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.

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

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/

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

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.

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

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!

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

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!

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.)

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.

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?

HOLIDAY PARTIES ARE COMING

As you may know the life of many people in my family was impacted by a drunk driver that killed my daughter in law and seriously injured my son. I received this video from a friend. It is very graphic and touching. I think that it should be played at every bar and party as a strong reminder of how driving impaired can really not only kill but also ruin lives.

Click below to view:

http://www.youtube.com/watch_popup?v=Z2mf8DtWWd8

"A government program is the nearest thing to eternal life we'll ever see on this earth."

Ronald Reagan

LAME DUCK SESSION HAS A LOT ON IT'S PLATE

Congress convened this past week as time is running out on the current Congress and as many tax issues were left hanging earlier in the year. This session takes place in the wake of the historic Congressional elections that recently took place, but the newly elected members will not be sworn in until January 3, 2011 as a part of the 112th Congress. That means the members of the 111th Congress remain in control and will be the ones called on to make some of these difficult decisions.

In the meantime, Congress will adjourn for the Thanksgiving holiday and is expected to begin consideration of many of these proposals upon its return on November 29th.

The difficult issues include:

Extension of the Expiring Bush Tax Cuts

If Congress fails to act by January 1, 2011, many Internal Revenue Code provisions expire, and return to what they were in 2001. A few of the affected items include:

1. Increasing all income tax rates, dividend tax rates, capital gains tax rates, eliminating marriage penalty relief in all brackets
2. Increased Federal withholding taxes. Should Congress fail to extend the Bush tax cuts the higher tax rates would normally require the IRS to issue new withholding tables for employers.
3. Reinstatement of itemized deduction limits
4. Reinstatement of personal exemption phase-out
5. Reduction in child tax credits
6. Reductions in IRA contribution limits

Reinstating the Estate Tax

If Congress does not act, the estate tax is automatically reinstated but at the rates and exemption levels that were in the law in 2001. The rates that existed in 2001 included a top estate tax rate of 55%, and a personal exemption level of $1 million, significantly lower than the $3.5 million exemption that was in effect in 2009 and the maximum rate of 45%.

Expiring Provisions and Extenders

Expect that votes in the House and Senate will take place but also expect the early votes to be more for politics than substance. Success on extending these issues and enacting a bill the President will sign is uncertain as of this date. Following is a partial list of expiring provisions and extenders that either expired at the end of last year or will expire at the end of this year. In some cases the credit or deduction is reduced.

1. Alternative Minimum Tax Indexing- currently not indexed for 2010
2. Education Tax Credits
3. Employment Tax Credits
4. Deduction for State and local Sales taxes in lieu of property taxes
5. Energy tax credits
6. Bonus depreciation rules

Extension of Unemployment Benefits

Congress must act to extend unemployment benefits for the long term unemployed, meaning those who have been unemployed for 99 weeks. Congress must act on this by December 1, 2010 as that is the date that benefits begin to run out under current law.

Enacting a Federal Budget

Congress has yet to enact any of the appropriations legislation necessary to allow for the continued funding of the federal government. The usual deadline for this is September 30 of the year, but Congress was unable to act and so deferred this deadline until December 3, 2010. Failure to either enact the appropriations bills or extend the continuing resolution would have a severe impact on every activity of the federal government.

Other Critical Issues for Congress

1099 Burdens

In the past year Congress enacted legislation that requires the IRS to impose a significant expansion of the rules to determine when a business owner must provide a 1099 to a business, incorporated or not, when providing goods and or services to a business. This included requiring providing 1099s to corporations for the first time, and for owners of rental property to provide a 1099 for each service provider or repair service. Recently legislation has been introduced to repeal this requirement but it is unclear whether the revenue would have to be raised somewhere else.

Extending the Medicare Reimbursement Rates (Doc Fix)

The Health Care act enacted by Congress earlier in the year was unable to agree on a way to extend the Medicare reimbursement rates for seniors and it was extended through November 30. A permanent solution for this may not take place until next year.

TWO COMBINES IN ONE YEAR TAX QUESTION

QUESTION: I purchased a combine earlier this year. Now I am trading for a new combine and trading in the one I purchased in February. Can I take depreciation on two combines in one year?

ANSWER: Based on the information you gave me, you will be able to take depreciation on the cash amounts that you paid on both combines during the year purchased. Remember you do need possession of the combine prior to tax year-end.

HIGHER WITHHOLDING COMING JANUARY 1?

The IRS has to publish the 2011 withholding rates so that employers know how much to withhold for payrolls starting in 2011. The problem is what will Congress do in the "lame duck" session? If Congress does nothing and tax rates go up, employers will have to start withholding higher rates.

Bloomberg.com reports, "Employers in the U.S. are starting to warn their workers to prepare for slimmer paychecks if Congress fails to vote on an extension of Bush-era tax cuts." The article notes that "lawmakers won’t start debating whether to extend the cuts, which expire Dec. 31, until after the Nov. 2 elections" -- and that regardless of what takes place, the IRS "will probably have to assume the cuts will expire and direct employers to increase payroll deductions starting Jan. 1." Bloomberg also reports that "allowing the tax cuts to expire, even temporarily, would deal a blow to disposable income and could curtail the consumer spending that accounts for about 70 percent of the economy," according to economists.

http://www.bloomberg.com/news/2010-10-27/tax-debate-delay-has-employees-in-u-s-preparing-for-smaller-take-home-pay.html

GOVERNMENT MAKES A $22,250,000.00 MISTAKE

As part of the Obama administration’s stimulus plan, Social Security mistakenly sent 89,000 checks for $250 each to people who were either dead or in jail. About half the checks have been returned, but most of the prisoners will get to keep theirs. Source The Washington Post

HAPPY THANKSGIVING TO YOU

May your stuffing be tasty
May your turkey plump,
May your potatoes and gravy
Have never a lump.
May your yams be delicious
And your pies take the prize,
And may your Thanksgiving dinner
Stay off your thighs!

From our office to yours, we wish you a blessed Thanksgiving!
Kopsa Otte Staff

UPDATE ON TONY

For those of you who are interested on an update on my son, Tony, please click on the link below:

http://www.omaha.com/article/20101121/NEWS01/711219923/-1#drunken-drivers-wasted-lives

EXTENSION OF ETHANOL TAX CREDIT VITAL TO ETHANOL INDUSTRY

(Grand Island Independent) -- TheIndependent.com reports that Sen. Ben Nelson says "extending the Volumetric Ethanol Excise Tax Credit (VEETC) may not be on lawmakers' radar," but that "not extending VEETC could be detrimental to Nebraska's ethanol industry and the state's economic recovery." While the subsidy is supported by several farm and commodity groups, "the American Meat Institute, along with" most major livestock groups "opposes extending VEETC because they say it unfairly distorts corn prices."

