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