Online Advisor - August 2006

Major Tax Deadlines

For August 2006

*Prior to this year, getting an automatic extension for filing your tax return gave you four extra months to file. That meant August 15 was the due date for filing extended tax returns (or for requesting an additional two months by explaining your need for more time to the IRS). This year, automatic extensions allow six extra months to file — or until October 16, 2006, for extended 2005 returns.

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 concedes defeat on telephone tax

After numerous losses in court, the IRS is admitting defeat on the issue of telephone excise taxes. The Service will no longer collect the 3% excise tax on long-distance telephone services. In addition, the IRS will issue credits or refunds of all excise taxes paid on long-distance service billed after February 28, 2003, along with interest.

Consider the tax benefits of annual gifts

Did you know that this year you can give gifts of up to $12,000 to as many individuals as you want without being liable for gift tax? Normally, the gifts you make count towards your lifetime exemption from gift and estate taxes. That's so you don't just give away your estate shortly before death to avoid estate taxes.

But each year you can make an unlimited number of gifts free of tax, provided they�re below a certain amount. The limit for 2006 is $12,000 given to any one individual. A husband and wife each have their own separate limit, so they can jointly give up to $24,000 to any one person.

Use the annual exclusion

You can put the gift exclusion to good use in several situations. For example, you could use a multi-year gifting program to decrease the size of your estate and reduce estate taxes.

A married couple giving to each of their three children could reduce their estate by a total of $72,000 every year, for example.

You could also use the gift exclusion in an income-shifting strategy. You could make gifts of income-generating assets to your child who is in a lower tax bracket. If done carefully to avoid the "kiddie tax," the result can be a lower overall tax bill for the family unit.

Three types of gifts are exempt from the $12,000 limit. You can make unlimited gifts for tuition expenses or medical expenses on behalf of any person, provided you make the payments directly to the educational institution or health care provider. You can also make unlimited gifts to your spouse.

Before you give away money or other assets, be sure you will not need them yourself to provide income in later years. Consider the impact inflation will have on your resources. Planning is essential in this area, so contact us for any assistance you need before making 2006 gifts.

New Business

Paperless payroll can cut business costs

Companies looking for ways to cut costs might want to consider this new idea: Instead of issuing paper paychecks, pay employees with payroll "plastic cards" or with direct deposit to the employee's bank account.

One study estimated that a paperless payroll could cut costs for a business by 75%.

The payroll cards store a dollar value similar to debit cards and can be used to withdraw cash at ATMs or make purchases. Fees for using the cards can make them less attractive to employees, and the drawback to direct deposit is that it's not an option for employees who don�t have bank accounts.

Consider cross-training your employees

Have you considered cross-training your employees? Cross-training, or job rotation as it's sometimes called, can be a win-win situation for you and your employees. Large companies often use it to prepare managers for high-level corporate positions. But it can be equally useful for employees on the shop floor or in general office positions.

You can do cross-training in several ways. At its simplest, you rotate employees to learn different job skills within a department. Or you might move people to different departments for a formal three or six-month assignment before they return to their original position. In some cases, it's a regular progression of assignments designed to move an employee up the career ladder. How you implement cross-training will depend on the size and nature of your business.

Advantages for the company include:

*Greater flexibility in moving staff to deal with unexpected workload.

*Reduced turnover because employees feel they are growing and learning.

*Greater teamwork between departments.

*Development of a broader range of skills in employees.

*Having employees see more of the "big picture" of company operations.

For the employees, the advantages are:

*Learning new skills, perhaps breaking the monotony of a position.

*Feeling appreciated by the company, increasing motivation to excel.

*Seeing growth opportunities within the company instead of looking elsewhere.

However, cross-training is not without its costs and risks. Managers may resist having to train new employees, and productivity may suffer in the short term. Employees are always nervous about change, and they may be worried about having to learn new skills. It�s critical to think through the goals of your program very thoroughly beforehand. Communication is the key. It's essential to get everyone involved before you start and to stay involved yourself to deal with problems or issues that arise.

A good tip is to start with a small pilot program. You can expand it later as you gain experience. If you are willing to do it right, cross-training can produce benefits for all concerned.


Don't cash out the equity in your home just because it's there

With today's low interest rates, homeowners have been flocking to refinance their mortgages. But instead of reducing their payment by the maximum amount, many have increased the size of their mortgage to tap into the home's equity. Part of the new loan pays off the old mortgage, and the remainder is paid in cash. These "cash-outs" have accounted for well over half of all refinancing in recent months.

Although instant cash is always tempting, you should think carefully before cashing out the equity in your home. Whether it's a good or bad idea depends on your financial situation and how you intend to use the cash. For example, using the cash to pay off high-interest credit card balances might seem like a good idea. But first you should look carefully at your personal economic situation. If you can't make the loan payments, you stand to lose your home.

The economy is troubled, with high unemployment and more job cuts being announced every month. Even though interest rates have fallen, mortgage foreclosures have reached record levels this year. Many individuals are stretched well beyond their financial means. This is not the climate to casually take on extra debt.

