When you reach age 701/2, you must take a distribution from your IRA retirement accounts. Although much easier this year, there are specific rules as to how much you must take each year. If you do not take at least the calculated annual "required minimum distribution" (RMD) each year, you will be subject to a 50% penalty on the amount of RMD not taken. If you will become age 701/2, during 2001, call us to find out how much you must withdraw. If you became age 701/2, before 2001, call us to find out what you have to do now.

I know this has been mentioned before, but it is important to you and your family that you stay away from that 50% penalty.

A problem has arisen with some tax returns, extension requests, estimated taxes, and payments sent to the Internal Revenue Service lockbox in Pittsburgh. The problem involves taxpayers in New England and upstate New York.

It has been reported publicly that about 1,800 taxpayers have had their checks and accompanying returns lost. It appears the real number is substantially greater with thousands of taxpayers affected. It is not yet known whether or not it is an issue of lost items or whether there has been theft. If there has been a theft of the tax filings, there is a real fear of identity theft being the reason.
If you sent checks to the IRS in mid April that have not yet cleared, there is a good chance you are part of the group of affected taxpayers. You should stop payment on your checks and send a replacement check along with another copy of the tax return, extension request, estimated tax voucher, or payment voucher to the Andover IRS Center Payment Tracer Unit at:

Internal Revenue Service
PO Box 9936
Andover, MA 01810
Attn: Nancy Green, Stop 321

If there are any bank charges involved with the stop payment order, the IRS will refund the charge to the taxpayer upon filing Form 8546, Claim For Reimbursement of Bank Charges Due To Erroneous Service Levy, or Misplaced Payment Check. If you paid a charge, request the form with your replacement.

Carol Stender-Larkin, Director of Processing at the Andover Service Center reports that Grand Jury proceedings have been initiated in the federal court in Pittsburgh. If you suspect any criminal activity (such as altered checks or identity theft), contact Maureen Johnson at the Andover Center at 978-474-9474.

The new Small Business Resource Guide (CD-ROM 2001) is now available for free. This guide, jointly developed by the Internal Revenue Service and the Small Business Administration includes tax forms, instructions, publications, and other valuable information for small business from other government agencies, nonprofit organizations and educational institutions.

Any business can obtain a free copy by calling 1-800-829-3676 or visit www.irs.gov. Ask for publication 3207.

To lower the family's overall tax bill from your business, think about hiring your children. You can deduct the (reasonable) wages paid to them while they pay tax on their wages at their own LOWER tax rate. Wages paid by a sole proprietor to his/her child who is under age 18 are not subject to Social Security tax. The "kiddie tax" of an under age 14 child does not apply to earned income.
Additionally, children with earned income can make a deductible contribution to a tax deferred IRA, but may do better by opening a "tax free" non-deductible Roth IRA instead. The years of compound investment returns a child may earn in either a traditional or Roth IRA may provide a head start on lifetime financial security.

The new "Bush Tax Law" makes tax rates fall in stages for everyone over the next five years.

First, the bill creates a new 10 percent bracket. It applies to the first $12,000 of taxable income for married couples, the first $10,000 for single parents and the first $6,000 for singles.

Until now, that income has been taxed at 15 percent. So this change, which will be retroactive to Jan. 1, will save all married couples as much as $600, single parents up to $500 and singles up to $300 annually. Higher-income taxpayers will also benefit from lower rates on the last dollar of their income. By 2006, the 39.6 percent rate paid by the top 1 percent of taxpayers will have fallen to 35 percent, the 36 percent rate to 33 percent, the 31 percent rate to 28 percent, and the 28 percent rate to 25 percent.
Higher-income taxpayers will also benefit because they will no longer lose personal exemptions for themselves and their children, as well as itemized deductions like charitable gifts and mortgage interest payments, as their income rises. These benefits are currently taken away at the rate of $30 per $1,000 of additional income above a threshold of as little as $64,475, depending on one's family status. This rate will fall to $20 per $1,000 starting in 2006, to $10 in 2008, and will be eliminated in 2010.

One way to take advantage of the legislation is to accelerate tax-deductible expenditures - making them this year instead of in future years, when rates are lower. For example, someone in the top bracket could create a fund at his local community foundation this year with enough money to cover charitable gifts for the next decade or so, taking a deduction at the 39.1 percent top rate this year instead of the 35 percent top rate for 2006 and later. So a fully deductible $100,000 gift now, for example, would save $4,100 more in taxes than it would in 2006.

A Section 529 college savings plan was a good tax-planning tool. Now, with recent tax law changes, it has turned into a GREAT tax-planning tool. Starting in 2002, the new "Bush" tax law provides for TAX FREE withdrawals from Section 529 accounts when the proceeds are used for higher education. Unlike other tuition and child tax benefits, there are virtually no income limitations on contributions or withdrawals.

Anyone with a child, grandchild, niece, or nephew is a candidate to establish a 529 Plan.

Call me and find out more.

President Bush lived up to his promise to eliminate the Estate Tax when he signed the Economic Growth and Tax Relief Reconciliation Act of 2001. However, is it really gone? First, it takes nine years to get there, and after ten years, it comes back. Yes, it's quite confusing, even for the professional. It is hard to plan for the demise of the "death tax" when it really does not go away. When you consider that the life of the "elimination" of the US Estate Tax will be carried through five congressional election cycles and three presidential elections, the repeal could be greatly changed or eliminated thereby continuing this tax. Add to that the potential elimination of the state portion of estate taxes, you can almost bet that Massachusetts and other states will institute their own estate tax to replace the lost revenues.

What should you do? Until the federal and state governments give us something more than "smoke and mirrors" when it comes to Estate Taxes, I suggest you continue effective estate tax planning to preserve your estate for your loved ones. Remember, with or without estate taxes, you still need estate and life planning to carry out YOUR desires to transfer YOUR wealth to YOUR heirs and provide such things as back-up parents for any minor children.

Thanks to The Law Offices of Dagmar M. Pollex (Milton, Massachusetts) for much of this tip.

Should you sell your business vehicle, or should you trade it for a new one? That depends on your basis in the current vehicle and the purchase price of the new one.

Sell. Suppose you purchased the vehicle several years ago for $25,000. You've been claiming depreciation deductions, so your basis in the vehicle is now, say, $14,000. But let's assume the vehicle's market value is only $11,000. In that case, consider selling it. If you sell the vehicle for $11,000, you'll be able to deduct a $3,000 loss.

Trade. Trading the car might make sense if you're driving an expensive luxury model. Suppose you've claimed all your depreciation deductions on a $45,000 car. If so, your basis in the car is zero-but the car still might have a market value of, say, $9,000. If you sell it, you'll end up with a $9,000 taxable gain. But if you trade the car for a new one, you can roll your gain into the price of the new car.

Roger A. Kahan is a Certified Public Accountant, Business Advisor, and Wealth Care Professional 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.

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

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 be reproduced without prior written permission of Roger A. Kahan, CPA.