Online Advisor
Timothy W. Tuttle & Associates

Volume 3 Edition 5            Please email comments to            May 2007

Major Tax Deadlines

For May 2007

May 15 - Deadline for calendar-year exempt organizations to file 2006 information returns.

May 31- Deadline for IRA, SEP, SIMPLE, Roth IRA, MSA, and education savings account trustees to file annual statements (Form 5498) with the IRS, with copies to participants.

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

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

* 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 warns taxpayers about phony e-mails

The IRS is warning taxpayers about Internet scams and fraudulent e-mails that appear to be from the IRS. The e-mails direct the taxpayer to a Web link that looks like the genuine IRS site and requests information such as the individual' s social security number and bank account or credit card numbers. This information is then used by the scammers to steal from the victim' s bank account and run up charges on his or her credit card.

The phony Web sites use images and content taken from the official IRS site and can appear quite legitimate. But the IRS reminds taxpayers that it never sends out unsolicited e-mails and never asks people for PINs, passwords, or other private access information for financial accounts. Also the IRS reminds taxpayers that the official IRS Web address is If the site is .com, .net, .org, or any other designation than .gov, it's not the IRS site.

The schemes have several variations, including notification that the taxpayer is eligible for a refund, a claim that the taxpayer's credit card has been used to pay another person' s taxes, and instructions to send money to claim a large lottery winning. None of these schemes has anything to do with the IRS; they are all scams to snare the unwary taxpayer.

If you receive an e-mail claiming to be from the IRS, you should not open any attachments or click on any links in the e-mail. Instead, forward the e-mail to the IRS at so that it can be investigated.

Time for midyear planning

Filing your 2006 tax return might signal the official end of 2006, but for tax-savvy individuals, it' s also the kick-off for saving taxes in 2007. Getting an early start on your 2007 tax planning will help you take maximum advantage of the latest tax breaks, inflation adjustments, and retirement options.

* First, commit to maximizing your retirement plan contributions. This will lower your 2007 taxable income and enhance your nest egg to boot. If you have an IRA, consider making contributions earlier in the year to reap extra tax-deferred earnings.

* Second, minimize any surprises next year by examining your paycheck withholdings now. Are tax withholdings on track with your current financial situation? A large tax refund or amount due on your 2006 return might require an adjustment to your Form W-4 for 2007. Additional factors to consider include recent changes to family income, a new home, or children no longer qualified as dependents.

* A law enacted last year extends the age threshold for taxing children's unearned income at the parent's higher tax rate. Now the "kiddie tax" applies until the child reaches age 18. This might be a good year to consider a 529 college savings plan as an alternative to transferring funds directly to a child's account.

* And don' t forget to take advantage of available energy tax credits this year. Qualified home improvements can trim your utility bills and lower taxes at the same time.

* Staying abreast of new tax laws is always a good idea, and this year is no exception. For instance, taxpayers age 70½ and older can now make charitable donations directly from their IRA without paying tax on the distribution. In addition, the payments satisfy the required minimum distribution obligation. So if you are charitably inclined and don' t need your IRA distributions to live on, this might be a winning strategy.

* The most common tax-related resolution - and the hardest to keep - is a vow to maintain better tax records. The deductions for higher education expenses and teacher's out-of-pocket expenses have been reinstated for 2007. These and other deductions and credits could be lost if you don't have a satisfactory recordkeeping system.

New Business:

Wellness programs are in the news again

With ever-increasing health care costs, businesses are taking another look at wellness programs for their employees. Typically, a wellness program pays employees for engaging in healthy activities - exercising, losing weight, quitting smoking, for example. In return for paying employees to be healthier, companies generally see a decline in health care costs and an increase in productivity. One large corporation says it has saved $225 per employee in medical costs each year due to its wellness programs. Another reports $2 to $3 in health care savings for every dollar spent on health improvement programs.

Many wellness programs offer a range of benefits to employees. Some include assessments for health risks, with annual physicals that emphasize prevention and early detection of disease. Some offer healthier food choices in the company cafeteria and on-site exercise facilities.

A wellness program may be worth another look for your business, too, especially if health care costs and productivity are issues that concern you.

Avoid the #1 mistake when buying a business

There are many mistakes one can make in buying a business. But if there's any one which could be given top billing, it would be buying too quickly.

Many potential buyers fall in love with a business before they know all they need to know for an intelligent purchase decision. Once you have "stars in your eyes," it's very hard to be objective about the areas that need reviewing.