Before you increase the size of your mortgage, consider your financial situation. Is your job secure, or is there a possibility of losing your job? If you lose your job, how are you positioned to meet your monthly payments? How quickly could you find another job? What if you need to relocate, but you can't sell your home for enough to cover the mortgage? Do you have a cash reserve for unexpected financial emergencies?

While refinancing might make sense to lower your interest rate or shorten your loan's term, exercise caution when it comes to cashing out your home's equity. Call us to discuss whether refinancing makes sense in your situation.

What's New in Finances

Nearly half of Americans aren't saving enough

A new study done by the Center for Retirement Research at Boston College revealed that 43% of working Americans are probably not going to have enough retirement funds to maintain their current standard of living. The study assumed that retirees would need 65% to 85% of their pre-retirement income to maintain the same living standard.

Even more alarming is the fact that this study did not take into account the "wild card" of medical expenses, a retirement expense that is difficult to estimate and one that could be a major item in people's retirement budgets.

The conclusion that can be drawn from the study is that today's workers need to save more now if they hope to have a comfortable retirement.


Take a Break

Telephone tax

The 3% federal telephone excise tax was first imposed in 1898 to raise money for the Spanish-American War. At the time, only the wealthiest Americans had telephones, and the tax was considered a luxury tax.

Since 1898, the IRS has collected more than $90 billion from the telephone tax.

Online Advisor - September 2006

Major Tax Deadlines

For September 2006

September 15 - Due date for individuals to pay third quarter installment of 2006 estimated tax.

September 15 - Due date for filing 2005 tax returns for calendar-year corporations that had an extension of the March 15 filing deadline.

October 2 - Deadline for businesses to adopt a SIMPLE retirement plan for 2006.

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 pension law changes some tax rules

In early August, Congress passed a major new law on pension plans. But buried in the fine print were some unexpected tax provisions. Some could affect your ability to claim deductions for charitable contributions. And others change the tax rules for retirement savings.

If you make charitable contributions and claim them as itemized deductions, be aware of two changes:

* New rules apply to contributions you make by cash or check, regardless of the amount. Starting in 2007, you'll need either a formal receipt from the charity, or evidence such as a cancelled check or an entry in your bank records. Previously, for amounts up to $250, you could rely on your own written records provided they met certain standards.

* From now on you can claim a deduction for used clothing or household items only if they are in "good" condition. Unfortunately, the new law doesn't define "good." To back up your deduction, you might want to snap a photograph of the items using your digital camera or cell phone. Print it out and keep it with the receipt.

Other changes affect retirement saving. For example, if you change jobs, you might find yourself automatically enrolled in the new company's 401(k). You'll have the ability to opt out, of course, but it's part of a plan to encourage higher participation. The new law also extends the ability to make certain hardship withdrawals from 401(k) plans, and allows active-duty members of the Reserves to make penalty-free withdrawals from IRAs and other plans.

If you think these changes might affect you, please contact our office. We'll be happy to provide more information tailored to your specific situation.

Take action now to trim 2006 taxes

The end of the year will be here before you know it. That means you should put some tax planning on your agenda now. Here are some ideas you might consider to trim your 2006 taxes.

* Invest in dividend-paying stocks. Because of the favorable 5% and 15% tax rates on dividend income, holding stocks that pay dividends can reduce your taxes immediately. This might make such investments more attractive than interest-generating securities, such as bonds.

* Hold stocks long-term. Dividends aren't the only type of income given favorable tax treatment. Long-term capital gains are also taxed at a maximum 15% tax rate. So when you decide to sell stocks, bonds, or other investments, remember that meeting the 12-month holding period for long-term gains provides significant tax savings.

* Save for your retirement. Make sure to take advantage of the more liberal contribution limits to tax-deferred retirement accounts. By contributing to your employer-sponsored retirement plan, such as a 401(k), 403(b), or 457 plan, you'll reduce your taxable income, and you'll defer taxes on the account until you take future distributions. With the 2006 contribution limits raised to $15,000 for most plans, you could slash your tax bill simply by saving for the future. And don't forget: If you're age 50 or older in 2006, you can make an additional $5,000 'catch-up' retirement contribution.

* Make your home energy-efficient. New in 2006, you may claim a lifetime credit of up to $500 for making qualifying energy-saving improvements to your home. Qualifying expenditures include installation of certain energy-efficient insulation materials, exterior windows and doors, electric heat pumps, and central air conditioning.

* Go solar. Also new for 2006, you may claim a 30% credit (with certain dollar limits) for installing solar water-heating, photovoltaic, or fuel-cell equipment in your home. No credit is allowed for equipment used to heat a swimming pool or hot tub.

* Buy an energy-efficient car. A tax credit is available for a variety of alternative fuel vehicles. New hybrid vehicles are eligible for a tax credit of up to $3,400, depending on the vehicle's fuel-efficiency. However, this credit is limited to the first 60,000 vehicles sold this year per auto manufacturer. These are just a few ideas that you should consider to cut your 2006 taxes. Contact our office for a review of tax-cutters to consider in your particular situation.

