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Welcome to ONLINE ADVI$OR. July 2006 Our monthly online newsletter provides
useful tax, business, and financial planning information as part of our
firm's commitment to total client service. The information contained in this site
is of a general nature and should not be acted upon in your specific
situation without further details and/or professional assistance. For more information on anything in
ONLINE ADVI$OR, or for assistance with any of your tax, business, or
financial planning concerns, contact our o Click here to return to http://www.schiffman.com |
For
July 2006
July 31 - Due date for filing retirement or employee benefit plan
returns (5500 series) for plans on a calendar year.
NOTE:
Businesses are required to make federal tax deposits on dates determined by
various factors that differ from business to business.
Payroll
tax deposits: Employers generally must deposit Form 941 payroll taxes (income
tax withheld from employees' pay and both the employer's
and employees' share of social security taxes) on either a monthly or
semiweekly deposit schedule. There are exceptions if you owe $100,000 or more
on any day during a deposit period, if you owe $2,500 or less for the calendar
quarter, or if your estimated annual liability is $1,000 or less.
Monthly
depositors are required to deposit payroll taxes accumulated within a calendar
month by the fifteenth of the following month.
Semiweekly
depositors generally must deposit payroll taxes on Wednesdays or Fridays,
depending on when wages are paid.
For
more information on tax deadlines that apply to your business, contact our
office.
What's New in Taxes
Combat
pay counts for IRA contribution
On
Manage
your income to maximize tax benefits
What
do the following have in common: itemized deductions, personal exemptions,
child tax credits, student
loan interest deductions, and Roth IRA contributions? The answer is that
they’re all reduced or eliminated when your adjusted gross income (AGI) reaches certain levels. For example, this year couples
begin to lose the full benefit for child tax credits when their AGI reaches $110,000. Other deductions and credits begin to
phase out at even lower levels.
There are many deductions, credits, and other tax
breaks that depend on your AGI level. When you begin to lose these deductions and credits
as your AGI increases, you’re effectively increasing
your tax rate.
Deductions
affected by AGI include those for medical expenses,
casualty losses, job expenses, IRA contributions, student loan interest, and
total itemized deductions. Credits affected include the adoption credit, dependent
care credit, child tax credit, earned income credit, and various education
credits.
An
important part of tax planning is managing income to minimize the loss of these
tax breaks. There’s still time for 2006 planning to preserve tax deductions and
credits. Here are some suggestions.
*
Contribute the maximum to employer-provided retirement plans. If you are
self-employed, consider establishing a plan. Contributions reduce your adjusted
gross income, and plan earnings aren’t taxable until they are withdrawn.
*
Consider replacing interest-bearing accounts with tax-free investments. In the
highest tax brackets, returns are often comparable, but don’t increase your
taxable income.
*
Invest in tax-efficient mutual funds instead of funds that usually distribute
large gains.
*
In 2006, business owners may deduct up to $108,000 worth of equipment purchases
that normally would be capitalized and depreciated over several years. However,
to receive the full benefit, total assets purchased can’t exceed $430,000 for the
year.
To
find out more about minimizing your AGI and
maximizing the tax deductions and credits you’re allowed to claim, please give
us a call.
Cell phones: A business benefit or liability?
Cell
phones have made it easier for business people to communicate, but they are not
always a plus in the work environment.
A
recent survey by Randstad
Cell
phones are becoming enough of a drain on productivity that more and more
employers are banning them at work. Even more of a concern to employers is the
liability issue connected with cell phones. There is the potential for exposure
when employees cause traffic accidents while driving and talking on cell
phones.
Map out
a plan before opening for business
Taking
a trip without a map may get you lost, and trying to run a business without a
plan is likely to have the same result.
A
business plan is a map, your company’s written guide into the future. Not only
does a good plan let you know where you are and where you’re headed, it
provides potential lenders and investors with a portrait of your company.
For new
businesses, the written business plan helps in the start-up process. It
provides a clearer understanding of the business and its goals. Often,
businesses spend a lot of time and money on product development, equipment, and
marketing — without analyzing the feasibility of the basic business idea. Writing
a business plan gives you a better understanding of your ideas. It allows input
from others before wasting time and resources. Each plan will differ, but
certain items are essential.
*
First, you must define your market niche and identify the competition. How does
your product or service differ from theirs?
* Next,
determine your product and delivery costs; then look at your product pricing.
* Do
you need new equipment or skills to compete now and in the future?
