THE IRS IS GETTING TOUGH ON CHARITABLE CONTRIBUTIONS

One of the most popular tax deductions is the one allowed for donations to charitable organizations—from the local church or synagogue to the Red Cross and various other national organizations. Unfortunately, over the last several decades, this deduction has also been among the most abused. Thus, perhaps it is not surprising that Congress has responded to the problem by regularly enacting more rules around documenting donations.

What we’re left with is a confusing array of rules that you have to comply with in order to claim a deduction, when a few years ago all you really needed in most cases was a cancelled check. A recent court case illustrates how easy it is to run afoul of the documentation requirements.

In the case, the taxpayers did nothing more than donate several thousand dollars to their church during the tax year. Although the donations were made by check, the IRS disallowed all but a few hundred dollars because the taxpayers failed to obtain a timely receipt from their church to support the donations. Such receipt (or receipts) must be received by the time you file your return for the year of the donation (or, if earlier, by when the return is due). In addition, it must list any significant goods or services received in return for the donation (other than intangible religious benefits) or specifically state that the donor received no goods or services from the charity. In the case at hand, the taxpayers waited until their charitable deduction was challenged before trying to get a proper receipt. By then, of course, it was too late.

Why did the IRS only allow a few hundred dollars of the claimed deductions? The requirement to obtain a receipt only applies where a single donation (or a group of related ones) totals $250 or more. Eight of the taxpayers’ donations during the year (totally a little over $400) were for less than this amount. Thus, their cancelled checks were sufficient support for the deduction.

Separate from this court case, the IRS recently released new guidance on substantiating contributions. One area of focus is on the relatively new requirement that when donating cash, taxpayers can only obtain a deduction if they have a proper receipt from the charity. For taxpayers who incur unreimbursed out-of-pocket expenses while performing charitable work, this appeared to create a situation where such taxpayers might loose their deductions for these types of expenses since it is generally not practical to obtain receipts from charities for out-of-pocket expenses they know nothing about. Fortunately, the IRS has indicated they plan to adopt the common sense rule that if the out-of-pocket expenses for a charitable activity or event are less than $250, the donor can document the expenses simply by keeping appropriate purchase receipts or other reasonable written evidence.

This is just a glimpse at the documentation rules for charitable donations. I’d be happy to address any of the requirements for specific types of donations. Please feel free to email me.

Larry Kopsa CPA

COST TO FLY

This has been a busy travel year for me. I estimate that I have logged over 40,000 miles. That is a lot of sitting in airports. I was interested in the new report that just came out from a recent airline industry on the cost per mile.

The airline industry study found that the price of flying this year has increased 7.5% in July compared to one year ago. The average price of 15.7 cents a mile represents the average price paid by flyers for all flights (short and long haul, business and leisure travelers).

INFORMATION ON AIRLINE TRAVEL

This year I have been doing a lot of traveling so I have come to appreciate the problems with airline travel. If you are traveling you might be interested in the following.

American Airlines says there is no such thing as a free upgrade –
The airlines are milking this high fuel cost situation for all they can get. A few days ago American Airlines said that you can no longer use your frequent flyer miles alone to upgrade from coach to business or first class. In the future they will require 15,000 miles plus $50 to upgrade on domestic flights and a whopping $700 RT plus upwards of 25,000 miles to upgrade internationally. Looks like there is no free lunch anymore as far as using AA frequent flyer miles to upgrade.

Good news for travelers taking computer laptops -
Business travelers will no longer be required to remove their laptops from their carry-on luggage under new rules announced recently by TSA. Now travelers with laptops will be able to open up their computer case and lay it flat on the X-ray belt. If your bag cannot be opened and laid flat then travelers will still have to remove the computer from the case. This new rule should dramatically speed up security screening time at most U.S. airports.

Here is an easy way to find out how long the security lines are at the airport –
The Transportation Security Administration keeps track of how much time it takes to clear security at all airports in the U.S. For example, if you are departing on Southwest Airlines (concourse B) from the Omaha airport on a Monday morning and arrive between 6am and 7am, you will find an average wait in line of 15 minutes with a maximum wait in line of 21 minutes. This is a great way to find out how early you need to arrive at the airport prior to your flight. Check out their web site at http://waittime.tsa.dhs.gov/index.html.

