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Houghton, MI 49931 USA
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October 1998

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 for October 1998

October 15 - Due date for filing 1997 individual tax returns for those with a second extension. No additional extension in available.

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

"Nanny tax" threshold increases for 1998

If you employ household help and pay more than $1,100 in wages during 1998, you are responsible for payroll taxes on those wages. (The 1997 threshold was $1,000.) Another change for 1998: You now have to prepay the payroll taxes on these wages through quarterly tax estimates or by increasing your withholding. That's a change from last year's rules that allowed you to pay the payroll taxes in April when you filed your own income tax return.


Year-end planning required for education tax breaks

Here are some planning tips to help you make the most of the new tax breaks for post-secondary education expenses.


New Business

"Interest-netting" law could benefit your business

The IRS Restructuring and Reform Act of 1998 contained a provision that could be a tax-saver for your business.

For years, the IRS has charged higher interest rates on tax underpayments than it paid on overpayments. If your business had equal amounts of underpayments and overpayments for a tax period, you could have owed the IRS money just because of the interest rate differential.

Effective for interest applying to periods after July 22, 1998, the new law will allow "interest netting." If certain conditions are met, the new law can also be applied retroactively to prior years, and refunds can be obtained.

For further details or for a review of prior years for possible refunds, give us a call.


Smart Business

Check for Year 2000 problems now

Year 2000 (Y2K) computer problems are not just a concern of big business. Every business is potentially affected, sometimes in unexpected ways.

For example, say that your company recently installed a computer network with new hardware and software. The hardware and software vendors have certified that the system is Y2K compliant, and it has passed all Y2K tests. You feel confident that you can begin the new millennium without worrying about computer problems.

But are you aware that microchips are an integral part of machines as varied as elevators, burglar alarms, time clocks, and sprinkler systems? Microchips are tiny computers that often depend on dates. If a machine or piece of equipment was made after 1975, thereís a good chance that it has a microchip embedded in it. No one can be sure how many of these chips will fail on January 1, 2000, or how they will fail.

How did the Y2K problem come about? In the early days of computers, memory was limited and very expensive. One tactic for programmers was to drop the century digits in any date field. As a result, the computer will read the "00" for the year 2000 as the year 1900 - a mistake that could cause any number of problems.

What should your business be doing to deal with the problem? First, make Y2K a high priority over the next year. Realize that solutions may be costly. Identify and rank potential dangers. Concentrate on those applications that absolutely must work for you to continue in business.

Communicate with suppliers and customers, prepare a contingency plan, and think defensively. For example, you might want to arrange to move key shipments from January 2000 to December 1999.

One bit of good news: The IRS will allow a current-year deduction for costs related to making your computers Y2K compliant.

Call if you would like assistance identifying and finding solutions for Y2K problems in your business.


What's New in Financial Planning

New law will benefit many homeowners

Private Mortgage Insurance (PMI) is required by many lenders if you buy a home with less than a 20% down payment. The premium for this insurance is added to your monthly payment.

A new law just passed lets you cancel PMI when equity in your home reaches 20% if certain other requirements are met. When your equity reaches 22%, the lender is required to automatically cancel the insurance.

The new law does not solve all the problems with PMI. For example, it doesn't apply to mortgages in existence prior to the law.

If you're paying PMI premiums, don't be complacent. Monitor the situation and take the initiative to cancel the insurance as early in your mortgage as you can.


Are you serious about saving?

A survey of over a thousand retirement-age adults asked "What would you change if you could turn back the clock?" Fifty-one percent said they would have saved more money.

How much should you save?
Even if you save only a dollar a day, you'll have $18,045 in 20 years (assuming an eight percent return on your investment). Socking away more than that - say, ten percent of your after-tax income - is a reasonable goal for most people. Doing so could enable you to weather layoffs, enjoy well-earned vacations, and spend your retirement in comfort. Failure to save, on the other hand, could turn a minor economic setback into financial devastation.

Seven ways to save more
Okay, you know it's a good idea to save. How can you get serious about it? Here are seven relatively painless ways to increase your savings:

1. Cancel your high-interest credit cards. Keep just one card in your wallet for emergencies.

2. Make a list of your outstanding credit card debts, and pay them off one by one.

3. Contribute the maximum amount possible to a company-sponsored 401(k) or Keogh plan.

4. When you get a raise, consider putting all the money - or a portion of it - into savings (such as an individual retirement account).

5. Set clear and realistic financial goals, and decide how much you'll need to save to meet them.

6. Make bigger down payments. Whether you're financing a new car or remodeling your basement, pay as much up front as you can afford. You'll save a bundle on interest charges. For example, at 12 percent interest, financing $5,000 over three years costs you $979 in interest.

7. When at all possible, pay in cash.


Chuckle of the Month

All the recent movies about asteroids attacking earth brings to mind a little-known oddity about odds. Even though a major cosmic collision might occur only once in a million years, a single event could kill billions. So statistically, the average person is at least twice as likely to be killed by an asteroid as to die in an airplane crash. Proof, as someone said, that "if you torture the data long enough, they will confess to anything."


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.

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Copyright 1998 Richard C. Woodbury P.C. CPA