AG TAX RESCHEDULED

We are canceling the Ag Tax Update tomorrow (Tuesday Feb. 1st) due to the weather BUT please join us on Monday Feb. 7th @ 9:00am at the Southside Grill.

If you have any questions please let me know!

S CORPORATION DIVIDENDS RECLASSIFIED AS WAGES - COST TAXPAYER OVER $20,000

The government keeps chipping away the tax savings strategy of S corporations. As you know wages are subject to payroll taxes whereas distributions from S corporations are not. Here is a new case which the IRS prevailed in court.

The court determined that the IRS may recharacterize dividend payments to S shareholder-employee as wages. The district court has concluded that an S corporation shareholder-employee's $24,000 salary in 2002 and 2003 was unreasonably low, and allowed IRS to reclassify as salary over $67,000 in dividend payments to the officer during each of those years. The corporation will also owe employment taxes on the reclassified dividend payments. Watson, P.C. v. U.S.

I estimate that the this cost the taxpayer and the corporation a total of $21,000 to $30,000 in additional tax for the two years.

SORRY, YOU CAN'T DEDUCT THIS

A magazine editor recently asked me for a list of items that taxpayers think are deductible but are not. I thought my might be interested in my response.

• Reimbursed Job Expenses. It's true that you can deduct unreimbursed business expenses as an itemized deduction. The issue is that if the expenses are reimbursed, to the extent that your employer pays you back for any of those costs, those portions of the expenses are not deductible.
• Diets and Health Club Dues. Most diets and health club dues aren't deductible even if your doctor has recommended that you lose some weight in order to improve your health. Unfortunately you cannot deduct the cost of expenses that are merely beneficial to your health. To be deductible, the diet or exercise plan must be specifically prescribed by a doctor for a diagnosed medical condition, not as preventative care. Some limited exceptions apply.
• Primary Telephone Landlines. The IRS considers a primary telephone line routinely personal and thus, not deductible. You may not pro rate the cost of the phone even if you can prove non-personal use. You can, however, deduct long distance and other related charges if you can prove business use.
• Home Improvements. Home improvements are considered personal expenses and therefore not deductible. But wait... under current law, you can get a tax credit for the purchase and installation of certain energy-efficient improvements.
• Campaign Expenses. Thinking of running for office? Expenses incurred as part of your election campaign aren't deductible on your federal income tax return. In addition contributions made to a candidate are not deductible.
• Commuting Costs. While it's true that you can deduct certain travel expenses related to your job (such as traveling from one workplace to another in the course of your job or business; visiting clients, vendors or customers; and going to a business meeting away from your workplace), you can't deduct the costs of commuting to and from work.
• Charitable Services. You may deduct the cost of goods and cash that you donate to qualified organizations but you cannot deduct the value of your time.
• Pet Care. You may not deduct the cost of taking care of your pet even if your pet incurs significant medical expenses. An exception applies with respect to guide dogs and service animals -- you can include the costs of buying, training and maintaining those animals as part of your deductible medical expenses.
• Attorney's Fees. Attorney's fees may be deductible for businesses, but as a general rule, individual taxpayers cannot deduct most legal fees. This includes attorney's fees related to divorces, disputes over property boundaries and personal injury cases. Those legal disputes are considered personal in nature, which means the IRS won't allow you to take a deduction for them. related to producing or collecting taxable income.

FARM SUBSIDIES TEST DEBT-REDUCTION PLEDGES

(Politico) -- Politico.com reports that some Capitol Hill budget cutters "have a problem in their own back pasture: what to do about a system of farm subsidies ... at a time of record income for producers." In question is the $5 billion in "direct payments to farm country — including to the home districts of many" conservative House members. "Even a 20% reduction could yield as much as $1 billion in annual savings," the article notes. The "president’s deficit reduction commission recommended a net decrease of about $10 billion over 10 years in subsidies." The article points out that "agriculture already took a $6 billion hit last July in renegotiating the Standard Reinsurance Agreement that governs crop insurance." You can read the full article at the site below.

http://www.politico.com/news/stories/0111/48097.html

IRS ANNOUNCES SMART PHONE APP

WASHINGTON — The Internal Revenue Service today unveiled IRS2Go, its first smartphone application that lets taxpayers check on their status of their tax refund and obtain helpful tax information.

"This new smart phone app reflects our commitment to modernizing the agency and engaging taxpayers where they want when they want it," said IRS Commissioner Doug Shulman. "As technology evolves and younger taxpayers get their information in new ways, we will keep innovating to make it easy for all taxpayers to access helpful information."

The IRS2Go phone app gives people a convenient way of checking on their federal refund. It also gives people a quick way of obtaining easy-to-understand tax tips.
Apple users can download the free IRS2Go application by visiting the Apple App Store. Android users can visit the Android Marketplace to download the free IRS2Go app.

"This phone app is a first step for us," Shulman said. "We will look for additional ways to expand and refine our use of smartphones and other new technologies to help meet the needs of taxpayers."
The mobile app, among a handful in the federal government, offers a number of safe and secure ways to help taxpayers. Features of the first release of the IRS2Go app include:

Get Your Refund Status Taxpayers can check the status of their federal refund through the new phone app with a few basic pieces of information. First, taxpayers enter a Social Security number, which is masked and encrypted for security purposes. Next, taxpayers pick the filing status they used on their tax return. Finally, taxpayers enter the amount of the refund they expect from their 2010 tax return.

For people who e-file, the refund function of the phone app will work within about 72 hours after taxpayers receive an e-mail acknowledgement saying the IRS received their tax return. For people filing paper tax returns, longer processing times mean they will need to wait three to four weeks before they can check their refund status.

WALL STREET JOURNAL SAYS FARMERS EXPECTED TO INCREASE PLANTING

(Wall Street Journal) -- WSJ.com reports that U.S. farmers are likely to push plantings to high levels this year, according to analysts' predictions. High commodity prices and low grain supplies are both driving forces behind the predictions, which say up to 327 million acres of crops may be planted. "I can't come up with a solution of where all these acres are going to come from, unless we start putting hay acres under plow," said Dan Basse of AgResource.

http://online.wsj.com/article/SB10001424052748703959104576082181352490482.html?mod=rss_whats_news_us_business&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wsj%2Fxml%2Frss%2F3_7014+%28WSJ.com%3A+US+Business%29

LAST WEEK TO SIGN UP

KOPSA OTTE'S 20th ANNUAL AG TAX UPDATE

WHY DO I NEED TO COME? Larry will be speaking on many different areas regarding ag planning and ag tax. Are you thinking about estate planning? What about commodity wage questions? Or can I deduct that?? Come to the ag tax update and have your questions answered!

This year the class will be on Tuesday February 1st at the Southside Grille in York. It will run from 9:00am to 12:00pm with lunch being served immediately afterwards. Space is limited so please call Amanda at 1.800.975.4829 or email her at ahaumont@kopsaotte.com.