a worker with a salary of $60,000 joins the plan on Oct. 1 and contributes $2,000 for the rest of the year,the plan’s matching payin is $1,800...3% of $60,000 (most SIMPLEs have a 3% match).  The matching contribution isn’t based on the $15,000 the employee was actually paid.  If the worker in this example only put in $1,500, the match would fall to $1,500.