Wednesday, December 29, 2010

BIG BREAK FOR FARMERS IN THE NEW TAX LAW

The 2010 Tax Relief Act, enacted in December, contained an important business stimulus provision that should be of particular interest to ag producers and farm landlords. Here is a brief summary of key opportunities:

Overview of 100% Bonus Depreciation Eligibility
The tax law allows a 100% first-year bonus depreciation deduction for the cost of new assets (but not used assets) placed in service from September 9, 2010 through December 31, 2011. For 2012, bonus depreciation applies at a 50% rate.

To qualify, the property must have a depreciable life of 20 years or less; this definition fits virtually all farm assets. Further, if the new asset is acquired via trade, the 100% deduction applies both to the boot paid to accomplish the trade, as well as any remaining undepreciated basis in the relinquished asset.

While all new farm machinery qualifies, there are three categories of farm assets that are of particular interest with this 100% depreciation opportunity.

Machine Sheds and Shops
Normally, a machine shed or shop or other general purpose farm structure is a 20-year depreciable asset, and is not eligible for the Section 179 first-year expensing deduction. But those assets do qualify for 100% bonus depreciation in 2011, and 50% bonus depreciation if placed in service during 2012. The ability to fully deduct in 2011 an asset that otherwise takes 20 years on a depreciation schedule represents a significant tax opportunity.

Landlord Improvements
Landlords face technical difficulty in qualifying for the Section 179 first-year expensing deduction. But the 100% bonus depreciation deduction is available for major asset additions, such as drainage tile (normally a 15-year recovery period), or other landlord improvements, such as wells and irrigation systems or farm building improvements.

Landlords contemplating these asset additions should consider accomplishing those improvements during 2011 when the 100% bonus depreciation applies, or, failing that, in 2012 when the lower 50% deduction is available.

SUVs and Other Over 6,000 Pound Vehicles
Cars and light trucks with a weight rating of 6,000 pounds or less face restrictive depreciation rules, generally permitting only small annual deductions in the range of $3,000-$4,000 per year. In general, vehicles with a Gross Vehicle Weight rating (GVW) over 6,000 pounds are eligible for up to $25,000 of Section 179 first-year expensing.

But in 2011, if the vehicle is new rather than used, 100% bonus depreciation allows the entire cost of an SUV or short-box pickup over 6,000 pounds to be deducted. However, this development is not important for those who might acquire a full-size pickup with a cargo area of at least six feet in interior length, as those vehicles qualify for a full Section 179 deduction under present rules.

If you have any questions regarding this new 100% bonus depreciation opportunity, please contact us. It is a pleasure serving you.

PAYROLL CHANGE FOR 2011

As a reminder, the 2010 Tax Relief Act reduces the employees portion of the Social Security Tax. The following copy of the letter that we are sending to all of the clients that we assist with payroll reports.



RE: Payroll Change

By now you’ve probably heard we have a new tax law. One of the things that is included in that tax law affects your payroll. Effective January 1, 2011, the employee side of FICA tax is reduced by 2%. Therefore, the 6.2% of normal payroll is reduced to 4.2%.

You will want to be sure to download any updates on your payroll computer software as they come out or if you are manually calculating payroll, you will want to make this adjustment on the employee side of FICA tax. This does not affect the employer side of FICA.

As always, we are here to assist you. Please call our office if you have questions as you make this change. IRS has given us until January 31, 2011, to actually implement this change however, the sooner you can get it into your system the better.

It is a pleasure serving you.



Kopsa Otte CPA’s + Advisors

DID YOU MISS OUR WEBINAR?

On the evening of Tuesday December 27th I skipped all the football games that were on TV and presented a one hour free webinar on the new 2010 Tax Relief Act. We discussed how the tax act will impact us and some steps to take or not to take before the end of the year.

If have any topics that you would like us to cover in a webinar let us know.

It is a pleasure serving you.

Tuesday, December 28, 2010

NEW TAX LAW LETTER

You probably had to have been stuck in you car in a snowbank without cell service or a radio to not know that Congress passed the 2010 Tax Relief Act which will help keep our taxes down for a couple of years. The following is a letter that we sent out to all of our clients.


