Timothy W. Tuttle & Associates
Volume 5 Edition 11 Please email comments to firstname.lastname@example.org Nov 2009
Major Tax Deadlines
For November 2009
During November: It's wise to estimate your
2009 income tax liability and review your options for minimizing your 2009
taxes. Call us if
you would like to schedule a tax-planning session.
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:
Little change for 2010 tax numbers
There was minimal inflation in 2009; therefore, tax numbers that are annually adjusted for inflation will see little or no change for 2010. The IRS has released the 2010 numbers for the more than three dozen tax breaks that are subject to annual inflation adjustments.
Among the numbers you'll use for your 2010 tax planning and for filing your 2010 tax return in 2011:
* The exemption amount for each taxpayer and each dependent remains at $3,650.
* The standard deduction amount increases slightly for heads of household in 2010, going from $8,350 to $8,400. Singles will see no change in their standard deduction; it remains at $5,700. The standard deduction for married couples filing a joint return will be unchanged at $11,400.
* The annual gift tax exclusion will remain at $13,000 for 2010.
The Social Security Administration has announced that the maximum earnings subject to social security tax will not change for 2010. The taxable wage base will stay at $106,800.
Year-end tax reminders
The clock is ticking on tax moves you might benefit from if you act before December 31. Here are some year-end reminders.
* If you don't itemize your deductions, you may still deduct 2009 property taxes you pay, up to a $500 limit for singles and $1,000 for couples.
* If your small business doesn't have a pension plan, consider establishing one to get a tax credit of up to $500 in each of the plan's first three years.
* Max out contributions to retirement plans. You can put away $16,500 in a 401(k) plan ($22,000 if you're 50 or older), $11,500 in a SIMPLE ($14,000 for 50 and older), or $5,000 in an IRA ($6,000 for 50 and older).
* Need a new vehicle? Buy before year-end to take a deduction for sales taxes on up to $49,500 of the purchase price. Income limits apply.
* Consider buying equipment for your business to utilize the $250,000 first-year expensing option and 50% bonus depreciation.
* Get your investment records in order so you can make wise year-end sell decisions, either to rebalance your portfolio at the lowest tax cost or to offset gains and losses.
Contact us for a year-end review of tax-cutting options suited to your specific situation.
Time's running out for 2009 business tax
Although it's getting late in the year, small business owners still have time to reduce their 2009 tax bill.
The bottom line of tax planning for small businesses is minimizing taxable income and maximizing deductible expenses. Unless you expect a higher tax bracket in 2010, consider deferring income until next year. You might wait until January to mail out sales invoices or to ship sold goods. This might sound counter-intuitive, but remember, income deferred to January will not be reported on your tax return until you file for 2010.
The flip side of reducing taxable income is increasing your deductions. Try to accelerate business expenditures planned for next year into 2009. Stock up on supplies or take a business trip earlier than planned. If you need to purchase major equipment, consider buying before year-end. Up to $250,000 can be written off in 2009 for new and used business equipment acquired and placed in service before December 31. First-year 50% bonus depreciation can also be taken on new equipment purchases made in 2009.
Accrual-basis businesses can reduce taxable income by writing off bad debts, as long as there is adequate documentation. Identifying obsolete inventory might also score a deduction. One of the surest methods for cutting business taxes is a qualified retirement plan. If you already have a plan established, be sure to contribute the maximum allowed for 2009.
Your business may already qualify for some deductions but lack one thing: proper accounting records. For instance, the business use of your personal vehicle is deductible, but only if you keep detailed records. You may also be eligible for a home office deduction. But without documentation, you could lose the write-off.
Finally, do a quick review of your estimated tax payments before year-end. This will tell you where you stand, and possibly save you tax underpayment penalties to boot.
A little year-end planning could pay big dividends come April 15. Give our office a call today to discuss tax-cutting strategies for your business.
Take time to do a "banker" review
Have you taken a look at your company's banking relationship lately? Chances are you opened an account at a local branch when you started the business and haven't changed since. But your business and its banking needs have almost certainly changed.
Periodically, it's a good idea to examine how well your bank is serving your needs. You and your accountant or bookkeeper should arrange to meet with your local bank manager or loan officer. Your goal is to summarize your company's performance and banking needs, and then ask the bank how it can best serve you. Topics to discuss include:
* Fees. Is your current fee structure the best for your business? Explore alternatives that might reduce fees. Consider switching to an "analysis" method, where you earn credit for the deposits you maintain.
* Payment processing. Review how you pay your bills to vendors and how you deal with payments from customers. Would more use of electronic payment processing improve your operations? Would your business benefit from cash management techniques to improve cash flow?
* Loans. Do you have or will you need a business loan or line of credit? If so, discuss possible rates, terms, and alternatives. Remember, most banks want to make sound loans. Put that to your advantage in discussions.
* Deposits. Banks are also hungry for deposits. Discuss how much you keep on deposit and how you are compensated for those amounts. If your business has large cash balances at certain times, discuss possible short-term investments.
* Other services. Discuss other banking needs such as company credit cards for executives who travel.
Your bank should be your business advocate. Keep the communication open and the pressure on to make sure it fills that role.
What's New in Finances:
Three important IRA reminders
As you do your tax and financial planning over the next several months, keep these current and future IRA rules in mind:
* If you are required to take annual distributions from your IRA or other retirement plan, remember that these required minimum distributions (RMDs) were suspended for 2009.
* If you're 70-1/2 or older, you can make a 2009 donation of up to $100,000 directly from your IRA to a qualified charity without treating the donation as a taxable IRA distribution.
* Beginning January 1, 2010, the $100,000 income limit for converting a traditional IRA to a Roth IRA is eliminated. This rule change essentially allows everyone at every income level to convert a traditional IRA to a Roth.
Start an IRA for your working child
Most children are not into saving for the future. But the current tax and investment benefits are worth considering. A few dollars invested at an early age can return large sums at retirement time.
The Roth IRA can be especially beneficial for young people because they will have many years of compounded earnings within the IRA, earnings which could go income-tax-free forever. And in many cases, the lack of a current tax deduction for the contribution results in little or no change in the child's current income tax.
Take this example. Sara is age 17 and earned $3,000 from her summer job. She is entitled to invest in an IRA up to the amount of her earnings or $5,000, whichever is less. If Sara made a single, one-year contribution of $3,000 to an IRA, her fund would grow to $49,000 by the time she's 65 years old, assuming a 6% annual return. Even if the return rate were only 4%, her IRA would still be worth almost $20,000. And that is for a single year's contribution. If she continued to invest $3,000 at 6% every year to age 65, she would have more than $750,000.
What if Sara waits until she is 25 years old to start her IRA? The accumulated dollars at age 65 would be about 60% of the above number. So, those first eight years could be worth a quarter of a million dollars at retirement.
If Sara spends her earnings, she can still benefit from an IRA. Since she had "earned" income, she is entitled to contribute to an IRA regardless of the source of the funds. If her mom and dad or grandma want to give Sara the money, it can be used to fund the IRA. Think of this possibility when you're trying to decide on birthday and holiday gifts for loved ones.
Young people should be encouraged to start investing at an early age. It is a great habit to get into, and it just might keep them from being among the 95% of retirees who require financial assistance from others when they retire.
For details or assistance with your financial concerns, give us a call.
Take a Break
A few numbers to contemplate…
* Half the cookies baked in the United States are chocolate chip.
* Spam controls 75% of the canned luncheon meat market.
* 52% of twins have names that start with the same initial.
* The U.S. has 5% of the world's population and 80% of the lawyers.
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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