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October 1999


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 Deadline for October 1999

October 15 - Due date for filing 1998 individual tax returns for those with a second extension. No additional extension is available.

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

Fourth quarter IRS interest rates announced

Every quarter, the IRS makes an inflation-based adjustment to the interest rates it charges on overdue taxes and pays on overdue refunds. Though other interest rates have risen recently, the IRS announced that its rates will remain unchanged for the fourth quarter of 1999. The interest rate paid and charged for individuals will remain at 8 percent. Most corporations will receive 7 percent on overpayments and pay 8 percent on underpayments. Large corporate overpayments will receive 5.5 percent interest; large underpayments will be charged 10 percent interest.



It's time for a tax review

If you haven't already done so, now is the time to review your 1999 income tax situation and see if there are some tax-cutting moves you could make. Consider these possibilities:

* Check your 1999 income tax withholding or estimated tax payments to be sure you've paid in enough. If you haven't, you may be subject to underpayment penalties. If you're underpaid, consider increasing your withholding during the rest of 1999 or increasing your final quarterly estimate.

* Don't overlook the tax savings available for contributions to retirement plans. Get details on the contribution amount allowed for 401(k) plans if your company has a plan. If you don't have a pension plan at work, think about an IRA contribution. If you're self-employed, consider establishing a Keogh retirement account before December 31.

* If you're going to be able to itemize deductions on your 1999 return and get a tax benefit from them, consider squeezing in more deductions before year-end. For example, pay outstanding property tax bills, make charitable contributions, and schedule and pay for elective medical treatment.

* Review gains and losses in your investment portfolio. If you need losses to offset gains you've already taken, consider selling investments that have decreased in value. Up to $3,000 of excess capital losses over capital gains can be deducted against ordinary income such as your salary.

* Some married couples pay substantially more income tax because of the tax code's "marriage penalty." If you're planning to marry or divorce between now and the end of 1999, you should find out if accelerating or delaying the event could cut your 1999 tax bill.

If you'd like to discuss these and other tax-cutting options appropriate to your particular circumstances, contact our office to arrange a year-end tax planning review.



New Business

Don't overlook this Y2K benefit

Your business may find an unexpected benefit in all the work and expense you have invested in Y2K-compliance projects.

In checking systems for potential Y2K problems, many companies discovered that their recordkeeping for computer hardware was good, but they kept very poor track of computer software.

If your company, like most, had to take an inventory of your software to verify Y2K compliance, you should consider maintaining that inventory. Monitoring purchases and use of software can help in controlling what is often a significant business expense.



Smart Business

Who should own your business real estate?

If your business is incorporated, it is often a good idea to personally own the real estate used by your corporation.

If appreciated real estate is sold by a corporation, the gain will be subject to double taxation if the corporation distributes the money to you. However, if you own the real estate personally, there is no double taxation. Though the double taxation generally does not apply to S corporations, there can be tax problems when an S corporation sells its operating business and its real estate.

The general advice is for you to own the property and lease it to the corporation. Because of the depreciation, you may well generate a tax loss on your personal tax return.

You might consider having another family member own the real estate; then the property will not be part of your estate. That could save estate taxes.

There are advantages to personal ownership of the real estate not related to taxes. As the value of the property increases, you may be able to generate cash by refinancing. Also, if the corporation does not own the real estate, you can readily sell the business and keep the property.

Property now held by your corporation can be transferred to you via a sale. You could then lease it back to the corporation.

The advantages of personal ownership of business real estate are significant. In reviewing the benefits in your particular situation, you must give due consideration to the passive loss rules and other complexities of the tax laws. See us before you buy business real estate or change the form of ownership on real estate you already have.



What's New in Financial Planning?

Savings bonds stop earning interest

When savings bonds reach final maturity, they stop paying interest. If you don't cash them in or convert them at that point, you are giving the government an interest-free loan.

The U.S. Treasury recently announced that it is holding about $6.5 billion of Treasury securities that no longer pay any interest.

The Bureau of Public Debt has an Internet site where you can check maturity dates of your bonds --

Or call the Savings Bond Operations Office at 304-480-6112 (not a toll-free call).

If you have savings bonds that have matured, you should take them at once to a bank to either redeem them for cash or exchange them for Series HH bonds.

And by all means, keep an eye on the maturity date of any other bonds you purchase.



Long-term care insurance: Do you need it?

It has been estimated that nearly half of all people over age 65 will require nursing home care at some point in their lives. The cost of an extended stay in a nursing home could completely deplete savings that it took a lifetime to accumulate. Therefore, long-term care insurance should be considered when planning for the future. Do you need it? Are the premiums deductible on your tax return? What should be included in the policy?

Factors to consider

A number of factors should be considered in determining whether you need long-term care insurance.

* Age. One consideration is age. Statistically, the likelihood of becoming chronically ill before the age of 65 is remote. Therefore, buying too soon may be overly cautious. Waiting too long, however, could mean a dramatic increase in cost.

* Wealth. The amount of your wealth is another factor. People with low incomes usually can't afford the premiums. On the other hand, wealthy individuals can often self-insure. Consequently, it is the middle class that generally benefits most from this type of insurance.

* Family history. Consider family history to determine whether nursing home care is likely to be needed.

* Tax treatment. Since 1997, premiums for long-term care insurance have been deductible. However, there are extensive limitations. The first limitation is the 7-1/2 percent of adjusted gross income (AGI) floor. For example, if your AGI is $100,000, you will receive a tax benefit only if your deductible medical costs, including long-term care premiums, exceed $7,500. Also, the deductible amount of the premiums varies with your age. For 1999, if the insured is 40 or under, the annual limit is $210. This increases gradually, until the limit on deductible premiums reaches $2,660 for insureds age 71 and over.

* Coverage. Another issue is coverage. Policies come with many different features and options, including the type of services covered, amount of daily benefits, length of benefits, time period before benefits begin, and inflation adjustments. Deciding which features are most important to you will help make the policy fit your needs and budget.

Concerns about price, tax benefits, and coverage make the decision regarding long-term care insurance a difficult one. We encourage you to contact us for additional information and assistance.



Chuckle of the Month

Investment advice -

"October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February." - Mark Twain



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.


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Copyright 1998 Richard C. Woodbury P.C. CPA