QUESTION ON SIMPLE RETIREMENT PLANS

Larry, Could you give me information on SIMPLE retirement plans for my employees.

Inus

Inus, here is the information on SIMPLE plans that you requested.

“SIMPLE” retirement plans: This is the acronym for “savings incentive match plan for employees.” This type of plan is targeted at businesses with 100 or fewer employees, and is designed to offer greater income deferral opportunities than individual retirement accounts (IRAs), with fewer restrictions and administrative requirements than traditional 401 pension or profit-sharing plans.

Under a SIMPLE plan, any employee with compensation of at least $5,000 must be permitted to enter a “qualified salary reduction arrangement.” Under this arrangement, an employee can elect to have a percentage of compensation not in excess of $11,500 (in 2009) set aside in an IRA, instead of receiving it in cash. This maximum is indexed for inflation each year.

Amounts taken out of the employee's salary and contributed to a SIMPLE IRA are not taxed to the employee until withdrawn from the SIMPLE IRA. Early withdrawals may be subject to a 10% penalty (25%, if the withdrawal is made within the first two years).

Under a qualified salary reduction arrangement, the employer must make “matching” contributions to the SIMPLE IRA. That is, the employer must make contributions to an employee's SIMPLE IRA in the same amount as the employer contributed under the employee's salary reduction election, up to 3% of the employee's compensation. For example, if an employee with compensation of $50,000 elects to have 10% of his pay contributed to the plan ($5,000), the employer must contribute an additional $1,500 (3% of $50,000). For these purposes, an employee's compensation is the amount reported on his Form W-2, plus the amount of elective deferrals (e.g., the amount of the salary reduction contributed to the SIMPLE IRA). But the matching contribution for the year cannot exceed $11,500 in 2009. This amount is indexed for inflation each year.

If an employer wishes to contribute less than 3%, he can give employees proper notice and drop the contribution to as low as 1% of compensation, as long as this isn't done for more than two years out of the five-year period ending with the year of reduced contributions.

Alternatively, instead of making “matching” employee contributions, the employer can simply contribute a flat 2% of “compensation” (limited to $245,000 for 2009, and as adjusted for inflation in following years), for every employee eligible to participate in the plan, whether the employee elects to reduce his salary or not. Special notice must be given to employees if the employer wishes to take this approach.

SIMPLE plans have the advantages of simplified reporting requirements and the absence of the qualification rules prohibiting the plan from discriminating against lower-level employees. Some employers consider the matching contribution requirements a disadvantage. Additionally, to be eligible to adopt a SIMPLE plan, an employer must not contribute to, or accrue benefits under, any qualified retirement plan for services provided during the year (or in any year after the qualified salary reduction arrangement takes effect.

As I mentioned, this may by a good time to reassess the retirement planning approach for your business. Please call if you wish to discuss this topic further.

It is a pleasure serving you.

Larry Kopsa CPA

BENEFITS OF STAFF GATHERINGS

One of the most effective and inexpensive ways of building employee loyalty is to hold regular outings and get-togethers. By holding staff gatherings, you build loyalty and form bonds outside the workplace. Plus, you get a major tax break.

In just a couple of weeks, Kopsa Otte's staff and our families will be gathering for a picnic. We'll be enjoying each other's company while we eat, drink and play games in a local park that includes a sand volleyball court. Our staff gathers for a fun outing like this at least a couple of times every year.

You can hold a staff party at a restaurant or treat your entire staff and their families to a day at a local ball game or amusement park. Most places offer discount rates for groups.

When planning an event, here are four cues to keep the emphasis on fun:

Take it outside. Hold your outings away from the office, if possible. This creates a more relaxed atmosphere and lets staff members feel free to put work aside and just have a good time. They are more likely to bond if the focus is off the workplace.

Involve families. This lets everyone feel a part of the workplace community and opens the way for more personalized relationships. In addition, spouses and family members play a major role in employees' longevity with your company.

