TOPICS COVERED IN THIS ISSUE
- If the IRS or DOR calls
- Tax deferral
- Time to inventory
- Cafeteria Plan
- An important matter for you
- Campaign activities by exempts
- Same sex marriages
- Financial Professional
- Forms 1099
- Gifting limits
IF IRS or DOR CALLS
The initial audit contact with a taxpayer from the Internal Revenue Service or the Department of Revenue may now come by telephone rather than by letter. A confirming letter will follow. Please remember, DO NOT divulge ANY tax information or personal information in a phone conversation or interview. First, it may not be the government at all (just someone trying to get your personal or business information), and second, if you really believe it is the government, you should inform the agent or revenue officer that you need to contact your tax advisor before you make an appointment for the audit or discuss any tax matters. Then call your tax advisor and give him or her a Power of Attorney (for tax matters) to represent you or your business.
TAX DEFERRAL
Most people know about government sponsored programs like: IRAs, 401(k) and 403(b), and employer pension and profit sharing plans that offer tax deferral. Most people are not aware of non-qualified annuities such as index annuities, multi-year guaranteed annuities or immediate annuities, which also offer tax deferral.
What is the difference? Government sponsored “qualified” programs defer taxes on principal and interest, but distributions MUST begin at age 70?. Non-qualified annuities defer taxes on interest (return of principal is tax-free), however there is no government-mandated date to begin to make distributions and pay taxes.
A Single Premium Immediate Annuity (SPIA) is a contract calling for a single lump payment to an insurance company into tax advantaged income stream that you cannot outlive. SPIAs can provide a level of security that many retirees seek and need, and might be an important financial diversification tool.
For more information, please call me.
Annuities are not guaranteed by any government entity nor are they FDIC insured.
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.
TIME TO INVENTORY?
Now may be a good time to make an inventory of what you own and what you owe. Make a list, indicating ownership of each item. Who are the beneficiaries? Has your estate grown to the size that it requires tax planning? Do you have a health care proxy? Did you give a durable Power of Attorney to someone to act for you if you become incapable of handling your own affairs (even if for just a short while)? Do you have a will? We suggest you take the time as in addition to changes in tax law, you change too. Put this list into a safe place and let your executor (executrix) know where the list is. Your family will appreciate this planning.
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.
I WANT TO BRING YOUR ATTENTION TO AN IMPORTANT MATTER THAT MAY BE OF INTEREST TO YOU.
Modern advances in medicine and technology have dramatically increased human longevity; that’s the good news. However, the effects of that longevity means that more Americans will require extended nursing care at some time during their life. At $5,000 - $10,000 per month, the cost of that nursing care can be financially devastating for many families. That is why I am recommending to my clients that they consider purchasing a Long Term Care Policy that may protect their life-savings in the very possible event that they will need nursing care.
Let me give you a few reasons why this protection is so important.
The risk of a 65 year old entering a nursing home at some point in his or her life may be as high as 49 percent. (NY Times 2/16/00)
Friends and family may not be in a financial position to help pay for the care you require, when you need it. Currently, one year’s stay in a nursing home is estimated to cost approximately $41,000. If we consider even a conservative inflation rate of 5 percent per year, within the next 25 years, one year’s stay in a nursing home could cost more than $100,000. (USA Today, 12/13/00)
Medicare will not take care of your Long-Term Care needs. Medicare often pays only for approved charges, only for skilled and rehabilitative care, only after three (3) days of hospitalization, and only for a maximum of 100 days per diagnosis.
I believe that Long Term Care insurance will become as prevalent and necessary as health care insurance is today. If you would like to discuss Long Term Care in more detail and find out how you may protect your estate and loved ones from the devastating expense of nursing care, please call my office for an appointment.
As always, I value the trust you have placed in me.
CAMPAIGN ACTIVITIES BY EXEMPT ORGANIZATIONS
The Internal Revenue Service has sent a letter to seven national political parties as a reminder regarding prohibited campaign activities by tax-exempt organizations. This letter states that it is being sent to the political parties to ensure that, during the upcoming election campaigns, the committees and the candidates they support do not cause a charitable organization to lose its exempt status.
The letter also provides a description of the types of political activities that exempt organizations may not engage in, as well as examples of activities that are acceptable. The IRS news release and the letter supplement information were released in IR-2004-59.
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.
SAME SEX MARRIAGES
Massachusetts gay and lesbian couples that married after May 16 have very unusual income tax filing requirements. Since the federal government has not (YET) recognized same sex marriages, each party will have to file his/her own US income return as “single,” or if permitted as “head of household.” However, for state tax filing purposes, the couple may file as married. There will be many recalculations necessary for filing a state tax return. Medical expenses, allowable unreimbursed expenses, student loan interest, passive activity losses as well as dependent care expenses are a few of the adjustments needed. Unfortunately, under current US laws, some employee benefits provided to a same-sex spouse may become taxable for federal income tax purposes.
At this time, tax practitioners may have to prepare four income tax returns in order to properly file for a Massachusetts same-sex couple. A federal (US) return for each person (that’s two) and a federal and state return for the married couple (that’s two more). A federal return is necessary for completion of most computer-generated filings.
We are here to help. If you have any questions please don't hesitate to contact us
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!”
FORMS 1099 (Independent contractors)
Things are getting difficult for those that do not comply with the annual reporting rules concerning Forms 1099. The Internal Revenue Service will be spending time and money to make people do it the “right way.” Some people may find themselves exposed to large penalties and possible prosecution by not reporting income earned by others.
Call us for the list of minimum requirements to file annual Forms 1099.
GIFT GIVING IS STILL AN $11,000 ITEM
You may give an individual as much as $11,000 during 2004 and report it to no one. If you are married, and your spouse will consent, you may give as much as $22,000 without paying a gift tax. Generally, if you start a student’s 529 Savings Plan during 2004, you can gift as much as $55,000 ($110,000 if married with consent) to the plan without paying a gift tax.
Please remember, gifts are NOT tax deductible to you nor are they taxable income to the recipient.
