Major Tax Deadlines
For January 2003
* January 15 - Final 2002 individual estimated tax payment is due, unless
2002 tax return is filed and taxes are paid in full by January 31, 2003.
* January 31 - Employers must provide 2002 W-2 statements to employees.
* January 31 - Payors must provide 2002 Form 1099s to payees.
* January 31 - Deadline for employers to file Form 941 for the fourth quarter of 2002 and pay any tax due.
* January 31 - Employers must generally file 2002 federal unemployment tax returns and pay any tax due.
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, or if you owe $2,500 or less for the calendar quarter.
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
You can contribute more to retirement plans this year
Retirement accounts remain one of the best ways to cut your income tax bill and let your investments grow tax-deferred. The 2001 Tax Act increased the amount you can contribute to plans. The higher limits phase in over several years. Here are some of the changes that take effect for 2003.
* The maximum contribution to a 401(k), 403(b), or salary-reduction SEP plan increases to $12,000 for 2003. Workers 50 and older can contribute an extra $2,000 for a total of $14,000.
* For 2003, the limit for SIMPLE contributions increases to $8,000, and the catch-up limit for employees 50 and older increases to $1,000.
* The IRA contribution limit remains at $3,000, with a $500 catch-up limit for workers 50 and older. If you didn't contribute to your IRA last year, there's still time to cut your 2002 tax bill. You can make a 2002 IRA contribution until April 15, 2003.
For more information about retirement plan contributions, contact our office.
Take tax breaks for supporting an elderly parent
Are you providing financial support for an elderly parent? If so, you could be eligible for tax breaks to help ease the financial burden.
First, check whether you can claim your parent as a dependent. To qualify, you must provide more than half your parent's support for the year and meet several other tests. Sometimes a little creative planning is needed to meet the support test. But if you can claim a dependent exemption, it could be worth as much as $3,000 for 2002 and $3,050 for 2003.
* Exemption. Often several siblings jointly care for a parent or relative, so no single person provides more than half the financial support. But if all the tests are met, the group can still designate one person from the group to receive the dependent exemption. If you use this approach, consider having the exemption go to the person who can capture the maximum tax savings.
* Tax credit. You might be able to claim a dependent care credit if you pay someone to take care of an infirm relative so that you can work. The credit allows you to offset a percentage of your expenses against taxes. To qualify, your relative must meet some, but not all, of the dependency tests.
* Deduction for medical expenses. If you itemize deductions, don't overlook the medical expenses you pay for an elderly parent. You can deduct medical expenses to the extent they exceed 7.5% of your income. By adding the expenses paid on behalf of your parent to your own, you may be able to exceed the income threshold. Here again, you must provide more than half your parent's support and you must meet certain other tests.
* Filing status. Finally, if you're single and supporting an elderly parent, you might qualify to file as head of household. If you do, you'll enjoy lower tax rates.
If you're supporting an elderly relative, tax planning can help you maximize the tax breaks. Contact us if you would like our assistance.
IRS warns taxpayers about home-based business scams
Tax scams have proliferated in recent years. One scheme involves fraudulent home businesses. Promoters of home-based business schemes will tell you that you can deduct most or all of your personal expenses on your income tax return.
In fact, personal expenses are generally not deductible except for certain itemized deductions, such as medical expenses, mortgage interest, property taxes, and charitable donations. To qualify as legitimate business expenses, your business must have a legitimate business purpose and a profit motive.
In response to the growing number of tax scams, the IRS has issued the following warning to taxpayers. Tax evasion schemes can be very costly. Falling for one of these scams may subject you to interest and penalties on top of the taxes you'll end up owing.
Before you invest in any business, it's always a good idea to discuss the proposed venture with your advisors. If you would like assistance with evaluating a business opportunity or with legitimate tax planning, please call our office.
Prevent a partnership failure
Many partnerships are formed without giving enough thought to potential problems that could develop. Before you enter into a partnership, here are some questions you should ask yourself.
