TOPICS COVERED IN THIS ISSUE
- Hello and goodbye
- 529 Educational Plans
- Rule of 72
- Cafeteria Plan
- Your first business tax return
- Defer Income
- Financial Professional
- Foreign account holders
- Small business retirement plan compliance rules
- Medical expenses
- Do what you do best
HELLO AND GOODBYE
As many of you know, after 16 years of working with me, Ronnee has moved to a sunnier (and certainly warmer) place. She recently resigned her position as associate and moved to northern California to be with her daughter, son, and granddaughter. Evelyn and I wish Ronnee much happiness and relaxing times. Although she may still be available by phone and email, she will be missed around here.
As some of you know, David Kahan has joined the firm and recently moved in to Ronnee’s seat (she would not let him sit in that seat until after she left). David is Evelyn and Roger’s first born, and comes to us with people and sales experience. Dave will pick up some of Ronnee’s work and will also be involved in the Wealth Care portion of the firm. He is scheduled to take the necessary courses and exams, and will be attending seminars and courses to learn the products.
529 EDUCATIONAL SAVINGS PLANS
If you are looking for ways to reduce your taxable estate without having to relinquish control over your investments, now could be a good time to look at 529 College Savings Plans. Under current tax laws, earnings on monies withdrawn from a 529 account are exempt from federal income taxes if used to pay qualified higher education expenses.
Additionally, under a special provision (found no where else in the Internal Revenue Code) account owners can gift as much as $11,000 per year ($22,000 per couple) to a 529 account, and reduce their taxable estate without relinquishing control over the assets they contribute.
As a reminder, you may be required to take a Required Minimum Distribution from your IRA accounts or other retirement plans, that if not needed just adds taxable income to your financial planning. Of course, although the actual RMD distribution is taxable to the recipient, placing those “excess” funds into a 529 Plan will defer income taxes on the earnings of those funds. Under current tax law, those earnings may be income tax free.
Funds invested in a 529 account may be a great way to gift, and continue to have the assets grow free from federal and most state income or estate taxes.
Call me for more details.
Investment products mentioned in this newsletter are NOT FDIC insured, may lose value, and are not bank guaranteed. Past performance does not guaranty future results. Performance information is presented for illustration purposes only and does not represent the performance of any specific investment. Diversification does not ensure a profit or guaranty against loss. Small-cap stocks are generally more volatile than large-cap stocks.
RULE OF 72
The Rule of 72 is a saving rule of thumb that says your savings will double, approximately, in the number of years you determine by doing the following.
1. Start with the number 72.
2. Divide by the interest rate you earn on your deposits.
For example, if the interest rate you receive on your deposits is 7.2 percent, you would double your money in about 10 years:
1. Start with the number 72.
2. Divide by 7.2 to get a result of 10.
Keep in mind that the Rule of 72 does not include taxes or inflation. Also, the rule assumes that you compound your interest yearly at a fixed rate of return over a long period of time. If you compound more frequently, you could save more or double your money sooner.
Investments generate fluctuating returns so the period of time in which an investment can double, cannot be determined with certainty. This is a hypothetical example and is not intended to represent a real investment. Both principal and returns of investments vary over time.
CAFETERIA PLAN
A cafeteria plan allows an employee to choose between cash and certain nontaxable qualified benefits that are not included in income. These benefits include coverage under an employer provided accident or health plan, group-term life insurance, elective contributions under a qualified cash or deferred arrangement, dependent care assistance, and adoption assistance. For additional information or help with the establishment of a cafeteria plan, call our office.
YOUR FIRST BUSINESS TAX RETURN
The first tax reporting of your business is critical. Many elections have to be made (depreciation basis and methods, method of accounting, write-off of goodwill and other intangibles, etc, etc, etc), and those elections can only be made on a timely filed income tax return. If you are not sure what elections are available or what elections you should request on your first income tax return, call us and be confident you have what we feel are the best tax benefits for your new business.
Did you know we do more than just prepare, compile, and crunch numbers? We are not just “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 many other professionals.
We are here to help. If you have any questions please don't hesitate to contact us.
DEFER INCOME
Instead of paying cash interest, US Treasury bills (TB) are sold at a discount and redeemed at face value upon maturity. The difference between their higher redemption and what you pay for them is your interest.
Because you receive no income from Treasury bills until they mature, a six-month TB purchased in July 2004 would produce income in 2005. Think about it.
FINANCIAL PROFESSIONAL
There has never been a better time to find a financial professional. Now more than ever, people understand the importance of keeping what they’ve earned, and potentially making it last longer than their parents ever had to.
We want to partner with you and provide you with innovative products and support that you need. Call for an appointment to review your current portfolio and based upon your time horizon and risk tolerance we will help you decide where to place your investments.
The Massachusetts Society of CPAs represents over 8,800 certified public accountants working in public accounting, industry & business, government and education.
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.
DON’T FORGET: “IT’S NOT WHAT YOU MAKE THAT COUNTS; IT’S WHAT YOU KEEP!”
NEW IRS PUBLICATION REMINDS FOREIGN ACCOUNT HOLDERS ABOUT REPORTING OBLIGATIONS
The IRS has issued a new brochure, Publication 4261, Do You Have a Foreign Bank Account, aimed at helping taxpayers determine whether they need to file a Report of Foreign Bank and Financial Accounts (FBAR) if they have financial accounts with institutions outside the United States. The brochure can be found at http://www.irs.gov/pub/irs-pdf/p4261.pdf.
SMALL BUSINESS RETIREMENT PLAN COMPLIANCE RULES
New materials now on the Internal Revenue Service (IRS) web site tell small businesses how to be sure their retirement plans meet the requirements of recent tax law changes and indicate some ways to correct plan errors that may occur.
If you fail to fix such errors before they are detected in an audit, it can result in severe penalties and possibility of the loss of tax favored status.
New IRS Publication 4224, Retirement Plan Correction Programs, explains problems that often arise with retirement plans and various correction programs operated by the IRS that can be used to fix them.
A new CD-ROM (IRS Publication 4050, Retirement Plan /Correction Programs) can provide video training and in-depth information about retirement plan requirements. On-line information from the IRS web site helps businesses keep up on current developments and provides further explanations.
To obtain the new material and programs, go to www.irs.gov/ep. The printed version and the CD-ROM are available free by ordering on-line or by calling 800-829-FORM (3676)
MEDICAL EXPENSES
Uncompensated amounts paid by individuals for participation in a weight-loss program as treatment for a specific disease or diseases diagnosed by a physician are expenses for medical care. However, the cost of purchasing diet food items (meaning special food that is a substitute for the food the taxpayer normally consumes and that satisfies the taxpayers nutritional needs) is not deductible. Obesity is an accepted disease that qualifies physician prescribed treatment as a deductible medical expense. Of course, medical expenses are deductible to the extent the total amount exceeds 7.5% of adjusted gross income and the taxpayer utilizes itemized deductions on Schedule A.
DO WHAT YOU DO BEST
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 positive change in you.
