June 2007 Tax Accountant Newsletter
Major Tax Deadlines
For June 2007
June 15 – Second quarter 2007 individual estimated tax is due.
June 15 – Due date for calendar-year corporations to pay second installment of 2007 estimated tax.
June 15 – Due date for calendar-year trust and estates to pay second installment of 2007 estimated tax.
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: Five new tax scams included in 2007 “dirty dozen”
Each year, the IRS publishes its list of top tax scams known as the “dirty dozen.” The 2007 list includes five new scams uncovered by IRS auditors and criminal investigators.
New to the list this year are the following scams:
* Telephone excise tax refund abuses. Taxpayers request large, obviously improper amounts for the telephone tax refund.
* Abusive Roth IRAs. This scam involves shifting under-valued property to a Roth IRA. In one variation of the scam, promoters suggest moving under-valued common stock into a Roth IRA, circumventing the annual contribution limit and allowing otherwise taxable income to go untaxed.
* American Indian employment credit. Taxpayers claim an American Indian employment or treaty credit which is not allowed.
* Domestic shell corporations. These entities are formed for the purpose of underreporting income, nonfiling of returns, money laundering, financial crimes, and possibly even terrorist financing.
* Structured entity credits. Promoters of this scheme set up partnerships to own and sell state conservation easement credits, federal rehabilitation credits, and other tax credits. Once the credits are used, investors in the partnerships get a K-1 claiming a loss to be deducted on their tax returns. The investments in the partnerships are not valid, and the losses are not deductible.
The IRS reminds taxpayers that falling for any illegal tax scheme promoted by con artists can result in penalties and even criminal prosecution.
Your child and his summer job…will he owe taxes?
Your son, Jake, a junior in high school, announces that he’s found himself a job for the summer. How will that affect his tax situation and yours?
* Jake will owe taxes on his earnings, just like any employee. But in practice, he might end up paying zero or very little tax. He can use his standard deduction to offset the first $5,350 he earns for this year. After that he’ll pay taxes at a 10% rate on the next $7,825 of earnings.
* Usually, Jake will have income tax withheld from each paycheck. He’ll fill out a Form W-4 when he starts work. That will determine how much tax is taken out. If he doesn’t plan to work the full year, he might want to claim an extra withholding allowance on the form to reduce the taxes withheld.
* He’ll also have payroll taxes (social security and Medicare) taken from each paycheck. These will count towards his lifetime social security earnings record.
* Generally, you can still claim Jake as a dependent on your tax return even if he takes a standard deduction for himself. That assumes he still meets the usual tests for a dependent, including age (under 19 or under 24 if he’s a full-time student), living with you for at least half the year, and you providing at least half his support.
* Jake can’t claim a personal exemption for himself if you are entitled to claim him as a dependent on your return.
* Jake should file a tax return for 2007. That will ensure that he receives a refund of any excess taxes that were withheld. There are limited exceptions; contact our office for details.
New Business: IRS announces 2007 vehicle deprecation limits
The IRS has issued the depreciation limits for business cars first placed in service in 2007. For passenger cars, the limits are —
* $3,060 for 2007
* $4,900 for 2008
* $2,850 for 2009
* $1,775 for each year thereafter.
For light trucks and vans first placed in service in 2007, the limits are $3,260 for 2007, $5,200 for 2008, $3,050 for 2009, and $1,875 for each year thereafter.
What is the right price for your products? A three-step guide for your business
In business, making pricing decisions is always tough. At times you may be tempted to cut prices hoping to generate higher sales volume. But sometimes that just produces lower margins on a low volume. What do you do if you’re being squeezed by cost increases? How do you respond if your customers complain? Can you justify holding prices steady if your competitors cut their prices?
There are no easy answers, but running through a three-step process can help you make the right decision.
1. Know your strengths. How does your product or product range stack up against the competition? Are your products higher quality, lower quality, or indistinguishable from your competitors’ products?
