Timothy W. Tuttle & Associates
Volume 5 Edition 1 Please email comments to firstname.lastname@example.org January 2009
Major Tax Deadlines
For January 2009
* January 15 - Final 2008 individual estimated
tax payment is due, unless 2008 tax return is filed and taxes are paid
in full by February 2, 2009.
The following deadlines would normally fall on January 31. Because January 31, 2009, is a Saturday, the deadline moves to the next business day, which is February 2.
* February 2 - Employers must provide 2008 W-2 statements to employees.
* February 2 - Payers must provide 2008 Form 1099s to payees. (Brokers have until February 17 to provide Form 1099-B and consolidated statements to customers.)
* February 2 - Employers must generally file Form 941 for the fourth quarter of 2008 and pay any tax due.
* February 2 - Employers must generally file 2008 federal unemployment tax returns and pay any tax due.
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 you or your business, contact our office.
What's New in Taxes:
IRS releases inflation-adjusted tax numbers
The IRS adjusts many tax numbers for inflation each year. Other numbers change as a result of tax law revision. In your tax planning for 2009, take the following changes into account:
* The maximum earnings subject to social security tax increases to $106,800 for 2009. As before, all earned income (wages and self-employment income) is subject to Medicare tax. The social security earnings limit for retirees under full retirement age increases to $14,160. There is no earnings limit for those who have reached full retirement age.
* The top estate tax rate remains at 45%, but the exemption amount increases to $3.5 million for 2009. The annual gift tax exclusion increases to $13,000 per donee.
* The nanny tax threshold increases to $1,700 for 2009. If you pay household workers more than this amount during the year, you're responsible for payroll taxes.
* The kiddie tax threshold increases to $1,900. If your child has more than $1,900 of unearned income in 2009 (e.g., dividends and interest income), the excess could be taxed at your highest rate if your child is under age 19 (under age 24 if the child is a full-time student).
* The first-year business equipment expensing limit goes back to its 2007 amount (as adjusted for inflation). Unless Congress changes this limit (and the expectation is that they will), the limit for 2009 is $133,000. The phase-out level is $530,000.
* The standard mileage rate for business driving in 2009 goes down to 55¢ per mile, and the mileage rate for medical and moving expenses is 24¢ a mile. The general rate for charitable driving remains at 14¢ a mile.
* The adoption credit increases to $12,150 for 2009 adoptions.
There are some changes to the retirement plan contribution limits for 2009. The maximum contribution for an IRA remains at $5,000 for those under age 50, and at $6,000 for those 50 and older. The SIMPLE plan limit increases to $11,500 for individuals under age 50, and to $14,000 for those 50 and older. The 401(k) limit increases to $16,500; those 50 and older can contribute up to $22,000.
For details or for assistance as you begin your 2009 tax planning, give our office a call.
Control health costs and taxes with a Health Savings Account
Health Savings Accounts (HSAs) have been slow to catch on with the public, but Congress is doing its part to champion their cause. It has tinkered with the law in recent years to make HSAs more appealing. In fact, you now have a once-in-a-lifetime opportunity — literally — to transfer funds tax-free to an HSA.
How does an HSA work?
Assuming you're eligible, you can set up an HSA yourself or participate in a plan through your employer. Any contributions you make are deductible above-the-line on your personal tax return, while your employer can deduct contributions made on your behalf.
For 2009, the maximum contribution allowed is $3,000 for an individual or $5,950 for family coverage. Plus, you can add a catch-up contribution of $1,000 if you're age 55 or over.
The big difference between an HSA and other tax-favored medical savings accounts is that the funds in an HSA can be invested, and the earnings grow tax-free. Withdrawals used for medical expenses are not subject to income tax. Also, unlike funds set aside for medical expenses in flexible spending accounts, unspent funds in HSAs remain in the account to grow tax-free year after year. After age 65, withdrawals can be made and used for any purpose penalty-free but not income tax-free.
To be eligible to participate in an HSA, you:
* Must have a qualifying high-deductible health insurance policy in effect.
* Cannot be entitled to receive benefits under Medicare.
* Cannot be claimed as a dependent on another person's tax return.
* Cannot be covered by another health insurance plan other than a qualifying high-deductible health insurance plan.
For 2009, a "high-deductible" policy is one with a deductible of at least $1,150 and out-of-pocket maximum of $5,800 for individual coverage; a deductible of at least $2,300 and out-of-pocket maximum of $11,600 for family coverage.
Tax bonus. Under the tax law, you can roll over funds from a traditional individual retirement account (IRA), a health reimbursement account (HRA), or a flexible spending account (FSA) to a Health Savings Account without any income tax consequences. Normally, a rollover of this type would constitute a taxable distribution, with a 10% penalty tax if you're under age 59-1/2.
This tax break can be especially valuable to retirees and employees nearing the end of their careers. Also, a transfer from an FSA could make a lot of sense when FSA contributions can't be used up and would otherwise be lost.
