RICHARD C. WOODBURY P.C.

CERTIFIED PUBLIC ACCOUNTANT
20017 E. Sharon Avenue
Houghton, MI 49931 USA
Phone (906) 482-1305
Fax (906)482-9555
Email rwoodbur@up.net
 

ONLINE ADVI$OR

Online Advisor - March 2003

 

Major Tax Deadlines

For March 2003

March 3 - Farmers and fishermen who did not make 2002 estimated tax payments must file 2002 tax returns and pay taxes in full.
March 17 - 2002 calendar-year corporation income tax returns are due.
March 17 - Deadline for calendar-year corporations to elect S corporation status for 2003.

For April 2003

April 1 - Deadline for taking your first required IRA distribution if you turned 70½ in 2002. Unless you're still working, this deadline also applies to your other retirement accounts (except for Roth IRAs).

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

More audits proposed

The proposed 2004 budget (for the fiscal year starting October, 2003) for the Internal Revenue Service includes increased funding for the agency's audit and collection activities.

The budget asks for $133 million for additional audits of high-income taxpayers. The funding would let the IRS examine 160,000 tax returns of wealthy individuals and businesses, an increase from the 93,000 such returns now audited in a year.

Areas identified for additional IRS scrutiny include abusive tax schemes, use of offshore trusts and bank accounts, abusive corporate tax avoidance schemes, underreporting of income by higher-income taxpayers, and failure to file employment tax returns and pay employment taxes.

 

 

There's good news in recent IRS rules on home sales

Recently, the IRS issued rules clarifying the circumstances under which taxpayers can sell a home and not be taxed on the profit. You are probably familiar with the tax law that lets you sell your home and exclude from taxation up to $250,000 of profit if you are single and $500,000 if you are married and file a joint return. To be eligible for this break you must have owned and occupied the home for at least two of the five years prior to its sale.

Principal residence defined. The new rules define "principal residence" for those taxpayers with more than one home. The home that will qualify as your principal residence eligible for the gain exclusion is the home where you spend the majority of your time during the year. Other factors considered relevant in determining which home is your principal residence include your place of employment; where family members live; the address you give on tax returns, your driver's license, and your voter registration; your mailing address; and the location of your bank, church, and club memberships.

Vacant land can qualify. The new rules state that the exclusion of gain can be applied to the sale of vacant land adjacent to your home which you used as part of your principal residence. The home must be sold within two years before or after the land sale.

Home office break. The rules also change how a home sale is treated when a taxpayer has claimed deductions for a home office. Prior to the newly issued rules, the sale had to be divided into a business portion and a personal portion. Gain from the business portion did not qualify for the exclusion. Now, if you sell a home used partly for business, you will pay tax on gain to the extent of depreciation claimed after May 6, 1997, but you can exclude any additional gain up to the maximum exclusion allowed. If your home office is in a separate building from your home, it will not qualify for the exclusion.

Partial exclusion clarified. Under the tax law, you may qualify for a partial exclusion of gain if "unforeseen circumstances" force you to sell your home before meeting the two-year requirement. The new rules define these unforeseen circumstances. Among the events that may qualify your sale for partial gain exclusion are the following:

* Your home is damaged by a disaster, act of war, or terrorism.

* You are transferred or lose your job.

* You or a family member must move for health reasons.

* You get a legal separation or divorce.

* You can't afford the mortgage payments due to a change in employment status.

* You have to sell because of multiple births from the same pregnancy.

For details or more information about how these changes could apply to your home sale, give us a call. We are here to help you.

 

 

New Business

Start-up businesses fail less often

If the widely held belief that 90% of businesses fail in their first year has kept you from starting a business, here's good news. A recent study by the Small Business Administration found that the failure rate is closer to 67%. The SBA examined 12,185 companies and found that 17% were incorrectly counted among first-year failures. Businesses in this group actually were successful, and the owners either retired or sold them within the first year.

The study comes at a crucial time. In 2002 the ranks of the self-employed hit a 50-year low. This new study may encourage small business startups, and that could help to fuel job growth in the U.S.

 

 

Smart Business

Try these practical ways to cut business costs

If you own or manage a business, cutting costs without diminishing the quality of your goods or services is a high priority in these economically perilous times. The best way to achieve this is to return to basic, tried-and-true principles.

One way to reduce costs is to review your insurance policies with your agent. Shop around for the best price and the right amount of coverage. You may discover significant cost savings. Be careful though. Don't assume the cheapest policy gives you the best value.

