| >>Newsletter:2008 |
Archived: 2007 |
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| DECEMBER 2007 |
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Online Advisor - December 2007
Major Tax Deadlines
For December 2007
* December 17 - Fourth estimated tax payment is due for calendar-year corporations.
* December 31 - Last day to set up a Keogh retirement plan for 2007. Deductible contributions for 2007 can be made any time up to the filing deadline for your 2007 return.
* December 31 - Deadline for taking required minimum distributions from IRAs and other retirement accounts.
* December 31 - Deadline to complete 2007 tax-free gifts of up to $12,000 per recipient.
* December 31 - Deadline for paying expenses you want to be able to deduct on your 2007 income tax return.
NOTE: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business.
Payroll tax deposits: Employers generally must deposit Form 941 payroll taxes (income tax withheld from employees' pay and both the employer's and employees' share of social security taxes) on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.
- Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the fifteenth of the following month.
- Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid.
For more information on tax deadlines that apply to your business, contact our office.
Season's Greetings
This is the time of year to pause and reflect on our blessings and to express our appreciation to the many people who enrich our lives.
May we take this opportunity…
- To wish you and yours the happiest of holidays and a healthy and prosperous 2008.
- To thank you for your business in 2007.
- To remind you that we welcome your referrals. We would be pleased to have you mention our name to friends and associates who may need our services.
The information contained in this newsletter is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in the ONLINE ADVISOR, or for assistance with any of your tax or business concerns, contact our office.
What's New in Taxes
Big tax changes ahead
Beginning in January 2008, the tax rate on certain dividend income and long-term capital gains goes from 5% to 0% for taxpayers in the bottom two regular tax brackets (10% and 15%). If you're a single filer with income less than about $32,000 or married with income less than about $64,000, the new zero long-term capital gain rate could apply to you. In that case, you may want to postpone planned sales until 2008.
Also in 2008, the "kiddie tax" expands to cover children up to age 19. For full-time students, the age limit will be even higher - up to age 24. Now is the time to review your child's investments and time planned sales to avoid any adverse effect the new rules could have on your situation.
Do a year-end tax review of your investments
This is a good time of year to review your investments. If you're not meeting your financial goals for the year, there's still time to make changes. Make sure your portfolio is appropriately balanced among stocks, bonds, and other investments. Keep it well diversified, without too much at risk in any one sector. And you'll want to weed out investments with poor future prospects.
As you identify investments to buy and sell, keep the following tax implications in mind:
- When you sell assets, you'll have a capital gain or loss. Remember that capital gains on assets held for more than 12 months enjoy lower tax rates. For shorter holding periods, you'll pay tax at ordinary income rates.
- Don't forget to include any reinvested dividends when you calculate your cost basis for mutual fund shares.
- You can use capital losses to offset capital gains. Excess capital losses can even offset a limited amount of ordinary income.
- Watch out for the "wash sale rule." If you sell stock and then reacquire substantially identical securities within 30 days of a sale, you can't deduct a loss from the sale.
- Not all dividends on stocks and mutual funds are taxed at the same rate. "Qualified" dividends paid by most U.S. and some foreign companies enjoy lower rates of 5% or 15%, depending on your tax bracket.
- Beginning in January 2008, the tax rate on certain dividend income and long-term capital gains goes from 5% to 0% for taxpayers in the bottom two regular tax brackets (10% and 15%). There may be strategies you should consider to take advantage of this rate change, such as timing investment sales or deductible expenses.
- Interest income from corporate and U.S. bonds is generally taxed as ordinary income.
- Income from most state and municipal bonds is usually tax-free. The financial benefit of owning tax-free bonds depends on your tax bracket, among other factors.
- Changing investments within a tax-sheltered retirement account doesn't have any immediate tax consequences. You'll pay tax at ordinary income rates when you take distributions.
Remember, taxes shouldn't drive your investment decisions, but they are an important factor to consider. For guidance with the tax issues in your investment review, give us a call.
New Business
Survey estimates 2008 pay raises
An August 2007 survey conducted by WorldatWork revealed that employers are expecting to increase salaries by 3.9% in 2008.
WorldatWork is an association of human resource professionals. Their survey indicated that employers will be keeping pay increases just a bit above the inflation rate of 2.7% for the twelve months ended June 2007. The need to stay competitive in the marketplace by holding costs down was cited as one reason for the relatively small payroll increases for next year.
Though pay-raise estimates are low, estimates of bonuses for performance excellence are definitely higher. Businesses expect to spend about 12% of total payroll on bonuses, hoping to reward and retain valued employees.
Are you paying enough attention to cash flow in your business?
In assessing their business, most owners focus on growth in sales and profits. Yet these do not guarantee business health and success. Another important gauge is cash flow. Simply put, is there enough cash inflow to cover cash outflow? Cash flow needs change on a daily basis. The more you're aware of cash flow needs, the more control you'll have over your business.
- Calculating cash flow. Cash flow can be calculated by taking net profit, adding back depreciation and amortization (noncash outlays), subtracting increases in accounts receivable and inventories during the period, and adding increases in accounts payable. Calculations can be done on whatever operating cycle time frame is most meaningful to you (monthly, quarterly, etc.). Best results are usually obtained by using monthly cash flow statements and projections based on prior experience.
- Using cash flow. Building a history of cash flow needs by using historical financial records will provide an invaluable tool for projecting the timing of receipts, expenditures, and financing needs. Periods of negative cash flow can seriously hinder expansion plans and may even lead to business failure. Cash flow statements and projections can forewarn you of cash needs and allow you to implement changes.
- Improving cash flow. Proper management of accounts receivable and inventory can strengthen cash flow. Review billing procedures to reduce lag time between shipping and invoicing. Reexamine credit and collection policies. Consider offering discounts for early payment and charging interest on delinquent balances. Review inventory levels. Be alert for stockpiles and excess inventory. Dispose of obsolete inventory by reducing prices or selling for scrap.
Effective cash flow management will permit better utilization of cash, generate additional funds from internal sources, and provide advance notice of financing needs. Knowing your cash flow requirements is imperative for business success.
What's New in Finances
Many stay on the job even after age 65
It's no longer unusual to find people of retirement age choosing to continue working. According to the Employee Benefit Research Institute, in 2006 about 30% of Americans aged 65 to 69 were still working, up from 18% in 1985.
While the majority of older Americans who still work cite financial reasons, more and more people are working longer because they want to, rather than because they have to.
Longer life spans leave many retirees eventually bored with retirement and returning to work. Others never leave the work force even when they become eligible for retirement benefits.
Some related facts:
- Social Security was established in 1935 with age 65 as full retirement age. At that time average life expectancy in the U.S. was 61.7 years.