ANSWERS TO THOSE NAGGING QUESTIONS

Wondering how to grill the perfect burger or how to treat a snakebite? Howcast.com has 7,500 instructional mini-films with answers to nagging questions just like these. This site is fun and informational.

WASHINGTON POST ARTICLE ON THE FARM COUNTRY BOOM

(Washington Post) -- The farm economy in the Great Plains states are a bright spot in the otherwise gloomy national economic picture. In states like Nebraska, the housing market is holding up just fine, the banks are making plenty of loans, and employers keep adding jobs. Retail spending in the middle of the country was strong even before the $600 tax rebates this spring, and low interest rates and a tax provision in the economic stimulus bill are helping to goose already booming sales of farm equipment and pickup trucks. The price of farmland in Nebraska has doubled in the past three years, primarily reflecting the boom in commodity prices. The increase also reflects the impact of rate cuts by the Federal Reserve that enabled buyers to bid up land with borrowed money. But if crop prices drop toward historical norms, it could mean sharp decreases in land prices that would devastate some farmers. The availability of loans to farmers is the strongest it has been in five years, according to a survey by the Federal Reserve Bank of Kansas City, even as banks nationwide are becoming reluctant to lend money. The reason: There wasn't much overbuilding of housing here, so most regional banks are not saddled with the same bad mortgage and construction loans as their counterparts on the coasts. The good times are not uniform across the region; livestock producers have been pummeled by high prices for feed and fuel. In Blair, Neb., however, long-vacant storefronts have been turned into furniture shops and restaurants in the past couple of years, and Wal-Mart is looking to open a store just down the way. The billion-dollar Cargill plant that turns grains of corn into high-fructose corn syrup and ethanol just announced another $100 million expansion, adding a Danish company that makes enzymes out of corn -- a reflection of booming global demand for all types of commodities. That prosperity also shows itself on Lyle Schjodt's farm a few miles outside Blair, where he farms 1,000 acres of corn and soybeans, 150 head of cattle, and 1,200 hogs. He still has the first tractor he ever bought, back in 1968, in a shed. "I've been farming for 39 years, and I haven't seen a better year than this one," he said. Schjodt is upgrading his equipment; he just ordered a $120,000 Case IH planter, a massive red device that deposits seed corn every seven inches in 30-inch-wide rows. He bought a new $50,000 Ford F-350 back in the spring, too. Nationally, truck sales are battered by skyrocketing fuel costs. But auto sales are up 8% in the Omaha area so far this year, according to sales tax receipts.

TAX BURDEN TREND CONTINUES

The polarization of the income tax burden in the spirit of socking it to the evil rich continues. When more than half of the voting public has been practically removed from the tax paying population, our rulers can continue to financially rape the evil rich minority with complete freedom.

This chart illustrating the 2005 income tax burden from the Heritage Foundation is very enlightening:
What this means is:

The top 1% of income earners are paying 39.4% of Federal Taxes.

The top 5% of income earners are paying 59.7% of Federal Taxes.

The top 10% of income earners are paying 70.3% of Federal Taxes.

The top 25% of income earners are paying 86% of Federal Taxes.

The top 50% of income earners are paying 96.9% of Federal Taxes.

The bottom 50% of income earners are only paying 3.1% of Federal Taxes.

These quotes come to mind on this aspect of heavily taxing a minority:

Milton Friedman:
"Congress can raise taxes because it can persuade a sizable fraction of the populace that somebody else will pay."

"A government which robs Peter to pay Paul can always depend on the support of Paul."
-- George Bernard Shaw

Vanya Cohen:
When there's a single thief, it's robbery. When there are a thousand thieves, it's taxation.

EARLY PRE-TAX APPOINTMENTS

Below is a letter to our clients on Pretax Appointments. Several of our Ag clients have scheduled appointments before harvest to make sure they are doing everything possible to minimize their taxes.

As your tax advisor, we think it is very important for you to meet with us as soon as possible to discuss the income tax consequences for 2008. Because of this, we are setting up appointments to make sure we have time available to accommodate all of our farm clients. We will send out an appointment card in the next week or so to see if we can get you in to meet with us prior to harvest. If the time and/or date does not work for you, please feel free to contact us to change the appointment.

You might be asking why we are advising you to come in for an extra appointment this year. A few years ago, there was a movie starring George Clooney called “The Perfect Storm.” In the movie, George Clooney’s character operated a fishing boat. Out of financial desperation, he took his boat and crew out further than usual to try to make the big catch of fish. Unfortunately for him and his crew, the area where he was in was the spot where three major storms were converting. As you might imagine, this “Perfect Storm” came right on top of his ship and the entire crew was lost at sea.

