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Major Tax Deadlines For January 2008
* January 31 - Employers must provide 2007 W-2 statements to employees.
* January 31 - Payers must provide 2007 Form 1099s to payees.
* January 31 - Employers must generally file Form 941 for the fourth quarter of 2007 and pay any tax due.
* January 31 - Employers must generally file 2007 federal unemployment tax returns and pay any tax due.
WHAT'S NEW......
IRS has $110 million in undeliverable refunds
Are you still waiting for your tax refund? If so, you may be one of the 115,478 taxpayers to whom the IRS has been unable to deliver a refund check. The refunds total about $110 million.
Every year there are taxpayers who don’t update the IRS or the U.S. Postal Service when they move or change their mailing address. Checks are mailed to the last known address for taxpayers, and when the address isn’t current, the checks are returned as undeliverable.
To check on a missing refund, you can go to the IRS Web site at www.irs.gov and type "Where’s My Refund?" in the search box. To check on a refund by phone, call 1-800-829-1954.
New mileage rates issued for 2008
The IRS has issued the 2008 standard mileage rate that businesses can use to calculate the deductible costs of driving an automobile for business.
Beginning January 1, 2008, the standard mileage rate for business driving will be 50.5 cents a mile. This represents an increase in the mileage rate from the 48.5 cents a mile allowed in 2007. The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating a vehicle.
If you have questions about deducting vehicle expenses in your business, give us a call.
Check scams on the increase
Check scams have become so prevalent that the U.S. Postal Service has undertaken its largest ever anti-fraud campaign to warn consumers. According to the National Consumers League, counterfeit checks rank #2 as the most common Internet fraud and #1 as the most common telemarketing fraud. The average loss to victims is $3,000 to $4,000 per incident.
In one typical check scam, the con artist contacts an individual who has posted an ad on a online auction site. The thief says he/she wants to buy the item and says a check will be sent for more than the sale price. The seller is asked to wire the excess amount to a third party to cover shipping of the item being purchased. But the check is counterfeit, and by the time the seller finds that out, the money has been transferred out of the country and the seller is on the hook for the loss.
Don’t fall for one of these scams. Trust your instincts and apply a healthy dose of skepticism to out-of-the-ordinary requests when you’re dealing with people you don’t personally know.
MONTHLY ARTICLES
Include taxes in your New Year's resolutions
Expand your list of New Year resolutions to include the following:
1. Review and adjust your withholding.
If you receive a big tax refund for 2007, resolve to file a new Form W-4 to adjust your withholding and reduce your refund to a reasonable size. It’s comforting to receive a small refund, but remember that a refund means you’re making an interest-free loan to the government - money you could be investing or using for your own benefit.
2. Maximize your tax-advantaged retirement savings.
Resolve to contribute at least enough to your 401(k) plan to earn your employer’s match. Otherwise you’re giving up "free" money. If you can afford to contribute more to your retirement plan or to an IRA, do so. At retirement time, you’ll be glad you did.
3. Review your investments quarterly.
Resolve to review your investments regularly. Decide on investments to keep or sell, and rebalance your portfolio.
4. Set up an education plan.
If you have children or grandchildren, resolve to meet with your tax advisor and establish a tax-advantaged plan to fund their education.
5. Keep better records.
One secret of good tax planning is good recordkeeping. Resolve to set up a simple system to maintain essential records.
6. Update your estate plan.
Resolve to update your estate plan this year. You’ll be surprised how quickly changes can occur. And remember that good estate planning includes more than just a will or living trust.
7. Take your tax preparer to lunch.
Some time after April 15, go to lunch with your tax preparer. Take a copy of your income tax return and review it line by line, discussing ideas for additional tax savings in 2008.
Please call our office if you have questions or if you would like to set up that after-tax-season lunch appointment.
How to prevent a partnership failure
Just as marriages don’t always work out, there is no guarantee that a business partnership will be successful. Before you enter into a partnership, here are some questions you should ask yourself.
* Why do I want a partner? Maybe there are alternative ways to solve your problems. For example, if you’re feeling overworked, can you hire an employee to share your duties and responsibilities? Perhaps better time management is the answer.
* How well do I know my potential partner? Consider his/her personality, health, age, family status, lifestyle, and anything else that may affect your partnership. A period of internship with your company might allow you both to get to know each other better and evaluate how well you work together.
* Has my potential partner ever been in a partnership? Find out about previous business relationships your partner has had. Why did they end?
* Do we have compatible business goals? For example, do you agree on the amount of debt your business should carry? Are you in agreement about cash distributions from the partnership?
* What is my potential partner’s work ethic? If you are a workaholic and your partner believes in extended business lunches, you may be setting yourself up for problems. Again, a trial period may bring to light problems you never even imagined.
If you are considering adding a partner, we can act as your sounding board. Give us a call.
Retirement funds: What you need to know about required withdrawals
Do you own a traditional IRA, SEP-IRA, SIMPLE IRA, Keogh plan, 401(k) plan, or 403(b) plan? If so, you’ll have to start taking distributions when you reach age 70½. If you don’t, you’ll forfeit 50% of the amount you should have taken but did not.
For example, if your required minimum distribution (RMD) in 2007 was $10,000, but you only withdrew $4,000, your penalty would be 50% of the $6,000 you did not withdraw, or $3,000.
The RMD rules apply to the plans mentioned above, but not to Roth IRAs.
Here are the requirements.
*You may take your first distribution any time before April 1 of the year following the year in which you reached age 70½. However, a first distribution taken after the year you turned 70½ still will be credited to the year you actually reached the required age. You’ll then have to take another distribution by December 31 of the current year, forcing you to pay income tax on two distributions in the same year.
* You must take each subsequent distribution by December 31 of the applicable year. To avoid the 50% penalty, give your plan administrator enough time to process the distribution and get it to you by year-end.
* The amount of your RMD is computed using Uniform Lifetime Tables issued by the IRS. These tables provide percentages that are applied to the value of your retirement account as of December 31 of the year preceding your distribution. Beginning at age 70½, for example, most people must withdraw at least 3.6% of the value of their accounts. At age 75, the percentage increases to 4.4%. If your spouse is ten or more years younger than you, different rates will apply.
* If you’re still employed at age 70½, you may be able to delay withdrawing from your current employer’s plan until you actually retire.
* You and your spouse may not take distributions from one another’s accounts to make up your RMDs. However, if you individually own more than one IRA, you may compute a combined RMD and withdraw it from one or any combination of the accounts. RMDs from non-IRA plans, such as Keogh or 401(k) plans, must be computed for and withdrawn from each separate account.
* You may take distributions in monthly, quarterly, semi-annual, annual, or irregular increments, as long as you reach your required total each year.
* Since RMDs are taxable, consider making quarterly income tax estimates to cover your liability, or instruct your administrator to withhold taxes from each distribution.
Call us to set up a time to develop further tax-saving strategies for handling your retirement funds.
This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, click here.
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