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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

For February 2001February 28  

Payers must file information returns (such as 1099s) with the IRS. (Electronic filers have until April 2 to file.)


February 28  

Employers must send W-2 copies to the Social Security Administration. (Electronic filers have until April 2 to file.)


For March 2001


March 1   

Farmers and fishermen who did not make 2000 estimated tax payments must file 2000 tax returns and pay taxes in full.


March 15  

2000 calendar-year corporation income tax returns are due. 


March 15 

Deadline for calendar-year corporations to elect S corporation status for 2001.

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

IRS simplifies the retirement distribution rules 


Life just became easier for millions of Americans with retirement accounts. The IRS recently announced new rules that simplify the way you are required to withdraw your retirement money

*Age 70 important

Generally, you must begin withdrawing money from tax-favored retirement plans in the year you turn 70 . This includes traditional IRAs, qualified retirement plans, and annuities. It does not include Roth IRAs, and if you're still working at age 70 , it generally doesn't apply to a qualified plan.

If the withdrawal rules apply to you, you can postpone your first withdrawal until April 1 of the year after you turn 70 . After that, you must withdraw a minimum amount each year by December 31. 

*The old rules

Under the old rules, you were required to choose a beneficiary and a method to calculate your minimum withdrawal upon taking your first required distribution. These two choices determined how fast you were required to withdraw money from your retirement accounts. Once you made your initial choices, your decision could not be changed. 

*The new rules

The new rules allow you to change beneficiaries and change previous distribution methods. Now you can use one simple chart to calculate your minimum required distributions. And you have more flexibility in choosing or changing a beneficiary. 

Using the new chart results in a smaller required distribution for most people. Since you aren't taxed on retirement accounts until money is withdrawn, the less you take out, the less tax you pay. This allows more money to be left in your retirement plan to grow, tax-deferred, for your future use or for your heirs.

One rule hasn't changed. You can still withdraw more than the required amount, but if you fail to take at least the minimum distribution on time, you must pay a 50% excise tax on the amount that should have been withdrawn. 

Because the old distribution rules were so complex, it was almost impossible for the IRS to enforce this 50% penalty. In addition to creating simplified rules for distributions, the IRS has created a new reporting system that will make it easier to enforce the rules. 

Banks, brokers, and other holders of retirement accounts will be required to report your minimum distribution to you and to the IRS. This will alert the IRS if you fail to make your distribution on time, so they can charge you the 50% penalty. 

While these new rules may make calculating your distributions simpler, other retirement plan rules remain complex, and they differ for each type of retirement plan. We are here to assist you with any of your retirement plan issues. For assistance, be sure to call us.



Look for credits to lower your tax bill 


A wide variety of tax credits are available to individuals and businesses. Overlooking them can mean losing out on tax savings.

Here's a brief, partial listing of credits you may be able to claim on your 2000 return. Be aware that tax credits are subject to an array of limitations and restrictions. Please check for specific details on any credit that you think may apply to you.


*Child and dependent care credit: A credit for certain child care expenses you pay in order to work or go to school.

*Child tax credit: A credit of $500 per year for each child under the age of 17.

*Additional child tax credit: A credit you may qualify for if you have three or more children and do not claim the full $500 child tax credit for each child.

*Adoption credit: A credit of up to $5,000 ($6,000 for a special needs child) for certain adoption expenses.

*Education credits (Hope scholarship and lifetime learning): Credits for qualifying expenses paid for post-secondary education.

*Credit for the elderly or disabled: A credit available if you are over age 65 and meet certain income limitations, or you are permanently disabled.

*Foreign tax credit: A credit for taxes you pay on foreign income that is also subject to U.S. income tax.

*Credit for taxes withheld: A credit for excess social security taxes paid on your behalf when you have more than one employer.

*General business credit: Credits that include the rehabilitation credit, energy credit, and welfare-to-work-credit.

Making the most of credits can be a simple way to reduce the taxes you owe. For help in determining which credits will benefit you, give us a call.



New Business

Transportation benefits can be tax-free


One tax-free benefit businesses can offer employees is helping to pay the costs of vanpooling, transit passes, and parking. If structured properly under a plan, both the employee and the employer can enjoy tax savings when qualified transportation benefits are offered.