Make it enjoyable. Come up with a theme and hold a contest. For example, if you're going to a ballpark, the employee who can name the team's highest scoring player wins a baseball cap. Or if you're headed to the beach, a beach towel can be awarded to the family that comes up with the longest list of songs from Annette Funicello and Frankie Avalon movies.

Keep it regular. The more often you hold company-wide events, the more your staff members feel part of a community that works and plays together. Send out invitations at least a month before each outing and get everyone involved in a countdown.

By investing a little time and money in showing employees and their families a good time, you build loyalty that can help retain your staff.

Now, here's the tax bonus: As long as the get-together is open to everyone, the entire cost of the event is a deductible entertainment expense. Generally, you can write off only 50 percent of entertainment expenses. And with a company gathering, you don't have to talk about business to deduct the cost.

YOU THINK TAXES ARE HIGH NOW...YOU AIN'T SEEN NOTHIN YET!

The attached Wall Street Journal article gives us a good idea of what we are looking at to balance the budget. It ain’t pretty. Oh, and forget about “read my lips,” this does not just hit those with income greater than $250,000, it hits all of us. Taxes too high? Wall Street Journal.

FIRST-TIME HOMEBUYER CREDIT

I just closed escrow on the purchase of my first ever house in July 2009. Is my Realtor correct that I can file an amended 2008 tax return to claim the special credit for first time home buyers? Is he also correct that this credit is mine to keep forever and doesn’t need to be repaid? I had read somewhere that the credit was just an interest free loan that had to be repaid on future tax returns. It sounds too good to be true.

Owen

Owen, your Realtor is correct that you won’t have to wait until April 15, 2010 to receive this credit, which can be as much as $8,000. You have the option to claim the credit on your original or amended 2008 1040, as long as the purchase has been completed. This can get tricky if your modified Adjusted Gross Income is over $75,000 ($150,000 for married couples) because that places you into the dreaded “Evil Rich” category as defined by our imperial rulers in DC.

In regard to repaying the credit, there was a change in the original program from what we had in 2008. For homes purchased in 2008, the credit must be repaid in 15 annual installments, starting with the 2010 1040. If the home ceases to be the main residence before the 15 year repayment time is up, the remaining amount of the credit will be due in one lump sum on that year’s 1040.

For homes purchased between January 1, 2009 and December 1, 2009 (the current end of the credit qualification period), the credit does not have to ever be repaid if you use the home as your primary residence for at least three years. If you move out of the home, sell it or convert it to business or rental usage before the three year anniversary of your purchase, you will be required to repay the full amount of the credit in one lump sum on the tax return for the year in which the home ceased to be your principal residence.

As with any tax law, there are even more twists to this one; so be sure to work with a professional tax advisor.

Good luck. I hope this helps.

Larry Kopsa CPA

QUOTE OF THE WEEK

"Knowledge comes, but wisdom lingers."
Alfred Lord Tennyson,English poet

I AM GETTING MARRIED, NOW WHAT?

I finally found the man of my dreams and we are getting married this month. Is there anything I need to do before for taxes?

Mona

Mona, congratulations. I wish you well. I remember a toast that I gave at a wedding when I was honored to be the best man. “A man marries a woman thinking she will never change, and a woman marries a man thinking that they can change them - and they are both wrong.” The toast did not work because four years later they were divorced. Speaking of divorce, consider talking to your lawyer about a pre nuptial agreement. Not a bad document to have just in case.

Enough of that… here are the tax things that you need to think about.

1. Notify the Social Security Administration to report any name change, so your name and SSN will match when you file your next tax return. Informing the SSA of a name change is quite simple. File a Form SS-5, Application for a Social Security card at your local SSA office. The form is available on SSA’s Web site at www.socialsecurity.gov, by calling 800-772-1213 or at local offices.

2. Notify the IRS If you have a new address. You should notify the IRS by sending Form 8822, Change of Address. You may download Form 8822 from the IRS website IRS.gov or order it by calling 800–TAX–FORM (800–829–3676).

