WHO SHOULD RECEIVE A FORM 1099?

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

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

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

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

NEWSWEEK ARTICLE

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

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

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

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

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

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

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

NEWS FROM THE IRS

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

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

What a mess.

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

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

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

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

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

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

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

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

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

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

DON'T EVER DRINK FROM HOTEL GLASSES

For those of you that travel, I thought you might be interested in this link.

http://www.bestviral.com/video/6629/dont_ever_drink_from_hotel_glasses

WHEN CAN YOU TAKE FAST DEPRECIATION ON EQUIPMENT?

Got this address on the internet........I have a general question. Would really appreciate an answer. I have a C Corp...... I am planning on buying some expensive equipment........and I can buy it in Dec 2007. The salesperson told me that this would save me a considerable amount of taxes.

Is there any reason I can't pay for it and then Section 179 the depreciation in order to offset some profit.........even if I am not yet using the equipment.

Robert

Robert, As your own personal professional tax advisor should have told you, the Section 179 law is very specific about the new equipment needing to be purchased and placed into service during the tax year. Just prepaying for something and not actually using it in your business until the next year will not fly. Any salesperson who told you otherwise is not telling you the whole truth and cares more about his/her commission than being honest. As you apparently understand, if you meet certain criteria you can expense out $125,000 in the year of purchase. You do not need to depreciate the equipment.

The good thing is that when the items are placed into service during the year isn't relevant. Starting to use a new piece of equipment on December 31 is just as good for the Section 179 eligibility as any other date during the year, assuming it is a calendar tax year. I have a primer on the section 179 on our website that explains in detail the fast depreciation rules. Check it out for more information.

http://www.kopsaotte.com/salon/?q=node/12

It is a pleasure serving you.

Larry Kopsa CPA

FARM BILL DELAYED

As you probably already know, the Senate approved the Farm, Nutrition, and Bioenergy Bill of 2007 (H.R. 2419) on December 14. The House, however, did not move on the Senate version of the farm bill before its holiday recess. The House and Senate will have to reconcile their bills in conference in 2008. They reportedly are close to an agreement.

H.R. 2419 includes many farm-specific tax incentives. The highlights are:

• Giving participants in the conservation reserve program (CRP) the option to choose between a regular cash payment and a tax credit equal to the cash payment;
• Excluding CRP tax credits from income and self-employment tax;
• Permanently extending the Pension Protection Act’s conservation easement tax incentives;
• Reducing the recovery period from seven to five years for certain farm machinery and equipment;
• Creating a new 30 percent personal credit for residential wind property (capped at $400 per year);
• Creating or extending some producer credits for biodiesel and other alternative fuels; and
• Creating a new energy efficient motors tax credit as part of the general business credit.
  
  Economic substance. The farm bill, as amended by the House for PAYGO offsets, would codify the economic substance doctrine, which the courts and the IRS have used to shut down tax shelters and other abusive transactions, to offset some of its tax incentives.
  
  Under the bill, economic substance would be satisfied only if: (1) The transaction changes in a meaningful way (apart from federal income tax consequences) the taxpayer’s economic position; and (2) The taxpayer has a substantial non-federal tax purpose for entering into such transaction. This offset is one of the more contentious provisions to be resolved in conference committee negotiations next year.
  
  457 plans. Another proposed offset would allow governmental 457 plans to add a Roth contribution program to the plan. Prior legislation allowed 401(k)s to add a Roth provision.
  
  CCH Tax Briefing – December 20, 2007