TOPICS COVERED IN
THIS ISSUE:
INSURANCE REVIEW TIME?
ANNUITY “ROLLOVER” MISTAKE RESULTS IN TAXATION
MEALS AND ENTERTAINMENT EXPENSES
THERE IS A NEW RISK TO DATA: PHOTOCOPIES
TAX AUDIT RISKS
MATCHING SOCIAL SECURITY NUMBERS
HIGHEST TAX BURDEN
CHARITABLE CONTRIBUTIONS
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INSURANCE
REVIEW TIME?
When was the last time you reviewed your liability
and catastrophic insurance coverages? You know you should review
both coverages and premiums at least every three years. This risk
and its related cost is usually the least item looked at by a businessperson.
Since you have not looked at it in quite a while, now is the time
to call in your insurance agent to review coverage and to quote the
renewal or change of existing coverages. It would also be wise to
ask two other insurance agents or companies to review the same coverages
and quote prices. You may be very pleasantly surprised to see what
is wrong with your existing coverage. Be sure to tell your current
insurance agent that you will be soliciting other quotes so he/she
knows where he/she stands. It just may make that person’s pencil
a little sharper.
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ANNUITY
“ROLLOVER” MISTAKE RESULTS IN TAXATION
A good annuity can make such a huge difference in a successful financial
plan. We wanted to take this opportunity to alert you to an important
ruling that it’s essential you become familiar with. IRS Revenue
Ruling 2007-24 addresses an issue that could create liability for
other professionals if they’re not paying attention to important—sometimes
called “little”— details.
“Rollover” vs. 1035 Exchange. The facts
of this ruling are interesting. In short, an annuity owner asked
the IRS if he could rollover the proceeds from one annuity to another
under IRC Section 1035. As most professionals know, Section 1035
allows you to do this as a tax-free exchange. In other words, there’s
no tax recognition of the gain built up inside the annuity.
The owner
had purchased a non-qualified annuity with an insurance company.
He later wanted to purchase a new annuity with a different insurer.
The company that provided the initial annuity refused to do the exchange.
Instead, it distributed the annuity proceeds via a check to the owner.
He then took the check, endorsed the back of it and provided the
proceeds via the endorsed check to the second company to purchase
his new annuity. Note that he never deposited the check—he immediately
endorsed it over to the second company.
Realizing the dilemma, the
annuity owner then requested the Revenue Ruling to seek guidance
on whether this was a Section 1035 exchange, or whether the income
generated on this transfer was taxable income. The IRS ruled that,
because the owner took possession of the check (even though it was
endorsed immediately over to the second company), the income was
taxable as an annuity withdrawal under IRC Section 72(e).
Section 1035 exchanges require strict adherence to the rules and
regulations. If you want the benefit, you need to follow the rules.
The owner could have had the annuity directly assigned to the new
insurance company. This is a pretty standard process. Why this one
went awry is unclear to me; but we all can learn from it.
If you’d like more information, you can download the ruling at
http://www.irs.ustreas.gov/irb/2007-21_irb/ar15.html.
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MEALS
AND ENTERTAINMENT EXPENSES
Generally, only 50% of business related meals and entertainment
expenses is 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 the 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. Just remember
that the information came from your trusted advisor, me.
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THERE IS A
NEW RISK TO DATA: PHOTOCOPIES
Consumers have been bombarded with warnings about
identity theft. Threats range from mailbox thieves and lost laptops
through to email scams and corporate data invasions. I have also
heard of “raising” ballpoint pen signatures from checks (you should
sign your checks or official documents with an acceptable gel pen).
A raised signature can be reprinted on a blank check or “official”
document.
Now experts are warning people that photocopiers
and fax machines could be additional culprits.
That is because many copiers and fax
machines manufactured in the past five years have fixed drives, the
same kind of data-storage mechanisms found in computers, to reproduce
and transmit documents. As a result, the seemingly innocuous machines
can retain the data being scanned.
If the data on the copier’s or
fax machine’s disk is not encrypted or if the machines does not have
an overwrite mechanism, and if someone with malicious motives gets
access to the machine, industry experts say sensitive information
from original documents might get into the wrong hands.
