Timothy W. Tuttle & Associates
Volume 4 Edition 11 Please email comments to firstname.lastname@example.org November 2008
Major Tax Deadlines
For November 2008
During November: It's wise to estimate your
2008 income tax liability and review your options for minimizing your 2008
taxes. Call us if
you would like to schedule a tax-planning session.
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.
DISASTER EXTENSIONS: Several states have suffered from disasters. If you are in a "covered disaster area," you may qualify for extended payment or filing dates by the IRS.
For more information on tax deadlines that apply to you or your business, contact our office.
What's New in Taxes:
New rescue plan extends expired tax breaks
President Bush signed the Emergency Economic Stabilization Act of 2008 into law on October 3, hoping this plan would bring stability to the financial markets. The new legislation includes a wide range of provisions affecting financial institutions and individuals. For instance, it authorizes the government to spend $700 billion for troubled financial assets, curbs excessive compensation arrangements for executives of financial firms, raises the FDIC insurance limit to $250,000 per account through December 31, 2009, and provides relief for certain homeowners.
Although these provisions have been well-publicized, less attention has been paid to the $100 billion in tax breaks added to the package late in the negotiations. The changes generally extend a series of recently expired tax provisions through 2009. Here is a summary of the key tax extensions.
* AMT relief. The new law "patches" the alternative minimum tax (AMT) again by raising the exemption amounts for 2008 to $46,200 for single filers and $69,950 for joint filers. The patch also allows you to offset AMT liability with nonrefundable personal credits.
* Tuition deduction. The new law reinstates the above-the-line deduction for qualified higher education expenses paid for yourself, your spouse, or a dependent. The deduction is $4,000 for single filers with adjusted gross income (AGI) of $65,000 or less and joint filers with an AGI of $130,000 or less. It drops to $2,000 for an AGI up to $80,000 for single filers and $160,000 for joint filers. No deduction is allowed over these thresholds.
* Sales tax deduction. In lieu of deducting state and local income taxes, you can elect to deduct sales tax paid during the year. The sales tax deduction may be based on amounts in an IRS table plus actual amounts paid for certain big-ticket items like cars, or you can keep actual receipts for taxes paid.
* Teacher's deduction. Teachers and other educators may claim an above-the-line deduction for up to $250 of unreimbursed classroom expenses. This covers books, supplies, equipment, and software.
* Charitable IRA rollovers. Under the new law, those age 70-1/2 or over can still transfer up to $100,000 directly from an IRA to a qualified charity without paying any tax. This provision is reinstated through 2009.
* Nonitemizer's deduction. The new law extends the special property tax deduction for nonitemizers previously available only in 2008. The deduction is actual property tax paid, up to a $500 limit for single filers and $1,000 for joint filers.
* Business tax breaks. Among other provisions for business owners, the new law extends the research tax credit (with certain modifications), the fast 15-year write-off for restaurant and leasehold improvements, and enhanced charitable deductions for donations of food, books, and computers.
Contact us for details on the new law and its impact on your personal and business tax situation.
Act fast to identify ways to reduce your 2008 tax bill
Year-end is fast approaching, but it's not too late to reduce your 2008 taxes. Consider the following possibilities for actions you can take to cut your 2008 tax liability.
* Capital gains. There is a new zero tax rate on long-term capital gains and qualified dividends for taxpayers in the regular 10% and 15% tax brackets. If you're single with taxable income under $32,551 or married filing jointly with income under $65,101, the zero rate applies to you. A review of your portfolio might allow you to identify stocks that can be sold with no taxes on the gains.
* IRA contributions. Contributions for Roth and traditional IRAs have been increased to $5,000 for 2008. And those age 50 or older by the end of the year can add an additional $1,000 as a "catch up" contribution, making their total contribution $6,000.
* Kiddie tax. The kiddie tax now applies to children with more than $1,800 of unearned income if they are under age 19 (under age 24 for full-time students). If you have dependent children with investment income, they could be subject to this tax. Now is the time to review their income sources and consider moving them into investments that are more kiddie tax friendly.
* Equipment purchases. Business owners can elect to expense the cost of buying equipment rather than depreciating the cost over the life of the asset. For 2008, the expensing limit is $250,000, and it applies to both new and used equipment purchases. Another 2008 provision applies only to new equipment purchases. It lets you take 50% bonus depreciation on qualified assets placed in service by December 31, 2008.
* Stock losses. With the stock market in turmoil, be aware that you can sell stocks at a loss and use that loss to offset gains on other stock sales. Additionally, if your losses outstrip your gains, you can deduct up to $3,000 of those losses to offset other income.
