Online Advisor - June 2009

Major Tax Deadlines For June 2009

* June 15 - Second quarter 2009 individual estimated tax is due.
* June 15 - Due date for calendar-year corporations to pay second installment of 2009 estimated tax.
* June 15 - Due date for calendar-year trust and estates to pay second installment of 2009 estimated tax.

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

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

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

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

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

What's New in Taxes

School's out! That means moving time for millions

Millions of people move each year, often during the summer months when children are out of school. If you're considering a move this summer, be aware that moving can have some important tax consequences.

* Retirement plans. If you have a retirement plan at work, you may have several choices upon leaving a job. You can roll your retirement funds into an IRA, possibly roll the money into a new employer's plan, or perhaps even leave the money in your former employer's plan. Keep in mind that any amount distributed directly to you is subject to automatic 20% income tax withholding, and you may also face a 10% early withdrawal penalty.

* 401(k) loans. Facing a layoff or new job and need cash? Tap your 401(k) balance only as a last resort. If you have an existing 401(k) loan, pay it off. If you leave your employer and can't repay the loan within a preset time, the loan balance is considered a withdrawal. As such, you'll be hit with income taxes and possibly a 10% penalty.

* Job search expenses. Expenses incurred to search for a new job are tax-deductible, even if your job search doesn't land you that coveted position. To qualify, you must be looking for a job in the same occupation.

* Moving expenses. If your job-related move qualifies (the IRS has both a distance and a time test), you can deduct the costs of moving your household goods and your family.

* Home sale. When you sell your home, you can exclude up to $250,000 of the gain from your taxes. The exclusion amount is $500,000 for married couples filing a joint return. To qualify for the full exclusion, you must have owned and occupied the house as your main home for two out of the five years prior to its sale. A partial exclusion may apply if you fail the two-year test due to a job-related move.

If you're considering a job-related move and want help sorting out the tax issues, give us a call.

Energy-saving home improvements could cut your 2009 taxes

President Obama signed the "American Recovery and Reinvestment Act of 2009" into law on February 17, 2009. Among the various provisions in the law are new energy tax credits that can really add up to savings for the homeowner. Making energy-saving improvements to your home will help to save on utility bills, enhance your efforts to go "green," add value to the home, and perhaps reduce your tax bill for 2009. These residential energy tax credits fall into two main categories: energy efficiency improvements and renewable energy systems. In many cases, the "Recovery Act" adjusts or extends similar energy credits previously available.

* Energy efficiency

The "Recovery Act" adjusts the residential energy property credits previously allowed, increasing the tax credit to 30% and the maximum aggregate cap to $1,500. The credit applies to eligible property placed into service in your principal residence during 2009 and 2010. Qualifying improvements for this energy credit include insulation; exterior windows and doors; central air conditioning systems; water heaters and furnaces burning natural gas, propane, or oil; stoves using renewable biomass fuel such as wood, pellets, and plants; hot water boilers; electric heat pump water heaters; certain metal roofs; and advanced main air circulating fans.

Installation of these items as part of a newly constructed home does not qualify for the credit. For certain eligible items, the credit can be calculated based only on the cost of materials; for other items, the cost of installation also can be included. This credit is not subject to income phase-outs, and the credit is allowed under the alternative minimum tax.

* Renewable energy

The 2009 law also generally removes the tax credit dollar limits for renewable energy systems. Such property includes solar hot water heaters, geothermal heat pumps, and wind energy systems. The tax credit, available through 2016, is up to 30% of the cost, including both labor and materials. Primary residences, second homes, and rental units qualify for this credit; existing and newly constructed structures are eligible.

Now may be the right time to upgrade the energy efficiency of your home. To discuss the tax breaks available for the improvements you have in mind, give us a call. We can help you sort through the details.

New Business

2009 vehicle deductions

Each year the IRS publishes depreciation limits for business vehicles first placed in service that year. Because 50% bonus depreciation is allowed only for new vehicles, these limits are different for new and used vehicles.

