Online Advisor
Timothy W. Tuttle & Associates

Volume 3 Edition 12            Please email comments to            Dec 2007

Major Tax Deadlines

Major Tax Deadlines For December 2007

* December 17 - Fourth estimated tax payment is due for calendar-year corporations.

* December 31 - Last day to set up a Keogh retirement plan for 2007. Deductible contributions for 2007 can be made any time up to the filing deadline for your 2007 return.

* December 31 - Deadline for taking required minimum distributions from IRAs and other retirement accounts.

* December 31 - Deadline to complete 2007 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 2007 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:

Big tax changes ahead

Beginning in January 2008, the tax rate on certain dividend income and long-term capital gains goes from 5% to 0% for taxpayers in the bottom two regular tax brackets (10% and 15%). If you're a single filer with income less than about $32,000 or married with income less than about $64,000, the new zero long-term capital gain rate could apply to you. In that case, you may want to postpone planned sales until 2008.

Also in 2008, the "kiddie tax" expands to cover children up to age 19. For full-time students, the age limit will be even higher - up to age 24. Now is the time to review your child's investments and time planned sales to avoid any adverse effect the new rules could have on your situation.

Do a year-end tax review of your investments

This is a good time of year to review your investments. If you're not meeting your financial goals for the year, there's still time to make changes. Make sure your portfolio is appropriately balanced among stocks, bonds, and other investments. Keep it well diversified, without too much at risk in any one sector. And you'll want to weed out investments with poor future prospects.

As you identify investments to buy and sell, keep the following tax implications in mind:

* When you sell assets, you'll have a capital gain or loss. Remember that capital gains on assets held for more than 12 months enjoy lower tax rates. For shorter holding periods, you'll pay tax at ordinary income rates.

* Don't forget to include any reinvested dividends when you calculate your cost basis for mutual fund shares.

* You can use capital losses to offset capital gains. Excess capital losses can even offset a limited amount of ordinary income.

* Watch out for the "wash sale rule." If you sell stock and then reacquire substantially identical securities within 30 days of a sale, you can't deduct a loss from the sale.

* Not all dividends on stocks and mutual funds are taxed at the same rate. "Qualified" dividends paid by most U.S. and some foreign companies enjoy lower rates of 5% or 15%, depending on your tax bracket.

* Beginning in January 2008, the tax rate on certain dividend income and long-term capital gains goes from 5% to 0% for taxpayers in the bottom two regular tax brackets (10% and 15%). There may be strategies you should consider to take advantage of this rate change, such as timing investment sales or deductible expenses.

* Interest income from corporate and U.S. bonds is generally taxed as ordinary income.

* Income from most state and municipal bonds is usually tax-free. The financial benefit of owning tax-free bonds depends on your tax bracket, among other factors.

*Changing investments within a tax-sheltered retirement account doesn't have any immediate tax consequences. You'll pay tax at ordinary income rates when you take distributions.

Remember, taxes shouldn't drive your investment decisions, but they are an important factor to consider. For guidance with the tax issues in your investment review, give us a call.

New Business:

Survey estimates 2008 pay raises

An August 2007 survey conducted by WorldatWork revealed that employers are expecting to increase salaries by 3.9% in 2008.

WorldatWork is an association of human resource professionals. Their survey indicated that employers will be keeping pay increases just a bit above the inflation rate of 2.7% for the twelve months ended June 2007. The need to stay competitive in the marketplace by holding costs down was cited as one reason for the relatively small payroll increases for next year.

Though pay-raise estimates are low, estimates of bonuses for performance excellence are definitely higher. Businesses expect to spend about 12% of total payroll on bonuses, hoping to reward and retain valued employees.

Are you paying enough attention to cash flow in your business?

In assessing their business, most owners focus on growth in sales and profits. Yet these do not guarantee business health and success. Another important gauge is cash flow. Simply put, is there enough cash inflow to cover cash outflow? Cash flow needs change on a daily basis. The more you're aware of cash flow needs, the more control you'll have over your business.

