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Archived Newsletter |
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Online Advisor - August 2008
Major Tax DeadlinesFor September 2008
* September 15 - Due date for individuals to pay third quarter installment of 2008 estimated tax.
* September 15 - Due date for filing 2007 tax returns for calendar-year corporations that had an extension of the March 17 filing deadline.
* October 1 - Deadline for businesses to adopt a SIMPLE retirement plan for 2008.
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
Stimulus payment deadline approaching
The IRS has issued billions of dollars in tax rebate checks as authorized by the Economic Stimulus Act passed in February of this year.
The law provided for payments of up to $600 for singles and $1,200 for married couples filing joint returns, plus $300 for each qualifying dependent child. The rebates phased out for individuals with adjusted gross income over $75,000 (over $150,000 for married couples). Payments were computed by the IRS based on income reported on 2007 tax returns.
Individuals not required to file 2007 returns because their income didn't meet the filing threshold could still qualify for a rebate of $300 ($600 for married couples) if they had at least $3,000 of qualifying income and filed a modified version of the 2007 tax return.
The IRS is reminding taxpayers that to receive a rebate in 2008, a 2007 tax return must be filed by October 15, 2008. Those who do not file a tax return to obtain a rebate this year may still receive their stimulus payment by filing a 2008 tax return in 2009. The stimulus payment will then be based on the taxpayer's 2008 qualifying income.
Lending money to family members could be a taxing situation
Lending to family members probably dates back to the invention of money. The IRS entered the mix a great deal later, but it now looms large in the equation. Tax problems can arise when you first lend money, as you're being repaid, or if you're not repaid. The issues usually involve imputed income, gift tax, or bad debts.
* Imputed income
Imputed income is revenue presumed earned but neither recognized nor received by the alleged recipient. The IRS may impute interest on a loan at the "applicable federal rate" (AFR) when a lower rate (or no interest) is charged. The agency then assesses tax on the excess of the imputed interest over the amount required by the terms of the loan.
* Gift tax issue
When the IRS imputes phantom interest, it also creates phantom taxable gifts. The imputed interest is treated as though the borrower actually paid it to the lender, whereupon the lender returned it to the borrower as a gift. Since the lender "constructively received" the additional interest, he or she owes income tax on it. Since the lender then presumably gave the interest back to the borrower, he or she also owes gift tax on it, unless an exclusion or credit applies.
* Bad debt deduction
Normally, a loan that goes bad is deductible, either against ordinary income (if made for a business purpose) or as a short-term capital loss. However, when the defaulting party is related, the IRS may demand clear and convincing evidence that the original loan was not actually a gift. Once a loan is recharacterized as a gift, no bad debt deduction will be allowed if the loan isn't repaid, and the lender also may owe gift tax on the principal unless an exclusion or credit applies.
Interest need not be charged and will not be imputed on a family loan of $10,000 or less unless the loan directly relates to purchasing or carrying income-producing assets. Without a written document imposing interest at the applicable federal rate (AFR) or higher, the loan probably will be considered a gift and thus will not be deductible if not repaid.
Interest will be imputed on a family loan over $10,000 if the stated rate is below the AFR. However, unless the principal exceeds $100,000, imputed interest will be limited to the borrower's annual net investment income, and no interest will be imputed if that income is $1,000 or less.
Obviously, lending to relatives can create unintended tax consequences. You should always have a written loan agreement on family loans to document the transaction for the IRS.
Please call us before you make your loan. We can help structure the terms to ensure your helpful act is gratifying and tax-smart for the entire family.
New Business
The clock is ticking on this tax break
Don't let time slip away and lose out on a big 2008 tax break for your business.
If you're planning to purchase business equipment, be aware of these two depreciation rules: You can expense $250,000 worth of new or used equipment purchased for your business this year, and you can take 50% bonus depreciation on new equipment purchases.
You can use both breaks this year, and the two benefits can even be combined on the same purchase. For example, you can use the expensing option on a piece of equipment and apply bonus depreciation to the remaining cost if the property qualifies.
Off-the-shelf computer software qualifies for both tax breaks.
As you plan your acquisitions, remember that both 50% bonus depreciation and the increased expensing election are available only for 2008. Also, the expensing benefit phases out once your total equipment purchases for 2008 exceed $800,000. For details and help in best utilizing these tax breaks, give us a call.
How to spot problem accounts early
If you extend credit to your customers, some losses are inevitable. So unless you are willing to forgo the credit part of your sales, you have to figure out ways to control your bad debt losses.
Once you have extended credit to a customer, you have a stake in continuing the relationship even if you suspect there might be trouble a-brewing. You don't want to crack down on a good customer too hard too soon; yet you don't want to be "taken" by a debtor who has become unable or unwilling to pay. The problem is distinguishing between slow pay (which is bad enough) and no pay.
What you need is an early warning system to detect a credit problem in the making, so you can stop additional sales to that customer and begin collection procedures in earnest. Here are some of the telltale signs that point to an account that is turning sour.
* The debtor has begun paying erratically, settling up on smaller invoices while larger ones just get older, at the same time disputing specifications or terms.
* The debtor fails to return your phone calls or shows unusual annoyance at your inquiries.
* Your requests for information, such as updated financial statements, are ignored.
* The debtor places jumbo orders and presses you for a higher credit limit.
Any one of these hints of trouble can be the handwriting on the wall. Two or more and it's time to crack down. Take a firm stand; turn up the heat on your collection efforts with this debtor, and make no more sales unless they're cash on delivery.
What's New in Finances
401(k) debit cards: Weigh the pros and cons
If your employer's 401(k) plan offers the 401(k) debit card feature, don't sign up without a serious look at what you're getting into.
A 401(k) debit card allows you to borrow up to $50,000 or 50% of your plan account, whichever is less, via a debit card. Every time you use the card, you are withdrawing money from your 401(k) savings. You must repay the money along with fees and interest.
Using a 401(k) debit card may sound like a good deal when you need money. It's relatively easy, and it is, after all, your own money. But consider the down side. Borrowing from your retirement account could leave you with a much smaller fund in retirement. If you use your 401(k) to meet a short-term cash need, you probably won't be able to both contribute to the account and repay the loan, so for a time you're missing out on your company's matching contribution. Perhaps most important, if you can't meet the repayment schedule, the borrowed funds will be treated as a distribution subject to income tax, and if you're under age 59-1/2, subject to an early withdrawal penalty as well.
Bottom line: Whether a traditional 401(k) loan or a 401(k) debit card, tap your retirement savings only in emergencies and only as a last resort. Otherwise you'll have a smaller nest egg, and if you default on the loan, the possibility of serious tax consequences.
Long-term care insurance: What you need to know before you buy
Mention long-term care insurance in a crowd, and you'll likely receive a collective groan. Lacking the immediacy of health insurance and the certainty of life insurance, many people find it difficult to move this financial planning issue to the top of their to-do list. And when they finally do, it's often too late.
Long-term care (LTC) insurance provides coverage for nursing and personal assistance costs related to chronic illness or disability. Such services are notoriously expensive, potentially wiping out one's life savings. If you want to hedge your long-term care future with insurance, here are some things to watch for.
* Coverage. Some LTC plans pay only for nursing home expenses and others only for in-home care. A more expensive policy will cover both types of care, plus assisted living or adult day care expenses. Most LTC policies provide a monthly or daily benefit limit. Costs above this limit would be your responsibility.