New Business

Roth IRA change important for your company's 40l(k) plan

A new rule in 2006 lets 40l(k) plans offer employees the option of designating plan contributions as Roth IRA contributions. The benefit of a Roth is that, though the contribution isn't tax-deductible, qualifying distributions are completely tax-free.

Many employers have been reluctant to revise their 40l(k) plans to permit Roth contributions by employees because Roth IRAs were scheduled to end after 2010.

Pension legislation signed by President Bush on August 17 made Roth IRAs permanently available. So if your company offers a 40l(k) to employees but you haven't added the Roth option, you might want to reconsider. The new law means Roth 401(k)s are here to stay.

What benefits does your company offer?

To motivate or reward your employees, consider giving them a tax-free benefit. The cost of certain benefits can be nontaxable to employees and tax-deductible to your business. Offering as many tax-free benefits as your business can afford might also help you hire and retain the workers you need.

* Insurance

Start with the traditional benefit of health insurance. Consider adding term-life insurance coverage, which is tax-free to employees up to $50,000 of coverage, and long-term disability insurance.

* FSAs

Another option is to provide flexible spending accounts (FSAs), which allow employees to set aside pre-tax dollars to pay for unreimbursed medical expenses or child care expenses.

* Retirement plan

Even small businesses should consider offering some form of retirement plan. Some plans require employer contributions, but not all of them do. Choose the plan that fits your company. It�s important to provide a vehicle for employees that both reduces their taxable income and builds tax-deferred savings.

* Other benefits

A number of other fringe benefits offer tax advantages or are tax-free to employees. For example, you can now offer your employees a salary reduction option to pay for transportation benefits such as parking or bus passes, within certain limits.

Employees benefit from lower taxable income and lower payroll taxes. Other fringes, such as education assistance, job training, dependent care assistance, or adoption assistance, can be tax-free to employees if offered as part of a properly structured program.

Most of these benefits must be provided equally among all your employees. If you discriminate in favor of certain key or highly compensated employees, the benefits could be taxable to them.

For a review of the fringe benefits you might want to offer your employees, give us a call.

What's New in Finance

No estate tax change yet

The latest attempt to modify the law on estate taxes failed to pass Congress last month. In an effort to make the bill more acceptable, Congress had included an increase in the minimum wage and extension of several expired and expiring tax breaks.

Despite these "sweeteners," the bill failed to attract the needed votes.

That leaves a confused outlook for estate taxes over the next few years. Currently up to $2 million of any individual's estate is exempt from tax. Above that amount, a top tax rate of 46% applies. The exemption will increase to $3.5 million in 2009, and in 2010 there will be no estate tax. But only for that year. Beginning in 2011, rates and exemptions are scheduled to return to more onerous 2001 levels.

Nobody thinks Congress will let that happen. Expect another attempt to pass estate tax legislation in the months ahead. For example, the recent proposal called for increasing the exemption amount to $5 million for an individual, or $10 million for a married couple. Above that exclusion amount, estates up to $25 million would be taxed at the capital gains rate (currently 15%). These numbers may change in any new proposal.

Meanwhile, don't ignore estate planning completely. Even if your estate is small, you still need certain basic estate planning documents. These include a will or trust, medical directives, and guardianship directives for your minor children. Make sure these items are up to date and let Congress worry about the tax rates.

Are you too invested in your company?

It seems that the recent failure of Enron and other corporations did not teach workers the primary rule of investing: diversify your investments. A recent study revealed that workers still hold too much of their company's stock in their retirement accounts.

As a general rule, you should avoid being too heavily invested in any one company's stock. When that company is also your employer, your risk of loss increases. A downturn for your company will not only diminish your portfolio, it could adversely affect your next raise or bonus. It might even cost you your job.

You may believe the additional risk is okay, because you know your company and its industry. Or you think you'll see problems coming before it's too late. Unfortunately, there's no guarantee that you will detect problems sooner than anyone else.

Your company may provide incentives for you to acquire its stock, such as purchase discounts, matching, or stock options. You may feel these incentives are too good to pass up, but keep them in perspective. For example, even a hefty stock discount can quickly disappear in a market downturn, and a discount or other incentive may not be worth the risk of overweighing your portfolio with company stock.

If more than 10% of your total investment portfolio is in your company's stock, you may want to reduce your holdings or take other measures to diversify. Don't risk your financial future by putting too many of your "eggs" in your company's "basket."

Take a Break

Carrying a grudge

From Buddy Hackett . . ."Don't carry a grudge. While you're carrying a grudge, the other guy's out dancing."

Online Advisor - October 2006

Major Tax Deadlines

For October 2006

October 16 - Deadline for filing 2005 individual tax returns on automatic extension of the April 17 filing deadline.

October 16 - If you converted a regular IRA to a Roth IRA in 2005 and now want to switch back to a regular IRA, you have until October 16, 2006, to do so without penalty.

