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April 2000

Welcome to ONLINE ADVI$OR.

Our monthly online newsletter provides useful tax, business, and financial strategy 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 strategy concerns, contact our office.



Major Tax Deadlines

* April 17 - Individual income tax returns for 1999 are due.

* April 17 - 1999 partnership returns are due.

* April 17 - 1999 annual gift tax returns are due.

* April 17 - Deadline for making 1999 IRA contributions.

* April 17 - First installment of 2000 individual estimated tax is due.

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

April 17 is filing deadline for most taxpayers

Because April 15, the usual tax return filing deadline, is on a Saturday this year, taxpayers get two extra days - or until Monday, April 17 - to file their returns. Taxpayers who file at the Andover, Massachusetts, IRS office have until Tuesday, April 18, to file. The reason? April 17 is Patriot's Day, a state holiday in Massachusetts, so the filing deadline is extended still another day.

If you won't be able to file your return by the deadline, be sure that you request an extension of time from the IRS. To get additional time, you must file Form 4868 with the IRS by April 17 (or 18). The extension is automatic and you are not required to explain why you need extra time. The extension gives you until August 15, 2000, to file, but it does not eliminate interest and late payment penalty charges for taxes you still owe.

You may want to request an extension even if you can file your return and pay the full amount of your taxes by the due date. For example, if you need to use your money elsewhere and would have to borrow at a rate that's greater than the IRS will charge, you may want to postpone your payment until the extension deadline. The automatic extension also postpones until the extension due date the deadline for contributing to deductible retirement plans (excluding IRAs).



Tax law gives disabled taxpayers some breaks

Congress has enacted a number of tax breaks to help ease the pain and suffering that individuals often endure when struggling with a disability. If you or a family member is handicapped or afflicted with a physical or mental disability, you should be aware of the following benefits.

Health care benefits. Reimbursements you receive from your employer's health plan to cover hospital stays, doctor visits, prescription medications, and other medical expenses are generally not subject to federal taxation.

Worker's compensation income. You do not have to pay income tax on payments you receive on account of a job-related illness or injury.

Social security disability benefits. If you have a physical or mental impairment that prevents you from working for at least one year, you could be eligible for social security disability benefits. These benefits are generally tax-free to lower-income recipients.

Supplemental social security benefits. If you are disabled, with limited income and few assets, you may be entitled to subsidized housing, food stamps, and free medical care from the government. You do not have to pay tax on any SSI benefits you receive.

Veteran's benefits. If you served in the armed forces and are a veteran receiving disability payments from the government, your payments are not subject to federal tax.

Retirement accounts. Most people who withdraw money from their qualified retirement plan before age 59-1/2 must pay a 10% penalty (in addition to regular income tax) on the amount withdrawn. If you are disabled, you do not have to pay the 10% penalty tax.

Tax credits. You may be eligible for a disability tax credit and a dependent care credit, depending on your circumstances. Small businesses can also claim a credit for amounts spent to improve access for the disabled.

Deductions. For disabled individuals, the usual medical deductions are expanded to include costs for special schools and modification of home and vehicles to make them accessible. A disabled person who works can deduct expenses that enable him to work, such as costs for a sign language interpreter or a seeing-eye dog. Blind individuals are also entitled to a higher standard deduction.



New Business

Check out this new stamp option

Last August, the U.S. Postal Service approved computer postage. Instead of buying stamps or filling a postage meter, your business may find it easier to get your postage via e-mail.

Postage can be ordered from these Web sites:

Small businesses are finding it convenient to use e-mail postage, which lets you download postage as you need it, with no trips to the post office and no special equipment or leasing fees.



Smart Business

How to succeed in business on the Internet

If you run a business, you're probably inundated with advice about the Internet and the World Wide Web. At times like these, it helps to step back and review some of the basic rules for online success.

Fit the Internet to your business, not the other way around. The Internet is a powerful tool, but you don't need to take advantage of every Internet capability simply because it's there. For example, e-commerce is currently a hot area, but online product sales aren't appropriate for every company. Your business might be able to benefit from something as simple as a private e-mail system or bulletin board (an "Intranet"), which would allow customers and employees to communicate more effectively.

Don't try to accomplish everything at once. If you are faced with several possible Internet projects, start with activities that are most likely to lower costs or expand existing sources of revenue.

Remember the business basics. A Web site is an investment, and it should generate a reasonable financial return. If it doesn't, something is probably wrong. Also, major business projects often involve hidden costs, and the Internet is no different. For example, by posting your catalog online you might be able to lower your printing and postage bill, but you also might incur additional expenses for computer support and special Web graphics. Monitor costs carefully.

As always, the customer comes first. An online visitor who gets confused or frustrated is likely to be gone in the click of a mouse. And an ugly Web site with a poor design sends the same bad message as a messy store or office. Visit your own site at least once a week, and try to view it through the eyes of a customer. If you invite visitors to submit e-mail feedback or questions, respond at least as quickly as you would to a phone message. Consider posting at least one telephone number with a live person at the other end.



New Financial Strategies

New law repeals social security earnings limit

Congress has just passed legislation that will allow those aged 65 through 69 to continue working and still receive their full social security benefits. President Clinton has said he will sign the bill into law.

Previously, social security benefits would be reduced $1 for every $3 earned above $17,000 this year. (Once age 70 is reached, there is no earnings limit.)

The change will be retroactive to January 1, 2000. Those whose 2000 benefits were reduced because of the old earnings limit will receive refunds.



Look carefully before you invest on margin

As the bull market surges forward, more and more Americans are investing in individual stocks -- not just mutual funds and certificates of deposit. As people look for additional ways to participate in the market's phenomenal growth, the use of margin loans is becoming more popular.

What is a margin loan? It's similar to a home equity line of credit. With an equity line of credit, you pledge the equity in your home as collateral, and the bank lends you funds based on that collateral. With a margin loan, the collateral is your securities -- stocks, bonds, or mutual fund shares, for example.

Here's how it might work. Let's say you invest $10,000 in cash and borrow another $10,000 on your margin account to buy stock worth $20,000. If the stock rises to $22,000 and you sell it, you would repay the margin loan and have a profit of $2,000 on your $10,000 investment (20%). If you hadn't taken out the margin loan and, instead, paid $20,000 in cash for the stock, your gain of $2,000 on that $20,000 investment would have been only 10%. (This example does not reflect interest on the loan, commissions, capital gains taxes, or other expenses.)

Of course, stocks can also fall in value. Let's say the value of the stock in the above example dropped to $18,000. Your equity in the stock would have fallen to $8,000 (market value minus the loan balance). This means the stock would have fallen 10% in value, but your loss would have been 20% ($2,000/$10,000). Borrowing to purchase the stock would have actually amplified your loss.

Margin loans are also subject to margin maintenance calls. Brokers generally require that you maintain a certain ratio (often 30 to 35%) between your equity and the outstanding balance in your margin account. If your stocks drop substantially, you may be required to add more cash to your account to keep the ratio in line. If you're going to buy on margin, it's a good idea to maintain a reserve of cash for possible margin calls.

Generally speaking, margin borrowing is for those who can tolerate substantial risk, who hold a solid and diversified portfolio, and who have reserves they can draw upon to cover margin calls.



Chuckle of the Month

From the mouths of babes:  A little girl in kindergarten was intent on something she was doing at her desk. When the teacher inquired, the little girl explained that she was drawing a picture of God. The teacher said, "Dear, nobody knows what God looks like."

The little girl replied, "They will in a minute."



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 strategies.

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 strategy 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 strategies suited to your situation.


Copyright 1998 Richard C. Woodbury P.C. CPA