Online Advisor
Timothy W. Tuttle & Associates

Volume 1 Edition 11           Please email comments to            Oct 2005

Major Tax Deadlines

For October 2005*

October 17 - Deadline for filing 2004 individual tax returns on second extensions.

October 17 - If you converted a regular IRA to a Roth IRA in 2004 and now want to switch back to a regular IRA, you have until October 17, 2005, to do so without penalty.

October 17 - Deadline for filing 2004 partnership and limited liability company returns on second extensions.

*These and other tax deadlines are extended to February 28, 2006, for businesses and individuals located in the Hurricane Katrina and Hurricane Rita disaster areas and for relief workers providing assistance in these areas. For details on who qualifies for extensions, contact our office.

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: Congress passes tax relief for hurricane victims

On September 21, Congress passed the Katrina Emergency Tax Relief Act of 2005 to provide immediate assistance to individuals and businesses hit by Hurricane Katrina.

Among the tax relief provided in this legislation:

* Taxpayers affected by Hurricane Katrina will be allowed to borrow from qualified plans and to take penalty-free distributions from their retirement plans.

* Distributions from retirement plans can be averaged into income over a period of three years, and if amounts are recontributed to the plans within three years, amended returns can be filed to claim a refund of taxes paid on the distributions.

* Employers who hire workers displaced by Katrina may be eligible for the work opportunity credit of up to $2,400 per worker. Those employers who continue to pay workers, even though the business is not operating due to the disaster, may qualify for the employee retention credit of 40% of up to $6,000 in wages paid to each employee before year-end.

* To encourage charitable giving, the new law temporarily suspends certain limits on the amount of charitable deductions a taxpayer can take, and it provides enhanced deductions for contributions of food and books. It also increases the deduction for charitable driving to 70% of the rate allowed for business driving.

* Those who provide housing for displaced victims of Katrina may qualify for an additional $500 personal exemption, with a four person or $2,000 additional exemption limit. The additional exemption cannot be taken for family members.

* Tax filing and tax payment deadlines are extended for those affected by the disaster.

For details on these and other provisions in the Katrina Emergency Tax Relief Act, give us a call.

The gift tax exclusion – use it or lose it!

Did you know that this year you can give gifts of up to $11,000 to as many individuals as you want without being liable for gift tax? Normally, any gift you make counts towards your lifetime exemption from gift and estate taxes. That’s so you don’t just give away your estate shortly before death to avoid estate taxes.

But each year you can make an unlimited number of gifts free of tax, provided they’re below a certain amount. The limit for 2005 is $11,000 per gift. A husband and wife each have their own separate limit, so they can jointly give up to $22,000 to any one person.

You can put the gift exclusion to good use in several situations. For example, you could use a multi-year gift program to decrease the size of your estate and reduce estate taxes. A married couple giving to each of their three children could reduce their estate by a total of $66,000 every year, for example.

You could also use the gift exclusion in an income-shifting strategy. You could make gifts of income-generating assets to your child, who is in a lower tax bracket. If done carefully to avoid the “kiddie tax,” the result can be a lower overall tax bill for the family unit.

Two types of gifts are exempt from the $11,000 limit. You can make unlimited gifts for tuition expenses or medical expenses paid on behalf of any person, provided you make the payments directly to the educational institution or health care provider.

Contact our office for advice on how the 2005 gift exclusion could work for you.

New Business: IRS increases standard mileage rates

On September 9, the IRS announced an increase in the optional standard mileage rates for the last four months of 2005. For business miles driven between September 1 and December 31, 2005, the rate increases to 48.5 cents a mile, up from 40.5 cents a mile for the previous eight months of 2005.

The new four-month rate for medical and moving expenses is 22 cents a mile, up from 15 cents for the previous eight months.

The rate for driving connected with charitable activities remains unchanged at 14 cents a mile since that rate is set by law and not adjusted by the IRS as vehicle operating costs fluctuate. However, the recent Hurricane Katrina relief legislation increased the mileage rate for charitable driving done for hurricane relief activities to 70% of the business mileage rate.

Business relocation requires some planning

Many businesses face the prospect of relocating their operations at some point. Making the move go smoothly requires careful planning. Some factors to consider include the timing of the move, the expense, employee relocations, and minimizing downtime and lost production.

Simplify the process by choosing a moving team a few months before the relocation. Their duties might include preparing a moving budget, lining up a moving company, and setting up telecommunications and technology at the new location.

Preparing for a move is a good time to clean house. To reduce your moving costs, destroy old records and get rid of equipment and inventory you don’t need anymore. Determine if your budget can support buying new furniture and equipment or if it would be less expensive to move and refurbish existing assets. If you plan to upgrade your computer network and telephone system, make sure your new facility will accommodate the necessary installation.

Use tax breaks to cut your costs. The cost of moving your company’s records, machinery, equipment, and inventory to the new location is tax-deductible. When you move, you can deduct the cost of abandoned leasehold improvements not previously depreciated. You can also depreciate the cost of new equipment and leasehold improvements.

If you have questions, please call us.

What's New: Treasury will start selling 30-year bonds again

The Treasury Department announced that it will begin selling 30-year Treasury bonds again in 2006. Absent from the scene for the past four years, the 30-year bond will again be sold twice a year according to a schedule to be released by the Treasury Department next month.

The long bonds are advantageous to the government because the current low interest rates will let it lock in these low rates for decades on current borrowing. Institutional investors also like the guaranteed rate on long bonds that allows them to plan for obligations that will come due decades from now.

Since interest rates over such a long period are very hard to predict, 30-year bonds are less attractive to individual investors who may suffer very low returns if market interest rates increase significantly during this period.

Check your credit information: Annual reports are free

It’s a good idea to review your credit information periodically. You might spot credit inquiries or applications that you didn’t make — a sign that you could be a victim of identity theft. Or you might find errors in your personal data or payment history, errors that could cause lenders to deny you credit or charge you a higher interest rate.

As of last month, all consumers can now request one free copy of their credit report each year. The three major credit agencies have set up a centralized site to handle requests by phone, mail, and over the Internet. Access to this site started in Western states last year and was gradually rolled out across the country.

When you apply for a free copy of your credit report, you’ll often be offered the chance to receive your credit score, for a fee. It’s important to know the difference between the two.

Your credit report shows personal data and a record of your credit applications and credit usage, including your payment history. In summary, it shows how often you’ve applied for credit, how much you owe, and whether you make payments on time. Each of the three major agencies will have its own report on you.

Your credit score is a single number, usually ranging from around 300 to over 800. The number is based on various factors in your credit history. Generally, the higher the number, the better your credit. You might receive a different score from each agency, depending on the model they use.

If you’re checking for fraud or mistakes, you need to see your credit report. This provides the details of your credit history and enables you to spot mistakes. On the other hand, knowing your credit score may not tell you much, other than whether it’s high or low. The score can change from day to day, depending on how you use credit. Each agency might assign you a different score. And a lender considering you for credit may use a completely different model, producing yet another number.

So, before you pay to see your credit score, consider whether you’d find a free copy of your credit report more useful.

Take a Break

A few humorous words to the wise

* Always read stuff that will make you look good if you die in the middle of it.

* When everything's coming your way, you're in the wrong lane.

* Birthdays are good for you. The more you have, the longer you live.

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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