It is the
VETERAN,
not the preacher,
who has given us freedom of religion.

It is
the VETERAN,
not the reporter,
who has given us freedom of the press.

It is
the VETERAN,
not the poet,
who has given us freedom of speech.

It is
the VETERAN,
not the campus organizer,
who has given us freedom to assemble.

It is
the VETERAN,
not the lawyer, who has given us the right to a fair trial.

It is
the VETERAN,
not the politician,
Who has given us the right to vote.

401K CONVERSION TO START A BUSINESS

Dear Sir,

What is your opinion on turning a 401K into a self-funded account and using it to fund the salon I want to open?

Thank you,

Camille

Camille, I really can’t give you an answer on this. Last year there were some companies and some articles touting that you could move your 401K to a business without paying tax or penalty. Some companies stated that for a fee they would walk you through the process. The problem is that once this is done, the company is gone and you and your representative are stuck cleaning this up if the IRS challenges the process.

In the tax professional literature there were warnings that this type of arrangement was on the IRS’s radar and that we may be seeing some activity by the IRS. As of this date I have not seen anything concrete but I would tread lightly.

Sorry I can’t give you a solid answer.

Larry Kopsa CPA

HOW MANY DRIVERS ARE AWARE OF THIS?

A 46 year old female had an accident several weeks ago and totaled her car.

A resident of Kilgore, Texas she was traveling between Gladewater & Kilgore. It was raining, though not excessively, when her car suddenly began to hydro-plane and literally flew through the air. She was not seriously injured but very stunned at the sudden occurrence!

When she explained to the highway patrolman what had happened he told her something that every driver should know:

NEVER DRIVE IN THE RAIN WITH YOUR CRUISE CONTROL ON!!!

She thought she was being cautious by setting the cruise control and maintaining a safe consistent speed in the rain.

But the highway patrolman told her that if the cruise control is on when your car begins to hydro-plane and your tires lose contact with the pavement, your car will accelerate to a higher rate of speed making you take off like an airplane.

She told the patrolman that was exactly what had occurred.

The patrolman said this warning should be listed on the driver's seat sun-visor:

NEVER USE THE CRUISE CONTROL WHEN THE PAVEMENT IS WET OR ICY, along with the airbag warning.

We tell our teenagers to set the cruise control and drive a safe speed, but we don't tell them to use the cruise control only when the pavement is dry.

The only person the accident victim found, who knew this (besides the patrolman), was a man who had a similar accident, totaled his car and sustained severe injuries.

NOTE:
Some vehicles (like the Toyota Sienna Limited XLE) will not allow you to set the cruise control when the windshield wipers are on.

STUDY: TO CLOSE DEFICIT, FEDERAL INCOME TAXES WOULD NEED TO DOUBLE

If you have been reading my blog you know that I am concerned about the deficit and the likely possibility that we could see inflation raising its ugly head. I have been through the 1970’s and 1980’s and I know how crippling such an economy can be to business. I recently had a person write me and say that I was being political on my blog. My father always told me to not discuss religion or politics. I have always tried to follow his advice. But I really think that the economy and government action that impacts business needs to be discussed. Here is an example.

According to the non-partisan Tax Foundation in Washington, D.C., federal income tax rates would have to more than double across the income spectrum if Congress were to close the U.S. budget deficit in fiscal year 2010. Instead of taxing joint filers with rates ranging from 10% to 35%, tax rates would have to start at 24.3% and reach up to 84.9%, according to the Foundation. Earlier this month, it was announced that the federal budget deficit in February was a whopping $221 billion – the largest monthly deficit ever in gross dollars. The deficit so far in this fiscal year (which began in October) is $651.6 billion, up 10.5% from the same period of the previous fiscal year. The current U.S. debt is about $12.6 trillion. “The federal government is spending so much that even if policymakers were willing to fund government services with actual tax revenue instead of piling on more debt, the federal income tax system in its current form wouldn’t be able to raise that much,” said a Tax Foundation spokesman. The press release and report can be read by clicking here.