- Today the average 65-year-old male will live an additional 19.2 years. The average female will live an additional 21.8 years. Furthermore, there's an 11% chance that the 65-year-old man will live to age 95 and a 19% chance that the 65-year-old woman will live that long.
Do you need life insurance on your children?
Ask whether you should carry life insurance on your children and you'll receive a variety of answers. Here's a look at the arguments for and against.
- Financial security
Traditionally, you take out life insurance to provide for the financial security of dependents. The policy should provide funds to replace the insured's income and to pay off debts. Neither of these reasons applies to young children. They don't generally have any significant income, and they don't usually have any debts. Some parents might want to carry a modest amount of insurance to cover funeral costs for their children in case the unthinkable happens.
- Insurability
Another argument is that by taking out a policy at a young age, you help to guarantee insurability as the child grows older. This could be important if the child develops a major illness later in life. The problem is that if the child does develop a serious illness, insurance could then become very expensive or limited in amount.
- Insurance as an investment
Some advisors suggest that parents should take out a whole life policy on their children. These policies include a savings component to build up cash value in the policy. You could then use that value for education expenses or other needs. But others say that there are cheaper and more efficient ways to save than by using life insurance. For example, putting money into a tax-advantaged Section 529 plan might be a much better way to save for college tuition costs.
- The bottom line
Although a majority of financial advisors would probably argue against life insurance for children, there may be some situations when it makes sense. One thing is clear: You shouldn't take out a policy just because it is offered to you or because others are doing it. Insure your kids only if you've done your homework and know exactly why you need the insurance.
Please contact our office if you'd like help reviewing the advantages and disadvantages as they apply to your particular situation. |
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| NOVEMBER 2007 |
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Online Advisor - November 2007
Major Tax Deadlines
For November 2007
During November: It's wise to estimate your 2007 income tax liability and review your options for minimizing your 2007 taxes. Call us if you would like to schedule a tax-planning session.
NOTE: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business.
Payroll tax deposits: Employers generally must deposit Form 941 payroll taxes (income tax withheld from employees' pay and both the employer's and employees' share of social security taxes) on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.
- Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the fifteenth of the following month.
- Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid.
For more information on tax deadlines that apply to your business, contact our office.
Take a Break
Step away from the table
According to a 2007 study, obesity has risen dramatically since 2000. About 6.8 million American adults were "morbidly obese" in 2005, up from 4.2 million in 2000. According to government data, 66% of people in the U.S. are either overweight or obese.
The numbers probably reflect what is going on in society. People are eating out more often than ever, and restaurant meals average 170% larger than meals prepared at home. Keep that in mind when you are asked if you would like your order super-sized.
The information contained in this newsletter is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in the ONLINE ADVISOR, or for assistance with any of your tax, business, or financial strategy concerns, contact our office.
What's New in Taxes
AMT relief is still a work in progress
Both Republicans and Democrats agree that the alternative minimum tax (AMT) is affecting taxpayers who were never the intended target of this alternate tax system.
Designed to make sure the wealthy did not use credits, deductions, and other tax breaks to eliminate taxes completely, the AMT now affects a large number of middle-income taxpayers. That's due to the fact that AMT exemption amounts have not been indexed for inflation.
Congress is considering a number of AMT fixes, including a one- or two-year "patch" or complete elimination of the tax. Unless Congress acts to fix the tax for 2007, the AMT is estimated to affect 23 million taxpayers - mostly middle-class families. Under current law, about 70% of married taxpayers with children, who earn $75,000 to $100,000, will be subject to the AMT.
Tax-cutting time for 2007 is running out
Time is running out on moves you can make to reduce your 2007 tax bill. Some actions to consider right now:
- Be sure to max out your 401(k) plan at work. This year you can sock away $15,500 ($20,500 if you're 50 or older).
- Establish a pension plan for your small business. You may qualify for a tax credit of up to $500 in each of the plan's first three years.
- Make gifts to family or others to utilize your tax-free $12,000 per donee gifting allowance for 2007.
- Plan year-end business equipment purchases to take full advantage of the increased expensing limit of $125,000 for 2007.
- The option to deduct either sales taxes or state and local income taxes was reinstated for this year. If you plan to deduct sales tax, consider squeezing certain planned big-ticket purchases into 2007.
- Review your investments for possible year-end selling to rebalance your portfolio at the lowest tax cost or to offset gains and losses.
- Donations to charity require substantiation for deductibility, so get the documentation you'll need for your 2007 return. Remember, all money donations require a written record, even those under $250.
- Educators can deduct up to $250 for classroom supplies they purchase with their own money.
- Single taxpayers with income of $65,000 or less ($130,000 or less for couples) can deduct up to $4,000 for higher education tuition and fees. For singles with income of no more than $80,000 ($160,000 or less for couples), the deduction limit is $2,000.
- 2007 is the final year for those age 70½ or older to make a charitable donation of up to $100,000 from an IRA without reporting the distribution as income.
- Itemizers may deduct qualified mortgage insurance premiums this year. The policy must have been issued in 2007, and income limits apply.
There are other new and soon-to-expire provisions that could affect your tax situation this year. Call our office for planning assistance while there is still time to take tax-cutting action for 2007.
New Business
Small tax-exempt organizations have new filing requirement
Thanks to a provision in the Pension Protection Act of 2006, tax-exempt organizations with annual gross receipts of $25,000 or less will generally have to file a new annual report with the IRS.
Form 990-N is to be filed electronically. The IRS calls the new form an e-Postcard because it is short, easy, and electronic. It asks for the organization's name, address, name and address of a principal officer, and confirmation that the organization's gross annual receipts are normally $25,000 or less.
If an organization fails to file the required report for three consecutive years, it risks losing its tax-exempt status.
For more information or assistance with filing, contact our office.
Keep employees informed
Surveys show that employees tend to underestimate the amount of money that their employer spends on employee benefits. It's up to you to get them to realize their paycheck is only part of the compensation they are receiving as employees.
Make your employees aware of their total compensation package. After all, your employees can't appreciate all those extra dollars the company pays if they don't know about them.
In conjunction with preparing an employee's W-2 for 2007, prepare a list of the amounts that make up his or her total compensation package. You might find it a good idea to go over each employee's total benefits package during the employee's annual review.
Your benefits summary should include such items as the following:
Salary $____________
Bonus $____________
Pension plan contribution $____________
Deferred compensation $____________
Medical and dental insurance $____________
Life insurance $____________
Disability insurance $____________
FICA (social security & Medicare) $____________
Worker's compensation $____________
Unemployment insurance $____________
Total wages and benefits $____________
Also include the number of paid vacation days, personal days, sick days, and the value of employer-provided benefits such as work clothing, parking, and meals.