How about all the other elements that make up your total service package? Do you provide a bigger inventory, faster delivery, better payment terms, wider product line and better service on returned items? If not, can you change your operations to gain an edge in any of these areas?
2. Put yourself in your customers’ shoes. Try to understand your customers’ needs. Are they under profit pressure? What changes are occurring in their industry? How can you adjust your products or service to add value for them – value that they might be willing to pay for? What are their alternatives if you raise prices?
3. Know your competition. Run through the same questions you asked about yourself and apply them to your competitors. What are their strengths and weaknesses? What can they offer your customers that you can’t? How will they respond if you change prices?
When you’ve worked through these three steps, you should have a much better idea of the likely competitive effect of a price change. Run some profit scenarios and then review your pricing decision with your salespeople. Make sure they understand the rationale, and jointly rehearse how they’ll present the change to customers.
For assistance with pricing issues in your business, give us a call.
The Latest in Finances: Inheriting a 401(k)? New rules you need to know
For surviving spouses, inheriting a 401(k) is relatively painless since the 401(k) can be rolled over into an IRA in the spouse’s name. For others, however, inheriting a 401(k) plan can trigger significant tax. That is, until the passing of the Pension Protection Act of 2006. Now, nonspouses may get a break as well.
Nonspousal heirs who receive a 401(k), 457, or 403(b) plan may roll over the funds into what is called an “inherited IRA.” Although nonspouses must begin receiving taxable distributions from the inherited IRA in the following year, the payments may be spread over their expected lifetime.
There are certain traps to avoid. The timing of the rollover is critical, and the rules must be followed precisely. Also, the money must transfer directly from the 401(k) to the inherited IRA without passing through your hands.
For details and assistance in benefiting from the new rules, give our office a call.
Stocks: Consider these important tips next time you decide to sell
If you are serious about managing your stocks, it’s important to have a selling strategy. What is yours? Investors tend to give a lot of thought to the buying decision, but little consideration to the sell decision. Here are some situations that may indicate it’s the right time to sell.
* To offset some gains. If you have some losing positions, you might want to use them to offset taxable gains.
* When there are no tax consequences. If you hold stock in a retirement fund, you may want to cash in some gains without any tax impact.
* To take some money off the table. If a stock has had a nice run, you might want to sell a portion to recoup part of your investment. You can continue to invest in the stock but with locked-in gains.
* A shift in the fundamentals. If the economy changes quickly, an industry becomes vulnerable, or negative news can affect a specific stock. It might be time to sell.
* When you’ve given up on a stock. If a stock has been declining or flat-lining for an extended period, it might be time to get out. Sometimes you have to sell low in order not to sell even lower later on.
* To take a contrarian position. If the market has gotten a little frothy and all the news is optimistic, it might be time to harvest gains.
* When something else catches your eye. You might want to take advantage of another opportunity by selling one stock to buy another.
* When cash becomes attractive. If the economic outlook is gloomy, it might be time to increase your cash reserves.
* When you hit your target price. If the fundamentals are the same at this point, it might be time to sell.
The wise investor knows it’s important to have a disciplined stock selling strategy. Be sure you give as much thought to selling a stock as to buying it.
Do e-mails and text messages add to worker efficiency and productivity? Not according to a survey of British workers. The survey showed that –
* Almost two out of three people check their electronic messages outside of office hours and when on holiday.
* Half of all workers respond to an e-mail within 60 minutes of receiving one.
* One in five will break off a business or social engagement to respond to a message.
* Nine out of ten people thought colleagues who answered messages during face-to-face meetings were rude, while three out of ten believed it was not only acceptable, but a sign of diligence and efficiency.
According to Dr. Glenn Wilson, a psychiatrist who monitored the effects of all this messaging in clinical trials, “…this obsession with looking at messages, if unchecked, will damage a worker’s performance by reducing their mental sharpness.” His research showed the IQs of those who tried to juggle messages and work fell by 10 points. The IQ drop was even greater in the men who took part in the tests.
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.