Policies also vary as to the timing of the coverage. A plan might require you to pay the first few months of care out of your own pocket (called the elimination period). Further, some policies will pay benefits only for a specific length of time, while others pay for life.
* Cost. LTC insurance is expensive, but there are two ways you can help ease the burden. First, establish a policy long before you begin having health issues. Old age and ill-health will lead to much higher premiums. The best time to buy a policy is probably many years before you are likely to need it.
Second, seek a "qualified" long-term care policy that is eligible for a tax deduction. If you can write off the premiums, the tax savings will help offset the costs. The rules for deducting long-term care insurance premiums are complex, so get details before you buy.
* Company choice. The insurance company you choose can be as important as the type of coverage you buy. Research the financial soundness of potential insurance companies by reviewing their industry rating. And ask for references. You should shop and compare LTC policies like you would any significant purchase.
Long-term care is not a pleasant issue to dwell on, but a sober review now could reap benefits down the road. For a complete analysis of this and other financial planning issues, give our firm a call today.
Take a Break
Word trivia
Can you figure out what these words have in common? No peeking at the answer!
- Banana
- Dresser
- Grammar
- Potato
- Revive
- Uneven
- Assess
No, it's not that they all have at least two of the same letters. Try again
ANSWER:
In all of these words, if you take the first letter and put it at the end of the word, and then spell the word backwards, you get the same word.
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Online Advisor - August 2008
Major Tax Deadlines
For August 2008
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
Tax changes in three new laws
Congress has passed three laws that contain some tax provisions. Here's a quick overview.
* FARM ACT. The Food, Conservation and Energy Act of 2008 was vetoed by President Bush but became law when Congress overrode his veto. As the short title implies, the law mainly affects farmers and includes provisions on conservation donations, race horse depreciation, timber sales, CCC loan transactions, and farm loss deductions. Relief for certain disaster victims and increases in estimated tax payments for large corporations in 2012 are among other miscellaneous provisions.
* HEROES ACT. The Heroes Earnings Assistance and Relief Tax Act of 2008 provides tax breaks for military personnel, civilian employers of those called to military service, veterans, and reservists serving in the military. The Act's revenue-raising provisions include an increase in the minimum penalty for failing to file a tax return, a requirement that certain foreign subsidiaries of U.S. corporations must now pay employment taxes, and an immediate tax bill on Americans who give up their U.S. citizenship to escape income and estate taxes.
* HOUSING ACT. The Housing and Economic Recovery Act of 2008 was passed to provide financial stability to the troubled housing market and tax relief to homeowners and home buyers. The law gives first-time home buyers a refundable tax credit of up to $7,500 that must be paid back over 15 years. The credit phases out for singles with incomes over $75,000 ($150,000 for couples) and is available for home purchases from April 9, 2008, through June 30, 2009.
Another provision gives homeowners an additional standard deduction for real property taxes in 2008. The maximum deduction is $500 for singles and $1,000 for joint filers.
One of the revenue-raising provisions in the law will limit the exclusion of gain on the sale of a principal residence that had been used previously as a rental property or second home.
For details on these tax changes, please contact our office.
Summer is a good time for retirement tax planning
When it comes to your retirement, three areas are hot for summertime tax planning: establishing a plan, making contributions to existing plans, and taking distributions.
* Establish a retirement plan for your business. Qualified retirement plans shelter self-employment income and provide tax-free growth. In 2008 you can contribute up to $10,500 to a SIMPLE IRA (plus another $2,500 if you're over age 50). If you're self-employed, you may be able to contribute more.
Initial and ongoing paperwork for many plans is generally minimal. Setting up a plan during the summer lets you sock away your total contribution over several months, instead of scrambling for a lump-sum at year-end.
Need additional incentive? Your business may be able to claim a tax credit that helps offset the cost of implementing your new plan.
* Make contributions. No matter what retirement plan you have, it's never too early to put money aside. Budget now for manageable monthly set-asides. Smaller amounts add up by year-end and can offer multiple current tax advantages in addition to longer-term benefits.
For instance, depending on your income, contributions to traditional IRAs can be an above-the-line deduction that lowers your tax. The Saver's Credit, which applies directly against your tax liability and is available to lower-income taxpayers for making contributions to IRAs or other retirement plans, may also save you money.
Contribution limits for traditional and Roth IRAs have been increased to $5,000 for 2008. If you're over age 50 by year-end, the additional catch-up contribution is $1,000. You can set up an IRA even if you're covered under other plans (though deductibility of contributions may not be permitted in some situations).
* Schedule your distributions. Retirement plan distributions are generally taxable at ordinary income rates, so you'll want to know now how withdrawals will affect your 2008 tax liability.
If you're not yet required to take distributions, you may have some flexibility as to which accounts you tap to meet your cash flow needs. A summertime inventory of your assets lets you compare different distribution tactics and calculate the tax effect of withdrawals from taxable assets versus those from your retirement plans.
What if you've already reached age 70-1/2? At that point, under the required minimum distribution rules, you generally have to start withdrawing funds from your retirement accounts to avoid penalties. Advance planning can help you decide if shifting your taxable accounts to tax-efficient investments will save money.
For assistance with your retirement tax planning, give our office a call.
New Business
Federal minimum wage increases again
The federal minimum wage increased from $5.85 an hour to $6.55 an hour, effective July 24, 2008.
This increase is part of a three-stage increase in the federal minimum wage mandated by the Small Business and Work Opportunity Act of 2007. The first increase took place July 24, 2007, raising the then-current rate of $5.15 an hour to $5.85. This was the first increase in the minimum wage since 1997.
The next and final step in the minimum wage increase takes place next year when, effective July 24, 2009, the federal minimum wage will go to $7.25.
Note that many states already have a minimum wage higher than the federal required rate. For more information or assistance, give us a call.
IRS audit focus is on worker classification
One of the biggest headaches for business owners is the classification of their workers. If the wrong choice is made, the IRS could step in and assess additional taxes, penalties, and interest.
Most employers would rather hire contractors, paying them as "independent" people and avoiding the imposition of any payroll taxes, worker compensation insurance, or other payroll-related benefits. This method is much cheaper for the employer and can be accomplished with much less paperwork. The IRS, on the other hand, stresses that workers that are truly employees must be classified as such, with the employer paying appropriate payroll taxes and benefits.
Simply calling an employee a "contractor" isn't good enough. There must be a reasonable basis to treat a worker as a contractor. If the IRS reviews worker classifications, they will be looking at the amount and type of control an employer has over the workers. If the IRS determines that workers who were classified and paid as contractors are really employees, additional payroll taxes (both the employer
and employee portion), penalties, and interest can be assessed against the employer. Make no mistake: these can be serious amounts of money.
The IRS has developed twenty factors which are used on a case-by-case basis to determine if a worker is an employee or contractor. No one factor determines the classification. Instead, all of the factors are weighed, and the preponderance of those factors determines the correct classification.
Some of those factors include the instructions and training given to the worker, if the worker performs services for other clients, the location where services are performed, how the worker is paid (hourly indicates an employee), if the worker has his own tools, etc. You should review all of the factors for any of your questionable workers.