What's New in Finances
Your retirement kitty may have to last a L-O-N-G time
You know you must invest during your working years in order to build a fund for retirement. But what you don't know is how many years you'll be drawing on your retirement money. Now there are new statistics that may be helpful in estimating how long your retirement kitty has to last.
According to the National Center for Health Statistics, a person born in the U.S. in 2005 can expect to live about 78 years on average. That's 3% longer than life expectancies of a decade earlier.
The average U.S. individual who lives to age 65 can expect to live an additional 19 years. That's the average; many people will live beyond that.
As you do the calculations for your retirement savings, you may want to stretch your life-expectancy estimates out. According to one financial analyst, you should probably assume that you or your spouse will live to be 100. Underestimating your life span could mean you'll outlive your retirement funds. For assistance with the numbers, give us a call.
Keep your holiday spending under control
The holiday season should be a pleasant time - exchanging gifts, entertaining family and friends, and extending goodwill to others. Most of us enjoy the holidays, but too often the enjoyment is followed by financial headaches. January's bank statements and credit card bills bring the realization that once again we lost control of our finances.
It doesn't have to be that way. Before the holidays begin, make a budget. Estimate the cost of everything you plan to spend, from gifts to holiday decorations, entertaining, and special events. If the total cost is manageable, then stick firmly to your budget as you shop. If it’s not, look for ways to cut back.
Consider how you can save on holiday gifts. Many families draw names and give one nice gift to one person, rather than multiple small gifts to everyone. Give elderly relatives “gift certificates” good for your help with home or garden chores. Other cost-saving ideas: Make or bake gifts instead of buying them; give combined gifts from parents and children instead of individual gifts; agree with your close friends on a gift spending limit.
The holidays are a special time for children. But even here you can curb the excesses of gift giving and teach some good lessons too. Don't feel you have to give your children every gift they ask for. When they make their list, encourage them to prioritize the things they really want. Remember, their favorites are often the simple toys that encourage them to use their imagination.
Show your children there’s more to the holidays than just receiving presents. Have them participate in choosing and wrapping a gift for a less fortunate child. Encourage them to make their own gifts for family and friends. Arrange family outings and fun activities so the holidays become a series of enjoyable events.
Aim for more emphasis on holiday experiences and less on spending money. You’ll enjoy the season more and may reduce the financial hangover. |
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| OCTOBER 2007 |
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Online Advisor - October 2007
Major Tax Deadlines
For October 2007
October 15 - Deadline for filing 2006 individual tax returns on automatic extension of the April 17 filing deadline.
October 15 - If you converted a regular IRA to a Roth IRA in 2006 and now want to switch back to a regular IRA, you have until October 15, 2007, to do so without penalty.
October 15 - Deadline for filing 2006 partnership and limited liability company returns on extension of the April 17 filing deadline.
NOTE: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business.
Payroll tax deposits: Employers generally must deposit Form 941 payroll taxes (income tax withheld from employees' pay and both the employer's and employees' share of social security taxes) on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.
Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the fifteenth of the following month.
Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid.
For more information on tax deadlines that apply to your business, contact our office.
Take a Break
A dandy derivation
Do you know where the expression "POSH" came from?
It originated when the ticket agents in England marked the tickets of travelers going by ship to the Orient. Since there was no air conditioning in those days, it was always better to have a cabin on the shady side of the ship as it passed through the Mediterranean and Suez area. Since the sun is in the south, those with money paid extra to get cabins on the left, or port, traveling to Asia, and on the right, or starboard, when returning to Europe. Hence, their tickets were marked with initials for "Port Outbound Starboard Homebound" or POSH.
The information contained in this newsletter is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in the ONLINE ADVISOR, or for assistance with any of your tax, business, or financial strategy concerns, contact our office.
What's New in Taxes
Don′t fall for the latest IRS e-mail scam
The Internal Revenue Service is warning taxpayers about yet another e-mail scam. In this latest scam, the taxpayer receives an e-mail that appears to come from the IRS. The e-mail contains a link to an online "Member Satisfaction Survey," and the taxpayer is told he or she has been selected to participate in this survey. In return for completing the survey, the taxpayer will receive an $80 credit to his account. On the survey, the taxpayer is asked for information that the scam artists will later use to steal the victim's bank account, incur charges on his or her credit card, etc.
The IRS reminds taxpayers that it does not send unsolicited e-mails. Taxpayers who receive e-mails purporting to be from the IRS should forward them to phishing@irs.gov, the electronic mailbox set up to help catch these identity thieves. And watch for variations on the IRS e-mail scam; more than 400 separate scams have been reported in the past year.
If you can, plan for coming payroll tax increases
Many Americans pay more payroll taxes than federal income tax. That's the FICA tax you see on your W-2 wage statement - a combination of 6.2% social security tax and 1.45% Medicare tax. The social security tax is assessed on up to $97,500 of earnings in 2007, and the Medicare tax has no earnings limit. Your employer matches the FICA tax you pay.
Self-employed taxpayers pay an equivalent self-employment tax of 12.4% on net earnings up to $97,500 and 2.9% Medicare tax on all earnings (with a deduction for 50% of the tax paid).
The Social Security Administration is projecting that for 2008, the wage base for social security taxes will increase to $102,300. So if you'll meet or pass the 2007 taxable wage base of $97,500, you might consider accelerating additional income into this year. That income would not be subject to social security tax. Employees generally have few opportunities to move income between years, but self-employed individuals may be able to do some planning.
The Social Security Administration has projected that the wage base will increase to $141,900 by 2016. As significant as the payroll tax bite can be, doing what you can to minimize this tax is advisable. For guidance in this area, give us a call.
New Business
Employer's tip credit isn't reduced
As of July 24, 2007, the new federal minimum wage increased from $5.15 an hour to $5.85. By the summer of 2009, the minimum wage will increase to $7.25 an hour.
Employers can claim a credit for their payments of FICA taxes paid on tips that exceed the portion of tips treated as part of the minimum wage. This credit will continue to be based on the old $5.15 wage even though the actual minimum wage increases. Allowing employers to continue using the old lower minimum wage to compute this credit means their tip credit will not be reduced as the minimum wage increases. This rule applies to tips received for services performed after December 31, 2006.
A business consultant can give useful feedback
Is there an especially baffling problem in your business? Or do you have problems you have identified but do not have the time to address? Perhaps you should consider hiring a good business consultant.
