Timothy W. Tuttle & Associates
Volume 4 Edition 3 Please email comments to firstname.lastname@example.org Mar 2008
Major Tax Deadlines
Major Tax Deadlines For March 2008
* March 3 - Farmers and fishermen who did not
make 2007 estimated tax payments must file 2007 tax returns and pay taxes in
full. (Deadline is extended to March 10 if Form 4136, Credit for Federal Tax
Paid on Fuels, is attached to tax return, and the tax return is electronically
* March 9 - Daylight Saving Time begins. (The energy bill passed back in 2005 extended Daylight Saving Time by one month. As a result, Daylight Saving Time starts the second Sunday in March and ends the first Sunday in November.)
* March 17 - 2007 calendar-year corporation income tax returns are due.
* March 17 - Deadline for calendar-year corporations to elect S corporation status for 2008.
* March 31 - Deadline for payors who file electronically to file 2007 information returns (such as 1099s) with the IRS.
* March 31 - Deadline for employers who file electronically to send copies of 2007 W-2s to the Social Security Administration.
For early April 2008
* April 1 - Deadline for taking your first required IRA distribution if you turned 70½ in 2007. Unless you're still working, this deadline also applies to your other retirement accounts (except for Roth IRAs).
NOTE: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business.
Payroll tax deposits: Employers generally must deposit Form 941 payroll taxes (income tax withheld from employees' pay and both the employer's and employees' share of social security taxes) on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.
* Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the fifteenth of the following month.
* Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid.
For more information on tax deadlines that apply to your business, contact our office.
What's New in Taxes
New economic stimulus law passes
In an attempt to boost the economy, Congress hammered out a new economic stimulus package in mid-February. The centerpiece of the new legislation, of course, is the highly publicized tax rebate program. However, other tax incentives targeted at the business sector were also included in the law.
Here's a brief look at the major provisions in the new Economic Stimulus Act of 2008.
* Individual tax rebates. Most single filers will be entitled to receive a one-time tax rebate of $600. The rebates are doubled to $1,200 for joint filers. However, these rebate amounts will begin to phase out for higher-income taxpayers. The phase-out begins at $75,000 of AGI for single filers and $150,000 for joint filers, based on 2007 tax returns. Rebate checks are expected to begin arriving in May.
A late addition to the new law also authorizes rebates for individuals who have no tax liability but received at least $3,000 of taxable income in 2007. This covers social security recipients and disabled veterans (or surviving spouses of disabled veterans).
Finally, you may receive an additional payment of $300 for each child under age 17. There is no limit on the number of rebates available for qualifying children.
* Business incentives. Under the new legislation, a business may benefit from the following two tax provisions:
1. Enhanced Section 179 deductions: The new law increases the write-off allowed for assets placed in service in 2008 from $128,000 to $250,000. In addition, the dollar limit for the maximum Section 179 deduction jumps from $510,000 to $800,000. Amounts over this threshold are reduced on a dollar-for-dollar basis.
2. Bonus depreciation deductions: A business may be entitled to a 50% "bonus" depreciation deduction for new equipment placed in service in 2008. Any remainder that is left over after claiming the 50% deduction is still available for regular depreciation deductions.
Finally, the new law also raises loan limits for Fannie Mae, Freddie Mac, and the Federal Housing Authority (FHA). If you have any questions concerning the new tax breaks in the economic stimulus package, give us a call.
Tax recordkeeping: Some tips to make it easier
Are you sometimes overwhelmed and intimidated by the prospect of keeping records for federal tax purposes? Well, you are not alone. Here are some suggestions that should help you determine what to keep and for how long.
Normal statute of limitations. This is three years from the later of the due date or the actual filing date of the return. The statute period can be extended to six years if your income is understated by more than 25%. There is no statute of limitations if fraud is involved. Be safe and maintain the following records for seven years.
* W-2s, 1099s, annual brokerage statements, and other evidence to support taxable income.
* Receipts, cancelled checks, invoices, and other evidence to support tax deductions.
* IRA and other retirement plan contributions.
* Support for all charitable donations of any amount.
Other seven-year records. Some items build a history until they are reflected on your tax return. Once realized on your return, the suggested seven-year holding period applies.
* Net operating loss information. (Generally, net operating losses can be carried back two and forward twenty years.)
* Property purchases and improvements. (Keep for seven years following sale.)
* Investment related information. (Maintain investment purchase and sale information along with any dividends and stock splits.)
* Worthless securities. (Document basis and save evidence supporting the date on which the investment went bad.)
Keep indefinitely. Some records contain important information you may need years later. These records should be kept indefinitely.
* For example, keep copies of your filed returns. The IRS doesn't maintain copies after a period of time. Prior returns might be needed to correct an error in your social security wage history.
* Also keep information on your personal residence. Maintain documents supporting your basis along with improvements. Current tax laws give favorable treatment to your residence, but one Congressional act can change that. It's better to be prepared.
How to organize. Three-ring binders are a good collection device. They're easy to organize and maintain. One can accommodate your old returns and any unrealized long-term tax information. Others can be used to maintain information on filed returns for the recommended seven years. Computerized records with scanned documents are another alternative. However some documents are difficult to scan and readability can be an issue. The three-ring binder might be the better choice.
Good tax documentation starts with a commitment to action. If you need more information to organize your tax recordkeeping, give us a call.
Cost of health insurance a major concern for
The cost of health insurance is a major concern, both for employees and employers. A recent survey of approximately 3,000 companies revealed that among those with 200 or fewer employees, 61% offered health insurance in 2007. This represents a drop from 63% in 2006.