The IRS is looking to reduce the tax gap (the difference between taxes owed and taxes paid). Therefore, the proper classification of employees (and the imposition of additional payroll taxes and penalties) has become a priority issue for the IRS. Don't get caught in their sights. Make sure that your workers are classified correctly. Call us for assistance in walking the tightrope to the proper classification of all your workers.
What's New in Finances
New mortgage rules set by the Fed
Seeking to provide more protection for consumers against predatory lending practices, the Federal Reserve Board has issued new rules on home mortgage loans. The rules prohibit lenders from making loans to borrowers without verifying ability to repay, limit prepayment penalties, require more disclosure in advertising, and set rules to keep lenders and brokers from seeking inaccurate real estate valuations from appraisers.
The new rules provide sweeping consumer protection, applying to both banks and nonbanks. They will affect all borrowers in that they raise the standards for securing a mortgage and require more complete disclosure from lenders.
The new rules take effect on October 1, 2009.
Are your bank accounts insured?
How safe are your bank accounts? You probably rely on FDIC (Federal Deposit Insurance Corporation) insurance to protect your money if your bank fails. But this might be a good time to check your FDIC coverage for several reasons.
First, you might have less insurance coverage than you think. If your savings and loan or bank is an FDIC member, you've probably noticed the FDIC logo that says "each depositor insured to $100,000." A common misconception is that every account is insured up to $100,000. Unfortunately, it's not that simple. For example, a $100,000 insurance limit applies to the combined total of all accounts that are in your name alone. If you have $10,000 in checking, $20,000 in passbook savings, and $90,000 in bank CDs, FDIC insurance covers only $100,000 of your total $120,000. Similar limits apply to your share of all joint accounts. Your combined IRA accounts are subject to other limits.
A second reason to be cautious is that not all products you buy at the bank branch are FDIC insured. Many banks sell investment products, such as annuities and mutual funds. FDIC protection only applies to traditional deposit accounts, such as checking, savings, certificates of deposit, and money market deposit accounts. In addition, your bank must be an FDIC member in order for you to have FDIC protection.
Finally, although the banking industry is generally safe and bank failures are rare, they do happen. The FDIC was created in 1933 to insure deposits and to promote sound banking practices.
By knowing and following the FDIC insurance rules, you can avoid unnecessary exposure to risk. It could be well worth your time to sit down with a bank representative and review the FDIC insurance coverage on each of your bank accounts.
Take a Break
How hot is it?
If the summer heat is getting to you, this bit of trivia might put things in perspective and cool you off: The highest continental U.S. temperature ever recorded was 134 degrees in Death Valley, California in 1913.
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Online Advisor - july 2008
Major Tax Deadlines
For July 2008
* 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.
What’s New in Taxes
IRS audits more returns
The IRS recently released data showing an increase in taxpayer audits during fiscal year 2007 (which ended September 30, 2007).
The 2007 IRS audit rate for individual returns reporting income of $1 million or more increased 84% over 2006. The total number of individual returns audited in 2007 for all income levels increased by 7% to 1.3 million, the highest number of audits since 1998.
Business audits for 2007 also increased, up 14% from the prior year. The audit focus was on partnerships and S corporations, with audits of these pass-through entities increasing 26% in 2007. Audits of large corporations decreased slightly in 2007, but audits of mid-sized corporations increased.
The IRS filed 3.8 million levies and about 700,000 liens during 2007. IRS enforcement activities produced $59.2 billion in revenue during 2007, compared with $48.7 billion in 2006 and $34.1 billion in 2002.
Summer tax moves
* Your vacation home. If you have vacation/rental property, you might increase your tax deductions by adjusting the number of days you use your vacation home.
* Day camp. If you and your spouse work, the cost of sending your children to a summer day camp may qualify for the child care credit.
* Business entertaining. Summer is a good time to do business entertaining. Keep records of the cost, the date, the attendees, and the business purpose. Your tax deduction is limited to 50% of the cost.
* Hire your children. Put your children to work in your business this summer. A reasonable wage paid for legitimate work is a business deduction.
* Estate taxes. The estate tax is still with us. Make time this summer to create or update your estate plan as part of your overall tax-reduction efforts.
* Kiddie tax. Consider your options if the"kiddie tax" will affect your children this year (up to age 19; to 24 for full-time students).
* College fund. Now that the tax benefits of Section 529 plans have been made permanent, investigate their suitability in building a college fund for your children.
* Summer driving. Keep track of tax-deductible summer driving. The IRS has just increased the standard mileage rate for business, medical, and moving driving. For the last six months of 2008, the business mileage rate has been increased to 58.5 cents a mile. The rate for medical or moving costs has been increased to 27 cents a mile. The rates for the first six months of 2008 (January 1 through June 30) remain at 50.5 cents for business and 19 cents for medical and moving. The rate for charitable driving remains at 14 cents a mile for all of 2008.
New Business
IRS raises mileage rates
With gas prices soaring, the IRS has responded to numerous requests to increase the standard mileage deduction for business driving.
For the final six months of 2008, the standard mileage rate for business driving has been raised to 58.5 cents per mile. The rate for business miles driven from January 1, 2008, through June 30, 2008, remains at 50.5 cents per mile. (The IRS also increased the deductible rate for medical and moving mileage for the last six months of 2008 to 27 cents a mile. For the first six months of 2008, the rate is 19 cents a mile.)
The IRS adjusts the standard mileage rates for business driving annually, but when driving costs rise dramatically during the year, the Service may consider a midyear change. Rates are based on annual fixed and variable costs of operating a car.
A study by the National Federation of Independent Businesses determined that the cost of energy is ranked as the second most troubling problem for small businesses this year.
Turn a complaint into an opportunity
Nobody in business wants an unhappy customer, but when a customer complains, think of it as three opportunities in one.
* An opportunity to get free feedback on something that’s not working right in your organization.
* An opportunity to convert a disgruntled customer into a loyal customer.
* An opportunity to head off negative publicity as the complainer shares his gripe with others.
How do you turn a complaint to your advantage? Here are the four steps you need to take.
1. The initial response. The initial response to a complaint should be respectful and helpful, not defensive or "it’s not our fault."
2. Understanding the complaint. Make sure you really understand the true complaint. This is perhaps the most important part of the process. By allowing the customer to vent, you’ll defuse a large part of the hostility and ill will. Also, this step provides valuable feedback to pinpoint the exact problem and find out exactly what went wrong.
3. Fixing the problem. Employees must know clearly who has the responsibility and the authority to fix a problem. You may choose to compensate the customer for inconvenience, but at a minimum, you must remedy the customer’s immediate concern.
4. The follow-up. A supervisor or higher-level manager should always follow up with the customer to make sure that the problem has been resolved. This is a key step in turning the customer from "disgruntled" back to "loyal."
For assistance with this or any of your business concerns, contact our office.
What’s New in Finances
Don’t put your 401(k) on automatic pilot
Automatically enrolling new employees into a companys 40l(k) plan was made easier by the Pension Protection Act of 2006. A survey of 5,490 plans by Plansponsor, a Connecticut research firm, revealed that about 25% of companies now have automatic enrollment in their plans.
The good news about automatic enrollment is that it gets workers to start saving. The not-so-good news is that the rate of saving is often below the rate these employees would have chosen on their own. Trusting to automatic savings to build an adequate retirement fund is unwise; employees need to realize that they must take responsibility for themselves and increase savings levels if necessary.