Below is the link to the entire article.

http://www.theindependent.com/articles/2010/11/17/news/local/12638252.txt

IS THERE GOING TO BE A 1% TRANSACTION TAX

Question: I heard that the government is going to impose a 1% transaction tax. Is this true?

Response: There are a lot of proposals to reduce the deficit. There has been a bill introduced in Congress, but the chances of being passed are slim. See the information in Snopes.

http://www.snopes.com/politics/taxes/debtfree.asp


Larry Kopsa CPA

MIDWEST FARMLAND BUBBLE?

I thought you might be interested in the article in Reuters. Reuters reports that some Nebraska agriculture-related retailers and implement dealers have seen sales rise "by as much as 40% this year" due to a booming commodity market.

The article also notes that "surging grain prices and growing investor interest are lifting farmland prices in the Midwest, and bank regulators fear that another U.S. bubble may be inflating," as "farmland prices are 58% above their 2000 levels in inflation-adjusted terms." To see the entire article go to:

http://www.theglobeandmail.com/globe-investor/investment-ideas/us-midwest-farmland-bubble-may-be-growing/article1790027/

NO 2011 WITHHONDING RATES UNTIL DECEMBER

IRS has stated during its Nov. 10 payroll industry conference call that it is unlikely that any 2011 withholding tables will be issued this month. The percentage method withholding tables are usually issued in November to give payroll professionals sufficient time to get the tables into their computer systems before the new rates go into effect in January.

However, this year the tables will not be issued until Congress decides whether to adjust the tax rates.

WILL DROPPING TAX RATES ACTUALLY INCREASE GOVERNMENT REVENUE

If you have been following my blog, you know that I am a fan of decreasing taxes. By working with clients, I know that as tax rates go up they lose the incentive to invest. Here is an example of what I have witnessed during my career.

A few weeks ago I was talking to a client. He told me that he was working really hard (70 to 80 hours per week) all summer to create a new line for his business. If this goes the way he wants, in the next year he would have to build or rent a new warehouse and hire another 6 people. As we worked through the numbers it looked like there was potential for another $40,000 in annual revenue.

Later in our conversation we started talking about the uncertainty of tax rates. He said "You know if tax rates went to 70% (Federal, State and Social Security), I would not have sacrificed my time or the financial sacrifices that I went through this summer." See what I am talking about?

Here is a very good article from the National Review that better summarizes my thoughts along with historical examples.

http://www.nationalreview.com/articles/250954/brass-oldies-thomas-sowell

NO ESTATE TAX IN 2010 - BUT YOU STILL MIGHT NEED TO FILE A RETURN WITH THE IRS

Even though there was no estate tax in 2010, many estates still have to file an estate tax return. Those estates with non cash assets exceeding $1.3 million must file Form 8939 with the IRS. The reason for this is that the IRS wants to know how the executor allocated the basis to heirs. In addition the heirs will need to know the basis of the inherited assets so that when the inherited property is sold they can calculate their gain or loss. In addition, if the property is business property, the heirs can take depreciation if there is a basis step up.

On property that is not given a basis step up, the basis of the decedent is the basis for the heir.

In 2010 executors can increase the basis of estate assets by $1.3 million plus an extra $3 million for assets that go to a surviving spouse. The filing of the Form 8939 is due by April 18, 2011, although the Service may extend the deadline because the agency has not yet issued any public guidance on the allocation rules.

HERE ARE MY THOUGHTS ON THE TAX RAMIFICATIONS OF THE ELECTION

It's finally official. The Republicans have taken over the House of Representatives and clawed away much of the Democrats' edge in the Senate. As I gaze into my crystal ball, here are my latest thoughts on what we can expect from the new Congress. But don’t take this to the bank… remember I was the guy that said the Congress would never allow the estate tax to lapse in 2010. Boy was I wrong. Here are my thoughts:

• Most tax accountants have been skeptical that Congress would get their act together and extend the 2001 and 2003 Bush tax cuts (even just for those earning under $250,000) in the lame duck session of Congress convening on November 13. But White House Press Secretary Robert Gibbs announced just today that the administration is open to extending the cuts for all. http://www.cnbc.com/id/40007621

• Word on the street suggests we may see a one-year extension for everyone, then fight it all out again with the new Congress in 2011. However, the Republicans may wait until the new Congress convenes in January to address the issue. In that case, clients can expect to see less take-home pay as the IRS adjusts withholding tables to reflect the new, higher rates.

• If Congress reaches the consensus necessary to resolve the Bush tax cuts question, they'll also manage to "patch" the AMT to avoid soaking millions of unsuspecting Americans. We have been doing several pre tax appointments and so far, if they do not do the patch, we only had one client that was not paying the additional Alternative Minimum Tax. It could get ugly.

• The new Republican House makes it unlikely that we'll see the estate tax roar back with a vengeance like it's scheduled to on January 1. But Congress isn't going to come up with a compromise imposing it retroactively for 2010, either. At this point, the smart money is betting on a compromise with a unified credit in the neighborhood of $3.5-5.0 million and rate of 45%.

• Republican leaders insist they plan to repeal the Legislation that Washington refers to as Healthcare Reform. But even L. Ron Hubbard can't imagine an alternate universe that gives them the votes they need to overcome a Senate Democratic filibuster or presidential veto. However, prospects are good that they can cherry-pick some of their least-favorite provisions — specifically; the requirement that all business file 1099s for all purchases over $600.

Some clients are breathing sighs of relief that the Republican victory will keep taxes low. But that view ignores the reality that deficits are still going up — and taxes will ultimately have to follow. This week's elections may have postponed that day of reckoning, but they haven't eliminated it. Don’t bury your heads in the sand. Recognize this economic inevitability and realize that continued gridlock means uncertainty — and even mere uncertainty not only makes it hard to tax plan but impacts the economy.

JUST BECAUSE YOU ARE DEAD DONE NOT MEAN THAT THE GOVERNMENT WON'T SEND YOU A CHECK

Last Sunday was Halloween and for some reason we had an exorbitant number of kids dressed up as zombies. It felt like the night of the living dead, which for some reason made me think about taxes and the federal government. You see the federal government does not apparently believe in death. For some reason they keep sending money to dead people. Maybe that's why we had so many zombies at our door begging for candy. Here is proof that the government does not believe that people die.