In 2007, about 5% of employees with health insurance had a high-deductible plan linked with a health savings account, up from 3% in 2006.
These plans became available in 2003 tax legislation. They are composed of two elements: a high-deductible medical insurance plan and an IRA-like employee savings account. Both employees and employers may contribute to the savings account, and those funds can be used tax-free to pay for medical expenses not paid for by insurance. Balances in the account can be invested and grow tax-free; money not used in any year can be carried over to future years.
Though 41% of larger companies offer such plans, only 7% of employers in smaller companies do. If you would like to discuss the pros and cons of these plans for your business, give us a call.
Know the tax rules for selling online
Selling items on eBay and other online auction Web sites has become a very popular way to get rid of unwanted household stuff, as well as a way to turn a little profit. Many users have even started full-time businesses auctioning merchandise on the Web. But like any business venture, selling items in the virtual world has tax implications that are all too real.
From a tax standpoint, casual selling on eBay is essentially the same as holding a garage sale. If you sell an item for less than you paid for it, you cannot deduct the "loss." When you sell something for a profit, however, you must report it on your tax return. Long-term gains on the sale of collectibles, such as artwork, antiques, or rare coins, are taxed by as much as 28%.
Profit is the difference between the selling price and your "basis" in the item. In most cases, basis is simply the amount you paid for it. Inherited items generally have a basis equal to their fair market value at the time of receipt. If the basis cannot be documented, it becomes zero, and you pay tax on the entire selling price.
Online selling activity can reach the point where it is deemed to be a business venture. Status as a for-profit eBay business versus a casual online seller is not clearly defined. Factors considered by the IRS include the amount of time you spend selling online and whether you conduct yourself like other self-employed business owners, such as keeping accounting records and advertising your services.
The good news is that if you are treated as a business, you can deduct expenses related to your selling activity. This can include Internet access fees and home office expenses. You may also be able to deduct travel expenses incurred in searching flea markets and other locations for items to sell. The downside to business status is that profits from selling online may be subject to self-employment tax. What's more, depending on where you live, you may be required to collect and report local and state sales taxes.
Taxpayers who operate like a business, but rarely show a profit, may be treated as a hobbyist and have their business losses denied. In this scenario, losses can only be deducted to the extent of gains. Generally, if you show a profit in most years, a few down years should not put you in danger of this label.
Whether you are an infrequent user of online auction sites, or an all-out eBay business owner, you cannot afford to ignore the tax implications of selling online. For the details you need to avoid tax problems, call our office today.
What's New in Finances
If you own your home and are age 62 or older, one option to increase your retirement income could be a reverse mortgage.
As the name implies, a reverse mortgage is the opposite of a traditional mortgage. With a traditional mortgage, you borrow a sum of money to purchase a home, then pay off the debt over time. With a reverse mortgage, you receive loan proceeds — as a lump-sum payout, an annuity, a line of credit, or a combination of all three — but make no payments as long as you reside in the property. The loan, with any accrued interest, comes due when you move out or pass away.
To qualify for a reverse mortgage, you need to be at least 62 years old and own the home outright (or have a balance that can be paid off with the loan proceeds). How much you can borrow depends on your age, the home's market value, and interest rates.
* The downside. Be aware that there is a downside to a reverse mortgage. Closing costs can be very steep, often over 5% of the home's value. In addition, borrowers may have to purchase mortgage insurance, and they're still on the hook for property taxes and homeowner's insurance.
Federal truth-in-lending laws require lenders to provide information about interest rates, payment terms, and other costs. If you're interested, shop for a reverse mortgage as you would for any other loan. Make sure the basic terms of competing loans are comparable. Then go with the lowest price by comparing interest rates, upfront fees, and other charges. If you need help, give us a call.
Do you have these basic financial documents?
There are some basic financial arrangements that all individuals should consider making, no matter what their age or circumstances. But if you have a family, these basic documents become essential.
A will isn't the only document you need in case of an unforeseen tragedy. To properly provide for your family, you also should have a power of attorney, a directive to physicians, and a financial inventory.
Will. As you know, a will lets you, rather than the state, control how your assets will be split among your heirs. More important, a will allows you to designate the guardian of your minor children. Properly written, it can even increase your heirs' inheritance by including simple tax-saving strategies.
Power of Attorney. A power of attorney is a document that names another individual as your agent. If you were to become disabled or seriously ill, a power of attorney would allow your agent to pay your bills, deposit your checks, and make decisions on your behalf. You can decide whether your power of attorney becomes effective immediately or only upon the occurrence of a disabling illness or injury.
Directive to Physicians. A directive to physicians (also called living will, health care directive, or some similar name) tells your doctor whether to take extreme measures to keep you alive should you become terminally ill or permanently unconscious. In addition to assisting your doctors, your directive to physicians will lessen the burden on your family by clearly describing your desires with respect to this situation.
Financial Inventory. You need a financial inventory. You should prepare a list of your bank accounts, other assets, income sources, insurance policies, mortgages, credit cards, and funeral arrangements. In addition, you should include the name and phone number of your accountant, lawyer, doctor, and insurance agent.
Take the time now to get your financial documents in order or to update the ones you already have.
Take a Break
Is opportunity knocking?
"Opportunity is missed by most people because it is dressed in overalls and looks like work."
- Thomas A. Edison
You are receiving this eNewsletter because you have a business relationship with The Tuttle Firm, or have expressed an interest in our services. If this is not the case, and you wish to be deleted from our newsletter email list, please send an email to email@example.com and state "Remove Me" in the subject line.
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