Reverse Mortgages: Need retirement income?
If you own your home and are age 62 or older, one option to increase your retirement income could be a reverse mortgage.
As the name implies, a reverse mortgage is the opposite of a traditional mortgage. With a traditional mortgage, you borrow a sum of money to purchase a home, then pay off the debt over time. With a reverse mortgage, you receive loan proceeds - as a lump-sum payout, an annuity, a line of credit, or a combination of all three - but make no payments as long as you reside in the property. The loan, with any accrued interest, comes due when you move out or pass away.
To qualify for a reverse mortgage, you need to be at least 62 years old and own the home outright (or have a balance that can be paid off with the loan proceeds). How much you can borrow depends on your age, the home’s market value, and interest rates.
* The downside. Be aware that there is a downside to a reverse mortgage. Closing costs can be very steep, often over 5% of the home’s value. In addition, borrowers may have to purchase mortgage insurance, and they’re still on the hook for property taxes and homeowner’s insurance.
Federal truth-in-lending laws require lenders to provide information about interest rates, payment terms, and other costs. If you’re interested, shop for a reverse mortgage as you would for any other loan. Make sure the basic terms of competing loans are comparable. Then go with the lowest price by comparing interest rates, upfront fees, and other charges. If you need help, give us a call.
Take a Break
How to get that summer job
557 hiring managers were asked in a SnagAJob.com survey what they looked for when hiring a summer employee. Their responses:
* A positive attitude and eagerness to have the job - 39%
* Ability to work the hours needed - 28%
* Previous experience in the industry - 20%
* Commitment to work the full summer - 13%
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Online Advisor - June 2008
Major Tax Deadlines
For June 2008
* June 16 - Second quarter 2008 individual estimated tax is due.
* June 16 - Due date for calendar-year corporations to pay second installment of 2008 estimated tax.
* June 16 - Due date for calendar-year trust and estates to pay second installment of 2008 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.
What’s New in Taxes
IRS issues political activity reminder to tax-exempts
Every presidential election year, the IRS issues a reminder to tax-exempt organizations, such as churches and charities, not to engage in prohibited political activities.
By law, organizations with a 501(c)(3) tax-exempt status, may not "participate in, or intervene in (including the publishing or distributing of statements) any political campaign on behalf of (or in opposition to) any candidate for public office."
Organizations can engage in advocating for or against issues and, to a limited extent, ballot initiatives or other legislative activities.
Tax-exempt organizations that break the rules risk losing their tax-exempt status. More information about the law pertaining to political campaign activity and tax-exempt status can be found at the IRS web site (http://www.irs.gov/).
Vacation home planning can save your tax deduction
You can enjoy a vacation home and cut your taxes - with some careful planning and a little discipline.
The IRS rules can be complex and potentially restrictive, so a word of caution is in order as you plan the use of your vacation home.
Owners of vacation homes often rent out the property when they’re not using it themselves. Renting out your vacation home may or may not make sense for you. The principal variables are the number of days you rent the property, the number of days of personal use, your individual tax situation, and your personal wishes for the use of your vacation home.
Rent for 14 days or less and a simple tax break is available. If you rent your vacation home for 14 days or less, all of the rental income is tax-free. This attractive tax benefit can help provide cash for your mortgage and other expenses.
Rent for more than 14 days and your tax planning and personal life become more complex. If you rent your vacation home for more than 14 days, all your rental income is reportable. Whether you treat the income and expenses as a second residence or as rental property depends on the personal use of your vacation home relative to the time the home is rented out. This test is made annually and determines the nature of deductions, loss carryovers, and the tax treatment if the vacation home is sold.
Please call us to guide you through the IRS rules to find the rental strategy that meets your financial goals, yet ensures the personal enjoyment of your vacation home.
New Business
It’s time for midyear business planning
It’s time to do a midyear review of your business tax planning. Here are six ideas to consider.
* Establish a retirement plan if you don’t already have one. Examining the choices now gives you time to select the best plan for your business and to get the paperwork completed. Then you’ll be set to make contributions as your cash flow allows - and to take the deduction on your 2008 tax return. Another plus: You may be able to claim a credit on your 2008 tax return for the costs of establishing the plan.
* Hire your kids. If your child is under age 18 and works for your unincorporated family business, there are no social security or Medicare taxes on the child’s pay. Wages paid to the child are also deductible. Just make sure the compensation is reasonable for the work actually performed.
* Track your business driving. For 2008, the rate for business-related mileage is 50.5 cents per mile, and you can deduct actual costs for parking fees and tolls in addition to mileage. Keep detailed records to substantiate your deduction.
* Deduct equipment purchases. You can expense up to $250,000 of business equipment purchased this year. If you buy new equipment (not used), you may also qualify for 50% bonus depreciation in 2008.
* Check your benefits. If you offer health benefits to your employees, look into tax-advantaged plans such as health savings accounts, flexible spending accounts, or health reimbursement arrangements. These plans can reduce your taxes and help control your benefit costs.
* Start a business. Planning to acquire or start a business this year? Keep good records of your costs to get the business off the ground, including advertising costs, legal fees, and accounting expenses. Up to $5,000 of these expenses could be deductible on your 2008 tax return.
To discuss the tax-saving ideas best suited for your business, give us a call.
Customer Service: Does your business just say it or do it?
Many companies know how to SAY customer service; they just don’t know how to DO customer service. Yet, good customer service leads to repeat sales and referrals,
which lead to higher revenues and profits. The result is a stronger, more secure business.
Your sales staff knows this well. Their results are directly affected by customer perceptions. Other employees, such as those in support and back office functions, may not think of themselves as serving the customer. But the fact is that every employee has an impact, direct or indirect, on the customer’s experience. An incorrect shipment, a late delivery, or a mistake on an invoice, all result in poor service. A goal of your business should be to meet, and preferably exceed, customer expectations as often as possible.
How do you teach every employee that customer service is part of their job? The answer is a combination of communication, training, and good management.
* Communication. Make all employees aware of the importance of customer service to the business as a whole. Explain the role they play in achieving good service. Consider posting measures of sales for all to see. If appropriate, develop measures of accuracy or error-free performance and track and share the results.
* Training. Every employee with customer contact should be trained on good service, whether it’s a salesperson, a receptionist, or a delivery driver. For those in support roles, emphasize how cooperation and teamwork can contribute to good service. Instill a culture that serving the customer is everyone’s job.
* Good management. As the owner or manager, your actions and your priorities set the tone for the company. Employees will follow your lead and pay attention to the things you consider important. Look for ways to measure customer satisfaction and show your employees that you’re monitoring it. And don’t overlook the other way to improve customer service - minimizing the things that go wrong. Make sure you're aware of errors and complaints. Set goals for improved performance and hold people to them.
Finally, involve your employees. Make it clear that better service is a shared goal and ask for their suggestions. You might be surprised how well they respond.
What’s New in Finances
Are children priceless?
Parents generally consider their children to be priceless, but one group has put a price tag on children.
The parenting Web site BabyCenter, using data from the College Board and the Department of Agriculture, estimates that raising a child born today through college will cost more than $338,000. If the child goes to a private college, add $70,300 to that amount.
