QUICKBOOKS 2009 DISCONTINUATION

We just received the following note from QuickBooks. If you are using QuickBooks 2009 take note, they are discontinuing the payroll service take notice.

NOTIFICATION FROM QUICKBOOKS:

We know that your clients rely on QuickBooks and we want to be sure that we keep you informed of any changes that will affect your clients. Since early March, we have informed our payroll customers that as of May 31, 2012, payroll service for QuickBooks 2009 would be discontinued.

In order to provide customers with additional time to upgrade their QuickBooks software, we have extended the date of the payroll service discontinuation to June 30, 2012.

After that date, QuickBooks 2009 will no longer automatically calculate correct payroll taxes or provide payroll tax forms. Payroll subscriptions for customers with QuickBooks 2009 will be inactivated on July 1, 2012.

We are encouraging customers to upgrade their QuickBooks software as soon as possible to minimize disruption to their businesses.

FINAL EMPLOYEE PAYCHECK

Q: How quickly must an employee’s final paycheck be issued if they are terminated or quit?  I had an employee that quit and said that I had to give him a paycheck that day.

A: Nebraska law requires that final wages be paid on the next regular pay day or within two weeks of the termination, whichever is sooner. This law applies regardless of whether an employee is terminated or voluntarily quits.


Note, this is Nebraska law.  Other state laws may vary.

SOCIAL SECURITY FACES UNFUNDED LIABILITY

Last fall I attended the National Tax Conference in Washington DC. A expert on Social Security was one of the speakers. He said that Social Security could avoid bankruptcy by making a few simple changes. The changes would not impact anybody that was 55 or older and would receive 87% of their benefits. Unfortunately the government does not have the guts to address the problem. Take a look at what CNSNews.com is reporting.

(CNSNews) -- CNSNews.com reports, "Social Security faces an unfunded liability of $8.6 trillion, according to the 2012 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds." According to the story, "the $8.6 trillion in unfunded benefits Social Security is expected to pay over the next 75 years equals $73,167.83 for each of the 117,538,000 households the Census Bureau said were in the United States in 2010."
To read more of this article: CLICK HERE

BUILDINGS AND COST SEGREGATION STUDIES

Cost segregation studies have become a popular method for taxpayers that own buildings.  Buildings are depreciated over 39 years.  What a cost segregation study does is, based on engineering estimates allocates a portion of the building to assets that can be depreciated over a much shorter period of time.  This gives the taxpayer more deductions in early years.  Of course the IRS thinks this can be a little aggressive and now has won a court case.

On March 12, the Tax Court issued an opinion challenging what many of us thought was a well-settled strategy for maximizing depreciation deductions for rental real estate. It's unclear what effect this decision will have in the long run, but we want to let you know that we're paying attention to help protect your tax breaks on your properties.

"Depreciation" is the process of deducting your investment in assets like real estate over a period of time intended to reflect its useful life. A "cost segregation study" is the process of dividing a property between structural components such as windows and roofs (which depreciate over 27.5 or 39 years) and personal property such as carpeting and appliances (which depreciate over five, seven, or 15 years). Depreciating those components faster gives you bigger deductions in the first few years of ownership.

In the recent AmeriSouth decision, the Tax Court sided with the IRS and refused to let an apartment owner accelerate a number of deductions, including site preparation and earthwork, the water distribution system, sanitary sewer, gas line, special plumbing and electric, HVAC, finish carpentry, mill work, interior windows and mirrors, and special painting. But while this sounds like yet another blow for the taxpayer, there's a twist. The owner actually sold the property before the case came to trial, and even stopped defending their position in court.

The AmeriSouth decision may just wind up being another example of bad cases making bad law. It's unclear what the Court might have ruled if the owner had actually put up a fight. It's also worth noting that if the decision does set new policy, it won't actually eliminate any deductions. Rather, it will merely slow them down. You can be sure we'll keep a close eye on developments as they arise, and we'll keep you posted.

TAX FREEDOM DAY THROUGH THE YEARS

Click on picture to view larger.

GAS PRICES RISING

Q.  With gas prices rising, will IRS raise the standard mileage rate at midyear? 

A.  Actually gas prices have decreased lately so I doubt if we will see any changes. If we do see increases in the future it might be a possibility. Most analysts see prices staying low especially with an election coming up.

