Tax Tips and Facts

TAX TIPS AND FACTS

Issue Volume 14, No. 7

As written by Roger A. Kahan, CPA

October, 2000

ROGER A. KAHAN
Certified Public Accountant, Business Advisor and Financier
Serving the tax and financial needs of individuals and small to medium sized businesses
Randolph, MA 02368-1865
VOICE: 781.963.RAK-1 (963-7251)
E-mail: kahan@rak-1.com

Copyright © 2000 Roger A. Kahan, CPA
ALL RIGHTS RESERVED

LD10195-9/00


	Back issues on-line A Little About Roger A. Kahan

TOPICS COVERED IN THIS ISSUE
	An Award From Smart Computing The Homesteader Succession Planning Gift Giving A Will is a Necessity Certified? Qualified Retirement Plans Minimum Annual Distributions Features Wanted Internet Access Gifts Why Do I Need a CPA? We Need Your Support Put Your Family on the Payroll What is Long-term Insurance When Sending Checks

AWARD FROM SMART COMPUTING

"The Editors of Smart Computing selected your site as a "Top Site" for our directory based on the overall usefulness of the site. We ask ourselves whether the site provides the kind of content Web users would consider when looking for information in a particular category. We look for breadth and depth of content first, but also take into account the organization and presentation of the information. Is it current? Is the site easy to use? All of these factors contributed to your inclusion as a 'Top Site'. Congratulations!"

We share this award with the following recipients: Deloitte & Touche, Ernst & Young, H&R Block, IRS, Jackson Hewitt, Microsoft, National Tax Association, Smart Money, and The Tax Foundation.

This is a link to Smart Computing's list "Where to Find Income Tax Information."


	Remember, "It's not what you make that counts, it's what you keep."

THE HOMESTEADER

You can now find additional tax tips concerning home ownership in THE HOMESTEADER, the South Shore's new homeowner newspaper. Tax Tips are now featured in the monthly edition. For a copy, write to The Homesteader, 99 Court St., Plymouth, MA 02360. Mention my name in your request.

By the way, our participation began with the September edition of The Homesteader. This edition was distributed at the annual NEW ENGLAND HOME SHOW held September 22 to 24. Back issues of The Homesteader can be obtained from the same address in Plymouth.

SUCCESSION PLANNING AND EMOTIONAL ISSUES

The non-financial aspect of a family business succession plan is the toughest challenge for professionals to combat. Most owners fail to plan for succession because they don't want to give up control of their business. Other reasons owners may be reluctant to plan for succession are: they cannot tell another family member he or she may not be the right person to take over, they are uncomfortable about leaving some family members out of the business, or, they get caught up in the day-to-day running of the business and find it hard to focus on succession planning. Other reasons are that most business owners believe they will live forever and they cannot become disabled (no matter how slight). Think about it! Then think about meeting with a professional and plan for your succession, whether brought about by choice or by demand. Your family will welcome and appreciate it. This type of planning is in their best interest (and yours too).

GIFT GIVING

It's getting closer to the time when you should consider your annual gift giving. If you own a closely held corporation, consider an allocation of assets by making a gift of company stock to your children. If you are a senior citizen and own your home, consider making a sale/gift to your children. If you have more than sufficient funds to maintain your retirement, consider giving your children and grandchildren a gift and watch them enjoy their inheritance while you are alive. Each taxpayer can give as much as $10,000 per year, per donee to any amount of recipients without incurring a gift tax. A married person can give as much as $20,000 per year/per donee with spousal consent. Gifts of $10,000 or more (with or without a gift tax liability) must be supported by a Gift Tax Return filed with the Internal Revenue Service.

A WILL IS A NECESSITY

What would you do if your parents died without leaving a will with instructions as to what to do with their estate? Who will be responsible for your brothers and sisters? What will happen to your parent's bank accounts and other property, including their home (the place where you may have been born or grew up)? As many as 70% of adult Americans do not have a Last Will and Testament. Apparently, they do not think they need one. A will is not necessarily a complex thing, nor does it have to be an expensive proposition. You don't have to be wealthy to need a Will. The most important purpose of a Will is to know that your possessions will be distributed the way YOU want them to be, and to whom YOU want them given to. What about your minor children? Who will take care of them after you are gone? Who will make sure your final wishes are carried out? You can get the answers to these and many other questions about wills by calling your attorney, and call us about estate planning.

SELF-EMPLOYED BORROWERS

CERTIFIED?
	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.

QUALIFIED RETIREMENT PLANS

Business owners who file on a calendar or fiscal year basis may establish new tax-qualified retirement plans before the end of their fiscal (or tax) year to obtain a deduction. Contributions to these types of plans can be made as late as the due date of the related tax return (including extensions) and are fully tax deductible up to the limits of the law.

Please keep in mind that the plan MUST BE ESTABLISHED BEFORE YOUR TAX (OR FISCAL) YEAR ENDS, ALTHOUGH YOU MAY FUND IT LATER. You cannot establish and fund a plan after your tax year ends or it will be considered a deduction for next tax year. As usual, in any good business, timing is very important. There are many actions you can take before your tax year-end that might save you tax dollars THIS year. If you are coming to the end of your tax year, consider consulting with a CPA or tax advisor BEFORE the year ends enabling you to make some timely tax saving decision. Remember, as I continue to say: "IT'S NOT WHAT YOU MAKE THAT COUNTS, IT'S WHAT YOU KEEP." Call us. We can help you establish that retirement plan.


