Tax Tip of the Week
Tax Tips and Facts (monthly)
Simple IRA plans
Check writing - avoid bounced checks
Tax on corporate loans
Capital loss carryovers
Lower capital gains
The emotional cycle of the market
Making a will is just the start
Certified?
Beauticians and employment

We hope your holiday weekend was enjoyable. To some, every Monday through Friday is "labor day."

I will shortly resume writing TAX TIP OF THE WEEK that is distributed over the Internet to a select list of people each week. Items may also 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 the subject of: "TTW subscribe"

We are developing an e-mail mailing list of people that would like to be notified when each monthly edition of TAX TIPS AND FACTS is available on our web site, making it one less piece of "snail" mail to arrive at your home or business. Send us your e-mail address with the subject of: "TT&FM subscribe"

Do you:

• Own a business?
• Want to save for your own retirement?
• Want to attract good employees and keep the ones you have?
• Not want to be bothered with administration fees, government reporting or testing?
• Have less than 100 employees?
• Want your employees to be able to participate (defer their own salary) and you are willing to make a company contribution also?

NOW IS THE TIME TO SET UP THAT SIMPLE IRA PLAN FOR YOUR BUSINESS.

The deadline for establishing a SIMPLE IRA plan in the 2001 tax year is October 1, 2001. If the plan is not established by this date, you must wait to have an effective date of January 1, 2002.

Although participant IRAs within the SIMPLE IRA plan are not required to be set up by this date, employee's salary deferrals from their pay may not begin before their own IRA is established. Call me for more details.

You already know you can be taxed on money you take out of your corporation. But not every corporate owner knows he or she may be taxed on money put into his or her corporation if it's a loan.

Stockholders who lend to their corporations are expected to charge interest on the loan at the market rate. Those who charge less, or nothing, can be taxed as if they charged at a rate periodically determined by IRS under federal law. Specifically, the difference between that rate and the lesser (or zero) rate actually charged by the stockholder is taxable to the stockholder as interest income -- and the corporation may be allowed a corresponding deduction. This "below market loan" rule is triggered once the total loan balance goes over $10,000. Paying your corporation's bills, without getting reimbursement, also counts as a loan.

IRS agents are alerted to such loans by the corporation's tax return, which asks about "Loans from stockholders."

You should review any loans or expense advances to your corporation. Consider whether the outstanding balance could be reduced to $10,000 or less. You may want to convert all or part of the loan to a capital contribution or purchase of stock. Consider seeking professional advice on how your business should be capitalized. You might decide to conform the transaction by fixing an interest rate and payment schedule. We, your tax advisor, can suggest an acceptable interest rate that will stop IRS from taxing you at a higher rate later should interest rates rise while the debt is outstanding.

Call me to find out more about this very important subject.

>From the Internet: "What is the rule on capital losses from stock sales? I can only deduct 3K per year from my taxes? If my loss is greater than 3K, how many years after can I continue to draw from that loss (take 12K for an example)? Thanks"

Answer: Capital losses are fully deductible against capital gains. Capital losses in excess of capital gains can be deducted against other income at the rate of $3,000 per year, carrying forward until used up. (Thanks to MS for the question)

Did you know we do more than just prepare, compile, and crunch numbers? We are not "bean-counters." We can also advise you on estate and business planning and offer financial strategies to meet your goals. As your CPA, we know your needs better than any other professional.

If you are buying assets, such as securities, you might consider holding them for a while, as you may be able to pay less capital gains tax. Long-term capital gains are generally taxed at 20 percent. However, a tax law that took effect in January 2001 offers an 18 percent rate.

To get this lower rate, two conditions must be met:

1. the assets must be held longer than five years;
   and
2. you must have purchased the assets after 2000.

There's an even lower rate now available for some investors in the lowest two tax brackets. If your personal income tax rate drops to the 10 or 15 percent federal tax bracket during the five-year holding period beginning in 2001, you'll pay just 8 percent tax on your gain. (This compares with the regular 10 percent rate that low-bracket taxpayers pay on long-term gains from investments held more than one year but less than five years.)

Think about shifting some of your appreciated investments to your children over age 14. Most likely, the kids are paying federal income tax at 10 or 15 percent. In five years, if the children are still in the lowest two tax brackets, they can unload the assets at a low 8 percent tax to help fund their educations or their first homes.

Of course, you should never make investment decisions just for tax purposes. While it's a good idea to factor in the tax impact involved in selling or holding stock shares, make sure you look at the whole picture. Check with your tax and financial professional for more information. Call us!

Having a will drawn up is just the beginning of effective estate planning. Here are some other steps you should take to protect your family:

Step 1: Keep your will up to date by reviewing it at least once a year. You may need to make changes to reflect such events as births, deaths, and new property acquisitions, and to take advantage of changes in the tax law. (An up-to-date personal financial statement can be very helpful in estate planning.)

Step 2: Inform your spouse about your business and investment assets. You don't have to discuss all the details, but your spouse should at least have a working knowledge of your pension or profit-sharing plan, your securities and investment goals, and your insurance policies. You should also acquaint your spouse with a trusted adviser or associate that he or she can turn to for help, especially in regard to your business.

Step 3: With the aid of your financial advisor, prepare a list of your major assets and documents along with their locations. (Make sure that your family knows where this list can be found.) The list might include, in addition to your tangible assets, an itemization of your securities, insurance policies, credit cards, safe deposit boxes, and important papers (such as your will, marriage license, titles to your home and automobiles, military discharge papers, etc.). In addition, include (as appropriate) the names and addresses of your accountant, attorney, banker, insurance broker, real estate broker, and stockbroker or your Wealth Care Professional.

Step 4: With the aid of your Wealth Care Professional, prepare what is referred to as a "last letter of instruction" or "post-mortem letter" to your spouse or other close relative. The letter should include the names of people to contact upon your death, spell out funeral arrangements and so forth. It could include the list discussed under Step 3; if not, it should remind the reader of the list (and of its location).

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.

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.

Many accountants view their primary 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. In addition to minimizing clients' taxes, I can offer clients strategies designed to help them achieve those profits. Talk to me and find out more.