When the price of gasoline spiked in the first half of 2008 and 2011, the Service boosted the standard mileage rate by 8 cents per mile and 4.5 cents per mile, respectively, effective for the final six months of those years.

We will keep you posted.

THE TAX SYSTEM EXPLAINED IN BEER

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this...

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that's what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20." Drinks for the ten men would now cost just $80.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men? The paying customers? How could they divide the $20 windfall so that everyone would get his fair share?

They realized that $20 divided by six is $3.33. But if they subtracted that from every body's share, then the fifth man and the sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce each man's bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% saving).
The sixth now paid $2 instead of $3 (33% saving).
The seventh now paid $5 instead of $7 (28% saving).
The eighth now paid $9 instead of $12 (25% saving).
The ninth now paid $14 instead of $18 (22% saving).
The tenth now paid $49 instead of $59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

"I only got a dollar out of the $20 saving," declared the sixth man. He pointed to the tenth man, "but he got $10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar too. It's unfair that he got ten times more benefit than me!"

"That's true!" shouted the seventh man. "Why should he get $10 back, when I got only $2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!" The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

SELF EMPLOYED AND HEALTH INSURANCE

Self-employed taxpayers can deduct their health insurance. Not as a business expense but as a other deduction which is on page one of the tax return. In defining what is deductible you are allowed to include Medicare Part B and D  premiums. The question always was "what about the spouse?"

The IRS has just revised their thinking on the deduction for spouses of self employed taxpayers. Publication 535 this year says that Medicare premiums have to be paid in the name of the self-employed person to qualify for the deduction. IRS has informally said that the revision was made to make it clear that a spouse’s Part B and D premiums don’t count if the spouse isn’t self-employed.

Strangely this is just in the publication but not in an official guidance.

TAX QUESTION ON EDUCATION CREDIT AND CLAIMING CHILD

Q: Hey how are you doing sir? I was wondering if you could help me out with some doubts I have about a college form I got, a tuition statement. Not sure how I can put it on my taxes. Also, I have a two-year old whom her mom claimed her so I am wondering if I can claim her on my taxes or just write down the child sup. I paid for the year? Can I just print the form from irs.gov to file and send it to them?

 A: The tuition form most likely tells how much tuition you paid that qualifies for the education tax credit.  Here are resources from www.irs.gov pub 970 on the tax credits for education:  American Opportunity Credit

As for your other question- Since the mother claimed the child then you are not eligible to claim.  I am presuming that the mother has custody.  If you had custody for over 6 months let me know and I will comment further.

Sorry, but child support is not deductible. 

 Good luck!

ILLEGAL IMMIGRANTS RECEIVED BILLIONS FROM THE IRS

Q: Does the IRS pay billions in tax refunds to workers who are in the U.S. illegally?

A: Yes. The Treasury Department’s Inspector General determined that $4.2 billion was paid in 2010, up from less than $1 billion in 2005. Leading Democrats are resisting a bill that would stop future payments.

This is a rare case of an Internet rumor with some substance to it. In fact, it’s shaping up as a major dogfight in Congress. At issue here are the federal child tax credits that can be claimed by persons with dependent children under age 17. Some Democrats are already defending these child tax credit payments that have gone to those without a valid Social Security number, accusing Republicans who want to end them of a heartless attack on children.

Several different versions of this viral email all cite a recent investigative story by an Indianapolis television station, but WTHR-TV is far from the first to notice. The Washington Post and others reported on this last year when the Treasury Department’s inspector general for tax administration issued a report on July 7, 2011. The title of the report summed up the IG’s finding: Individuals Who Are Not Authorized to Work in the United States Were Paid $4.2 Billion in Refundable Credits.

The credits currently amount to $1,000 per child, and they are “refundable,” meaning that parents may receive refunds even when they do not owe any tax.

The IG report stated that more than 2.3 million persons who did not have Social Security numbers valid for working in the U.S. got an average of roughly $1,800 each in 2010 in child tax credit refunds. That included 9,000 illegal immigrants who each got a total of $10,000 or more by retroactively claiming credits for tax years prior to 2010.

