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Houghton, MI 49931 USA
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February 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

February 1 - 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.

March 1 - Payors must file information returns (such as 1099s) with the IRS.

March 1 - Employers must send W-2 copies to the Social Security Administration.

March 1 - Farmers and fishermen who did not make 1998 estimated tax payments must file tax returns and pay taxes in full.

March 15 - 1998 calendar-year corporation income tax returns are due.

March 15 - Deadline for calendar-year corporations to elect S corporation status for 1999.

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

New interest rates for 1999

For the first quarter of 1999, the IRS will pay 7% interest on overdue refunds and charge 7% on tax underpayments. This is a change from the fourth quarter of 1998, when the IRS charged 8% on underpayments and paid 7% on refunds.

The 1998 IRS Reform Act eliminated the 1% differential between what the IRS pays and what it charges individual taxpayers.


Are you giving the IRS an interest-free loan?

According to the IRS, refunds were issued on almost 70% of the individual tax returns filed last year. $114.3 billion in refunds were issued, an average of $1,365 per refund check. It appears likely that refunds on 1998 returns will be even larger because of the new tax credits that apply for 1998.

Though it pleases most taxpayers to get a refund, refunds mean the government is using your money without paying you any interest. The smarter alternative is to adjust your withholding or estimated tax payments to more closely match your actual tax liability, and invest the difference for your own benefit, rather than for the government's.

The amount withheld from your wages is determined by the Form W-4 you give your employer.

Withholding is based upon the number of exemption allowances you claim. You can claim one allowance for yourself and one for each dependent. If you're married, you can claim a withholding exemption for your spouse if he or she does not claim one on a W-4 of his or her own. Additional withholding allowances are available for large itemized deductions, alimony payments, retirement contributions, moving expenses, tax credits, and deductible losses from various activities (business, rental, farm, investments, etc.). Although it is illegal to claim more allowances than you are entitled to, it is worthwhile to make sure that you claim the maximum allowable so that you won't have prepaid more taxes than necessary.

Other events that may require adjusting your withholding during the year include marriage, divorce, adding or losing dependents, changing from home ownership to rental or vice versa, or a substantial change in the amount of your itemized deductions or tax credits.

You can file a new Form W-4 increasing the number of withholding allowances at any time, but you are required to file one within ten days if you no longer qualify for any of the allowances you originally claimed.

If you haven't reviewed your 1999 withholding or estimated payments yet, now's the ideal time to do so.


New Business

IRS sets 1999 mileage rate, then delays it

Late in 1998, the IRS announced the standard mileage rate for business driving in 1999 - a decrease from the 1998 rate of 32.5 cents a mile to 31 cents a mile.

After receiving complaints from companies who felt they needed more time to reprogram software for the rate decline, the IRS postponed the effective date for the new mileage rate to April 1, 1999.

The 1999 mileage rate for charitable driving was left unchanged at 14 cents a mile, and the rate for moving and medical expenses was left at 10 cents a mile.


Smart Business

Today's technology requires frequent backup

You arrive at the office early, eager to finish work on the big sales presentation that's due this afternoon. You've been working on it for three days now, and all it needs are some finishing touches. As you enter the office, you notice the lights aren't working. Must have been that thunderstorm last night. You reset the circuit breakers and switch on your computer. Nothing!! You feel the first twinges of panic as you realize that a lightning surge has fried your computer's circuits. What are you going to show the customer this afternoon?

Well, if you're smart you have a system of backing up your computer daily, and you should be able to recover yesterday's work rapidly. If not, you could be out of luck.

There's really no excuse for not having computer files backed up. If your office uses a computer network, automated systems can create a tape backup of the data on every machine during the night. Even if you use a stand-alone computer, you should routinely back up your data to magnetic tape or floppy disk. And if you're working on an especially important project, save it on a disk to take home with you every night.

If your business depends on other technology, give some thought to backup there, too. It may be cheaper to buy a spare laser printer, an uninterruptible power supply for your phone system, or even a backup copier, than to lose customer orders or miss deadlines. As prices of electronic equipment continue to fall, providing redundant systems can be cheap insurance. It's smart to review the areas where you depend on technology, assess your weaknesses, and make backup plans.


What's New in Financial Planning

In 1999, up to $1,500 of interest paid on higher education loans will be deductible. The loan must be incurred to pay qualified higher education expenses for you, your spouse, or any dependent at the time the debt was incurred.

Only interest paid within the first 60 months of loan repayment is deductible, and the deduction phases out at higher income levels ($40,000 - $55,000 for singles and $60,000 - $75,000 for couples).


Make your IRA contributions early

Those who make IRA contributions have until April 15th of the following year to make them. In other words, your 1998 IRA contribution can be made as late as April 15, 1999. However, it's a good idea to make your contribution as early in any given year as you can because it will mean more dollars for you at retirement time.

Here's what the numbers show. If an individual makes his contribution the first of January every year for forty years, his fund will accumulate to $518,000 (assuming 8% earnings). The individual who waits until January of the following year to make the contribution, thereby forgoing twelve months of earnings on each $2,000 contribution, will accumulate only $480,000 or $38,000 less than the early contributor.

The same benefit from early contributions applies to Roth IRAs and education IRAs for your children. So make all IRA contributions for 1999 as early in the year as you can.


Chuckle of the Month

Keeping your business communication brief and to the point not only saves time, it can even save money. Consider this story of the widow who went to the local newspaper to place a death notice for her late husband. When informed that the obituary would cost 50 cents a word, she said, "Then let it read Henry Smith died."

"I'm sorry," the editor replied. "There's a seven-word minimum."

The widow thought for a minute and then said, "All right - let it read Henry Smith died. Bass boat for sale."


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