The numbers vary depending on region of country, with the West totaling $426,190 (including private college tuition) and the Midwest costing $392,116.
Think before breaking your 401(k) nest egg
With today’s shrinking home values, rising adjustable mortgage rates, and tighter loan standards, many people are turning to their 401(k) plans as sources of needed cash. But early withdrawals can exact a heavy price, and even borrowing from a 401(k) can have adverse consequences.
* Due to the tax effect, withdrawing funds from a qualified retirement plan is not like taking cash out of your bank account. A 401(k) withdrawal is taxed as ordinary income, and if you’re under age 59-1/2;, a 10% penalty usually will be added to the tax. Borrowing from a 401(k) generally is preferable to simply withdrawing the funds, because no tax applies to the loan proceeds.
However, many plans either restrict their participants’ borrowing or don’t allow borrowing at all. Where loans are permitted, they’re individually limited to the lesser of $50,000 or one-half of the borrower’s plan assets. Most 401(k) loans require interest at one or two points above the prime rate, and the loans must be fully repaid within five years, unless the proceeds are applied to a personal residence. The borrower must sign a legally enforceable loan agreement and adhere to the agreement’s terms.
* If you leave your job with a 401(k) loan outstanding, you'll generally have 30 to 90 days to either fully repay the loan or face being taxed (and penalized, if you’re under age 59-1/2) on the outstanding balance.
When you repay the loan, you’ll be paying with after-tax dollars, and you’ll be taxed again on those dollars when you withdraw them upon retirement. And unlike ordinary mortgage interest, the interest paid on a 401(k) loan used to buy or improve a home is not deductible.
* Borrowing from a 401(k) is an especially bad idea for funding an ongoing cash need. For example, using the proceeds to offset a hike in your adjustable mortgage payments would only compound the problem. You’d be burdened with an additional loan, the proceeds eventually would run out, and the mortgage payments almost certainly would not go back down.
* Finally, borrowing from your 401(k) tends to defeat the purpose of participating in the plan in the first place - to accumulate funds for a comfortable retirement. Removing money from a fund slows its growth, particularly since most people must cut back on current contributions in order to make repayments.
Call us if you’re thinking about borrowing from your 401(k) or you’d like to discuss other funding sources. We’ll help you make the decision that’s right for your individual circumstances.
Take a Break
Are you as smart as an 1895 eighth grader?
So your granddad only got an eighth grade education. Could you pass the arithmetic portion of the final exam given to eighth graders in Salina, Kansas in 1895? Give it a try.
1. Name and define the Fundamental Rules of Arithmetic.
2. A wagon box is 2 feet deep, 10 feet long, and 3 feet wide. How many bushels of wheat will it hold?
3. If a load of wheat weighs 3942 lbs., what is it worth at 50 cents a bushel, deducting 1050 lbs. for tare?
4. District No. 33 has a valuation of $35,000. What is the necessary levy to carry on a school seven months at $50 per month, and have $104 for incidentals.
5. Find the cost of 6720 lbs. of coal at $6.00 per ton.
6. Find the interest of $512.60 for 8 months and 18 days at 7 percent.
7. What is the cost of 40 boards 12 inches wide and 16 ft. long at $1.20 per meter?
8. Find the bank discount on $300 for 90 days (no grace) at 10 percent.
9. What is the cost of a square farm at $15 per acre, the distance around which is 640 rods?
10. Write a Bank Check, a Promissory Note, and a Receipt.
The grammar, history, spelling, and geography sections were no snap either.
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Online Advisor - May 2008
Major Tax Deadlines
For May 2008
* May 15 - Deadline for calendar-year exempt organizations to file 2007 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.
* 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
Tax scam warnings
The Justice Department’s Tax Division recently announced the creation of a national "tax defier" initiative to "investigate, pursue, and, where appropriate, prosecute those who take concrete action to defy and deny the fundamental validity of the tax laws." The IRS reminds taxpayers to be wary of scams and promises to avoid paying taxes that seem too good to be true, saying "There is no secret formula that can eliminate a person’s tax obligations."
Taxpayers also need to be alert to tax-related scams designed to steal their identity for fraudulent purposes.
You may be able to find tax-saving options in new 2008 rules
The tax law seems to change year-to-year. This year is certainly no exception. With careful planning, you can take advantage of new tax-saving opportunities in 2008 while avoiding potential pitfalls. Here’s a summary of several key provisions.
* Capital gains and dividends
The maximum tax rate on net long-term gain and qualified dividends for taxpayers normally in the 10% or 15% regular income tax brackets is reduced from 5% to 0% for 2008. Under current law, the 0% rate will remain in effect through 2010.
This tax break isn’t strictly limited to lower-income taxpayers. If you can push your taxable income for 2008 below the cut-off point for the regular 25% tax bracket - perhaps by increasing charitable gifts or 401(k) contributions - your long-term capital gains and dividend income could qualify for the 0% rate.
* Small business assets
Under the new economic stimulus law, your business can currently deduct up to $250,000 of business assets placed in service in 2008. Previously, the inflation-indexed amount for this "Section 179 deduction" was $128,000. In addition, a business may elect "bonus depreciation"in 2008 equal to 50% of the cost of qualified assets.
If handled correctly, your business can combine the enhanced Section 179 deduction with bonus depreciation. Regular depreciation deductions may be claimed for any remainder.
* Mortgage insurance
Congress previously approved a one-year deduction for mortgage insurance premiums in 2007. A full deduction was available for taxpayers with an AGI of $100,000 or less. Once income exceeded $100,000, the deduction was phased out.
The new mortgage relief law extends this tax break for three years through 2010. Therefore, you may qualify for a 2008 deduction for amounts paid or accrued this year.
* Kiddie tax
Under the kiddie tax, a child’s investment income above an annual threshold ($1,800 for 2008) is taxed at the top tax rate of his or her parents. Prior to this year, the kiddie tax applied to children under age 18. But now the rules have changed.
Beginning in 2008, the kiddie tax generally applies to your children who are under age 19 or full-time students under age 24 if they can be claimed as your dependents.
To minimize the tax damage, try to keep investment income of children below or near the $1,800 threshold. For example, you might have a child switch funds into tax-deferred or tax-free investment vehicles.
* IRA contributions
If you contribute to an IRA, the contributions may be fully or partially deductible. Although deductions are generally not available to high-earning taxpayers if either spouse participates in an employer’s retirement plan, contributions may still grow on a tax-deferred basis until withdrawn. The contribution limit for the 2008 tax year increased from $4,000 to $5,000. Plus, if you’re age 50 or older, you can add a "catch-up contribution" of $1,000. The contribution deadline for 2008 is April 15, 2009, but you may earn more by contributing earlier.
Finally, a word about the new economic stimulus payments the IRS has been distributing: These rebates aren’t available until you’ve filed your 2007 return, so taxpayers with extensions have to wait. Certain individuals who normally aren’t required to file returns - such as those receiving social security benefits - may follow a simplified filing procedure.
Contact our office for details or guidance with your 2008 tax planning.
New Business
Vehicle depreciation limits
The IRS has issued the depreciation limits for business vehicles first placed in service in 2008. Recent legislation allows higher limits for new vehicles that will qualify for 50% bonus depreciation.