From an income tax standpoint, it appears that our farm clients are experiencing this “Perfect Storm.” Maybe I should say “Un-Perfect Storm.” We have already met with several of our farm clients to help minimize their tax situation for 2008 and 2009.

The “Perfect Storm/Un-Perfect Storm” items that you are facing are:

· Higher grain prices therefore higher income
· Tax consequences of futures/spec contracts.
· A one time opportunity that you have to pay tax at a lower capital gains rates.
· Lower interest rates available on loans between related parties.
· A window of opportunity for those people that owe money to their corporations to pay that money back at low rates.
· A one time opportunity to strip money from your corporation at a low rate.

If that were not enough, we have the unknown factor of what the income tax system will look like after the 2008 presidential election. We will not know the status of this until after November 4th. This unknown factor is going to make us create variables in our tax plan. We do not think that you will have time to react is we wait until after the election. Unfortunately our crystal ball is now working so all we can do is plan. If Obama should prevail, he has promised that he will be increasing income taxes. This has a huge impact on you, our farm clients. Higher rates along with the increase in capital gains rates that he is proposing makes planning for 2008 very important

As your tax advisor, it is important for us to make sure that we are helping you structure your transactions in such a way that you can minimize taxes and, at the same time, meet your financial objectives. We look forward to meeting with you.

Larry Kopsa, CPA

SUMMARY OF CANDIDATE TAX PLANS

The presidential nominees are busy setting their tax agendas. Check out the following link on our website for a summary of each candidate's tax plan. Tax Plan Summary

"As the candidates change their minds to gather more votes," we'll keep you posted.

Larry Kopsa CPA

MORE ETHANOL IN THE NEWS

Nebraska Cattlemen oppose ethanol mandates

(KRVN.com) -- According to Nebraska Cattlemen leaders, the ethanol hearing hosted Monday by Senators Ben Nelson and Tom Harkin in Omaha was a great opportunity to hear all sides of the energy debate. But Michael Kelsey, Nebraska Cattlemen executive vice president, said the state's largest industry, beef, was not been invited to speak. According to Kelsey, "renewable fuels are very important to the Midwest, and the nation as a whole," but the Cattlemen believe that "mandating production and usage has never been good over the long term for any industry, for several reasons." Mandates promote inefficiency and set an artificial demand, Kelsey said. "The Renewable Fuel Standard (RFS) next year will require approximately 3.5 billion bushels of corn, which is nearly 30% of what is currently grown in the U.S., Kelsey said. "Remember that the RFS is a mandate, meaning the 3.5 billion bushels of corn must be used to produce fuel and cannot be used for food, feed or export." Kelsey added that the RFS does not promote a working relationship between industries, but instead forces a relationship.

'Sens. Nelson, Harkin optimistic about ethanol, ag futures'

(AP) -- Two U.S. senators emerged from a special ag committee hearing on food, feed and fuel production with a strong sense of optimism. Sens. Tom Harkin of Iowa and Ben Nelson of Nebraska were in Omaha Monday gathering information about the changing economic landscape for agriculture and renewable fuels' production. Harkin says that as the biofuel industry grows there will be some headaches. But he says he believes that most people and businesses can get through the rough spots, given proper federal policies and advice from the private sector.

'Ethanol from corn cobs, corn fiber touted at national conference in Omaha'

(Omaha World-Herald) -- At a national ethanol conference last week in Omaha, South Dakota-based ethanol producer POET announced that it would begin making cellulosic ethanol from corn cobs and corn fiber at a Scotland, S.D., pilot plant by the end of 2009. The company plans to open a commercial plant in Emmetsburg, Iowa, by 2011, said Jeff Broin, POET's chief executive officer. That plant would produce 25 million gallons of ethanol per year using corn fiber and corn cobs. About 1,200 people - farmers, renewable energy experts, and people working in the ethanol industry - are attending the conference at Omaha's Qwest Convention Center. The event includes a trade fair featuring about 200 businesses that serve the ethanol industry.

