TOPICS COVERED IN
THIS ISSUE:
Standard mileage rates
Lower
your tax liabilities for 2007
A real tax benefit
Alternative
minimum tax
Wages to illegal aliens
If IRS or DOR calls
Gift taxes
Capital gains dividends
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STANDARD
MILEAGE RATES
Beginning Jan. 1, 2007, the standard mileage rates
for the use of a car (including vans, pickups or panel trucks) will
be:
• 48.5 cents per mile for business miles driven;
•
20 cents per mile driven for medical or moving purposes; and
•
14 cents per mile driven in service to a charitable organization.
The new rate for business miles compares to a
rate of 44.5 cents per mile for 2006. The new rate for medical
and moving purposes compares to 18 cents in 2006. The primary reasons
for the higher rates were higher prices for vehicles and fuel during
the year ending in October.
The standard mileage rates for business,
medical and moving purposes are based on an annual study of the
fixed and variable costs of operating an automobile. Runzheimer
International, an independent contractor, conducted the study for
the IRS.
The mileage rate for charitable miles is set by
statute.
A taxpayer may not use the business standard mileage
rate for a vehicle after using any depreciation method under the
Modified Accelerated Cost Recovery System (MACRS), after claiming
a Section 179 deduction for that vehicle, for any vehicle used for
hire or for more than four vehicles used simultaneously. Revenue
Procedure 2006-49 contains additional information on these standard
mileage rates.
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IT'S
NOT TOO LATE TO LOWER YOUR TAX LIABILITIES FOR 2007
You may think that this tax year is nearly over,
and there's little you can do about it now. However, taking a look
at your finances and doing a little tax planning now can pay dividends
next April 15, as well as down the road.
There are still many things the average person
can do that can affect this year's taxes. This may also be the time
to make strategic moves for next year, such as taking advantage of
the favorable tax treatment of retirement plans and employee benefit
plans. Moving income or expenses either forward or backward may offer
substantial tax deferrals or additional tax savings.
For more information
about year-end tax planning, call our office.
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A
REAL TAX BENEFIT
If your home tax deductions do provide you with
an income tax refund, you should consider adjusting your income tax
withholding exemptions at work to allow you to bring more money home
each pay period through an increase in your net pay. That additional
net payroll can help you pay the mortgage each month. You can change
your payroll withholding exemptions by visiting your payroll or your
human resources department. If they can’t show you how to do it,
I can.
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ATLERNATIVE
MINIMUM TAX
It wasn't so long ago that a few people were subject
to the alternative minimum tax (AMT). However, because the federal
government never indexed AMT exemptions, millions of taxpayers who
were previously exempt are now subject to this type of taxation.
AMT is simply a separate method of calculating our federal income
tax liability, which increases your overall tax liability. The rules
are complex for calculating the AMT and would require a separate
issue of TAX TIPS AND FACTS to explain all of the related provisions.
One strategy for reducing your AMT is to avoid large capital gains
or distribute them over more than one tax year if possible.
If the
AMT is inevitable, another strategy may be to accelerate taxable
income in the current year in order to avoid it in subsequent years.
Similarly, timing certain deductions may also be an effective strategy.
If you are faced with having to pay the AMT in the current year,
deferring a deductible expense to a year when the AMT may be a factor
could produce a favorable tax result.
Remember, that excess state
income tax withholdings may be subject to the AMT calculation, therefore,
you should keep your state income tax withholdings low enough not
to over withhold.
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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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WAGES
TO ILLEGAL ALIENS
Individual Identification Numbers (ITINs) are issued
by the Internal Revenue Service to certain nonresident and resident
aliens, their spouses and dependents. It is used for income tax purposes
only. An ITIN is not a legal identification number for employment.
ITINs begin with the number '9' and are formatted like a Social Security
number with the fourth and fifth digits ranging from 70-80.
The Social
Security Administration offers employers and authorized reporting
agents two methods for verifying employee Social Security Numbers
(SSNs). To verify up to five names and numbers, call 800-772-6270.