Are your sales sagging? Are your costs getting out of control? Are you having problems hiring qualified staff? The average business manager has so many hats to wear that it is difficult to be good at all the management tasks. Good consultants will have specialized knowledge of your problems, and they will be able to work full-time on problems until a solution is fully implemented.
One of the first concerns many managers have about consultants is the fee they will be charged. This is a valid concern. But if you have done a good job of selecting your consultant, the benefits should far outweigh the cost. A qualified consultant should be able to identify where the limits of the engagement should be. He or she should be able to clearly communicate to you what is to be done, how much time it should take, what is to be achieved, and what the total cost is likely to be.
You can request an initial interview. Consider asking questions of the consultant much the same as if you were hiring an employee. Ask for some past performance documentation. A good consultant should have satisfied clients to whom he or she can refer you. You can interview these prior clients to see if they got what they paid for.
With planning, the time and expense of using a qualified consultant should lead to a profitable conclusion.
What's New in Finances
Health insurance costs outpace inflation
According to the annual survey of employers conducted by the nonpartisan Kaiser Family Foundation, the cost of health insurance rose 6.1% this year. That's more than double the annual rate of inflation (measured in July) of 2.4%. The increase in health insurance premiums since 1999 has outpaced both wages and inflation for the same time period.
According to the Kaiser survey, the average annual cost for a family's insurance is $12,106; the cost for an individual is $4,470.
Choosing your executor: A critical estate planning decision
An executor is the person or legal entity that you appoint in your will to settle your estate after your death. It is common practice to name your spouse or one of your children (often the first born) to be the executor of your estate. Such a choice may be entirely appropriate. However, there are circumstances where you should consider other possibilities.
Your executor will be required to gather your assets and pay debts, taxes, and expenses. The executor may be called upon to liquidate assets and will need to distribute money and assets under the direction of your will, with the appropriate legal and tax considerations.
If you do not appoint your spouse or some other family member to be your executor, what other choices have you? You could use a corporate executor, such as a bank or trust company, or you may want to choose an accountant, attorney, investment advisor, or a business associate.
Do not pass up a nonfamily executor simply because there is a fee involved. Often the conflict of interest or the contests that result by naming a family member can be far more costly to the estate than the fees charged by an outsider.
Selecting an executor for your estate is as important a decision as naming your heirs. Give some thought to the complexity of your estate and select an executor accordingly. For more details, give your attorney a call. |
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| SEPTEMBER 2007 |
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Online Advisor - September 2007
Major Tax Deadlines
For September 2007
September 17 - Due date for individuals to pay third quarter installment of 2007 estimated tax.
September 17 - Due date for filing 2006 tax returns for calendar-year corporations that had an extension of the March 15 filing deadline.
October 1 - Deadline for businesses to adopt a SIMPLE retirement plan for 2007.
NOTE: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business.
Payroll tax deposits: Employers generally must deposit Form 941 payroll taxes (income tax withheld from employees' pay and both the employer's and employees' share of social security taxes) on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.
Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the fifteenth of the following month.
Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid.
For more information on tax deadlines that apply to your business, contact our office.
What's New in Taxes: IRS launches audit program
Beginning next month, the IRS plans to audit about 13,000 individuals for tax year 2006 as part of a research project to update the Service's audit selection process. Audits will focus on those parts of the individual's tax return that cannot be verified through third-party information reports sent to the IRS.
If the program is extended for several years, as the IRS hopes, it will also provide information about the tax gap (the difference between taxes owed and taxes actually collected).
An HSA might be the right prescription now
Health Savings Accounts (HSAs) are tax-sheltered accounts that, when combined with a high-deductible health insurance plan, allow a tax deduction for contributions made to the HSA. HSAs have been around for some time, but new legislation passed at the end of 2006 makes them an even more powerful tool with which to pay medical bills.
* Deductible contributions - Essentially, the contribution to an HSA is deductible annually up to $2,850 if you’re single and $5,650 if you’re married. An additional $800 can be contributed if you are 55 or older.
These deductions help to reduce your current income taxes. Funds with-drawn from the HSA to pay medical bills are not treated as taxable income to you. It’s the best of all possible worlds: you receive a deduction for the contribution to the HSA and don’t have to recognize income when qualified medical payments are made by the HSA.
* Eligibility requirements - In order to qualify, you must participate in a high-deductible health policy (HDHP). This simply means that the deductible on your health policy can’t be less than $1,100 for self-only coverage and $2,200 for family coverage. These are minimum deductible limits, and you’re free to participate in a health plan with higher limits and still qualify for an HSA. However, the maximum out-of-pocket expenses (including deductibles and co-payments, but not insurance premiums) can’t be more than $5,500 for self-only coverage or $11,000 for family coverage. All of the limits noted are for 2007; these limits will be adjusted for inflation in future years.
* New rules - In addition to raising the HSA deduction limits, the 2006 legislation also changed two other rules.
You can now fund your HSA with IRA money. You can make a transfer of funds from an IRA to an HSA without realizing any income or penalties for such transfer.
Also, if your employer maintains a flexible spending account (FSA) or health reimbursement account (HRA), you can transfer these funds to an HSA. A transfer from an FSA could make a lot of sense when FSA contributions can’t be used up and would otherwise be lost.
In both cases, the transfer can’t exceed the annual contribution limits, and it can only be made once in your lifetime.
Many taxpayers will benefit from the changes in the HSA rules and should consider using an HSA to help control the cost of health care. If you need assistance in analyzing the use of an HSA in your situation, please call us.
New Business: How’s your customer service?
According to a recent survey, 48% of consumers say that customer service is the biggest factor in creating loyalty to a company. 37% said it was product quality; 13% said it was price. Brand name or the company’s reputation was cited by the remaining 2%.
Is your business paying enough attention to customer service? If you need further convincing, take a look at the following:
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Satisfied customers tell five people about good service they receive. Dissatisfied customers tell ten people when they receive bad service. |
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For every unsatisfied customer who complains, there are 26 other unhappy customers who say nothing. Of those, 24 won’t come back. |
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The average company loses about 20% of its customers each year. |
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Of customers who take their business elsewhere —
15% find cheaper products somewhere else.
15% find better products somewhere else.
65% leave because of poor customer service. |
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Make the right choice in deducting car expenses
Taxpayers generally may use one of two methods for computing business car expenses: the actual cost method or the standard rate method. The standard mileage rate may not be used in certain situations; the actual cost method may be used by any taxpayer.
* Standard mileage - With the standard mileage method, you simply multiply your business miles driven during the year by the IRS’s standard rate. The rate, which is set by the IRS each year, is 48.5¢ per mile for 2007. If you use the standard mileage deduction, you can also deduct related tolls, parking fees, and the business portion of interest expense on your car loan. (Interest expense is not deductible by employees.)