'Gov. Heineman links ethanol to security'

(Omaha World-Herald) -- Ethanol supporters attending a national conference last week in Omaha continued to defend corn-based ethanol as a key component to reducing American dependence on gasoline. Gov. Dave Heineman said the federal government has been slow to address an issue that affects national security. "For 25 years and maybe more, the federal government has talked about reducing our reliance on foreign oil — and they haven't done a doggone thing about it," he said. "It's time we did something. America needs leadership when is comes to energy, and ethanol is particularly part of that future."

'Lower corn costs likely to help livestock and ethanol industries'

(Nebraska Farmer) -- Earlier this year, it was thought that the floods in the Midwest had devastated any chance of a bumper crop. However, warm weather and good growing conditions have helped crops stage an incredible comeback. Last week’s USDA August Crop Report shows the potential for the second largest corn harvest in history. Although the estimates look promising, USDA Chief Economist Joe Glauber says anything could happen to the crop which is a week to 10 days late due to delayed planting. Because of the predictions of a large crop, prices are likely to move lower helping both the livestock and ethanol industries.

'Oil prices slide close to $110 per barrel'

(AFP) -- World oil prices dropped near $110 on Tuesday as traders expressed relief after Tropical Storm Fay avoided oil and gas production facilities in the Gulf of Mexico. The market was also dragged down by worries that weaker U.S. oil demand could spread to Europe and Japan, analysts said.

BACK FROM VACATION

I had a great time out of the office with my family. Now I am getting caught up on my reading. Here are a few items I thought might be of interest to you.

Larry Kopsa CPA

ETHANOL INDUSTRY DODGES A BULLET

(Successful Farming magazine) -- Yesterday, the Environmental Protection Agency looked at the evidence and concluded that ethanol isn't hurting the economy enough to cut a government mandate to use ethanol in half this year. The news was welcomed by ethanol and corn interests. "We are very pleased -- not surprised -- but we are very grateful," said National Corn Growers Association president, Ron Litterer of Greene, Iowa. Several economic studies, including analysis by Iowa State University and Texas A&M University have shown that ethanol is a small factor in rising food prices and that higher energy costs and fuel prices had more to do with recent food price inflation. However, a disappointed National Cattlemen's Beef Association indicated that this won't be the last request for a waiver. "We will continue our efforts to ease the burden of tight feed supplies for our cattle producers, and will encourage other states to file for waivers from the RFS, NCBA president, Andy Groseta, said in a statement released Thursday.

NEBRASKA FARM REAL ESTATE VAULE, CASH RENTS HIGHER

(Nebraska Ag Connection) -- Nebraska's farm real estate value rose sharply during 2007, extending a trend that began in 1993, according to the USDA. Farm real estate value on January 1, 2008, averaged $1,460 per acre, a record high. This is up $230 per acre or 19% higher than last year's level. Cropland value increased 20% from last year to $2,270 per acre, with dryland acreage averaging $1,950 per acre and irrigated cropland at $2,900. Pastureland, at $530 per acre, was 23% above a year ago. Cash rents paid to landlords for cropland increased from last year and were also a new record high. Irrigated cropland rent averaged $155 per acre, an increase of $16. Dryland rent increased to $95 per acre, also up $16 from a year earlier. Pasture rented for cash, which averaged $14.20 per acre, rose $.20 from 2007. Find agricultural statistics for your county at www.nass.usda.gov.


EXPECT 20% TO 30% RISE IN FARM LAND LEASE RATES IN

(Agriculture Online) -- For the first time since the big U.S. corn and soybean buys by the Soviet Union in 1973, the U.S. farmland market is being driven by demand, not supply. That means some farmers could be "modestly shocked" by what they see when they go to sign 2009 farmland lease agreements. Demand continues to take land prices higher, and will continue to do so, at least in the near term, says CEO of the Westchester Group, Inc., Murray Wise. That could mean a 20% to 30% increase in farmland leasing rates in 2009, the farmland real estate analyst says. Wise sees million of reasons the current grain market volatility won't open the chute in the land market. One reason that the farmland market won't see a slash like the mid-1980s: The number of farms operating -- and more importantly, growing -- with no debt associated with land equity has grown considerably, and Wise sees this as continuing under current conditions.

HEALTH SAVINGS ACCOUNTS

Larry, I recall you said something about health insurance at one of your seminars. I believe you were talking about tax free medical expenses. Would you mind providing me with this information again? Thanks - Anna

Anna, Health insurance has certainly been a hot topic in the national political campaigns. What you're referring to are Health Savings Accounts (HSAs). With an HSA, distributions to pay qualified medical expenses are tax-free.

