July 2007 Tax Accountant Newsletter
Major Tax Deadlines
For July 2007
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 semi-weekly 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.
Semi-weekly 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.
Tax Changes: Small Business Tax Act is signed by President Bush
President Bush signed the Small Business and Work Opportunity Tax Act on May 25, 2007. This law is part of a larger bill that provides funds for the troops and increases the federal minimum wage over a two-year period to $7.25.
To help offset the cost of the increased minimum wage, the law provides a number of tax breaks for businesses. Some individual taxpayers may find their tax bills are increased by the revenue raising portions of the law.
Here’s a brief overview of the tax changes.
* The limit for the Section 179 election to expense business equipment purchases is immediately increased from $112,000 to $125,000, with the phase-out amount increased from $450,000 to $500,000.
* The Work Opportunity Tax Credit for hiring certain disadvantaged workers was set to expire at the end of 2007. The new law extends the credit through August 31, 2011, and broadens the credit to include more veteran groups.
* The FICA tip credit will continue to be based on the old $5.15 minimum wage even though the minimum wage increases to $7.25 an hour.
* Married couples who jointly operate an unincorporated business and who file a joint return may elect not to report their income as a partnership. Instead of filing a partnership return, they can each report their income on Schedule C of Form 1040.
* The age limit for the “kiddie tax,” the taxing of a child’s unearned income above a certain amount at the parents’ higher rate, is increased from age 18 to 19. For full-time students, the kiddie tax will apply until age 24. This change is effective for tax years beginning after May 25, 2007 – which for most taxpayers means the change will become effective in 2008.
Among other provisions in the law are tax incentives to help taxpayers recovering from Hurricane Katrina and some S corporation changes. If you would like to review how these recent changes might affect your business and personal tax planning, give us a call.
Act fast to benefit from this new IRA charitable donation option
A recent change in the charitable contribution rules provides a potential tax planning opportunity involving your individual retirement account. If you’re 70½ or older, you can make contributions of up to $100,000 directly from your IRA to a qualified charity.
Charitable IRA distributions are penalty-free withdrawals that are neither included in, nor deducted from, your taxable income. Better yet, such payments qualify as required minimum distributions (RMD) from your retirement account. Thus, if you do not need the IRA distribution to live on, and you wish to make a donation, a charitable IRA rollover might be a win-win strategy.
Charitable rollovers also make sense when the inclusion of the IRA distribution in your income would result in the phasing out of other deductions, such as personal exemptions or itemized deductions. Non-itemizers also benefit since the donated amount is excluded from their taxable income.
Keep in mind that there are unique restrictions on this type of gift. The IRA rollover cannot be contributed to a donor advised fund or supporting foundation. Also, if any benefit is received in exchange for the gift, such as dinner tickets, the entire distribution becomes taxable. As with any donation, the charity needs to provide you with a tax receipt containing all the proper substantiation for your contribution. Without it, the gift is disqualified. Also be aware that the donation must be made directly from the IRA to the charity and not paid to you first.
This provision is scheduled to expire this year, so now’s the time to act. If you’re interested in analyzing whether this option is a tax-smart move for you, give us a call.
Age 50-plus is fastest-growing group of new business owners
According to the Small Business Administration, the fastest-growing category of new entrepreneurs are people aged 50 to 62. About half of all small business owners are age 50 or older.
For individuals of any age interested in going into business, the Small Business Administration’s Web site is an excellent resource that provides a wealth of useful information. Check it out at www.sba.gov.
If you would like assistance with your business concerns, please contact us.
Important tax planning tips for the midyear review of your business
1. Establish a retirement plan if you don’t already have one. Examining the choices now gives you time to select the best plan for your business and to get the paperwork completed. Then you’ll be set to make contributions as your cash flow allows — and to take the deduction on your 2007 tax return.
Another plus: You may be able to claim a credit on this year’s tax return for the costs of establishing the plan.
2. Hire your kids. If your child is under age 18 and works for your unincorporated business, there are no social security or Medicare taxes on the child’s pay. Wages paid to the child are also deductible. Just make sure the compensation is reasonable for the work actually performed.