Remember those $250 stimulus checks? An investigation found that $18 million of those checks were sent to 71,688 deceased individuals. While some percentage of those checks were mailed out because SSA had not been informed that the taxpayers had died, an alarming number of the beneficiaries were actually accurately reported as deceased. In fact, in 2008, SSA paid deceased beneficiaries a whopping $40.3 million in benefits even after being notified of those deaths.

The beleaguered Department of Housing and Urban Development paid out more than $15.2 million in to households in 2008 to program households containing at least one deceased tenant. This included $7 million sent to single-member households whose only “family” was a deceased individual.

Scary, huh? The report goes on to cite examples of poor oversight and waste in other programs, including Medicare and Medicaid.

You can find the report on Senator Coburns oversight link below.

http://coburn.senate.gov/public/?p=OversightAction

THE IRS STILL WON'T ANSWER QUESTIONS ABOUT THE NEW 1099 RULES

The IRS remains unclear about 1099 reporting implementation
The Internal Revenue Service is still avoiding questions about how it will implement the controversial 1099 reporting rule, a provision of the health care reform law that requires a business to file a 1099 when a vendor is paid more than $600. IRS Commissioner Douglas Shulman has declined to provide information on the rule after requests for clarity, says Rep. Sam Graves, R-Mo. See the article and comments from The Hill

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

DEPRECIATION OPPORTUNITIES WITH THE SMALL BUSINESS JOBS ACT

Congress passed new legislation which was signed into law September 27, 2010 that gives them talking points for their reelection campaigns for the upcoming elections. While these changes are intended to incite businesses to spend money on capital improvements, it becomes challenging for taxpayers to stay in tune to the latest depreciation rules in effect for the current year.

With the rebound in grain prices in the past several weeks, these expanded depreciation incentives will enable producers to plan their 2010 and 2011 capital expenditures and obtain very attractive tax results, thus helping to offset some of the higher grain income.

Background
This legislation brings the second change of rules we have for depreciation for 2010. The changes enacted by the HIRE Act signed in to law on March 18, 2010 are no longer valid. The Section 179 level for 2010 started off at $134,000 and then went to $250,000 with the passage of the HIRE Act. Until now, 50% bonus depreciation had terminated for asset purchases after December 31, 2009. But that is now all changed.

Section 179 Allowance for 2010 and 2011
The Small Business legislation enacted in September 2010 increased the Section 179 expensing allowance to $500,000 for taxable years beginning in 2010 and 2011. The expensing allowance phase-out threshold has also been increased for qualifying property additions in the range of $2,000,000 to $2,500,000. The definition of qualified property under Sec. 179 remains virtually unchanged from prior law.

However, IRC Sec. 179(f) now allows Section 179 expensing (subject to a $250,000 expensing limit) for certain Qualified Real Property such as Qualified Leasehold Improvements, Qualified Restaurant Property, and Qualified Retail Improvement Property. While these types of property are not commonly found on farms, it is possible that a farm taxpayer may have in interest in other business ventures that claim Section 179 on these types of assets. This could possibly limit the Section 179 available for farm property on the proprietor’s return.

2007 $125,000
2008 $250,000
2009 $250,000
2010 $500,000 **
2011 $500,000 **

** $250,000 limit for Qualified Real Property

Congress has been using Section 179 expensing as a major stimulus provision for the past several years. So trying to guess what Section 179 limits will be in the future may be a futile activity, particularly with the recent tendency to enact these changes retroactively.

NOTE: For the record, IRC Sec. 179(b)(1)(C) now states that for tax years beginning after 2011, the Section 179 expensing limit is $25,000. This scheduled large reduction in the Section 179 level is actually designed to encourage capital investments in 2010 and 2011. If the large reduction actually occurs, it would be a major adjustment for many farm producers.

Retroactive Extension of the 50% Bonus Depreciation
The 50% bonus depreciation deduction is retroactively restored for qualified property acquired and placed in service prior to January 1, 2011. This means that qualified property placed in service after December 31, 2007 and before January 1, 2011 is eligible for the bonus 50% depreciation.

The definition of qualified property for the 50% bonus remains the same as under the law in effect for 2008 and 2009. To qualify, the original use of the property must commence with the taxpayer (i.e., the asset must be new rather than used), and the asset must meet the qualified property definition. For farm assets, this generally includes assets with a recovery period of 20 years or less.

For trades, 50% bonus depreciation may be claimed on the entire adjusted tax basis of the new asset.

As a reminder, the bonus 50% depreciation is mandatory. However, the taxpayer can decline to take the 50% bonus on a class by class basis. An election statement must be placed in the return stating which class lives are being elected out of 50% bonus.

Depreciation Available

2007 No
2008 Yes
2009 Yes
2010 Yes
2011 No

COMEDIAN USES HALLOWEEN TO TEACH KIDS ABOUT TAXES

I thought that this was appropriate for Halloween.

NON PROFITS AND HEALTH CARE CREDITS

IRS explains how nonprofits can get health care tax credit

Many of you may be involved as volunteers for non profits. If the non profit has has employees and provides health insurance you might pass this on to the nonprofit.

The Health Care Act created a credit for small businesses and small non profits that provide health insurance to their employees. At the time it appeared to us that many non profits might qualify for this credit. The problem was we were not given any guidance on how to get the credit for nonprofits. Now the IRS has given us the answer.

The Internal Revenue Service has posted information on how a nonprofit under Section 501(c) can claim the Small Business Health Care Tax Credit by filing a Form 990-T with an attached Form 8941 that explains how the claimed credit was calculated. The credit, which is designed to encourage small businesses to offer coverage to their employees, stipulates that the employer must cover half or more of coverage costs for some employees based on the single rate. Companies must have fewer than 25 full-time workers, or the equivalent, to qualify. Here is a complete explanation.

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

Let me know if you have any questions or need more information.

Larry Kopsa CPA

Personal Update

First of all, I want to thank all of you that took time to send a condolence and especially for your prayers. My stepson Tony got out of the hospital and is staying with us until he recuperates. Unfortunately he was not able to attend his wife, Jessica's funeral. It was estimated that over 1,200 people were in attendence. That is an indication of the number of people that she touched.