3. You should also notify the U.S. Postal Service when you move so it can forward any IRS correspondence.

4. Notify Your Employer(s) to report any name and address changes to ensure receipt of your Form W-2, Wage and Tax Statement after the end of the year.

Also consider checking your withholding. If both you and your spouse work (I hope he does. If he is unemployed you might want to think about this), your combined income may place you in a higher tax bracket. There is an IRS Withholding Calculator at www.irs.gov that will help you and will even provide you with a new Form W-4, Employee's Withholding Allowance Certificate. You can print it out and give it to your employer so they can withhold the correct amount from your pay.

Best of luck and again congratulations.

Larry Kopsa CPA

GOVERNMENT TRUE-ISMS

A government which robs Peter to pay Paul can always depend on the support of Paul. -George Bernard Shaw

'BUSINESS WORRIED OVER LABOR APPOINTMENTS'

(MarketWatch.com/Wall Street Journal) -- CBS' MarketWatch.com reports that U.S. Labor Secretary Hilda Solis has made a succession of appointments -- many with individuals who are supported by labor unions -- that have the business community worried. "The business sector fears a new era of tougher regulations, Melanie Trottman reports." See the video clip at <http://www.marketwatch.com/video/asset/big-business-worried-over-labor-appointments-2009-08-18/5F003D87-9D2F-4407-AE0A-F3FE1AE9BBF9

ARTICLES ON CAP-AND-TRADE

'Nebraskan: Cap-and-trade bill would be final nail in coffin for U.S.'

(Norfolk Daily News) -- NorfolkDailyNews.com reports that U.S. Sen. Mike Johanns visited "with about 30 manufacturing, utility and business leaders" in Norfolk, Neb. recently. During the meeting, Don Heller, a Stanton County farmer and member of the Stanton County Public Power District board of directors, said: "This (cap and trade legislation) would be the final nail in the coffin in the America we have known for 50 years - and it doesn't solve anything." The article notes the climate legislation is "a priority of the Obama administration," and would create "an artificial market for various industries to buy, sell and trade" what are known as carbon emission allowances. Johanns said he expects the issue to come up by late September after health care reform is dealt with. Johanns said "China has said it won't consider similar legislation for at least 10 years. India doesn't even buy into the concept of global warming. A legislative body in Australia just voted down similar legislation." A spokesperson with Nucor Steel in Norfolk said "the environmental irony of cap and trade legislation is that, if it passes, it will put Nucor and other U.S. companies at more of a competitive disadvantage," meaning China's steel industry "will produce even more and do so without any kind of concern for the environment." See the story at <http://www.norfolkdailynews.com/main.asp?SectionID=3&SubSectionID=104&ArticleID=18126&TM=63564.57>


'Business Owners Weary of Cap and Trade'

(INC.com) -- INC.com reports that "business groups remain concerned about cap and trade (global warming legislation), which they say could place an unnecessary burden on U.S. companies." The story notes: "In a letter to Congress, the National Federation of Independent Business, a small-business advocacy group, asserted its opposition to cap-and-trade. ... With the nation still reeling from the burst of housing bubble, which was fueled in large part by the subprime mortgage market, the commodities market that would be created by carbon credits is also something to worry about, according to David Ridenour, vice president of the National Center for Public Policy Research. 'Not only would cap-and-trade drive up the costs of energy, but it has the potential to create a dangerous new commodities bubble.'" Senate Majority Leader Harry Reid (D-NV) has given committees a September 28 deadline to produce a bill. See the story at <http://www.inc.com/news/articles/2009/08/cap.html>


'Anti-Cap-And-Trade Rallies Begin Tuesday'

(FarmFutures.com) -- FarmFutures.com reports that a coalition of business organizations will kick off "a series of rallies throughout the country to decry efforts to enact a 'cap and trade' bill." According to the article, the coalition, known as Energy Citizens, includes industry and interest groups such as the American Petroleum Institute, National Association of Manufacturers, American Farm Bureau, and FreedomWorks. "Many of the Energy Citizens rallies will take place in the home states of Senators viewed as key swing votes on climate legislation, especially moderate Midwestern Democrats from coal, farm and manufacturing states that fear that their home industries could suffer under a system that would raise costs for coal, oil and gas use. Additional rallies will be held in New Mexico, Ohio, Indiana, North Dakota, Missouri, Alaska, Nebraska, Pennsylvania and Michigan." See more at <http://farmfutures.com/story.aspx?s=30841&c=17>

