DEDUCTING A BUSINESS CRUISE

Larry, one of my suppliers is sponsoring a cruise. During the cruise there will be business meetings for over 7 hours per day. I know that if my wife goes along I cannot deduct her costs because she is not an employee of my business. I also know that if I don't take her I will have severe issues at home. Anyway, is the cruise deductible?

Bill

Bill, you can deduct up to $2,000 per year of your expenses for attending conventions, seminars, or similar meetings held on cruise ships. All ships that sail are considered cruise ships.

You can deduct these expenses only if all of the following requirements are met.

1. The convention, seminar, or meeting is directly related to your trade or business.

2. The cruise ship is a vessel registered in the United States.

3. All of the cruise ship's ports of call are in the United States or in possession of the United States.

4. You attach to your return a written statement signed by you that includes information about:

a. The total days of the trip (not including the days of transportation to and from the cruise ship port),

b. The number of hours each day that you devoted to scheduled business activities, and

c. A program of the scheduled business activities of the meeting.

5. You attach to your return a written statement signed by an officer of the organization or group sponsoring the meeting that includes:

a. A schedule of the business activities of each day of the meeting, and

b. The number of hours you attended the scheduled business activities.

Let me know if you have any other questions. It is a pleasure serving you.

Larry Kopsa CPA

OBAMA FACES KEY DECISIONS ABOUT ETHANOL

(The Hill) -- President-elect Obama’s support for biofuels faces a few early tests, including a decision on whether to provide more aid to the corn ethanol industry, which critics say already gets too big a piece of the money pie.

The corn ethanol industry receives $2 out of every $3 the government spends to support renewable energy, according to a new report from the left-leaning Environmental Working Group (EWG) based on data from the Energy Information Administration. The Renewable Fuels Association (RFA), which represents corn ethanol makers, submitted a proposal to the Obama transition team for inclusion in the economic stimulus package that asks for $50 billion in loan guarantees and $1 billion in immediate credit to finance ongoing operations.

Corn ethanol producers have fallen on hard times recently. One major producer has declared bankruptcy. “Any stimulus package in part designed to spur clean, green economy has to recognize the importance of renewable fuels,” said Matt Hartwig, a spokesman for RFA. Hartwig said a number of ethanol projects have been delayed because of the difficulty in getting credit. Government help would allow construction to begin again. But a spokesman for EWG said ethanol mandates have led to more corn production, which has further polluted streams and rivers with fertilizer runoff. A better way to spend the money that now goes to support ethanol would be to increase support for solar and wind power to produce electricity, the environmental group said.

A few tricky policy questions likely will await the Obama administration as well. RFA and other ethanol makers want the EPA, for instance, to lift a limit on the amount of ethanol that can be blended with traditional gasoline. The current limit is 10%. Ethanol makers want it raised to at least 12% in part to accommodate the production increases required under the Renewable Fuel Standard (RFS) that was included in the energy bill of 2007. A group of manufacturers, including automakers, worry that higher ethanol content could damage engines. The ethanol industry disputes that contention. Other key issues include the 2007 energy bill's call for corn ethanol production to reach 15 billion gallons annually by 2015. (An additional 21 billion gallons of “advanced biofuels,” like cellulosic ethanol, would have to be blended with gasoline by 2022.)

As a candidate, Obama pledged to support the development of 60 billion gallons of biofuels annually by 2030. But environmentalists say biofuels of all stripes don’t provide the environmental benefits once thought. Another looming issue is sugarcane ethanol from Brazil. Brazilian sugarcane producers argue they are unfairly kept out of the U.S. market because of a tariff on ethanol imports. The 54 cent ethanol tariff expires in 2010.

ECONOMIST: BLENDING WALL STANDS IN WAY OF ETHANOL GROWTH

(Agriculture.com) -- Ethanol production opened the door to the renewable fuels industry. The industry now must get past an imposing wall of federal regulations and market conditions if it hopes to grow, says a Purdue University agricultural economist in a university report. "The ethanol industry is now faced with what is called a 'blending wall,'" says Wally Tyner, an energy policy specialist. Unless the barrier is removed, ethanol production could level off by 2010, Tyner says. The blending wall refers to the amount of ethanol gasoline companies are permitted to blend with petroleum-based fuel. Federal standards set the amount at 10% of gasoline consumption. There are too few cars and trucks on the nation's roads capable of running on any gasoline with an ethanol blend higher than 10%, or what is commonly called E10, Tyner says. Some in the ethanol industry have proposed that E10 be replaced by an E15 or E20 blend, thereby increasing ethanol use. However, automobile manufacturers do not believe today's E10 vehicles can run on a higher ethanol blend, Tyner says.

MORE INFORMATION ON FIRST TIME HOMEBUYER CREDIT

Larry, thanks for the information on the home credit. I am trying to buy a house but do not have the down payment that the bank is wanting. This $7,500 may be just what I need. Could you get me the details. Thanks.

Adam

Adam, here are the details. Let me know if you need more information.