You always hear motivational speakers say that you should have a personal mission statement. That is good advice. I have one and I try to live my life around my mission. I thought that I would share with you Jessica's mission statement. She really lived this.

Aim high. Ask questions.
Listen well. Continue to study
and learn. Teach. Volunteer.
Travel. Develop a hobby.
Above all, enjoy.
There is time for everything.

Unfortunately her time was cut short.

FEATHER IN MY HAT

On Monday (10.25.10) I was once again honored to make a presentation at the Nebraska Society of CPA’s annual convention. I had 2 hours during the general session to update over 200 of my fellow CPA’s on the new tax laws, rulings and cases that have came down over the last 12 months. This is the 15th year that they have invited me. Being recognized by your peers is quite an honor.

I mentioned above that this was a “feather in my hat.” I thought you might be interested in where that expression comes from. It apparently originated back in the olden days when regularly men wore hats. Attorneys in Washington DC that would argue a case before the Supreme Court would stand at a lectern in front of the Supreme Court judges and make their argument. On the table was a pen. In those days the pen had a quill (feather). After the attorney had made his argument, and attorneys being attorneys, he would shoplift the pen as he left the podium. He would then put the feather in their hat to let everyone that saw him know that he was important attorneys that had testified before the court. If attorney’s testified more than once they would have two or more “feathers in their hat.”

NUMBER OF CATTLE, HOG AND POULTRY FARMS PER USDA

Recently the USDA reported that there are about 950,000 cattle farms in the U.S., compared with 1.6 million in 1980, and the hog industry has declined to 71,000 farms from 666,000, according to the USDA. The average poultry grower makes about 34 cents per bird, while processing companies make about $3.23 per bird.

WHAT THE NATIONAL PUBLICATIONS ARE SAYING ABOUT CORN PRICES

This is a summary of an article in The Week magazine that quoted several national publications. I thought you might be intersted.

Larry Kopsa CPA

Prices for corn and other staples soared on commodities exchanges last week, after the U.S. government warned that next year’s corn crop would be “dramatically” smaller than this year’s, said Gregory Meyer in the Financial Times. The U.S. Department of Agriculture cut its forecast for next year’s corn harvest by 4 percent, to 12.7 billion bushels, and warned that corn reserves could fall to half of this year’s 1.8 billion bushels. The USDA hasn’t issued such a large downward revision since 1995. The U.S. grows most of the world’s corn and exports more grain than any other country.

Even if the lower forecast is accurate, next year’s U.S. corn crop will probably be one of the largest in history, said Scott Kilman and Liam Pleven in The Wall Street Journal. But it still might not satisfy strong demand from the “accelerating economies of emerging nations such as China” or from Russia, whose wheat crop was decimated by wildfires over the summer. The looming shortages have raised the specter of food riots like those that rocked the developing world in 2007. Grain traders in the Middle East and North Africa have already started to hoard supplies.

EFTPS E-mail Scam

One of our clients received an e-mail this morning appearing to be from EFTPS stating that their tax payment had been rejected. The e-mail requested that they click on a link to fix the problem. Once someone clicks on the link, it requests financial information. This is a scam.

The IRS will never request financial information via e-mail. Never give financial information over the phone or by e-mail.

THIS WEEK I AM POSTING A PERSONAL NOTE

This week I am posting only a personal note. Sunday morning at 2:30 AM the phone rang and we received the t call that no parent wants to receive. Our 30 year old son Tony and his 26 year old wife Jessica were hit by a speeding 18 year old drunk driver. Jessica sustained massive head injuries and was on life support for two days. We were hoping and praying for a miracle but that was not to be. On Tuesday she passed away. She never regained consciousness.

Tony had massive neck and stomach injuries and was in intensive care in a room next to his wife. He spent four hours in surgery to repair the damages to his stomach. As I write this on Saturday afternoon October 16th, he is out of intensive care and in the trauma area. He is still experiencing intestinal problems. His injuries are no longer life threatening but we are hoping that they do not have to operate again. The doctors say that he will be in the hospital for awhile. He is a very strong young man and his physical injuries will eventually take care of themselves. Emotions will take more time. It is so heart wrenching. Tony and Jess had only been married for 36 days. They were so excited about their future. It is hard to understand and so, so sad.

The 18 year old drunk driver ran a red light and hit Jessica and Tony midway thru the intersection. He was traveling so fast that it hit their car and pushed it into a pickup. The impact was so intense that it spun the pickup 3 times. Tony and Jess’s car was so badly damaged that it took over 2 hours to free Tony and Jess from the vehicle.

Our families truly appreciate those of you that had found out about the accident and sent your concern, thoughts and especially your prayers. If you read the guestbook that I will mention below you will see what a special person Jessica was. She was always giving to others. Even in her death she continued to give. Because of her a 12 year old girl in Missouri has a new special heart, a 54 year old man has a new lease on life with new strong lungs and somewhere someone will be able to see the beauty of the world with new beautiful eyes.

To keep friends and relatives informed we posted information on the Caring Bridge web site. If you are interested visit http://www.caringbridge.org/visit/JessicaBedient

In the journal section you can see our postings and in the guestbook section you can read the reactions of their friends, family and acquaintances. The postings in the guestbook will give you an indication of how special people these two young are.

Laws need to be toughened. The 18 year only was cited just 30 days prior for drunken driving. He has been charged with felony motor vehicle homicide. His aunt apparently felt that it was appropriate to procure liquor for this boy. The parents apparently felt it was okay for him to drive. The aunt has been charged with a misdemeanor procuring liquor for a minor. I personally feel that the laws should be such that anyone in this situation should be charged with the same crime as the offender. Maybe harsher penalties would stop such a problem in the future. There is more that could be done but more on my thoughts on that at some later time.

BEST RUN STATES - HOW DO THE STATES RANK?

The writers at 24/7 Wall St. spent months reviewing data sets related to debt ratings, median income, unemployment trends, violent crime rates and other indicators to rank the states from the best run to the worst. Well-run states are much like well-run corporations, according to 24/7 Wall St.: They balance their books, invest prudently, value innovation and manage their debt. Wyoming came out on top of the magazine's rankings, while Kentucky was at the bottom.