This from www.factcheck.org

LARRY THE CABLE GUY

1. Cows
2. The Constitution
3. The Ten Commandments

COWS: Is it just me, or does anyone else find it amazing that during the mad cow epidemic our government could track a single cow, born in Canada almost three years ago, right to the stall where she slept in the state of Washington?  And, they tracked her calves to their stalls.  But they are unable to locate 11 million illegal aliens wandering around our country.  Maybe we should give each of them a cow.

THE CONSTITUTION: They keep talking about drafting a Constitution for Iraq. Why don't we just give them ours? It was written by a lot of really smart guys, it has worked for over 200 years, and we're not using it anymore.

THE 10 COMMANDMENTS: The real reason that we can't have the Ten Commandments posted in a courthouse is this:  you cannot post 'Thou Shalt Not Steal,' 'Thou Shalt Not Commit Adultery,' and 'Thou Shall Not Lie' in a building full of lawyers, judges and politicians, it creates a hostile work environment.
GET 'ER DONE!

BEWARE OF THE $494 BILLION TAX HIKE COMING SOON

The Heritage Foundation is a conservative think tank but I found their recent column quite true.  I have been trying to warn people that if Congress and the President don’t act taxes are going to increase dramatically.  While the President and Congress appear content to put off ’til the 11th hour what they can and should do today, those who will have to pay the higher tax burden are waiting to see what the future holds. It appears that many businesses are waiting to see what will happen and this may be slowing job creation.

In their analysis, they write "Brace yourself.  In (less than 270) days, you and your fellow Americans will be hit with a tax hike the likes of which this country has never seen," if Congress does nothing by year's end.  "The Washington Post aptly called the unprecedented $494 billion tax hike 'Taxmageddon.'"  According to the analysis, "almost 34% of the tax increase" is from the expiration of the 2001 and 2003 Bush tax cuts, while "another 25% of Taxmageddon comes from the expiration of the once-temporary payroll tax cut."  The expiration of the patch on the Alternative Minimum Tax accounts for 24% of the total potential 2013 tax increase.  The rest of the tax increase "comes in part from new taxes under Obamacare, the expiration of tax cuts in the 2009 stimulus, the expiration of a group of policies known as 'tax extenders,' changes in the current policy on the death tax (in 2013, it will rise from 35% today to 55% and the exemption will fall from $5 million to $3.5 million), and the expiration of businesses' ability to fully expense new capital investments."

THE REAL CAUSES OF INCOME INEQUALITY

Wall Street Journal op-ed, The Real Causes of Income Inequality, by Phil Gramm & Steve McMillin (both of U.S. Policy Metrics):

In the stagnant days of the Carter administration, when inflation was approaching 13.5% and interest rates were peaking at 21.5%, income was more evenly distributed than in any period in 20th-century America. Since the days of that equality in misery, the measured income of the top 1% of income tax filers has risen over three and a half times as fast as the income of the population as a whole. ...

While income distribution has become a source of protest and political debate, any analysis of taxes paid in high tax-and-spend countries shows that the U.S. has the most progressive income tax system in the world. An inconvenient truth for the advocates of higher taxes on America's rich is that big governments in developed countries are funded not by taxing the rich more than the U.S. does, but by taxing everybody else more.

To vilify success and the rewards it garners is an assault not just on capitalism but on liberty itself. As Will and Ariel Durant observed in The Lessons of History (1968), "freedom and equality are sworn and everlasting enemies, and when one prevails the other dies . . . to check the growth of inequality, liberty must be sacrificed."

Nowhere is the political debate over income inequality more detached from reality than the call for the top 1% of American income earners to pay their "fair share." The Organization for Economic Cooperation and Development (OECD) data on the ratio of the share of income taxes paid by the richest taxpayers relative to their share of income show that the U.S. has the world's most progressive tax burden.

The top 10% of earners in the U.S. pay 35% more of the income tax burden than in Sweden and 22% more than in France. These figures—from the 2008 OECD publication "Growing Unequal?"—include all household taxes imposed on income at the federal, state and local level, including social insurance taxes.

In an eternal irony unique to large welfare states, it is the expansion of government in the name of the poor and middle class that always costs poor and middle-class families the most. When the U.S. collects 16.1% of GDP in income taxes, the top 10% of taxpayers pay 7.3% and the other 90% pick up 8.9%.