DON’T LET YOUR GUARD DOWN

It is an unfortunate fact that during tough economic times businesses experience an increase in fraud. Perpetrators can include angry laid-off former employees or staff members who justify stealing because they're worried about job security.

At the same time, organizations are so overwhelmed by the economy that they let their guards down. The result is a perfect storm for devastating losses. Make sure that you are watching your numbers, they can be an indicator that you have a problem. For more information let us know.

Larry Kopsa CPA

QUOTE OF THE WEEK

"One hand cannot applaud alone."

Arabian pro

IRS ALERTS PUBLIC TO NEW IDENTITY THEFT SCAMS

Summertime brings no relief from phony e-mails that claim to come from the IRS, but which really come from scammers trying to steal the identity of the e-mail recipients.

Check out this recent IRS alert.

GOVERNMENT TRUE-ISMS

I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle. -Winston Churchill

CLIMATE BILL COULD COST 2.4 MILLION U.S. JOBS

Last week, a new study by the National Association of Manufacturers (NAM) – one of the State Chamber’s national affiliates – found that the House global warming legislation (also known as the Waxman-Markey cap-and-trade bill) could cost the United States nearly 2.5 million jobs by 2030. According to the analysis, over the next two decades, as emission reductions are tightened, “U.S. jobs would decline by 1.8 million under the low cost case” and by “2.4 million under the high cost case” due to higher energy prices and greater competition from overseas manufacturers with lower energy costs. Up to 66% of the total job loss from the climate bill could come from the U.S. manufacturing sector.

The study notes that “by 2030, U.S. manufacturing output would decrease by 5.3% to 6.5%.” The production of metals, stone and glass, motor vehicles, computer and paper would be hit particularly hard. The study notes: “In addition, the general shift away from coal would result in a 76% reduction in coal production and electricity production would fall by 13.7% to 16.9% by 2030.

These losses will have a lasting effect on the economic base of the United States.” High energy prices, fewer jobs, and loss of industrial output are estimated to reduce U.S. Gross Domestic Product (GDP) by between $419 billion and $571 billion by 2030. Cumulative GDP losses range between $2.2 trillion and $3.1 trillion. Residential electricity prices would increase 50%, while gasoline prices would rise 26%. The study can be seen by clicking here.

'LAWSUITS QUESTION AFTER-HOURS DEMANDS OF EMAIL AND CELLPHONES'

(Wall Street Journal) -- WSJ.com reports that "two recent lawsuits raise a question that many employees and employers have deliberated: Should hourly workers be paid for time spent responding to work calls or emails while off the clock?" According to the article, "The federal suits highlight the legal issues sparked by the proliferation of personal technology as well as the blurring of work and free time." The story notes that the federal Fair Labor Standards Act "says employees must be paid for work performed off the clock, even if the work was voluntary. ... When the law was passed in 1938, "work" was easy to define for hourly employees," said an employment lawyer, adding that "employers should adopt policies to regulate smart phone use outside the office," while "managers should contact employees sparingly, and make sure they are paid for responding." See the article at <http://online.wsj.com/article/SB124986371466018299.html>.