December 28, 2010

Client

Washington Finally Acts on Tax Cuts

By now you've heard that Washington finally extended the Bush tax cuts that were scheduled to expire on December 31. This means the top rate stays at 35% (rather than 39.6%) and the rate on capital gains and qualified corporate dividends stays capped at 15% (rather than 20%). But the new law keeps taxes down for everyone, not just the highest earners. If those Bush cuts hadn't been extended, the 10% rate would have disappeared, and tax brackets would have increased faster for everyone. So don't think that you get no benefit just because you aren't in those top brackets!

There's more good news, too. The law also cuts the employee portion of Social Security and self-employment taxes by 2% (for 2011 only), and, restores the estate tax, but with only a 35% rate applying on estates over $5.0 million. Finally, it extends a list of popular tax breaks that were scheduled to expire: (1) it "patches" the Alternative Minimum Tax for two more years, thus protecting millions of Americans from the AMT, (2) it extends the Child Tax Credit and American Opportunity Tax Credit (for college tuition), (3) it expands the Earned Income Tax Credit, (4) it extends bonus depreciation and first-year expensing for businesses, and, (5) it extends miscellaneous tax breaks for expenses like educator expenses, state and local sales taxes, and IRA distributions given directly to charity.

Now let's talk about what it all means. The reality is the law's provisions will last for two years at most. That means Washington will have to fight it out all over again -- with a divided Congress, in a Presidential election year -- with another $2 trillion or so added to the national debt (on top of the $13.9 trillion that's already there)! If the economy continues to pick up over the next two years, there may be enormous pressure to increase taxes. This will make tax planning even more important over this period. So if you don't yet have a plan, take action now! Call us, at 402.362.6636 or toll free at 800.975.4829

It is a pleasure serving you.



Kopsa Otte CPA's + Advisors

Thursday, December 23, 2010

Join us for a Free Webinar on December 28
7:00pm CST
(5:00pm PST/6:00pm MST/8:00pm EST)

You have heard about the new tax law, now you can find out what it means for you. Larry Kopsa CPA will take you through the synopsis of the various components that are in the new tax laws. December 31st is right around the corner and you may need to readjust your year-end tax planning because of these new laws. As always Kopsa Otte is here to keep you informed!

Reserve Your Webinar Seat Now at:
https://www1.gotomeeting.com/register/245365497

MILLION BILLION TRILLION --- YOU HAVE TO LOOK AT THIS

I have tried to explain several times in my blogs the huge huge huge difference between a million, a billion and a trillion. They sound so much alike, but they are not even close. You have to be able to comprehend these numbers to realize the federal and state deficits.

Recently President Obama said that he was going to trim $100 million of "fat and waste" out of the federal budget. Well this video really shows how insignificant that amount is when compared to the total annual budget. This does not even include the federal debt, just the annual expenditures.

Take a look.

http://wimp.com/budgetcuts/

Tuesday, December 21, 2010

QUESTION- PAYROLL TAX CHANGE FOR EMPLOYER

Larry,

You sent out Blog info on the Payroll Tax change from 2010 to 2011 (6.2 down to 4.2) Will this change the employer contribution as well?

Thanks
Lisa


Lisa-
No the employer contribution stays the same.

Happy Holidays,
Larry Kopsa CPA

Monday, December 20, 2010

WEBINAR TO KEEP YOU INFORMED- NEW TAX LAW

Join us for a Webinar on December 28
7:00pm CST
(5:00pm EST/6:00pm MST/8:00pm EST)

Larry Kopsa CPA will take you through the synopsis of the various components that are in the new tax laws. December 31st is right around the corner and you may need to readjust your year-end tax planning because of these new laws. As always, Kopsa Otte is here to keep you informed!

Reserve Your Webinar Seat Now at:
https://www1.gotomeeting.com/register/245365497


Here’s a list of the items Larry will be covering:

Federal Estate Tax. 35% – the lowest since 1931 – on estates over $5 million per person. It’s effectively a repeal for most Americans since, with a little bit of decent estate planning, a married couple can pass $10 million to their heirs without being subject to the tax.