For new business cars, the first-year limit is $10,960; for used cars, it's $2,960. After year one, the depreciation limits are the same for both new and used vehicles purchased in 2009: $4,800 in year two, $2,850 in year three, and $1,775 in all following years.

The 2009 first-year depreciation limit for trucks and vans is $11,060 for new vehicles and $3,060 for used vehicles. Limits for both new and used vehicles in year two are $4,900, in year three $2,950, and in each succeeding year $1,775.

For details relating to your 2009 business vehicle purchases, contact us.

New rules for NOLs

Essentially, a net operating loss or NOL is generated when a business has more deductions than income.

Under prior rules, a business that had an NOL could carry that loss back only two years for a refund of taxes paid in those earlier years. (The business could also choose to carry the loss forward for up to 20 years.)

The "American Recovery and Reinvestment Act of 2009" changed the carryback period to as many as five years. The new rule applies only to 2008 net operating losses in companies with average gross receipts over the last three years of $15 million or less.

* Planning opportunities

The carryback periods of three, four, or five years are elective. That means that the taxpayer can choose how long to carry back the NOL as long as it doesn't exceed five years.

This opens up many tax planning opportunities, especially if taxable income has fluctuated significantly over the years. Not only that, it's a terrific benefit to taxpayers with NOLs larger than could be absorbed over the traditional two-year period.

As an alternative to carrying the loss back to prior years, you can still elect to forgo the carryback altogether and simply carry your losses forward to reduce future taxes.

Remember that the new NOL rules are elective, and you may choose to carry losses back as you see fit for up to five years.

There are filing and time restrictions on this tax break for businesses, so contact us if you need details and filing assistance.

What's New in Finances

"Do Not Call" doesn't prevent scammers

Registering with the National Do Not Call Registry is supposed to keep you from getting all those annoying mass marketing phone solicitations.

It appears that the current recession has brought out scam artists hungry for revenue and unconcerned about the illegality of their sales pitches. During the first quarter of this year, the Federal Trade Commission received 450,000 complaints from those who signed up with the Do Not Call Registry, but who are still receiving unwanted calls.

Among the scams currently being pitched: extended auto warranties, swine flu cures, debt renegotiation plans, and free lunch seminars promoting "low-risk" investments.

Be aware that the scammers are especially active right now, and be very skeptical of offers and promotions made by phone or e-mail.

How to deal with finances after a spouse's death

The death of a spouse can leave the survivor with a bewildering array of financial problems. In many families, one partner handles all the financial matters. If that partner passes away first, without having discussed and documented the couple's financial affairs, the survivor may face a steep learning curve or make poor financial decisions out of ignorance.

In many cases, the surviving spouse will be the wife. In fact, recent studies indicate that seven out of ten baby boomer wives will outlive their husbands. So getting a handle on the family's financial affairs is especially important for women.

If you're dealing with the death of a spouse, here are a few guidelines to help you navigate.

* Locate important documents. These include wills, insurance policies, deeds, investment certificates, powers of attorney, birth and marriage certificates, bank statements, and vehicle titles. You'll need these documents to change beneficiaries, revise asset titles, and verify account balances.

* Keep paying bills. Don't risk losing your good credit by neglecting ongoing expenses.

* Check survivor benefits. Contact the Social Security Administration to learn about survivor benefits. Also call your spouse's former employer to find out about employee benefits, such as payouts of unpaid salary, unused vacation, and pensions.

* Decide how you'll handle life insurance proceeds. Benefits may be paid in a lump sum or an annuity. If you take proceeds in a lump sum, you'll want to place them at least temporarily in readily available investments, such as money market accounts. Survivors often live on insurance proceeds for many years, so think twice before using the insurance money to remodel the house, pay off the mortgage, or take an expensive vacation.

