Online Advisor - July 2002
Major Tax Deadlines
For July 2002
July 15 Deadline for filing extended 2001 calendar-year partnership returns.
July 31 Due date for filing retirement or employee benefit plan returns (5500 series) for plans on a calendar year.
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
Congress rejects a measure to repeal the estate tax
Despite an effort by Congress to repeal the death tax, the estate tax is not dead. The Senate recently rejected a measure that would have permanently eliminated estate taxes.
As you probably know, last year's tax law made major changes to the estate tax rules that lead up to a one-year tax repeal in 2010. But in 2011, a sunset provision in the law brings back the estate tax with a 55% top tax rate.
The failed measure would have eliminated the sunset provision and would have permanently eliminated the estate tax after 2009. An alternative proposal would have removed the estate tax for all but the wealthiest taxpayers. A third proposal would have exempted small businesses and family-owned farms from the estate tax and increased the estate exemption amount for individuals. All of these proposals failed to pass.
Even though Congress may continue its efforts to reduce or eliminate estate taxes, they are not gone yet. The estate tax rules are complicated and constantly changing. You should review your entire estate plan to make sure that it deals properly with the current rules.
For planning assistance, give us a call. We are here to help you.
Tax-cutting moves should make good financial sense
Some tax-cutting strategies make good financial sense. Other tax strategies are simply bad ideas, often because tax considerations are allowed to override basic economics.
Here's one example of the tax tail wagging the economic dog. Let's say that you run an unincorporated consulting business. To cut your taxes, you decide to buy $10,000 of office furniture that you don't really need. If you're in the 27% tax bracket and you deduct the entire cost, this purchase will trim your income tax bill by $2,700 (27% of $10,000). But even after the tax break, you'll still be out-of-pocket $7,300 ($10,000 less $2,700).
There are other situations in which people often focus on tax considerations
and ignore the bigger financial picture. For example: Someone increases the
size of a home mortgage, solely to get a larger interest deduction.
A homeowner hesitates to pay off a mortgage, just to keep the interest write-off.
Someone turns down extra income, because it might push them into a higher tax bracket.
An investor holds an appreciated asset indefinitely, solely to avoid paying the capital gains tax.
As a general rule, the best tax strategies are those that generate a deduction and leave you in control of your money. This is what happens, for example, with IRA, Keogh, and 401(k) contributions. Strategies that result in tax deferral can also be desirable, since you generally get to pay your tax bill years from now in cheaper, inflated dollars.
Tax-cutting strategies are just part of a bigger financial picture. If you are planning any tax-related moves, we can assist with keeping things in focus. Please call us.
The Supreme Court agrees with the IRS
A recent Supreme Court ruling is disappointing news for the restaurant industry. This case involved the IRS's authority to estimate tips received by a restaurant's employees.
Like wages, tips are subject to FICA taxes. When the IRS suspects that a business has understated the tips received by its employees, the Service estimates the tip income to determine the employer's FICA liability.
Over the past few years, there have been many court cases challenging the IRS's methods. Now the high court agrees that the IRS can estimate tips using a reasonable method.
This recent ruling affects not only the restaurant industry, but all businesses that must report tip income to the IRS. If you have questions about how this ruling may affect your business, call us.
Consider a cash management review
Any astute business person will tell you that cash flow is as important to a business as sales. As a matter of fact, it is quite possible to "promote" your business into bankruptcy; that is, sales can be so great that cash flow is unable to support the growth rate.
Cash flow is one predictor of a business's future. How is your company's cash flow? Can it be improved? To find out, you might want to consider a cash management review.
A cash management review tracks the flow of funds through the company. It focuses on cash collections, disbursements, receivables, payables, and investments.
A cash collection review looks at such areas as how efficient the billing system is and what the discount and return policies are. This review is to determine whether collections are expedited and whether employees deposit all cash in a timely manner.
A cash disbursements review focuses on the timing of payments on bills, taking purchase discounts, account transfers, and bank service fees. A review of cash covers the company policies regarding investments, portfolio diversification (bonds, stocks), and safeguarding of investments.
The accountant who does a cash review will interview key company personnel and look at specific cash flow tasks. Once completed, a management letter will inform you of how well your business's cash is presently being managed and how cash management might be improved.
A cash management review will ensure that cash flow is not jeopardized through inefficient and improper procedures. It will help your business to be more profitable. Contact us if you'd like to schedule a review for your business.
What's New in Financial Strategies
Core earnings: A new way to measure company profits
The collapse of Enron and recent announcements of restated earnings at other companies have left many investors wondering if they can rely on the information reported in companies' financial statements.
One leading provider of financial information and credit rating services has a new goalto use a standard calculation of earnings for a company's core business. Standard & Poor's says that "core earnings" will give investors and analysts a truer picture of the after-tax earnings from a company's main business.
Core earnings tell a different story than earnings reported under generally accepted accounting standards or GAAP. To calculate core earnings, Standard and Poor's starts with GAAP earnings. Then it makes a series of adjustments to that number.
In other words, core earnings include some items not included in GAAP earnings, such as employee stock options, restructuring charges, and pension costs. Core earnings exclude other items that are included in GAAP earnings, such as gains and losses from asset sales, pension fund gains, and merger and acquisition-related fees.
Though this move is controversial, Standard & Poor's now uses core earnings to calculate the price-to-earnings ratio for the companies in its market indexes, such as the S&P 500. It also uses this measure to evaluate a company's credit rating.
Spouses: Get involved with your family's finances
There are at least two good reasons to learn everything possible about your family's financial affairs. First, in your spouse's absence, you may be called on to make financial decisions. Second, every marriage eventually ends either by divorce or death. When that happens to you, being familiar with your family's finances can make things a little easier.
Know the whereabouts and the significance of all important papers. Learn why certain insurance policies were purchased and whether they are still adequate.
For those of you married to a business or professional person, learn the framework of the business or office operation. You should understand the general filing system of the business and know the whereabouts of the general ledger, the banking records, the corporate record book (if applicable), and special business agreements.
You should understand any buy-sell agreements between partners and any lease commitments on equipment or real estate. You should also know the whereabouts of all real estate deeds and mortgages. Take the opportunity to sit in on meetings with your spouse, his or her business associates, and professional advisors.
In your spouse's absence, you may be called on to run the business, at least temporarily, or you may be involved in negotiations for the sale of the business. The more you know about all aspects of the business, the better equipped you will be to make decisions.
At least once a year, take time to review all the family assets and liabilities with your spouse. I'm sure you will find a review informative; you may even find it interesting. If you'd like our help, please call.
Chuckle of the Month
Only in America......can a pizza get to your house faster than an ambulance.
Only in America......do people order double cheeseburgers, large fries, and a diet Coke.
Only in America......do drugstores make the sick walk all the way to the back of the store to get their prescriptions while healthy people can buy cigarettes at the front.
Only in America......do banks leave both doors open and then chain the pens to the counters.
Only in America......do we buy hot dogs in packages of ten and buns in packages of eight.
Only in America......do we use answering machines to screen calls and then have call waiting so we won't miss a call from someone we didn't want to talk to in the first place.
Only in America......do we leave cars worth thousands of dollars in the driveway and put our useless junk in the garage.
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 the ONLINE ADVISOR, or for assistance
with any of your tax, business, or financial strategy concerns, contact our