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Houghton, MI 49931 USA
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Welcome to the March 2001

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 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 contribute to certain retirement accounts and still receive a tax deduction for 2000.

For April 2001

April 2
Deadline for taking your first required distribution from IRAs and qualified retirement plans if you turned 70 ½ last year and postponed taking your 2000 withdrawal until 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 audit rate drops again

According to the IRS, you are less likely to be audited now than five years ago. Statistics just released by the IRS show that audits of individual returns declined from 1.68 percent in 1995 to 0.49 percent in 2000. The percent of high-income individuals audited declined even more dramatically. Collection activity has decreased too. The total number of IRS liens, levies, and seizures dropped from 3.5 million in 1995 to approximately 500,000 in 2000.

Budget cuts, antiquated computer equipment, and additional burdens placed on the IRS by 1998 legislation are all cited as reasons for this sharp decline.

Even though your chances of being audited by the IRS have declined, the penalties for not complying with the law remain substantial. Our job is to help you file a complete and accurate return and to ensure you pay no more tax than the law requires. Call us for any assistance you may need.

Spring cleaning: What records to keep and what records to toss

Deciding which records to keep and for how long can be a confusing process. A well-organized system will help you retain important paperwork and minimize the clutter. Use legal requirements and your common sense as guidelines for how long to hold on to records.

* Tax records. You should keep tax records for at least as long as it is possible for the IRS or other tax authority to audit your return. Generally, the IRS has three years after the return is due or filed, whichever is later, to examine your return and assess additional tax. This is called the "statute of limitations."
If you've made a major error on your return (defined as omitting more than 25% of your gross income), the IRS has six years to examine your return. To be on the safe side, keep your tax records for seven years after a tax return is filed. There is no statute of limitation for fraudulent filing or for returns that are not filed at all.

The IRS does not require that you keep your records in any particular way. The only requirement is that you keep your records in a manner that allows you and the IRS to determine your correct tax liability. Keep checks, receipts, and other records that document the income and deductions you reported on your tax return. Copies of tax returns themselves should be retained permanently.

* Investment records. Investment records generally should be kept until the investment is totally liquidated, plus a period of seven years. For certain property sales, records should be kept permanently. You can usually toss monthly or quarterly investment statements if you receive a comprehensive annual statement.

* Other records. Important records, including vehicle titles, will and trust documents, insurance policies, contracts, and birth and marriage certificates, should be kept in a safe place. An inventory of your valuable property, along with photographs or a video, should be made and kept current, in the event your house is robbed, damaged, or destroyed.

Before you purge documents, review them for their importance. Call us if you have questions about retaining records.

New Business
Congress repeals OSHA's new ergonomics rule

Congress just repealed the controversial new Occupational Safety and Health Administration (OSHA) ergonomic rules. Under the repealed rules, employers would have been required to provide employees with information about repetitive strain injuries, take steps to rid the workplace of injury-causing conditions, and provide medical care and paid leave for affected workers.

Smart Business
Keep your business healthy with a regular checkup

Every year thousands of new businesses are started. Yet within five years, about 80 percent of them fail. Whether you have been in business for a few years or for many years, a regular business checkup might help you remain among the successful few.

Does your business have a plan?
Successful businesses recognize the importance of a written business plan. The process of writing a plan can help you identify potential problems as well as opportunities. A written plan also forces you to think about where you have been and where you are going.

Is your form of doing business still appropriate for you?
The tax and nontax consequences can be significant. The basic forms of business include sole proprietorship, partnership, corporation (both "C" and "S"), and limited liability company.

Does your company hire and retain good workers?
High employee turnover often results in high customer turnover. Money alone does not make happy employees. Find out what's important to your employees. Flexible hours, casual dress, or benefits can be as important to employees as salary.

How is your cash flow?
A company can have a healthy profit picture and at the same time have a critical cash flow problem. Look for ways to speed collections, such as sending invoices when merchandise is shipped, giving early payment discounts, and imposing finance charges for late payment. Don't pay bills earlier than necessary, but pay early enough to take advantage of cash discounts offered by your suppliers. Consider establishing lines of credit before you need them.

Is your inventory excessive?
Identify suppliers that can ship quickly to reduce the amount of inventory that you carry. If you have inventory that hasn't moved in a while, you may want to give it to a charitable organization and get a tax deduction for your donation.

Who will your next customer be, and what must you do to win or keep that customer?
Never assume that growth is automatic or that it will last forever. The success of most businesses can be attributed to repeat customers. Conduct customer surveys. Train employees to listen to customer feedback, both good and bad. Offer customer discounts or privileges to preferred customers.

