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TAX TIPS AND FACTS
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ROGER A. KAHAN Certified Public Accountant and Advisor Serving the tax and financial needs of individuals and small to medium sized businesses 11 Jeanne Road, Randolph, MA 02368 VOICE: 781.963.RAK-1 (963-7251) E-mail: kahan@rak-1.com Copyright © 1999 Roger A. Kahan, CPA ALL RIGHTS RESERVED |
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You are the person to access this issue!
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| FEDERAL TAX DEPOSITS | |
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The Internal Revenue Service has a policy to credit federal tax deposits in due-date order, neglecting the actual period of coverage.
This way, a missed deposit early in a return period (a three-month calendar quarter) can result in multiple penalties, even when
subsequent deposits for that same period are made in timely fashion. However, the IRS has, because of taxpayer concern, provided a
way for a taxpayer to designate the application of federal tax deposits to minimize the "failure-to-deposit" penalty. Keep in mind
this alternative is used only after they have made the "erroneous" application and sent you a bill. It is considered and handled
almost as an appeal to the assessment of a penalty.
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| PER DIEM RATES FOR 1999 | |
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The IRS increased the per diem rates for business travel for 1999. For travel to any high-cost locality, the rate increases from $180
to $185 and, for travel to any other area in the continental U.S., the rates increased from $113 to $115. For meals and incidental
rates based on the high-low method, the rates also increased from $40 to $42 for high cost-areas and $32 to $34 for other areas.
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| SAVINGS IDEA | |
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Many people are losing a lot of dollars in interest each year by keeping their money in traditional bank savings or NOW accounts.
Switching to a bank Certificate of Deposit (CD), a brokerage money market account or a credit union may make sense. Most traditional
savings accounts pay on average, less than 2% annually. Rates on Certificates of Deposit and some credit union accounts exceed 2%
annually, and are usually federally insured. Money-market accounts at a brokerage normally pay more than 2% in dividends.
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| Roger A. Kahan is a Certified Public Accountant and Advisor with an office in Randolph, serving the tax and financial needs of individuals and small to medium sized businesses almost anywhere in the United States. And with the advent of the Internet, professional consultation extends to several other countries. Roger is always seeking additional clients and professionals wishing to save money and better manage their own, a friend, a relative or a client's personal or business life. | |
| DO WHAT DO YOU DO BEST | |
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In your business or as an employee, you do some things extraordinarily well. People pay for what you and your employees have to
offer. Don't spend your valuable time doing things you don't enjoy or fully understand. Do what you do best. Delegate the rest to
experienced professionals. Sometimes, it is hardest to let go of the tasks you least like to perform. Try it, you and your family
may appreciate the change in you.
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Remember, "It's not what you make that counts, it's what you keep."
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| WHAT IS LONG-TERM CARE INSURANCE? | |
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Private, long-term care insurance helps pay for the high cost of nursing home care or home health care. The average cost for a year's
stay in a nursing home is $40,000; the cost is considerably higher in many areas of the country. Long-term care insurance premiums
and other costs associated with receiving long-term care are tax deductible as a medical expense (subject to limitations).
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| FEATURES WANTED | ||
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We want to feature our clients in future editions of TAX TIPS AND FACTS.
If you would like to have a FREE spot to sell us on your company, its
products or services, simply send us a brief story about your company, an
overview of your company's products and future plans. We may edit the
information and include it in a future edition. Send the information to
Roger A. Kahan, CPA via mail, E-mail
or FAX it.
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| POINTS TO PONDER | |
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Do you have limited parking in front of your store or office? Have you thought about having you and your staff park away from your
front door? This would allow your customers (you know, the ones that pay you) to have a convenient place to park near your store or
office. Do you know you may be missing some sales because people have too far to walk to get to your store? If you are a
professional, you may be missing important new clients.
