Online Advisor
Timothy W. Tuttle & Associates

Volume 2 Edition 8           Please email comments to newsletter@tuttlefirm.com            August, 2006

Major Tax Deadlines

For August 2006

*Prior to this year, getting an automatic extension for filing your tax return gave you four extra months to file. That meant August 15 was the due date for filing extended tax returns (or for requesting an additional two months by explaining your need for more time to the IRS). This year, automatic extensions allow six extra months to file — or until October 16, 2006, for extended 2005 returns.

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 concedes defeat on telephone tax

After numerous losses in court, the IRS is admitting defeat on the issue of telephone excise taxes. The Service will no longer collect the 3% excise tax on long-distance telephone services. In addition, the IRS will issue credits or refunds of all excise taxes paid on long-distance service billed after February 28, 2003, along with interest.

Consider the tax benefits of annual gifts

Did you know that this year you can give gifts of up to $12,000 to as many individuals as you want without being liable for gift tax? Normally, the gifts you make count 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 2006 is $12,000 given to any one individual. A husband and wife each have their own separate limit, so they can jointly give up to $24,000 to any one person.

Use the annual exclusion

You can put the gift exclusion to good use in several situations. For example, you could use a multi-year gifting 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 $72,000 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.

Three types of gifts are exempt from the $12,000 limit. You can make unlimited gifts for tuition expenses or medical expenses on behalf of any person, provided you make the payments directly to the educational institution or health care provider. You can also make unlimited gifts to your spouse.

Before you give away money or other assets, be sure you will not need them yourself to provide income in later years. Consider the impact inflation will have on your resources. Planning is essential in this area, so contact us for any assistance you need before making 2006 gifts.

New Business

Paperless payroll can cut business costs

Companies looking for ways to cut costs might want to consider this new idea: Instead of issuing paper paychecks, pay employees with payroll “plastic cards” or with direct deposit to the employee’s bank account.

One study estimated that a paperless payroll could cut costs for a business by 75%.

The payroll cards store a dollar value similar to debit cards and can be used to withdraw cash at ATMs or make purchases. Fees for using the cards can make them less attractive to employees, and the drawback to direct deposit is that it’s not an option for employees who don’t have bank accounts.

Consider cross-training your employees

Have you considered cross-training your employees? Cross-training, or job rotation as it’s sometimes called, can be a win-win situation for you and your employees. Large companies often use it to prepare managers for high-level corporate positions. But it can be equally useful for employees on the shop floor or in general office positions.

You can do cross-training in several ways. At its simplest, you rotate employees to learn different job skills within a department. Or you might move people to different departments for a formal three or six-month assignment before they return to their original position. In some cases, it’s a regular progression of assignments designed to move an employee up the career ladder. How you implement cross-training will depend on the size and nature of your business.

Advantages for the company include:

*Greater flexibility in moving staff to deal with unexpected workload.
*Reduced turnover because employees feel they are growing and learning.
*Greater teamwork between departments.
*Development of a broader range of skills in employees.
*Having employees see more of the “big picture” of company operations.

For the employees, the advantages are:

*Learning new skills, perhaps breaking the monotony of a position.
*Feeling appreciated by the company, increasing motivation to excel.
*Seeing growth opportunities within the company instead of looking elsewhere.

However, cross-training is not without its costs and risks. Managers may resist having to train new employees, and productivity may suffer in the short term. Employees are always nervous about change, and they may be worried about having to learn new skills. It’s critical to think through the goals of your program very thoroughly beforehand. Communication is the key. It’s essential to get everyone involved before you start and to stay involved yourself to deal with problems or issues that arise.

A good tip is to start with a small pilot program. You can expand it later as you gain experience. If you are willing to do it right, cross-training can produce benefits for all concerned.

What's New in Finances

Nearly half of Americans aren’t saving enough

A new study done by the Center for Retirement Research at Boston College revealed that 43% of working Americans are probably not going to have enough retirement funds to maintain their current standard of living. The study assumed that retirees would need 65% to 85% of their pre-retirement income to maintain the same living standard.

Even more alarming is the fact that this study did not take into account the “wild card” of medical expenses, a retirement expense that is difficult to estimate and one that could be a major item in people’s retirement budgets.

The conclusion that can be drawn from the study is that today’s workers need to save more now if they hope to have a comfortable retirement.

Don't cash out the equity in your home just because it's there

With today's low interest rates, homeowners have been flocking to refinance their mortgages. But instead of reducing their payment by the maximum amount, many have increased the size of their mortgage to tap into the home's equity. Part of the new loan pays off the old mortgage, and the remainder is paid in cash. These "cash-outs" have accounted for well over half of all refinancings in recent months.

Although instant cash is always tempting, you should think carefully before cashing out the equity in your home. Whether it's a good or bad idea depends on your financial situation and how you intend to use the cash. For example, using the cash to pay off high-interest credit card balances might seem like a good idea. But first you should look carefully at your personal economic situation. If you can't make the loan payments, you stand to lose your home.

The economy is troubled, with high unemployment and more job cuts being announced every month. Even though interest rates have fallen, mortgage foreclosures have reached record levels this year. Many individuals are stretched well beyond their financial means. This is not the climate to casually take on extra debt.

Before you increase the size of your mortgage, consider your financial situation. Is your job secure, or is there a possibility of losing your job? If you lose your job, how are you positioned to meet your monthly payments? How quickly could you find another job? What if you need to relocate, but you can't sell your home for enough to cover the mortgage? Do you have a cash reserve for unexpected financial emergencies?

While refinancing might make sense to lower your interest rate or shorten your loan's term, exercise caution when it comes to cashing out your home's equity. Call us to discuss whether refinancing makes sense in your situation.

Take a Break

Telephone tax

The 3% federal telephone excise tax was first imposed in 1898 to raise money for the Spanish-American War. At the time, only the wealthiest Americans had telephones, and the tax was considered a luxury tax.

Since 1898, the IRS has collected more than $90 billion from the telephone tax.

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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
www.tuttlefirm.com