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Houghton, MI 49931 USA
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February 2000

Welcome to ONLINE ADVI$OR.

Our monthly online newsletter provides useful tax, business, and financial planning information as part of our firm's commitment to total client service.

The information contained in this site 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 ADVI$OR, or for assistance with any of your tax, business, or financial planning concerns, contact our office.



Major Tax Deadlines

* February 28 - Payors must file information returns (such as 1099s) with the IRS.

* February 29 - Employers must send W-2 copies to the Social Security Administration.

* March 1 - Farmers and fishermen who did not make 1999 estimated tax payments must file 1999 tax returns and pay taxes in full.

* March 15 - 1999 calendar-year corporation income tax returns are due.

* March 15 - Deadline for calendar-year corporations to elect S corporation status for 2000.

Note: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business. For information on the tax deadlines that apply to your business, contact our office.



What's New in Taxes

Note these tax changes for 2000

Among the tax changes that you need to be aware of in 2000 are the following:

* The estate and gift tax exemption increases from $650,000 to $675,000.

* The wage base for social security taxes increases from $72,600 to $76,200.

* The social security earnings limit for 2000 is $10,080 for those under age 65 and $17,000 for those 65 through 69. As always, there’s no earnings limit for those 70 and older.

* The luxury tax on cars drops to 5% on amounts above $38,000, a decrease from the 1999 tax of 6% on amounts over $36,000.

* The maximum 2000 contribution allowed for 401(k) plans increases from $10,000 to $10,500.

* The IRS will accept credit card payment of estimated tax payments for the 2000 tax year. Fees to pay by credit card will run about 1.5% to 2.5% of the tax being paid.

* The amount of business equipment that can be expensed in 2000 increases from $19,000 to $20,000.

* The maximum interest deduction on college loans increases in 2000 from $1,500 to $2,000.

* The prior-year safe harbor for estimated taxes of those with income over $150,000 increases from the 1999 level of 105% to 108.6%.

* The threshold at which payroll taxes must be paid on household workers increases from $1,100 to $1,200.



Your child may have to file a 1999 tax return

If your child had wage income only during 1999, a tax return must be filed for 1999 if wages exceeded $4,300. If your child earned less than $4,300 but employers withheld taxes, a tax return must be filed if you want to receive the refund.

If your child had net self-employment earnings of $400 or more in 1999, a return is required and a self-employment tax of 15.3% is due. Income tax could be due if earnings exceeded $4,300.

If your child had investment income only during 1999 (such as dividends and interest), reporting is required if the total exceeded $700.

If your child had both earned and investment income, a return is required if the total income was more than the larger of (a) $700 or (b) $250 plus earned income, not to exceed the standard deduction of $4,300.



New Business

IRS publishes per diem  rates for 2000

The IRS has issued per diem rates to be used for the year 2000. Businesses can use per diem rates to reimburse employee expenses for business travel. Employees and self-employed individuals can use the rates in substantiating business travel expense deductions.

The meal and incidental expense rate (M&IE) remains at $42 for high-cost localities and at $34 for other locations.

Under the "high-low" substantiation method for travel within the United States, the per diem rate increases from $185 to $201 for travel to high-cost localities, and from $115 to $124 for travel to any other locality. The IRS also added a number of cities to its list of high-cost locations and removed several others.

For additional details on using per diem rates, contact our office.



Smart Business

Be a smart business tenant

If you run a company, building rent is probably one of your largest monthly expenses. Keep these points in mind when you negotiate your next lease, and you could boost your net profit.

* Research the market. Is the supply of local business space greater than demand or vice versa? What is the occupancy rate of any building you're considering? With this information, you’ll know how hard you can push to get a good deal - or if you might do better elsewhere.

* Compare apples with apples. If you’re comparing lease terms from different landlords, make sure you’re clear about usable versus rentable space. Usable space is the space you actually occupy. Rentable space also includes your share of common areas, such as lobbies and hallways.

Example: You are quoted a rate of $1.50 per month per usable square foot. If the space you are considering is 1,000 square feet, your rent would be $1,500 per month. Another landlord quotes $1.40 per rentable square foot for the same size space, but you also must pay for 100 square feet of common area (1,100 square feet total). In the second building, your rent would be $40 more per month.

* Who pays? With a gross lease, the landlord pays for taxes, utilities, and insurance. With a net lease, you pay some or all of these. Understand exactly which expenses you’ll pay, and who pays for tenant improvements.

*Avoid surprises. Determine if your rent is scheduled to increase automatically, or if increases are keyed to an index (such as the Consumer Price Index).

* Plan ahead. Does the lease contain an option to renew? Can you make adjustments if your space needs some changes?

For assistance in sorting through your rental options, contact us.



What's New in Financial Planning?

New survey shows American households are getting richer

A recent government survey revealed that the median net worth of American households has increased almost 18% from 1995 to 1998. The "median" net worth for 1998 was $71,600, meaning half of all households had a net worth above $71,600, and half had a lower net worth.

The percentage of households owning stock increased during this time period as well. In 1995, 40.4% owned stock; that number increased to 48.8% in 1998.

The survey substantiated the benefits of investing. It also showed that education has a direct effect on earnings. Households headed by an individual with some college education enjoyed an increase in median income from 1989 to 1998. Where the head of the household had not graduated from high school, median income fell during this time period.



Consider an IRA for your child

If your child has earned income, he or she is eligible to contribute up to $2,000 each year to an individual retirement account (IRA). Earned income is wages or self-employment earnings (e.g., paper route, modeling, or babysitting). If you wish, you can provide the money for the IRA instead of using the child's earnings.

Starting an IRA at an early age can build a substantial nest egg. If an 18-year-old invests $2,000 annually in an IRA through age 25, with annual return averaging 10%, by age 65 his or her IRA will exceed $1 million. Not a bad return for a $16,000 investment! If your child waited until age 25 to start contributing to an IRA, he or she would need to invest $2,000 a year until retirement to have $1 million.

While the main benefit of starting an IRA early in life is the value of compounding, other benefits include establishing a savings habit, planning for long-term goals, and getting a tax deduction for the contribution. The drawbacks of an IRA must also be considered. Under current tax law, any withdrawals prior to age 59-1/2 are generally subject to a 10% penalty in addition to the income tax due.

A Roth IRA may be an even better option for your working child. While there is no tax deduction for the contribution made to a Roth, the account grows tax-free. Qualified withdrawals will be completely tax-free rather than subject to income tax like withdrawals from a regular IRA.



Chuckle of the Month

Intaxication: Euphoria at getting a refund from the IRS, which lasts until you realize it was your money to start with.



ONLINE ADVI$OR is issued monthly to provide useful information. Return to this site every month for helpful tax-cutting suggestions, business information, and financial planning tactics.

The information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.

If you would like more information on anything in ONLINE ADVI$OR, or if you'd like to be on our mailing list to receive other tax, business, or financial planning information from time to time, please contact our office. We're here to help you minimize your taxes, manage your business more profitably, and identify financial planning strategies suited to your situation.


Copyright 1998 Richard C. Woodbury P.C. CPA