The first-year limit for new cars is $10,960; for used cars, it’s $2,960. Depreciation limits for later years are the same for both new and used cars: $4,800 in year two, $2,850 in year three, and $1,775 in all following years.
The 2008 first-year depreciation limit for trucks and vans is $11,160 for new vehicles and $3,160 for used vehicles. Limits for both new and used vehicles in year two are $5,100, in year three $3,050, and in each succeeding year $1,875.
For details relating to your 2008 vehicle purchases, contact us.
What should you do to help your child get started in business?
Perhaps you’re thinking of helping one of your children get started in business. Since the failure rate for new businesses is high, you need to do whatever you can to increase your child’s chances of success. That includes considering three M’s: motivation, money, and mentoring.
1. Motivation
To succeed, your child must be motivated. He or she may like the idea of self-employment but lose interest when confronted with the realities of planning and preparation.
Before involving yourself, find out how much time, thought, and effort your child has already devoted to the proposed business. If the enterprise is no more than an idea, you can suggest approaches to researching the market and determining the resources, knowledge, and skills that will be needed. However, your input should be limited to guidance and ideas. Your child should do the work.
Once your child has completed the necessary groundwork, and if the project still seems reasonably feasible, you’ll be ready to consider the next steps.
2. Money
Whether you’re making a loan or buying an ownership interest, keep the following guidelines in mind:
* Never put up more money than you can comfortably afford to lose.
* Try not to be the sole source of capital. Risk is part of the business experience, and your child should have some personal assets at stake. Although loans from outside sources may also be part of the mix, they should be limited in order to keep the debt service from becoming overwhelming.
* Set limits. Make it clear that you'll lend or invest a specific amount and no more. You also may wish to set restrictions on the use of the funds within the business.
* Put everything in writing. Loans should be supported by signed notes that stipulate repayment terms and require interest at market rates. Investments should be supported by partnership agreements, shareholder agreements, or similar documents that describe operating arrangements, profit and loss sharing, buyout provisions, and closing contingencies.
* Don’t forget tax planning. You probably will want to allocate any taxable income to your child, and you certainly will want to be able to write off your loss if the business goes bad. Proper documentation will be paramount, since the IRS closely scrutinizes family transactions.
3. Mentoring
Remember that the primary objective is to give your child business experience. Explain the reasons behind each of your requirements, and make it clear that the child must consider your input as a condition of accepting your money. You should offer advice freely, but let your child make most of the business decisions. Mistakes are part of the learning process.
If you’re thinking about helping your child get started in a business, give us a call. We’ll be glad to offer guidelines to fit your particular circumstances.
What’s New in Finances
Put your tax refund or rebate check to good use
Will you receive a 2007 income tax refund or an economic stimulus tax rebate check? Here are some suggestions for how to put these funds to good use.
1. Pay off consumer debt. This is generally one of the best uses for extra cash. For example, if you typically carry a credit card balance and pay 16% interest, you’ll realize a 16% return if you pay off that debt. You probably won’t save quite as much by paying off other types of loans, but you should consider that as well.
2. Contribute to an individual retirement account (IRA). A contribution to an IRA is a good idea whether it’s tax-deductible or not because IRA earnings grow taxdeferred. If you’re self-employed and show a profit for the year, you can also make a tax-deductible contribution to a Keogh plan.
3. Start or add to an education fund. Consider investing your extra money in stock or bond mutual funds earmarked for your child’s education. We can help you decide whether your education fund should be held in your name, your child’s name, or in trust. We can also help with planning to avoid getting snared by the "kiddie tax."
4. Invest in yourself. While planning for your family’s education, don’t forget yourself. Have you put off training for new job responsibilities or a new career because you couldn't afford it? Now that you have some extra cash, spending it on yourself may be the best investment of all. You also may be entitled to a tax deduction for education expenses that are required by your employer or that improve the skills required on your current job.
Don’t just spend a tax refund or rebate check; put it to work improving your financial well-being.
Are you prepared for a job loss?
In today’s economy, the job market is not secure. Companies are downsizing, reducing hours, or cutting salaries to remain competitive. Losing your job or having your pay cut can be financially devastating. But there are things you can do to protect yourself, whether your job is threatened or you’re suddenly terminated.
If you feel your job is in danger
* Take stock of your finances. List all your debts and the monthly payments. Estimate what your monthly living expenses would be if you were not working.
* Line up sources of extra cash in case you need it. It’s easier to obtain credit while you’re still employed.
* Consider an equity line of credit if you own a house. You can draw this down as you need it, tapping into the equity in your home. Check whether it would pay to refinance your mortgage.
* Start networking to get a feel for the job market. Investigate the opportunities for part-time or evening jobs.
* Set a budget. Force yourself to make changes in lifestyle to reduce expenses. Even if you don't save much, the symbolic value is important.
If you lose your job
* Start your job search immediately. Resist the temptation to take a vacation to "recover."
* Set yourself an aggressive budget and stick to it. It’s better to reduce spending now than regret it later.
* If you begin to have problems making loan payments, talk to the lenders before you fall into arrears, and try to work out a payment plan.
* Tap into retirement savings such as IRAs or 401(k)s only as a last resort.
Hopefully you’ll never find yourself in this situation. While you’re working, develop a regular savings habit. Try to build a reserve equal to six months of living expenses for job loss or other disasters. Then at least you’ll have a financial cushion if the worst should happen.
Take a Break
Question of the day
If "con" is the opposite of "pro," is Congress the opposite of progress?
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.
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Online Advisor - April 2008
Major Tax Deadlines
For April 2008
* April 1 - Deadline for taking your first required IRA distribution if you turned 70-1/2 in 2007. Unless you’re still working, this deadline also applies to your other retirement accounts (except for Roth IRAs).
* April 15 - Individual income tax returns for 2007 are due.
* April 15 - 2007 calendar-year partnership returns are due.
* April 15 -2007 annual gift tax returns are due.
* April 15 - 2007 income tax returns for calendar-year trusts and estates are due.
* April 15 - Deadline for making 2007 IRA contributions.
* April 15 - Deadline for employers to make contributions to certain retirement plans.
* April 15 - First installment of 2008 individual estimated tax is due.
* April 15 - Deadline for amending 2004 individual tax returns (unless the 2004 return had a filing extension).
* April 15 - Deadline for original filing of 2004 individual income tax return to claim a refund of taxes. Each year some taxpayers have tax refunds due them for prior years, and unless a return is filed to claim the refund by the three-year statute of limitations, the refund is lost forever.
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
Filing a 2007 tax return is required to get rebate check
Next month, the IRS will begin sending out the tax rebate checks authorized by the Economic Stimulus Act of 2008. The only way to receive a stimulus payment in 2008 is to file a 2007 tax return. The IRS says the majority of taxpayers do not have to take any additional steps to receive their checks besides the routine filing of their 2007 tax return. No other action, extra form, or call is necessary.
However, some taxpayers would not normally be required to file a 2007 tax return (for example, low-income workers, social security recipients, and those receiving veterans' disability benefits). These individuals may still be eligible to receive checks of $300 for individuals and $600 for couples if they had at least $3,000 of qualifying income. Qualifying income includes social security benefits, certain railroad retirement benefits, certain veterans' benefits, and earned income (i.e., wages, salaries, tips, or self-employment income).