October 16 - Deadline for filing 2005 partnership and limited liability company returns on extension of the April 17 filing deadline.

NOTE: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business.

Payroll tax deposits: Employers generally must deposit Form 941 payroll taxes (income tax withheld from employees' pay and both the employer's and employees' share of social security taxes) on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.

Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the fifteenth of the following month.Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid.

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

What's New in Taxes

IRS begins using private collection agencies

A 2004 tax law authorized the Internal Revenue Service to use private collection agencies to assist with the collection of taxes due the government. By the end of this year the IRS will have turned over about 40,000 taxpayer files for such collection.

Despite safeguards, the IRS expects scam artists to jump on this chance to extract money from unwary taxpayers. You can expect to see bogus letters, telephone calls, and e-mails, all pretending to be official IRS collection efforts.

Here's what you need to know to protect yourself:

* Your account will be turned over to one of the three private agencies only if you and the IRS have agreed that you have an unpaid tax liability.

* You will receive a letter from the IRS beforehand telling you that you're in the program and naming the collection agency.

* You will then receive a letter from the agency confirming that they will be in touch with you to discuss payment.

* When you come to make payment, the collection agency will provide you with an official IRS payment coupon. Never make out your check to anyone except the U.S. Treasury.

* Warning signs of a scam include threats to place liens or seize your property. The private agencies are authorized only to discuss payment schedules and collect the debt.

* Other warning signs include requests for personal or banking information. The IRS never asks for your information, such as PINs or account passwords, and they already have your social security number in their files.

If you have doubts at any time, you should call the IRS at 1-800-829-1040, or check with the IRS Web site.

Know the rules for claiming dependents

You are allowed a tax deduction of $3,300 for each dependent this year. Therefore, knowing who qualifies as your dependent could cut your tax bill.

To be claimed as your dependent, an individual must meet five tests:

1. The dependent must be either a relative or a member of your household. Relatives who need not live with you include lineal descendants (children, grandchildren, etc.), lineal ancestors (parents, etc.), stepparents and stepchildren, siblings, in-laws, and (if related by blood) aunts, uncles, nieces, and nephews. People who aren't relatives must live with you all year, except when attending school, going on vacation, or recovering in a hospital.

2. The dependent's 2006 gross income must be under $3,300. However, your dependent children need not meet this test if at year-end they are either under age 19 or under age 24 and full-time students. Nontaxable income (such as social security benefits) is not considered "gross income" for this purpose. If you're supporting your father who receives $10,000 in social security benefits and taxable income of $3,000 in 2006, you may claim him, if he meets the other four tests.

3. You must provide more than half the dependent's support for the year or qualify to claim the exemption under a multiple support agreement. "Support" includes food, lodging, medical care, clothing, education, transportation, recreation, and entertainment. In the previous example, if your father spends $4,000 on his own support and invests the rest of his income, you would meet this test by providing support of at least $4,001.

What if you and your sisters support your mother, but nobody contributes over 50 percent? You can claim an exemption for your mother if you provide at least 10 percent of the support, and your sisters and you sign Form 2120, a "multiple support agreement," agreeing to give you the exemption for the year. (You and your sisters may take turns claiming the exemption for your mother, or simply allow the deduction to the individual in the highest tax bracket.)

4. The dependent must be a resident of the U.S., Canada, or Mexico, or be a U.S. citizen or national.

5. The dependent, if married, cannot file a joint return with his or her spouse, unless a joint return is filed just to get a refund for withheld taxes.

In divorce situations, the parent with custody of a child for the greater part of the year generally gets the exemption. However, a custodial parent may release the exemption to the other parent by executing Form 8332.

Even if you can claim a dependent, you may not get the deduction. Deductions for you and your dependents begin to be phased out when your adjusted gross income exceeds $150,500 if you're single or $225,750 if you are married filing a joint return.

Planning will enable you to maximize your dependency deductions. Contact our office if you have questions or feel a review of your dependency exemptions is in order.

New Business

Focus on healthy habits to cut health care costs

The rising cost of health care is a major concern to most businesses. As insurance premiums and the price tag for medical services increase every year, your company may want to pay more attention to your employees' fitness and eating habits.

Some companies are encouraging healthier eating by removing fatty, sugary snacks from vending machines and cafeterias and offering healthier, lower-calorie choices instead. One company subsidizes healthier lunches for its employees, but does not provide the subsidies for unhealthy meal choices.

Offering incentives for employees to exercise is another way some companies are trying to combat high health care costs. Even small businesses are finding inexpensive ways to encourage healthier behavior in their employees. Some examples: letting employees attend weight-loss meetings on company premises, paying all or part of fees charged for exercise activities, such as swimming or aerobics, providing on-site health screenings, such as blood pressure and cholesterol checks, and organizing company walks during lunch or organizing team sports, such as softball or bowling.

Is your business paying phony invoices?

Businesses are cheated out of millions of dollars every year with invoices for goods or services that were never delivered. Phony invoices once paid often will be followed by additional billings for publications, services, or supplies not delivered. Such schemes are successful because many businesses have slipshod procedures for approving and paying bills.