* Calculating cash flow. Cash flow can be calculated by taking net profit, adding back depreciation and amortization (noncash outlays), subtracting increases in accounts receivable and inventories during the period, and adding increases in accounts payable. Calculations can be done on whatever operating cycle time frame is most meaningful to you (monthly, quarterly, etc.). Best results are usually obtained by using monthly cash flow statements and projections based on prior experience.

* Using cash flow. Building a history of cash flow needs by using historical financial records will provide an invaluable tool for projecting the timing of receipts, expenditures, and financing needs. Periods of negative cash flow can seriously hinder expansion plans and may even lead to business failure. Cash flow statements and projections can forewarn you of cash needs and allow you to implement changes.

* Improving cash flow. Proper management of accounts receivable and inventory can strengthen cash flow. Review billing procedures to reduce lag time between shipping and invoicing. Reexamine credit and collection policies. Consider offering discounts for early payment and charging interest on delinquent balances. Review inventory levels. Be alert for stockpiles and excess inventory. Dispose of obsolete inventory by reducing prices or selling for scrap.

Effective cash flow management will permit better utilization of cash, generate additional funds from internal sources, and provide advance notice of financing needs. Knowing your cash flow requirements is imperative for business success.

What's New in Finances:

Many stay on the job even after age 65

It's no longer unusual to find people of retirement age choosing to continue working. According to the Employee Benefit Research Institute, in 2006 about 30% of Americans aged 65 to 69 were still working, up from 18% in 1985.

While the majority of older Americans who still work cite financial reasons, more and more people are working longer because they want to, rather than because they have to.

Longer life spans leave many retirees eventually bored with retirement and returning to work. Others never leave the work force even when they become eligible for retirement benefits.

Some related facts:

* Social Security was established in 1935 with age 65 as full retirement age. At that time average life expectancy in the U.S. was 61.7 years.

* Today the average 65-year-old male will live an additional 19.2 years. The average female will live an additional 21.8 years. Furthermore, there's an 11% chance that the 65-year-old man will live to age 95 and a 19% chance that the 65-year-old woman will live that long.

Do you need life insurance on your children?

Ask whether you should carry life insurance on your children and you'll receive a variety of answers. Here's a look at the arguments for and against.

* Financial security
Traditionally, you take out life insurance to provide for the financial security of dependents. The policy should provide funds to replace the insured's income and to pay off debts. Neither of these reasons applies to young children. They don't generally have any significant income, and they don't usually have any debts. Some parents might want to carry a modest amount of insurance to cover funeral costs for their children in case the unthinkable happens.

* Insurability
Another argument is that by taking out a policy at a young age, you help to guarantee insurability as the child grows older. This could be important if the child develops a major illness later in life. The problem is that if the child does develop a serious illness, insurance could then become very expensive or limited in amount.

* Insurance as an investment
Some advisors suggest that parents should take out a whole life policy on their children. These policies include a savings component to build up cash value in the policy. You could then use that value for education expenses or other needs. But others say that there are cheaper and more efficient ways to save than by using life insurance. For example, putting money into a tax-advantaged Section 529 plan might be a much better way to save for college tuition costs.

* The bottom line
Although a majority of financial advisors would probably argue against life insurance for children, there may be some situations when it makes sense. One thing is clear: You shouldn't take out a policy just because it is offered to you or because others are doing it. Insure your kids only if you've done your homework and know exactly why you need the insurance.

Please contact our office if you'd like help reviewing the advantages and disadvantages as they apply to your particular situation.

Take a Break

Season's Greetings

This is the time of year to pause and reflect on our blessings and to express our appreciation to the many people who enrich our lives.

May we take this opportunity . . .

* To wish you and yours the happiest of holidays and a healthy and prosperous 2008.

* To thank you for your business in 2007.

* To remind you that we welcome your referrals. We would be pleased to have you mention our name to friends and associates who may need our services.

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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