Major Tax Deadlines
For June 2003
June 16 - Second quarter 2003 individual estimated tax is due.
June 16 - Expiration date for automatic two-month extension given to U.S. citizens and resident aliens living and working outside of the U.S. and Puerto Rico to file 2002 income tax returns. File Form 4868 to request an additional two-month extension.
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
New law cuts taxes to stimulate the economy
On May 28, President Bush signed the Jobs and Growth Tax Relief Reconciliation Act of 2003 providing major tax cuts to American taxpayers. The new law reduces the taxes on capital gains and dividends, increases the child tax credit, accelerates scheduled reductions in individual income tax rates, provides some relief from the marriage penalty, and gives businesses larger deductions in the year business equipment is purchased.
Here's a quick summary of the major provisions in the new law.
* Child tax credit. The child tax credit increases to $1,000 for 2003 and 2004. Based on filed tax returns for 2002, families will receive rebate checks this summer of up to $400 per qualifying child.
* Tax rate cuts. Individual tax rate cuts that were scheduled to begin in 2006 are accelerated to 2003. Tax rates before the new tax law were 10%, 15%, 27%, 30%, 35%, and 38.6%. The new rates retroactive to January 1, 2003, are 10%, 15%, 25%, 28%, 33%, and 35%.
* 10% bracket. For the years 2003 and 2004, the 10% bracket will be expanded. For singles, the 10% bracket will cover the first $7,000 of taxable income, and for married couples filing joint returns, the 10% bracket will cover the first $14,000 of taxable income.
* Alternative minimum tax (AMT). The AMT exemption amount is increased by $4,500 for single taxpayers and by $9,000 for joint filers for tax years 2003 and 2004.
* Dividends and capital gains. For taxpayers in the lowest two tax brackets, the tax rate on dividends and capital gains is reduced to 5% through 2007, and the tax is eliminated completely in 2008. For all other taxpayers, the tax on dividends and capital gains is reduced to 15% through 2008. In 2009, unless Congress acts to change the rules again, the tax rates on dividends and capital gains revert to the rates in effect prior to the 2003 law.
* Marriage penalty relief. The new law doubles both the standard deduction and the 15% tax bracket for married couples filing jointly to twice that of singles, but just for 2003 and 2004. Marriage penalty relief was originally scheduled to begin in 2005.
* Bonus depreciation. The current 30% bonus depreciation for the purchase of new business equipment increases to 50% for business property acquired after May 5, 2003, and before January 1, 2005.
* Small business expensing. The amount that small businesses can expense; i.e., immediately deduct, increases from $25,000 to $100,000 for 2003 through 2005. The phase-out threshold for the expensing election is raised from $200,000 to $400,000.
Though President Bush had proposed significant changes to retirement and college saving plans, the new legislation does not include provisions changing these plans. As you do tax planning for the remainder of 2003, be sure to get details on the new law and its impact on your tax and financial situation.
Be charitable and cut your taxes
Volunteering your time for charity is a great way to help others and also to generate some tax benefits for yourself. Here are some points to keep in mind.
* Your services. The value of services you contribute to a charity is not deductible, even if you would normally be paid for your services. For example, if you are an electrician, you can't deduct what you would normally bill. But if you also contribute materials in addition to your services, you may deduct the cost of these materials.
* Driving. Using your car for charity work entitles you to a deduction for your unreimbursed costs. You may deduct either your actual costs or the IRS standard rate of 14 cents per mile. With either method, you can also deduct tolls and parking fees.
* Traveling. Volunteers who pay their own expenses when traveling away from home overnight for charitable purposes are entitled to deduct these costs. To qualify for the deduction, there should be no significant element of pleasure, recreation, or vacation in the travel.
* Entertaining. You may deduct the costs of entertaining people at home for charitable purposes, excluding your own portion. For example, a dinner party you host for charitable benefactors would be deductible, reduced by the costs of your own meal.
* Uniforms. The cost of uniforms required to be worn while performing charity work is deductible if the uniforms are not suitable for everyday wear (Boy Scout uniforms, for example).
* Recordkeeping. Your costs must be properly documented and reasonable in amount to be deductible. Contributions of $250 or more require written documentation from the charitable organization. For more information, contact us.
Study shows female-owned businesses are thriving
A recent study, partly funded by the company Pitney Bowes, shows that female-owned businesses are growing in number and profitability.