Here are some techniques that should reduce the chances that your company will fall prey to a billing scam.

* Inform your staff that they are never to give equipment model or serial numbers to callers. If the vendor is legitimate, he will already have the necessary numbers.

* Payments should be made only when supporting documents, such as invoices, receiving reports, purchase orders, and packing slips, have been reviewed and approved.

* Always pay on the original invoice only; do not pay on copies or duplicates. Payments should not be made on monthly statements that can include prior-paid items. Also, monthly statements seldom have the detail necessary to determine legitimate charges.

* Mark on the face of the invoice the date of payment and the check number.

You might want to review your company's purchasing and paying policies to make your company less of a target. For any assistance you need, please contact us.

What's New In Finances

New pension law eases rules on inherited retirement plans

If you inherit a retirement account from someone other than your spouse, you will soon be able to roll over the account to an IRA, an option that can save significant taxes. Prior to the recently enacted Pension Protection Act of 2006, rollovers of inherited retirement funds were permitted only for spouses.

The new rule becomes effective in 2007. It's an important change to know about for children, siblings, and other nonspouse beneficiaries of retirement accounts. The law still has strict requirements for these rollovers, so if you need details, be sure to give us a call.

Invest with an eye on inflation

Like the boy who cried, "Wolf," experts' warnings of inflation have been largely ignored over the last decade. Inflation, even at modest levels, can seriously reduce real investment return. Is your portfolio structured to succeed in periods of inflation? Consider these fresh ways to combat an old foe.

* TIPS. A popular investment vehicle used to battle inflation has actually been around since 1997. Treasury Inflation Protected Securities (TIPS) are U.S. government bonds that adjust payout rates in accordance with rises in the Consumer Price Index (CPI). So if you have a low tolerance for risk, but seek protection from rising interest rates, this might be the bond for you.

* Corporate bonds. Another option is the inflation-indexed corporate bond. Patterned after the popular TIPS program, these bonds also offer rates that move in tandem with the CPI. The interest rates are higher than TIPS, but they carry the credit risk of the company that issues them.

* Tax issues. There are tax issues to consider as well. Inflation-indexed corporate bonds are fully taxable. TIPS, on the other hand, are exempt from state and local tax. Corporate bonds hold a slight edge in that interest rate increases are reflected immediately in the monthly payment. TIPS, instead, reflect rate increases in the principal balance received at maturity. What's more, these increases are immediately taxable, even though you have to wait until redemption to reap the extra earnings. This timing difference could make TIPS better suited for your IRA or 401(k), where interest is not taxed until withdrawn.

* I bonds. If your portfolio is in a taxable account, you might consider I bonds instead of TIPS. I bonds are U.S. savings bonds with inflation protection. Like TIPS, I bonds are exempt from state and local income tax. But, unlike TIPS, federal income tax can be deferred until the bond is redeemed.

* CDs. Even an old standby, the bank certificate of deposit, is getting into the inflation protection game. Some banks now offer CDs with a fluctuating interest rate. Keep in mind that these investments are fully taxable, and they offer an initial interest rate that is lower than a conventional CD. But during periods of swelling interest rates, these CDs will return higher overall income.

* Laddering. Even if your bank does not offer flexible CDs, you can still protect yourself by laddering your CD portfolio with a range of maturity dates. Then, if interest rates climb dramatically, you won't be tied up with one low-yielding certificate.

Take a Break

A penny saved? What is a penny worth these days?

Do you pick up a penny when you see it lying on the ground? Or do you, like many, consider pennies a nuisance and think they ought to be discontinued?

It now costs 1.23 cents to produce a penny, according to the U.S. Mint. High metal costs, combined with production expenses, transportation, and labor, have resulted in penny minting costs rising 27% in the past year.

So what's a penny made of? From 1793 to 1837, a penny was pure copper. Then it was switched to bronze and various other metals down through the years. The latest change occurred in 1982 with the penny being made of 97.5% zinc and 2.5% copper.

Online Advisor - November 2006

Major Tax Deadlines

For November 2006

During November: It's wise to estimate your 2006 income tax liability and review your options for minimizing your 2006 taxes. Call us if you would like to schedule a tax-planning session.

NOTE: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business.

Payroll tax deposits: Employers generally must deposit Form 941 payroll taxes (income tax withheld from employees' pay and both the employer's and employees' share of social security taxes) on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.

Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the fifteenth of the following month.

Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid.

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

What's New in Taxes

Telephone tax to be refunded with your 2006 tax filing

Did you know you may qualify for an extra refund when you file your 2006 taxes? And if you qualify, you can claim the refund by filling out just one extra line on your 2006 tax return.

If you subscribed to long-distance telephone service between March 2003 and July 2006, you almost certainly paid a federal tax on your telephone bill. But recent court decisions ruled that the tax should not apply. So the IRS has come up with a simple method to refund the taxes. They've developed standard refund amounts based on the number of exemptions you claim.