Individual Income Tax Rates. The same rates created as 2010. We have avoided a 3% hike – for a family making $50,000 that means you’ve avoided a $1,500 bump in tax for 2011.

Alternative Minimum Tax (AMT). We got our patch for two years. No word on 2012 and beyond.

Capital Gains Rates. Top rate for long-term gains stays at 15%.

Dividends. Same story as on capital gains rates: current rates are extended.

Payroll Tax “Holiday.” It’s a one year (just one, not two like much of the other provisions) cut in Social Security taxes for workers. For 2011, you’ll pay in 4.2% on the first $106,800 of wages rather than 6.2%. That means a 2% cut so that a worker earning $50,000 would pay $1,000 less in 2011. But only for 2011.

Child Tax Credit. The child tax credit had been bumped under Bush to $1,000 per child with a $3,000 earned income floor to make it refundable. That will stand for the next two years.

Earned Income Tax Credit (EITC). The EITC is probably the most controversial of the tax credits. It cost taxpayers $42.9 billion in 2008. The EITC base remains the same as for 2010.

American Opportunity Tax Credit (AOTC). The modified version of the Hope Credit allowed a slightly bigger credit ($2,500 versus $1,800) for students pursuing a degree.

State and Local Sales Tax Deduction. The option to deduct sales and local sales taxes on your federal income tax return – even if you don’t itemize – ended in 2009 has been reinstated for 2010 and 2011.

Transfers of IRAs to Charities. The option to allow those taxpayers over the age of 70-1/2 to roll their IRAs directly to charity.

So that’s the summary of what’s in the tax deal. The regulations are not yet out. More information as it becomes available.

Friday, December 17, 2010

MORTGAGE RATES GOING UP

Freddie Mac reported a fourth consecutive week of increases in fixed-rate mortgages. The average rate on 30-year fixed-rate loans has increased to 4.61%, up from 4.46% the previous week. Lenders were offering 15-year-fixed rate mortgages at an average of 3.96%, up from 3.81% the week prior. Here is an article from the Los Angeles Times.

http://r.smartbrief.com/resp/AaxcvscgyzeUuwnwajaoyAalQqlZ?format=standard

Thursday, December 16, 2010

NE AG CLASSIC- THANK YOU

I was honored to speak again at this years NE Ag Classic in Kearney on Wednesday, December 15th. The committee does such a great job putting on a great conference with knowledge for anyone in the ag field. A BIG Thank You to them and also to the sponsors for their contribution. Make sure you mark your calendar for next year's event on January 9-11, 2012!

Wednesday, December 15, 2010

HOW THE WORLD ECONOMY HAS CHANGED - I FOUND THIS VERY INTERESTING

The presenter uses graphics to show how the world economy has changed since the 1800's. Well worth the five minutes it takes to view.

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

Sunday, December 12, 2010

STATUS OF THE OBAMA TAX COMPROMISE (AS OF SUNDAY 12.12.10)

This one isn’t going down without a fight. After Democrats in Congress publicly defied President Obama by refusing to endorse the tax deal he negotiated with Republicans, the measure is going to another vote. On Monday (12.13.10), the Senate will take up a procedural vote to attempt to bring the deal to the floor. In response, Democrats have threatened a filibuster. However a test vote seemed to indicate that it would be easy to get the 60 votes needed to overcome a filibuster.

The House, and especially Nancy Pelosi, remains firmly opposed to the deal as written. A caucus vote by Democrats overwhelmingly opposed the compromise package. The major source of consternation? Tinkering with the federal estate tax. Democrats felt blind-sided at the deal which not only increased the personal exemption to $5 million per taxpayer (well above the $3.5 million per taxpayer under the so-called Bush tax cuts) but slashed the tax rate to a top rate of 35%, a rate not seen since the 1930s.

So what’s next? Here’s what will probably happen (though, in all honesty, nothing would surprise me much at this point):

  • The Senate will approve the deal pretty much as is with perhaps some concession on energy tax credits.
  • The House will grudgingly approve most of the deal, likely tweaking the estate tax rates and exemptions, scaling them back to the 2009 levels.
  • That would force the hand of Republicans in the House by giving them the option of voting down the entire deal based on the federal estate tax rates since the deal, more or less, has already given them everything else that they claimed they wanted (tax cuts for everyone, etc.).