* Get competent legal and financial advice. Seek out qualified and trusted professionals to help you through the process of probate, taxes, and planning for your financial future. All too often, the surviving spouse makes irrevocable financial decisions or unnecessary purchases in the days and weeks following a partner's death. Unfortunately, widows and widowers are easy prey for con artists. Someone may call with a great deal on a "sure fire" investment, or attempt to capitalize on your grief by offering unnecessary goods or services. A trusted professional advisor can provide objectivity when such "opportunities" are presented.

* Plan before a death occurs. Ideally, you and your spouse will develop a financial plan before a death occurs. One way to organize such a plan is to set up a tabbed binder that outlines the family's financial affairs. One tab might list key contacts, such as lawyers, accountants, and business associates. Another tab might disclose the location of important documents.

Discussing and documenting your financial affairs will be time well spent. If you need assistance, give us a call.

Take a Break

Web surfing is good for the brain

A study by UCLA scientists found that Web surfing stimulates the brain and may possibly improve brain function. The study compared people aged 55 to 76 who surfed the Internet with those who didn't. MRI scans showed more brain activity in the group that surfed regularly, especially in the areas of the brain which are involved in complex reasoning and decision-making.

"A simple, everyday task like searching the Web appears to enhance brain circuitry in older adults, demonstrating that our brains are sensitive and can continue to learn as we grow older," said Dr. Gary Small, member of the research team.

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.

Online Advisor - April 2009

Major Tax Deadlines For May 2009

* May 15 - Deadline for calendar-year exempt organizations to file 2008 information returns.

* June 1 - 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 you or your business, contact our office.

What's New in Taxes

IRS gives up on private debt collection

The use of private debt collection agencies to collect overdue taxes was started in 2006. Some in Congress have agitated for an end to the program from its very beginning. Now, after an extensive review of the cost-effectiveness of the program, the IRS announced that it will not renew contracts with the private agencies.

Instead, the IRS plans to hire an additional 1,000 collection personnel in 2009. The Commissioner stated that collection work is best done by IRS employees who, in these troubled economic times, have more options in dealing with taxpayers struggling to meet their tax obligations.

How long should you keep tax records?

After filing your 2008 tax return, you may be wondering how long to keep your tax records. Unless fraud, evasion, or a substantial understatement of income is involved, the IRS generally has only three years in which to question your return. If the IRS asks, you must be able to prove the validity of your tax return, which includes providing the underlying supporting data. How long you keep your paperwork depends directly on the statute of limitations, but here are some guidelines.

* Your copy of the tax return. Consider keeping it forever since you never know when this document will come in handy. Remember that in many cases, the IRS destroys original returns after four or five years. It's always best to have your copy to fall back on.

* Cancelled checks, bank/investment statements, and receipts. Keep them for seven years. Because of various combinations of the statute of limitations and technical provisions in the law, keeping them for seven years, rather than just for three years, is recommended.

* Stock or bond trade confirmation statements. Keep for seven years after the sale of the stock. For example, say that you bought 200 shares of stock in 1986 and sold them in 2008. You'll want to hold on to both the buy and sell confirmation statements until at least April 2015.

* Escrow closing documents and improvements to property. Keep for seven years after the sale of the property. Keep these documents to prove your cost of the property when it is finally sold. This is true for rental property, investment property, and even your personal residence. You might think that keeping cost basis records on your personal residence is no longer required because of the gain exclusion rules on the sale of a principal residence. That's not entirely true, since these laws could change at any time, or your gain could exceed the gain exclusion limits.

This listing is not all-inclusive, and you might have special circumstances. If you need any help with your recordkeeping requirements, give us a call.

New Business

Government jobs pay more than private sector jobs

Even as the economy struggles, workers in government jobs are enjoying an increase in pay and benefits.

