Major Tax Deadlines
For July 2003
July 15 - Deadline for filing extended 2002 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
IRS alerts taxpayers to new scam
The IRS has issued a consumer alert to warn people about a new scam involving the child tax credit.
The 2003 Tax Relief Act increased this year's child tax credit from the previous $600 to $1,000. If you claimed the credit on your 2002 tax return, you may be eligible for a rebate check of up to $400 for each qualifying child. Starting July 25, these rebate checks will be mailed to about 25 million taxpayers.
According to the IRS, con artists are calling taxpayers with claims that they can speed up payments of the advance child tax credit. The catch is that the taxpayer must agree to a $39.99 charge to his or her credit card.
Taxpayers who agree to the charge and who provide a credit card number or other sensitive personal information could find a much larger charge to their account. By the time the taxpayer realizes something is wrong, the scam operator is long gone.
The IRS reminds taxpayers that no person or organization can speed up the payment of tax benefits. Taxpayers do not need to take any action to receive their rebate checks for the child tax credit.
The Treasury Department will begin mailing checks for the advance payment of the increased child tax credit on July 25, with most checks mailed by August 8. These mailings will cover eligible taxpayers who filed their 2002 tax returns by April 15.
For the first three weeks, the checks will be sent according to the last two digits of the taxpayer's social security number:
* 00-33 - mailed July 25
* 34-66 - mailed August 1
* 67-99 - mailed August 8
Eligible taxpayers whose returns were not processed in time for these initial mailing dates will have their checks sent out after the IRS processes their returns.
Act now to benefit from the new tax law
The 2003 tax law has a variety of tax breaks for individuals and businesses. Here are some ideas to make the most of them.
* Check whether you can reduce your estimated tax payments for the remainder of this year. If you're self-employed or have significant dividend income, the new lower rates could cut your tax bill.
* If you have children, find out how the new child credit will affect you. The credit begins to phase out when income reaches certain levels.
* Review your investment strategy, but don't make changes based solely on the new tax rates. Remember that while taxes are important, they're only one factor to consider when making investment choices.
* Try to maximize benefits from lower capital gain taxes when selling investments. Whenever possible, try to realize long-term gains which enjoy lower rates than short-term gains.
* Check whether income shifting makes sense. That involves giving investments to a child or relative in a lower tax bracket, who could then sell now at a 5% capital gains tax or wait to sell until 2008 when the rate goes to zero.
* Assess the impact of the lower dividend tax on your investment income. Taxable bonds may seem less attractive because the interest is taxed at higher ordinary income rates. But don't rush into changes that destroy the security and diversification of your portfolio.
* Remember that the new lower taxes on dividends and capital gains don't directly affect your investments in traditional IRAs and 401(k) plans. You'll still pay tax at ordinary income rates when you make withdrawals from these plans.
* If you're in business, take advantage of the new business spending incentives. Develop your equipment spending plan for the next couple of years, based on business needs.
For a tax planning review to maximize your benefits from the new law, contact our office.
Schedule K-1 matching program underway again
Early in 2002, the IRS launched a program to match information reported on Schedule K-1s to the amounts reported on taxpayers' personal returns. Schedule K-1 is an IRS form that is used to report a taxpayer's share of income, deductions, and credits from partnerships, trusts, and S corporations. The 2002 matching program was a disaster, with the IRS sending out thousands of erroneous notices.
Now the IRS says it has corrected the flaws and it will resume the matching program. The Service will be issuing notices related to tax returns for 2001.
Make the smart choice when you drive for business
If you drive your car for work, you have an important business decision to make: how to write off your car's expenses. The IRS lets you use one of two methods to calculate your deductible auto expenses - the standard mileage method or the actual expense method.
You can use the standard mileage method instead of keeping track of your actual expenses for business driving. With the standard mileage method, you multiply your business miles by the IRS's standard mileage rate (36¢ per mile for 2003). Some people prefer to use this method because there is less recordkeeping involved, but it may not produce the largest tax deduction. In addition to the mileage deduction, you can deduct business parking fees and tolls and the business portion of personal property taxes on your car and car loan interest.
Under the actual expense method, you deduct the business percentage of your actual expenses. For example, if your business mileage is 15,000 and your total mileage is 20,000 this year, you can deduct 75% of your vehicle's expenses. This method entails keeping receipts for all of your expenses (gas and oil, insurance, repairs and maintenance, etc.) and keeping track of business mileage and total mileage driven.
You can't avoid recordkeeping. With either method, you'll need to keep a travel log documenting when and where you traveled and the business purpose of each trip. The rules governing business car deductions are full of exceptions and limitations. Contact us if you'd like assistance in choosing the method that will maximize your tax savings.
What's New in Financial Strategies
Identity theft insurance is a hot seller
The increase in identity theft has led to a new product identity theft insurance.
Identity theft insurance provides reimbursement to crime victims for the cost of restoring their identity and repairing credit reports. Some companies now include identity theft insurance as part of their homeowners insurance policies. Others sell stand-alone policies or endorsements to homeowners or renters insurance policies.
On average, these policies cost between $25 and $50 for $15,000 to $25,000 worth of coverage. Identity theft insurance provides reimbursement for expenses such as phone bills, lost wages, notary and certified mailing costs, and sometimes attorney fees with the prior consent of the insurer.
If you think you might be interested in purchasing identity theft insurance, be sure to investigate what you're getting for your money. Coverage varies from one insurer to another. Also, don't let having an insurance policy lull you into a sense of false security. You still need to safeguard your personal information. Remember, insurance won't fix all the grief caused by becoming a victim of identity theft.
Are stocks that pay dividends a better deal now?
Now that the Tax Relief Act of 2003 has cut taxes on dividends, you have another issue to address in making your investment decisions: should you add dividend-paying stocks to your portfolio?
During the last decade, investors bought companies promising significant earnings growth. Many investors ignored dividend-paying companies. Dividends were taxed as ordinary income to the investor at tax rates as high as 38.6%.
Then the economy slowed and corporate earnings declined. Stock prices dropped. Cutting taxes on dividends doesn't fix the problem of a troubled company's earnings. Companies must have earnings in order to continue paying a dividend. Many factors affect earnings, including company management, market share, new products, competition, and changing technologies. Good fundamentals need to be in place whether the company pays a dividend or not. Tax considerations alone should not drive your investment decisions. The fact that dividends will enjoy a lower tax rate is just one factor to take into account in choosing your investments.
Chuckle of the Month
The 50-50-90 rule: Anytime you have a 50-50 chance of getting something right, there's a 90% probability you'll get it wrong.
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.