DEDUCTING EXPENSES AND 1099s

Larry, I moved my business at the end of 2009. I needed to upgrade the space I had leased, and called the general contractor I had used in the past. I knew he was no longer in that business, but I asked him if he could recommend someone else to do this small job. He called a few days later and said he had someone, and he would charge me $18k for the work I needed done. I agreed and the new person came that evening along with my friend (the ex-contractor) to evaluate. We agreed to the 18K and the work proceeded the following week with me funding the materials as we went along. All of the receipts were passed from the new contractor to my "friend" --- I had offered to pay my friend for the finders fee,of course, but we had no formal amount (I was thinking $2,000-2,500) nor did we have a written contract. I know this was very foolish of me, but this man had become a friend socially as well as in the workplace, we had done volunteer projects in the community together, and had shared our business concerns over coffee many times over the past 6 years, so I was comfortable with his ethics.

As it turns out, he charged me $5,000 for the finders fee (nothing I can do about that) -but he also had the 2nd contractor give him all of the receipts for the job, even those that were charged to my AMEX bill. At the end of the project (and during the course of it as well) I kept asking for the receipts for my income tax purposes. He would never bring them to me. At the end of 2009 he put a 1099 on the 2nd contractor, but refused to give me his own Social Security number. I am livid as well as disappointed. How do I write off my expenses without receipts and how do I let the IRS know about his income without his social security number? I know the deadline was Jan 30th of this year, but I can't budge this information from the man. I want to handle this correctly so I don't get stuck with the taxes on this amount. The job ran over, by the way, and I paid $24,500 for the materials and work.

Thank you,

Brad

Bad luck Brad. I thought that if they had been corporations you would not have been required to send a 1099. You really have two questions:

First, regarding deducting your expenses:

You need to discuss this with the person that is preparing your return. If I were preparing the return I would still deduct the expenses even though you do not have documentation. If you are not audited - no problem. If the IRS does pay a visit then you would have to show your cancelled checks and credit card receipts. You could even go to the various vendors and request copies of the invoices. Additionally, if you were audited the auditor could request the records from the two contractors. That would get their attention.

Second, regarding the 1099’s:

There are a couple of things you could do. First you could submit the 1099’s and put in the ID number that the vendor would not provide. The second option is to just not send them a 1099. The penalty for not submitting a 1099 is $50, up to $100 per 1099 so it would not be real devastating.

Third, you mentioned that the one contractor was a friend of yours. In the future, choose your friends wisely.

Again, check with the person preparing your return. He or she is the one that has to sign and take some responsibility for what is on the return. Best of luck. I hope this helped.

Larry Kopsa CPA

BABY FRITZ

Kopsa Otte's very own Theresa Fritz and her husband Adam had a baby boy last Monday night. Carter Robert Fritz weighed in at 7 lbs. 8.1 oz and was 20 1/2 inches long.

Theresa and Carter are home and doing well. Congratulations Theresa and Adam!

QUOTE OF THE WEEK

"Congress is getting ready to pass another jobs bill, which means they don't create any jobs, we just get the bill."

Jay Leno

AT A GLANCE: THE FEDERAL BUDGET & DEBT

As I have mentioned in earlier blogs, I am honored to be on the board of directors of the Nebraska State Chamber of Commerce and I am chairperson of the Small Business Committee. Recently the State Chamber had their annual fly-in to Washington, D.C. Unfortunately, I was not able to go to Washington but I was quite interested in their findings.

They were briefed on the federal budget and national debt by Nebraska’s First District Congressman, Jeff Fortenberry. The graphs above are from Rep. Fortenberry’s website and were presented to State Chamber members who attended the May 5 Nebraska Breakfast on Capitol Hill. Currently, U.S. federal debt as a percentage of the Gross Domestic Product is about 60%. At the current pace, it will hit 150% of GDP in 10 years, and 300% of GDP by 2050. (By comparison, the crisis in Greece began when its debt hit 115% of GDP.) The bipartisan Committee for a Responsible Federal Budget has presented six future scenarios for America – and all are reasons for concern. The best case scenario is long-term economic stagnation; the worst case is default – when the government can no longer pay its bills. Another possible scenario is runaway inflation. I thought that you would be interested in the Commissions findings, click here.

