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Timothy W. Tuttle & Associates

Volume 5 Edition 2              Please email comments to            February 2009

Major Tax Deadlines

For February 2009

* 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.

* February 17 - Deadline for providing Forms 1099-B and 1099-S to recipients.

For March 2009

* March 2 - Farmers and fishermen who did not make 2008 estimated tax payments must file 2008 tax returns and pay taxes in full.

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

2008 tax rebates still available for some

The Stimulus Act of 2008 provided qualifying taxpayers with rebate checks last year. People who did not receive the maximum allowed or whose circumstances have changed since last year may be eligible for the 2009 version of the rebate - a "recovery rebate credit."

The recovery rebate credit will be based on 2008 tax return information, so filing a 2008 return is necessary. Circumstances that could make a person eligible for the credit include a 2008 income change from 2007, the birth or adoption of a child in 2008, a change in the amount of social security or veterans' benefits received in 2008, and a change in dependency status (no longer being claimed as a dependent on someone else's return in 2008).

The IRS Web site at provides information on eligibility and procedures for claiming the credit.

Basis reporting will be required soon

In just a few short years, brokers will be required to report basis information to the IRS for stocks, bonds, and other financial instruments.

Do you know how basis is determined for investments and other assets? Here's a review of the basics on basis.

Cost "basis" is fundamental to how gains and losses are figured on your income tax return. Knowing what basis is, and how it is calculated, can help you save taxes.

In its simplest form, basis is what you pay for something. It normally comes into play when you sell an item of value, such as a house or business equipment. The sales price, less the basis, is usually your taxable gain or loss. But basis is often different from the original purchase price. For instance, if you are allowed depreciation on the item, your basis is reduced by the amount of depreciation allowed.

Basis can be adjusted by other means, too. Making major improvements to an asset can increase its basis. Expenses incurred to acquire an asset, such as sales commissions or settlement costs, also add to basis.

What do these rules mean to the average taxpayer? Plenty. Homeowners should maintain a record of their home's purchase price, plus improvements, in case gain on a future sale exceeds the $250,000/$500,000 exclusion amount. Stock and mutual fund investors need to track their investment costs, including commissions and reinvested dividends. Stock splits should also be recorded.

Some assets have basis, even if they cost you nothing. The basis of property given to you is generally the same as the basis of the donor. However, inherited property usually has a basis equal to its fair market value at the time of the owner's death, though special rules apply to certain inherited assets.

Back to the upcoming basis reporting requirement for investments. Reporting begins for stock purchases in 2011, for mutual fund purchases in 2012, and for other security purchases in 2013.

New Business

Health care to cost more in 2009

Both employers and employees can expect higher health care costs in 2009.

According to a study by Hewitt Associates, businesses will pay 6.4% more for the health care benefits they provide to their employees. The average annual premium cost per employee is expected to rise to $8,863, up from $8,331 in 2008.

Because employers are responding to their increased costs by passing a portion of them on to employees, workers can expect to pay 22%, or an average of $1,946, toward their health insurance premiums in 2009. This compares with 21.6% or $1,806 in 2008. With higher co-pays, annual deductibles, and co-insurance, employees' total out-of-pocket costs are expected to be 8.9% higher in 2009 over 2008.

How to compete against a larger rival

When Starbucks or Walmart or Home Depot comes to town, how can a small business successfully compete? That's a tough question, one that's been the subject of numerous magazine articles, Internet blogs, and doctoral theses. One strategy that doesn't work is doing nothing - sitting back to watch what happens. By the time your rival's doors open, it may be too late to prevent your profit margins and market share from disappearing.

While one answer doesn't fit all cases, certain strategies have proven effective for many small firms.

* Compete on your own terms. As a small business, it's unlikely you'll be able to compete with larger competitors on the basis of price alone. Give your customers something other than bargain prices.

* Capitalize on your advantages. Establish close bonds with customers and provide services tailored to their individual needs. If you own a hardware store, for example, you might provide free delivery and assembly for some items. The key is to develop innovative ways to satisfy your customers' needs and retain their loyalty.