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

NEW LAW ENCOURAGES PURCHASES OF HEAVY SUV's

The Jobs bill encourages the purchase of heavy SUVs with the new 50% bonus depreciation’s return for 2010 Here are the tax breaks for firms buying a new heavy SUV:

If your business buys a new $50,000 SUV with a loaded weight of over 6,000 pounds and puts it in service by Dec. 31

You can can expense $25,000, the maximum for vehicles

It can claim $12,500, half of the remaining $25,000 cost, as bonus depreciation

Normal depreciation is 20% of the $12,500 balance

Total first-year write-off...$40,000

Assuming 100% business use

For new only, used heavy SUVs do not get bonus depreciation

SMALL BUSINESS JOBS ACT

The recently enacted 2010 Small Business Jobs Act includes a wide-ranging assortment of tax breaks and incentives for businesses. Here's a brief overview of the tax changes in the Small Business Jobs Act.

Enhanced small business expensing (Section 179 expensing). To help small businesses quickly recover the cost of capital outlays, small business taxpayers can elect to write off these expenditures in the year they are made instead of recovering them through depreciation. Under the old rules, taxpayers could generally expense up to $250,000 of qualifying property—generally, machinery, equipment and software—placed in service in during the tax year. This annual limit was reduced by the amount by which the cost of property placed in service exceeded $800,000.

Under the Small Business Jobs Act, for tax years beginning in 2010 and 2011, the $250,000 limit is increased to $500,000 and the investment limit to $2,000,000. The Small Business Jobs Act also makes certain real property eligible for expensing. Thus, for property placed in service in any tax year beginning in 2010 or 2011, the $500,000 amount can include up to $250,000 of qualified leasehold improvement, restaurant and retail improvement property.

Extension of 50% bonus first-year depreciation. Before the Small Business Jobs Act, Congress already allowed businesses to more rapidly deduct capital expenditures of most new tangible personal property placed in service in 2008 or 2009 by permitting the first-year write-off of 50% of the cost.

The Small Business Jobs Act extends the first-year 50% write-off to apply to qualifying property placed in service in 2010 (as well as 2011 for certain aircraft and long production period property).

Deductibility of health insurance for the purpose of calculating self-employment tax. The Small Business Jobs Act allows business owners to deduct the cost of health insurance incurred in 2010 for themselves and their family members in calculating their 2010 self-employment tax.

Cell phones no longer listed property. This means that cell phones can be deducted or depreciated like other business property, without onerous recordkeeping requirements.

Boosted deduction for start-up expenditures. The Small Business Jobs Act allows taxpayers to deduct up to $10,000 in trade or business start-up expenditures for 2010. The amount that a business can deduct is reduced by the amount by which startup expenditures exceed $60,000. Previously, the limit of these deductions was capped at $5,000, subject to a $50,000 phase-out threshold.

100% exclusion of gain from the sale of small business stock Ordinarily, individuals can exclude 50% of their gain on the sale of qualified small business stock (QSBS) held for at least five years (60% for certain empowerment zone businesses). This percentage exclusion was temporarily increased to 75% for stock acquired after Feb. 17, 2009 and before Jan. 1, 2011.

Under the Small Business Jobs Act, the amount of the exclusion is temporarily increased yet again, to 100% of the gain from the sale of qualifying small business stock that is acquired after September 27, 2010 and held for more than five years. In addition, the Small Business Jobs Act eliminates the alternative minimum tax (AMT) preference item attributable to such sales.


S corporation holding period for appreciated assets shortened to five years. Generally, a C corporation converting to an S corporation must hold onto any appreciated assets for 10 years or face a built-in gain tax at the highest corporate rate of 35%.

The 2010 Small Business Jobs Act temporarily shortens the holding period of assets subject to the built-in gains tax to 5 years if the 5th tax year in the holding period precedes the tax year beginning in 2011.

Revenue raisers. These tax breaks come at a cost. To mention a few of these unfavorable provisions, information reporting will generally be required for rental property expense payments made after Dec. 31, 2010, and increased information return penalties will be imposed.

Please keep in mind that I've described only the highlights of the most important changes in the Small Business Jobs Act. If you would like more details about any aspect of the new legislation, please let me know.

Larry Kopsa CPA

IF YOU ARE INVOLVED IN A NON PROFIT YOU MIGHT WANT TO READ THIS

There is an important October 15th date for small non profits. We have found that in small non profits, volunteer and the managment gets passed around. Because of this, sometimes notices from the IRS go to the wrong people. Here is a reminder that the IRS just sent out. If you are involved in a non profit, you might want ask the current management if they have complied.


Ten Things Tax-Exempt Organizations Need to Know About the Oct. 15 Due Date

A crucial filing deadline of Oct. 15 is looming for many tax-exempt organizations that are required by law to file their Form 990 with the Internal Revenue Service or risk having their federal tax-exempt status revoked. Nonprofit organizations that are at risk can preserve their status by filing returns by Oct. 15, 2010, under a one-time relief program.

The Pension Protection Act of 2006 mandates that most tax-exempt organizations must file an annual return or submit an electronic notice, with the IRS and it also requires that any tax-exempt organization that fails to file for three consecutive years automatically loses its federal tax-exempt status.

Here are 10 facts to help nonprofit organizations maintain their tax-exempt status.

1. Small nonprofit organizations at risk of losing their tax-exempt status because they failed to file required returns for 2007, 2008 and 2009 can preserve their status by filing returns by Oct. 15, 2010.

2. Among the organizations that could lose their tax-exempt status are local sports associations and community support groups, volunteer fire and ambulance associations and their auxiliaries, social clubs, educational societies, veterans groups, church-affiliated groups, groups designed to assist those with special needs and a variety of others.

3. A list of the organizations that were at-risk as of the end of July is posted at IRS.gov along with instructions on how to comply with the new law.

4. Two types of relief are available for small exempt organizations — a filing extension for the smallest organizations required to file Form 990-N, Electronic Notice and a voluntary compliance program for small organizations eligible to file Form 990-EZ, Short Form Return of Organization Exempt From Income Tax.

5. Small tax-exempt organizations with annual receipts of $25,000 or less can file an electronic notice Form 990-N also known as the e-Postcard. To file the e-Postcard go to the IRS website and supply the eight information items called for on the form.

6. Under the voluntary compliance program, tax-exempt organizations eligible to file Form 990-EZ must file their delinquent annual information returns by Oct. 15 and pay a compliance fee.

7. The relief is not available to larger organizations required to file the Form 990 or to private foundations that file the Form 990-PF.

8. Organizations that have not filed the required information return by the extended Oct. 15 due date will have their tax-exempt status revoked.

9. If an organization loses its exemption, it will have to reapply with the IRS to regain its tax-exempt status and any income received between the revocation date and renewed exemption may be taxable.

