TOPICS COVERED IN THIS ISSUE
- Meals and entertainment
- No longer tax havens
- SEP retirement plans
- Life of Leisure
- Financial professional
- Uncle Sam and the angel food
cake
- Stretch IRA
- Deductible losses
- Cover your assets
- FED action
MEALS
AND ENTERTAINMENT EXPENSES
Generally,
50% of business related meals and entertainment
expenses are tax deductible by the payer.
If
the related expenditure covers mostly
employees or staff of the company, the amount paid may be considered
as a Staff Meeting expense and should be fully deductible.
Related
entertainment should be associated
with a business meeting, occurring just before, during, or just
after the meeting.
Meals solely for yourself (no business
related person is accompanying you),
other than when you are away traveling
overnight, are not deductible.
These
types of expenses must be substantiated
with the dates, places, and names of
the participants along with an explanation of the business purpose.
An invoice must also support meals and entertainment
of $75 or more.
You
should share this information with your
acquaintances and family. It may provide
some small talk for your conversation.
NO LONGER TAX HAVENS
For many years gone by, many people thought it
was good to move to sunny states to escape
the dreaded state income tax in retirement
years.
Two thoughts should be considered.
- Some states,
Florida for example, enjoy a reputation
as being tax friendly. While they do
not have an income tax, they do have an intangibles
tax (on the market value of investment property),
a sales tax, and a hefty local real estate
tax.
- Some states (Massachusetts is one of
them) are reaching out to retired taxpayers
by calling pensions earned from employment
or businesses located in their state
to be taxable and subject to a non-resident
income tax, gaining much needed revenue to
help balance budgets.
According to a recent survey, popular
retiree states such as Texas and Florida
averaged in the middle of the 50 states
for tax burden. The survey included, in addition
to a state's income tax, whether Social
Security benefits, or military and public pensions
are taxable.
If you are considering a move
to another state for retirement, you should
consider all the taxes before making that
move. Change your residence because you want
to be in a sunny climate, not to beat the
tax man.
SEP RETIREMENT PLANS
SEP plans for the 2004 tax year may still
be funded by April 15! (If a small business owner files an
extension on their 2004 tax return, the SEP plan can be funded
at the time the extension filing is due.)
The SEP plan advantages for small business
include:
Easy to set up and can be maintained
with minimal administrative support.
Fund
business owners retirement and help support
savings for their employees.
Contributions to employees
under a SEP plan are generally tax deductible.
To
learn more, call our office.
LIFE OF LEISURE
The average American retires at age 61.2.
Life expectancy in our country is 77.4 years. The 16.2 years
that an average individual spends in retirement represents
21% of his/her life span (source: CIA World Factbook 2004,
Murray Gendell, Georgetown University).
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.
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.
UNCLE SAM AND THE ANGEL FOOD CAKE
Last year, I had the entire family over
for Thanksgiving dinner. I made my specialty, angel food cake.
Well, I put all the ingredients together, and then put it in
the oven, you know it's the heat that makes that cake
rise. After I put it in the oven, my family and I went out
for a walk. Except there was one person left in the house.
Guess who it was? My Uncle Sam.
Sam didn't go for the walk with
the rest of the family, he
was upstairs sleeping. But when we left, Sam woke up. He smelled
the cake, and walked down to the kitchen. What smelled so good?
He opened the oven door to see what it was. And what happened?
The heat escaped. A few minutes later, Sam opened that door
again. Again, some of the heat escaped. Then again and again.
He opened that oven door four times.
Finally, we came back from
our walk. I looked in the oven and that cake was only 5
inches high. It was supposed to be twice that high! Now I didn't
have enough to feed my family! But, you know what? I had no
one to blame but myself, because I knew that
Uncle Sam would open that door, because he always does.
We
offer investments that are designed to help keep that door
from opening. They keep Uncle Sam out. Would you like to hear
more about them?
Call and find out more.
DON'T FORGET:
"IT'S NOT WHAT YOU MAKE THAT COUNTS; IT'S WHAT YOU KEEP!"
STRETCH IRA
An IRA, if structured properly, can provide
a significant stream of income to the owner,
spouse, children, and grandchildren (three
generations of family). It is a strategy
that can help extend the tax deferral and
income benefits of the IRA accounts you established
over the years. This program is primarily for people who don't
need the assets in their IRAs for retirement income, as they can
be used to generate higher income potential for their spouse,
children, and possibly even grandchildren. A stretch IRA can be
used to spread the distribution of IRA assets over many years,
potentially reducing the annual income tax burdens for beneficiaries.
This program can be set up without the need for a Trust or any
other sophisticated estate-planning technique. As you probably
know, an IRA beneficiary is required by the Internal Revenue Service
regulations to take annual minimum distributions. In a stretch
IRA money is withdrawn from the account,
while the balance remains invested with potential for growth on
a tax-deferred basis. Only the amounts withdrawn become taxable
to the beneficiary in the year withdrawn. Over time, the tax advantages
may make a significant difference in how much money your beneficiary
actually receives from the IRA.
In 2002, the IRS issued final regulations
governing required minimum distributions
(RMD) wherein the beneficiary will receive
distributions under the auspices of a stretch
IRA unless the beneficiary makes an affirmative
election to the contrary by December 31 of the year following
the year of the ownerÕs
death. While the stretch IRA is not available
in every scenario, the simplified rules and
flexibility associated with the final regulations seem to have
propelled the popularity of the stretch IRA to new heights.
Given the relative simplicity, effectiveness
as a wealth transfer strategy and flexibility,
the stretch IRA can be a powerful tool.
DEDUCTIBLE LOSSES.
If you leave a deposit or pay for something
in advance and the party holding your money
goes defunct before you get anything in return, you may be able
to deduct a non-business bad debt. This loss is treated as a short-term
capital loss, deductible to the extent of capital gains plus the
lesser of $3,000 or the excess of capital losses over capital
gains. Any remaining loss can be carried over.
COVER YOUR ASSETS
If you died tomorrow, would the "taxman" be
your biggest beneficiary? For many entrepreneurs,
that question and its answer may be shocking.
That's because those who postpone the task
of estate planning may expose their families
and their company to enormous financial risks. Estate taxes, which
can reach up to 48% (or higher if state estate taxes are applicable),
can kill even the most promising of fast-growing businesses by
forcing heirs to sell prematurely to meet tax liabilities.
You
say you don't have time to worry about that
now? Then you may well be missing out on some important
estate-planning strategies, which often need
to be set in place early to work effectively.
When you clarify your estate-planning goals, you protect your
family in the event of your death. You may find ways to reduce
the estate-tax bite while allowing the family to retain control
of the company.
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.
If you are pleased with our service, please tell your friends.
If you are not pleased with our service, please tell me; that
way we can please you.
FED ACTION
The Fed has raised short-term rates at 6 consecutive
meetings, moving the overnight lending rate between banks from
1.0% to 2.5%. The Fed last had 6 consecutive rate hikes (although
not in 6 consecutive meetings) in 1999-2000. Before that the Fed
upped rates 7 straight times in 1994-1995. 4.0% is the median
prediction of economists for the Fed funds rate 1-year from now
(source: Federal Reserve, USA Today).