Another way to cut costs is by modifying your purchasing procedures. When buying materials, supplies, and services, negotiate for things such as free shipping, free installations, extra pricing discounts, and discounts associated with payment terms.

Depending on your industry, recruiting new employees through college job placement offices may be a cost-cutting option. It might lower your wage costs and simultaneously improve the caliber of your employees. Many college job placement offices also provide free screening so you get the best match for the job without having to interview applicants.

If you offer a benefit plan for full-time employees, you may want to consider hiring more part-time employees. By doing so you avoid the extra costs associated with benefits.

Use the same strategy in business that you use to cut personal costs. First, analyze your expenses and decide what costs you can eliminate or reduce. Then institute changes accordingly.

If you're an owner-operator, learn to do-it-yourself when it comes to basic maintenance and repairs rather than hiring service companies. Examples are changing HVAC air filters, installing washers to stop leaky faucets, and replacing broken windowpanes.

Remember, when instituting cost-cutting measures that cheap is not always better. Temper economy with common sense. Don't allow the decisions you make to ruin the quality of your company's product.

 

 

What's New in Financial Strategies

Bush's proposals could alter the savings scene

If President Bush has his way, the current — and often confusing — array of college and retirement savings accounts will be reorganized and simplified.

Under the proposed changes, traditional individual retirement accounts (IRAs) would be replaced with "retirement savings accounts." Larger contributions would be allowed, but they would not be tax deductible. The account would grow tax free, and qualified withdrawals would be tax free.

Contributions could be made to another kind of account called "lifetime savings accounts." Contributions wouldn't be deductible, and withdrawals could be taken tax and penalty free at any time and for any purpose.

Employer-sponsored retirement plans, such as 401(k)s, 403(b)s, and Simple plans, would be replaced by "employer retirement savings accounts." Employees could deduct contributions, and they'd be taxed on their withdrawals.

These are just proposals at this point, and any final law — if there is one — could be significantly different from what's now proposed. Stay aware of developments in this area. If there is a change, it will have an impact on how you save for college, retirement, and possibly everything else.

 

 

Planning to retire? You can't have your cake and eat it too

Current economic conditions and extended life expectancies have led many people to reconsider their retirement plans. Before deciding when to retire, you should consider the potential impact retirement could have on your quality of life, health care costs, and your family's financial needs. What if you delay retirement?

* Current law favors delay. If social security will be an important source of retirement funds for you, take a look at recent changes to the rules. They assume longer life expectancies, a benefit to those who delay retirement. In a nutshell, here's what you need to know. You can begin collecting benefits as early as age 62 — before your full retirement age. But if you do, your benefits will be reduced to account for the longer period over which you'll be paid. You can begin collecting full benefits at age 65 if you were born before 1938. Full retirement age is later for everyone else - up to 67 for those born in 1960 or later. You can delay receiving benefits until you turn 70, and you'll qualify for a "delayed retirement credit." If you do, your eventual monthly benefit will go up by as much as eight percent for each year beyond full retirement age that you put off receiving benefits.

* Consider these limits. If you keep working after you begin receiving social security benefits, you face two possible "penalties." First, some of your social security benefits could be subject to income tax if your earnings push you above a certain income threshold ($25,000 for singles; $32,000 for couples). Second, your earnings could reduce your social security benefits if you're under age 65. For 2003, the earned income limit for early retirees is $11,520. If you earn more than that, you lose $1 of social security benefits for each $2 earned above $11,520. There is no earnings limit for those 65 and older.

* Build a bigger nest egg. If you keep working, you can continue to make contributions to a retirement plan. Doing so will lower your current tax bill and provide more money to invest tax-deferred, helping you to build a bigger nest egg for eventual retirement. The Tax Act of 2001 raised the limit of pre-tax contributions to 401(k) and similar plans to $12,000 in 2003. If you're 50 years old or older, you may also make an additional $2,000 catch-up contribution.

* Get your health in order. Since health care is one of the biggest expenses for retirees, delaying retirement can help you by providing employer-paid coverage for a longer period.

The rules governing retirement benefits and taxable income are complex. Consult us for any assistance you need with your retirement planning.

 

 

Chuckle of the Month

"Unquestionably, there is progress. The average American now pays out twice as much in taxes as he formerly got in wages." . . . H.L. Mencken

 

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.

 




 
  Copyright 1998 Richard C. Woodbury P.C. CPA