To verify up to 50 names and numbers, contact your local Social Security
office. For more information, check www.ssa.gov/employer/ssnv.htm
I mention this subject now, as the question has
come up a lot in the past few weeks.
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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.
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GIFT TAXES
To reduce your estate and ultimately your federal
and/or state estate taxes, you may make annual gifts of a present
interest in property up to a value of $12,000 per donee per year
without incurring a federal gift tax. If your spouse consents, the
limit can be increased to $24,000 per year, per donee. This means,
for example, if you make gifts of $24,000 to each of six donees (your
children, daughter- or son-in-law, grandchildren, etc.) you will
have removed as much as $144,000 from your estate without paying
any gift tax.
This method of transferring property will not affect
the $555,800 Applicable Credit (formerly, the Unified Credit) or
the Gift Tax Credit (the $1.5 million estate value exemption). In
an estate with a potential tax bracket of 48%, this can mean an ultimate
federal estate tax savings of $63,360 plus a Massachusetts estate
tax. You have made the gift to those who would probably inherit the
property from you eventually, and this way, you may be able to watch
them enjoy it.
In order to take advantage of the annual exclusion
(either $12,000 or $24,000) for 2007, you must COMPLETE the gift
on or before December 31. This means you must actually transfer the
property by December 31. An intent or unwritten agreement will not
be sufficient. The check used as a gift must clear your bank by December
31. Merely adding the donee’s name to the bank or broker account
or Certificate of Deposit is not sufficient to trigger the transfer.
If you gift stocks or bonds, the transfer must be recorded by December
31. Gifts of $12,000 or more to any one donee must be reported on
Form 709 by April 15 of the year after the year in which the gift
is made.
Under current law, for Medicare/Medicaid purposes,
there are some waiting periods in order to escape an add-back of
a gift. A gift within 60 months of admittance to a long-term care
facility (or entrance into the Medicaid program) will be added back
to your amount of countable assets that you may need to “spend down”
in order to get Medicaid coverage. You might consider supplementing
your gift planning and obtain long-term care insurance coverage for
at least five years. If you are thinking of purchasing long-term
health care coverage, please shop around. There are some, although
not many, policies that will only pay if you conform to their many
limitations and restrictions. Consult with an insurance or financial
professional before you make a deposit or sign an agreement. It may
be well worth the cost or fee.
I am licensed to discuss and sell long-term
care insurance coverage as you may require. Give me a call and arrange
for an appointment to see the many available options and coverages.
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CAPITAL GAINS DIVIDENDS
Each year, at about this time, mutual fund companies make a final
”capital gain distribution” to shareholders. Since most mutual fund
dividends are automatically reinvested for you, this could cause
you to incur an additional tax liability without generating any cash
for you. Normally, the underlying value of each fund portfolio is
calculated on a daily basis. Your mutual fund value has the resultant
gain already figured in. Therefore, although they make a “distribution”
to you and that distribution is reinvested for you, you realize no
increase in value as it is already in the daily calculation.
We surveyed a few mutual fund companies and found
that some funds will not have any gains to distribute this year,
some will. Some funds make their distribution early in December,
some later in the month.
You should check with your mutual fund administrator
to determine if this tax law requiring distribution of any capital
gains by year-end will affect you. If this type of transaction will
adversely affect you, consider selling the mutual fund and realize
your gain or loss on the sale. At settlement, your account will realize
the net proceeds. If you sold the mutual fund holding at a gain,
you can buy the same fund back after the distribution has been made.
If you sold it at a capital loss, after thirty days from the settlement
date, you can buy the same fund back. Either way, you can purchase
another mutual fund with similar goals at any time before or after
the sale.
Of course, the above is just a “general rule.”
Your situation may be unique based upon the amount of taxable gain
or loss generated on the sale. You may call me for assistance with
the transaction. I can help you decide what road to travel. Our professional
assistance may pay well for you.
I am presenting this scenario to you as a tax-planning
tool.
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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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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 |
|