HOUSE GLOBAL WARMING BILL COSTLY

'Climate bill could cost 2 million jobs'

(The Hill) -- TheHill.com reports that a new study by the National Association of Manufacturers (NAM) and the American Council for Capital Formation (ACCF) finds the House global warming bill could "cost 2 million jobs by 2030." According to the story, "one key finding is that the climate bill will hurt the manufacturing sector particularly hard. As much as 66% of the total job loss from the climate bill could come from manufacturers, the report notes." The story notes that "though the impact of the bill will grow over time, the economy will start feeling the effects of the carbon cap almost immediately." The ACCF and NAM study can be found at <http://www.accf.org/publications/126/accf-nam-study>. The Hill story may be seen at <http://thehill.com/leading-the-news/climate-bill-could-cost-2-million-jobs-2009-08-12.html>

'House global warming bill's new bureaucracy: $8 BILLION'

(USA TODAY) -- USAToday.com reports "it will cost nearly $8 billion over the next decade to pay for the expanded federal bureaucracy needed to combat global warming under a bill passed by the House of Representatives, a report by the non-partisan Congressional Budget Office says." According to the story, "the complex bill, which runs more than 1,400 pages, assigns new tasks to at least 21 federal agencies, from the Energy Department to the Commodity Futures Trading Commission. It also creates new government programs, such as an effort to limit deforestation in developing nations." See the USA Today story at <http://www.usatoday.com/weather/climate/2009-08-10-climate_N.htm>

WE ARE NOW LOOKING AT PRETAX

A lot of times people say to me, "you probably aren’t busy right now". My answer to them is that this is a really busy time for us. People that just prepare taxes are not busy right now because they just simply fill out the forms. Tax planners, on the other hand, are busy year round helping their clients keep the IRS out of their pockets.

Currently we are doing what we call “pre-tax appointments.” What we do is take your current information, along with the changes in the tax laws, changes in your personal situation, and anticipation for what will happen in the future, and we use that information to devise a plan to minimize your tax burden over the long term.

If you feel that you could benefit from a pre-tax appointment, please call our office at 800.975.4829 and we will be happy to find a time that is convenient for you.

Larry Kopsa CPA

MORE INFORMATION FOR DIVORCEES WITH CHILDREN

Noncustodial parents: Bad news on claiming dependency exemptions. Any conditions in the divorce agreement nixes the exemption if the parent with custody hasn’t signed Form 8332 to waive his or her right to the exemption.

For divorces before July 3, 2008, a signed divorce decree awarding the exemption to the noncustodial parent is OK in lieu of the 8332. But now, the Service says that it will reject signed decrees that have conditions, such as requiring payment of a settlement, that must be satisfied before the noncustodial parent gets the break.

This is so even if the parent has documentation showing that the condition was met.

That’s even more reason to ensure that the custodial parent provides a signed Form 8332.

INSPIRE YOUR KIDS

I thought you might be interested in this article I found as I was going through some old magazines.

As a parent, I know how difficult it can be to effectively communicate with our children. What we mean to "say" to our children isn't always what they "hear."

The following Reader's Digest article explains that a child's brain cannot be expected to process words the same way an adult's does. This article contains some great information to help us inspire our kids, and gives examples of 7 important things to say, and (7 things not to say).

Check it out at: Reader's Digest.

QUOTE OF THE WEEK

“The world is a dangerous place
to live; not because of the
people who are evil, but because
of the people who don’t do
anything about it”
- Albert Einstein

THE LAW OF BIG NUMBERS

I've talked about The Law of Big Numbers before, but I really think people should understand the magnitude of what the government is talking about when they say Million, Billion and Trillion.

Recently, while speaking at Senator Johanns' Roundtable on Healthcare Reform, I brought this issue up again.

This is what I said:

The papers have abounded with big numbers. The bailout - $700 billion dollars, the deficit - $1.2 trillion dollars. Million, Billion, Trillion...The only difference between the words is one letter and sometimes people get those things confused. I think there should be a law of big numbers so people really understand the difference between a million, and a billion, and a trillion. Everett Dirksen once said, “a million here, a million there, pretty soon we’re talking big numbers.”

Being a math guy, I like to explain it like this:

If you were going to count to a Million, and you counted one count per second, it would take you a little bit over eleven and one half days of counting non-stop.

Now let's go to a Billion, mostly when I ask people this, they usually guess 100 days. Well actually, to count to a billion, would take you 31 years and 8 ½ months. Remember, a billion is a thousand millions.