For 2001, up to $180 a month of qualified parking expenses can be offered tax-free; up to $65 of monthly benefits for transit passes and vanpooling can be offered.




Smart Business

What does a business need - cash flow or net profit?


If you started a business last year and it now has more cash than you put into it, is it profitable?

According to the way accountants measure things, you have a profit for a given period if you add up your sales, subtract your expenses, and end up with a positive number. If you end up with a negative number, you have a loss.

Unfortunately, adding up your sales is not the same as adding up the cash that came in, and your expenses won't always equal the cash that went out. For example, you have sales without receiving cash by making a sale on account, and you receive cash without having sales when you borrow money or receive a customer payment on account. Likewise, you incur an expense without spending cash when you make a credit purchase or when you record depreciation on the books. You can also spend cash without incurring a current accounting expense when you buy an asset such as a building or a computer.

Cash or profit?

So which do you want - cash or profit? Well, you want both. To keep your business afloat for the short-term, you need cash to pay suppliers and employees (perhaps even yourself). In order to obtain that cash, you may have to expedite collections from your customers, stretch out payments to your suppliers, or borrow from your bank.

Over the long-term, however, you will need to show a profit. In other words, the sales that you ultimately realize in cash must exceed the expenses that you ultimately pay in cash in order to maintain a successful business.



What's New in Financial Strategies


Check the silver lining in the stock market's decline

There may be an opportunity in the recent stock market decline for some IRA owners. 

If you've been considering switching your traditional IRA to a Roth IRA, the market's run-up in 2000 may have kept you from acting because you didn't want a big tax bill.

When you convert a regular IRA to a Roth IRA, you must pay income tax on the IRA's value at that point. But you then enjoy tax-free growth in the Roth IRA if you wait at least five years and reach age 59 . before you take money out.

With today's lower market values, an IRA invested in stocks could be converted to a Roth at a reduced tax cost.

Here's an example:

In March 2000, your IRA was worth $70,000. A Roth conversion at that point would have meant $19,600 in taxes if you're in the 28% tax bracket. If the recent market decline means your IRA is now worth only $50,000, you can switch to a Roth and pay $14,000 in tax - a $5,600 savings.

Don't switch to a Roth, however, without a complete analysis of the regular and Roth IRA for your particular financial institution.





Financial planning is as critical for women as it is for men

When it comes to financial planning and investing, some advice is applicable without regard to gender: start early, contribute to your 401(k) or IRA, control your expenditures, and make investing a habit. However, there may be critical differences between men and women that should be considered when making financial decisions.

For example, life expectancies, compensation levels, and investing styles can be different for men and women. As a result, planning often must be tailored specifically for women. But men also need to pay attention to these issues, because they are likely to affect their mothers, wives, sisters, and daughters. 

Factors to consider

*Lifespan. The first thing to consider is that women live an average of six years longer than men. Consequently, women need to accumulate more money for retirement than the average male. Consider this: The average woman retiring today at age 65 could easily live another 25 years. Without proper planning, a woman could outlive her savings.

*Earnings. Women also tend to earn less than men. Beyond having less cash available for investments, earning less also often results in thinner pensions, smaller social security payouts, and fewer benefits.

*Time Out. Another employment-related issue is that women may take some years off from their jobs to raise a family. Those years out of the workforce can result in decreased pension contributions, decreased pension benefits due to fewer years of service, and the obvious decrease in earnings and savings. In addition to the cost in hard dollars, being out of the workforce often means lost seniority and promotions. These, too, may affect retirement benefits.

*Investments. Investment style is also a consideration. Women tend to invest more conservatively than men. While relative safety may be prudent for some investors, for many younger women, an extremely conservative portfolio may fail to keep up with inflation, let alone accumulate a healthy nest egg.

It is vital that women realize their financial planning needs may be different from those of the men in their lives. For a review of the planning strategies most suited to your situation, give us a call today.




Chuckle of the month


What's the price?

The owner of an eyeglass boutique was training a new clerk. "When you're fitting the glasses," he said, "if the customer asks how much they cost, say '$100.'

"If his eyes don't flutter, say: 'For the frames; the lenses are $150.'

"If his eyes still don't flutter, say: 'Each.' "




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.

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Copyright 1998 Richard C. Woodbury P.C. CPA