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Online Advisor - May 2006
Major Tax Deadlines
For May 2006
May 15 - Deadline for calendar-year exempt organizations to file 2005 information returns.
May 31 - Deadline for IRA, SEP, SIMPLE, Roth IRA, MSA, and education savings account trustees to file annual statements (Form 5498) with the IRS, with copies to participants.
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: IRS publishes credit amounts for hybrid vehicles
The Energy Policy Act of 2005 provided for tax credits of up to $3,400 to encourage taxpayers to buy fuel-efficient vehicles. The IRS has calculated the following amounts of credit taxpayers can take this year for the purchase of a new hybrid vehicle.
- 2005 and 2006 Toyota Prius - $3,150.
- 2006 Toyota Highlander Hybrid - $2,600.
- 2006 Lexus RX400h - $2,200.
- 2006 Ford Escape Hybrid - $2,600; 4WD - $1,950.
- 2006 Mercury Mariner Hybrid - $1,950.
Get an early start on reducing your 2006 taxes
Maximize your tax savings this year by getting a jump-start on your planning. Here are a few tips that you can use to reduce your 2006 taxes.
- Increase your deferred compensation. If your company has a deferred compensation plan (such as a 401(k) or 403(b) or similar plan), make sure that you maximize your contributions, since these contributions are made pre-tax. In 2006, you can contribute up to $15,000 in a 401(k) plan (up to $20,000 if you're 50 or older).
- Maximize employer contributions. Many employers now match a portion of the retirement plan contributions that you make. Even if you can't fully contribute, make sure to at least contribute the amount that your employer will match. This is simply "found money" that costs you absolutely nothing and saves taxes at the same time.
- Use your flexible spending account (FSA). Many employers also offer FSAs, allowing you to put away money for future expenses. This is like a pre-tax savings account that will allow you to pay for medical expenses and dependent care costs. Now that the rules for the "use it or lose it" aspect of an FSA have been liberalized, these accounts are even more attractive.
- Maximize your dividends and capital gains. With the preferred tax treatment on both dividends and long-term capital gains, review your current stock and other investment holdings in order to generate dividends and create long-term gains that will minimize your taxes.
- Take advantage of energy breaks. For 2006, there are many new tax credits and/or deductions for the installation of solar water heaters and energy efficient home improvements, such as added insulation, thermal windows, or storm doors. Many of these breaks are available for both individuals and businesses.
- Review your life changes. With so many complicated tax rules, virtually any life change now also involves a tax opportunity. The sooner you recognize these changes and react to them from a tax standpoint, the easier it will be to do the planning necessary to minimize your taxes.
- The sooner you deal with your upcoming tax issues, the more chance you'll have to reduce your 2006 tax bite. Give us a call if you would like help in your 2006 tax planning.
New Business: IRS announces 2006 vehicle depreciation limits
The IRS has issued the depreciation limits for business cars first placed in service in 2006. For passenger cars, the limits are -
- $2,960 for 2006
- $4,800 for 2007
- $2,850 for 2008
- $1,775 for each year thereafter.
For trucks and vans first placed in service in 2006, the limits are $3,260 for 2006, $5,200 for 2007, $3,150 for 2008, and $1,875 for each year thereafter. Electric vehicles first placed into business use this year have the following depreciation limits: $8,980 for 2006, $14,400 for 2007, $8,650 for 2008, and $5,225 for each year thereafter.
Business e-mail comes with risk and responsibility
It's a high tech world. Communications are faster and more frequent. E-mail and its cousin "instant messaging" (IM) are wonderful business tools, but they come with risk and require responsibility.
The risks
- Messages can and sometimes do go anywhere. Once the e-mail is sent, control is gone. It's often not a "personal" but rather a very "public" communication. It can end up posted on the Internet. It can embarrass and tarnish your business's image.
- Virus threat. E-mails with attachments can introduce destructive viruses into your system and network.
- Lawsuit threat. We live in a very litigious society. Company e-mails and IMs are subject to subpoenas. How would you like to hear yours read in a court proceeding?
- Inappropriate employee communications. A disgruntled or insensitive employee can cause significant damage to your reputation and the value of your business.
- Loss of productivity. Excessive personal use of e-mail can adversely impact productivity.
Some tips
- Set some rules, communicate them, and monitor compliance. Have a detailed e-communications policy that you review and discuss with your employees. Educate and inform them about the risks of e-mail and why the policies are necessary. Policies should be specific, but not so restrictive that morale, productivity, and motivation suffer.
- Emphasize the need for care. Instill a sense of respect. Remind employees that hitting "reply" or "reply all" can have significant differences. Emphasize that certain actions will not be tolerated. Nothing that is libelous, sexually inappropriate, or damaging to the organization is ever acceptable.
- Consider encryption for increased security. Does your current process leave you with a feeling of security or insecurity? Encryption tools can control who reads your business communications.
- Consider using other forms of communication. E-mail might not always be appropriate. Registered mail, a letter, or a private phone call might be more effective.
- Spell-check communications. Consider spell-check to improve the appearance and quality of your messages.
- Draft in document format first, then import to e-mail. For lengthy e-mails, this is often a better way to write.
- Emphasize the importance of confidentiality. E-communications are important documents and should be handled with appropriate care.
- Remember the company owns the e-communications. Legal precedence has been established that company generated e-communications are in fact company property. You have the right to control what you own.
Please give us a call. We can help you assess the current condition of your e-communications system and work with you to improve, control, and manage this vital business tool.
What's New in Finances: Savings rate hits lowest rate since 1933
According to the U.S. Commerce Department, American consumers spent more than they earned in 2005. Savings as a percentage of income was a negative .5% last year - the first negative rate since the Great Depression.
The Commerce Department defines "savings" as "current income not spent." The figure does not include past accumulated savings. Nor does it include the value of assets that consumers own, such as stocks or homes.
Have a financial talk with your elderly parents
One day you may find yourself taking care of an elderly parent who is in declining physical or mental health. This can be stressful, both emotionally and financially. On the financial side, there are steps you may want to take to prepare for this situation.
- Talk to your parents about their financial affairs. Parents may be reluctant to discuss their finances, but someone needs to know the names of their lawyer and accountant. Someone needs to know where their important financial papers are located. If they are still fit, encourage your parents to make a detailed financial list for you, including information about bank accounts, investments, insurance policies, retirement plans, location of safe deposit boxes, etc. Getting familiar with important information now will be much easier than trying to find this information after a parent becomes physically or mentally impaired.
- Review your parents' financial picture together. Do your parents have enough retirement income and savings to provide for their needs? Should steps be taken to help stretch their assets over their life expectancies? What if they eventually need nursing home care? Assess whether long-term care insurance makes sense for them.
- Consider these important documents. A durable power of attorney allows another person to make financial decisions on a parent's behalf if he or she becomes incapacitated. A medical directive or living will is a document stating a parent's wishes about medical treatment in case he or she becomes too ill to communicate these wishes.
- Help put your parents' estates in order. Does each parent have a will, and if so, where are the wills stored? When were their wills last updated? Encourage your parents to review their beneficiary designations on insurance policies, annuities, and retirement plans to make sure their choices are still suitable.
Talking finances with your parents now can make caring for your parents in the future much easier. For assistance, give us a call.
What's the President's tax bill?
President Bush and First Lady Laura Bush reported $618,694 of taxable income on their 2005 federal income tax return. They paid $187,768 in taxes.
Vice President Cheney and his wife had $1,961,157 of taxable income in 2005 and paid $529,636 in taxes.
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.
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