Online Advisor
Timothy W. Tuttle & Associates
Online Advisor
Timothy W. Tuttle &
Associates
Volume 5 Edition 10 Please email comments to newsletter@tuttlefirm.com Oct 2009
Major Tax Deadlines
For October 2009
* October 1 - Generally, the deadline for self-employeds
and small businesses to establish a SIMPLE retirement plan for 2009.
* October 15 - Deadline for filing 2008 individual tax returns on automatic
extension of the April 15 filing deadline.
* October 15 - If you converted a regular IRA to a Roth IRA in 2008 and now want
to switch back to a regular IRA, you have until October 15, 2009, to do so
without penalty.
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:
A new vehicle could bring tax savings
If you're thinking of buying a new car, truck, motorcycle, or motor home this
year, you might benefit from a tax break included in the "Recovery Act of 2009."
Here are the details.
* You can deduct state and local sales taxes paid on up to $49,500 of the
purchase price of a qualifying vehicle. \
* Qualifying vehicles generally include new (not used) cars, light trucks,
motorcycles, and motor homes purchased after February 16, 2009, and before
January 1, 2010.
* The deduction can be claimed on your 2009 tax return regardless of whether or
not you itemize other deductions.
* The deduction phases out for single taxpayers with income between $125,000 and
$135,000. For joint filers, the phase-out range is $250,000 to $260,000.
For more information or planning assistance, give us a call.
Mortgage debt relief: Answers to frequently asked questions
To compound the financial woes resulting from a foreclosure or other mortgage
restructuring for your home, the IRS generally imposes tax when debt is
cancelled. In other words, you're taxed on the amount forgiven by the lender as
if you actually received it as income. However, Congress provided some relief to
homeowners under the "Mortgage Forgiveness Debt Relief Act of 2007."
Here are the answers to several common questions in this area.
* What relief does the recent law provide? Generally, it excludes tax on
cancellation-of-debt income realized from a foreclosure, short sale, or other
mortgage restructuring. This tax break only applies to debt used to buy, build,
or improve your principal residence. It isn't available for vacation homes or
investment property.
* Is there a limit? Yes. The exclusion can cover the tax due on up to $2 million
of forgiven debt ($1 million if you're married and file separate tax returns).
Any excess is taxable under the general rules.
* How does the exclusion affect your basis in the home? You must reduce your
basis (the amount used to determine taxable gain or loss from a home sale) by
the amount of cancelled debt excluded from taxable income. For example, if a
loan restructuring results in cancellation of $50,000 of debt on a home with a
basis of $450,000, your basis is reduced to $400,000. This could increase your
taxable gain when you sell the home, although the first $250,000 of gain
($500,000 for joint filers) may still be sheltered by the home sale exclusion.
* How do I know how much debt is excluded? Your lender will send you Form 1099-C
(Cancellation of Debt) showing the amount of debt forgiven and the fair market
value of property given up through foreclosure. It also sends the IRS a copy of
the form. The IRS encourages homeowners to check this information carefully.
* What is a short sale? Instead of foreclosing on a home, a lender may allow you
to sell it for less than the mortgage amount and take the proceeds in full
satisfaction of the debt. For instance, let's say you still have a mortgage of
$250,000 on your home, but the home's value has dropped to $225,000. Assuming
the bank agrees to a short sale and you incur $15,000 in selling expenses, you
turn over the remaining $210,000 to the bank. The $40,000 difference, which will
be reported on Form 1099-C, qualifies for the tax exclusion on
cancellation-of-debt income.
* Is this tax relief permanent? No. Initially, the tax exclusion only applied to
debt forgiven in 2007, 2008, or 2009. But the economic stimulus law passed last
year - the "Emergency Economic Stabilization Act of 2008" - extended this tax
break for three years through 2012.
This is just a brief overview of the new mortgage debt relief available to
homeowners. Call us if you have questions pertaining to your situation.
New Business:
Our workforce is changing
Things are changing on the job front. Here are a few workforce numbers reported
recently.
* If the trend reported in June 2009 continues, women will soon make up the
majority of the nation's workforce. In June 2009 women held 49.83% of the
country's 132 million jobs. This will be the first time in history that women
constitute a majority on the job front.
* The Labor Department reports that in the first five months of 2009, 5.3% or
some 7.6 million workers held more than one job.
* According to the Pew Research Center, the U.S. workforce is getting older. By
2016, 22.7% of the workforce will be aged 55 and older. Reasons cited include
the effect of the current economic downturn on retirement savings and the extra
years young people remain in school instead of joining the workforce.
* The Bureau of Labor Statistics reports that between 2000 and 2008, the number
of workers aged 65 to 69 rose 25%. Workers in the 70 to 74 age group increased
32%, those in the 75 to 79 age group increased 38%, and those 80 and older
increased 67%. It's clear that as people live longer, their attitudes toward
retirement are changing.
Six questions to ask before starting a business
Throughout America, in rural towns and large cities, companies come and go with
clockwork frequency. That specialty store with the ragged sign and lousy
service? It's been replaced by a funky restaurant that serves great linguini.
Yesterday's bicycle shop is today's bakery. It's no wonder. Creating a company
that can survive even a few years is not an easy feat.
If you recently lost your job or have always dreamed about being your own boss,
you may be contemplating a new business venture. Before launching a small
business, increase your chances of success by answering a few simple questions.