* Actual cost - With the actual cost method, you can deduct the actual expenses of operating the car for business. These expenses include gas, tolls, insurance, parking, repairs, maintenance, registration and license fees, loan interest (except employees), and depreciation.
* Recordkeeping - Regardless of the method you select, you need records to support the deduction. You’ll need to keep track of your mileage under both methods, but the actual cost method requires more record-keeping than the standard mileage method.
Only the business portion of your total mileage is deductible. For example, if your business mileage is 15,000 and your total driving mileage is 20,000 this year, you can deduct 75% of your total automobile expenses if you choose the actual cost method. If you choose the standard mileage method, you multiply your 15,000 miles of business driving by 48.5¢ a mile and deduct $7,275.
* Tax impact - You might be inclined to choose the standard mileage rate to simplify your recordkeeping, but before you opt for this method, consider the potential impact of each method on your tax bill. The price for using the mileage rate’s simplicity may be lost deductions. If you drive often or long distances for business, or if your car expenses are high, the alternative actual cost method may be better.
If it’s advantageous, you can switch to the actual cost method even if you started with the standard mileage rate. Be aware, however, that once you begin using the actual cost method on a vehicle, you can’t switch to the standard mileage deduction for that vehicle. In making your decision, you should consider how long you’ll keep the car and the estimated total tax savings under each method.
The rules governing business car deductions are full of exceptions and limitations. To be certain you use the method that’s right for you - and that maximizes tax savings - give us a call. We can review your situation and your options with you.
What's New in Finances: Have you gone too paperless?
It can be convenient to cut out "paperwork" by conducting your financial activities online. But if you do your banking and your investing through online bank and brokerage services, your heirs may have trouble sorting through your finances once you’re gone.
Putting some information on paper - even in a world trying to go paperless - is probably a good idea. At least record basic information about your assets, the names of advisers, and the location of your estate planning documents. Include any other information your heirs will need in order to locate various things and to be able to follow your wishes concerning the disposition of your estate.
What’s more important — saving for children’s college or your retirement?
A college education. Retirement. What do these major life events have in common? One shared characteristic is that each comes with a price tag. Here’s another: If you have school-age kids, you might be facing the challenge of having to decide which goal to save for. They’re both important. So how do you make the choice?
Here are some suggestions that can help you reach a sensible solution.
* Eliminate excuses for not making a decision. Procrastination can be costly. For example, to accumulate $100,000 in five years, you’d have to deposit a little over $1,500 every month in an account that earns 4%. But with a ten-year time horizon, assuming the same return, you can build up $100,000 by socking away less than half that amount, or approximately $700 per month.
What you need to know: Estimate the total amount required for both goals, how much time you have, and how much cash you’ll need to set aside on a regular basis.
* Expand your resource horizon. Once you’ve computed the expense side of the equation, figure out how much you can afford to save. You may find that, with one pool of income and two goals, there’s not enough money to fully fund both goals.
But who says you have to pay for everything yourself? Turn an obstacle into an opportunity by searching out alternatives. For instance, while your income in retirement may be dependent in large part on your savings, there are plenty of options for paying college tuition.
Where to look: Investigate the possibility of advanced placement credits while your child is still in high school. Other potential sources of help include scholarship prospects, federal work/study programs, and summer internships.
* Adopt a flexible approach. Broadly speaking, you have three alternatives for divvying up your available savings between the two goals. You can save for retirement only, save for college only, or opt to do both.
Yet within each alternative are creative strategies. As an illustration, you could start out by saving strictly for retirement, shift toward saving for college when your child reaches a certain age, then switch back after graduation.
Caution: Be careful of falling into the deadline trap. It’s likely your kids will attend college before you retire. Since the tuition deadline is closer, you might be tempted to reduce or eliminate retirement plan contributions in the early years of your savings plan in order to focus on education savings.
But consider this: A typical retirement will generally last longer and cost more than your child’s education. By putting college tuition first, you could end up with less than you need in your retirement nest egg. Instead, take your overall time horizon into account.
For assistance with the numbers, give us a call.
Take a Break
Looking back 100 years
Compare the following statistics for 1907 with today. What a difference 100 years makes!
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The average life expectancy in the U.S. was 47 years. |
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A three-minute call from Denver to New York City cost $11. |
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There were only 8,000 cars in the U.S. and only 144 miles of paved roads. |
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Alabama, Mississippi, Iowa, and Tennessee were each more heavily populated than California. |
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The average U.S. wage was 22 cents an hour. |
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90% of all U.S. doctors had no college education. |
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The American flag had 45 stars. Arizona, Oklahoma, New Mexico, Hawaii, and Alaska hadn’t become states yet. |
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The population of Las Vegas was 30. |
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There was no Mother’s Day or Father’s Day. |
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| AUGUST 2007 |
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Online Advisor - August 2007
Major Tax Deadlines For August 2007
Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business.
Payroll tax deposits: Employers generally must deposit Form 941 payroll taxes (income tax withheld from employees' pay and both the employer's and employees' share of social security taxes) on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.
Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the fifteenth of the following month.
Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid.
For more information on tax deadlines that apply to your business, contact our office.
What's New in Taxes
Charities and churches warned to stay out of politics
Though national elections are not until next year, the IRS is reminding charities, churches, and other nonprofit organizations to stay out of politics. A 2006 report on political activities showed a steep increase in the number of complaints about improper activities by these organizations. The tax-exempt status of nonprofit organizations is dependent on their refraining from engaging in partisan political activities.
In its attempt to increase compliance with the rules, the IRS has issued guidance on what constitutes legal and illegal activity. Details can be found in Revenue Ruling 2007-41 on the IRS's website www.irs.gov.
Manage "AGI" to keep tax breaks from disappearing
At tax time it pays to read the fine print. A variety of allowances, deductions, credits, and exemptions are phased out as income rises. If your income reaches these "phase-out" levels, you may lose tax benefits.
For example, let's say you finally snag that big promotion. If the promotion causes this year's income to climb into the phase-out zone, your deduction for college bond interest or child credits may be reduced. The result? You earn more money, but more of it is taxed. Your big promotion - after taxes - is now smaller.
Some items subject to phase-out income levels are the child tax credit (starts at $110,000 for joint filers), the Hope and Lifetime Learning credits ($94,000 to $114,000), Roth IRA eligibility ($156,000 to $166,000), and the college bond interest exclusion ($98,400 to $128,400). These phase-out levels are for "adjusted gross income" - also known as AGI - on 2007 joint returns.
Clearly, many middle-class families and small business owners reach these income levels. And these are just a few of the items affected by phase-outs. Others include personal exemption amounts, rental real estate passive loss allowances, exclusion of social security benefits, charitable deductions, and medical deductions.
