Online Advisor - May 2003
Major Tax Deadlines
For May 2003
May 15 - Deadline for calendar-year exempt organizations to file 2002 information returns.
June 2 - Deadline for IRA, SEP, SIMPLE, Roth IRA, MSA, and education savings
account trustees to file annual statements (Form 5498) with the IRS, with copies
to participants. (Normally, the deadline is May 31, but since May 31, 2003,
is a Saturday, the deadline is moved to the next business day.)
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
IRS announces standard rates for daycare meals
The IRS has announced a new standard meal and snack deduction rate that will lessen the recordkeeping burden for taxpayers who provide daycare services in their homes.
The rates for daycare providers in the continental U.S. are 98¢ for breakfast, $1.80 for lunch or dinner, and 53¢ for snacks. In Alaska the rates are $1.55, $2.93, and 87¢ respectively; for Hawaii they are $1.13, $2.11, and 63¢.
Records must still be kept showing the names of children cared for, dates and hours of attendance, and the meals and snacks served.
Act now to make this year less taxing
Taxes make up the single largest expense for many American households, so it pays to keep them under control. While your 2002 taxes are fresh in your mind, this may be a good time to review the things you did right and the things that could be improved upon from last year.
* Refunds. Did you make an interest-free loan to the IRS last year? If you receive a large refund on your 2002 tax return, that's exactly what you did. Consider changing your W-4 form so your employer can withhold the amount of income tax that is closer to what you are going to owe for 2003.
* Penalties. If you incurred penalties for underpaying the tax on your 2002 return, take steps now to prevent this from happening to you this year. If you end up owing more than $1,000 when you file your 2003 return, you may be subject to penalties. Generally, in order to avoid penalties for 2003, you must prepay at least 100% of your 2002 tax or 90% of your 2003 tax. Taxpayers with a 2002 adjusted gross income of more than $150,000 ($75,000 for married couples filing separately) have a higher payment requirement: 110% of their 2002 tax or 90% of their 2003 tax.
You can prepay your taxes either through withholding or by sending estimated tax payments directly to the IRS. If you make estimated tax payments, consider sending only the minimum required amount to the IRS each quarter. But put enough money away in your savings account to equal the additional taxes you'll owe when you actually file your 2003 return.
* Missed opportunities. Informed tax planning, accurate return preparation, and complete records will help ensure that you pay the lowest tax allowed by law. Don't wait until tax time to begin looking for deductions and credits. Set up a recordkeeping system now to capture the information you'll need for your 2003 tax return.
* New tax legislation on the horizon. The likelihood of midyear tax legislation should be taken into consideration as you do your 2003 tax planning. Lowering tax rates is the common thread in proposed tax legislation currently under consideration in Washington. It's impossible to predict what will actually be included in the final tax bill. Be sure to stay aware of changes that could affect you.
Take control of your taxes and your financial future. Call us for assistance with your 2003 tax planning.
Small business identifies its biggest problem
Health care costs for employees has been named by small businesses as their biggest problem, according to surveys by the National Federation of Independent Business.
Businesses with fewer than 200 employees are reporting health cost increases of about 15%, compared with 13.5% increases for bigger companies. These cost increases could have a major impact on a struggling U.S. economy. Small businesses employ about half of all workers. As these companies pay more for employee health care, they have less to spend for new equipment or for hiring additional workers.
Health care was the #1 problem for the first time this year. The #1 problem named every previous year since 1986 was taxes.
Business relocation requires a plan
Many businesses face the prospect of relocating their operations at some point. Making the move go smoothly requires careful planning. Some factors to consider include the timing of the move, the expense, employee relocations, and minimizing downtime and lost production.
Perhaps one way to simplify the process is to choose a moving team a few months before the relocation to manage the move. Their duties might include preparing a moving budget, lining up a moving company, and setting up telecommunications and technology at the new location.
Preparing for a move is a good time to clean house. To reduce your moving costs, destroy old records and get rid of equipment and inventory you don't need any more.
Determine if your budget can support buying new furniture and equipment or if it would be less expensive to move and refurbish existing assets. If you plan to upgrade your computer network and telephone system, make sure your new facility will accommodate the necessary installation.
Use tax breaks to cut your costs. The cost of moving your company's records, machinery, equipment, and inventory to the new location is tax-deductible.
When you move, you can deduct the cost of abandoned leasehold improvements not previously depreciated. You can also depreciate the cost of new equipment and leasehold improvements. In fact, the recent tax law allows for a 30% first-year depreciation "bonus" for these types of assets.
If you have questions about the tax or business issues involved in moving to a new location, please call us.
What's New in Financial Strategies
Many workers still own too much company stock
Despite recent corporate scandals, employees are showing a reluctance to cut back on the amount of company stock they own. If you own shares of your employer's stock in your retirement plan or investment portfolio, you need to review your position.
Why do some people buy a lot of their company's stock? Some do it to show loyalty; others, to buy the stock at a discount. Many employees buy company stock because their firm's 401(k) plan makes it easy. Often 401(k) contributions are matched with company stock not cash. As a result, employee funds tend to flow toward company shares. Almost without knowing it, employees find themselves weighting their investments toward a single stock.
Linking your job and your investments with your employer leaves you vulnerable to your employer's financial ups and downs. Not only is your job dependent on your employer's doing well, your investment portfolio depends on it too. Investing heavily in a single stock even your company's carries much greater risk than building a diversified portfolio.
Consider bonds for your portfolio
Due to the turmoil in the stock market, you may be reluctant to commit money to stocks or stock mutual funds. If so, the time may be right for you to consider bonds. Diversifying your investment portfolio to include bonds can be a way to reduce risk.
A bond is an interest-bearing loan with a maturity date. Some bonds can be paid off prior to maturity. A bond's interest rate never changes, but a bond's value can fluctuate with market interest rates.
* Choices. The safest, and usually the lowest yielding bonds, are U.S. Treasury bonds. Mortgage-backed bonds, such as FNMA (Fannie Mae) and GNMA (Ginnie Mae), are also conservative choices. Municipal bonds, issued by state and local governments, have the added appeal of tax-free interest.
Some large corporations issue their own bonds. These bonds range from less risky, "investment grade" bonds to very risky, high-yield "junk bonds." The greater the risk, as rated by the major bond-rating services, the higher the yield.
* Bond funds. If you lack the minimum investment or knowledge to select individual bonds, consider bond funds. Like stock funds, bond funds are professionally managed and diversified among a number of individual bonds. Bond funds come in many varieties, each with different investment goals.
* Risk. Bonds and bond funds are not risk-free. One risk is that interest rates will rise, which usually causes bond prices to fall. If you need to sell a bond prior to its maturity date, you might not recover your investment.
There is also the risk of the bond's issuer defaulting on its debt (e.g., Enron). A bond fund may reduce this risk somewhat, since your investment is spread over many bonds.
To reduce risk, you must diversify. Your bond portfolio should not be concentrated in any one area. You should also spread your investments among bonds, stocks, real estate, and more liquid assets. Proper diversification can reduce your risk and provide you with a balanced return on your investments.
Chuckle of the Month
"Events don't always turn out as we would like them to. If they did, we wouldn't need lawyers, doctors, cops, or gravediggers." . . . Mike Royko, columnist
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.