* Why do I want a partner? Maybe there are alternative ways to solve your problems. For example, if you're feeling overworked, do you really need a partner? Or can you hire an employee to share your duties and responsibilities. Perhaps better time management skills are the answer.
* How well do I know my potential partner? Consider his/her personality, state of health, age, family status, lifestyle, and anything else that may affect your partnership. A period of internship with your company might allow you both to get to know each other better and evaluate how well you work together in your business.
* Has my potential partner ever been in a partnership? Find out about previous business relationships your partner has had. Why did they end?
* Do we have compatible business goals? For example, do you agree upon the amount of debt your business should carry? Are you in agreement about cash distributions from the partnership?
* What is my potential partner's work ethic? For example, if you are a workaholic and your partner believes in extended business lunches, you may be setting yourself up for a disaster.
* How well will my prospective partner get along with my employees? Again, a trial period may bring to light problems you never considered before you enter into an agreement that could prove costly to both you and your company.
If you are considering adding a partner, we can act as your sounding board. Give us a call.
What's New in Financial Strategies
Stock market slump wreaks havoc with prepaid tuition plans
Some parents and grandparents have turned to tax-advantaged Section 529 prepaid tuition programs to save for their children's education. Twenty states now offer prepaid tuition programs.
These programs are designed to hedge against inflation. You can purchase tuition credits, at today's rates, that your child can redeem when he or she attends school. The sponsoring state invests contributions with the intent of earning a high enough return to cover tuition costs when the child actually attends school.
The slumping stock market has decreased investment returns while, at the same time, tuition prices are soaring. Now some states fear that their plans may be unable to cover the tuition costs of their participants.
To compensate for lower returns, some plan sponsors are increasing the price of tuition credits for new enrollees. Others have told participants that future benefits may cover less than full tuition.
Take steps to improve your financial health in 2003
To get ahead, you need to pay attention to your finances. Here are six steps to improved financial fitness in 2003.
1. Cut credit card interest. Usually your most expensive debt is on your credit card. Make a list showing the amount owed and the interest rate for each credit card. Look for ways to reduce the highest rate debts, such as consolidating balances onto a low rate card. Could you take out a home-equity loan and use the proceeds to pay down your credit cards? Interest on a home equity-loan is deductible whereas credit card interest is not, but beware of putting your home at risk by burdening it with too much debt.
2. Evaluate your home mortgage. How does the interest rate compare to current rates? Look into a 15-year mortgage. For a slightly higher monthly payment than a 30-year mortgage, you'll get a lower interest rate and a sizable reduction in interest paid over the life of the loan.
3. Catalog your financial assets. List the value of your bank accounts, bonds, stocks, and mutual funds. Calculate the return you earned on each investment last year. Identify the high and low performers and make changes where appropriate.
4. Review your investment allocation. Check how your investments are allocated between stocks, bonds, and relatively safe investments such as bank CDs and money market funds. Is your allocation appropriate for someone of your age, financial position, and appetite for risk?
5. Check your insurance coverage. An annual insurance checkup makes good financial sense, and you can do much of it yourself. The goal is for you, with the assistance of your insurance advisor, to identify and obtain adequate coverage without paying premiums for unnecessary protection. Your review should include life, health, disability, long-term care, auto, and homeowner's insurance.
6. Read your will. You may be surprised at how many years have passed since it was written or last updated. And you'll probably be equally amazed at how circumstances have changed, both for you and your beneficiaries. Keeping your will and estate planning documents up to date is your only assurance that you won't pay any more tax than necessary and that your wishes concerning assets will be followed.
Going through the steps above will probably make needed changes evident to you. We are available to help you with your tax and financial planning. Contact us for any assistance you need.
Chuckle of the Month
According to one humorist, "The government deficit is the difference between the amount of money the government spends and the amount it has the nerve to collect."
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 ADVISOR, or for assistance with any of your tax, business, or financial strategy concerns, contact our office.