The standard refund will be $30 for one exemption, $40 for two, $50 for three, and $60 for four or more. Normally you claim an exemption for yourself, one for your spouse, and one for each dependent. So a married couple with one dependent would be eligible for a $50 refund.

These amounts are based on a survey of average telephone taxes paid by families of different sizes. If you don't want to take the standard refund, you can always go through 41 months of telephone bills and figure the actual amount you paid. Then you'll need to fill out a special form to make your claim.

Businesses and nonprofits are also eligible for refunds. Currently they'll have to figure the actual taxes they paid, although the IRS is trying to develop simplified refunds for them, too.

Let the tax man help with child care costs

Are you a working parent looking for ways to ease the burden of child care expenses? There are several tax-saving strategies available to you.

* First, there's the dependent care tax credit, a direct reduction to your tax liability. The amount of the credit depends on the amount of your child care expenses, your adjusted gross income, and how many children you have. The maximum credit is 35% of your costs for child care while you work or go to school, up to a limit of $3,000 for one child and $6,000 for two or more children.

* Next, there is the flexible spending account, an arrangement set up by some employers which allows employees to set aside pre-tax dollars to be used for child care expenses. However, you should be careful when establishing this type of account because there is some risk involved. If your dependent care costs for the year are less than your contributions to your account, you forfeit the unused balance. Also, any tax-free reimbursement from the account reduces your eligible expenses for the dependent care tax credit.

* Finally, you may have an employer who is taking advantage of a business tax credit for providing child care services for employees. Employers who provide such benefits can receive a tax credit of up to $150,000, depending on the actual costs of running the child care center. If you are lucky enough to receive this benefit, your employer will report the total amount of your dependent care benefit on your form W-2. The first $5,000 of this benefit is not taxable, but any benefit over $5,000 per family will be included in taxable wages.

Give us a call if you would like more information about the restrictions and requirements involved with these tax-saving opportunities.

New Business

Note these changes on your 2007 business calendar

Daylight saving time for 2006 just ended on October 29. And that brings to mind the changes made to daylight saving time next year by the energy law passed in 2005.

As you begin your 2007 business planning and put important dates on your 2007 business calendar, be aware of the following changes:

* Daylight saving time will begin the second Sunday of March in 2007, rather than the usual first Sunday in April. That means 2007 daylight saving time will begin on March 11, 2007.

* Daylight saving time will end the first Sunday in November, rather than the usual last Sunday in October. So 2007 daylight saving time will end on November 4, 2007.

If your business has pre-programmed electronic clocks or computer programs using old daylight saving dates, you'll want to make the necessary adjustments for 2007.

Do a year-end tax-cutting review for your business

Many small businesses and self-employed business owners make the mistake of not thinking about taxes until it's time to file their returns. That's simply too late — most moves must be made before year-end. Here are a few tax-cutting ideas that could help you reduce your 2006 business taxes.

* Purchase business assets. If your business will soon require additional computers, furnishings, or even transportation equipment, make those purchases before the end of the year and take maximum advantage of the expensing election. You're generally allowed to deduct up to $108,000 of qualified purchases this year.

* Plan for retirement. If you don't have a retirement plan, consider setting one up before the end of the year. In fact, there are federal tax credits for some of the costs of setting up a new retirement plan. If you already have a retirement plan, consider maximizing your contributions.

* Review your entity. Many small businesses start out as sole proprietorships or partnerships. Now may be the time to transition to another entity such as a corporation which can help shelter you from financial and liability risks.

The best way to maximize your business deductions is to meet with us before the end of the year, so give us a call to review your 2006 tax picture.

What's New In Finances

Stock market hits new high

The big news for stock investors came October 19, 2006, when the Dow closed at 12,000 for the first time in history. The Dow is comprised of 30 major companies and is generally seen as one measure of market activity.

You might find it interesting to review Dow benchmarks on the way to this latest all-time high. The Dow was created May 26, 1896, at 40.94. The first close above each level thereafter were as follows:

LEVEL                 DATE

1000……………November 14, 1972

2000……………January 8, 1987

3000……………April 17, 1991

4000……………February 23, 1995

5000……………November 21, 1995

6000……………October 14, 1996

7000……………February 13, 1997

8000……………July 16, 1997

9000……………April 6, 1998

10,000…………March 29, 1999

11,000…………May 3, 1999

12,000…………October 19, 2006

Couples: Take these six steps to financial harmony

Most people need help from time to time with their finances, and this can be especially true for couples. Partners often struggle with differing perspectives about money, and these differences can affect spending, saving, budgeting, and other financial decisions. Regardless of these differences, however, the following tried-and-true guidelines can help any couple achieve greater financial stability and security.

1. Organize your finances. Get a handle on your income and spending. How much are you really spending on those dinners out? Many widely available financial software programs can help you track finances and provide insight into your spending habits. By reviewing how you spend money, you can focus on potential problem areas.

2. Set goals. How much will you accumulate in bank accounts and investments over the next three years? Five years? Ten years? Have you anticipated future expenses? Say, for example, you're dreaming of a vacation in Europe for your anniversary. You'll want to start saving now so you won't need to finance the trip with credit cards.

