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March 1999

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

March 1 - Payors must file information returns (such as 1099s) with the IRS. Magnetic media filing is required if filing more than 250 returns.

March 1 - Employers must send W-2 copies to the Social Security Administration. Magnetic media filing required for more than 250.

March 1 - Farmers and fishermen who did not make 1998 estimated tax payments must file tax returns and pay taxes in full.

March 15 - 1998 calendar-year corporation income tax returns are due.

March 15 - Deadline for calendar-year corporations to elect S corporation status for 1999.

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 revises tables for group term life insurance

Employers can provide up to $50,000 of group term life insurance coverage as a nontaxable benefit for employees. The cost of employer-paid coverage in excess of $50,000 is considered taxable income to the employee and must be reported on an employee's W-2.

Recently, the IRS proposed revising the rates used to determine the amount of income that must be reported when coverage exceeds $50,000. The new rates reflect the decrease in insurance costs resulting from longer life spans.

The proposed rates follow:

Under 25--------------------$0.05
25 to 29------------------------.06
30 to 34------------------------.08
35 to 39------------------------.09
40 to 44------------------------.10
45 to 49------------------------.15
50 to 54------------------------.23
55 to 59------------------------.43
60 to 64------------------------.66
65 to 69-----------------------1.27
70 and above

Employers should take these changes into account and make any necessary payroll adjustments before the proposed July 1, 1999, effective date. For details or assistance, contact our office.

If you can't collect, maybe you can deduct

Bad debts are tax-deductible in the year they become worthless.

Business vs. nonbusiness
A business bad debt is a loss resulting from the worthlessness of a debt that arose from operating a trade or business, or from a debt with a business motive. Examples include losses resulting from credit sales or services to customers and from loans to clients, distributors, and suppliers. A fully or partially worthless business debt is deductible from gross income.

Other bad debts are called nonbusiness bad debts. Examples include losses resulting from personal investments, secondary liability on a mortgage debt, or loans to family members, friends, or a corporation in which the creditor is a shareholder. Such debts must be fully worthless to be deductible, and then they are deductible only as short-term capital losses. The deduction should be accompanied by a description of the debt, name of debtor, efforts made to collect, and an explanation of why the debt is considered worthless.

Whether a loan you make is business-related or not, be sure to document that the debt exists. If the debt turns out to be uncollectible, keep records of your efforts to collect. Otherwise, the IRS may disallow your bad debt deduction.

New Business

IRS releases 1999 car depreciation limits

The IRS has released the 1999 depreciation limits for business cars. First-year depreciation for cars placed in service in 1999 is limited to $3,060, down from the 1998 limit of $3,160.

Limits for the remaining years of depreciation remain the same: $5,000 for the second year, $2,950 for the third year, and $1,775 for every recovery year thereafter.

Smart Business

A business owner's biggest job: picking and training a successor

If you own or manage a closely held or family business and are in your late forties or older, now is the time to start planning for a successor to take over upon your retirement.

The sooner you start, the more problems you can avoid. Estate taxes are complicated and can drain the funds of a family business if tax planning is left until the last minute. Other problems include scheming and fighting among family members, lack of potential successors, and employee morale.

Another reason for starting early is time. Proper grooming of your successor can take several years.

Here are four steps to simplify the transition process in your company:

Step 1: Let everyone know the business will continue.

Surprisingly, a majority of family businesses do not make it to the second generation. Simply letting your family and employees know that you intend to pass along the business can improve the likelihood of a successful hand-off. Dont assume everybody already knows your intentions. Tell them.

Step 2: Seek competent advisors.

The succession process can be difficult if you try to do it alone. Your attorney and accountant can assist you in preparing any necessary documents and can help you develop a written plan that best suits your needs.

Step 3: Select and train your successor.

Choose a successor who will be able to operate the business without you.

Training your successor will take many years. During the formal training period, if not sooner, get your successor involved in working with your suppliers, customers, and outside advisors.

Outsiders can also be a good source of training - particularly if your successor is your son or daughter. Many business owners encourage their children to begin their business careers in other companies to gain broader experience.

Step 4: Allow your successor to become the leader.

Once trained, your successor must be allowed to lead the company. Set a date for making the transition and stick to it.

Many former owners stay with the company in a reduced capacity, assisting with such matters as client relations or long-term planning. After the transition, however, you must allow your successor to make the final decisions.

What's New in Financial Planning

Are Internet stocks too hot?

Alan Greenspan, the Federal Reserve Chairman, compared the current frenzy over Internet stocks to a lottery. There will be a few big winners and a lot of losers.

If you can't resist investing in some of the new Internet companies, at least consider these investment facts.

1. If it looks too good to be true, it probably is. The hot stock tips on Web sites and on-line newsletters are not necessarily based on sound financial information. Check "facts" carefully before you invest.

2. The Internet is likely to thrive, but most Internet companies won't. Revolutionary technologies create successful businesses, it's true. But consider the automobile. In 1900, there were about 100 car companies. How many of them survived? Think about that before buying stock in an Internet start-up.

3. Don't speculate with money you'll need for college educations, retirement, or other important things. If you invest in today's hot Internet stocks, do it with money you can afford to lose. Or at least spread your risk by investing through mutual funds or some other plan of diversification.

Financial planning for married couples doesn't have to be a hassle

If you and your spouse are like most married couples, you probably have two main financial goals: (1) living comfortably today and (2) working towards financial independence. If you frequently argue about money, these goals will be harder to reach.

You can minimize hassles about money by getting your financial life organized.

Set aside a financial work area at home, and stock it with basic equipment like a filing cabinet, tickler file, and in-and-out basket. Identify all of your family's financial chores, such as writing checks, organizing tax information, working with insurance agents, etc. Decide which partner will take responsibility for each task. Rotate jobs, and make sure each spouse is eventually exposed to all financial areas.

Several areas deserve special attention:

For help with any of your financial planning, contact our office.

Chuckle of the Month

A college education will open the door to more opportunities, but you might want to pick your major with care.

As someone said, in college a physicist learns to ask, "Why does it work?" An engineer learns to ask, "How does it work?" An accountant learns to ask, "How much does it cost?" And a liberal arts major learns to ask, "Do you want fries with that?"

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 planninginformation 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.

Copyright 1998 Richard C. Woodbury P.C. CPA