1. Is there a market for my product or service? Test your target demographic.
This can be as simple as putting together focus groups who will provide honest
feedback. You might also attend trade shows to network with others in similar
markets. Consider reviewing census figures for your area. For example, are you
planning to sell baby clothes when most people in your target area are empty
nesters?
2. How much money will I need? You'll want to review sales revenue and expense
forecasts for the first year of planned operations. By the way, don't count on
friends, relatives, or bankers to bail you out if cash flow doesn't meet
expectations. A basic rule is that the company should have enough cash to
survive - without tapping loans, credit cards, or lines of credit - for at least
a year. For many people, that means starting the business while keeping their
day job.
3. Do I have a business plan? A detailed business plan will help you think
through all aspects of your company's start-up phase. It defines what you're
selling. It lays out marketing strategies, start-up capital requirements,
overhead expenses, expected cash flow, and plans for business growth. It should
include a summary of your experience in that product or service.
4. Are my books in order? Whether you keep your own records or hire someone else
to perform this important task, you should know whether your business is
profitable on a monthly basis. That means tracking all expenses, including
payroll costs and inventory. A sales-only focus has doomed many small businesses
to failure.
5. How should the business be structured? Sole proprietors are liable for the
business debts, taxes, and legal costs of their companies. You might want to
consider setting up your firm as a corporation or limited liability company.
Analyze this important decision at the outset so that you understand your
options.
6. Should I set up a website? Whether or not you plan to use the Internet for
sales, you can't ignore the potential value of an online presence. It might
create a higher degree of visibility for your small business and enable you to
advertise your main selling points to the general public. A website also gives
the opportunity to promote your activities or offer special incentives.
Starting a small business is not for the faint of heart. For guidance in getting
off to a good start, give us a call.
What's New in Finances:
Income levels down in 2008 and not much
improvement expected in 2009
The Census Bureau's annual report on income and poverty provides a snapshot of
the state of the U.S. economy.
According to the report, the median American household income dropped 3.6% in
2008, the steepest drop since the government began keeping records in 1947.
Income was at its lowest dollar level since 1997.
It's expected that 2009 will probably be even worse, with a 5% decline in
incomes expected.
Other statistics from the report:
* The number of people living in poverty rose to 13.2% in 2008, up from 12.5% in
2007. That's the highest poverty rate since 1997.
* Thanks to Medicare, Medicaid, and the state Children's Health Insurance
Program, the number of Americans without health insurance remained the same as
the previous year.
* Women continued to earn 77% of what men made in 2008, unchanged from 2007.
Credit card fraud: Will you be the next victim?
Credit card fraud has been around since the advent of credit cards, but the
thieves have advanced with technology.
At first, crooks used low-tech maneuvers like robbery, dumpster diving, or
mailbox crashing to steal cards, statements, and merchant receipts. Although
still popular, these methods are being eclipsed by more sophisticated techniques
that range from phone scams and phishing to phony websites and spyware.
Phone scammers use lies to trick victims into disclosing their credit card
numbers and other sensitive information. The callers might say they're asking
for charitable donations, selling goods or services, or "updating" your account
information.
Phishing is the online equivalent, where scammers send e-mails claiming to be
from legitimate sources like PayPal, eBay, banks, or even the IRS. The e-mails
usually direct recipients to official looking websites that use various pretexts
to elicit credit card information.
Spyware can be installed on your computer when you open an unsolicited e-mail
attachment. Although less frequent, skilled hackers can also insert spyware
through unpatched weaknesses in Windows or Web browsers.
The spyware sends the desired data (credit card numbers, etc.) to remote servers
whenever the victims enter the information.
Here are steps you can take to guard against fraud.
* Photocopy credit cards and other important documents that you keep in your
wallet. Use the copies to notify your bank and credit card companies if your
wallet is lost or stolen. Then cancel the cards and put a hold on all charges.
* Always review your bank and credit card statements to make sure the charges
are legitimate. Notify issuers immediately of any unauthorized entries. Then
consider changing your account number or canceling the card.
* Shred statements or receipts before disposing of them.
* Never give personal information to an unsolicited caller. Scammers can falsify
names and numbers that appear on your caller ID. Look up the company's number to
make sure it's legitimate; then call back if you wish.
* Don't open e-mail attachments from unknown parties, and don't respond to
unsolicited e-mail requests for personal information.
* Avoid writing down your PIN or passwords, and shield the numbers when using
ATMs or similar machines. Even if nobody is nearby, thieves may have affixed
hidden cameras.
* Protect your computer with a firewall, anti-virus software, and an anti-spyware
program and update them.
* The IRS does not use e-mail to contact you. Do not open or respond to such
e-mails.
Take a Break
History of federal income tax rates
Tax rates are expected to go higher in the coming years. For a look at tax rates
over the years, here's a partial history of our federal income tax rates for
individuals since the income tax was created in 1913.
Federal Income Tax Rates Since 1913
Year Lowest bracket Top bracket
1913-1915 1% 7%
1918 6% 73%
1923 3% 56%
1925-1928 1.5% 25%
1936-1939 4% 79%
1944-1945 23% 94%
1964 16% 77%
1971-1981 14% 70%
1982-1986 12% 50%
1988-1990 15% 28%
1993-2000 15% 39.6%
2003-2009 10% 35%
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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