* December 15 - Fourth estimated tax payment is due for calendar-year corporations.
      
* December 31 - Last day to set up a Keogh retirement plan for 2008. Deductible contributions for 2008 can be made any time up to the filing deadline for your 2008 return.
      
* December 31 - Deadline for taking required minimum distributions from IRAs and other retirement accounts.
     
* December 31 - Deadline to complete 2008 tax-free gifts of up to $12,000 per recipient.
  

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.

DISASTER EXTENSIONS: Several states have suffered from disasters. If you are in a "covered disaster area," you may qualify for extended payment or filing dates by the IRS.

For more information on tax deadlines that apply to you or your business, contact our office.

The IRS recently announced that certain advanced lean-burn technology vehicles will qualify for the alternative motor vehicle tax credit. Previously, only hybrid, fuel cell, and alternative fuel vehicles qualified.

Now two Volkswagen and three Mercedes lean-burn technology models that generally run on diesel fuel qualify for the credit. Reminder: The credit starts to phase out once the manufacturer sells 60,000 vehicles that qualify for the credit.

Will your gifts bring a tax surprise?

Question: How does the annual exclusion work?

Answer: The annual exclusion lets you make certain gifts up to a specified dollar limit each year ($12,000 for 2008), to anyone you want, without having to pay gift tax or file a gift tax return. The exclusion is automatic, so you don't have to make an election to claim it.

Example: You give $10,000 cash to five different friends during 2008. Though you've given away $50,000 in total, each gift is less than $12,000. No gift tax return is required, and neither you nor your friends will owe gift tax.

Since the exclusion applies on an annual basis to the first $12,000 of gifts you give to any one recipient, there's no carryover of unused amounts, either to another person or to the following year. In addition, the exclusion typically covers only gifts of "present interests," which means the person to whom you give the gift has immediate unrestricted rights to the property.

Answer: You can use the education exclusion to make direct payments to a school for tuition with no gift tax consequences, no matter the amount.

Medical expenses you pay directly to the provider on behalf of a friend or family member are also excluded from federal gift tax.

Answer: Gift splitting lets you and your spouse apply both of your annual exclusions to a gift. In effect, you elect to make a joint gift.

Example: You give $24,000 to your son during 2008. Your spouse consents to gift splitting, which allows you to treat the gift as if each of you made one-half of it. In most cases, you'll both have to file a gift tax return, but your combined exclusion will shelter the gift from tax.

Answer: Gifts you make in excess of your $12,000 annual exclusion that are not sheltered by gift splitting or other exclusions may still be tax-free. Under present law, you can make cumulative taxable lifetime gifts of up to $1 million before the gift tax kicks in.

Note: Although no tax is due on gifts qualifying for the lifetime exemption, you're still required to file a gift tax return.

In addition to the satisfaction of making a friend or family member happy, gift giving can be a valuable estate planning tool. Please contact us with your questions about federal or state rules. We'll be happy to discuss gifting strategies.

IRS releases new per diem travel rates

If you're in business, you probably know expenses for business travel, meals, and entertainment must meet strict tests in order to be deductible. In addition, you must have records to substantiate the expenses.

In some cases, per diem amounts may be used in lieu of keeping track of actual expenses for away-from-home lodging, meals, and incidental expenses. This simplifies record keeping. Under the per diem method, the amount of the expense is considered to be substantiated. However, you still must document the time, place, and business purpose of the expense.

The IRS recently issued new business travel per diem rates, effective October 1, 2008. The rate for travel to high-cost localities is $256, up from $237. For other U.S. locations, the rate is $158, up from $152. The meal and incidental expense rate is unchanged at $58 for high-cost areas and $45 for other locations. For additional information, contact our office.

Employee embezzlement and other forms of theft often follow a predictable pattern. First, the employee is faced with significant external pressures such as high gambling debts, mounting medical bills, or substance abuse problems. To relieve this pressure, he or she finds an opportunity to steal from the company, especially if the firm's internal controls are perceived to be weak. From there, it's easy to rationalize fraudulent behavior - "I'll just take some money now, and pay it back later," or "I deserve a raise, but management's stingy, so I'll provide it myself," or "They've got plenty. They'll never miss it."

As a business owner, what can you do to prevent employee embezzlement and theft?

* Screen job applicants thoroughly. Review a potential employee's criminal history, verify education and past employment, and check references. If an applicant is willing to lie on a resume, why should you trust that person with your business assets?

* Make your policy crystal clear. Your employees should know that theft of any kind will not be tolerated, and managers should model integrity in their interactions with clients, competitors, and government regulators.

