Timothy W. Tuttle & Associates
Volume 2 Edition 11 Please email comments to firstname.lastname@example.org November 2006
Major Tax Deadlines
For November 2006
During November: It's wise to estimate your 2006 income tax liability and review your options for minimizing your 2006 taxes. Call us if you would like to schedule a tax-planning session.
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
Telephone tax to be refunded with your 2006 tax filing
Did you know you may qualify for an extra refund when you file your 2006 taxes? And if you qualify, you can claim the refund by filling out just one extra line on your 2006 tax return.
If you subscribed to long-distance telephone service between March 2003 and July 2006, you almost certainly paid a federal tax on your telephone bill. But recent court decisions ruled that the tax should not apply. So the IRS has come up with a simple method to refund the taxes. They've developed standard refund amounts based on the number of exemptions you claim.
The standard refund will be $30 for one exemption, $40 for two, $50 for three, and $60 for four or more. Normally you claim an exemption for yourself, one for your spouse, and one for each dependent. So a married couple with one dependent would be eligible for a $50 refund.
These amounts are based on a survey of average telephone taxes paid by families of different sizes. If you don't want to take the standard refund, you can always go through 41 months of telephone bills and figure the actual amount you paid. Then you'll need to fill out a special form to make your claim.
Businesses and nonprofits are also eligible for refunds. Currently they'll have to figure the actual taxes they paid, although the IRS is trying to develop simplified refunds for them, too.
Let the tax man help with child care costs
Are you a working parent looking for ways to ease the burden of child care expenses? There are several tax-saving strategies available to you.
* First, there's the dependent care tax credit, a direct reduction to your tax liability. The amount of the credit depends on the amount of your child care expenses, your adjusted gross income, and how many children you have. The maximum credit is 35% of your costs for child care while you work or go to school, up to a limit of $3,000 for one child and $6,000 for two or more children.
* Next, there is the flexible spending account, an arrangement set up by some employers which allows employees to set aside pre-tax dollars to be used for child care expenses. However, you should be careful when establishing this type of account because there is some risk involved. If your dependent care costs for the year are less than your contributions to your account, you forfeit the unused balance. Also, any tax-free reimbursement from the account reduces your eligible expenses for the dependent care tax credit.
* Finally, you may have an employer who is taking advantage of a business tax credit for providing child care services for employees. Employers who provide such benefits can receive a tax credit of up to $150,000, depending on the actual costs of running the child care center. If you are lucky enough to receive this benefit, your employer will report the total amount of your dependent care benefit on your form W-2. The first $5,000 of this benefit is not taxable, but any benefit over $5,000 per family will be included in taxable wages.
Give us a call if you would like more information about the restrictions and requirements involved with these tax-saving opportunities.
Note these changes on your 2007 business calendar
Daylight saving time for 2006 just ended on October 29. And that brings to mind the changes made to daylight saving time next year by the energy law passed in 2005.
As you begin your 2007 business planning and put important dates on your 2007 business calendar, be aware of the following changes:
* Daylight saving time will begin the second Sunday of March in 2007, rather than the usual first Sunday in April. That means 2007 daylight saving time will begin on March 11, 2007.
* Daylight saving time will end the first Sunday in November, rather than the usual last Sunday in October. So 2007 daylight saving time will end on November 4, 2007.
If your business has pre-programmed electronic clocks or computer programs using old daylight saving dates, you'll want to make the necessary adjustments for 2007.
Do a year-end tax-cutting review for your business
Many small businesses and self-employed business owners make the mistake of not thinking about taxes until it's time to file their returns. That's simply too late — most moves must be made before year-end. Here are a few tax-cutting ideas that could help you reduce your 2006 business taxes.
* Purchase business assets. If your business will soon require additional computers, furnishings, or even transportation equipment, make those purchases before the end of the year and take maximum advantage of the expensing election. You're generally allowed to deduct up to $108,000 of qualified purchases this year.