According to the Bureau of Labor Statistics, the average private sector hourly wage in December 2008 was $27.35. Workers in government jobs were earning an average hourly wage of $39.25. These figures include pay and benefits, and it is in the area of benefits that the gap between private and public pay has widened. Public employees' benefits averaged $13.38 an hour, while private company employees averaged $7.98 an hour in benefits.

Health benefits were a major factor in the variance between public and private compensation. Government paid an average of $8,800 a year for a worker's medical insurance, while private companies paid $4,100.

How does your company measure up?

No matter how successful your business has been in the past, you can probably do better. And if you've been struggling to keep your head above water, there's certainly room for improvement. So how can you gain ground on the competition?

Try the process known in business circles as "benchmarking." This is a strategic technique for comparing various aspects of your business to the top marks in your particular industry or profession. Then you can play "follow the leader" by emulating the best practices in those areas where you need to improve.

Benchmarking first gained wide acceptance in the manufacturing sector. For example, suppose a manufacturing company determines that it can produce only 100 widgets per hour as opposed to 500 widgets an hour produced by a competitor. This indicates a need to improve the company's widget-making process. The same analytical tool may be extended to virtually every line of work.

Be mindful that benchmarking is not a one-shot deal. It is an ongoing process that requires you to continually challenge yourself to improve performance.

What aspects of a business might benefit from benchmarking? Naturally, this varies according to industry, location, and other factors, but the following areas are generally worth examination:

* Costs of producing goods or providing services.
* Length of time needed to design and market products.
* Procedures used in production activities.
* Personnel management procedures.
* Sales department activities.
* Marketing and advertising.
* Factors influencing public opinion about your products or services.

Benchmarking can create results where it counts - on the bottom line. Contact our office if we can assist with evaluating your business practices.

What's New in Finances

Credit card companies trim rewards

The economic downturn has claimed another casualty: the rewards programs offered by credit card companies. Used to encourage credit card holders to charge purchases, these programs offered cash rebates, airline tickets, and other freebies for each dollar charged.

Now banks are struggling to remain profitable and are cutting back on their rewards programs. Airlines, too, are trimming their free mileage programs by raising the number of miles required to qualify for free tickets.

If you use a credit card that offers rewards for purchases charged, be aware of these changes. You might want to monitor your rewards more carefully than in the past and cash them in before they expire or stricter redemption rules are put into effect.

Put your tax refund to good use

Did you recently receive an income tax refund? Here are some suggestions for making the most of it.

* 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.

* 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 tax-deferred. If you're self-employed and show a profit for the year, you can also make a tax-deductible contribution to a Keogh plan.

* Start or add to an education fund. Consider investing your extra money 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 make sure that you don't get snared by the "kiddie tax."

* 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; put it to work improving your financial well-being.

Take a Break

A history lesson…

Maybe if we did a better job of listening, history wouldn't have to repeat itself.

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.

Online Advisor - April 2009

Major Tax Deadlines For April 2009

* April 1 - Deadline for taking your first required IRA distribution if you turned 70-1/2 in 2008. 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 2008 are due.

* April 15 - 2008 calendar-year partnership returns are due.

* April 15 - 2008 annual gift tax returns are due.

* April 15 - 2008 income tax returns for calendar-year trusts and estates are due.

* April 15 - Deadline for making 2008 IRA contributions.

* April 15 - Deadline for employers to make contributions to certain retirement plans

* April 15 - First installment of 2009 individual estimated tax is due.

* April 15 - Deadline for amending 2005 individual tax returns (unless the 2005 return had a filing extension).

* April 15 - Deadline for original filing of 2005 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 you or your business, contact our office.

What's New in Taxes

IRS expands 2009 homebuyer credit

The IRS announced recently that taxpayers who qualify for the first-time homebuyer tax credit on a home purchased from January 1, 2009, through November 30, 2009, may claim the credit on either their 2008 income tax return due April 15, 2009, or on their 2009 tax returns due April 15, 2010. This option makes it possible for qualifying taxpayers to put money in their pockets in 2009, rather than waiting until next year to benefit from this tax break.