Here’s a synopsis of the various components of Obama's compromise of taxes:

Federal Estate Tax. 35% – the lowest since 1931 – with on estates over of $5 million per person. It’s effectively a repeal for most Americans since, with a little bit of decent estate planning, a married couple can pass $10 million to their heirs without being subject to the tax.

Individual Income Tax Rates. The same rates created as 2010. If this passes we have avoided a 3% hike – for a family making $50,000, that means you’ve avoided a $1,500 bump in tax for 2011.

Alternative Minimum Tax (AMT). We got our patch. I haven’t seen the numbers, but I’ve been told that it’s similar to the 2009 numbers for 2010 and 2011. No word on 2012 and beyond. We were doing a pretax for a client on Friday that owed $357 if they fix the AMT. If no fix he owed over $9,300 in tax. He is going to be watching the news.

Capital Gains Rates. Lower capital gains always, always means heightened investments and a better economy. Always. It’s worked so far, right? Cause we have the same rates for the next two years (meaning a top rate for long-term gains of 15%).

Dividends. Same story as on capital gains rates: current rates are extended.

Payroll Tax “Holiday.” With the administrative nightmare that was the Making Work Pay Credit gone, we needed a little something else to challenge preparers and the IRS. Enter the payroll tax “holiday.” It’s a one year (just one, not two like much of the other provisions) cut in Social Security taxes for workers. For 2011, you’ll pay in 4.2% on the first $106,800 of wages rather than 6.2%. That means a 2% cut so that a worker earning $50,000 would pay $1,000 less in 2011. But only for 2011. I am glad that I am not a computer programer working on payroll tax programs. If this passes I would be burning the midnight oil between now and January 1st rewriting computer programs.

Child Tax Credit. The child tax credit had been bumped under Bush to $1,000 per child with a $3,000 earned income floor to make it refundable. That will stand for the next two years.

Earned Income Tax Credit (EITC). The EITC is probably the most controversial of the tax credits. It cost taxpayers $42.9 billion in 2008. The EITC base remains the same as for 2010.

American Opportunity Tax Credit (AOTC). We heard all about how great this extension was from Obama, who pushed hard for the renewal. The modified version of the Hope Credit allowed a slightly bigger credit ($2,500 versus $1,800) for students pursuing a degree.

State and Local Sales Tax Deduction. The option to deduct sales and local sales taxes on your federal income tax return – even if you don’t itemize – ended in 2009. Rumor has it that the new tax deal brings the deduction option back, retroactively, so that it will apply to 2010 and 2011.

Transfers of IRAs to Charities. Also rumored to be in the plan. The option to allow those taxpayers over the age of 70-1/2 to roll their IRAs directly to charity.

So that’s the summary of what’s in the tax deal (allegedly – remember, the ink isn’t dry yet).

RULES OF DEDUCTION BUSINESS GIFTS

As a business owner, you may find yourself giving gifts to clients and customers in the course of your business, particularly around the holidays. What a lot of people don’t realize is that the IRS only allows you to deduct part of the cost of certain gifts as a business expenses.

Dollar limitation. Basically, the IRS will let your business deduct only $25 or less for business gifts you give to any one person during your tax year. Any amount of expense in excess of $25 is disallowed as a deduction.


For example, if you give a client a $50 dollar watch as a gift, you can only deduct $25. In addition, if you and your spouse both give gifts, you're both going to be treated as one taxpayer. Consequently, the deduction both you and your spouse, together, will be able to claim is $25 per donee. This is true even if you have separate businesses, are separately employed, and each of you has an independent connection with the gift recipient.

Incidental costs. The $25 limit for business gifts doesn't include incidental costs — for example, packaging, insurance, and mailing costs, or the cost of engraving jewelry. Related costs are considered incidental only if they don't add some kind of substantial value to a gift.