Speaking of debt, it's a good idea to set goals for becoming debt-free. Generally, you should pay off high-interest credit cards first, then concentrate on installment loans, then the mortgage.

Consider also refinancing that adjustable rate interest-only mortgage to a fixed-rate mortgage. At some point, most couples live on a relatively fixed income. You should plan for the day when mortgage payments are only a memory.

3. Build an emergency fund. Setting aside money for emergencies makes sense. Life can throw us curveballs, and it pays to be ready. How much is enough for emergencies? As a general rule, set aside three to six months of gross income in easily accessible accounts, such as savings or money market accounts.

4. Save for retirement. If you can participate in a retirement plan such as a 401(k), you should definitely try to contribute up to the amount matched by your employer. The earlier you start saving, the more you'll accumulate. It's that simple. Individual retirement accounts (IRAs) are another great place to sock away retirement savings.

5. Review your insurance coverage. You should generally carry at least enough term life insurance to pay off the outstanding balance of your mortgage, so your spouse or other survivors won't be burdened with large mortgage payments. Catastrophic health insurance is also a must. It's a good idea to review your insurance coverage every year or so, to make sure the coverage keeps up with your changing circumstances.

6. Do some estate planning. Even if you don't have kids, it's a good idea to ask an attorney to draft a will and set up a financial power of attorney. This helps ensure that your assets are distributed according to your wishes in the event of death or incapacity.

Although couples often fret over differences about financial matters, by agreeing to follow some basic guidelines, they can enjoy long-term financial security together.

Take a Break

Change and taxes go together

A report by the Tax Policy Center reminds us taxpayers that we've had a lot of tax law change to digest over the past 25 years.

A major tax law has been passed every two years since 1981, and since 2001 we've had one, and sometimes more than one new tax law every year.

2006 saw two tax revisions — the Tax Increase Prevention and Reconciliation Act and the 900-plus page Pension Protection Act.

Online Advisor - December 2006

Major Tax Deadlines

For December 2006

December 15 - Fourth estimated tax payment is due for calendar-year corporations.

December 31 - Last day to set up a Keogh retirement plan for 2006. Deductible contributions for 2006 can be made any time up to the filing deadline for your 2006 return. (Last business day may be Friday, December 29.)

December 31 - Deadline for taking required minimum distributions from IRAs and other retirement accounts. (Last business day may be Friday, December 29.)

December 31 - Deadline to complete 2006 tax-free gifts of up to $12,000 per recipient.

December 31 - Deadline for paying expenses you want to be able to deduct on your 2006 income tax return.

NOTE: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business.

Payroll tax deposits: Employers generally must deposit Form 941 payroll taxes (income tax withheld from employees' pay and both the employer's and employees' share of social security taxes) on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.

Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the fifteenth of the following month.

Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid.

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

What's New in Taxes

More wages subject to social security tax in 2007

The Social Security Administration has published the maximum amount of earnings that will be subject to social security taxes next year. The amount increases to $97,500, up from $94,200 for 2006.

Employees will have a 6.2% social security tax withheld from their paychecks on wages up to $97,500. Their employers will pay an additional 6.2% on these wages. Self-employed taxpayers will pay both employee and employer share for a total 12.4% tax on earnings up to $97,500.

The maximum a wage earner will pay in social security tax in 2007 will be $6,045, up from $5,840.40 in 2006. A self-employed taxpayer will pay a maximum of $12,090.

All wages in 2007 are subject to a 1.45% Medicare tax; all self-employment earnings pay a 2.9% Medicare tax.

Those receiving social security will get a 3.3% cost of living increase in benefits for 2007.

Two 2006 laws may offer new tax planning opportunities

If you can name the two new tax bills passed by Congress this year, you might be a master of trivia. But there is nothing trivial about the Tax Increase Prevention and Reconciliation Act and the Pension Protection Act. These laws could have an impact on your taxes.

* Retirement planning

Those who have been shut out of the Roth IRA conversion strategy because of the $100,000 income limitation can now take another look at converting. Beginning in 2010, all taxpayers, regardless of their income level, can convert their traditional IRA to a Roth IRA. Although the conversion is taxable, the income and the resulting tax can be averaged over two years.

Starting in 2007, inherited retirement plans can be rolled over tax-free into a new IRA to defer distributions. Previously, only surviving spouses were allowed this option. Nonspousal beneficiaries had to accept the distributions — and pay the taxes due — within five years.A 2001 tax law set higher contribution limits for IRAs, SIMPLEs, SEPs, 401(k)s, and 457 plans. But these larger contribution amounts were set to expire after 2010 along with most of the other provisions in the 2001 law. The Pension Act makes these higher contribution limits permanent and generally indexes the limits for inflation in the future.

The saver’s credit that provides for a credit of up to $1,000 annually for lower-income individuals’ contributions to retirement plans is made permanent. The income-based phase-out ranges for the credit will be indexed for inflation, a change that will make the credit available to more taxpayers.