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| CASH METHOD versus ACCRUAL METHOD | |
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This tip is a copy of a notice from the New England District of the Internal Revenue Service emphasizing the importance of
considering a change of accounting method from cash basis (income when received, expense when paid) to the accrual basis (income when
billed, expense when incurred). This may just be an early notice, but it is something you might want to talk about soon. We are
available to assist with your decision.
IRS New England District Practitioner NewsFlash This article is intended to alert the New England accounting community as to when the IRS requires the accrual method. However, we realize each case is different and this is not meant to be an all-inclusive discussion of this issue. With increasing frequency, the IRS is requiring the accrual method when the production, purchase, or sale of merchandise is an income-producing factor. The taxpayer can be required to use the accrual method under sections 471 and 446 even though he is not prohibited by section 448 from using the cash method (i.e. gross receipts less than $5 million). Businesses with little or no ending inventory still have to use an accrual method if the production, purchase, or sale of merchandise is an income producing factor (J.P. Sheahan Assoc., Inc. v. Commissioner, T.C. Memo, 1992-239). In fact, a manufacturers' representative should be on the accrual method if he takes title to the goods, even though the merchandise is shipped directly from the manufacturer to his customer. The starting point for determining whether or not merchandise is an income-producing factor is to analyze the cost of merchandise as a percent of gross receipts. There is tax law authority sourced in court decisions that indicates that merchandise is an income producing factor if the merchandise cost as a percentage of gross receipts (under the cash method) is 15% or more (Wilkinson-Beane, Inc. v. Commissioner, 70-1 USTC 9173, 420 F. 2d at 352). Section 1.446-1(c)(2)(ii) provides that the Commissioner may authorize a taxpayer to continue the use of a method of accounting consistently used by the taxpayer, even though not specifically authorized by the regulations, if, in the opinion of the Commissioner, income is clearly reflected by the use of such method. The courts have developed the substantial identity of results test (SIRT) to make this determination. Under the SIRT, the taxpayer must establish that the cash method of accounting produces substantially identical results to the accrual method. The SIRT is a difficult test to meet.
If you have a client on the incorrect method, you should review Revenue Procedure 97-27 and consider filing Form 3115, Application for
Change in Accounting Method, requesting permission to change voluntarily. The terms and conditions of a voluntary change using Revenue
Procedure 97-27 are more favorable to the taxpayer. For example, with regard to voluntary changes that result in a 481(a) adjustment,
the 481(a) adjustment is spread over 4years; whereas during an examination, the 481(a) adjustment is made in the earliest year of the
exam, using 481(b) to compute the tax. IRS Helps Cut through the Red Tape during Special Problem Solving Day. The Internal Revenue Service (IRS) will reach out June 17 to taxpayers and practitioners in the greater Boston area in a special program aimed at helping people with federal tax problems. The tax Problem Solving Day will be held at One Montvale Avenue, Stoneham, MA, from 12 Noon to 6 p.m. Those interested in attending on June 17 are encouraged to make a reservation by calling the Boston IRS office at (617) 565-1550 (Monday - Friday, 8:00 - 4:30 p.m.) or the national problem solving toll-free number at 1-877-777-4778 (7 days a week, 24 hours a day). A Form 3115 can be filed for the year of change any time during the taxable year. However, if the form is filed after the start of an exam which has this issue under consideration, the adjustment is made in the first year under audit.
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| INTERNET ACCESS | |
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We are kahan@RAK-1.com (that is a "one" and not a small
"L") and an active user of the INTERNET. You can E-mail us from any service connected to the
NET. Our Internet provider is The Xensei Corporation of
Quincy. For more information about Xensei and a reasonably priced and easy to use
unlimited-time, local internet access, call me at (781) 963-RAK-1 or Xensei at
(617) 376-6342, e-mail info@xensei.com.
TAX TIPS AND FACTS will appear on our World Wide Web page, at http://www.rak-1.com making it available the WORLD.
