20017 E. Sharon Avenue
Houghton, MI 49931 USA
Phone (906) 482-1305
May 2002 Online Advisor
Major Tax Deadlines
For May 2002
May 15 - Deadline for calendar-year exempt organizations to file 2001
May 31 - 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.
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
Retirement plan distribution rules change again
Last year the IRS gave taxpayers an unexpected gift when it proposed new rules that simplify the way you're required to withdraw your retirement money. Recently the IRS announced its final rules on retirement distributions.
New mortality tables. Generally, you must begin withdrawing tax-deferred retirement funds (except Roth IRAs) when you turn 70 ½. To calculate your required minimum distribution, you must use mortality tables provided by the IRS.
Under the final rules, the IRS updated these tables with longer life expectancies. That means you won't have to withdraw quite as much money from your retirement accounts each year. Since you aren't taxed on retirement accounts until you withdraw the money, the less you take out, the less tax you pay. This allows more money to be left in your retirement account to grow tax-deferred.
Several choices. The final rules go into effect in 2003, but you can use mortality tables published in 1987, last year's tables, or the new tables to calculate your 2002 required distributions. Using the newest tables will result in the smallest required distribution for most people.
If you have questions about how these new rules affect you, please call us.
Take advantage of the tax rules when you sell your home
Selling your home and moving into a less expensive one can free up equity that can be used to pay down debt, to build up retirement funds, or for other purposes. When you sell your home, you don't have to buy a more expensive house in order to postpone taxes on the sale. In fact, you don't have to invest in another house at all.
If you meet certain qualifications, you can use your sale proceeds for whatever purpose you choose - without having to pay tax. If you own a house, it's a good idea to brush up on the basic tax rules for home sales.
Old rules. In 1997, Congress eliminated two longtime rules from the tax law. Now you can no longer roll over gain from one home to another, even if you want to. And the old $125,000 gain exclusion for those 55 and older no longer exists.
Current rules. Married taxpayers who meet certain eligibility requirements may exclude up to $500,000 of profit on the sale of a home. The exclusion amount is $250,000 for singles. To qualify for this provision, you must have owned and occupied the home as your principal residence for at least two of the five years preceding the sale. There are no age requirements for this exclusion, and you may take advantage of this tax break as many times as you like and qualify.
Planning opportunities. There are other tax-planning opportunities in the home sale exclusion rules. For example, you may be able to convert a vacation home or a rental property into your personal residence. Then when you sell, some or all of your gain may be tax-free. The definition of "principal residence" includes more than just a house. A condominium, duplex, apartment, even a houseboat or yacht can qualify as long as it's your principal residence.
If you have questions about the home sale rules, give us a call. We'd be happy to discuss tax-saving opportunities relating to your home, your vacation home, or your rental property.
OSHA announces a new ergonomics plan for businesses
OSHA just announced a comprehensive, four-point plan to reduce workplace injuries caused by repetitive motion. Ergonomic injuries include neck strain, carpel-tunnel syndrome, and other injuries caused by repetitive tasks. Here are the highlights of OSHA's new plan.
1. During the next six months, OSHA expects to release industry-specific and
job-specific guidelines to reduce and prevent workplace ergonomic injuries. The
first industry-specific guidelines will be for nursing homes.
2. OSHA plans to use special ergonomics inspection teams to track and prosecute businesses with serious ergonomics problems.
3. OSHA will provide specialized training and information to help businesses comply with the new guidelines. The plan calls for a specialized focus for Hispanic and other immigrant workers in industries with high ergonomic hazard rates.
4. The new plan calls for a national advisory committee to advise OSHA on ergonomic research.
An earlier plan that was to go into effect last year was rejected because it was considered too complicated, too expensive, and too burdensome for businesses. This latest ergonomics plan is expected to have far less effect on businesses than the previously repealed rules.
Look for more information about the new rules in the coming months. In the meantime, it's smart business to look around your workplace for ways to keep your employees healthy and productive.