The IRS is recommending Form 1040A to be used by these individuals to claim their tax rebate checks. They suggest writing "Stimulus Payment" across the top of the form. The IRS Web site (www.irs.gov) has this very brief form available, along with instructions for completing the form.
If you have family members whose income normally would not require filing a 2007 return, you may want to pass this information along to them. For any questions you have or filing assistance you need, please call our office.
Act fast or you’ll lose your refund
If you didn’t file a tax return for the year 2004, you’re not necessarily in trouble. In fact, you could be about to lose out on a nice refund check. The IRS reports that it is holding an astonishing $1.2 billion in refunds from the year 2004. Here’s how the situation arose.
Approximately 1.3 million filers, many of them students and retirees, had taxes withheld from their earnings that year but didn’t bother to file a return. That was quite legal if they didn’t earn enough to reach the minimum income for required filing. And in many cases they forgot that taxes had been withheld and that they were eligible for a refund. For example, a student might have worked at a summer job, gone back to school in the fall, and not given taxes a second thought.
If you think you are due a refund for 2004, it’s worth filing a return. The IRS estimates that around half those who are eligible would receive refunds of just over $500. In some cases, you could find you’re eligible for even more than the refund. If you were a low-income worker that year, you might also have qualified for the earned income tax credit. But you'll need to act fast. Unless you file a year-2004 return by April 15, 2008, the statute of limitations will have run and you’ll be too late to claim your refund.
Be aware that the IRS won’t issue a 2004 refund check unless you’ve also filed returns for years 2005 and 2006. And if you owe taxes for those years, they’ll deduct that from the amount of the 2004 refund.
Worried about late-filing penalties? Here’s good news: They’re typically not assessed if you file a return showing a refund.
According to the IRS, over a million people are eligible to claim refunds for tax year 2004. If you’re one of them, or if you haven’t filed returns for other years, give us a call. Acting now can save your already-paid-in tax dollars.
New Business
Sleepy workers are a business problem
The nonprofit National Sleep Foundation recently conducted a survey that reveals many American workers suffer from lack of sleep. Almost a third of employees surveyed said they had become very sleepy or actually fallen asleep on the job during the past month. 12% of those surveyed said they came to work late in the past month. 36% said they have nodded off or fallen asleep while driving, with 26% reporting driving drowsy on the job.
Factors that apparently contribute to sleepy employees include longer work hours and technology that keeps people "on the job" even beyond the regular work day. According to the survey, 63% of workers just accept being sleepy, 32% use caffeinated drinks to try to cut sleepiness, and 54% try to catch up on sleep on weekends.
For more information revealed in the survey, go to http://www.sleepfoundation.org/.
Turn employees into productive team players
Do you wish your employees were more motivated and focused on driving productivity and profits for your company? Are there ways to improve participation and tap into the unused creativity and drive of your team? Here are a few suggestions that might help in that process.
* Give employees the big picture. Make sure each employee understands the company’s goals and how their role contributes to achieving them. They need to know they don’t operate alone, that they are part of a broader team.
* Lead by example. If you want to inspire your employees to excel, you’ll need to demonstrate your commitment and passion to the process.
* Identify your key measures. Remember that you can’t effectively change what you don’t measure. Educate your team on what’s important and why and how you’ll track your progress. Is it sales per customer, gross profit percentage, monthly sales level, or some other measurable factor?
* Start small and build on an early success. Pick an area ripe for improvement and involve your best people. Then build on that early success with generous praise and credit.
* Make it highly visible. Track your measurements with colorful graphs where everyone can see them. Let the winners and achievers stand out.
* Be tolerant of mistakes. Treat them as a learning experience for your team and the entire organization.
* Change perspective. Have your team view the world from the perspective of your customers. Role playing can highlight what’s working and what’s not working. Both are opportunities to improve performance and profitability.
* Learn what motivates your team members. Tailor your incentives to what drives your team members. Is it money, recognition, promotion, or time off?
Taking steps to increase the emotional and creative involvement of your employees is likely to result in a more profitable business.
What’s New in Finances
Check your deposit insurance
The recent failure of Bear Stearns, the fifth largest investment bank in the U.S., may have you wondering about the health of the banking system in general. Indeed, you may be wondering if your bank accounts are safe. Here's a quick review of deposit insurance that may help put your mind at ease.
The sign at your savings and loan states that your accounts are insured up to $100,000. Knowing the rules of the Federal Deposit Insurance Corporation can help you extend your protection beyond this amount.
Generally, the FDIC insures only $100,000 per person per institution. Thus, if you have more than one account in a single bank, only $100,000 of the aggregate of your accounts is protected. Amounts over that are uninsured.
To increase your protection, you can simply spread your accounts over a number of different banks. Remember, however, that accounts in different branches of the same bank will be aggregated.
Because joint accounts are insured apart from separate accounts, you can increase your protection by placing some funds into a joint account. If you and your spouse have a joint account and each of you has a separate account, the three accounts can be insured to a total of $400,000. As with personal accounts, however, all joint accounts held by the same persons will be aggregated.
Different types of accounts are also aggregated. Individual retirement accounts (IRAs), however, are separately insured to $250,000 if the underlying investments are insured.
For more information on deposit insurance, go to http://www.fdic.gov/ . You may also want to review your accounts with your banker to be sure you have the protection you need.
Do a financial review at tax time
As long as your tax and financial records are out for filing your 2007 tax return, why not take one more step and do something positive for your financial well-being? This is the ideal time to review your financial affairs and make any needed changes.
Here are some suggestions on how to get started.
Hold a discussion with your family. Spouses and children need to share and prioritize their financial aspirations.
* Write down your financial goals. How much money will you need to meet each goal? When will you need the money, and how will you get it?
* Do a net worth statement (a list of your assets and debts), and compare it to last year’s statement. Are you gaining or losing ground?
* With your goals (and the effects of inflation) in mind, review the performance of your investments.
Take steps to protect what you already have. Goals may become instantly unobtainable if you lose your present assets or your income potential.
* Do you have adequate disability insurance coverage to replace take-home pay if you become incapacitated?
* Do you have enough life insurance if you or your spouse should die?
* Do you have replacement value property insurance on your home?
* Do you have adequate insurance for calamities such as automobile accidents or lawsuits?
Note: Make sure that you need all of the insurance that you have. Do not duplicate employer-provided coverage. Review your coverage annually; do not just automatically renew policies.
Review your will and your estate plan. Has your situation changed recently (marriage, divorce, births, deaths, move to another state, for example)? If so, make appropriate changes to your will and estate plan.
Review your credit use. Keep your credit card bills current. If you’re finding that hard to do, it’s probably time to cut up some of those credit cards and get your debt under control.
Organize your records. If you had trouble assembling data for your financial review, you need a better system. Set one up.
For help with any aspect of your review, call us. We’re here to assist you in any way we can.
Take a Break
Tease your brain
Can you solve this word riddle: What nine-letter word in the English language is still a word when each of the nine letters is removed one by one?
Give up?
The word is "startling."
Remove the "l" and the word becomes "starting."
Remove the second "t" and you have "staring."
Drop the "a" to get "string."
Drop the "r" for "sting."
Drop the "t" for "sing."
Drop the "g" for "sin."
Remove the "s" to get "in."
Finally, drop the "n" to get "I."
