Online Advisor
Timothy W. Tuttle & Associates

Volume 5 Edition 7              Please email comments to newsletter@tuttlefirm.com            July 2009

Major Tax Deadlines

For July 2009

* July 31 - Due date for filing retirement or employee benefit plan returns (5500 series) for plans on a calendar year.

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:

Changes affect 529 plans

Two changes could affect your 529 college plan. First, during 2009 and 2010, you can use 529 funds for tax-free purchases of computers, peripherals such as printers, certain educational software, and Internet access. Second, for 2009 you are permitted to make two investment strategy changes (in addition to changes made when switching the plan's beneficiary). Previously only one annual change was allowed.

Follow the road to savings with tax credits

A tax deduction should never be overlooked, but it's a tax credit that can make a big difference in your tax bill. While a deduction will reduce your tax liability, it will only reduce it by your marginal tax rate. For example, if you're in the 25% bracket, a $1,000 deduction will save you $250 in taxes. But a credit is a dollar for dollar reduction of your tax liability. Regardless of your tax bracket, a $1,000 credit will reduce your tax liability by the full $1,000. In some cases, a credit will reduce your liability even below zero (called a refundable credit), giving you a refund of more taxes than you actually paid. Here are some of the more valuable credits.

* First-time homebuyer credit. This is a new refundable credit that provides a credit of up to $8,000 for first-home purchases in 2009 made by November 30.

* Child tax credit. If you qualify and meet income limits, you'll receive a $1,000 credit for each dependent child under age 17.

* Retirement savings contribution credit. This credit is for low- and middle-income taxpayers who contribute to a retirement plan, such as an IRA or 401(k). This overlooked credit is as much as 50% of the retirement contribution to a maximum credit of $1,000. There is also a credit for businesses who establish new pension plans.

* Energy credits. There are many energy-related credits - from the purchase of an alternative fuel vehicle, to the installation of solar/fuel cell property in a residence, to the production of biodiesel or ethanol.

* Foreign tax credit. The foreign tax credit lets you claim a credit on your federal tax return for taxes paid to a foreign country.

* Work credits. Credits are available to businesses for hiring certain low-income employees, employees residing in certain geographic locations, or various minority employees.

With over 40 credits available to individuals and businesses, all with their own rules and qualifications, it's easy to overlook some of them. Call us if you would like to review the credits for which you might qualify.


New Business:

Final increase in federal minimum wage this month

July 24, 2009, brings the third and final increase in the federal minimum wage mandated by the "Small Business and Work Opportunity Act of 2007." That law was signed by George W. Bush on May 25, 2007.

The minimum wage increased to $5.85 on July 24, 2007, and again last July to $6.55. This final increase raises it to $7.25 an hour.

New COBRA health subsidy: What employers and employees need to know

Job loss brings many challenges to families, and that often includes obtaining affordable health insurance coverage. Under a 1985 federal law referred to as "COBRA," many employees who are discharged can keep health insurance coverage provided by their former employer for as many as 18 months. But to do so, the employee has to pay 100% of the COBRA premiums.

* Employees' subsidy

The economic stimulus law enacted last February significantly reduces the cost of COBRA health coverage for those who lose their jobs.

Qualified individuals who timely elect COBRA coverage are required to pay only 35% (instead of 100%) of these premiums. The remaining 65% of premiums are paid by the employer, but reimbursed by the federal government through tax credits. This subsidy is available for up to nine months after the job loss.

Those qualified for the subsidy include terminated employees and their family members who are eligible for COBRA coverage at any time from September 1, 2008, to December 31, 2009. Employees who voluntarily terminate employment or who are qualified to participate in another group health coverage plan (such as a spouse's employer's plan or Medicare) are not eligible for the subsidy.

The subsidy is phased out for higher-income taxpayers. For singles, the phase-out starts once modified adjusted gross income (AGI) exceeds $125,000. It is fully phased out at $145,000. The phase-out for married taxpayers filing jointly begins with modified AGI of $250,000 and is complete at $290,000. Any part of the subsidy paid to an individual that is subject to phase-out because of these income limitations must be repaid as an additional tax on the employee's federal income tax return.