3. Track your business driving. For 2007, the rate for business-related mileage is 48.5 cents per mile, and you can deduct actual costs for parking fees and tolls in addition to mileage. Keep detailed records to substantiate your deduction.
4. Deduct equipment purchases. You can expense up to $125,000 of business equipment purchased this year.
5. Check your benefits. If you offer health benefits to your employees, look into tax-advantaged plans such as health savings accounts, flexible spending accounts, or health reimbursement arrangements. These plans can reduce your taxes and help control your benefit costs.
6. Start a business. Planning to acquire or start a business this year? Keep good records of your costs to get the business off the ground, including advertising costs, legal fees, and accounting expenses. Up to $5,000 of these expenses could be deductible on your 2007 tax return.
To discuss the tax-saving ideas best suited for your business, give us a call.
The Latest in Finances: New survey shows most people have no will
A recent survey conducted for the legal profession by Harris Interactive showed that the majority of Americans do not have a will.
55% of all adults have no will, and the percentage of those without wills is even greater among minority groups. 67% of African American adults and 74% of Hispanic American adults have no will.
The survey also revealed that living wills, also known as medical directives, have become more popular. 41% of adults now have a living will, compared with about 30% in 2004.
Ways to protect yourself from identity theft and scams
Scams are everywhere. However, identity theft and its evil twin, phishing, have become major problems. Strictly, identity theft occurs when someone literally steals your identity. They set up bank accounts, take out credit cards, and borrow money in your name. But related scams include someone using your credit card number illegally, or stealing your PIN and looting your bank account.
Phishing occurs when someone pretends to be a legitimate business or government organization and convinces you to give up personal or financial information. They often use phone calls or e-mail messages and even set up fake Web sites.
The number of these scams is exploding. If you fall victim, you’ll spend countless hours sorting out the mess. Follow these tips to help protect your identity.
* Your physical property. Thieves love to go through newly delivered mail looking for credit cards and bank statements. They’ll also sort through garbage for discarded bills and statements that show account numbers. Protect yourself with a locking mailbox and a shredder. Shred all financial data before you throw it out. Don’t carry PIN numbers or your social security card in your purse or wallet.
* Your computer. Many phishing attempts come via the Internet. Never give out your social security number or account numbers unless you’ve initiated the transaction. Never reply to e-mail requests to “update your information.” If in doubt, telephone the company or organization. Install software to screen out junk mail and protect against viruses and spyware. These can be used to steal your personal data or direct you to bogus Web sites. Update your protection regularly.
* Your telephone. Never give out personal information in response to an unsolicited call. Don’t fall for calls claiming to be from your bank’s security department. Reduce unwanted calls by listing your number on the national “do not call” list. If a telephone solicitor calls, ask to be put on their “do not call” list and then hang up.
* Your accounts and credit report. Reconcile your bank accounts and credit card statements regularly. Report unusual activity immediately. Consider online access so you can review activity frequently. Every four months, go to www.annualcreditreport.com and order a free copy of your credit report from one of the three major agencies. Look for mistakes, accounts you don’t recognize, or strange credit inquiries. Report suspicious items immediately.
These steps won’t guarantee protection, but they’re a good start.
O say, can you sing our national anthem?
Apparently, more than 60% of Americans don’t know the words to our national anthem. The National Anthem Project is going to cities across the country to reteach the words to people.
If you tried to sing The Star Spangled Banner and got a bit muddled in the middle, here’s how the first stanza goes:
O say, can you see, by the dawn’s early light, What so proudly we hailed at the twilight’s last gleaming? Whose broad stripes and bright stars, through the perilous fight, O’er the ramparts we watched, were so gallantly streaming? And the rocket’s red glare, the bombs bursting in air, Gave proof through the night that our flag was still there. O say does that star spangled banner yet wave O’er the land of the free, and the home of the brave?
Happy Independence Day!
And if you would like to sing the other stanzas in our national anthem, go to www.thenationalanthemproject.org.
The information contained in this newsletter 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 the ONLINE ADVISOR, or for assistance with any of your tax, business, or financial strategy concerns, contact our office.