IRS UPDATES FORM 941 TO REFLECT NEW-HIRE TAX EXEMPTION

The Internal Revenue Service has released a newly revised version of payroll tax Form 941 and its instructions so employers can claim the recently enacted Social Security tax exemption for new hires. JournalofAccountancy.com (5/18)

WASHINGTON - AFFECTING YOUR SMALL BUSINESS

Join us for a FREE Webinar on June 21

Monday, June 21, 2010

12:00 PM - 1:00 PM CDT

There is a lot going on in Washington right now, so allow Larry Kopsa CPA to show you his ‘crystal ball’ on how the following may affect your business:Health Care Reform, PCI (if you take credit cards and you don’t know about this make sure you tune in!), CAP and Trade, Value Add Tax, New Tax Laws, Hire Act, and the Union Check Card. In this one hour webinar, Larry will show you how these items could potentially affect your bottom line.

System Requirements
PC-based attendees
Required: Windows® 7, Vista, XP, 2003 Server or 2000

Macintosh®-based attendees
Required: Mac OS® X 10.4.11 (Tiger®) or newer

Reserve your Webinar seat now at:
https://www1.gotomeeting.com/register/591528289

THE PRESIDENT'S RETURN

Do you want to see President Obama’s tax return? Open the link below.

Barack Obama's Tax Return

QUOTE OF THE WEEK

"Don't be yourself -- be someone a little nicer."
--Mignon McLaughlin

7 FACTS ABOUT SOCIAL SECURITY BENEFITS

I get a lot of questions from people that are considering drawing Social Security benefits. The IRS recently issued the memorandum below discussing some of the facts about Social Security. It is a pretty good summary. I thought you might be interested.

Seven Facts About Social Security Benefits

If you received Social Security benefits in 2009, you need to know whether or not these benefits are taxable. Here are seven facts the Internal Revenue Service wants you to know about Social Security benefits so you can determine whether or not they are taxable to you.

1. How much – if any – of your Social Security benefits are taxable depends on your total income and marital status.

2. Generally, if Social Security benefits were your only income for 2009, your benefits are not taxable and you probably do not need to file a federal income tax return.

3. If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status.

4. Your taxable benefits and modified adjusted gross income are figured on a worksheet in the Form 1040A or Form 1040 Instruction booklet.

5. You can do the following quick computation to determine whether some of your benefits may be taxable:

• First, add one-half of the total Social Security benefits you received to all your other income, including any tax exempt interest and other exclusions from income.
• Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.

6. The 2009 base amounts are:

• $32,000 for married couples filing jointly.
• $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year.
• $0 for married persons filing separately who lived together during the year.

7. For additional information on the taxability of Social Security benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Publication 915 is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

• Publication 915, Social Security and Equivalent Railroad Retirement Benefits (994.0KB)

A NEW CPR METHOD

NO MOUTH TO MOUTH AND WORKS BETTER. ANYONE CAN DO AFTER SEEING THIS ONCE!

Please view the video, then pass it on. You may be saving someone's life!

http://www.youtube.com/watch?v=E5huVSebZpM

SERVICE TIME DONATED TO CHARITY NOT DEDUCTIBLE

Hi, I read your blog entry that explains that service time donated to a charity is not deductible. What if there is an actual assignable value of the service time to the charity? For example, I am donating my services as an auction item for a charity auction; if somebody buys it for $600 from the charity, then I perform the service for the purchaser; can I deduct that $600 value as a donation to the charity? Or, if the IRS sees no “value” in the service being donated and sold, does the buyer of the auction item get the full $600 deduction as a cash donation to the charity? Thanks in advance.

Eagle

Nope, it doesn’t make a difference if you can value your services or not – the donation of personal services is never deductible as a charitable donation. The IRS will not allow you to assign a value to your time for the purposes of a donation.

The second part of your question feels like it should be related but the IRS doesn’t consider the two pieces together at all. It’s clear that the value of your services isn’t deductible as a donation. However, on the buyer’s side, a charitable donation is deductible only to the extent that the donation exceeds the value of any goods or services received in exchange. So when you donate to public television and get a tote bag in return? You can deduct the cost of your donation less the value of the tote bag. The same analysis applies to services. If you bid at auction for, say, $1000 and you “win” a personal training session worth $150, the value of your deduction is the price paid for the item ($1000) less the actual value of the item ($150) – in this case, $850. Most charitable organizations will do the math for you and document the value of your donation on their thank you letter.

But if you’re that personal trainer? You can’t deduct the $150. You can only deduct related out of pocket expenses.

Let me know if you have any other questions.

Larry Kopsa CPA

WHAT MAKES A GREAT SMALL BUSINESS?

I recently ran across the attached article by Steve Strauss on what makes a GREAT small business. I thought you might see how your business stacks up.