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| TAX TIP OF THE WEEK | |
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I am now writing a TAX TIP OF THE WEEK that is distributed over the Internet to a growing list of people each week. Some items in the
weekly version will appear in the printed monthly version. If you would like to be included in the weekly electronic distribution,
just send me your e-mail address with your City and State (for statistical purposes) by e-mail, snail-mail, voice-phone or fax.
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| SUCCESSION PLANNING FOR FAMILY BUSINESSES | |
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Estate planning can be extensive and complicated. A difficult part of estate planning is providing for the succession of ownership in
a family business from one generation to another. The well thought out plan should place control of the business with the persons
most qualified to run it, to provide (to the extent possible) for an equitable distribution of the decedent's entire estate. To
accomplish these goals, as well as minimize the estate, gift and income tax consequences of the transfer, it may be a good idea to
start the transfer process during the lifetime of the current owner(s) of the closely held business.
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| WE NEED YOUR SUPPORT | |
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If you like our work, recommend us to a friend. If you are not happy with our work, please call me and let's talk about it. We will both appreciate it.
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| BANKRUPTCY STATISTICS | |
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More Americans filed for bankruptcy in 1998 than ever before. More than 1.4 million bankruptcy petitions were filed in 1998 and of
that more than 1.3 million for individuals. That's about a 2.7% increase over 1997.
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| CERTIFIED? | |
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Your doctor is certified. Your lawyer is certified. Is your accountant certified? If your accountant isn't a Certified Public Accountant, think twice about where you are getting your advice. Who do you want handling your financial and business matters? If your accountant isn't a CPA, it's time to seek professional help.
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| INSURANCE ILLUSTRATIONS | |
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Insurance illustrations can vary greatly, depending upon which insurance carrier is used, the variety of financial assumptions
(interest/dividend rates) and health underwriting factors. What does this mean to you, the consumer? It means that you must ask each
professional with whom you are dealing, what assumptions were made to arrive at the numbers in your illustration. Remember that the
cheapest policy is not always the best policy. Know who you are dealing with, and know what you are dealing with.
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| WHY DO I NEED A CPA? | |
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CPAs do much more than prepare tax returns. A CPA can help you with all of your Personal Financial Planning
needs to help you achieve your goals.
Whether you're saving to buy a house, send your children to college or secure your retirement, you need a member of the Massachusetts Society of CPAs to assist you. Roger A. Kahan is an active member of the Massachusetts Society of CPAs.
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| Many accountants view their goal as minimizing their clients' taxes. NOT ME! I like to see my clients pay more taxes - because their earnings and profits are increasing dramatically. I can make a major difference in achieving those profits. Talk to me and find out more. | |
| SOCIAL SECURITY RECORDS ARE NOT CORRECT | |
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When was the last time you checked your Social Security earnings records? Did you know that the Social Security Administration
records are not correct? Over the years, millions of dollars have not made it to the right accounts. It seems that the Internal
Revenue Service and the Social Security Administration do not have corresponding records. Do you know if your account is correct? We
recommend checking SSA records at least every three years. To check your file and obtain a summary of your earnings, call your local
Social Security office or 1-800-772-1213 and request Form 7004-SM, "Request for Earnings and Benefit Estimate Statement." We have
some in our office. Call us at (781)963-RAK-1 and ask for one or two.
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TAX TIPS AND FACTS is published periodically by Roger A. Kahan, CPA.
Subscription is free to clients, prospective clients and friends of Roger
A. Kahan, CPA. If you know of someone interested in a subscription to TAX
TIPS AND FACTS allowing him or her to obtain valuable comments on
national, Massachusetts or local tax issues, call (781) 963-RAK-1.
The information contained in this publication has been obtained from sources I believe to be reliable at the time of writing, but I do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation by me of the purchase or sale of any securities or other investment. This material, or any portions thereof, may not reproduced without prior written permission of Roger A. Kahan, CPA. |
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