Thursday, January 31, 2008

THIS SHOWS HOW CONFUSING TAXES CAN BE

As I am sure you have heard, the federal government is in the process of negotiating a repayment to us of some of the taxes that we have paid in to stimulate the economy and hopefully avoid a recession. The House of Representatives passed a bill and, as I write this, the Senate is crafting their version.

The point I want to make is how the government, the House in this case, can make something fairly simple seem very complicated. Below is an illustration of the House version and the Senate version. If the House version passes we are going to need a computer to calculate the refund.

What a mess. Just give us our money back.


Illustration:
For 2007, married taxpayers filing jointly have $175,000 adjusted gross income (AGI), two qualifying children, and a net tax liability of $31,189.

Under the House bill, the recovery rebate credit before the phaseout would be $1,800 [$1,200 (i.e., greater of $600 or net tax liability not to exceed $1,200) + $600 ($300 × 2 children)]. However, the phaseout reduces the $1,800 amount to $550 [$1,800 − $1,250 reduction, i.e., ($175,000 AGI − $150,000) × 5%].

Under the Senate bill, the taxpayers would receive a stimulus rebate credit of $1,600 [$1,000 for married taxpayers filing jointly + $600 (i.e., $300 × 2 children)].

Eligible individuals. Under both bills, an eligible individual would be any individual other than: a nonresident alien; an estate or trust; or a dependent.

Eligible child. Under both bills, for purposes of the additional $300 rebate, a qualifying child would be based on the definition of a qualifying child for the Code Sec. 24 child credit. Under Code Sec. 24, an individual can claim a child credit of $1,000 for 2008 for each qualifying child under the age of 17. Generally, a qualifying child must have the same principal place of abode as the taxpayer for more than one-half the tax year and satisfy a relationship test. To satisfy the relationship test, the child must be the taxpayer's son, daughter, stepson, stepdaughter, brother, sister, stepbrother, stepsister, or descendant of any such individual. A child who is not a citizen, national, or resident of the U.S. can't be a qualifying child.

Sunday, January 20, 2008

ONLY IN AMERICA

An inmate who injured himself breaking out of a Colorado jail is suing on the grounds that guards should have done more to stop him escaping. Scott Gomez Jr. claimes he was badly injured when he fell 40 feet while attempting to scale down the outside wall of the Pueblo County jail. Prison authorities, Gomez complains, "did next to nothing to ensure that the jail was secure and that the plaintiff could not escape."

THE WEEK January 18, 2008

Friday, January 18, 2008

NEW MILEAGE RATES

2008 Standard Mileage Rates; Rate for Business Miles Set at 50.5 Cents per Mile


Beginning Jan. 1, 2008, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:

50.5 cents per mile for business miles driven;
19 cents per mile driven for medical or moving purposes; and
14 cents per mile driven in service of charitable organizations.


The new rate for business miles compares to a rate of 48.5 cents per mile for 2007. The new rate for medical and moving purposes compares to 20 cents in 2007. The rate for miles driven in service of charitable organizations has remained the same.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile; the standard rate for medical and moving purposes is based on the variable costs as determined by the same study. Runzheimer International, an independent contractor, conducted the study for the IRS.

The mileage rate for charitable miles is set by law.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS), after claiming a Section 179 deduction for that vehicle, for any vehicle used for hire or for more than four vehicles used simultaneously.

Thursday, January 17, 2008

WHAT DO WE LOOK LIKE?

I often have people tell me that they wonder what our staff looks like. If you go to our website we now have pictures of our staff. Simply click on the following link and then on the person's name to see what a great looking staff we have. By the way, the pictures on the website are pictures of our office. Our office is in an old library building and historical landmark. The office with the brick wall is where I spend my time.

http://www.kopsaotte.com/tax/?q=node/3

Larry Kopsa CPA

Sunday, January 13, 2008

HEALTH SAVINGS ACCOUNTS

The biggest gift that Congress has given us is something they call an HSA for Medical Expenses. Click on the link below to read the summary I have posted on our website.

Thursday, January 10, 2008

WHO SHOULD RECEIVE A FORM 1099?

It's that time of year again to determine who should receive a Form 1099 MISC. The IRS requires that you send a Form 1099 MISC to all individuals (not corporations) to whom you paid $600.00 or more for services, interest or rent. There is one exception to this. Any payments to a corporation for legal fees in excess of $600.00 are reportable on Form 1099-MISC. Sending proper 1099's is very important since the IRS will match 1099's to the individual income tax returns in order to determine whether or not all income was properly reported.