* Plan for retirement. If you don't have a retirement plan, consider setting one up before the end of the year. In fact, there are federal tax credits for some of the costs of setting up a new retirement plan. If you already have a retirement plan, consider maximizing your contributions.
* Review your entity. Many small businesses start out as sole proprietorships or partnerships. Now may be the time to transition to another entity such as a corporation which can help shelter you from financial and liability risks.
The best way to maximize your business deductions is to meet with us before the end of the year, so give us a call to review your 2006 tax picture.
What's New in Finances
Stock market hits new high
The big news for stock investors came October 19, 2006, when the Dow closed at 12,000 for the first time in history. The Dow is comprised of 30 major companies and is generally seen as one measure of market activity.
You might find it interesting to review Dow benchmarks on the way to this latest all-time high. The Dow was created May 26, 1896, at 40.94. The first close above each level thereafter were as follows:
1000……………November 14, 1972
2000……………January 8, 1987
3000……………April 17, 1991
4000……………February 23, 1995
5000……………November 21, 1995
6000……………October 14, 1996
7000……………February 13, 1997
8000……………July 16, 1997
9000……………April 6, 1998
10,000…………March 29, 1999
11,000…………May 3, 1999
12,000…………October 19, 2006
Couples: Take these six steps to financial harmony
Most people need help from time to time with their finances, and this can be especially true for couples. Partners often struggle with differing perspectives about money, and these differences can affect spending, saving, budgeting, and other financial decisions. Regardless of these differences, however, the following tried-and-true guidelines can help any couple achieve greater financial stability and security.
1. Organize your finances. Get a handle on your income and spending. How much are you really spending on those dinners out? Many widely available financial software programs can help you track finances and provide insight into your spending habits. By reviewing how you spend money, you can focus on potential problem areas.
2. Set goals. How much will you accumulate in bank accounts and investments over the next three years? Five years? Ten years? Have you anticipated future expenses? Say, for example, you're dreaming of a vacation in Europe for your anniversary. You'll want to start saving now so you won't need to finance the trip with credit cards.
Speaking of debt, it's a good idea to set goals for becoming debt-free. Generally, you should pay off high-interest credit cards first, then concentrate on installment loans, then the mortgage.
Consider also refinancing that adjustable rate interest-only mortgage to a fixed-rate mortgage. At some point, most couples live on a relatively fixed income. You should plan for the day when mortgage payments are only a memory.
3. Build an emergency fund. Setting aside money for emergencies makes sense. Life can throw us curveballs, and it pays to be ready. How much is enough for emergencies? As a general rule, set aside three to six months of gross income in easily accessible accounts, such as savings or money market accounts.
4. Save for retirement. If you can participate in a retirement plan such as a 401(k), you should definitely try to contribute up to the amount matched by your employer. The earlier you start saving, the more you'll accumulate. It's that simple. Individual retirement accounts (IRAs) are another great place to sock away retirement savings.
5. Review your insurance coverage. You should generally carry at least enough term life insurance to pay off the outstanding balance of your mortgage, so your spouse or other survivors won't be burdened with large mortgage payments. Catastrophic health insurance is also a must. It's a good idea to review your insurance coverage every year or so, to make sure the coverage keeps up with your changing circumstances.
6. Do some estate planning. Even if you don't have kids, it's a good idea to ask an attorney to draft a will and set up a financial power of attorney. This helps ensure that your assets are distributed according to your wishes in the event of death or incapacity.
Although couples often fret over differences about financial matters, by agreeing to follow some basic guidelines, they can enjoy long-term financial security together.
Take a Break
Change and taxes go together
A report by the Tax Policy Center reminds us taxpayers that we've had a lot of tax law change to digest over the past 25 years.
A major tax law has been passed every two years since 1981, and since 2001 we've had one, and sometimes more than one new tax law every year.
2006 saw two tax revisions — the Tax Increase Prevention and Reconciliation Act and the 900-plus page Pension Protection Act.
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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