The tax credit for small businesses that start a new retirement plan (up to $500 per year for three years) is made permanent.

* College savings

Distributions from Section 529 plans used to pay for college expenses were scheduled to lose their tax-free status after 2010. The Pension Act makes the tax-favored treatment for 529 plans permanent.

The age at which a child’s excess unearned income is no longer taxed at the parents’ rate has been raised from 14 to 18. Besides costing you more tax, this change might also modify how you fund your child’s college education. Instead of shifting income-producing assets to a child, you may need to consider other options.

* Charitable donations

Another new rule promises to make IRAs powerful tools for charitable gift planning. Taxpayers age 70½ and older will be allowed to make charitable donations directly from their IRA (up to $100,000 annually) without paying tax on the distribution. What’s more, the charitable payments satisfy the required annual distribution obligation. Be aware that the law is valid only for 2006 and 2007.

Rules for cash donations have been modified. The old law specified that charitable gifts over $250 must bedocumented by the charity. Beginning in 2007, cash, check, and other monetary donations of any amount can be deducted only if substantiated by a bank record or written documentation from the charity.

Also, new rules govern donations of used clothing or household items. Now you can claim a deduction only if the items are in “good” condition. Unfortunately, the law doesn’t define what is meant by “good.”

* Other provisions

Many of the provisions of the recently passed bills either extended or made permanent rules that you may have taken for granted, such as the 15% capital gains tax rate and the Roth 401(k). Other important provisions include automatic enrollment into 401(k) plans, changes in retirement plan rollover rules, and rules that increase federal oversight of charitable organizations. Call us today to review your tax and financial situation under these recent changes.

New Business

IRS announces mileage rates for 2007

The IRS has issued the 2007 standard mileage rate that businesses can use to calculate the deductible costs of driving an automobile for business.

Beginning January 1, 2007, the standard mileage rate for business driving will be 48.5 cents a mile. This represents an increase in the mileage rate from the 44.5 cents a mile allowed in 2006. The rate increase is due to higher vehicle and fuel prices for the year ending October 2006.

If you have questions about deducting vehicle expenses in your business, give us a call.

Don’t overlook these business tax deductions

As a small business owner, you probably don’t need one more thing to do during the busy holiday season. But before you say goodbye to 2006, consider adding this: a search for missing business tax deductions. Finding one of these deductions might give you real tax savings.

Where do you start? First, think about the things you use in your daily work life. Are you taking full advantage of the home office deduction rules? If you use a portion of your home exclusively and regularly as your principal place of business, you might qualify. Similarly, the business use of your personal vehicle can be deducted. While keeping track of business miles can be tedious, it can be worth the effort come tax time.

Deductions you might not have thought of include the business use of a personal cell phone and the business portion of your monthly Internet access fee. Qualifying meals and entertainment expenses are also deductible, including the cost of entertaining at home — just as long as there is a legitimate business purpose.

Document your business expenses. Knowing how an expense is deducted is also important. Some expenditures are only partially deductible as itemized deductions, but may be fully deductible against self-employment income. Examples include legal bills, tax return preparation fees, and work-related publications. A word of caution: business expenses must be fully documented. Proper accounting records are essential to take advantage of these write-offs.

Self-employed taxpayers should also remember that 100% of health insurance premiums paid for themselves and their families can generally be deducted from their business income.

If you are considering a major business purchase, you might want to act before year-end. In 2006, up to $108,000 ofqualifying property can be expensed immediately. (If you operate in a Hurricane Katrina-related Gulf Opportunity Zone, the limit is higher.)

One important way to save taxes is to maximize your self-employed retirement plan contributions. Otherwise, you might be leaving money on the table. And certain retirement plan contributions can be made as late as the due date of your return, even with extensions.

During this busy holiday season, take time to give yourself a break — a tax break! Call us for a year-end review to help you find those tax deductions you might otherwise miss.

What's New In Finances

Using credit may be getting too easy

If you’re concerned about your financial well-being, you should probably think twice about using your credit card for purchases under $25.

Credit card companies are beginning to allow no-signature credit card purchases of less than $25 at fast-food restaurants, movie theaters, pharmacies, and convenience stores. While using your credit card for these small purchases may be extremely convenient for both you and customers waiting in line behind you, they can add up to significant amounts. Unless you always pay off your credit card in full each month, these kinds of credit purchases can add to your debt load and monthly interest charges.

According to CardWeb.com, the average balance on credit cards has increased by 76% over the past ten years.

Another thing to consider: When you use your credit card for numerous small charges with no signature required, you may find it hard to detect fraud when you review your monthly credit card statement. Paying cash may be the wiser choice, and if you don’t have the cash, maybe you shouldn’t make the purchase at all.

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 2006, you can contribute the lower of $4,000 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 18 or older, 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 youare considering a larger amount.

Take a Break

U.S population growth

According to the Census Bureau’s POPClock, the U.S. population hit 300 million at precisely 7:46 EDT on October 17, 2006.

It’s estimated that the population will hit 400 million in 2040.