How can you avoid losing all or part of these tax benefits as your income rises? One way is to manage your AGI, the main number used to determine your taxable income. The goal is to manage income levels so you won't lose tax benefits for which you would otherwise qualify. Here are three suggestions.
* Take more "above-the-line" deductions. These deductions are reported on your tax return above where the AGI is calculated. They include contributions to individual retirement accounts, self-employed retirement plans, and health savings accounts. Other "above-the-line" deductions are alimony payments, moving expenses, payments for student loan interest, and self-employed health insurance.
* Reduce your business's taxable income. Companies are taxed on their net income. To reduce this year's taxable income you might consider sending out invoices in late December so you'll receive payments after year-end. Bumping up year-end expenses - such as business equipment purchases, advertising, and repairs - is another strategy to keep your AGI below the phase-out levels.
* Defer income. Even if you don't own a business, you can sometimes push your income into the following year, thus lowering your AGI. For example, you might work out an arrangement with your boss to receive a bonus in January rather than December. Or you might wait to sell that hot stock until after year-end.
For assistance with the tax planning that will help you retain your tax benefits, give us a call.
New Business
Free IRS online workshop available to nonprofit organizations
The IRS now has an Internet version of its Exempt Organizations Workshop available on its website at www.irs.gov. The workshop, titled "Stay Exempt - Tax Basics for 501(c)(3)s," covers tax compliance issues faced by small and mid-sized tax-exempt organizations, including charities and churches.
The workshop has five interactive modules including the following:
* Tax-Exempt Status - How can you keep your 501(c)(3) exempt?
* Unrelated Business Income - Does your organization generate taxable income?
* Employment Issues - How should you treat your workers for tax purposes?
* Form 990 - Would you like to file an error-free return?
* Required Disclosures - To whom do you have to show your records.
Is your worker an "employee" or an "independent contractor"?
There's an ongoing debate that's almost as old as the tax code itself. If you have people working for your business, should you classify them as employees or as independent contractors?
Classifying your workers as independent contractors generally saves you money. That's because you avoid paying employment taxes and benefits on their behalf.
In most instances, however, very few of your workers actually qualify as independent contractors. If the IRS determines that you misclassified your employees as contractors, you could end up paying back all of the employment taxes and benefits that should have been paid over the years. Depending on the size of your workforce, the cost to you could be substantial, potentially bankrupting your business.
How can you ensure that you properly classify your workers? Start with the factors listed by the IRS to determine a worker's classification. If you maintain control over your workers through hiring, training and supervision, scheduling the work to be done, and by providing them with tools and materials, your workers are most likely your employees. The same holds true if you pay your workers a set salary or an hourly wage and have the right to let them go at any time.
As a general rule, if you only have the right to control or direct the result of the work and not the means and methods of accomplishing the result, the individual may qualify as an independent contractor.
If your business employs independent contractors, take steps to protect yourself and your business. The IRS is currently focusing its audit efforts in this employment tax area. Be consistent with how you classify your workers, and follow how other businesses in your industry classify their workers. And don't forget to send a Form 1099-MISC to any contractor who earns more than $600 from you during the year.
To find out more about properly classifying your workers, please give us a call.
What's New in Finances
What's new on the home front?
Existing home sales fell to a four-year low in May, with the median home price declining for the 10th straight month.
According to the National Association of Realtors, the number of homes for sale is now the highest in 15 years.
To add to the housing market's woes, mortgage companies are tightening requirements for home loans. Buyers are expected to have higher credit scores and to put down larger down payments.
Marriage? Divorce? Review your finances after a change in marital status
If you are getting married, divorced, or have recently lost your spouse, you certainly have a lot on your mind. While you may feel overwhelmed with all there is to do, it is important not to overlook financial matters when your marital status changes. Some actions you may want to consider include the following:
* Will. Update your will and power of attorney if you have them. If you do not, hire a lawyer to draw them up for you.
* Life insurance. Review your life insurance coverage. Given the recent events in your life, you may want to change your beneficiary and the amount of your coverage.
* Beneficiaries. Review the beneficiaries you have named for your 401(k) and IRA plans. Make any changes that are appropriate given your new circumstances.
If you're getting married, review your combined contributions to 401(k) plans to make sure you're maximizing both employers' matching contributions.
* Withholding. Adjust your Form W-4 (income tax withholding form) for your change in marital status and any change in the number of your dependents.
If you're getting married and both you and your spouse work, check to see if you will be affected by the marriage penalty. If so, you may need to adjust your payroll withholding.
* Health insurance. Analyze your health insurance options. If you are getting married, you may be able to save money by joining your spouse's plan or by having your spouse join your plan.
If you are divorcing or have lost a spouse and have relied on him or her for health insurance, you should investigate the COBRA laws, which may allow you to retain your insurance coverage for up to 18 months.
* Disability insurance. Consider purchasing disability insurance if someone will be dependent on you for financial support.
* Auto insurance. Talk to your automobile insurance agent. If you are getting married, you may save money by combining separate policies. You may also qualify for a marriage discount.
* Prenup. Consider a prenuptial agreement if you're getting married and you have children from a previous marriage or have substantial assets.
* Name and address. Notify the Social Security Administration if you change your name. If you move, notify the IRS of your address change.
Getting your affairs in order after a change in marital status is an important step toward financial well-being. For any assistance you need, contact our office. We can help you sort through your options and find the right choices for your new situation.
Take a Break
A graying America: Some statistics to ponder
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The number of Americans over the age of 65 is projected to double by 2030 to 72 million. |
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The fastest growing category of Americans is the 85-and-older group. |
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The wealthiest 20% of older Americans have an average net worth of $328,432, not counting their homes. |
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14,000,000 seniors say they have health conditions such as heart disease, arthritis, or other chronic illnesses. |
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The information contained in this newsletter is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in the ONLINE ADVISOR, or for assistance with any of your tax, business, or financial strategy concerns, contact our office. |
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| JULY 2007 |
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Online Advisor - July 2007
Major Tax Deadlines For July 2007
July 31 - Due date for filing retirement or employee benefit plan returns (5500 series) for plans on a calendar year.
NOTE: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business.
Payroll tax deposits: Employers generally must deposit Form 941 payroll taxes (income tax withheld from employees' pay and both the employer's and employees' share of social security taxes) on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.
Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the fifteenth of the following month.
Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid.
For more information on tax deadlines that apply to your business, contact our office.
Take a Break
O say, can you sing our national anthem?
Apparently, more than 60% of Americans don’t know the words to our national anthem. The National Anthem Project is going to cities across the country to reteach the words to people.