The first-time homebuyer tax credit provides a refundable credit of 10% of the home's purchase price, up to a maximum credit of $8,000. If the taxpayer lives in the home for at least three years, the credit does not have to be repaid. Income limits apply, with phase-out of the credit starting at $75,000 for single taxpayers and $150,000 for married couples filing jointly.

For first homes purchased from April 9, 2008, through December 31, 2008, a credit of up to $7,500 is available to qualifying taxpayers. This credit can only be taken on a 2008 tax return, and it must be repaid in 15 equal installments beginning with the 2010 tax year.

Use the "saver's credit" to cut your tax bill

Would you like to shave $1,000 off your income tax bill? Would your spouse like to join in the tax savings of up to $2,000 on a joint return? This potential savings comes in the form of a tax credit called the "retirement savings contributions credit" or "saver's credit." Unlike a tax deduction, a tax credit is a dollar for dollar reduction of the taxes you owe.

How do you qualify for this credit? By contributing to a retirement plan, you could be eligible for the saver's credit. This includes contributions to both Roth and traditional IRAs. It also includes salary deferrals into SEP, SIMPLE, 401(k), 403(b), and 457 plans.

How much is the credit? The credit ranges from 10% to 50% of the first $2,000 contributed to a retirement plan. In other words, the maximum credit is $1,000 for an individual. If you and your spouse both contribute at least $2,000 to your retirement accounts, you could qualify for up to a $2,000 credit on a joint return.

Are there limitations? Like many tax breaks, this credit decreases or phases out entirely once your income reaches certain levels. The credit is not available if 2008 income exceeded $26,500 for individuals, $39,750 for heads of household, and $53,000 for married couples filing a joint return. 2009 income limits are $27,750 for singles, $41,625 for heads of household, and $55,000 for married couples. In addition, you cannot take the credit if you are under age 18, a full-time student, or someone else's dependent.

Here's an example. Say you put $3,000 into an IRA and you qualify for the maximum $1,000 saver's credit. You can deduct your $3,000 contribution for a tax savings of $450 ($3,000 x 15% tax rate). Add this $450 tax savings to the $1,000 saver's credit, and your total tax savings equals $1,450.

If you haven't been contributing to a retirement plan, this tax credit adds yet another incentive to do so. You have until April 15, 2009, to make a 2008 IRA contribution that could reduce your 2008 taxes. For more information about the saver's credit or about retirement accounts, contact our office.

New Business

Big business expresses views on health care reform

According to a recent survey of 489 U.S. employers, big companies do not favor many of the proposals now being offered for reforming the country's health care system. Nearly 88% of those surveyed opposed the idea of replacing the tax exclusion for employer-paid health insurance premiums with refundable health care tax credits for employees.

Survey respondents also opposed requiring companies to contribute to individual health coverage for employees if the company didn't have group coverage.

The companies did indicate support for health care reforms that emphasized the individual's responsibility for health care.

Are you a fireman or a business manager?

In your business are you constantly putting out fires caused by cash shortages? How well you manage your cash flow affects your business's profitability and longevity. Here are a few "fire prevention" suggestions.

* Create a cash flow projection. A cash flow forecast should be one of the quarterly reports prepared in every small business. It consists of your beginning cash balance plus your expected receipts minus your expected disbursements. A forecast allows you to anticipate cash shortfalls in order to give you time to carefully consider all your financing options.

* Collect your money as fast as possible. Send invoices as soon as you ship goods instead of billing at the end of the month. Your invoices should clearly show the payment due date and any penalty for late payment.

* Follow up on delinquent receivables. The longer an account remains unpaid, the greater the chances are that you'll never see your money. Once an account becomes delinquent, make no more credit sales to that customer until the account is brought up to date.

* Postpone paying your bills. Take early payment discounts when it makes sense, but otherwise use the full grace period to pay your bills. You might want to pay early to key suppliers.