Larry Kopsa CPA

Available for a limited time, the credit:

• Applies to home purchases after April 8, 2008, and before July 1, 2009.
• Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar. Is fully refundable, meaning that the credit will be paid out to you, even if you owe no tax or the credit is more than the tax that they owe.
• The credit operates much like an interest-free loan because it must be repaid in equal installments over a 15-year period.
• You claim the credit on new IRS Form 5405, First-Time Homebuyer Credit.
• Only the purchase of a main home located in the United States qualifies. Vacation homes and rental property are not eligible.
• For a home that you construct, the purchase date is the first date you occupy the home.
• If you owned a main home at any time during the three years prior to the date of purchase you are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.
• If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return.
• If you make an eligible purchase in 2009, you can choose to claim the credit on either your original or amended 2008 return, or on your 2009 return.
• The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. The limit is $3,750 for a married person filing a separate return.
• In most cases, the maximum credit will be available for homes costing $75,000 or more.
• The credit normally must be repaid over a 15-year period starting the second year after the year the credit is claimed.
• The credit is reduced or eliminated for higher-income taxpayers. The credit is phased out based on your modified adjusted gross income. In general, for a married couple filing a joint return the phase-out begins at $150,000 and is completely phased out at $170,000. For other taxpayers, the phase-out range is between $75,000 and $95,000.

Not everyone will qualify for the credit. There are other rules that may impact your eligibility and decision to claim the First-Time Homebuyer Credit.

WHERE WILL FARM INCOMES GO IN 2009?

(Agriculture Online) -- The past 12 months have made up one of the most volatile periods for Midwest farmers in decades. So, what's this mean for 2009? Many farmers say they expect their income to go down in the next year: Almost half of those responding to a recent Agriculture Online poll say they anticipate income to be "much lower" than 2008. But some experts see some farm operating expenses backing off the peaks seen in '08. Many economists say fertilizer and fuel will likely moderate in price a bit, but other production costs in general will continue to touch record levels. Another wildcard for farm incomes in the coming year is land rents. When entering into lease negotiations for the coming year, Purdue University Extension ag economist Craig Dobbins says farmers will likely see slight increases, but not as sharp as those in recent years.

FIRST TIME HOMEBUYER CREDIT

I have received several questions about the new homebuyer credit that was made available by the recently passed Housing Tax Act. With banks now requiring a down payment, this is a good way for people that qualify to get an interest-free loan from the government.

Those who bought a main home recently, or are considering buying one, may qualify for the first-time homebuyer credit. Normally, a taxpayer qualifies if he or she didn't own a main home during the prior three years. This unique credit of up to $7,500 works much like a 15-year interest-free loan. It is available for a limited time only — on homes bought from April 9, 2008, to June 30, 2009. It can be claimed on the new Form 5405, and is repaid each year as an additional tax. Income limits and other special rules apply.

If you would like form information contact me at lkopsa@kopsaotte.com.

A KINDER IRS? - MAYBE

The IRS just announced that they have recognized that there is an economic slowdown, and they are changing their collection procedures. Here is a summary of their announcement from their website.

Larry Kopsa CPA

IRS Help for Financially Distressed Taxpayers

If you are facing financial difficulties and struggling to meet your tax obligations the IRS can help. As the 2009 tax filing season begins, in addition to new credits, deductions and exclusions, the IRS is taking steps to help people who owe back taxes. Here are some areas where IRS can help:

Added Flexibility for Missed Payments: The IRS is allowing more flexibility for individuals with existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship. Depending on the situation, the IRS may allow a skipped payment or a reduced monthly payment amount. Taxpayers in this situation should contact the IRS.

Additional Review for Offers in Compromise on Home Values: An Offer in Compromise (OIC), an agreement between a taxpayer and the IRS that settles the taxpayer’s tax debt for less than full amount owed, may be a viable option for taxpayers experiencing economic difficulties. However, the equity taxpayers have in real property can be a barrier to an OIC being accepted. With the uncertainty in the housing market, the IRS recognizes that the real-estate valuations used to assess ability to pay are not necessarily accurate. So in instances where the accuracy of local real-estate valuations is in question or other unusual hardships exist, the IRS is creating a new, second review of the information to determine if accepting an offer is appropriate.

Prevention of Offer in Compromise Defaults – Taxpayers who are unable to meet the periodic payment terms of an accepted OIC will be able to contact the IRS office handling the offer for available options to help them avoid default.

Postponement of Collection Actions: IRS employees will have greater authority to suspend collection actions in hardship cases where taxpayers are unable to pay. If an individual has recently encountered a job loss or other financial problem, IRS assistors may be able to suspend collection in some situations without documentation to minimize burden on the taxpayer.

Expedited Levy Releases: The IRS will speed the delivery of levy releases by easing requirements on taxpayers who request expedited levy releases for hardship reasons. Taxpayers seeking expedited releases of levies to an employer or bank should contact the IRS number shown on the notice of levy to discuss available options. When calling, taxpayers requesting a levy release due to hardship should be prepared to provide the IRS with the fax number of the bank or employer processing the levy.

If you are behind on tax payments there could be additional help available if you are facing an unusual hardship situation. For assistance with your back taxes contact the phone numbers listed on your IRS correspondence.

More information is available on the IRS web site at www.irs.gov.