In France, however, they collect 24.3% of GDP in income taxes with the top 10% paying 6.8% and the rest paying a whopping 17.5% of GDP. Sweden collects its 28.5% of GDP through income taxes by tapping the top 10% for 7.6%, but the other 90% get hit for a back-breaking 20.9% of GDP.

If the U.S. spent and taxed like France and Sweden, it would hardly affect the top 10%, who would pay about what they pay now, but the bottom 90% would see their taxes double

AMERICANS PAYING MORE IN TAXES THAN FOR FOOD, CLOTHING, AND SHELTER

In 2012, Americans will pay approximately $4.041 trillion in taxes, which is $152 billion, or 3.9%, more than they will spend on housing, food, and clothing combined, according to our new study by Adjunct Scholar Kevin Duncan. In addition, an increasing proportion of government benefits now go to pay for those same basic expenses of low-income Americans.

Examining the trends of tax collections and expenditures on housing, food, and clothing for the past several decades, the study shows that an ever-increasing amount of taxpayer money has gone into government programs that subsidize or pay for essential household goods. Cash and voucher benefits now pay for over a third of basic household expenses, up from less than 1% in 1929 and less than 20% in the early 1970s.

QUICKBOOKS BLOCKING

Q: I have several people who have access to my QuickBooks to input data, reconcile etc. I don’t really want them knowing all my income. Is there a way to block them out?

A: Yes there is a way to block certain people out of different functions within QuickBooks. It is beyond the scope of this response to give you the exact details but you can limit people to just the cash disbursements or just the deposits. If you need some detailed information on this, contact us or your QuickBooks representative.

TAX COURT CASE REMINDS US OF THE IMORTANCE OF GOOD VEHICLE RECORDS

In order for mileage to be deductible you must have good "contemporaneous" records of your mileage. 

A couple who used their vehicles in their sole proprietorships had logbooks but they were riddled with mistakes, questionable entries and other irregularities.  The Tax Court was unable to rely on them and as a result, the Court upheld IRS’ disallowance of all mileage expenses for the vehicles, even though they were used partially for business (Moore, TC Summ. Op. 2012-16). They lost their deduction.

If you would like a listing of records that you need to make sure that you are following the IRS guidelines let us know and we will send you the information.  Contact Amanda at ahaumont@kopsaotte.com

IN THE NEWS

I was honored to be asked to be a part of this month's Salon Today's Money Puzzle article. Salon Today asked a group of experts that examine every angle of your business to help you find, grow and save more money.

Please check it out: CLICK HERE

NEW YORK CITY

I spent a few days last week in New York City speaking at a conference. I spoke for two days and then I visited with some of our clients that are in that area. My wife, Maggie, went along with me so we did have a day to do some shopping and visit art galleries on Times Square.

Staying in a hotel in New York is always an experience because space is so expensive. My room was 17' x 11. This included the bathroom, shower and then the bed. No closets only two drawers. At the same time this is a brand-new motel or hotel and a unique experience because of all the technology that was involved.

One of my favorite books and a requirement for everyone that works in my office is Raving Fans. One of the principles that creates a ‘Raving Fan’ is to do what you do very well but don't try to do everything. The hotel was a very good example of this. Everything they did, they did with class and it definitely had a WOW factor. At the same time there were a lot of things they didn't do, which was okay also.

If you've never been to New York I suggest that you put it on your bucket list. There's no place like it. On a weeknight at 11 PM to be walking down Eighth Street or Seventh Street or Times Square and to be shoulder to shoulder with people is amazing. Central Park- the theaters - the shopping - no place like in the world!

100% BONUS DEPRECIATION

Q.  What are the odds for reinstating 100% bonus depreciation?

A.  The chances are getting lower as the year goes on. Some in Congress wanted to tie this provision to the extension of the two-percentage-point reduction in the employees’ share of Social Security tax, but it was stripped from the final package. On the good side I would imagine that other provisions that lapsed after 2011will be reinstated retroactively in a lame-duck session, including direct payouts from IRAs to charity, higher AMT exemptions and the write-off for state sales taxes.  Who knows what they will do in Washington.