9 Traits of a Great Small Business-Steve Strauss

QUOTE OF THE WEEK

“If you do what you’ve always done, you’ll get what you’ve always gotten.”
Tony Robins

INFORMATION FOR NON-PROFITS

If you are on any non profit boards, make sure that they have filed the necessary reports or they may lose their non-profit status. See the information below:

Tax Spotlight
990 nonfilers to start losing exempt status
Monday is the deadline for filing Form 990 (including the e-postcard for small tax-exempt organizations) for calendar-year exempt organizations. Under filing rules enacted in 2006, it is also the day that organizations that haven't filed for three consecutive years will automatically lose their exempt status.

UNEMPLOYMENT MAP

Larry, you recently sent out an unemployment calendar showing how unemployment has increased over the last year or so. I can’t seem to find it. Could you reprint. Thanks.

August

August, here it is. Be careful, it is pretty depressing.

Unemployment Map

Larry Kopsa CPA

GUILTY UNTIL PROVEN INNOCENT

With the IRS you are guilty until you prove yourself innocent. The following case is a good example of this. The taxpayer could not prove that two deposits were not income and so therefore the IRS and the court determined that they were income. Don’t forget… “documentation, documentation documentation.”

The IRS assessed additional taxes based on two bank deposits made to the taxpayer’s business account. The taxpayer claimed that the deposits were either proceeds of insurance, borrowed funds or transfers from a savings account, but did not specify the source of the two checks. The taxpayer provided no evidence to support any of these theories as to the source of the funds. The court held that the IRS determination that the deposits were income was not refuted; therefore, the deposits were taxable income. An accuracy penalty was assessed and approved because the taxpayer failed to provide any reasonable cause for the failure to include the amounts in income. Wright v. Comm’r, T.C. Summary Op. 2010-50.

FIGURES FROM THE IRS

In 2008 alone, 447 House employees and 231 Senate workers didn’t pay their taxes, according to figures from the IRS, Office of Personnel Management, and Department of Defense. Federal employees in the U.S. House of Representatives owed more than $5.8 million in unpaid taxes in 2008. The Senate employees owe more than $2.46 million, according to figures.

HEALTH CARE ACT AND CHILDREN UNDER AGE 27

As a result of changes made by the recently enacted Affordable Care Act, health coverage provided for an employee's children under 27 years of age is now generally tax-free to the employee, effective March 30, 2010. These changes immediately allow employers with cafeteria plans to permit employees to begin making pre-tax contributions to pay for this expanded benefit.

This expanded health care tax benefit applies to various workplace and retiree health plans. It also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return.

Employees who have children who will not have reached age 27 by the end of the year are eligible for the new tax benefit from March 30, 2010, forward. For this purpose, a child includes a son, daughter, stepchild, adopted child or eligible foster child. This new age 27 standard replaces the lower age limits that applied under prior tax law, as well as the requirement that a child generally qualify as a dependent for tax purposes.

Employers with cafeteria plans may permit employees to immediately make pre-tax salary reduction contributions to provide coverage for children under age 27, even if the cafeteria plan has not yet been amended to cover these individuals. Plan sponsors then have until the end of 2010 to amend their cafeteria plan language to incorporate this change.

In addition to changing the tax rules as described above, the Affordable Care Act also requires plans that provide dependent coverage of children to continue to make the coverage available for an adult child until the child turns age 26. The extended coverage must be provided not later than plan years beginning on or after Sept. 23, 2010.

MOVING – HERE IS HOW YOU LET THE IRS KNOW

The IRS has issued updated procedures for determining a taxpayer’s “last known address” which is used for all IRS communications with taxpayers, including refunds. In general, taxpayers are encouraged to submit change of address, Form 8822.

IMPORTANT INFORMATION REGARDING CREDIT CARDS

If you take credit cards...you know the importance of protecting your customers' personal credit card data. But did you know it's your responsibility to make sure your business is PCI (Payment Card Industry) Compliant by July 2010? Check out this link to read more about PCI: What Is PCI?

We will be attending some upcoming classes on this very subject; keep an eye on our blog for more details.

Amanda Haumont, Marketing Specialist

MORE ON THE HOMEBUYER CREDIT

Here is a good chart on the homebuyer and energy credit:
Homebuyers Tax Credit Guide