TOPICS
COVERED IN THIS ISSUE:
FYI
Telephone tax refund
Federal Tax-Free Distributions
Stretch IRA
Deductible Losses
Meals and Entertainment
Estate Plans that Work
Silent Rip Off
Check Writing Habits
Job Seeking Expenses
Do You Pay Your Child and Allowance?
Home Mortgage Interest
FYI
Several months ago, I became
involved with the New England Sinai Hospital and Rehabilitation Center
in Stoughton. This is a nonsectarian, 212-bed, not-for-profit specialty
hospital providing long-term complex medical and acute rehabilitative
care and specialized ambulatory services that create an important link
between the acute-care hospital and home. The Stoughton campus serves
patients and families in Stoughton, Avon, Bridgewater, Brockton, Canton,
East and West Bridgewater, Easton, Randolph, Sharon and the surrounding
region.
Recently, I was appointed
a member of the New England Sinai Hospital Foundation board.
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TELEPHONE TAX
REFUND
The
Internal Revenue Service has announced the standard amounts
that most individuals can use to figure their telephone tax refund.
These amounts, which range from $30 to $60, will enable millions
of long-distance customers to request the telephone tax refund without
having to dig through old phone bills.
In general, anyone
who paid the long-distance telephone tax will get the refund on his
or her 2006 federal income tax return.
In addition, the IRS
is looking for ways to make the refund process easier for businesses
and nonprofits. Though they will be required to base their
telephone tax refund on the actual amount of tax paid, the IRS is
considering an estimation method they may use. More information
will follow.
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Great
news! The recent signing of the Pension Protection Act of 2006 makes
the federal tax-free status of qualified distributions taken from
529 educational savings plans permanent. Previously set to expire,
or sunset, in 2010, this now means that parents or grandparents of
children attending college four or more years from will now have
one less thing to worry about.
State
laws and treatment may vary. Earnings on non-qualified distributions
will be subject to income tax and a 10% federal penalty tax.
Call
to talk further about your college savings goals and their tax attributes.
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“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.”
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 owner’s
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
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Did
you know I do more
than just prepare, compile and crunch numbers? I am not just
a “bean-counter.” I can also advise you on estate and business
planning and offer financial strategies to meet your goals. As
your TRUSTED ADVISOR, I know your financial needs better than
many other professional you may be working with.
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DEDUCTIBLE
LOSSES.
If
you make 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.
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The
Massachusetts Society of CPAs represents over 8,800 Certified Public
Accountants working in public accounting, industry and business, or
in government and education.
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REMEMBER:
“It’s not what you make
that COUNTS; it’s what you keep!”
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.
The 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.
Meals and entertainment 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.
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ESTATE
PLANS THAT WORK
Do you know whether your current estate plan will accomplish
all that you expect it to do? If you are like most people, you probably
do not know the answer to this question.
The truth is that many estate
plans do not work. Often, title is incorrect and proper allocation
of ownership is wrong. Sometimes, initial personal planning projections
are ignored. The result is many plans do not accomplish what the person
who created them intended. This might result in a loss of inheritance,
greater cost to produce and maintain, or unforeseen emotional costs
to the family as they try to straighten out all of the problems.
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SILENT RIP OFF
It is estimated that homeowners pay unnecessary mortgage insurance each
year. Home buyers who pay down less than 20 percent of their
mortgage usually have to pay private mortgage insurance (PMI) with
an average cost of about $500 each year. If your monthly statement
or mortgage invoice is not clear, you should question your lender
whether you are being charged for PMI.
If you have paid off at least
20 percent of the loan's original appraised home value, you may be
able to request that PMI coverage be cancelled. If the loan balance
is above 80 percent of the original appraised home value, and if home
values have climbed in your area, a new appraisal may be worthwhile. The
cost of the appraisal may be much less than the total cost of the ongoing
PMI.
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Roger A. Kahan is a Certified
Public Accountant, a Tax, Business and Financial Advisor serving
the tax and financial needs of individuals and small to medium sized
businesses primarily in eastern Massachusetts (as well as almost
anywhere in the United States). Roger is always seeking additional
clients and other professional’s clients to advise and improve their
personal or business life. Do you know of someone that could use
our professional services? Please let us know if we can use your
name in an introductory letter or phone call. We do offer a referral
fee to those that join our ever-increasing list of tax clients. Call
for more details. Thank you.
“A failure to plan is a plan to fail.” (Anonymous)
CHECK WRITING HABITS
Do your checks indicate that you are signing in
your official capacity as an officer of your corporation or Limited
Liability Company? Do you know you could be held personally liable
for a check that does not? By placing the words “Authorized Signature”
just under the signature line may prevent that breach of the corporate
veil. We strongly suggest you look at each company check and have those
words added to the check at the next order of printed checks. Until
then, be sure to write your title next to your name.
This tip is not given to you as legal advice. It
is from years of experience with clients.
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JOB SEEKING EXPENSES
Individuals may deduct all expenses incurred in seeking employment
in the same trade or business regardless of whether or not the search
is successful. Expenses are not deductible if an individual is seeking
employment in a new trade or business even where employment is secured.
An individual seeking his/her first job or switching his trade
or business, or a person with a long period of unemployment will
probably be denied a deduction.
If the job seeking costs are deductible, there are some additional
limitations and restrictions. Call for more information.
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DO
YOU PAY YOUR CHILD AN ALLOWANCE?
Have your child work for you in your business and pay
him or her a reasonable wage for time spent. Instead of paying a
nondeductible allowance, you may be paying an "ordinary and
necessary" business expense. Tasks such as answering the phone,
filing papers and doing simple maintenance jobs for a parent's business
may qualify.
By the way, hiring a family member
and paying a reasonable wage may also be a benefit to the family
as a whole by allowing you to deduct the wages at your HIGHER income
tax rate.
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HOME MORTGAGE INTEREST
Home mortgage interest on residential
mortgage loans up to $1,000,000 (yes, I did say a million dollars)
are fully deducible whether it is for your first or second home.
Home equity loans up to $100,000 (secured by your home) are fully
deductible whether it is for your first or second home.
Interest
paid above those limits is, however, not deductible as residential
mortgage interest.