* Segregate duties. If one employee takes in cash, someone else should prepare or oversee preparation of the cash deposit, and another should record transactions in the company books. Although such separation of duties may be hard to establish in a small company, creative owners will find ways to prevent such transactions from being concentrated in the hands of a single employee.

* Conduct regular audits. Employees should know that their activities are subject to surprise reviews and an annual independent audit. They'll be less likely to steal if they know that someone is following after them, checking their work.

* Track down customer complaints. If a customer claims that a bill was paid but a credit doesn't show up in the accounting records, an employee might be stealing your business receipts.

HSA limits increase for 2009

Health Savings Accounts (HSAs) allow taxpayers with high-deductible health insurance to set aside tax-deductible dollars that can be used tax-free to pay unreimbursed medical expenses. The amount that can be contributed each year to an HSA is adjusted annually for inflation.

The limits announced by the IRS for 2009 are $3,000 for an individual and $5,950 for a family. Those 55 years old or older may contribute an additional $1,000 in 2009.

Give financial gifts this holiday season

When planning gifts for children on your holiday list, you might want to think beyond the traditional retail offerings. Consider financial gifts that can bestow benefits for many years to come.

Some financial gift options you might consider:

* U.S. savings bonds. Savings bonds are used by many families to introduce children to the savings concept. I-bonds are indexed for inflation and can provide some attractive rates of return.

* IRAs (regular or Roth). For 2008, you can contribute the lower of $5,000 or the earned income of the child. An early financial start can produce amazing benefits from compounded interest accumulated over several decades.

* Stocks or mutual funds. Equities are a good way to introduce a child to the investment world. If you give appreciated securities to a child or grandchild who is 19 or older (24 if the individual is still a student), it could allow the child to enjoy a lower capital gains rate when the shares are sold.

* Collectible stock certificates. Vibrant framed certificates are available for many companies. A Disney, Dream Works, or Coca-Cola stock certificate can provide a colorful reminder of the importance of investing for the future.

* Collectibles. Postage stamps or coin collection kits can provide years of enjoyment and form the basis for some life-long hobbies. An interesting gift idea is an official U.S. mint proof coin set for the year the child was born.
Please call us if you would like to review the tax issues related to any of these financial gift options, especially if you are considering a large amount.

Happy Holidays

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 2009.

* To thank you for your business in 2008.

* 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.

During November: It's wise to estimate your 2008 income tax liability and review your options for minimizing your 2008 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.

DISASTER EXTENSIONS: Several states have suffered from disasters. If you are in a "covered disaster area," you may qualify for extended payment or filing dates by the IRS.

For more information on tax deadlines that apply to you or your business, contact our office.

New rescue plan extends expired tax breaks

President Bush signed the Emergency Economic Stabilization Act of 2008 into law on October 3, hoping this plan would bring stability to the financial markets. The new legislation includes a wide range of provisions affecting financial institutions and individuals. For instance, it authorizes the government to spend $700 billion for troubled financial assets, curbs excessive compensation arrangements for executives of financial firms, raises the FDIC insurance limit to $250,000 per account through December 31, 2009, and provides relief for certain homeowners.

Although these provisions have been well-publicized, less attention has been paid to the $100 billion in tax breaks added to the package late in the negotiations. The changes generally extend a series of recently expired tax provisions through 2009. Here is a summary of the key tax extensions.

* AMT relief. The new law "patches" the alternative minimum tax (AMT) again by raising the exemption amounts for 2008 to $46,200 for single filers and $69,950 for joint filers. The patch also allows you to offset AMT liability with nonrefundable personal credits.

* Tuition deduction. The new law reinstates the above-the-line deduction for qualified higher education expenses paid for yourself, your spouse, or a dependent. The deduction is $4,000 for single filers with adjusted gross income (AGI) of $65,000 or less and joint filers with an AGI of $130,000 or less. It drops to $2,000 for an AGI up to $80,000 for single filers and $160,000 for joint filers. No deduction is allowed over these thresholds.

* Sales tax deduction. In lieu of deducting state and local income taxes, you can elect to deduct sales tax paid during the year. The sales tax deduction may be based on amounts in an IRS table plus actual amounts paid for certain big-ticket items like cars, or you can keep actual receipts for taxes paid.

* Teacher's deduction. Teachers and other educators may claim an above-the-line deduction for up to $250 of unreimbursed classroom expenses. This covers books, supplies, equipment, and software.