Before you sign any agreement or put any money on the line, seek professional assistance. Your accountant, your banker, your insurance agent, and your attorney should all be consulted before you commit yourself to purchasing a business. The people who work in these four areas of business see numerous business transactions and assist many buyers and sellers. They are well-equipped to identify problem areas for you.

About 70% of all new businesses fail before they are two years old; about 80% fail before they are five years old. Established businesses also fail. Investigate before you buy. Are you buying a dying business? Why does the present owner want to sell?

How was the asking price determined? Many sellers feel that their business (their brainchild) is worth more than the net profit will substantiate. When you buy a business, you are buying the right to "future income." The price you pay should be determined at least in part by the future income stream.

Even if you're well-acquainted with the type of business you're about to buy, you can still benefit from outside assistance. An individual who owned a restaurant on a busy boulevard in a large city will find that a restaurant in a seasonal tourist area has a completely different set of challenges.

The need for professional assistance when buying or selling a business cannot be overemphasized. Please contact us before you buy. We are here to help.

What's New in Finances:

Stamps will cost more beginning May 14

The U.S. Postal Service announced that the cost of mailing a first-class letter will go up 2 cents to 41 cents, effective May 14.

The Postal Service will be offering something new as well - a "forever" stamp that can be used indefinitely no matter what increases occur. To begin with, the forever stamp will sell for 41 cents. Stamps purchased at that price can be used "forever" even when prices increase in the future. Stamps purchased in the future will be sold at whatever the prevailing first-class stamp rate is.

The forever stamp offers customers the benefit of never having to buy small-value stamps to get the right postage amount when prices increase and the customer has some of the older stamps left over. Customers can also stock up on stamps and use them "forever," avoiding price increases until their supply runs out.

Use compounding to build your wealth

There are several ways to earn income on investments, but compounding may be your most reliable path to wealth. If you put $1,000 under your mattress, it will still be $1,000 a year later, but it probably will buy you a little less due to inflation. If you lend the money to a friend at 12% simple interest, at the end of the year you' ll receive $1,000 plus $120 of interest, since simple interest is computed only on the principal.

Compound interest is computed on both the principal and the interest earned. If you invest the $1,000 in a bond that earns 12% interest compounded monthly, in the first month it will earn 1% (1/12 of 12%), or $10. Now you have $1,010, which will earn 1% interest in the following month, only now the earnings will be $10.10. At the end of the third month, you' ll earn 1% interest on $1,020.10 ($1,000 plus $10 plus $10.10), and so on. By the end of the year, you' ll have $1,126.83, or $6.83 more than you would earn if you loaned out the money at the same rate but at simple interest.

Time matters

An additional $6.83 doesn't sound like much, but things change over time. After 10 years at 12% simple interest, your $1,000 would be worth $2,200, which is the original $1,000 plus 12%, or $120, multiplied by 10 years. At 12% interest compounded monthly for 10 years, your $1,000 would be worth $3,300, or half again as much as it would without monthly compounding. After 30 years, your $1,000 would be worth $35,950!

Rate of return is also important. Since after 10 years your $1,000 would be worth $3,300 at 12% interest compounded monthly, it would have earned $2,300. At 6%, after 10 years the $1,000 would be worth $1,819, earning only $819 rather than $2,300.

Now suppose the $1,000 came from your net wages. If you're in a 25% income tax bracket, you earned $1,333 to get $1,000 after taxes were withheld. But what if you could have invested the entire $1,333 for 10 years? Then you will have an additional $1,100.

Compound benefits

The above examples suggest the following ways to use compounding to increase your earnings:

* Start saving and investing now. Time is your most powerful multiplier.

* Shop for the best rates of return, consistent with your risk tolerance.

* Set up your investments to automatically reinvest interest and dividends earned.

* Use tax-deferred programs like IRAs and 401(k) plans to the fullest possible extent.

If you' d like to learn more about compounding, just give us a call. We' ll be happy to review the numbers that apply to your business and investment decisions.

Take a Break:

United States trivia. . .

* In Alaska, one out of every 64 people has a pilot's license.

* Missouri is the birthplace of the ice cream cone.

* North Carolina is the home of the Krispy Kreme doughnut.

* Oregon has the most ghost towns in the country.

* South Dakota is the only state that's never had an earthquake.

* Virginia is the home of the world's largest office building - the Pentagon.

* Wyoming was the first state to give women the right to vote.

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The information contained in this newsletter is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in ONLINE ADVISOR, or for assistance with any of your tax, business, or financial strategy concerns, contact our office.

Timothy W. Tuttle & Associates