Take the time to identify areas in which your business can improve. Call us if you would like assistance with your business checkup.

What's New in Financial Strategies

Saving for college: Have you looked at this new option?
There are many ways to save for college, but one thing is certain: it is never too early to start. One relatively new investment plan designed to help families save for college is a qualified state tuition program (QSTP), or "Section 529" plan. It offers a versatile way to finance higher education with some nice tax advantages.

There are two general types of Section 529 plans: prepaid tuition programs and college savings plans. Prepaid tuition programs are designed to hedge against inflation by paying for future in-state tuition costs in today's dollars. College savings plans are state-sponsored, tax-deferred investment plans that allow the beneficiary to use funds at any accredited institution of higher learning in the United States. Qualified expenses are not limited to tuition under college savings plans.

While each program varies from state to state, there are certain elements common to each.

* Anyone may establish an account in a qualified state tuition program on behalf of a designated beneficiary, regardless of the relationship with the beneficiary.

* The donor's nondeductible contribution(s) are held in a special account to be used to cover future higher education costs for that beneficiary.

* Earnings grow tax-free until they are withdrawn from the account. If funds are withdrawn for qualified higher education expenses, earnings are taxed at the student's tax rate, generally a lower rate than the donor's rate.

* Penalties apply on nonqualified withdrawals.

The donor is not permitted to direct investments, but the donor remains in control of all withdrawal decisions.

Section 529 plans are one of many choices for college funding. You should chart your course for college funding after carefully reviewing the full range of choices. Call us; we would be happy to review all your options with you.

Is your investment house in order?
The world didn't end in the year 2000, but investors lost about $3 trillion in the U.S. stock market. Now might be a good time to review and rebalance your investment portfolio in order to protect and grow your hard-earned money.

* Protect the foundation

The year 2000 reinforced how important it is to diversify your portfolio to minimize your risk. Diversification means choosing investments in several asset classes. Risk refers to the possibility that your investments could decline in value or fail to provide a return greater than the rate of inflation.

While there is no single asset mix appropriate for all investors, most people should have some combination of stocks, bonds, and cash in their portfolio. That's because stocks and bonds often react differently in the same economic climate. To select the mix that is right for you, you need to determine the following:
1. What you are ultimately going to use your money for.
2. How much you will need.
3. When you will need it.
If you don't take the time to map out these three items, it can be difficult to make sound investment choices. With well-defined goals, you can place your money in the right mix of investments (diversification) and keep an appropriate balance between risk and return.

* Look inside and outside

Consider assets both inside and outside your retirement plan as you rebalance your portfolio. They are parts of the same picture. To ignore this connection could decrease your diversification and increase your risk.

Be tax-smart with your choices. For example, investments like tax-free municipal bonds and tax-deferred annuities should never be held in retirement accounts. Such investments enjoy a tax-favored treatment that is wasted when you hold them in a 401(k) or IRA. You will ultimately end up paying ordinary income tax on income that otherwise wouldn't have been taxed, or you'll sacrifice earnings for a tax benefit you never receive.

* Be aware of the tax bite

Don't ignore income taxes as you rebalance your portfolio. If you sell assets that you hold outside a retirement plan, the tax man will want his share.

* Get a good night's sleep

You have many investment choices in creating a balanced portfolio. There is also a psychological element in a well-balanced portfolio. Never put your money in investments that you don't understand or that create too much stress for you. Investments with less risk have historically had a lower rate of return. You may have to save more money or save money for a longer period of time to meet your goals, but the reward might be a good night's sleep and less worry.

Many things contribute to a well-balanced portfolio, and your investment decisions today can have a long-term impact on your financial future. So take time now to review your portfolio and get your investment house in order.

Chuckle of the month

Just in case

Two gas company servicemen, one seasoned and the other a young trainee, were out checking meters in a suburban neighborhood. They parked their truck at the end of the alley and worked their way to the other end. At the last house, a woman looking out her kitchen window watched the two men as they checked her gas meter.

Finishing the meter check, the supervisor challenged his young co-worker to a foot race down the alley back to the truck to prove that an older guy could outrun a younger one.
As they came running up to the truck, they realized the lady from that last house was huffing and puffing right behind them. They stopped and asked her what was wrong.
Gasping for breath, she replied, "When I saw two men from the gas company running as hard as you two were, I figured I'd better run too!"

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