March 2006 Tax Newsletter
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 Major Tax Deadlines |
For March 2006
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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.
For more information on tax deadlines that apply to your business, contact our office. © copyright 2006 |
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| What’s New: Should you pay taxes with a credit card?
If these offers look attractive to you, remember the fees that are charged by the company that processes the transaction — usually about 2.5% of the taxes paid. Also keep in mind the interest you’ll be charged by the credit card company if you don’t pay your credit card bill in full every month. You may find that the “free” miles are not so free after all. © copyright 2006 |
More and more taxpayers are using their credit cards to pay the taxes they owe at tax filing time. This year, credit card companies are trying to lure even more people to use credit cards to pay the IRS. Some card issuers offer double award miles for every dollar of taxes paid with their credit cards.
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| April 3 is an important deadline for many
Retirement accounts grow tax-deferred until you need the funds. However, in most cases your money cannot remain in these accounts forever. The IRS has rules that dictate when and how much you must withdraw from your retirement accounts. The amount you must withdraw each year is called your required minimum distribution (RMD). You can withdraw more than the required minimum distribution from your retirement accounts, but if you fail to take at least the required minimum on time, you face a severe 50% penalty. These rules apply to traditional IRAs and qualified retirement plans, such as Keoghs, 401(k)s, SEPs, and SIMPLE plans. They also apply to 403(b)s, 457 plans, and qualified annuity plans. The rules do not apply to Roth IRAs during the owner’s lifetime. In most cases, you must begin withdrawing money from your retirement accounts as follows:
If you’re still working at age 70½ and you own less than 5% of the company you work for, you can wait until you retire to begin taking distributions from qualified plans, such as 401(k)s. This exception does not apply to traditional IRAs. Your retirement fund trustee must tell the IRS whether you are required to take a minimum distribution, so you need to be aware of the rules and the penalty for not complying. If you turned 70½ last year and still have not taken your first required distribution, do so by April 3 of this year. If you have questions or need assistance, give us a call. © copyright 2006 |
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| New Business: IRS to focus on employment tax issues to reduce tax gap The IRS recently released new research data on the tax gap — the difference between what taxpayers should be paying in taxes and what they actually pay. In order to reduce this tax gap, Noting that employment taxes account for about 20% of the tax gap, the IRS intends to focus on this area. Specifically, the Service hopes to clarify liability for employment taxes for employee leasing companies and their clients. The IRS also hopes to be authorized to issue levies to collect employment tax debts prior to collection due process proceedings. Another area of focus will be self-employed individuals and those whose earnings are not subject to withholding. © copyright 2006 |
the IRS has announced some of the stiffer enforcement measures it plans to use this year.
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| How to make business meetings worth the time
For most companies, business meetings are a fact of life. Although meetings sometimes are useful or necessary, too many simply Most meetings are held to disseminate information. The participants are informed or reminded about policies, given progress reports about ongoing activities, or told of upcoming events. However, unless you’re soliciting input or anticipating confusion about the subject matter, consider substituting e-mails or other memoranda to communicate routine information. That way, you’ll be providing written guidelines while saving everyone’s time. Don’t hold a meeting solely because it’s part of the usual schedule (e.g., the weekly staff meeting). If the topic of the week can be conveyed in a memo, or there’s nothing important to discuss, simply cancel. If you do hold a meeting but exhaust your topic early, adjourn rather than trying to fill the allotted time. If your meeting objective is to generate ideas or consensus, you can kick-start the creative process by distributing an agenda with guidelines a few days beforehand. Letting the participants mull over the topics in advance can maximize productivity and minimize orientation time. Encourage a diversity of opinions and positions, but be prepared to tactfully deflect digression or showboating. At the end of any meeting, briefly sum up the proceedings and any decisions that were made. Your most important goal may be to make your participants feel they are a vital part of company processes. © copyright 2006 |
waste time, and some may even harm morale. Here are some ideas for improving or shortcutting the meeting process.
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| What’s New: Prepaid tuition plans now get equal treatment  “529 plans” are one way to set aside money for children’s college educations. These plans come in two varieties: (1) prepaid tuition plans where you make a lump sum payment or make payments to lock in tuition for your child when he or she is ready for college, and (2) college savings plans that allow you to put money into investments and use this fund to pay for college expenses tax-free.
A recent bill signed into law by President Bush equalizes the treatment of these two varieties of Section 529 plans in calculating eligibility for federal financial aid for students. Previously federal aid was reduced by one dollar for every dollar withdrawn from a prepaid tuition plan. Now prepaid tuition plans will be treated for federal aid purposes the same way college savings plans are treated — as an asset belonging to the account owner (typically the parent) and not to the student. Under the federal formula, a maximum of 5.64% of both types of plans will be counted for reducing a student’s eligibility for aid. © copyright 2006 |
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| Are your beneficiary designations up to date?
You designate beneficiaries for insurance policies and accounts such as IRAs, annuities, and 401(k) plans. Your designation determines who will inherit those accounts, regardless of what your will might say. Assets with beneficiary designations bypass probate and go straight to the person you’ve chosen. That’s why it’s important to keep designations up to date. Your wishes might have changed as births, deaths, or marriages occur in your family. Or some of your beneficiaries may no longer be living. There can be tax implications too. With some IRAs, choosing the wrong beneficiary, or failing to name a contingent beneficiary, can change the timing of when withdrawals must be made and taxes paid. That’s why you should always choose beneficiaries after careful consideration of tax issues. Follow these four steps to update your designations:
© copyright 2006 |
Who have you designated as beneficiaries for your insurance policies and retirement accounts? If you can’t remember, you’re not alone. But it’s worth checking, and right now is the perfect time to do your review. If you make the wrong decision, it could affect who inherits those assets. In some cases, it can change the future value and taxes on the accounts.
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Some tax trivia…
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