Timothy W. Tuttle & Associates
Volume 1 Edition 4 Please email comments to firstname.lastname@example.org March 2005
Major Tax Deadlines
For March 2005
March 1 - Farmers and fishermen who did not make 2004 estimated tax payments must file 2004 tax returns and pay taxes in full.
March 15 - 2004 calendar-year corporation income tax returns are due.
March 15 - Deadline for calendar-year corporations to elect S corporation status for 2005.
March 31 - Deadline for payors who file electronically to file 2004 information returns (such as 1099s) with the IRS.
March 31 - Deadline for employers who file electronically to send copies of 2004 W-2s to the Social Security Administration.
For April 2005
April 1 - Deadline for taking your first required IRA distribution if you turned 70½ in 2004. Unless you're still working, this deadline also applies to your other retirement accounts (except for Roth IRAs).
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
Review your children's tax filing requirements.
Children who have income may have to file income tax returns. Here are the filing requirements for 2004.
If your child had wage income only during 2004, a tax return is required if wages exceeded $4,850. If the child earned less than $4,850 but employers withheld taxes, a tax return must be filed if you want a refund.
If your child had net self-employment earnings of $400 or more in 2004, a return is required and a self-employment tax of 15.3% is due. Income tax could be due if earnings exceeded $4,850.
If a child had investment income only during 2004 (such as dividends and interest), filing is required if the total exceeded $800.
If your child had both earned and investment income, a return is required if the total was more than the larger of (a) $800 or (b) $250 plus up to $4,600 of earned income.
A job change creates tax issues
Taxes may be the last thing on your mind when you're changing jobs, but overlooking their impact could mean missed tax-saving opportunities. Issues to consider include:
Your retirement plan. Distributions from retirement plans are generally taxable and may also be subject to an early withdrawal penalty. The penalty would also apply to amounts withheld for income taxes. When you leave a company, any unpaid 401(k) loan is also considered a taxable distribution if you don't repay the loan according to the terms of your plan.
Planning Tip: Have the money in your retirement account transferred directly into another qualified plan or an IRA. A direct rollover avoids automatic income tax withholding and income taxes.
Job-hunting expenses. You can deduct the costs of looking for a new job in your present line of work, even if you don't get the job. Typical expenses include travel to job interviews, resume costs, and employment agency fees. You must itemize your deductions, and your total miscellaneous deductions must exceed 2% of your adjusted gross income.
Moving expenses. If you meet two tests, you can deduct the costs to move your household and personal effects, including your in-transit travel expenses and storage expenses.
First, the distance from your old home to your new workplace must be at least 50 miles farther than the distance from your old home to your old workplace.
Second, you must work full time in your new location for at least 39 weeks during the 12 months following your move. The time test doesn't apply if you're laid off from your new job or later transferred for your employer's benefit.
Residence sale. You can exclude from taxation up to $250,000 of gain ($500,000 for joint filers) if you own and occupy a home as your principal residence for at least two of the five years preceding its sale. If you sell your home due to a change in employment, you can still exclude part of the gain even though you don't meet the ownership and use tests.
To discuss the tax issues relating to a job change, call us. We are here to help.
New study reveals employee preferences
A recent employee-benefits study conducted by MetLife Inc. revealed some interesting information about employee preferences and behavior.
Of the full-time employees surveyed, 64% said they preferred paid vacation days over other employer-provided benefits such as pension plans, disability insurance, life insurance, and long-term-care insurance.
Younger employees (21 to 30 years of age) valued sick leave and flexible work schedules more than pension and savings plans.
Though about half of the survey respondents worried that they wouldn't have enough set aside for retirement, one-third revealed that they haven't even started saving for retirement.
Take steps now to benefit from 2004 tax laws.
Last October, President Bush signed two substantial tax bills into law. Like other recent tax law changes, some provisions are permanent, but most are temporary. What steps can you take to maximize the new tax breaks for your business?
New deduction. There's good news for many businesses that can now claim a "manufacturer's deduction" of up to 3% of their taxable income in 2005 and 2006, 6% for the following three years, and 9% starting in 2010. Regulations will define what qualifies as manufacturing, but it appears that the definition will be quite broad. Construction, engineering, and computer software companies are among those that will qualify.
S corporation. The new rules also make it easier for your business to qualify as an S corporation by increasing the maximum number of shareholders from 75 to 100, and allowing members of the same family to elect to be treated as one shareholder.
Start-up costs. Up to $5,000 of business start-up expenses are now deductible in the year the business begins operations. Previously, you'd amortize start-up expenses over 60 months.
Depreciation and expensing. Though 50% bonus depreciation for business equipment purchases is no longer available, first-year expensing is increased to $105,000 for 2005. Also, you can depreciate 2005 leasehold improvements made to your commercial space or restaurant property over 15 years. Next year, you'll once again deduct the cost of these improvements over 39 years.
For more information and assistance with your 2005 tax planning, please give us a call.
What's New in Financial Strategies
Important IRA deadlines coming up.
The rules governing IRAs are complex, and making mistakes can be costly. Here are some important deadlines and reminders
Don't let neglect derail your plans
Although life's only certainties may be death and taxes, we rarely enjoy planning for them. But without planning, your assets can go to unintended recipients including the government.
Keep track of documents
Naming your beneficiaries is only the first step. It's just as important to periodically review the beneficiaries designated by your will, insurance policies, investment accounts, retirement plans, and similar documents. Examine each document carefully, because some assets may pass to the beneficiaries named in the governing document, regardless of the terms of your will.
Example: You name your husband as sole beneficiary in your will, on your life insurance policy, and in your 401(k) plan. After a few years, you divorce and remarry. You remove your ex-husband from your will and name your new husband as the insurance beneficiary, but you forget about the 401(k) plan. The result: When you die, your ex-husband probably will inherit the plan assets.
Events that might require changing beneficiaries include marriage, birth, divorce, death (e.g., of a beneficiary), increases or decreases in your wealth, changes in tax law, or simple changes of heart. Even in the absence of a triggering event, it's wise to review your designations regularly. A beneficiary may have fallen out of favor. A once-needy beneficiary may have become wealthy, enabling you to divert your assets elsewhere. Ongoing changes to estate tax law may mandate different approaches to beneficiary selection.
Begin a thorough review
When reviewing your beneficiary designations, start by listing the relevant documents. In addition to your will, personal life insurance, and active retirement plan, include employer-provided life insurance and life insurance associated with services such as credit cards, medical plans, and trade associations. You'll also need to look at stock purchase plans, stock option plans, and similar benefit programs.
If you haven't reviewed your beneficiary designations lately, think about doing it soon. For assistance in your review, give us a call.
Chuckle of the Month
If you're a movie-goer, you're fortunate. You are learning things you otherwise would never know. For example -
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