* Tuition expenses. The deduction for qualified tuition expenses was reinstated in the financial bailout law. This allows for an above-the-line deduction of up to $4,000 in qualified tuition expenses paid, depending on the taxpayer's income level. Paying tuition before the end of the year could create a valuable deduction. Also reinstated was the teacher expense deduction, which allows for a deduction of up to $250 for the purchase of classroom supplies.
For a review of tax-cutting options appropriate for your particular situation, contact our office soon.
FUTA surtax extended for a year
The Federal Unemployment Tax Act (FUTA) imposes a 6.2% tax on the first $7,000 of wages paid annually to employees. Years ago, a .2% surtax was added as a "temporary" measure; this "temporary" surtax was set to expire after 2008.
The recently passed Emergency Economic Stabilization Act of 2008 extends the surtax through 2009. The extension of the surtax will, according to the Treasury Department, "support the continued solvency of the federal unemployment trust fund."
Low-cost benefits can boost employee morale
Fringe benefits are important to your employees. Wage levels often don't differ much between companies, so the fringes you offer can be an important factor in hiring and retaining workers.
Major fringe benefits such as health insurance are expensive. But if you're willing to be creative, you can design other attractive benefits at low or no cost. Often these benefits are tax-free to your employees. The exact benefits will depend on the size of your work force and the nature of your business. But here are some ideas to consider.
* Flexible schedules. If the nature of your business allows, offer flexibility in working hours. Canvass senior employees for suggestions on changes. Consider ideas such as closing earlier on summer Fridays to give employees a longer weekend. Make up the time with slightly longer hours on other days.
* Personal leave days. Offer one paid leave day every two months for employees to take care of personal business.
* Transportation benefits. If you're in a metropolitan area, help your employees solve their commuting problems. Work with your local transit authority to offer free bus passes. Consider offering subsidized parking or even van pools in major urban areas.
* Company discounts. Give employees discounts on your own products. Negotiate discounts with other businesses — health club memberships, for example.
* Provide employees with a free monthly health newsletter, with updates and tips on health care issues. Many hospitals and charities publish such newsletters as part of their marketing efforts.
* Arrange lunchtime seminars on topics such as basic financial planning or health issues. It's not difficult to find professionals willing to speak for no fee as part of their business development.
What's New in Finances:
Social security taxable wage base will
increase in 2009
The amount of wages subject to social security tax will increase next year to $106,800, up from $102,000 for 2008. The Social Security Administration estimates that 11 million taxpayers will pay higher taxes as a result.
Applying the 6.2% tax rate to the higher wage base will bring the maximum social security tax for 2009 to $6,621.60, up from $6,324 for 2008. The Medicare tax rate of 1.45% continues to apply to all wages.
Self-employed individuals pay both the employer and employee share of social security and Medicare taxes, but they are allowed a tax deduction for 50% of the taxes paid.
Also adjusted for inflation, the social security benefits paid in 2009 will increase 5.8%. Working retirees who are drawing benefits prior to reaching full retirement age will lose one dollar in benefits for every $2 above $14,160.
Got mutual funds? Pay attention to year-end tax issues
If you're among the millions of Americans who invest in mutual funds, you need to be aware of the year-end issues that could affect your 2008 tax bill.
* Year-end distributions. One key fact to be aware of is that mutual funds are usually required to distribute their income annually to shareholders. If you purchase a mutual fund just before a distribution date, you will receive the distribution and be required to include it in your taxable income. Since the price of the fund shares before and after a dividend distribution reflect the amount of the dividend, you are actually paying income tax on part of your own purchase price.
* Your tax basis. Your taxable gain on sales you've made during the year will generally be the sales price minus your tax basis. Note that transactions such as check redemptions and exchanges are usually treated just like sales.
Your tax basis is generally the purchase price plus any related transaction costs, such as sales charges and brokerage fees. Your basis also includes reinvested dividends.
The IRS allows several different ways of determining basis when you've bought your shares at different times and don't sell them all at once. Mutual fund companies will often report your average cost basis, which divides the total cost of all your shares by the number of shares you own. A second option is the first-in, first-out method which assumes the shares sold were the earliest ones purchased. The specific identification method lets you choose which group of shares you're selling. Before selling, check to see which method will provide you with the lowest tax bill.
* Tax planning. Please call us so we can help you do the planning that will minimize the income taxes on your mutual fund investments.
Take a Break
* The Pacific Ocean is the world's deepest ocean at 35,885 feet. Runner up is the Indian Ocean at 25,344 feet.
* The world's longest river is the Nile at 4,132 miles. Runner up is the Amazon at 4,000 miles.
* Aluminum can be spun into a filament so fine that 1.5 lbs. of it could encircle the earth.
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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