* Don't let inventory buildup. If your inventory includes slow-selling and high-cost items, consider making them special order items. Get rid of obsolete inventory to free up cash and valuable shelf space.

* Track your expenses. At least once a month, compare your spending with your budget. If you are spending more than you planned, it's a good indicator that you may need to take corrective action.

* Establish a lifeline of credit. Set up a line of credit before you need it. It takes time to secure a loan from a bank, and it may be more expensive and difficult to obtain credit when you really need it.

For a review of your company's cash management plan or for help in establishing one for your business, give us a call.

What's New in Finances

Federal Reserve releases financial statistics

A report from the Federal Reserve states that Americans lost a record 17.9% of their net worth in 2008. U.S. "net worth" is a measure of households' assets minus liabilities. The 2008 net worth was $51.5 trillion in 2008, the lowest since 2003. In just the fourth quarter of 2008, net worth dropped 9%, the largest quarterly decline recorded since 1951.

Other statistics from the report -

* Total home value fell 10.5% in 2008, the biggest drop on record. Total value of U.S. homes was $18.3 trillion, the lowest in five years.

* Stock market value dropped 39.9%. At $5.5 trillion, stock market wealth in 2008 was the lowest since 1996.

* In the fourth quarter of 2008, corporate profits fell 10.8%. Profits for the full year were down 8.8%.

Some tips for the twenty-something generation

Young people generally feel pretty good about life, but in today's troubled economic environment, they may wonder if they're making the right financial moves. Here are some simple (yet effective) financial strategies for people in their early twenties.

* Pay yourself first. Every time you get paid, put something aside in a savings or investment account. As a general rule, save 10% of your income. Even smaller amounts add up over time.

* Watch your plastic. Credit cards are an expensive form of debt, and it's easy to lose control of them. Try to pay your entire credit balance every month, even if it's a stretch. If you've been carrying a balance, buy nothing more on credit until the balance is zero.

* Keep a clean credit record. If you plan to own a home, buy a car, or start a business, you're going to need squeaky-clean credit. Keep all of your financial obligations current, and never make a financial commitment that you can't keep. If you fall behind on any obligation, talk to the creditor immediately to make alternate arrangements.

* Make sure you have top-notch medical coverage. You may not see a doctor even once this year. But if you do need medical care, it could be for something serious and expensive. Anything less than a good major medical policy could ruin you financially.

* Watch your expenses. At this point in your career, you may not receive large or frequent pay raises. But you can achieve the same effect by cutting expenses. Shop before you buy. Very similar - and sometimes identical products - are sold at widely varying prices. Wise shopping can be the equivalent of having a good-paying second job.

For assistance with financial strategies suitable for your particular age and situation, give us a call.

Take a Break

A penny for your tax thoughts...

* People who complain about taxes can be divided into two classes: men and women.

* "Next to being shot at and missed, nothing is really quite as satisfying as an income tax refund." - F. J. Raymond, comedian

* "A tax loophole is something that benefits the other guy. If it benefits you, it is tax reform." - Russell B. Long, U.S. Senator

* "The hardest thing in the world to understand is the income tax." - Albert Einstein, physicist

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 On line Advisor, or for assistance with any of your tax or business concerns, contact our office.

Online Advisor - March 2009

Major Tax Deadlines For March 2009

* March 2 - Farmers and fishermen who did not make 2008 estimated tax payments must file 2008 tax returns and pay taxes in full.

* March 2 - Payors must file information returns (such as 1099s) with the IRS. (Electronic filers have until March 31 to file.)

* March 2 - Employers must send W-2 copies to the Social Security Administration. (Electronic filers have until March 31 to file.)

* March 8 - Daylight Saving Time begins.

* March 16 - 2008 calendar-year corporation income tax returns are due.

* March 16 - Deadline for calendar-year corporations to elect S corporation status for 2009.