If you tried to sing The Star Spangled Banner and got a bit muddled in the middle, here’s how the first stanza goes:
O say, can you see, by the dawn’s early light,
What so proudly we hailed at the twilight’s last gleaming?
Whose broad stripes and bright stars, through the perilous fight,
O’er the ramparts we watched, were so gallantly streaming?
And the rocket’s red glare, the bombs bursting in air,
Gave proof through the night that our flag was still there.
O say does that star spangled banner yet wave
O’er the land of the free, and the home of the brave?
Happy Independence Day! And if you would like to sing the other stanzas in our national anthem, go to www.thenationalanthemproject.org
The information contained in this newsletter is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in the ONLINE ADVISOR, or for assistance with any of your tax, business, or financial strategy concerns, contact our office. |
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| JUNE 2007 |
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Online Advisor - June 2007
Major Tax Deadlines For June 2007
June 15 - Second quarter 2007 individual estimated tax is due.
June 15 - Due date for calendar-year corporations to pay second installment of 2007 estimated tax.
June 15 - Due date for calendar-year trust and estates to pay second installment of 2007 estimated tax.
NOTE: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business.
Payroll tax deposits: Employers generally must deposit Form 941 payroll taxes (income tax withheld from employees' pay and both the employer's and employees' share of social security taxes) on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.
Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the fifteenth of the following month.
Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid.
For more information on tax deadlines that apply to your business, contact our office.
Too many messages?
Do e-mails and text messages add to worker efficiency and productivity? Not according to a survey of British workers. The survey showed that - |
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Almost two out of three people check their electronic messages outside of office hours and when on holiday. |
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Half of all workers respond to an e-mail within 60 minutes of receiving one. |
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One in five will break off a business or social engagement to respond to a message. |
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Nine out of ten people thought colleagues who answered messages during face-to-face meetings were rude, while three out of ten believed it was not only acceptable, but a sign of diligence and efficiency. |
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According to Dr. Glenn Wilson, a psychiatrist who monitored the effects of all this messaging in clinical trials, "...this obsession with looking at messages, if unchecked, will damage a worker's performance by reducing their mental sharpness." His research showed the IQs of those who tried to juggle messages and work fell by 10 points. The IQ drop was even greater in the men who took part in the tests.
The information contained in this newsletter is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in the ONLINE ADVISOR, or for assistance with any of your tax, business, or financial strategy concerns, contact our office. |
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| MAY 2007 |
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Online Advisor - May 2007
Major Tax Deadlines For May 2007
May 15 - Deadline for calendar-year exempt organizations to file 2006 information returns.
May 31- Deadline for IRA, SEP, SIMPLE, Roth IRA, MSA, and education savings account trustees to file annual statements (Form 5498) with the IRS, with copies to participants.
NOTE: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business.
Payroll tax deposits: Employers generally must deposit Form 941 payroll taxes (income tax withheld from employees' pay and both the employer's and employees' share of social security taxes) on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.
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Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the fifteenth of the following month. |
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Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid. |
For more information on tax deadlines that apply to your business, contact our office.
United States trivia...
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In Alaska, one out of every 64 people has a pilot's license. |
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Missouri is the birthplace of the ice cream cone. |
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North Carolina is the home of the Krispy Kreme doughnut. |
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Oregon has the most ghost towns in the country. |
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South Dakota is the only state that's never had an earthquake. |
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Virginia is the home of the world's largest office building - the Pentagon. |
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Wyoming was the first state to give women the right to vote. |
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The information contained in this newsletter is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in the ONLINE ADVISOR, or for assistance with any of your tax, business, or financial strategy concerns, contact our office. |
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| APRIL 2007 |
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Online Advisor - April 2007
Major Tax Deadlines For April 2007
April 2 - Deadline for taking your first required IRA distribution if you turned 70½ in 2006. Unless you're still working, this deadline also applies to your other retirement accounts (except for Roth IRAs).
April 17 - Individual income tax returns for 2006 are due.
April 17 - 2006 calendar-year partnership returns are due.
April 17 - 2006 annual gift tax returns are due.
April 17 - Deadline for making 2006 IRA contributions.
April 17 - Deadline for employers to make contributions to certain retirement plans.
April 17 - First installment of 2007 individual estimated tax is due.
NOTE: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business.
Payroll tax deposits: Employers generally must deposit Form 941 payroll taxes (income tax withheld from employees' pay and both the employer's and employees' share of social security taxes) on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.
Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the fifteenth of the following month.
Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid.
For more information on tax deadlines that apply to your business, contact our office.
Take a Break
Sharing the wealth
Remember reading about Warren Buffett’s $43.5 billion donation to charity? In 2006, the rich not only got richer, they followed Buffett’s lead and donated a record amount to charitable causes.
According to The Chronicle of Philanthropy, there were 21 donations of $100,000,000 or more made by individuals in 2006. The 60 most generous givers (excluding Buffett) donated $7,000,000,000 (yes, seven billion) in 2006.
The information contained in this newsletter is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in the ONLINE ADVISOR, or for assistance with any of your tax, business, or financial strategy concerns, contact our office. |
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| MARCH 2007 |
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Online Advisor - March 2007
For March 2007
March 1 - Farmers and fishermen who did not make 2006 estimated tax payments must file 2006 tax returns and pay taxes in full.
March 11 - Daylight Saving Time begins. (The energy bill passed in 2005 extends Daylight Saving Time by one month. Beginning this year, Daylight Saving Time starts the second Sunday in March and ends the first Sunday in November.)
March 15 - 2006 calendar-year corporation income tax returns are due.
March 15 - Deadline for calendar-year corporations to elect S corporation status for 2007.
For April 2007
April 2 - Deadline for payers who file electronically to file 2006 information returns (such as 1099s) with the IRS.
April 2 - Deadline for employers who file electronically to send copies of 2006 W-2s to the Social Security Administration.
April 2 - Deadline for taking your first required IRA distribution if you turned 70½ in 2006. Unless you're still working, this deadline also applies to your other retirement accounts (except for Roth IRAs).
NOTE: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business.
Payroll tax deposits: Employers generally must deposit Form 941 payroll taxes (income tax withheld from employees' pay and both the employer's and employees' share of social security taxes) on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.
Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the fifteenth of the following month.
Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid.
For more information on tax deadlines that apply to your business, contact our office.
What's New in Taxes
IRS gets tough on abusive telephone tax refund claims
Special IRS agents served search warrants to tax preparers in several cities, seeking evidence of fraudulent claims for refunds of excise taxes paid on long-distance telephone service. This tax is being refunded to taxpayers for the period of March 2003 through July 2006. However, unscrupulous promoters and tax preparers are filing refund claims for taxpayers requesting thousands of dollars of refunds where the individuals are entitled to only a tiny fraction of the claimed amount.
