Online Advisor
Timothy W. Tuttle & Associates


Volume 4 Edition 8             Please email comments to newsletter@tuttlefirm.com            Aug 2008


Major Tax Deadlines

For August 2008

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

Tax changes in three new laws

Congress has passed three laws that contain some tax provisions. Here's a quick overview.

* FARM ACT. The Food, Conservation and Energy Act of 2008 was vetoed by President Bush but became law when Congress
overrode his veto. As the short title implies, the law mainly affects farmers and includes provisions on conservation
donations, race horse depreciation, timber sales, CCC loan transactions, and farm loss deductions. Relief for certain
disaster victims and increases in estimated tax payments for large corporations in 2012 are among other miscellaneous
provisions.

* HEROES ACT.
The Heroes Earnings Assistance and Relief Tax Act of 2008 provides tax breaks for military personnel,
civilian employers of those called to military service, veterans, and reservists serving in the military. The Act's
revenue-raising provisions include an increase in the minimum penalty for failing to file a tax return, a requirement
that certain foreign subsidiaries of U.S. corporations must now pay employment taxes, and an immediate tax bill on
Americans who give up their U.S. citizenship to escape income and estate taxes.

* HOUSING ACT. The Housing and Economic Recovery Act of 2008 was passed to provide financial stability to the troubled
housing market and tax relief to homeowners and home buyers. The law gives first-time home buyers a refundable tax
credit of up to $7,500 that must be paid back over 15 years. The credit phases out for singles with incomes over
$75,000 ($150,000 for couples) and is available for home purchases from April 9, 2008, through June 30, 2009.

Another provision gives homeowners an additional standard deduction for real property taxes in 2008. The maximum
deduction is $500 for singles and $1,000 for joint filers.

One of the revenue-raising provisions in the law will limit the exclusion of gain on the sale of a principal residence
that had been used previously as a rental property or second home.

For details on these tax changes, please contact our office.

Summer is a good time for retirement tax planning

When it comes to your retirement, three areas are hot for summertime tax planning: establishing a plan, making
contributions to existing plans, and taking distributions.

* Establish a retirement plan for your business. Qualified retirement plans shelter self-employment income and provide
tax-free growth. In 2008 you can contribute up to $10,500 to a SIMPLE IRA (plus another $2,500 if you're over age 50).
If you're self-employed, you may be able to contribute more.

Initial and ongoing paperwork for many plans is generally minimal. Setting up a plan during the summer lets you sock
away your total contribution over several months, instead of scrambling for a lump-sum at year-end.

Need additional incentive? Your business may be able to claim a tax credit that helps offset the cost of implementing
your new plan.

* Make contributions. No matter what retirement plan you have, it's never too early to put money aside. Budget now for
manageable monthly set-asides. Smaller amounts add up by year-end and can offer multiple current tax advantages in
addition to longer-term benefits.

For instance, depending on your income, contributions to traditional IRAs can be an above-the-line deduction that
lowers your tax. The Saver's Credit, which applies directly against your tax liability and is available to lower-income
taxpayers for making contributions to IRAs or other retirement plans, may also save you money.

Contribution limits for traditional and Roth IRAs have been increased to $5,000 for 2008. If you're over age 50 by
year-end, the additional catch-up contribution is $1,000. You can set up an IRA even if you're covered under other
plans (though deductibility of contributions may not be permitted in some situations).

* Schedule your distributions. Retirement plan distributions are generally taxable at ordinary income rates, so you'll
want to know now how withdrawals will affect your 2008 tax liability.

If you're not yet required to take distributions, you may have some flexibility as to which accounts you tap to meet
your cash flow needs. A summertime inventory of your assets lets you compare different distribution tactics and
calculate the tax effect of withdrawals from taxable assets versus those from your retirement plans.

What if you've already reached age 70-1/2? At that point, under the required minimum distribution rules, you generally
have to start withdrawing funds from your retirement accounts to avoid penalties. Advance planning can help you decide
if shifting your taxable accounts to tax-efficient investments will save money.

For assistance with your retirement tax planning, give our office a call.


New Business

Federal minimum wage increases again

The federal minimum wage increased from $5.85 an hour to $6.55 an hour, effective July 24, 2008.

This increase is part of a three-stage increase in the federal minimum wage mandated by the Small Business and Work
Opportunity Act of 2007. The first increase took place July 24, 2007, raising the then-current rate of $5.15 an hour to
$5.85. This was the first increase in the minimum wage since 1997.

