Timothy W. Tuttle & Associates
Volume 4 Edition 12 Please email comments to firstname.lastname@example.org December 2008
Major Tax Deadlines
For December 2008
* December 15 - Fourth estimated tax payment is
due for calendar-year corporations.
* December 31 - Last day to set up a Keogh retirement plan for 2008. Deductible contributions for 2008 can be made any time up to the filing deadline for your 2008 return.
* December 31 - Deadline for taking required minimum distributions from IRAs and other retirement accounts.
* December 31 - Deadline to complete 2008 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 2008 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.
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:
Lean-burn vehicle credit
The IRS recently announced that certain advanced lean-burn technology vehicles will qualify for the alternative motor vehicle tax credit. Previously, only hybrid, fuel cell, and alternative fuel vehicles qualified.
Now two Volkswagen and three Mercedes lean-burn technology models that generally run on diesel fuel qualify for the credit. Reminder: The credit starts to phase out once the manufacturer sells 60,000 vehicles that qualify for the credit.
Will your gifts bring a tax surprise?
When it comes to gift giving, surprises are part of the pleasure. When it comes to gift taxes, surprises are the last thing you want. To help protect you from the unexpected, here are answers to common questions about federal gift tax law.
Question: How does the annual exclusion work?
Answer: The annual exclusion lets you make certain gifts up to a specified dollar limit each year ($12,000 for 2008), to anyone you want, without having to pay gift tax or file a gift tax return. The exclusion is automatic, so you don't have to make an election to claim it.
Example: You give $10,000 cash to five different friends during 2008. Though you've given away $50,000 in total, each gift is less than $12,000. No gift tax return is required, and neither you nor your friends will owe gift tax.
Since the exclusion applies on an annual basis to the first $12,000 of gifts you give to any one recipient, there's no carryover of unused amounts, either to another person or to the following year. In addition, the exclusion typically covers only gifts of "present interests," which means the person to whom you give the gift has immediate unrestricted rights to the property.
Question: Are any other exclusions available?
Answer: You can use the education exclusion to make direct payments to a school for tuition with no gift tax consequences, no matter the amount.
Medical expenses you pay directly to the provider on behalf of a friend or family member are also excluded from federal gift tax.
A third exclusion is marital: You can generally give unlimited tax-free gifts to your spouse. (Special rules apply to spouses who are not U.S. citizens.)
Question: What is gift splitting?
Answer: Gift splitting lets you and your spouse apply both of your annual exclusions to a gift. In effect, you elect to make a joint gift.
Example: You give $24,000 to your son during 2008. Your spouse consents to gift splitting, which allows you to treat the gift as if each of you made one-half of it. In most cases, you'll both have to file a gift tax return, but your combined exclusion will shelter the gift from tax.
Question: What is the lifetime exemption?
Answer: Gifts you make in excess of your $12,000 annual exclusion that are not sheltered by gift splitting or other exclusions may still be tax-free. Under present law, you can make cumulative taxable lifetime gifts of up to $1 million before the gift tax kicks in.
Note: Although no tax is due on gifts qualifying for the lifetime exemption, you're still required to file a gift tax return.
In addition to the satisfaction of making a friend or family member happy, gift giving can be a valuable estate planning tool. Please contact us with your questions about federal or state rules. We'll be happy to discuss gifting strategies.
IRS releases new per diem travel rates
If you're in business, you probably know expenses for business travel, meals, and entertainment must meet strict tests in order to be deductible. In addition, you must have records to substantiate the expenses.
In some cases, per diem amounts may be used in lieu of keeping track of actual expenses for away-from-home lodging, meals, and incidental expenses. This simplifies recordkeeping. Under the per diem method, the amount of the expense is considered to be substantiated. However, you still must document the time, place, and business purpose of the expense.
The IRS recently issued new business travel per diem rates, effective October 1, 2008. The rate for travel to high-cost localities is $256, up from $237. For other U.S. locations, the rate is $158, up from $152. The meal and incidental expense rate is unchanged at $58 for high-cost areas and $45 for other locations. For additional information, contact our office.
Employee embezzlement: Are you taking steps to prevent theft in your business?
Employee embezzlement and other forms of theft often follow a predictable pattern. First, the employee is faced with significant external pressures such as high gambling debts, mounting medical bills, or substance abuse problems. To relieve this pressure, he or she finds an opportunity to steal from the company, especially if the firm's internal controls are perceived to be weak. From there, it's easy to rationalize fraudulent behavior — "I'll just take some money now, and pay it back later," or "I deserve a raise, but management's stingy, so I'll provide it myself," or "They've got plenty. They'll never miss it."
As a business owner, what can you do to prevent employee embezzlement and theft?
* Screen job applicants thoroughly. Review a potential employee's criminal history, verify education and past employment, and check references. If an applicant is willing to lie on a resume, why should you trust that person with your business assets?
* Make your policy crystal clear. Your employees should know that theft of any kind will not be tolerated, and managers should model integrity in their interactions with clients, competitors, and government regulators.
* Segregate duties. If one employee takes in cash, someone else should prepare or oversee preparation of the cash deposit, and another should record transactions in the company books. Although such separation of duties may be hard to establish in a small company, creative owners will find ways to prevent such transactions from being concentrated in the hands of a single employee.
* Conduct regular audits. Employees should know that their activities are subject to surprise reviews and an annual independent audit. They'll be less likely to steal if they know that someone is following after them, checking their work.
* Track down customer complaints. If a customer claims that a bill was paid but a credit doesn't show up in the accounting records, an employee might be stealing your business receipts.
What's New in Finances:
HSA limits increase for 2009
Health Savings Accounts (HSAs) allow taxpayers with high-deductible health insurance to set aside tax-deductible dollars that can be used tax-free to pay unreimbursed medical expenses. The amount that can be contributed each year to an HSA is adjusted annually for inflation.
The limits announced by the IRS for 2009 are $3,000 for an individual and $5,950 for a family. Those 55 years old or older may contribute an additional $1,000 in 2009.
Give financial gifts this holiday season
When planning gifts for children on your holiday list, you might want to think beyond the traditional retail offerings. Consider financial gifts that can bestow benefits for many years to come.
Some financial gift options you might consider:
* U.S. savings bonds. Savings bonds are used by many families to introduce children to the savings concept. I-bonds are indexed for inflation and can provide some attractive rates of return.
* IRAs (regular or Roth). For 2008, you can contribute the lower of $5,000 or the earned income of the child. An early financial start can produce amazing benefits from compounded interest accumulated over several decades.
* Stocks or mutual funds. Equities are a good way to introduce a child to the investment world. If you give appreciated securities to a child or grandchild who is 19 or older (24 if the individual is still a student), it could allow the child to enjoy a lower capital gains rate when the shares are sold.
* Collectible stock certificates. Vibrant framed certificates are available for many companies. A Disney, Dream Works, or Coca-Cola stock certificate can provide a colorful reminder of the importance of investing for the future.
* Collectibles. Postage stamps or coin collection kits can provide years of enjoyment and form the basis for some life-long hobbies. An interesting gift idea is an official U.S. mint proof coin set for the year the child was born.
Please call us if you would like to review the tax issues related to any of these financial gift options, especially if you are considering a large amount.
Take a Break
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 2009.
* To thank you for your business in 2008.
* 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