A tax law enacted a little over a year ago - the Tax Relief and Health Care Act of 2006 - included several improvements for HSAs.

When it works, roll over funds from an IRA to an HSA. The transfer is tax-free. Then you can take tax-free distributions from the HSA to pay for qualified medical expenses. This special tax break (i.e., tax-free distributions to pay medical expenses) is only available to HSA owners. IRA distributions for medical expenses are taxable. But remember this: You can only do this once in your lifetime.

Similar rules apply to rollovers from a flexible spending account (FSA) or health reimbursement arrangement (HRA).

Ordinarily, a distribution from an IRA is subject to tax at ordinary income rates. But the 2006 law allows you to transfer IRA funds to an HSA - just once - completely tax-free. And, the usual 10% penalty on pre-age 59 1/2 withdrawals doesn't apply.

You can't roll over more than the maximum HSA contribution for the year. For 2008, the contribution cap is $2,900 for an individual; $5,800 for family coverage. Anyone over age 55 can put in an extra $900.

Remember: Once the rollover election is made, it's irrevocable. There's no going back.

Check out our website for more information on Health Savings Accounts: www.kopsaotte.com - Click on Forms & Publications on the navigation tool bar, and then select Health Savings Accounts.

Larry Kopsa CPA

NEW TAX LAW

Once again Congress has made the tax law more complicated. The new Housing and Economic Recovery Act was passed to help those homeowners that were looking at foreclosure. There were some provisions that might impact you. Here are some highlights. Let us know if you have any questions.

On Wednesday, July 30, President Bush signed the "Housing and Economic Recovery Act of 2008." While the bill focuses on protecting lenders and preventing foreclosures, there are three other tax provisions worth noting.

1. The 2008 Housing Act gives “first-time homebuyers” (those who have not owned a primary residence for three years) a tax “credit” equal to 10% of the new home’s purchase price, up to $7,500 ($3,750 for married couples filing separately). This “credit” is available for purchases from April 9, 2008 through June 30, 2009. But, if you take the credit, you have to pay it back, in equal installments, over the next 15 years. So it’s really just an interest-free loan, not a true tax credit. It phases out for incomes between $75,000 and $95,000 ($150,000 and $170,000 for joint filers).

2. The law creates a temporary deduction, for 2008 only, for property taxes for non-itemizers. The deduction is limited to $500 ($1,000 for married couples filing jointly).

3. The law eliminates tax breaks on the sale of your principal residence for periods you don't use it as your principal residence. Under old law, you could take a rental property or vacation home, use it for at least two years as your primary residence (five years if you acquired it in a Section 1031 exchange), then sell it and exclude up to $250,000 of gain from your income ($500,000 for married couples filing jointly). This held true even if most of the gain occurred while you were renting the property or using it as a vacation home. The new law taxes you on any gain after 2008 attributable to periods you don't use it as your primary residence. (There’s no need to appraise the property to determine interim value; the new law determines excluded appreciation on a pro-rata basis, according to how long you own it.)

HOW WILL CPA'S FIND WORK IN THE FUTURE?

Check this out this Neal Boortz video for a glimpse of what might be an accountant's worst nightmare: The Job

USDA CHIEF SAYS CONGRESS IS NUTS

(AP) -- U.S. Agriculture Secretary Ed Schafer had a simple explanation Thursday for why the country is so reliant on foreign oil: Congress is nuts. Schafer was at Florida's "Farm to Fuel Summit" to talk about renewable fuels, but criticized Washington for doing little to reduce oil imports, including failing to tap enough of the United State's oil resources.

"The reason we can't get Congress to move on the need to open up the exploration and extraction of energy sources that are in the boundaries of this country is because they're nuts. They don't get it. They're wrapped up in the political structure, they're worried about their re-election," he said, adding that congressmen are also afraid to anger environmentalists.

SENATE AG HEARING ON ETHANOL IN OMAHA

(AP) — The U.S. Senate Agriculture Committee is scheduling a hearing in Omaha Aug. 18 to discuss ethanol’s effect on corn and food prices and examine the heated debate surrounding the biofuel. Sen. Ben Nelson said Wednesday during a telephone news conference that ethanol has unfairly been demonized by grocery associations, cattle organizations and others as the main cause for higher food prices and higher corn prices, which have ebbed in the past month.