The penalty for not complying with the filing of Form 1099's ranges from $15.00 to $100.00 for each form not properly completed and timely filed.

Our past experience is that, if you income tax return is audited, one of the first items reviews is whether you submitted all of the necessary Form 1099's. This is an easy way for the IRS to raise revenues (by charging you a penalty) and force you to comply with the law.

For more information contact us or go to http://www.irs.gov/.

Wednesday, January 9, 2008

NEWSWEEK ARTICLE

We try to stay somewhat nonpolitical in our postings but I thought you would enjoy the attached essay by George Will. If you watch the news programs you know that Mr. Will is a conservative. Even so, I thought this piece called Ready, Fire, Aim was alarming. To give you a sample...

A Seattle day-care center banned Lego building blocks because the beastly children "were building their assumptions about ownership and the social power it conveys, assumptions that mirrored those of a class-based, capitalist society." The center reinstated Legos but allowed the children to build only "public structures" dedicated to "collectivity and consensus."

Read George Will's essay by clicking on the link below.

http://www.newsweek.com/id/81587

Saturday, January 5, 2008

TOP TEN SIGNS YOU'RE AT A LAME NEW YEAR'S EVE PARTY

I thought you might enjoy reading David Letterman's Top Ten. I'm sure you can all relate to number four.

Here's the link: http://www.cbs.com/latenight/lateshow/top_ten/contest/index/php/20080105.phtml



Thursday, January 3, 2008

NEWS FROM THE IRS

Tax Refunds To Be Delayed
If you are expecting a refund when you file your tax return, it looks like you are going to have to wait until mid February before you see the check. The holdup is that Congress failed to act in correcting the Alternative Minimum Tax problem until late this month (December). President Bush signed the legislation on December 26, 2007.

Now the IRS has to go back and reprogram all of their computers before they can process returns. By the way, now all the tax forms are wrong. In order to send the tax packages out after the first of the year, the IRS has to send the drafts to the printers by the middle of November.

What a mess.

The IRS Will Be Cashing Your Check Sooner
In the past when I wrote a check to the IRS I usually had 10 to 15 days before the check cleared the bank. No more. The Service is reducing the "float" on checks mailed with income tax returns. It will convert checks into direct debits so it gets the money right away. Be sure the funds are in your account.

More Medical Expenses Allowable In Your Flex Plan
Good news for those of you that have a flex or cafeteria plan. The cost of many diagnostic medical procedures is deductible as a medical expense, even though the patient has no symptoms of illness, the IRS says. This includes the cost of pregnancy test kits and electronic body scans as well as annual physicals (Rev. Rul. 2007-72).

As a result, the costs can be covered by flexible spending plans and health reimbursement arrangements.

Cafeteria Plan Relief May Be On the Way
Firms with cafeteria plans are requesting the IRS be more understanding. Recent IRS regulations adopt a strict all-or-nothing rule on mistakes made in cafeteria plans. Any error, no matter how small, disqualifies the plan and causes employees to owe tax on all benefits elected under the plan.

It appears that this ruling is unreasonable. Look for the IRS to agree with them sometime in 2008 but until it does, watch your plan carefully.

S Corporations Can Have Health Insurance In Owner's Name
In the past we have been struggling with the IRS’s position on health insurance for owners of small S corporations. The IRS’s position was that the health insurance policy had to be in the corporation's name or the premiums did not get a tax advantaged treatment. The problem was that in some states corporations can't buy a group plan with one participant.

Good news. The IRS has solved the health insurance problem for one-person S firms by clarifying that the premiums they pay are deductible for policies bought in the owner's name.

List Of Vehicles Qualifying for a Tax Credit
Wondering if your alternative fuel vehicle qualifies for a credit? Check the IRS' latest list, which has makes and models of vehicles eligible for a credit of up to $12,000 a year if they are powered by fuels such as liquefied natural gas, hydrogen or 85% methanol. In addition, hybrid trucks, buses and other vehicles with gross vehicle weight ratings over 8,500 pounds qualify for a separate tax credit of up to $32,000.

Go to www.irs.gov/businesses/article/0,,id=175456,00.html to see the list.

This is an interesting bit of IRS trivia:
The IRS received $48.7 billion in tax receipts from individuals on April 24, 2007, a one-day IRS record.