The IRS is urging taxpayers to stay away from those who suggest they can get hundreds of dollars or more under the telephone tax refund program. Taxpayers who request excessive refunds will have their refunds held and be subject to an audit.
At the same time, the IRS is reminding taxpayers not to overlook the telephone tax refund when they file their tax returns. Many early filers are failing to claim the refund even though it requires only a one-line entry on the tax return. The standard refund amount ranges from $30 to $60 depending on the number of exemptions a taxpayer has, and no record keeping or substantiation is required.
Smart strategies for your tax refund
Are you eagerly awaiting a 2006 tax refund? Hopefully you’ve given some thought to how you can put the money to good use.
While “good use” may be in the eye of the beholder, you should really consider the following:
* Pay down debt. If you have high interest credit card balances, consider using your refund to pay them down. By doing so, you are essentially investing the funds at a significant guaranteed rate of return. Put another way, paying off a credit card with an 18% interest rate is equivalent to earning 18% on your money.
* Invest in an IRA. If you’re debt-free, you can use the refund to invest in either a traditional IRA or a Roth IRA. Not all taxpayers will qualify for either type of IRA, but if you do, making such an investment might save you tax dollars currently and build a nest egg for your future.
* Invest in an education account. It’s never too early to plan for your children’s education. Why not use your refund to start a Coverdell or “529 Plan” education savings account? Both types of accounts are tax-savers in the long run.
Here’s the real issue with refunds: Why receive a big refund at all? Why give the government an interest-free loan? Instead, consider adjusting your payroll withholding to put more money in your pocket on a monthly basis. You can then use those funds
to begin an automatic investment plan, such as an IRA or other savings plan, paying interest to yourself instead of to the government. For assistance in adjusting your withholding, give us a call.
New Business
Government survey gives wage and benefit costs
As you review your company’s outlay for employee wages and benefits, you may find it useful to compare your spending with national averages.
According to a recent government survey, employer costs for wages and benefits average $26.86 per hour. Wages make up 70% of that amount averaging $18.80 an hour, with benefits making up 30% or $8.06 an hour. Included in benefits were social security,
Medicare, unemployment insurance, workers’ compensation, health and other kinds of insurance, vacation and sick leave, and retirement plan benefits.
For details on the survey, go to www.bls.gov/ect and search for Employer Costs for Employee Compensation.
Five things every business owner should do this year
If you own or manage your own business, you’re probably busy monitoring operations and dealing with everyday problems. But there are a few things that you should make time to do every year. These are important for your longer term business and personal success.
1. Review your business insurance coverage. Don’t just automatically write a check to renew your insurance policies when they come due. Instead, you should sit down with your insurance agent every year. Review your business operations, focusing on any changes. Discuss types of risk that could arise. Ask about new developments in business insurance. Use your agent’s expertise to identify risk areas and suggest suitable coverage.
2. Review your business tax strategy. A month or so after you’ve filed your tax return, make an appointment with your tax advisor. Go over your return together and identify opportunities for tax savings. Question everything, starting with whether you’re using the right form of business entity. Ask about recent changes in the tax code and how they might benefit your business. Make your advisor a “partner” in your business strategy.
3. Update succession planning for your business. Review your succession planning annually. You should have a specific plan for each key manager position, including yourself. Be prepared for a short-term absence or a permanent vacancy. Your plan might mean promoting from within or recruiting externally. An up-to-date plan can be invaluable if you have an unexpected vacancy.
4. Review your business banking relationships. Annually, you should go over your cash balances and banking relationships with your controller or CFO. Then both of you should meet with your banker. Ask about new products or services that could help your company. Address any service concerns or problems you might have had. Look for ways to reduce idle cash, boost interest earned, and improve cash flows.
5. Review and update your personal estate planning. If you’re a business owner, your company is likely to be a significant part of your estate. A good estate plan is essential if you hope to pass your business on to your heirs. But your company, your personal circumstances, and the tax laws are continually changing. You should take time each year to make sure your plans are current.
We can assist you with the reviews and planning necessary to your business’s long-term success. Give our office a call.
What's New in Finance
2007 brings changes to 401(k) plans
Last year's pension law made some important changes to 401(k) plans, changes you should pay attention to if this type of retirement savings plan is available to you.
The first change is that companies are now permitted to automatically enroll workers in their 40l(k) plans. You have the opportunity of opting out of the plan, but you should think seriously before doing so. Saving for retirement has never been more important, and a 401(k) is a great way to build a retirement nest egg.
Another change is the requirement that companies advise plan participants about the need to diversify investments in their 401(k) and not overload on company stock (remember the Enron collapse). You can also expect to see some form of investment advice or recommendations with your 401(k) statements.
Also changed in 2007 is the maximum amount you can stash into a 40l(k): $15,500 if you’re under age 50 and $20,500 if you’re 50 or older.
Avoid these retirement blunders
If your goal is to enjoy a long and financially secure retirement, try to avoid these four major blunders.
* Not saving enough. If you’re approaching retirement age and are in reasonable health, you could expect to live well into your eighties or longer. Make sure your retirement savings will last that long, especially taking inflation into account. The secret is to save as much as you can as early as you can, so that power of compounding can work its magic. Make regular saving, no matter how little, a part of your lifestyle.
* Falling for investment scams. The surest way to ruin your retirement is to lose your savings in an investment scam. If an investment seems too good to be true, it almost certainly is. A good basic rule is never to buy any investment over the phone, and never to invest under time pressure. Always demand to see a prospectus, and take time to read it before you write a check.
* Making inappropriate investments. Even if you avoid the outright scams, it’s all too easy to end up with investments that are inappropriate for your age or financial situation. They may be too risky, too conservative, not properly diversified, or too expensive. Stay away from unscrupulous advisors. Don’t confuse salespeople with advisors.
* Leaving investing to your spouse. If you leave your spouse to do all the planning and investing for retirement, you’ll be at a loss if he or she dies first. To avoid this, you should jointly discuss and agree on your investment strategies, and you should both articipate in meetings with your accountant, broker, or advisor.
Take a Break
Some food trivia:
* A can of Spam is opened every four seconds.
* Olives are fruits.
* Pineapples are berries.
* A New York carpenter invented Jell-O in 1897 and sold the idea for $450.
* The most popular Domino pizza topping in Japan is squid.
The information contained in this newsletter is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in the ONLINE ADVISOR, or for assistance with any of your tax, business, or financial strategy concerns, contact our office. |
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