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September 2003 Online Advisor


Major Tax Deadlines

For September 2003

September 15 - Due date for individuals to pay third quarter installment of 2003 estimated tax.

September 15 - Due date for filing 2002 tax returns for calendar-year corporations that had an automatic extension of the March 17 filing deadline.

October 1 - Deadline for businesses to adopt a SIMPLE retirement plan for 2003.

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

You may want to adjust your tax payments

If you pay your income taxes through quarterly estimated tax payments, you may want to review the amount you're scheduled to pay for the rest of 2003. The third payment for 2003 is due September 15, and the fourth payment is due January 15, 2004.

The Tax Relief Act of 2003 cut most tax rates and included other provisions that could mean a lower 2003 tax liability for you. Investors and self-employed taxpayers in particular may want to review their scheduled estimated payments.

Paying more tax than necessary gives the IRS interest-free use of your money. However, remember that if you prepay too little, you'll be subject to penalties and interest charges. For assistance in reviewing your estimates, contact our office.



Making gifts can be a tax-cutting strategy

When it comes to your money, employing an effective gifting strategy can help you accomplish both personal and tax motives.

If you make a gift to an individual, you may be subject to gift taxes if your gift exceeds certain amounts. The gift tax rules are designed to prevent people from giving away all the assets that would otherwise be included in their estates and subject to estate taxes.

* Annual exclusion. One way to reduce the size of your taxable estate is to make regular use of the annual gift tax exclusion. You may give up to $11,000 each year to as many individuals as you want without any gift tax. If your spouse joins in making the gift, you may (as a couple) give $22,000 to each person annually without any gift tax liability.

* Medical or educational expenses. In addition to the $11,000 annual exclusion, you can pay an unlimited amount of someone's medical or educational expenses without being subject to gift tax. The beneficiary does not have to be your dependent or even related to you, although payment of a grandchild's expenses is probably the most common use of this tax break. You must make the payment to the institution providing the service; the beneficiary must not receive the payment directly.

* Gifts of property. As an alternative to giving cash, you may want to consider giving property. Be sure you plan effectively so that you don't give away assets you will need during your lifetime.

If you're thinking of making gifts for 2003, be sure they are completed by December 31 of this year in order to qualify for your 2003 annual gift tax exclusion.



New Business

Small companies plan to hire workers

A recent survey conducted by the National Federation of Independent Business indicates that the number of small companies that are planning to hire additional workers is on the rise. Earlier this year, only 1% planned to hire more employees; currently 10% do.

This change is seen as important for economic recovery since this country's 5.8 million small companies provide about 50% of all jobs. Small firms also create the most new jobs.



Smart Business

Should you consider an ESOP for your company?

Saving taxes and motivating your employees are just two of the benefits of maintaining an employee stock ownership plan (ESOP) for your corporation. You'll also have the opportunity to sell your business for what it's worth without paying taxes on the gain realized.

* What is an ESOP? An ESOP is a trust fund set up by your corporation to hold shares of its own stock on behalf of your employees. Your corporation either contributes shares of its stock or cash into the ESOP, or the ESOP borrows money to purchase stock from the corporation, the other shareholders, or from you.

Within the ESOP, individual accounts are established for each employee to hold the stock allocated to them. When an employee leaves, your corporation generally buys back his or her shares.

* How does the company benefit? ESOPs provide corporations with a variety of tax breaks. Contributing shares of stock into an ESOP as either a profit-sharing plan contribution or a 401(k) plan match gives the company a deduction for the fair market value of the stock contributed. The company also deducts the dividends it pays on ESOP-held stock.

* What about employees? If you're looking to motivate your employees, what better motivation is there than ownership in the company?

Rewarding your employees for good performance and loyal service is easy to do as well. Simply declare a dividend or contribute additional shares of stock in the ESOP that year.

* What happens when you sell? Selling to an ESOP allows you to defer paying taxes on the gain you realize. As long as the ESOP owns at least 30% of the company's outstanding stock and you reinvest the proceeds into common stocks and certain other qualifying investments within a specified time, you won't pay any taxes on the gain until you sell the replacement investments.

* Is an ESOP right for you? ESOPs can provide liquidity through their substantial tax benefits, they can boost productivity, and they can be useful tools for business owners wanting tax-free cash for their stock.

But ESOPs are expensive to set up and administer, can cause long range liquidity problems, and promote bad feelings among employees if their expectations of management participation aren't met.

To find out more about whether an ESOP makes sense for your business, please give us a call.



What's New in Financial Strategies

Are you paying too much for services you don't use?

Researchers at two universities have conducted studies that show consumers often sign up and pay for services they don't use. A typical example is paying membership dues to a gym or health club, expecting to be motivated by your cash outlay to actually start exercising more. Too often, however, you go a few times a month rather than five times a week as initially planned. Your membership ends up costing you much more than choosing the option of paying per visit.

The research suggests that people often waste their money when they choose contracts or memberships over pay-per-use options. Before you sign up for any service, consider trying it out initially on a pay-per-use basis.



Work through the numbers to reach a financial goal

Financial milestones lie ahead for all of us; they include such goals as home ownership, a vacation, or retirement. Whatever your goal, you will need money, time, and a rate of return to reach it. Beginning as soon as possible puts time on your side.

There are two basic strategies for reaching any financial goal: you can put away a lump sum for a period of time, or you can save a specific amount at regular intervals. For most of us, a saving plan is more realistic. But how much? The answer isn't obvious. Fortunately, you can figure this out by yourself with simple tables or a financial calculator.

Step one: Identify your goals. For example, if you want to buy a $250,000 home in five years, and you will need 10% for a down payment, your savings goal is $25,000 in five years.

Step two: Calculate the amount you need to save to reach your goal. The table below shows the relationship between saving $100 per month, the after-tax annual rate of return it earns, and the time period you have in which to save.

$  6,650 
$ 6,830 
$ 7,200
$ 7,810
$ 8,250 

Assume the after-tax return you can earn is 7%. Look for the intersection of five years and 7% — the amount is $7,200, which is how much $100 per month will grow to if it's invested to earn 7% after taxes over five years. Since you need to accumulate $25,000, divide $25,000 by $7,200, which gives you 3.47. Multiply 3.47 times the $100 per month, and you know you need to save $347 per month.

For help with figuring the numbers to reach your financial goals, contact our office.



Chuckle of the Month

How to figure the cost of living:

Take your income and add 10%.



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