* Charitable IRA rollovers. Under the new law, those age 70-1/2 or over can still transfer up to $100,000 directly from an IRA to a qualified charity without paying any tax. This provision is reinstated through 2009.

* Nonitemizer's deduction. The new law extends the special property tax deduction for nonitemizers previously available only in 2008. The deduction is actual property tax paid, up to a $500 limit for single filers and $1,000 for joint filers.

* Business tax breaks. Among other provisions for business owners, the new law extends the research tax credit (with certain modifications), the fast 15-year write-off for restaurant and leasehold improvements, and enhanced charitable deductions for donations of food, books, and computers.

Contact us for details on the new law and its impact on your personal and business tax situation.

Act fast to identify ways to reduce your 2008 tax bill

Year-end is fast approaching, but it's not too late to reduce your 2008 taxes. Consider the following possibilities for actions you can take to cut your 2008 tax liability.

* Capital gains. There is a new zero tax rate on long-term capital gains and qualified dividends for taxpayers in the regular 10% and 15% tax brackets. If you're single with taxable income under $32,551 or married filing jointly with income under $65,101, the zero rate applies to you. A review of your portfolio might allow you to identify stocks that can be sold with no taxes on the gains.

* IRA contributions. Contributions for Roth and traditional IRAs have been increased to $5,000 for 2008. And those age 50 or older by the end of the year can add an additional $1,000 as a "catch up" contribution, making their total contribution $6,000.

* Kiddie tax. The kiddie tax now applies to children with more than $1,800 of unearned income if they are under age 19 (under age 24 for full-time students). If you have dependent children with investment income, they could be subject to this tax. Now is the time to review their income sources and consider moving them into investments that are more kiddie tax friendly.

* Equipment purchases. Business owners can elect to expense the cost of buying equipment rather than depreciating the cost over the life of the asset. For 2008, the expensing limit is $250,000, and it applies to both new and used equipment purchases. Another 2008 provision applies only to new equipment purchases. It lets you take 50% bonus depreciation on qualified assets placed in service by December 31, 2008.

* Stock losses. With the stock market in turmoil, be aware that you can sell stocks at a loss and use that loss to offset gains on other stock sales. Additionally, if your losses outstrip your gains, you can deduct up to $3,000 of those losses to offset other income.

* Tuition expenses. The deduction for qualified tuition expenses was reinstated in the financial bailout law. This allows for an above-the-line deduction of up to $4,000 in qualified tuition expenses paid, depending on the taxpayer's income level. Paying tuition before the end of the year could create a valuable deduction. Also reinstated was the teacher expense deduction, which allows for a deduction of up to $250 for the purchase of classroom supplies.
 

FUTA surtax extended for a year

The Federal Unemployment Tax Act (FUTA) imposes a 6.2% tax on the first $7,000 of wages paid annually to employees. Years ago, a .2% surtax was added as a "temporary" measure; this "temporary" surtax was set to expire after 2008.

Low-cost benefits can boost employee morale

Fringe benefits are important to your employees. Wage levels often don't differ much between companies, so the fringes you offer can be an important factor in hiring and retaining workers.

Major fringe benefits such as health insurance are expensive. But if you're willing to be creative, you can design other attractive benefits at low or no cost. Often these benefits are tax-free to your employees. The exact benefits will depend on the size of your work force and the nature of your business. But here are some ideas to consider.

* Flexible schedules. If the nature of your business allows, offer flexibility in working hours. Canvass senior employees for suggestions on changes. Consider ideas such as closing earlier on summer Fridays to give employees a longer weekend. Make up the time with slightly longer hours on other days.

* Personal leave days. Offer one paid leave day every two months for employees to take care of personal business.

* Transportation benefits. If you're in a metropolitan area, help your employees solve their commuting problems. Work with your local transit authority to offer free bus passes. Consider offering subsidized parking or even van pools in major urban areas.

* Company discounts. Give employees discounts on your own products. Negotiate discounts with other businesses — health club memberships, for example.

* Provide employees with a free monthly health newsletter, with updates and tips on health care issues. Many hospitals and charities publish such newsletters as part of their marketing efforts.

Social security taxable wage base will increase in 2009
 
The amount of wages subject to social security tax will increase next year to $106,800, up from $102,000 for 2008. The Social Security Administration estimates that 11 million taxpayers will pay higher taxes as a result.

Applying the 6.2% tax rate to the higher wage base will bring the maximum social security tax for 2009 to $6,621.60, up from $6,324 for 2008. The Medicare tax rate of 1.45% continues to apply to all wages.

