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January 1999

Welcome to ONLINE ADVI$OR.

Our monthly online newsletter provides useful tax, business, and financial planning information as part of our firm's commitment to total client service.

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 ADVI$OR, or for assistance with any of your tax, business, or financial planning concerns, contact our office.


Major Tax Deadlines for January 1999

January 15 - Final 1998 individual estimated tax payment is due, unless 1998 tax return is filed and taxes are paid in full by February 1, 1999.

February 1 (would normally be January 31 except that January 31 is a Sunday) - Employers must provide W-2 statements to employees.

February 1 - Payors must provide Form 1099s to payees.

February 1 - Employers must file 1998 federal unemployment tax returns and pay any tax due.

Note: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business. For information on the tax deadlines that apply to your business, contact our office.


What's New in Taxes

IRS announces private delivery services for filing 1998 returns

The IRS has released the list of private delivery services that taxpayers may use to file their 1998 returns and consider them to have been filed on time. These services may be used instead of the U.S. Postal Service. The designated services include overnight, next-day, and second-day deliveries offered by Airborne Express, DHL Worldwide Express, Federal Express, and United Parcel Service.


Tax Time is Fast Approaching

It's time to think about tax filing requirements again. Here are a few reminders to help you assemble your tax information and meet your tax filing obligations:

Check for errors when you receive your 1998 W-2s, 1099s, and other tax information forms. If there are errors, contact the sender immediately and request a corrected copy.

Youíll need social security numbers for all dependents you claim on your tax return. To get a number, contact the Social Security Administration.

Get the paperwork you need for your charitable contributions. If you made 1998 contributions of $250 or more, you need a written receipt from the charity in order to take a deduction on your 1998 tax return. A cancelled check is not sufficient.

File information returns. Form 1099 information returns are required for various payments made during 1998. Among the more common are (1) dividends, interest, or royalties of $10 or more, and (2) rents or business payments of $600 or more.

Prior to 1998, the $600 reporting requirement generally did not apply to payments made to corporations. However, effective for 1998 payments, 1099s are required for payments for legal services totaling $600 or more whether the attorney is incorporated or not. Payments made to law firms also come under the reporting requirement.

The "nanny tax" is still required, though the threshold at which it applies has increased from the previous $1,000 to $1,100 for wages paid during 1998. Remember, you also are now required to prepay payroll taxes youíll owe by increasing your W-2 withholding or quarterly tax estimates.

Check your children's need to file a 1998 return. The filing requirements for children vary depending on whether their income comes from working, investing, or both.

If your child had wage income only during 1998, a tax return is required if wages exceeded $4,250. If the child earned less than $4,250 but employers withheld taxes, a tax return must be filed if a refund is to be claimed.

If your child had net self-employment earnings of $400 or more in 1998, a return is required and a self-employment tax of 15.3% is due. Income tax could be due if earnings exceeded $4,250.

If a child had investment income only during 1998 (such as dividends and interest), reporting is required if the total exceeded $700.

If your child had both earned income and investment income, a return is required if the total was more than the larger of $700 or earnings (up to $4,000) plus $250.

If your child's investment income for 1998 exceeded $1,400 and your child is under age 14, the amount over $1,400 will be taxed at your top rate. You may elect to include your child's unearned income on your tax return in certain circumstances, rather than filing a separate return for the child.


New Business

Businesses get another six-month extension for electronic deposits

Businesses that deposit more than $50,000 of federal taxes annually were to begin making their deposits electronically by January 1, 1999, or face penalties.

Now the IRS has extended the penalty assessment date to July 1, 1999. This is the third extension on the deposit deadline since the requirement was first established.

If this requirement applies to your business and you still are not set up for electronic deposit of taxes, contact our office for any assistance you need.


Smart Business

New law will let more taxpayers deduct home office expenses

Should you claim a tax deduction for using part of your home as an office? Be careful. Although the home office deduction has been around for over 20 years, itís been a difficult provision for many entrepreneurs to claim. Thatís largely because a 1993 Supreme Court decision narrowly interpreted "principal place of business," upholding the definition given by the Internal Revenue Service.