* Employers' credit

COBRA coverage is only required for employers with 20 or more full- and part-time employees, but many states sponsor plans similar to COBRA for small employers.

An employer that sponsored a health insurance plan that included COBRA coverage is required to pay 65% of the COBRA premium if the terminated employee pays the remaining 35%. The government reimburses the employer through tax credits on the employer's quarterly payroll tax returns.

The new subsidy may make it possible for laid-off workers to continue affordable health insurance coverage until new employment and coverage can be found.


What's New in Finances:

Factor graduation rates into choice of college

As college costs seem to increase every year, you might want to look at graduation rates for the colleges being considered by your family. After all, six years of college will certainly cost more than four.

A recent report from the American Enterprise Institute revealed that hundreds of colleges are failing to graduate their students in six years. According the the report, "four-year" colleges in this country graduate an average of 53% of entering students within six years. Individual colleges fall even below this national average, with some having six-year graduation rates as low as 30%.

Completing college within four years can depend on factors beyond the school's responsibility - factors such as student finances and ability. Nevertheless, it's smart to consider graduation rates in choosing what college to attend.

How to raise financially literate children

If everything your children ever learned about personal finances came from the mass media, they might think credit is a limitless resource and savings something you only find on a clearance rack. To fill in the gaps in their financial education, parents should teach their children the fundamentals of handling money. But where do you start? Perhaps begin with the following benchmarks of financial literacy.

* Time Value of Money
One of the most essential of all financial concepts is the time value of money. Children should be shown the benefits of saving money, watching it grow, and patiently deferring purchases until a future time. When children grow a little older, they can learn the reverse lesson: how debt today results in accumulated interest costs down the road. To illustrate the point, show them a loan amortization schedule for a typical car or home loan. That will get their attention.

* Transactional Skills
In today's cashless society, your children will someday need to know how to write a check, use a debit or credit card, and how to bank online. When they are ready, consider setting aside a morning to take them to the bank, introduce them to a representative, and set up their first checking account and bank card under the tutelage of the banker. Children will appreciate this rite of passage to adulthood, and they will learn how to navigate an ATM or bank Web site the right way, not just the way you do it.

* Keeping Good Records
You might feel a little hypocritical when pointing out your children's recordkeeping shortcomings, but they probably need your help more than you think. Knowing how to reconcile a checkbook and track where they spend their money is a valuable life skill. Developing a system for safely storing receipts, warranties, and other valuable papers is also important. When they begin driving, point out the location and importance of the vehicle proof of insurance and registration.

* Reflecting Your Values
Like any other area of life, you will naturally want to pass down truisms that have guided you financially. Succinct phrases often suit this purpose quite effectively, such as, "keep a little gas in the tank, a little money in the bank." Or, "don't place all your eggs in one basket." Sound corny? Perhaps. But such sayings today might just remind your children of something important tomorrow.

Those who value philanthropy should consider including their children in the charity selection process. Teach them why certain causes are important to you, and how you determine the amount to give. Perhaps you could give your children gifting discretion over a small sum of charitable dollars.

* Investments 101
The day will eventually come when your children will be ready to talk investments, retirement, and taxes. Feeling intimidated yet? There is no need to fear. Our firm can assist you and your children with these advanced topics. Being financially literate is not child's play. But then again, neither is being a parent.


Take a Break

O say, can you sing our national anthem?

Surveys have shown that many Americans don’t know the words to our national anthem. The National Anthem Project is going to cities across the country to re-teach the words to people.

If you tried to sing The Star Spangled Banner and got a bit muddled in the middle, here’s how the first stanza goes:

O say, can you see, by the dawn’s early light,
What so proudly we hailed at the twilight’s last gleaming?
Whose broad stripes and bright stars, through the perilous fight,
O’er the ramparts we watched, were so gallantly streaming?
And the rocket’s red glare, the bombs bursting in air,
Gave proof through the night that our flag was still there.
O say does that star spangled banner yet wave
O’er the land of the free, and the home of the brave?

Happy Independence Day! And if you would like to sing the other stanzas in our national anthem, go to www.thenationalanthemproject.org

 

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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