Protect your business from employee theft
Every business, no matter how large or small, is a candidate for employee theft. There is no need to be paranoid about the subject, but a few simple controls can do wonders to reduce the chances of being a target.
Too many duties assigned to a single employee can increase the chance of losses for your company. If one employee handles too many functions, such as paying bills, collecting receivables, preparing payroll reports, and making bank deposits, the company is wide open to fraud.
Even small businesses with only one or two employees can set up procedures that make it more difficult for an employee to commit fraud. For example, arrange for the bank statement to come to you unopened. A review of cancelled checks can often reveal irregularities such as unusual checks, odd vendor names, etc.
The busier the owner is with other duties, the more likely it is that an employee can get away with embezzlement. Make it a habit to spot-check customer records. Open all incoming mail from customers and vendors. This allows you to see customer complaints and adjustments to account balances. If an employee knows that you will be going over the customer records, he or she is less likely to start a scheme of stealing from the company.
If you'd like assistance with reviewing the internal controls in your business, please contact us.
What's New in Financial Strategies
New SEC rules may help investors
New Securities and Exchange Commission (SEC) rules that went into effect February 15, 2002, may help investors make better investment decisions. The new rules require mutual funds to disclose "after-tax" returns, as well as pretax returns. Since income taxes decrease an investment's return, this information may provide investors with a clearer picture of how a fund actually performs.
The new rules require funds to publish both pretax and after-tax returns for several time periods, depending on how long the fund has been in existence. This will allow investors to review a fund's short-term and long-term performance.
You should always read a fund's prospectus before you invest. Pay particular attention to this new after-tax information required by the SEC. If you have questions, please call us.
Poor recordkeeping can cost you money
Do you use the brown bag method of recordkeeping? While tossing receipts into a bag may seem like an easy filing solution, lackadaisical recordkeeping can cost you money. Here are some of the common pitfalls of poor recordkeeping.
* Overlooked deductions. It's generally worth the effort to keep proper
records for small expenses because they tend to add up to a sizable amount over
the course of a year. For example, get a receipt from the charity when you
donate used property such as clothing and household goods. If you own a small
business, keep track of your out-of-pocket business expenses.
* Limited losses. If you engage in an activity that takes up a lot of time and money, you might be able to deduct business losses if you maintain good records. On the other hand, if your recordkeeping is haphazard, it may be difficult for you to demonstrate that your activity was a business rather than a hobby, and you could lose out on deductions that could otherwise be used to offset taxable income.
* Higher capital gains taxes. If you own investments, your recordkeeping system should be designed to track an investment from the time you acquire it until the time you sell it. Generally, you are taxed on the difference between what you paid for an asset (your basis) and what you sell it for. Incomplete records make it difficult to calculate the correct gain when you sell an investment, and that may cause you to pay unnecessary taxes. For example, you should keep track of reinvested amounts, such as dividends and capital gain distributions, because these amounts increase your tax basis and decrease your taxable gain (or increase your deductible loss).
* Double taxes on retirement account withdrawals. If you've made nondeductible contributions to your traditional IRA over the years, you have a tax basis in your IRA. That means when you make qualified withdrawals or convert the account to a Roth IRA, part of the distribution or conversion amount may be tax-free. If your recordkeeping is poor, you could end up paying tax twice on your IRA assets — once when you earn the money you contribute and again when you incorrectly calculate your taxable income on the amount withdrawn.
* Unnecessary penalties. Poor recordkeeping may cause you to procrastinate about filing your return, possibly resulting in late filing, late payment, and interest penalties. You might also overlook reporting income which could subject you to interest and penalties.
Good recordkeeping is essential to keeping your taxes as low as the law allows. Give us a call for recordkeeping suggestions that fit your situation, including which records to keep and for how long.
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Copyright 1998 Richard C. Woodbury P.C. CPA