The catch. You can only do this rollover once in your lifetime, and if the rollover is from an FSA or an HRA, it must be done before 2012. Also, the transfer amount is subject to limits. Before you make the rollover election, be sure this is the right move for your situation. For details and assistance in deciding how this tax break might benefit you, give us a call.
Some businesses cut matching program
As businesses look for ways to cut costs in the current economic slump, some are conserving cash by eliminating the company's matching contributions to workers' 401(k) accounts. These employer matches have been a popular employee benefit, with the employer typically contributing 50% of employees' contributions on up to 6% of their annual pay.
Whether suspending matching contributions is a smart business decision depends on a number of factors. Conserving cash may keep the business from having to lay off or cut employees. Indeed, in today's troubled economy, it may be necessary for the business's very survival. However, it's likely to affect worker morale at a time when workers are seeing steep declines in their own investment and retirement accounts. Such cuts may make a company appear to be in more dire straits than it really is, a perception that is not good for any business when things are tight.
Think through the succession puzzle for business survival
Succession planning is very important for a family owned business. Before you sit down with your tax and legal advisors to draw up a succession plan, you should think through three key issues: who do you want to succeed you, when do you want the transition to take place, and how do you want to structure the transition?
* WHO? The question of who will succeed you in the business can be the toughest of all, largely because there is so much emotion involved. Most owners want to pass the business on to the family. But are your children willing to take on the business, and if so, are they capable of running it? Will it cause a family squabble if one or two children want to run the business, but others are not interested? Resolving these issues may take a lot of honest, open discussion with family members to discover their true feelings. If there is not an obvious family successor, other alternatives include selling the business to an outsider, promoting an existing employee to head the business while you retain ownership, or even selling the business to the employees.
* WHEN? When you make the transition depends on a number of factors, such as your age, health, retirement goals, and the readiness of a successor. Consider whether you want to maintain some involvement with the business or make a clean break. Remember, though, you should always have a contingency succession plan in case of sudden death or disability.
* HOW? How you structure the transition depends partly on the answers to the earlier questions and partly on financial considerations. Think through issues such as whether you need retirement income from the business or whether you primarily want to minimize estate taxes. Knowing your goals for the transition will make it much easier to tailor a succession plan that fits your specific situation.
For guidance in your business succession planning, give us a call.
What's New in Finances:
Good news for retirees
Retirees saw trillions of dollars disappear from their retirement accounts in the closing months of 2008, thanks to the crisis in the financial markets. Some relief for those 70-1/2 and older was included in a year-end law passed by Congress on December 11, 2008. The Worker, Retiree, and Employer Recovery Act of 2008 included a provision that will let these older taxpayers forgo the required annual minimum distribution from their retirement accounts for the year 2009.
Normally, those 70-1/2 or older must take annual distributions from their retirement accounts or pay a 50% tax on the amount required to be withdrawn but not taken.
Without the relief provided in this new legislation, retirees would have to take a 2009 distribution from an already depleted account, leaving even less in the account to recover once the economic situation improves.
The law did not change minimum distribution requirements for 2008. For more information on the new law, contact our office.
The IRA charity option is back again
Remember the 2007 tax rule that allowed individuals 70-1/2 or older the option of contributing up to $100,000 directly from an IRA to a qualified charity in 2007 without having to treat the IRA distribution as taxable income?
Well, that option was restored by a 2008 law, making such IRA direct contributions allowable for 2008 and 2009. Here's a review of this potential tax planning opportunity involving your individual retirement account.
Charitable IRA distributions are withdrawals that are neither included in, nor deducted from, your taxable income. Better yet, such payments qualify as required minimum distributions (RMD) from your retirement account. Thus, if you do not need the IRA distribution to live on, and you wish to make a donation, a charitable IRA rollover might be a win-win strategy.
Charitable rollovers also make sense when the inclusion of the IRA distribution in your income would result in the phasing out of other deductions, such as personal exemptions or itemized deductions. Non-itemizers also benefit since the donated amount is excluded from their taxable income.
Keep in mind that there are unique restrictions on this type of gift. The IRA rollover cannot be contributed to a donor advised fund or supporting foundation. Also, if any benefit is received in exchange for the gift, such as dinner tickets, the entire distribution becomes taxable. As with any donation, the charity needs to provide you with a tax receipt containing all the proper substantiation for your contribution. Without it, the gift is disqualified. Also be aware that the donation must be made directly from the IRA to the charity and not paid to you first.
Remember, this provision is scheduled to expire at the end of this year, so now's the time to act. If you're interested in analyzing whether this option is a tax-smart move for you, give us a call.
Take a Break
Honestly! Not another New Year's resolution…
Surveys show that the #1 New Year's resolution made each year is the resolve to lose weight. That brings to mind writer Arthur C. Clarke's remark: "The best measure of a man's honesty isn't his income tax return. It's the zero adjust on the bathroom scale."
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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