Since 1997, the number of companies owned 50% or more by women grew 11% to over ten million companies. Annual revenue has grown 32% over the same period to more than $2.3 trillion. The number of workers employed by female-owned companies is up 18% from 1997 to more than 18 million employees.
How to stay competitive when the big companies move into town
Many local businesses fold when a large retailer comes to their town. Is it possible to compete with these giants? You have increasing competition from the Internet and mail order sales as well. What should you do?
Most locally-owned businesses have a strong local following. You should capitalize on this. Treat your customers like they own your business. After all, they are the ones who will determine your business's profitability.
* Go the extra mile in solving customer problems. If you don't have an item your customer is looking for, help locate it. If customers show up five minutes before or after closing time, accommodate them as best you can. If the till is "closed out," accept almost-exact change, or send them an invoice. Customers may have battled heavy traffic to get to your door. They will appreciate your extra courtesy. Better still, they will tell their friends.
* Get rid of those signs that say, "No cash refunds." Whoever came up with that idea was not a customer-oriented business manager. It is a safe bet that you will give cash refunds to people with a nasty temper. Why not capitalize on the good will and offer cash refunds to all your customers?
Require a receipt if you like, to foil shoplifters who sell back to you, but give cash refunds. Unless you have so many customers that you don't need repeat business, you will find a liberal return policy very profitable.
One of the best return policies was promoted years ago by L.L.Bean: "We don't consider the sale final until you have worn the item out and are still satisfied." Now, there is a company that invites new business.
* It is important that customer service be supported from the top down. Every employee from the manager to the cleaning staff should know the company's customer service philosophy and practice it. It is imperative that new employees be schooled on customer service before they have customer contact.
It does little good to talk good customer service only to find that your customers are being let down. Unless you are getting unsolicited compliments from your customers, your customer service probably needs some improvement. Remember, it costs about five times as much to acquire a new customer as it does to keep a current customer happy.
What's New in Financial Strategies
Watch for lower rates on student loans
Interest rates on federal student loans are expected to fall this summer perhaps to as low as 3.42% on federal Stafford loans. If they do, this rate will be the lowest rate the federal Stafford loan program has seen since its inception in 1965. The rates for other student loan programs are expected to drop as well.
With the ever-growing cost of college education, more and more families are borrowing to pay college expenses. If someone in your family is in need of college financial aid, these lower rates are indeed good news. And for students with several loans, the lower rates provide an opportunity to consolidate the loans and significantly reduce the amount of total interest they'll pay.
Look for winning features when buying stocks
Seasoned investors and new investors alike want to pick winning stocks. Though no one can offer any guarantees, smart investors associate certain characteristics with winning stocks. There are good stocks that don't fit the mold, but historically, the stocks with the biggest gains share most, if not all, of these features:
* Strong balance sheet. Look for companies with a low debt-to-equity ratio. In recessionary times, debt-laden companies may not stay afloat.
* Low price-to-earnings ratio. P/E ratios are usually industry-driven, so make sure you compare similar companies. A low P/E ratio may mean an increased rate of return on your investment.
* Good management. A strong management team and a leadership position in their industry are earmarks of a good company. Look for a history of steady growth to assess staying power.
* Book value. A stock priced lower than its book value provides extra assurance that your investment may not go sour.
* Good dividends. A strong dividend history with regular increases adds to a stock's desirability. A healthy income stream can make the wait for growth returns more pleasant and it helps prop up a stock's price in a falling market.
* Undervalued assets. Company assets such as real estate and mineral holdings may be worth dramatically more than the balance sheet and stock price indicate. Companies with undervalued assets may be tempting to conglomerates in these days of merger mania.
* Broad ownership base. A stock that is held by relatively few investors is much more likely to be subject to dramatic drops if a major holder decides to bail out.
* Basic industries. Shy away from faddish industries, notorious for meteoric rise and fall. When timing is the most crucial element in an investment's return, it becomes more akin to gambling than investing.
* Strong cash flow. Healthy cash flow will help a company weather economic downturns. It might also make the company a takeover target since takeover debt can be paid off with the surplus dollars.
* Unusually low price. A low price when compared to the stock's average historical price could indicate a bargain if the drop is due to market forces rather than changes in the company.
Though there are no guarantees when you invest in stock, the hallmarks of a good stock value are somewhat ascertainable. Good investing requires careful analysis and attention to detail, but that's a small price to pay for a healthy portfolio.
Chuckle of the Month
Humorist Jim Boren defines a tax expert as "anyone who can read five pages of tax law without crying, or ten pages without laughing."