The next and final step in the minimum wage increase takes place next year when, effective July 24, 2009, the federal
minimum wage will go to $7.25.

Note that many states already have a minimum wage higher than the federal required rate. For more information or
assistance, give us a call.

IRS audit focus is on worker classification

One of the biggest headaches for business owners is the classification of their workers. If the wrong choice is made,
the IRS could step in and assess additional taxes, penalties, and interest.

Most employers would rather hire contractors, paying them as "independent" people and avoiding the imposition of any
payroll taxes, worker compensation insurance, or other payroll-related benefits. This method is much cheaper for the
employer and can be accomplished with much less paperwork. The IRS, on the other hand, stresses that workers that are
truly employees must be classified as such, with the employer paying appropriate payroll taxes and benefits.

Simply calling an employee a "contractor" isn't good enough. There must be a reasonable basis to treat a worker as a
contractor. If the IRS reviews worker classifications, they will be looking at the amount and type of control an
employer has over the workers. If the IRS determines that workers who were classified and paid as contractors are
really employees, additional payroll taxes (both the employer and employee portion), penalties, and interest can be
assessed against the employer. Make no mistake: these can be serious amounts of money.

The IRS has developed twenty factors which are used on a case-by-case basis to determine if a worker is an employee or
contractor. No one factor determines the classification. Instead, all of the factors are weighed, and the preponderance
of those factors determines the correct classification.

Some of those factors include the instructions and training given to the worker, if the worker performs services for
other clients, the location where services are performed, how the worker is paid (hourly indicates an employee), if the
worker has his own tools, etc. You should review all of the factors for any of your questionable workers.

The IRS is looking to reduce the tax gap (the difference between taxes owed and taxes paid). Therefore, the proper
classification of employees (and the imposition of additional payroll taxes and penalties) has become a priority issue
for the IRS. Don't get caught in their sights. Make sure that your workers are classified correctly. Call us for
assistance in walking the tightrope to the proper classification of all your workers.


What's New in Finances

New mortgage rules set by the Fed

Seeking to provide more protection for consumers against predatory lending practices, the Federal Reserve Board has
issued new rules on home mortgage loans. The rules prohibit lenders from making loans to borrowers without verifying
ability to repay, limit prepayment penalties, require more disclosure in advertising, and set rules to keep lenders and
brokers from seeking inaccurate real estate valuations from appraisers.

The new rules provide sweeping consumer protection, applying to both banks and nonbanks. They will affect all borrowers
in that they raise the standards for securing a mortgage and require more complete disclosure from lenders.

The new rules take effect on October 1, 2009.

Are your bank accounts insured?

How safe are your bank accounts? You probably rely on FDIC (Federal Deposit Insurance Corporation) insurance to protect
your money if your bank fails. But this might be a good time to check your FDIC coverage for several reasons.

First, you might have less insurance coverage than you think. If your savings and loan or bank is an FDIC member,
you've probably noticed the FDIC logo that says "each depositor insured to $100,000." A common misconception is that
every account is insured up to $100,000. Unfortunately, it's not that simple. For example, a $100,000 insurance limit
applies to the combined total of all accounts that are in your name alone. If you have $10,000 in checking, $20,000 in
passbook savings, and $90,000 in bank CDs, FDIC insurance covers only $100,000 of your total $120,000. Similar limits
apply to your share of all joint accounts. Your combined IRA accounts are subject to other limits.

A second reason to be cautious is that not all products you buy at the bank branch are FDIC insured. Many banks sell
investment products, such as annuities and mutual funds. FDIC protection only applies to traditional deposit accounts,
such as checking, savings, certificates of deposit, and money market deposit accounts. In addition, your bank must be
an FDIC member in order for you to have FDIC protection.

Finally, although the banking industry is generally safe and bank failures are rare, they do happen. The FDIC was
created in 1933 to insure deposits and to promote sound banking practices.

By knowing and following the FDIC insurance rules, you can avoid unnecessary exposure to risk. It could be well worth
your time to sit down with a bank representative and review the FDIC insurance coverage on each of your bank accounts.


Take a Break

How hot is it?

If the summer heat is getting to you, this bit of trivia might put things in perspective and cool you off: The highest
continental U.S. temperature ever recorded was 134 degrees in Death Valley, California in 1913.
 


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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
www.tuttlefirm.com