10. Donors who contribute to at-risk organizations are protected until the final revocation list is published by the IRS.

IF YOU ARE SELF EMPLOYED THE NEW JOBS BILL GIVES YOU A BREAK

As the debate over health care and health care costs continued to draw attention, it appeared as if the smallest of businesses, those who are self-employed, were being ignored. Most of the health care related tax breaks and credits have been focused on businesses with employees, but those who are self-employed or primarily family owned have been left out. Until now.

Self-employed persons are finally getting a break. Under section 2042 of the Business Jobs Act of 2010 recently passed by Congress, those who are self-employed and pay their own health insurance premiums now get a break.

Currently, if you are self-employed, you can only deduct health insurance premiums from income before computing “regular” federal income tax; however, SE tax (self-employment tax), or Social Security and Medicare tax, is computed on the entire amount. So-called W-2 employees were treated differently.

That will now change. Persons who are self-employed will be able to deduct the cost of health insurance premiums from income before calculating SE tax. That results in a savings of nearly 15% over the cost of those premiums: Social Security tax is payable at a rate of 12.4% and Medicare tax is payable at a rate of 2.9% – a combined rate of 15.3%. However, keep in mind that the income cap for Social Security tax for 2010 is $106,800 (there is no cap for Medicare tax), so the total amount of your savings will vary based on your income. But it’s still savings.

Of course, there’s a catch. There’s always a catch. It’s only for 2010. But hey, in this economy, beggars cannot, apparently, be choosers. It’s a break and we’ll take it.

MORE ON THE NEW TAX ACT

I recently posted a short summary Small Business Jobs Act that was signed by the President on September 27, 2010. Here is a more extensive 7 page summary of the 110 page act. Let me know if you have any questions.



http://tax.cchgroup.com/legislation/Small-Business-Jobs-Act-7-23-10.pdf

PROPERTY TAX COMPARISON

Want to see how your states property tax compares to other states. Here is a cool tool.


http://www.mytaxburden.org/propertytax/

TAX BENEFITS OF THE NEW JOBS ACT

New Jobs Act brings tax benefits
On Monday, September 27, the president signed the Small Business Jobs Act of 2010 (H.R. 5297). Among its provisions:
• §179 expanded: For tax years beginning in 2010 and 2011, expense limit is increased to $500,000 and phaseout threshold increased to $2 million;
• §179 for (some) real estate: For tax years beginning in 2010 and 2011, taxpayers can elect to treat certain real estate as §179-eligible. Qualifying real estate includes:
o Qualified leasehold improvements;
o Qualified restaurant property; and
o Qualified retail improvement property.
• Bonus depreciation extended: Available for property purchased through December 31, 2010;
• Luxury auto depreciation increased: As a result of the extension of bonus depreciation, first-year depreciation of automobiles is bumped up $8,000;
• Deduction for start-up expenditures increased: Under IRC §195, increased from $5,000 to $10,000 for taxable years beginning in 2010 (only);
• Exclusion for small business stock: For purchases made after the date of enactment and before January 1, 2011, the exclusion for small business stock under IRC §1202 is increased to 100%;
• Five-year carryback for general business credits: Effective for credits determined in the taxpayer’s first taxable year beginning after December 31, 2009 (one year only), the carryback period for an “eligible small business” is increased from one to five years. In addition, the credit is not subject to the AMT limitation;
• Built-in gain period shortened to five years: For taxable years beginning in 2011 (only), the recognition period for the BIG tax is shortened to five years;
• Deduction for health insurance for SECA purposes: For 2010 (only), the deduction for self-employed health insurance is also a deduction for purposes of the SE tax;
• Cell phones removed from listed property: Permanent and effective for tax years ending after 2009;
• Information reporting required for rental property: Effective for payments made after December 31, 2010, rental real estate is treated as a trade or business for information reporting purposes. IRS to prescribe de minimis exceptions;
• Higher information return penalties: Penalties under IRC §6721 are substantially increased beginning in 2011; §457 plans can include Roth accounts: For tax years beginning after December 31, 2010; and Rollovers from elective deferral plans to in-plan Roth accounts allowed: Effective on the date of enactment. Will allow a two-year deferral (2011 and 2012) for rollovers done in 2010.

Tough Questions For Obama About ObamaCare

Forbes magazine just published an interesting article about healthcare comparing what we were told it was compared to apparently what it is. Remember "you don't need to read the bill, just pass it and then you can read it."

If you are interested in health reform, I thought you would be interested in this. I thought that the section on "Is it a tax or is it not a tax" was especially interesting.

Click the link below to read the full story:

http://blogs.forbes.com/merrillmatthews/2010/09/22/tough-questions-for-obama-about-obamacare/?partner=alerts

Larry Kopsa CPA

CAN I STILL GIVE MONEY FROM MY IRA TO THE CHURCH WITHOUT TAX?

In the past I have been able to transfer money directly from my IRA to my church. This was a good deal because I did not have enough itemized deductions. Can I do that again this year?

Howard

Howard this was a good idea for the last couple of years but you will have to wait if you want to be sure that the donation will be tax free.

First a little background. This provision allowed taxpayers that were over 70½ up to $100,000 a year tax free from regular IRAs or Roths. Although this had been a popular tax break, lawmakers allowed it to lapse at the end of 2009 along with other popular easings, such as the sales tax deduction.

We anticipate that the President and Congress will deal with renewing the expiring provisions in the lame-duck session. You will have to wait and see.

IF YOU HAVE AN HSA OR A HEALTH REIBURSEMENT ACCOUNT LISTEN UP

Here is a change that is coming up that you need to be aware of.

If you have cash left in your flex plan or health reimbursement account, consider buying over-the-counter drugs this year. The new health care law provides that for purchases after 2010, flex plans and HRAs can’t reimburse the cost of such medications. Payments are allowed only for prescriptions and insulin.

The same is true for for payouts from health savings accounts and Archer MSAs. There is a limited exception for plans using debit cards. The Internal Revenue will okay over-the-counter drug purchases made with the cards through January 15, 2011 to give debit card issuers a little extra time to reprogram their computer systems.

Don't forget that plans will have to be amended by June 30, 2011 to comply with the rules. The revision must be retroactive to Jan. 1 (or Jan. 15 for plans using debit cards).

Government Declares War On Small Business

Every time you turn around it seems that government is slapping regulation and requirements on small business.