For example, let's say you send someone a fruit basket as a gift. If the basket has a substantial value as compared to the value of the fruit, the cost of the basket is not incidental and it must be included in the $25 limit. On the other hand, the cost of gift wrapping is incidental and doesn't have to be included in the $25 limit.


Items excepted from the gift limitations. key chains or pens with your business name on them to customers and clients, are excepted from the $25 limit for business gifts and their cost is deductible without limitation. The main exception are for items that cost $4 or less, have your name clearly and permanently imprinted on them, and are one of a number of identical items you widely distribute.

Entertainment gifts. Maybe you have a choice between calling it a gift subject to the $25 per person per year rule or entertainment subject to the 50% rule. What happens if you give tickets to a play or sporting event to a customer or client? Is this a gift expense or an entertainment expense? The general rule is that any item that could be considered either a gift or an entertainment expense must be considered an entertainment expense. However, if you give the tickets and do not attend the event yourself, you have the choice of determining whether an item is either a gift or entertainment expense. If you go with the client, you must treat the cost of the tickets as an entertainment expense — you have no choice.


Taking into account the $25 limit for gifts and the 50 percent limitation on entertainment expenses, it's generally better to treat a ticket expense as entertainment when it is over $50.


For example, let's say you gave a client football tickets that cost $140. If you deduct them as a gift expense, your deduction is limited to $25. If you deduct them as an entertainment expense, your deduction is $70. Conversely, if you gave a client tickets to a movie that cost $30, you would get a bigger deduction by claiming a gift expense ($25 as opposed to $15 for an entertainment expense).


Just more rules to follow. Please email if you have any questions.

NEBRASKA AG CLASSIC

I am honored to speak at this years Nebraska Ag Classic on Wednesday Dec. 15 in Kearney. The conference is always loaded with great speakers, valuable information, and resources for anyone in the ag industry.

If you are not signed up to attend, please click on the link below to do so:
http://www.neagclassic.org/program.html

I hope to see you there!

Thursday, December 9, 2010

YEAR-END FLEX SPENDING AND HRA REMINDER

Check your flexible spending account balance. You must use all funds by December 31 if your employer has not adopted the 2½-month grace period that the IRS now permits. If you are in this situation any money remaining in your account is forfeited.

Also remember to purchase over-the-counter drugs this year. For purchases after 2010 flex plans and HRAs can’t reimburse the cost of such medications. Payments will be allowed for prescriptions and insulin only. The same is true for payouts from health savings accounts.

Even if your FSA used the March 15th grace period be aware that does not give you an extension to purchase over the courter meds. (If your flex plan uses a debit card, you have until January 15, 2011 to make the purchase.)

Tuesday, December 7, 2010

FEDERAL ETHANOL INCENTIVES ENDING DECEMBER 31

Nebraska.tv reports, "The nation's biggest ethanol incentive expires at year's end, a huge concern for Nebraska's corn-fueled industry." The story notes that renewal of the federal 45-cent per gallon blenders' tax credit "looks unlikely," according to some ethanol policy experts. http://www.nebraska.tv/Global/story.asp?S=13614430&nav=menu605_1

YEAR-END CHARITABLE CONTRIBUTION REMINDER

Mail checks for deductible items before year-end to ensure a 2010 write-off. The tax rules allow you to claim the deduction this year even if the checks do not clear until January.

If you are charging deductible items, make sure you know the rules.

For charges that you make with a retail store credit card, you are allowed to claim the deduction for the item only in the tax year in which you pay the bill.


For transactions made with a bank credit card, you take the deduction in the tax year that you charged the goods, even if you pay the bill next year.

Sunday, December 5, 2010

IRS announces 2011 Standard Mileage Rates

The Internal Revenue Service today issued the 2011 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2011, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 51 cents per mile for business miles driven
• 19 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study.

HOW MUCH DOES TURBOTAX COST YOU?

Did you know that millions of Americans who file their own tax returns pay the wrong amount? Just ask Treasury Secretary Tim Geithner, who missed $14,847 in self-employment tax using TurboTax to file his own return!

Tax-prep software helps you fill out the forms. But software is just a tool, not a solution. You still have to know how to use it. Sure, you can buy your own scalpel. But does that mean you should take out your own appendix?