One major
company has suggested that you should contact your tax consultant
or your local copy shop and to confirm that their machines have data
security installed. Don’t worry; we have checked our equipment.
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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.”
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TAX
AUDIT RISKS
Your chances of being audited are pretty good if you are wealthy.
Audits appear less likely if you are not. About one in sixteen taxpayers
with income of $1 million and higher was audited last year, a 33%
increase from the previous year. Overall, audits of individual taxpayers
were approximately 6% in 2006 - for a risk of about 1 in 100.
Congress
set three years as the deadline, or statute of limitations, during
which the IRS can go back and make additional tax assessments. But
that time can be extended for certain reasons. There is NO statute
of limitations for failure to file a return or when fraud is suspected.
Yes, filing an incorrect return may be better than NOT filing at
all. (What a country we live in, huh?)
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MATCHING
SOCIAL SECURITY NUMBERS
As many taxpayers have found out, the Internal Revenue Service compares
your Social Security Number (SSN) reported on your income tax return
with the Social Security Administration (SSA). If they do not agree,
your income tax return will bounce (not be accepted) or your dependency
exemptions may disappear. Your SSN is used by many other agencies
and companies to identify you (including credit reporting agencies).
It is important that you regularly check your records to make certain
the name and number of your Social Security card matches up with
the name and number you are using elsewhere. Remember to officially
change your name with the SSA if you get married or divorced or legally
change your name or adopt a child.
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HIGHEST TAX BURDEN
New England is the third most heavily taxed region
in the nation. Massachusetts ranks 28th nationwide, with residents
paying an estimated 11.3 percent of their income in state and local
taxes this year. The state, the region’s largest economy, was once
referred to as Taxachusetts because of its painful tax burden. New
Hampshire is the second least taxed state, with residents shelling
out 8 percent of their income in state and local taxes. Vermont and
Maine have the highest and second-highest tax burden. Connecticut
ranks eighth and Rhode Island ranks fourth nationwide.
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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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CHARITABLE CONTRIBUTIONS
I know that I have mentioned this subject to clients during their
annual tax interview, but it is important to remember that you must
have a receipt in order to claim a charitable deduction starting
January 1, 2007. Checks, credit card slips, payroll deductions and
signed letters and receipts for clothing, etc from the charity constitute
a receipt. Remember: NO RECEIPT, NO DEDUCTION!
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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 now be working with. You see, it all
STARTS with your income tax returns.
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REMEMBER:
“IT’S NOT WHAT YOU MAKE THAT COUNTS; IT’S WHAT YOU KEEP!”
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No one is required to pay
more in taxes than the law demands. If you pay too much, you have
fewer resources to meet your other financial goals. I can help
find tax deductions and credits, and help you plan so your taxes
can be as low as possible. I can also assist you with business
and estate tax planning.
The information contained
in this publication has been obtained from sources I believed to
be reliable at the time of writing, but are not guaranteed as to
their accuracy or completeness. This material, or any portions
thereof, may not be reproduced without prior written permission
of Roger A. Kahan, CPA.
Roger A. Kahan is a Certified
Public Accountant, Business Advisor, and Wealth Care Professional
with an office in Stoughton, Massachusetts, serving the tax and
financial needs of individuals and small to medium sized businesses
almost anywhere in the United States. And with the advent of the
Internet, his professional tax consultation extends into several
other countries. Roger is always seeking additional clients and
professionals wishing to save or invest money and better manage
their own life; or a friend, a relative, or a client's 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.
Thank
you.
A
member of: |
Massachusetts
Society of Certified Public Accountants |
Massachusetts
Association of Public Accountants |
Randolph
Business and Industrial Commission |
Computer
Organizations of New England, Inc. |
Neponset
Valley Chamber of Commerce |
Randolph
Chamber of Commerce, Inc. |
National
Society of Tax Professionals |
Stoughton
Chamber of Commerce |
Knights
of Pythias International |
Bay
Financial Services, LLC |
National
Notary Association |
New England Sinai Hospital and
Rehabilitation Center |
|