Here are some facts from the Small Business Administration (SBA). Small businesses:

•Represent 99.7% of all employer[s]
•Employ just over half of all private-sector employees
•Pay 44% of total U.S. private payroll
•Have generated 64% of net new jobs over the past 15 years
•Create more than half of the nonfarm private gross domestic product (GDP)
•Hire 40% of high-tech workers (such as scientists, engineers and computer programmers)
•Are 52% home-based and 2% franchises
•Made up 97.3% of all identified exporters and produced 30.2% of the known export value in FY 2007.
•Small firms produce 13 times more patents per employee than large patenting firms; these patents are twice as likely as large-firm patents to be among the 1% most cited.

Further, if you look to the Kauffman Foundation, startup firms are the “sole engine” of job creation in the U.S. economy. Kauffman crunched a data set from the Census Bureau covering the years 1977-2005. In all but seven years during that period, existing businesses cut an average 1 million jobs, while firms in existence for a year or less created 3 million

Here is an article from Forbes magazine that summarized the problem.

http://blogs.forbes.com/greatspeculations/2010/09/03/government-declares-war-on-small-business/?partner=alerts

NEBRASKA STILL AN AG STATE

(Nebraska Ag Connection) -- NebraskaAgConnection.com reports, "More than half of rural Nebraskans are one generation or less removed from farming or ranching and more than three-fourths say their economic well-being is at least somewhat tied to agriculture, according to the 2010 Nebraska Rural Poll." See more at

http://www.nebraskaagconnection.com/story-state.php?Id=638&yr=2010

FARMERS FEAR EPA CHANGES IN DUST RULES WILL IMPACT AGRICULTURE

(AP/Omaha.com) — The AP is reporting that "wary farmers are watching a debate over whether to clamp down on one of rural life’s constant companions — the dust clouds kicked up by farm machinery in fields and along unpaved roads."

According to the story, "the EPA is reviewing its airborne pollutant standards," and is "looking both at its standards for tiny particles of industrial pollution and for slightly larger particles called 'coarse particulate matter,'" which includes dust. The EPA "is expected to release a final document next month spelling out its options for revising the standards. The EPA plans to announce any proposed changes in February and will likely approve a final updated rule by October 2011."

http://omaha.com/article/20100921/MONEY/709219929#farmers-fear-epa-changes-to-dust-rules-won-t-reflect-rural-life

CLARIFICATION ON DRUG TESTING AND CDL

Recently I posted a note regarding farmers and drug testing. I have had a couple of questions and so we went to the source. We contacted the Nebraska State Patrol and here is their answer.

Larry Kopsa CPA

The information is mostly correct. The way that it works is that anyone driving a vehicle that requires a CDL is also required to be in a drug/alcohol testing program.

Normally anyone who drives a vehicle over 26000 lb gross vehicle weight rating (GVWR) for a business (including farms) is required to have a CDL. There is an exemption for farm vehicles operated within 150 mile of the farm. If you drive anything other than a truck-tractor semi-trailer combination you do not need a CDL in that case. The CDL requirements and exemptions can be found on our web site (http://www.statepatrol.nebraska.gov/CDL.aspx).

Part of the federal regulations as adopted in Nebraska law states that any company that operates vehicles which require CDL needs to have a drug/alcohol testing program in place. The federal regulations can be found at http://www.fmcsa.dot.gov/rules-regulations/rules-regulations.htm). Specifically part 382 is the part that talks about this testing.

The best thing to do would be to point anyone with questions to contact the Carrier Enforcement Division headquarters at 402-471-0105.

Let me know if you have any other questions

RONI DEUTCH SUED BY CALIFORNIA ATTORNEY GENERAL

I presume that you have seen the Roni Deutch commercial on TV claiming that she can negotiate with the IRS and you will only have to pay pennies on the dollar. These ads always infuriate me because, as a tax professional, I know that she cannot do what she claims and her claims confuse the public. According to the lawsuit, the claims made in the ads are false and the people actually still owe the money. She spends over $3,000,000 per year on advertising.

The thing that upsets me the most is that the people that she is preying on are having financial problems in the first place and working with her just makes their problems worse. Look at the lawsuits. The 45 people working for her are not tax experts, but actually salespeople.

Now she gets what is coming to her. Roni Deutch, the so-called “Tax Lady” has been slapped with a $34 million law suit by California Attorney General, Jerry Brown.

According to the Attorney General’s web site, “Tax Lady Roni Deutch is engaged in a heartless scheme that swindled people with tax problems. She promises to significantly reduce their IRS tax debts, but instead preys on their vulnerability, taking large up-front payments but providing little or no help in lowering their tax bills.”

Brown’s office says that rather than reducing tax bills, Deutch actually increases taxpayer’s debt by putting them “in an endless loop of requests.” Brown claims the reason for the requests are to boost her bottom line at the expense of the taxpayer.

Further, Brown says that Deutch’s TV ads are “misleading” and feature fictional testimonials promising impressive results, despite the fact that Deutch’s success rate is said to be about 10% in tax cases. The claim states that “most clients never obtain a tax debt resolution” from Deutch.

In the complaint, Brown specifically cites an ad called, “It’s Your Turn” which features three clients whom Deutch claims to have “saved” from having to pay thousands of dollars to the IRS. According to Brown, those clients still owe the IRS the full amount of their taxes, plus interest and penalties.

Deutch’s practices inside her firm are called to the carpet in the complaint, as well. Brown’s office claims that Deutch’s law firm is actually a high pressure “boiler room” where she belittles her employees. “She screams at and berates sales agents who are not performing adequately,” according to the complaint. The complaint alleges that Deutch requires her employees to promise callers results that the potential clients are likely to never see.

Brown’s complaint seeks nearly $34 million in restitution for clients, including funds to refund taxpayer retainers which Brown’s office alleges were improperly retained. The complaint also seeks to prevent Deutch from engaging in unfair business practices and false advertising. The State has also asked for a preliminary injunction to force Deutch to cease her “illegal practices” prior to the resolution of the complaint.

Deutch and her office had to see this coming. In March, Brown posted an alert for California taxpayers warning them to avoid “phony tax-relief companies” that charge exorbitant fees, but provide no actual relief. At the time, Brown advised taxpayers, “Every tax season, phony tax-relief companies emerge to exploit cash-strapped Californians who owe back taxes to the IRS. Taxpayers should be on high alert, avoid paying up-front fees to these companies and never ignore notices from the IRS.”