* March 31 - Deadline for payors who file electronically to file 2008 information returns (such as 1099s) with the IRS.

* March 31 - Deadline for employers who file electronically to send copies of 2008 W-2s to the Social Security Administration.

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 you or your business, contact our office.

* January 15 - Final 2008 individual estimated tax payment is due, unless 2008 tax return is filed and taxes are paid in full by February 2, 2009.
 
The following deadlines would normally fall on January 31. Because January 31, 2009, is a Saturday, the deadline moves to the next business day, which is February 2.

* February 2  - Employers must provide 2008 W-2 statements to employees.
     
* February 2 - Payers must provide 2008 Form 1099s to payees. (Brokers have until February 17 to provide Form 1099-B and consolidated statements to customers.)
     
* February 2 - Employers must generally file Form 941 for the fourth quarter of 2008 and pay any tax due.     

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

* 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.

IRS releases inflation-adjusted tax numbers for 2009

The IRS adjusts many tax numbers for inflation each year. Other numbers change as a result of tax law revision. In your tax planning for 2009, take the following changes into account:

* The maximum earnings subject to social security tax increases to $106,800 for 2009. As before, all earned income (wages and self-employment income) is subject to Medicare tax. The social security earnings limit for retirees under full retirement age increases to $14,160. There is no earnings limit for those who have reached full retirement age.

* The top estate tax rate remains at 45%, but the exemption amount increases to $3.5 million for 2009. The annual gift tax exclusion increases to $13,000 per donee.

* The nanny tax threshold increases to $1,700 for 2009. If you pay household workers more than this amount during the year, you're responsible for payroll taxes.

* The kiddies tax threshold increases to $1,900. If your child has more than $1,900 of unearned income in 2009 (e.g., dividends and interest income), the excess could be taxed at your highest rate if your child is under age 19 (under age 24 if the child is a full-time student).

* The first-year business equipment expensing limit goes back to its 2007 amount (as adjusted for inflation). Unless Congress changes this limit (and the expectation is that they will), the limit for 2009 is $133,000. The phase-out level is $530,000.

* The standard mileage rate for business driving in 2009 goes down to 55¢ per mile, and the mileage rate for medical and moving expenses is 24¢ a mile. The general rate for charitable driving remains at 14¢ a mile.

* The adoption credit increases to $12,150 for 2009 adoptions.

There are some changes to the retirement plan contribution limits for 2009. The maximum contribution for an IRA remains at $5,000 for those under age 50, and at $6,000 for those 50 and older. The SIMPLE plan limit increases to $11,500 for individuals under age 50, and to $14,000 for those 50 and older. The 401(k) limit increases to $16,500; those 50 and older can contribute up to $22,000.

For details or for assistance as you begin your 2009 tax planning, give our office a call.

How does an HSA work?

For 2009, the maximum contribution allowed is $3,000 for an individual or $5,950 for family coverage. Plus, you can add a catch-up contribution of $1,000 if you're age 55 or over.

* Must have a qualifying high-deductible health insurance policy in effect.

* Cannot be entitled to receive benefits under Medicare.

* Cannot be claimed as a dependent on another person's tax return.

For 2009, a "high-deductible" policy is one with a deductible of at least $1,150 and out-of-pocket maximum of $5,800 for individual coverage; a deductible of at least $2,300 and out-of-pocket maximum of $11,600 for family coverage.

Tax bonus. Under the tax law, you can roll over funds from a traditional individual retirement account (IRA), a health reimbursement account (HRA), or a flexible spending account (FSA) to a Health Savings Account without any income tax consequences. Normally, a rollover of this type would constitute a taxable distribution, with a 10% penalty tax if you're under age 59-1/2.

This tax break can be especially valuable to retirees and employees nearing the end of their careers. Also, a transfer from an FSA could make a lot of sense when FSA contributions can't be used up and would otherwise be lost.