* Hire (and keep) the best employees. Small businesses can be great places to work. By providing in-depth training and an enjoyable work environment, your employees will generally return the favor by treating customers well. On the flip side, we've all met staff at nationwide chains who were inattentive or just plain rude. Small businesses can't afford to ignore complaints or allow poor customer service. Don't let one obnoxious employee create a bad reputation for your business.

* Expand your sources of revenue. Maybe you own a coffee shop and Starbucks is moving in. Don't throw in the towel. Add catering to the services you offer. If a larger competitor comes to town, you may lose some market share, but new sources of revenue can offset those losses.

* Differentiate your product or service. Maybe you provide fresher produce because it's grown locally. Or perhaps you offer specialty items that the other guys don't carry. Let your customers know about these differences, and they'll come to you when something special is needed.

Remember, there will always be room in the marketplace for businesses - whether big or small - that provide quality products at a reasonable price and friendly, knowledgeable service.

What's New in Finances

Tax strategies for IRA losses

Trillions of dollars disappeared from taxpayers' retirement accounts in the closing months of 2008, thanks to the crisis in the financial markets. If your IRA lost value, you might have a tax opportunity to consider.


Converting to a Roth triggers income tax on the value of your IRA, but since your IRA's value has dropped, the tax would also be lower. The benefit: Qualified withdrawals from Roth IRAs are tax-free while withdrawals from traditional IRAs are subject to ordinary income tax. There is a $100,000 income threshold to qualify for a Roth conversion in 2009; this income limit ends in 2010.


What if you converted your traditional IRA to a Roth IRA in 2008 before the market took a dive and are now facing income tax on a higher value than your Roth IRA currently has? In this situation, you might consider what is called a "recharacterization" - making a trustee-to-trustee transfer from the Roth back to a traditional IRA, essentially canceling out the original conversion to a Roth and any taxes due.
The rules governing IRAs are complex, so see us before you do anything. We can help you analyze the options available in your specific circumstances.

Have you done an insurance checkup lately?

When was the last time you reviewed your insurance coverage? An annual insurance review makes good financial sense. Here are points to consider as you review your various insurance policies.

* Health care. If you have an individual policy, investigate whether your employer, union, or professional association offers a less expensive group policy.

* Long-term care. Long-term care insurance may be advisable if you're between the ages of 55 and 72 and you don't have enough assets to fund long-term care.

* Life. The protection you need depends on the number of people who rely on you for support. Whole, variable, and universal life policies combine insurance coverage with an investment future. If you want insurance only, consider term life.

* Disability. Studies show that less than one American in six owns enough disability insurance to provide a comfortable lifestyle during a two-year disability. Disability coverage is generally limited to 60%-70% of salaried income. If you have adequate emergency funds, electing a longer waiting period for coverage to kick in will reduce your premiums.

* Homeowners. With fluctuations in the real estate market, it's possible that your home is now under- or over-insured. Coverage equal to the current replacement cost (excluding land), not its original cost, is advisable.

* Auto. Liability insurance is a must, but consider dropping collision coverage if you can afford to repair or replace the vehicle on your own. Collision insurance is probably required if your car is financed or leased.

* Umbrella liability. Personal liability coverage is included with most homeowner and auto policies. However, if you own substantial assets, umbrella coverage will provide additional protection at minimal cost.

* Unnecessary insurance. Avoid policies with narrowly defined coverage (such as credit, travel, or cancer insurance) if they duplicate other coverage.

Take a Break

What love means

February brings Valentine's Day and thoughts of love and romance. A group of four- to eight-year-olds were asked the question, "What does love mean?" Here are some of the responses.

* "When someone loves you, the way they say your name is different. You just know that your name is safe in their mouth."
Billy - age 4

* "Love is when you go out to eat and give somebody most of your French fries without making them give you any of theirs."
Chrissy - age 6

* "Love is what makes you smile when you're tired."
Terri - age 4

*"Love is what's in the room with you at Christmas if you stop opening presents and listen."
Bobby - age 7

* "If you want to learn to love better, you should start with a friend who you hate."
Nikka - age 6

* "Love is when you tell a guy you like his shirt, then he wears it every day."
Noelle - age 7

* "Love is like a little old woman and a little old man who are still friends even after they know each other so well."
Tommy - age 6

* "You really shouldn't say 'I love you' unless you mean it. But if you mean it, you should say it a lot. People forget."
Jessica - age 8

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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