This isn’t Deutch’s first public complaint. In 2006, she agreed to pay $300,000 to settle a lawsuit filed by New York City’s Department of Consumer Affairs for similar complaints about her misleading commercials.

I’ve heard a number of complaints from taxpayers who have worked with so-called tax debt relief companies who promise big results. I’ll just say this… If it sounds too good to be true, it probably is. There’s a reason that you don’t see most tax attorneys on TV promising you “pennies on the dollar.” I can’t stress enough how important it is to work with a trustworthy tax professional – one that returns phone calls and letters, one that keeps you posted about the status of your matter – to resolve your tax obligations.

Take a look at Deutch's website at: www.ronideutch.com. Listen to the testimonials, and then listen to what the California attorney general is saying about her:
http://www.washingtonexaminer.com/breaking/california-ag-sues-tax-lady-roni-deutch-for-34-million-accuses-her-of-defrauding-customers-101323199.html.

p.s. She doesn't really look like the picture on her website.

Larry Kopsa CPA

CDL LICENSE AND DRUG TESTING FINE

I just got a message from one of our farm clients that is getting audited by carrier enforcement. He wanted to get the word out to all farmers that if they have anyone with a CDL working for them, including themselves, they are required to have a drug testing program.

If they do not and they get pulled over or have an accident, even if they are found to not be at fault, carrier enforcement will investigate them and they will be fined. The fine is $750 by the state and then most likely followed up by a federal fine of $2,000. He is going through this now due to an accident that was the other driver’s fault. The carrier enforcement gentleman has been very nice and helping him get in compliance, but he will still be fined. The carrier enforcement said that 95% of farmers are not in compliance and probably most of those do not even know about the rules.

WANT TO SEE HOW THE NEW TAX PROPOSALS WILL IMPACT YOU?

The tax foundation has updated their interactive calculator at www.MyTaxBurden.org to include the Democrats’ plan for the expiring Bush-era tax cuts recently scored by the Joint Committee on Taxation.

Now you can compare you 2011 federal income tax liabilities under four policy scenarios:

(1) All the tax cuts expire completely at the end of this year
(2) All the tax cuts are extended into 2011 or made permanent
(3) President Obama’s budget is adopted, which would allow the tax cuts to expire for families making over $250,000 a year (singles making over $200,000), extend some stimulus measures and impose new limitations on itemized deductions
(4) Congressional Democrats’ recent proposal is adopted, which is similar to the Obama plan but does not extend stimulus measures or include additional limits on itemized deductions.

All you have to do is type in basic information – such as filing status, wage income and number of dependents – along with optional more detailed information – such as capital gains and dividend income, state and local taxes paid and other itemized deductions – and determine what your federal income tax burden would be in 2011.

QUOTE OF THE WEEK

"And in the end, it's not the years in your life that count. It's the life in your years."

Abraham Lincoln

BETTER BUSINESS BUREAU WARNS ABOUT A PHISHING SCAM

The AP reports, "Companies in Nebraska and across the nation are being warned to be on the lookout for bogus e-mails supposedly sent by the Better Business Bureau." According to the story, "the e-mail's subject line includes a nine-digit complaint number," and the text of the message "claims that the recipient didn't respond to a complaint filed by 'Jason Harlow'" or other name. If the link is opened, "malware is downloaded." See the AP story by going to http://www.krvn.com/news/index/7019ed14-95d8-4c5b-97c5-c50df2a63b59>

HOW WOULD THE EXPIRATION OF THE BUSH-ERA TAX CUTS AFFECT AVERAGE MIDDLE-INCOME?

Nationally, the typical middle-income family, which has a median income of $63,366, would see its federal income tax burden increase by $1,540 if the Bush-era tax cuts expire.

A new report by the Tax Foundation shows how the expiration of the Bush-era tax cuts would affect the average middle-income family in each state and congressional district. The report looks at the average family in the middle 20 percent of the income spectrum and compares their 2011 federal income tax liability if all the tax cuts expire to their tax bill if all the tax cuts are extended.

'NEBRASKA FARM REAL ESTATE VALUE AND CROPLAND RENT HIGHER'

(Lexington Clipper-Herald) -- According to a story at LexCH.agnet.net, "Nebraska's farm real estate value rose from 2009, extending a trend that began in 1993." The story notes that Nebraska "farm real estate value on January 1, 2010, averaged $1,460 per acre, a record high." Irrigated cropland averaged $3,050 and acre, while pastureland was an average of $475 per acre.

BUSH TAX CUTS

If you are interested in the debate on letting the Bush Tax Cuts expire I have harvested some of the pro and con articles. My thinking is that I agree with the first article that increasing taxes in actuality slows down revenue. I can give you examples of clients that did not expand their businesses during the high Carter tax years because the government was going to get up to 80% of any profit that was made. Here is a quote from President Kennedy on taxes that is in the Soak the Rich Catch-22 piece.

"Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle—workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today's economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit—why reducing taxes is the best way open to us to increase revenues."
—President John F. Kennedy,
Economic Report of the President

The Soak-the-Rich Catch-22

To deal with the deficit, let the tax cuts expire

A tax increase in these uncertain economic times would be devastating.

Pending tax hikes cause Democratic tension

Liberal Tax Revolt Game-Changer

The calamitous effects of Obama's tax hikes

Pence promises full-fledged GOP campaign to keep Bush tax cuts

Tax hikes for the rich: Can the economy afford them?

Battle Looms in Washington Over Expiring Tax Cuts

Geithner says allowing tax cuts for wealthy to expire would be responsible thing to do

QUOTE OF THE WEEK

"Do your little bit of good where you are; it's those little bits of good put together that overwhelm the world."
- Bishop Desmond Tutu

QUOTE OF THE WEEK

"Man must cease attributing his problems to his environment and learn again to exercise his will = -- his personal responsibility."
--Albert Schweitzer,
German philosopher, musician, theologian and physician

ESTATE-TAX DEBATE HEATS UP AS THE AUGUST RECESS APPROACHES

Supporters and opponents of restoring the estate tax are calling on Congress to make a decision before the August recess. The estate tax stands at 0% but will rocket to 55% in 2011 for anyone with assets of more than $1 million. Estate-tax supporters, who say the revenue produced could help close the deficit and help state and local governments, want a bill that would return the tax to 2009 levels but on a more progressive scale -- estates would pay either nothing, 45%, 50% or 55% depending on their assets. Estate-tax opponents support a compromise bill that would set the tax rate at 35% with exemptions for anyone with less than $5 million in assets. The Hill