Standard mileage rates for 2000
Tax Tip of the Week
Tax Tips and Facts (monthly)
Quick cash???
Certified?
New savers credit
401(k) portfolio troubles
529 Educational Plans
Incentive stock options
Lost checks
Partner's elective contributions

The IRS has updated the optional standard mileage rates for use by employees, self-employed individuals or other taxpayers in computing the deductible costs of operating an automobile for business, charitable, medical or moving expense purposes. The new rates apply to costs paid or incurred on or after January 1, 2002.

The standard mileage rate for the cost of operating an automobile is 36.5 cents per mile for all miles of use for business purposes, which is an increase of 2 cents over the 2001 rate. The standard mileage rate of 14 cents per mile applies when providing services to a charitable organization. The standard mileage rate for use of an automobile for medical reasons or as part of a move for which the expenses are deductible is increased to 13 cents per mile, an increase of 1 cent per mile.

Also provided are rules for substantiating ordinary and necessary expenses incurred by an employee for local travel or transportation away from home where an employer or other third party reimburses the costs. Use of a described method of substantiation is not mandatory, and taxpayers who maintain adequate records or other sufficient evidence may use their actual allowable expenses when claiming deductions.

I am now 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" and include your name, city, and state of residence in the content of the message.

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" and include your name, city, and state of residence in the content of the message.

If you are looking for money to buy a new car or pay off some bills, your 401(k) retirement savings plan may seem like a pot of untapped gold. But in most cases, breaking into a retirement plan early is a mistake that will melt away your savings like ice cream in the summer sun. The temptation to tap your retirement funds often comes when you switch jobs and must decide how to handle it.

If you are leaving your employer and must terminate your retirement plan, the smart move is to roll the money over into another tax-deferred retirement account, such as a "Rollover" IRA or your new employer's qualified plan (if rollovers are allowed, as some earlier plans don't include this provision. Unfortunately, more than 50 percent of all workers "cash out" their retirement accounts when they leave their jobs, according to a survey.

Let's say you are taking a new job and you need $15,000 to $20,000 to buy a new car for commuting. Taking the money from your 401(k) will hurt you in two ways:

1. You lose future retirement funds that could continue to build up tax-deferred.
2. You must pay a painful tax price. Combined federal and state taxes and early withdrawal penalties can take away more than 50 cents on every dollar withdrawn early, depending on your tax bracket. That means you might have to withdraw as much as $30,000 in order to get the $15,000 you need to buy the car.

As you can see, this is can be an extremely expensive way to finance a car. You are far better off getting a conventional car loan (interest paid may not be tax deductible) or obtain an equity line of credit using your residence as collateral (interest paid may be tax deductible). Another option if you desperately need money: check into borrowing against your 401(k) balance, rather than withdrawing the money outright (interest paid would not be tax deductible). However, be thoughtful of the withdrawal penalty and taxable income on any remaining balance if you decide to leave the job before paying off this loan.

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.

The IRS has advised qualifying employees to make their plans now to benefit from the new Saver's Credit that takes effect in 2002. The Saver's Credit, which will be available only from 2002 through 2006, will help offset the cost of the first $2,000 contributed to IRAs, Code Sec. 401(k) plans and certain other retirement plans.

The credit is a percentage of the qualifying contribution amount, with the highest rate applicable to taxpayers with the least income, and is intended to encourage saving for retirement.

Employees with Code Sec. 401(k) plans can set up their 2002-deferral elections before January in order to enable them to spread their contributions throughout the year. The Saver's Credit applies to individuals with incomes up to $25,000 ($37,500 for a head of household) and married couples with incomes up to $50,000. The taxpayer must also be at least age 18, not a full-time student, and not claimed as a dependent on another person's return. The Credit is in addition to whatever other tax benefits may result from eligible taxpayers' retirement contributions.

The IRS recently published a series of questions and answers providing guidance regarding the Saver's Credit. Announcement 2001-106 (TAXDAY, 2001/10/12, I.1) is available via the IRS's website at www.irs.gov.

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

According to a recent survey, nearly one-third of 401(K) plan assets are invested in the sponsoring company's own stock.
Large concentrations can expose investors to big losses and in a recent case, action against the employer, employees at Lucent sued over company stock losses in their retirement plan. The lawsuit alleges that Lucent was aware of financial problems that made its stock inappropriate for 401(k) participants. At that time, about 31% of Lucent's plan assets were in its own stock.

How can a company "dump" its own stock from its own retirement plan without creating bad feelings about their own company's strength and well-being? Perhaps, it would have been better to invest the plan's assets into a public company other than your own. That way, you may not be placed into such a compromising position. If your corporate retirement assets are invested in your own company's stock or that of a related entity, you should reconsider your portfolio holdings.

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.

529 account owners can transfer assets from one plan to another. Once every 12 months, you can now transfer account assets from one 529 plan to another - which may offer a more flexible way for you to participate in 529 plans available through my affiliated investment firm. Call me for more information about this excellent tax savings and estate tax planning tool.

Call me for more information about this excellent tax savings and estate tax planning tool.

The IRS has issued proposed regulations relating to incentive stock options (ISOs) and options granted under an employee stock purchase plan (ESPP options). The proposals, which would affect employers granting such options and employees exercising the options, provide guidance concerning the application of the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), and Collection of Income Tax at Source to the options. The IRS also released two related notices that set forth proposed rules regarding:

(1) an employer's income tax withholding and reporting obligations upon the sale or disposition of stock acquired pursuant to the exercise of a statutory stock option and

(2) application of FICA and FUTA to statutory stock options.

If you are pleased with our services, please tell others. If you are not pleased with our service, please tell us; that way we can please you.

Did your tax check get lost when you sent it to the Internal Revenue Service in Pittsburgh, PA? Did you send a lot of time tracing, stopping, and reissuing a check? Did the Internal Revenue Service lose your tax return? Many people were affected by the IRS lockbox errors.

Although the Internal Revenue Service does not like this kind of suggestion, you should think about mailing your payments directly to your local service center, which is Andover, MA 05501 for most of New England and a piece of New York. As always, you should send any IRS or state Department of Revenue mail by CERTIFIED MAIL, RETURN RECEIPT REQUESTED. It's worth the small cost.