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May 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

* May 15 - Deadline for calendar-year exempt organizations to file 1999 information returns.

* May 31 - Deadline for IRA / SEP / SIMPLE / Roth / Education IRA trustees to file annual statements (Form 5498) with the IRS, with copies to participants.

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

Audit rates reveal surprises

Low-income taxpayers faced a higher audit rate in 1999 than other income groups. One in every 73 tax returns reporting income below $25,000 was examined by the IRS. The second highest audit rate was for returns reporting income of $100,000 or more, with one in every 88 returns being examined.

The added scrutiny of low-income returns is the result of a five-year program designed to eliminate fraud in claiming the earned income tax credit. The earned income credit can be claimed by working, low-income families with children.



Summertime tax planning can cut your tax bill

Summer's here, but that doesn't mean your tax planning should take a vacation. Here are some ideas for summertime tax savings.

* Give your kids a summer job in your business. Let's say you employ your teenage daughter in your company. You can deduct her salary as a business expense, and she'll pay no income taxes on annual earnings up to $4,400. Above that amount, she'll start paying taxes at a 15% rate. What's more, you can still claim her as a dependent as long as you provide more than half her support and she is under age 19, or is a full-time student under age 24. To avoid challenges, keep good records and document that the wages you pay her are reasonable for the work performed.

* Don't overlook tax opportunities if you rent out your vacation home. If you rent it for 14 days or less in a year, the rental income is tax-free and needn't be reported. You can treat the property as a second home and deduct property taxes and mortgage interest as you do for your principal home. If you rent the home for more than 14 days in a year and don't use it personally, it is treated as a business and the rental income is taxable. But you can also deduct depreciation, maintenance, utilities, advertising, and other costs of renting it out. If you use the home for personal vacations and rent it out for part of the year, the expenses you can deduct depend on the number of days the home is used for each purpose. And remember, the rules apply to a beach cabin, a mobile home, or even a boat, as long as it has a sleeping area, a bathroom, and kitchen facilities.

* If travel figures into your summer plans, there may be tax savings by combining business and pleasure on the same trip. Within the U.S., if the primary purpose of the trip is business and you add on a sidetrip or an extra few days for pleasure, you can deduct all the travel costs to and from your business destination and all other business-related costs. The only costs you can't deduct are those that relate to the pleasure portion. But if the primary purpose is for pleasure, and you conduct a little business while you are there, you can only deduct your expenses while you are actually doing business at your destination. If you travel outside the U.S., the rules are a little more complicated. The amount you can deduct depends on how much of the trip is considered to be for business purposes.



New Business

IRS releases auto depreciation limits for 2000

Depreciation limits for business automobiles placed in service in 2000 will be similar to limits for 1999, according to the IRS. The only change is a $100 drop for depreciation in year two. The 2000 limits will be $3,060 for the first year, $4,900 for the second year, $2,950 for the third year, and $1,775 for every year thereafter.



Smart Business

Bartering can be beneficial -- but it's not tax-free

People have been bartering for thousands of years, and the transaction is still basically the same: you provide someone with a product or service, and they provide a product or service in return.

For example, say a printer and an auto mechanic want to barter services. The printer might provide the mechanic with advertising fliers, and the mechanic might repair the printer's delivery van. Or, instead of bartering directly, the printer might join a barter exchange. In that case, the printer would receive barter credits (or barter dollars) in return for providing printing services to members of the exchange. The printer could then "spend" the barter dollars on products or services provided by other exchange members.

Individuals often trade services, but bartering is especially popular with businesses. If cash is tight, bartering can be a good way for your company to obtain needed products or services. Bartering can also help you dispose of excess inventory or occupy unused production time. A satisfied bartering partner might even refer cash-paying customers.

Contrary to what many people think, bartering doesn't offer any tax advantages. According to the IRS, you earn income equal to the fair market value of any bartered property or services that you receive. You also earn income as soon as you receive barter credits, even if you don't actually "spend" those credits until a later year. If you're a member of a barter exchange, the exchange must provide you (and the IRS) with Form 1099-B, reporting the value of the property, services, and barter credits that you received during the year.

If you have barter income, remember that you must pay tax on that income in cash. So consider putting aside some money during the year to cover the bartering part of your tax bill. If you barter extensively, you also may need to begin making quarterly estimated tax payments or increase the amount of your current estimates.

Bartering can be a good supplement to your cash business, as well as an enjoyable way to profit from your skills or hobbies. But bartering isn't always as simple as it seems. If you have any questions about the tax or business aspects of bartering, give us a call.



New Financial Strategies

Get help with your retirement planning

If you're looking for a little help with your retirement planning, check out the new service just launched by the Social Security Administration.

The agency's Web site now offers three calculators to help you determine various financial outcomes related to your social security benefits. For example, you can check how your benefits will vary at different retirement ages or how changes in income will affect your future social security benefits.

The new service is intended to encourage people to get an earlier start on their retirement planning. Check it out at



How to cope financially when a spouse dies

The worst possible time to acquaint yourself with the family finances is after the death of a spouse. Too often, just a little forethought and planning could have saved hours of difficult work. The following is a checklist of important financial matters to go over with your spouse now.

* Do you know where all your assets are? Make a list together and update it as necessary.

* Do you understand each type of investment that you have? If not, learn about them.

* Do you know where your current wills are located and what they contain? Have your will reviewed by an attorney if you have moved to a different state since your last one was written; what worked in one state may not work in another.

* Do you know the location of your current life insurance policies? Are they adequate? Remember that loans taken out against a life insurance policy can decrease the proceeds available to the beneficiary.

* Make sure each spouse has a credit rating in his or her own name. Survivors have been denied credit because they lack an official credit history.

If your spouse is uneasy discussing this subject, or insists that he or she alone should handle the family finances, learn what you can on your own by going to the family lawyer and accountant. Review last year's tax return to familiarize yourself with family income and its sources. Check your local bookstore for a basic book about types of investments.

If you have already lost your spouse and find yourself hopelessly mired in a financial situation you don't understand, take things one step at a time. In the short run, stick to sound investments like certificates of deposit and U.S. Treasury bills that mature at staggered times so that cash will be available on a periodic basis. This is no time to make major decisions such as whether to sell your home or start a business. Wait at least six months to a year before tackling any major financial changes. Locate a trustworthy advisor you can turn to until you have a better understanding of your affairs.

Coping with the death of a spouse is never easy, but planning can help minimize the difficulty of dealing with the associated financial matters.



Chuckle of the Month

Some bosses have a way with words in evaluating employees, as these actual comments made on evaluation forms demonstrate:

"He doesn't have ulcers -- he's a carrier."

"If you see two people talking and one looks bored, he's the other one."

"When his I.Q. reaches 50, we should sell."

"His people would follow him anywhere, but only out of morbid curiosity."

"He donated his brain to science before he was finished using it."

"If he were any less intelligent, he'd have to be watered twice a week."

"He is so dense that light bends around him."

"If you stand close enough to him, you can hear the ocean."

"She would argue with a signpost."



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