Some businesses cut matching program

As businesses look for ways to cut costs in the current economic slump, some are conserving cash by eliminating the company's matching contributions to workers' 401(k) accounts.  These employer matches have been a popular employee benefit, with the employer typically contributing 50% of employees' contributions on up to 6% of their annual pay. 

Succession planning is very important for a family owned business. Before you sit down with your tax and legal advisors to draw up a succession plan, you should think through three key issues: who do you want to succeed you, when do you want the transition to take place, and how do you want to structure the transition?

* WHO? The question of who will succeed you in the business can be the toughest of all, largely because there is so much emotion involved. Most owners want to pass the business on to the family. But are your children willing to take on the business, and if so, are they capable of running it? Will it cause a family squabble if one or two children want to run the business, but others are not interested? Resolving these issues may take a lot of honest, open discussion with family members to discover their true feelings. If there is not an obvious family successor, other alternatives include selling the business to an outsider, promoting an existing employee to head the business while you retain ownership, or even selling the business to the employees.

* WHEN? When you make the transition depends on a number of factors, such as your age, health, retirement goals, and the readiness of a successor. Consider whether you want to maintain some involvement with the business or make a clean break. Remember, though, you should always have a contingency succession plan in case of sudden death or disability.

* HOW? How you structure the transition depends partly on the answers to the earlier questions and partly on financial considerations. Think through issues such as whether you need retirement income from the business or whether you primarily want to minimize estate taxes. Knowing your goals for the transition will make it much easier to tailor a succession plan that fits your specific situation.

Good news for retirees

Retirees saw trillions of dollars disappear from their retirement accounts in the closing months of 2008, thanks to the crisis in the financial markets. Some relief for those 70-1/2 and older was included in a year-end law passed by Congress on December 11, 2008.  The Worker, Retiree, and Employer Recovery Act of 2008 included a provision that will let these older taxpayers forgo the required annual minimum distribution from their retirement accounts for the year 2009.

Normally, those 70-1/2 or older must take annual distributions from their retirement accounts or pay a 50% tax on the amount required to be withdrawn but not taken. 

Without the relief provided in this new legislation, retirees would have to take a 2009 distribution from an already depleted account, leaving even less in the account to recover once the economic situation improves.

The law did not change minimum distribution requirements for 2008.  For more information on the new law, contact our office.

The IRA charity option is back again

Remember the 2007 tax rule that allowed individuals 70-1/2 or older the option of contributing up to $100,000 directly from an IRA to a qualified charity in 2007 without having to treat the IRA distribution as taxable income?

Well, that option was restored by a 2008 law, making such IRA direct contributions allowable for 2008 and 2009.  Here's a review of this potential tax planning opportunity involving your individual retirement account.

Charitable IRA distributions are withdrawals that are neither included in, nor deducted from, your taxable income. Better yet, such payments qualify as required minimum distributions (RMD) from your retirement account. Thus, if you do not need the IRA distribution to live on, and you wish to make a donation, a charitable IRA rollover might be a win-win strategy.

Charitable rollovers also make sense when the inclusion of the IRA distribution in your income would result in the phasing out of other deductions, such as personal exemptions or itemized deductions. Non-itemizers also benefit since the donated amount is excluded from their taxable income.

Keep in mind that there are unique restrictions on this type of gift. The IRA rollover cannot be contributed to a donor advised fund or supporting foundation. Also, if any benefit is received in exchange for the gift, such as dinner tickets, the entire distribution becomes taxable. As with any donation, the charity needs to provide you with a tax receipt containing all the proper substantiation for your contribution. Without it, the gift is disqualified. Also be aware that the donation must be made directly from the IRA to the charity and not paid to you first.

Remember, this provision is scheduled to expire at the end of this year, so now's the time to act. If you're interested in analyzing whether this option is a tax-smart move for you, give us a call.

Honestly! Not another New Year's resolution…