	Planning for the future is a lot like planting a tree. You've got to do it today if you want your family to enjoy it tomorrow.

MINIMUM DISTRIBUTIONS FROM YOUR IRA

Are you over the age of 70½? The Internal Revenue Service requires all traditional Individual Retirement Account holders and certain qualified retirement plan participants to begin taking minimum distributions when they reach age 70½. The first minimum distribution must be made the April 1 of the year FOLLOWING the year in which you turn 70½. Subsequent distributions must be taken by December 31 of each year. There will be TWO distributions in the first year, if you wait until April 1 to make the first one).

The minimum distribution is calculated using the life expectancy of the individual or the joint life expectancies of the individual and his or her beneficiary. Amounts remaining in your IRA will continue to earn income on a tax-deferred basis until withdrawn. In a high earnings period, it is possible to make minimum distributions and see funds continue to grow larger. Withdrawn IRA distributions that were previously deducted from taxable income must be added to your taxable income in the year withdrawn. All traditional IRA earnings withdrawn are taxable income. If you made non-deductible IRA contributions (because you participated in a qualified employer retirement plan and earned the specified excess of Adjusted Gross Income), your withdrawal will be allocated between taxable and non-taxable income based upon a specific tax law formula.

Massachusetts rules that you first recover your non-taxable original IRA contribution and then everything else is taxable income.

For easier accounting, put all of your IRA's into one financial institution (watch out for the insurance limits). For details on taxability or investment of your retirement portfolio, call our office.

Roger A. Kahan is a Certified Public Accountant, Business Advisor and Financier 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. Please let us know if we can use your name in an introductory letter to the prospective client. Thank you.

FEATURES WANTED
	We want to feature clients in future editions of TAX TIPS AND FACTS.� If you would like a FREE spot to tell us about your company, its products or services, send a brief story about your company, an overview of company 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.

INTERNET ACCESS

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 high quality web hosting solutions, call me at (781) 963-RAK-1 or Xensei at (888) 740-7007, 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 to the rest of the WORLD.

GIFTS

Basis of property acquired by gift: If property was acquired by gift, the basis to the donee is the same as it would be in the hands of the donor or the last preceding owner by whom it was NOT acquired by gift. If a gift tax is paid, the basis of the property is increased by the amount of the gift tax attributable to the net appreciation in value of the gift. The net appreciation for this purpose is the amount by which the fair market value of the gift exceeds the donor's adjusted basis immediately before the gift.

Holding period of property acquired by gift: The holding period of property acquired by gift or transfer in trust includes the time the property was held by the donor and the donee, if the donee is required to use as his/her basis the basis of the donor. When the fair market value at the time of the gift is used to determine the loss and such fair market value is greater than the donor's basis in the property, the holding period of the donor may not be used.


	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.

WHY DO I NEED A CPA?

CPAs do much more than just prepare tax returns and "count beans." A Certified Public Accountant can assist 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 and maintains the financial planning licenses and experience to help you.

WE NEED YOUR SUPPORT
	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.

PUT YOUR FAMILY ON THE PAYROLL

People running their own business either as a main occupation or as a sideline can reap big benefits by hiring their spouse or minor child to work for them. Money previously paid to an outsider now stays within the family. The family member may also be eligible to make deductible contributions to a tax-deferred IRA or Keogh plan or join the company's pension and/or profit sharing plan. The family member may also be eligible to contribute to a tax-free Roth IRA. If the salary is paid to a child, the business may be able to deduct the salary at a top tax rate, while the child reports it at a low tax rate, lowering the family's overall tax bill. You must treat the family member as you would any other employee by paying and reporting applicable employment taxes and offering all fringe benefits offered to other qualified employees. If your sole proprietorship or partnership hires your under age 18 child, your child's payroll may not be subject to Social Security, Medicare or federal and state unemployment taxes. Check into it.

BANKS WANT TO LEND MONEY!

WHAT IS LONG-TERM CARE INSURANCE?
	Private, long-term care insurance helps pay for the high cost of nursing home care or of 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). Call us.

WHEN SENDING CHECKS
	When sending checks to the Internal Revenue Service or any other taxing authority, be sure to write your social security or employer identification number and the form number on the check. If the check is separated from the accompanying letter or form, you have a good chance of having the amount credited to the correct account.

No one is required to pay more in taxes than the law demands. If you pay too much, you have less resources to meet your other financial goals. We can help find tax deductions and credits, and help you plan so your taxes will be as low as possible, year after year. And we can also assist you with business and estate tax planning.

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.

ROGER A. KAHAN
Certified Public Accountant, Business Advisor and Financier
Randolph, MA 02368-1865
VOICE: 781.963.RAK-1 (963-7251)
FAX: 781.961.RAK-1
E-mail: kahan@rak-1.com

A member of:
Massachusetts Society of Certified Public Accountants
Massachusetts Association of Public Accountants
Randolph Business and Industrial Commission
South Shore Women's Business Network
Computer Organizations of New England, Inc.
Randolph Chamber of Commerce, Inc.
National Society of Tax Professionals
South Shore Chamber of Commerce
US Financial Advisors, LLC.
National Notary Association
Knights of Pythias


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