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Online Advisor - March 2008
Major Tax Deadlines
For March 2008
* March 3 - Farmers and fishermen who did not make 2007 estimated tax payments must file 2007 tax returns and pay taxes in full. (Deadline is extended to March 10 if Form 4136, Credit for Federal Tax Paid on Fuels, is attached to tax return, and the tax return is electronically filed.)
* March 9 - Daylight Saving Time begins. (The energy bill passed back in 2005 extended Daylight Saving Time by one month. As a result, Daylight Saving Time starts the second Sunday in March and ends the first Sunday in November.)
* March 17 - 2007 calendar-year corporation income tax returns are due.
* March 17 - Deadline for calendar-year corporations to elect S corporation status for 2008.
* March 31 - Deadline for payers who file electronically to file 2007 information returns (such as 1099s) with the IRS.
* March 31 - Deadline for employers who file electronically to send copies of 2007 W-2s to the Social Security Administration.
For early April 2008
* April 1 - Deadline for taking your first required IRA distribution if you turned 70½ in 2007. 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
New economic stimulus law passes
In an attempt to boost the economy, Congress hammered out a new economic stimulus package in mid-February. The centerpiece of the new legislation, of course, is the highly publicized tax rebate program. However, other tax incentives targeted at the business sector were also included in the law.
Here’s a brief look at the major provisions in the new Economic Stimulus Act of 2008.
* Individual tax rebates. Most single filers will be entitled to receive a one-time tax rebate of $600. The rebates are doubled to $1,200 for joint filers. However, these rebate amounts will begin to phase out for higher-income taxpayers. The phase-out begins at $75,000 of AGI for single filers and $150,000 for joint filers, based on 2007 tax returns. Rebate checks are expected to begin arriving in May.
A late addition to the new law also authorizes rebates for individuals who have no tax liability but received at least $3,000 of taxable income in 2007. This covers social security recipients and disabled veterans (or surviving spouses of disabled veterans).
Finally, you may receive an additional payment of $300 for each child under age 17. There is no limit on the number of rebates available for qualifying children.
* Business incentives. Under the new legislation, a business may benefit from the following two tax provisions:
1. Enhanced Section 179 deductions. The new law increases the write-off allowed for assets placed in service in 2008 from $128,000 to $250,000. In addition, the dollar limit for the maximum Section 179 deduction jumps from $510,000 to $800,000. Amounts over this threshold are reduced on a dollar-for-dollar basis.
2. Bonus depreciation deductions. A business may be entitled to a 50% "bonus"depreciation deduction for new equipment placed in service in 2008. Any remainder that is left over after claiming the 50% deduction is still available for regular depreciation deductions.
Finally, the new law also raises loan limits for Fannie Mae, Freddie Mac, and the Federal Housing Authority (FHA). If you have any questions concerning the new tax breaks in the economic stimulus package, give us a call.
Tax recordkeeping: Some tips to make it easier
Are you sometimes overwhelmed and intimidated by the prospect of keeping records for federal tax purposes? Well, you are not alone. Here are some suggestions that should help you determine what to keep and for how long.
Normal statute of limitations. This is three years from the later of the due date or the actual filing date of the return. The statute period can be extended to six years if your income is understated by more than 25%. There is no statute of limitations if fraud is involved. Be safe and maintain the following records for seven years.
* W-2s, 1099s, annual brokerage statements, and other evidence to support taxable income.
* Receipts, cancelled checks, invoices, and other evidence to support tax deductions.
* IRA and other retirement plan contributions.
* Support for all charitable donations of any amount.
Other seven-year records. Some items build a history until they are reflected on your tax return. Once realized on your return, the suggested seven-year holding period applies.
* Net operating loss information. (Generally, net operating losses can be carried back two and forward twenty years.)
* Property purchases and improvements. (Keep for seven years following sale.)
* Investment related information. (Maintain investment purchase and sale information along with any dividends and stock splits.)
* Worthless securities. (Document basis and save evidence supporting the date on which the investment went bad.)
*Also keep information on your personal residence. Maintain documents supporting your basis along with improvements. Current tax laws give favorable treatment to your residence, but one Congressional act can change that. It’s better to be prepared.
How to organize. Three-ring binders are a good collection device. They’re easy to organize and maintain. One can accommodate your old returns and any unrealized long-term tax information. Others can be used to maintain information on filed returns for the recommended seven years. Computerized records with scanned documents are another alternative. However some documents are difficult to scan and readability can be an issue. The three-ring binder might be the better choice.
Good tax documentation starts with a commitment to action. If you need more information to organize your tax recordkeeping, give us a call.
New Business
Cost of health insurance a major concern for businesses
The cost of health insurance is a major concern, both for employees and employers. A recent survey of approximately 3,000 companies revealed that among those with 200 or fewer employees, 61% offered health insurance in 2007. This represents a drop from 63% in 2006.
In 2007, about 5% of employees with health insurance had a high-deductible plan linked with a health savings account, up from 3% in 2006.
These plans became available in 2003 tax legislation. They are composed of two elements: a high-deductible medical insurance plan and an IRA-like employee savings account. Both employees and employers may contribute to the savings account, and those funds can be used tax-free to pay for medical expenses not paid for by insurance. Balances in the account can be invested and grow tax-free; money not used in any year can be carried over to future years.
Though 41% of larger companies offer such plans, only 7% of employers in smaller companies do. If you would like to discuss the pros and cons of these plans for your business, give us a call.
Know the tax rules for selling online
Selling items on eBay and other online auction Web sites has become a very popular way to get rid of unwanted household stuff, as well as a way to turn a little profit. Many users have even started full-time businesses auctioning merchandise on the Web. But like any business venture, selling items in the virtual world has tax implications that are all too real.
From a tax standpoint, casual selling on eBay is essentially the same as holding a garage sale. If you sell an item for less than you paid for it, you cannot deduct the "loss." When you sell something for a profit, however, you must report it on your tax return. Long-term gains on the sale of collectibles, such as artwork, antiques, or rare coins, are taxed by as much as 28%.
Profit is the difference between the selling price and your "basis" in the item. In most cases, basis is simply the amount you paid for it. Inherited items generally have a basis equal to their fair market value at the time of receipt. If the basis cannot be documented, it becomes zero, and you pay tax on the entire selling price.
Online selling activity can reach the point where it is deemed to be a business venture. Status as a for-profit eBay business versus a casual online seller is not clearly defined. Factors considered by the IRS include the amount of time you spend selling online and whether you conduct yourself like other self-employed business owners, such as keeping accounting records and advertising your services.
The good news is that if you are treated as a business, you can deduct expenses related to your selling activity. This can include Internet access fees and home office expenses. You may also be able to deduct travel expenses incurred in searching flea markets and other locations for items to sell. The downside to business status is that profits from selling online may be subject to self-employment tax. What's more, depending on where you live, you may be required to collect and report local and state sales taxes.
Taxpayers who operate like a business, but rarely show a profit, may be treated as a hobbyist and have their business losses denied. In this scenario, losses can only be deducted to the extent of gains. Generally, if you show a profit in most years, a few down years should not put you in danger of this label.
Whether you are an infrequent user of online auction sites, or an all-out eBay business owner, you cannot afford to ignore the tax implications of selling online. For the details you need to avoid tax problems, call our office today.
What’s New in Finances
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