The IRS said that to qualify for the home office deduction, you have to meet regularly in your home office with clients, customers, or patients. Unfortunately, many people who use their home offices for administrative work (insurance agents and electricians, for example) canít take the deduction under current law.

What is required for a deduction on 1998 tax returns?

As the law applies for 1998, to qualify for the deduction you have to meet certain tests. First, you have to show that your office is used "exclusively and regularly" in a trade or business. In addition, your home office must meet at least one of three tests. It must be 1) your principal place of business; 2) a place where you meet or deal with patients, clients, or customers in the normal course of business; or 3) a separate structure (not attached to your residence) that is used in connection with your trade or business.

Requirements change effective January 1, 1999

Fortunately for many taxpayers, a recent tax law broadened the definition of a "principal place of business." As a result, more people should qualify for the home office deduction in 1999.

Starting January 1, 1999, many businesspeople who use a home office mainly for administrative work (billing, calling clients, scheduling appointments) may be able to qualify for the deduction. The change wonít affect this yearís taxes, but you may want to get details if you think you might qualify for the deduction in 1999.

For assistance in reviewing this often misunderstood deduction, give us a call.


What's New in Financial Planning

The unified credit for estate taxes increases in 1999

The so-called "unified credit" exempts a certain amount of your estate from estate taxes. On January 1, 1999, this amount increases to $650,000 and will continue to increase each year until it reaches $1 million in 2006.

If utilized to its fullest extent, this exemption applies to you and your spouse individually, allowing the two of you to make tax-free bequests totaling $1,300,000 under the 1999 limit.

It is important to have your will, living trust, and other estate planning documents use a formula that accounts for and takes full advantage of these annual increases in the unified credit. If your documents are not properly worded, your estate could face higher taxes than necessary just through oversight.


Get 1999 off to a good financial start

This time of year is ideal for a complete review of your financial affairs. While gathering information for your 1998 tax return, why not take one more step and do something positive for your overall financial well-being?

Take a look at your total picture by focusing on the following areas:

Your net worth. Compare your current net worth with last yearís. Are you gaining or losing ground?

Your financial goals. Write down your current financial goals. How much money will you need to reach each goal, and when will you need it? Are you taking the necessary steps to achieve each goal? If not, what changes need to be made?

Your investments.Review all of your investments - those in your retirement plan as well as your nonplan investments. Check the yields for 1998 and the average yields for the last five years. Are they adequate when compared to yields you could be getting in other investments?

Your home. Take a look at your home mortgage interest rate. If it is higher than current rates and you will be living in your home long enough to recover the points and fees involved, perhaps itís time to refinance.

Your insurance. Are you protecting what you already have with adequate life, property, and disability insurance coverage? Make sure that you are not duplicating any coverage.

Your debt. Review your use of credit to be sure you are not letting debt erode your financial well-being.

Your estate plan. Review your will and your estate plan. Did your situation change during 1998 so that some alterations to your documents need to be made? Have you updated wills, trusts, etc. for recent changes in estate tax law?

Your recordkeeping. If you had trouble assembling data for your financial review, you need a better system of recordkeeping. Set one up as soon as possible.


Chuckle of the Month

Kids know a lot more about economics than you might think. A new neighbor asked a five-year-old girl how many were in her family. "Seven," she replied.

"My, that many children must cost a lot," said the neighbor.

"Oh, no," said the child. "We don't buy them. We raise them."


ONLINE ADVI$OR is issued monthly to provide useful information. Return to this site every month for helpful tax-cutting suggestions, business information, and financial planning tactics.

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.

If you would like more information on anything in ONLINE ADVI$OR, or if you'd like to be on our mailing list to receive other tax, business, or financial planning information from time to time, please contact our office. We're here to help you minimize your taxes, manage your business more profitably, and identify financial planning strategies suited to your situation.

Copyright 1998 Richard C. Woodbury P.C. CPA