Self-employed individuals pay both the employer and employee share of social security and Medicare taxes, but they are allowed a tax deduction for 50% of the taxes paid.

Also adjusted for inflation, the social security benefits paid in 2009 will increase 5.8%. Working retirees who are drawing benefits prior to reaching full retirement age will lose one dollar in benefits for every $2 above $14,160.

Got mutual funds? Pay attention to year-end tax issues
 
If you're among the millions of Americans who invest in mutual funds, you need to be aware of the year-end issues that could affect your 2008 tax bill.

* Year-end distributions. One key fact to be aware of is that mutual funds are usually required to distribute their income annually to shareholders. If you purchase a mutual fund just before a distribution date, you will receive the distribution and be required to include it in your taxable income. Since the price of the fund shares before and after a dividend distribution reflect the amount of the dividend, you are actually paying income tax on part of your own purchase price.

* Your tax basis. Your taxable gain on sales you've made during the year will generally be the sales price minus your tax basis. Note that transactions such as check redemptions and exchanges are usually treated just like sales.

Your tax basis is generally the purchase price plus any related transaction costs, such as sales charges and brokerage fees. Your basis also includes reinvested dividends.

The IRS allows several different ways of determining basis when you've bought your shares at different times and don't sell them all at once. Mutual fund companies will often report your average cost basis, which divides the total cost of all your shares by the number of shares you own. A second option is the first-in, first-out method which assumes the shares sold were the earliest ones purchased. The specific identification method lets you choose which group of shares you're selling. Before selling, check to see which method will provide you with the lowest tax bill.

Interesting facts…

* The Pacific Ocean is the world's deepest ocean at 35,885 feet. Runner up is the Indian Ocean at 25,344 feet.

* The world's longest river is the Nile at 4,132 miles. Runner up is the Amazon at 4,000 miles.

* Aluminum can be spun into a filament so fine that 1.5 lbs. of it could encircle the earth.

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.

* October 15 - Deadline for filing 2007 individual tax returns on automatic extension of the April 15 filing deadline.
    
* October 15 - If you converted a regular IRA to a Roth IRA in 2007 and now want to switch back to a regular IRA, you have until October 15, 2008, to do so without penalty.

* October 15 - Deadline for filing 2007 partnership and limited liability company returns on extension of the April 15 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.

DISASTER EXTENSIONS: Several states have suffered from disasters. If you are in a "covered disaster area," you may qualify for extended payment or filing dates by the IRS.

For more information on tax deadlines that apply to you or your business, contact our office.

Year-end tax planning is essential this year

As Congress works to settle the financial markets, its attention is diverted from tax issues. However, you need to keep your eye on how any tax changes Congress makes before year-end could affect your tax situation for 2008.

You may qualify for a tax break when you sell vacant land

You probably know that you can exclude up to $250,000 of gain ($500,000 for most joint filers) when you sell your principal residence. IRS regulations may now allow you to apply this gain exclusion when you sell vacant land that is adjacent to your home.

To qualify, the land you sell must be adjacent to the parcel on which your house sits. Also, the land sale must occur within two years before or after the residence is sold. You must meet the other usual requirements for claiming the exclusion. If you qualify, you can apply your $250,000 or $500,000 exclusion to both sales combined.

Example: You own and live in a house which sits on four acres. You decide to sell the house on a one-acre lot and sell the other three acres of empty land to a developer. Provided the land sale occurs within two years before or after you sell the house, you can exclude up to $250,000 ($500,000 if you file jointly) of the combined gain from both sales.

Partnership filing extensions shortened next year

Partnerships are "pass-through" entities that file Form 1065 reporting partnership income but paying no income tax. Instead the income "passes through" to partners who pay tax on their share of the partnership's income on their individual tax returns.

The filing deadline for Form 1065 for partnerships on a calendar-year is April 15 of the following year. An extension of time to file has been available giving the partnership an additional six months or until October 15 to file.

That will change next year. For tax returns due after December 31, 2008, the extension period is shortened from six months to five months, giving partnerships until September 15, 2009, to file their 2008 returns.

The change will benefit individual partners who will now have their K-1s a month earlier, giving them the information they need for filing their extended individual tax returns (Form 1040) due on October 15.

S corporations are now facing increased scrutiny from the IRS

According to the Journal of Accountancy, the S corporation is the most popular form of business ownership in the country, swelling to around four million entities. The primary reason for their growth is that S corporations avoid the double taxation that applies to regular C corporations while still offering protection from personal liability.