* What
is your marketing scheme?
* How will
you get the capital you need for your plans?
*
Examine your key operating ratios, and determine projected profits for years
covered by the plan.
Most
business plans fail because they lack detail. A well-developed plan gives a new
company immediate respect in the eyes of lenders, not only because it shows you
to be thorough and far-sighted, but because lenders
rarely see good business plans.
Wayne
Gretzky, when asked the reason for his success said, “Some people skate to
where the puck is. I skate to where the puck is going to be.” A good plan
should help you do the same for your business.
What’s New in Financial Strategies
50-year
mortgages? That’s a l-o-n-g
time
The
high price of homes and rising interest rates have
brought a new financing option to the marketplace - the 50-year mortgage.
Available currently from only a few lenders, the 50-year mortgage is intended
to help those who otherwise could not afford to buy a home because of high
monthly payments.
While
such financing options as a 50-year mortgage or an interest-only loan may get
people into a new home with payments they can afford, there is definitely a
down side. An interest-only loan does not reduce the debt, so the home buyer could end up owing more than the market value of
the home. With a 50-year loan, equity is built very slowly, and if the loan
rate is adjustable, the home buyer's monthly payments
could increase when the interest rate is raised.
Will
mistakes reduce your nest egg to small change?
There are a number of pitfalls that you’ll need to
avoid in order to enjoy a financially comfortable retirement. Some of these mistakes take place while you’re
planning for retirement, and some take place after you actually retire. Here
are seven of the most common mistakes.
1.
Ignoring your company’s 401(k) plan
If
you’re planning on retiring well, you should make
every effort to maximize contributions to your 401(k) account. The total amount
that you can contribute is substantial ($15,000 for 2006; up to $20,000 if
you’re 50 or older). In many cases, your employer matches a portion of your
contributions. These funds avoid current income taxation and
are allowed to grow tax-deferred.
2.
Allowing your personal savings to lag
Many
people believe that if they max out their company retirement account, nothing
else need be done. That’s simply not true. It’s also the time to rev up your
personal savings. Properly invested, these savings can grow using preferred tax
rates, adding substantially to your retirement funds.
3.
Mismanaging your investment mix
The
investments that you hold need to change as your situation changes and as you
get closer to retirement. The proper asset allocation for people in their twenties
is different for those in their fifties. Don’t just blindly allow your
investment holdings to remain unchanged in the hope you’re doing the right
thing.
4.
Outliving your money
That
simply means that as you come to the end of your earning years and certainly
during retirement, you must ensure that your lifestyle doesn’t outpace your
income. There are many things leading up to and during retirement that you
can’t control. But modifying your lifestyle to fit your income is one thing you
can control.
5.
Paying too little attention to your debt
Avoid
piling up new debt in the years leading up to retirement. You might have to
make difficult choices during this time, but falling deeper into debt can
sabotage your retirement plans. Remember that once you’ve reached retirement,
it’s not as easy to pay off any additional debt that you might incur.
6.
Underestimating health care costs
A
recent study found that retirees who are not covered by their former employer’s
health plan might spend 20% to 40% of their retirement income on health care.
Sure, Medicare will pick up some of the slack once you reach age 65, but for
many early retirees, the cost of health care can be staggering.
7.
Retiring too soon
Picking
the right time to retire takes careful analysis. Start by creating a retirement
budget. Will you be able to cover fixed expenses, daily living costs, and the
one-time splurges of retirement? Will there be uninsured medical expenses? If
your financial situation is less than secure, you may want to postpone your
retirement. Working longer can increase your pension or retirement assets when
you do eventually retire. Having a larger retirement fund will give you more
choices to finance your desired retirement lifestyle.
Avoiding
these mistakes won’t necessarily guarantee you a financially secure retirement,
but it will certainly improve your chances. If we can help you with your
retirement planning, give us a call.
|
Good ideas… "People
will accept your ideas much more readily if you tell them Benjamin Franklin
said it first." -
David H. Comins |
ONLINE ADVI$OR
is issued monthly to provide useful information. Return to this site every
month for helpful tax-cutting suggestions, business information, and financial
planning tactics.
The information contained in this site is
of a general nature and should not be acted upon in your specific situation
without further details and/or professional assistance.
If you would like more information on
anything in ONLINE ADVI$OR, or if you'd like to be on our mailing list to
receive other tax, business, or financial planning information from time to
time, please contact our o