Timothy W. Tuttle & Associates
Volume 1 Edition 3 Please email comments to firstname.lastname@example.org February 2005
Major Tax Deadlines
For February 2005
For March 2005
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, or if you owe $2,500 or less for the calendar quarter.
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
2005 donations for tsunami victims may be deductible in 2004.
Americans are contributing generously to help victims affected by the tsunami disaster in Asia. The IRS issued a reminder to taxpayers about the deductibility of charitable contributions.
If you hope to deduct your contribution, note the following:
Add these items to your 2005 recordkeeping
Keeping good records helps you get every tax deduction to which you're entitled. This year there are some new rules; be sure your recordkeeping takes them into account.
If you plan to purchase big ticket items this year, or if you are taxed in a state with no or low income tax, you should keep your sales tax receipts. Here's why: The IRS provides sales tax deduction tables which can be used instead of keeping receipts throughout the year, but you can add to the table amount sales taxes paid on big ticket items such as motor vehicles, airplanes, boats, homes, mobile homes, and home building materials. When you file your 2005 tax return, you can then choose to deduct either sales taxes or state and local income taxes, whichever gives you the bigger deduction.
FUTA deposit threshold increases in 2005
The IRS has good news for more than four million small businesses. Under regulations recently issued by the IRS, employers will be required to make quarterly deposits for federal unemployment taxes (FUTA) only if the accumulated tax exceeds $500. The deposit threshold prior to 2005 was $100.
Since the maximum tax per employee is $56 per year, the higher threshold eliminates the quarterly deposit requirement for employers with eight or fewer employees.
Don't let loose credit policies sink your ship!
There are many ways to make your business more profitable, and sound credit policies are high on the list. Take the time right now to reexamine your company's policies. Keep the following items in mind as you review your policies.
Sound credit policies and adhering to those policies enhance your chances for business survival, especially in challenging economic times. Call us to review your policies or to set policies in place to help make your business more profitable.
What's New in Financial Strategies
You can put more in your medical and retirement accounts in 2005
Roth IRA conversion rules change in 2005
A little-known tax rule took effect on January 1, 2005. This new rule, which applies specifically to people over the age of 70½, will make it easier for seniors to convert their IRAs to a Roth IRA.
Roth IRAs were instituted as part of the 1997 Tax Act. Unlike traditional IRAs, Roth IRAs are tax-free, which means that you don't pay taxes on money withdrawn from your Roth as long as certain conditions are met.
Along with the introduction of these tax-free retirement savings accounts came the opportunity to convert your traditional IRAs to a Roth. Yes, you pay taxes on the money converted. But that money grows tax-free from that day forward.
Not everyone is eligible to convert their IRAs to a Roth IRA, however. To qualify, your adjusted gross income (AGI) can't exceed $100,000. That threshold applies to single individuals and to married couples alike.
The new rule. Here's where the new rule helps seniors. Starting this year, your annual required minimum distribution (RMD) from your IRAs is excluded when determining if your income exceeds the $100,000 threshold. Let's say you'll turn 75 this year and your IRA accounts are worth $300,000. Based on your life expectancy as reflected in the Uniform Lifetime Table, your RMD for 2005 would be $13,100. While this distribution is taxable to you, it no longer counts when determining eligibility for a Roth conversion.
To convert or not? Should you consider converting your IRAs? Perhaps you should if you think that the tax rates will be higher in the future and you have enough money set aside to pay the taxes due on the conversion without invading your new Roth account.
Another advantage is that you get to keep the money invested within a tax-advantaged account longer. That's because, unlike traditional IRAs, there are no required minimum distributions for Roths.
Converting to a Roth can also help you out with some basic estate planning. By paying all of the income taxes due on your IRAs right now, you'll deplete your estate by the taxes paid. Plus, you reduce the income taxes your heirs will ultimately pay since Roth distributions are tax-free to the beneficiaries of an inherited Roth as well.
The downside includes the potential of pushing yourself into a higher tax bracket, having your personal exemptions and itemized deductions phased out, and paying taxes on a higher percentage of your social security benefits.
To find out more about this tax law change, and whether converting your IRAs to a Roth might make sense for you, please give us a call.
Thought of the Month
Never be afraid to try something new. Remember that a lone amateur built the Ark. A large group of professionals built the Titanic.
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 ONLINE ADVISOR, or for assistance with any of your tax, business, or financial strategy concerns, contact our office.
Timothy W. Tuttle & Associates