Then we can talk about a Trillion. How long would it take to count to a trillion? Do the math. Again you move the decimal point but it would take you 31,709 years plus 8 months to count to a trillion.

Think about this the next time you hear a politician talk, or when you look at the deficit calculator.

Larry Kopsa CPA

INNOCENT SPOUSE

Larry, My husband has been cheating on his taxes. If I file a separate return, can I avoid being liable?

Mary

Mary, for the current year, if you file as "married filing separately," you will owe tax only on your own separate income, not on your husband's income. But, if your husband has cheated in past years, and you filed joint returns for those years, you can't switch to filing separately for those years. (After filing a separate return, you can still switch to filing a joint return.) But, you may still avoid liability for your husband's taxes on your past-year joint returns by claiming "innocent spouse" status.

You may want to look at IRS Publication 971, Innocent Spouse Relief. If you are a Kopsa Otte client, please come talk to us regarding this issue. If not, please make an appointment with your accountant.

It is a pleasure serving you.

Larry Kopsa CPA

WHO ARE AMERICA'S LARGEST POLITICAL DONORS?

A political action committee, or PAC, is a private group that organizes to elect political candidates. PACs receive and raise money from the group’s constituents and make donations to political campaigns. PACs that donate to federal races (e.g., U.S. Senate and House races or presidential races) must report all of the financial activities to the Federal Election Commission (FEC), which makes the reports available to the public.

To see the list of top political contributors go to: Top Political Donors.

GOVERNMENT TRUE-ISMS

"Suppose you were an idiot. And suppose you were a member of Congress....But then I repeat myself." -Mark Twain

READ MY LIPS, NO NEW TAXES

One of President Obama’s pledges was that he would only increase taxes on those wealthy Americans who make over $250,000 per year. I’m not sure exactly what he meant by this but it appears to me that with some of the proposals they’re talking about in the health care reform, it seriously increases people’s taxes.

Here’s an example. I just had a young couple in my office. Both are college graduates who are working hard. He is a banker and she is a nurse. Between them, they are making close to $100,000. The income they are making throws some of their income into a 25% federal bracket and a 7% state bracket. In addition to this, they have to pay social security of 7.65% which is matched by their employers.

As we discussed their situation, the conversation evolved into health care reform. Currently, their company is providing them with $4,200 of health insurance. They are putting $5,000 into a cafeteria plan and they are completely funding a health savings account in the amount of $5,950. In Washington D. C. they are discussing eliminating the deduction for all of these items. If this were the case, I calculated that their tax will increase by $5,551. They couldn’t believe it. They don’t have an extra $5,551 with three children, house payments, etc.

I told them it’s actually worse than this. If they consider it, their tax cost is actually $5,551. In their tax bracket, they would have to go out and earn an additional $9,200 to bring home this amount of money. In addition to this, their employer would have to pay social security on those funds which would cost the employer an additional $700 in taxes.

Although President Obama didn’t say, “Read my lips,” as the first president Bush did, he certainly doesn’t seem to be following his promises. If they pass these measures to fund health care, he definitely isn’t following his promises.

AM I A CASH OR ACCRUAL TAXPAYER?

Larry, I saw you speak last year and you talked about being cash or accrual when it came to paying taxes. I was hoping you could send me some additional information on this subject.

Thanks! Ben

Ben, We have a worksheet on our website that shows how to tell if you are a cash or accrual taxpayer.

Just click on the following link: Cash Or Accrual.

I hope this helps.

Larry Kopsa CPA

QUOTE OF THE WEEK

An army of 200 sheep lead by a
lion will always defeat an army of
200 lions lead by a sheep.

WORKERS COMPENSATION RATINGS

Want to know where your state falls in Workers Comp?

See the Oregon Workers Comp study at http://www.cbs.state.or.us/imd/rasums/2082/08web/08_2082.pdf.

THE GOVERNMENT DEBT CLOCK

The government debt clock is still running. See what it's up to now.

http://www.usdebtclock.org/