However, as the popularity of S corporations continues to rise, they are facing greater scrutiny from the IRS. In particular, the IRS has focused its attention on three issues.

* Shareholder-owner compensation. The basic tax rule is that compensation paid to shareholder-employees must be reasonable in amount. Historically, the IRS has questioned compensation amounts paid to C corporation owners that seemed unreasonably high. With an S corporation, a high-tax bracket owner may establish a compensation amount that is extremely low, or even zero, while increasing other pass-through income (i.e., dividends). By doing so, the owner avoids employment taxes on these payments.
                  
The IRS recognizes the tax benefits of this strategy. Therefore, it may object to compensation that appears to be low relative to corporate profits.

Suggestion: Have compensation reviewed before the end of the year. If appropriate, the S corporation may pay bonuses to shareholder-employees. In any event, document the reasons for compensation amounts.

* Shareholder basis. Generally, a shareholder's "tax basis" for deducting corporate losses may be increased by contributing additional capital to the company, buying more stock, or lending funds to the company.

The IRS may challenge basis adjustments resulting from loans by third parties to the company. Furthermore, it has consistently maintained that a shareholder's guarantee of an S corporation debt does not increase basis.

Suggestion: Loans should be made directly from the shareholder to the S corporation. A written note, based on reasonable terms, can serve as proof that a bona fide loan exists.

* Fringe benefits. An S corporation may provide tax-free fringe benefits, like health insurance or employer-paid group-term life insurance coverage (up to $50,000), to its employees. However, if an employee owning 2% or more of the company receives fringe benefits, he or she is generally taxed on the value. To avoid abuses, the IRS may examine fringe benefit packages.

Note that there are several exceptions to the general rule. For example, certain "working condition" fringe benefits are tax-free to 2%-or-more shareholders.

Suggestion: Consider restricting benefits for owners to those that are essential or that result in minimal or no taxation.

In summary, S corporation owners must be careful to observe all the technicalities in the tax law. For assistance, contact our office.

Review your accounts for FDIC coverage

In today's financial environment, it's wise to review your various accounts to see if you have the protection you think you have.

In general, the Federal Deposit Insurance Corporation (FDIC) provides $250,000 of basic insurance protection for personal bank accounts, including certificates of deposit (CDs). That's $250,000 per person, per institution. To increase your protection, you can spread your accounts over a number of different banks (though accounts in different branches of the same bank will be aggregated).

Joint accounts are insured apart from separate accounts, so you can increase your coverage by putting some funds into a joint account.

You might also check out the "CDARS" option that lets you use one bank that disperses your large deposit among member banks, keeping each account under the insured amount.

Certain types of assets aren't covered by FDIC insurance, such as the contents of safe deposit boxes and annuities.

Review your accounts and your options for expanded protection with your banker, or visit the FDIC Web site (http://www.fdic.gov/edie) for more information. This FDIC site has an excellent estimator to help you determine coverage for your accounts.

If you haven't already started teaching your children about money and finances, you're neglecting an important part of their education. Consider these suggestions:

* Teach children how to live below their means. Children learn by example, and you can be their best teacher. Teach them to think first and spend later. Impulsive spending increases your children's chances for getting in over their heads with consumer debt.

* Illustrate the power of compounding. Here's an example. If your child invests $1,000 from a summer job at a 6% return, the investment will double in 12 years, grow to over $4,000 in 25 years, and exceed $10,000 in 40 years — all this from a single $1,000 investment.

* Fund a Roth with summer earnings. If your child has a summer job, consider setting up a Roth IRA. The funds can be withdrawn to cover college expenses or left to grow for retirement. If your daughter invests $5,000 in a Roth at age 16, and the fund earns a 6% return, by age 65 that $5,000 will have grown to over $86,000 tax-free. If she continues to invest $5,000 every year to age 65 with a 6% return, the balance will exceed $1,400,000.

* Match savings. Consider matching every dollar your child puts into savings. It may prepare him or her for later participation in an employer's 401(k) plan.

If you want your children to be money-smart, take the necessary steps to educate them while they're young.

The U.S. national debt is currently $9.6 trillion. Yes, TRILLION. The U.S. population is currently 305 million. That translates to $31,500 of debt for every man, woman, and child in America.

Here's another way to picture it: Our national debt in one dollar bills would pave a one-foot wide path to the moon.

For you football fans: You can cover 18,500,000 football fields with the national debt in one dollar bills. Or stack the dollar bills on one football field, and your stack would be 1.2 miles high.

While you're considering these numbers, keep in mind that the financial bailout package could raise the national debt even higher.

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.