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December 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 December 1999

* Before December 31 - Check the amount of 1999 tax you have prepaid through withholding and quarterly estimates. If you're underpaid, consider increasing your withholding before year-end. Withholding is considered to have been paid evenly throughout the year. This could prevent your being charged underpayment penalties for 1999.

* December 31 -  Last day to pay expenses you hope to deduct on your 1999 return - such as medical bills, property taxes, IRA administrative fees, and charitable contributions. Pay expenses with a credit card if you don't have the cash. You'll get the deduction in 1999 even though you pay the credit card bill in 2000.

* December 31 -  Last day to set up a Keogh plan for 1999. Deductible contributions for 1999 can be made any time up to the filing deadline for your 1999 return.

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

Claim your tax refund

The IRS is looking for 102,840 taxpayers so that it can give them tax refunds totaling $72 million. Refund checks mailed to these individuals were returned to the IRS as undeliverable. Either addresses were wrong on the tax returns filed, or the taxpayers moved after filing and failed to notify the IRS of their new address.

If you haven't received a refund you expected, you should call the IRS at 1-800-829-1040.

Remember, too, when you move, send a Form 8822 to the IRS giving them your new address.



Investors: Consider some year-end tax moves

After one of the longest bull markets in history, with only a few bumps along the way, your investment portfolio may provide a wealth of tax-planning opportunities. But the time to act is now, while there's still time to make a difference in your 1999 taxes.

Review your portfolio

First, review your investment portfolio to see whether you have underperforming investments you want to sell at a loss. Any capital losses you take can be used to offset capital gains you've taken during the year. If you have more losses than gains, you can use the excess losses to offset up to $3,000 of ordinary income for the year.

Separate your capital gains and losses into long-term (those on investments held for more than 12 months) and short-term (on investments held for 12 months or less). Long-term gains are generally taxed at a maximum rate of 20%, compared to a maximum of 39.6% for short-term gains. So it's important to consider how long you have owned an investment before selling it. Sometimes holding it for a few extra days can effectively halve the tax rate on your gain.

Mutual funds require special planning

Most funds distribute their taxable capital gains and dividends for the entire year just before year-end. On that date, shareholders in the fund become liable for taxes on the distribution. If you plan to sell the fund anyway, consider selling before the distribution date so you avoid the additional taxes. But remember that you should never let taxes alone drive your investment decisions. Similarly, if you plan to buy shares of a fund late in the year, it may be worth waiting until after the distribution date. That way you avoid incurring the extra tax liability in the current year.

Give an investment to charity

Another move that could reduce taxes on your investment portfolio is to make charitable contributions with appreciated securities. When you donate securities which have appreciated in value since you bought them, you'll escape paying taxes on the appreciation. And you'll be able to claim a charitable deduction for the full market value of the securities.

For more information on these and other tax-cutting ideas, contact our office soon. Time is running out for moves you can make to cut your 1999 tax bill.



New Business

Tax changes ahead for businesses

Get ready for these tax changes coming in 2000 --

* The business mileage rate will go from the current 31 cents a mile to 32.5 cents, effective January 1.

* The threshold at which the electronic federal tax  payment system (EFTPS) must be used for federal tax deposits increases from $50,000 to $200,000.

* Taxpayers using magnetic tape for federal tax deposits will have to switch to paper coupons or the EFTPS for deposits or payments made after January 31, 2000.



Smart Business

How to find the right employee

To find and hire the best employee for the job, consider these suggestions:

Job descriptions. Develop a job description that accurately portrays the essential skills and personality characteristics needed for the job. Have current employees participate in writing job descriptions.

Applicants. Soliciting applicants through newspaper ads may not be the most efficient way to find suitable applicants. Instead try referrals from employees and others (friends, colleagues, ex-employees, family, former professors, and former candidates). Many businesses offer rewards for referrals, with a bonus when the referral stays on the job for a given period of time.

Interviews. Train those who do the interviewing to ask questions that elicit critical information. In evaluating applicants, visualize how each might "fit" with other employees and customers. Ask trusted employees to participate in the evaluation of candidates.

The offer. Be patient -- wrong hires will be costly! For key employees and hard-to-find skills, pay above the market and review salaries quarterly. For others, pay the market rate for your industry and region. Package a benefit plan tailored to individual needs (but avoid plans which discriminate). Remember that flexibility is critical for many candidates.

New hires. Assign another employee to act as a personal contact to new employees to help them "fit in." Take time to discuss how the new employee's expectations differ from on-the-job reality.

Establish a program. Having an active recruitment process in place will reduce the time needed to fill positions when they do become vacant. Keep a file of applicants who were not hired, along with a network for making contacts.

Hiring the right person begins with the right search. Reevaluate your current hiring process and adjust it to improve your chance of hiring employees who are a perfect fit for your company.



What's New in Financial Planning?

Estate tax relief is just around the corner

Congress tried to eliminate the estate tax in legislation it sent to the White House in September. The President vetoed the bill, but there's estate tax relief just ahead, nevertheless. A 1997 tax law change will increase the amount exempt from estate taxation from the current $650,000 to $675,000, effective January 1, 2000.

If you haven't reviewed your estate plan recently, make time to do so soon. If your documents don't take this changing exemption amount into account, you could end up with higher estate taxes than necessary simply through oversight.



Don't pay tax; exchange property

Although the tax code can often be unforgiving, there is one area that provides a bonanza to taxpayers. This is the tax-free exchange. Such transactions allow taxpayers to postpone paying the tax on the disposition of their business or investment property. This "postponement" of tax can be temporary or permanent, depending on the circumstances.

Trade for "like-kind" property. For sales of property held for business or investment purposes, an individual can lock in substantial economic gain without incurring the tax bite which applies to most sales. The rules for tax-free exchanges are precise, however. A business or investment property must be traded for another piece of "like-kind" property or properties (i.e., business or investment real estate for business or investment real estate) of equal or greater value.

Unfortunately, there is one major catch: the person exchanging the property may not receive cash in the transaction and may not let the buyer assume a mortgage greater than the one he is giving up. If either of these conditions exist, some gain is taxable.

Expand to a three-party exchange. In an exchange, matching two parties whose properties are suitable to each other is rare. Where the parties aren't happy with each other's properties, like-kind exchanges often expand from a two-party exchange to a three-cornered exchange.

With proper planning and professional advice, individuals with highly appreciated property can often trade into another property without having to take care of Uncle Sam in the bargain. For details on this tax-saving strategy, give us a call.



Chuckle of the Month


Common sense would tell you to dismount when you find yourself riding a dead horse. In the business world, however, other strategies are often employed. Recognize any of these approaches?

* Buy a stronger whip.
* Change riders.
* Appoint a committee to study the horse.
* Move the horse to a new location.
* Provide status reports daily on the dead horse.
* Rename the dead horse.
* Create a training session to increase our ability to ride.
* Add more managers/supervisors per dead horse.
* Hire a consultant to give their opinion on dead horses.
* Promote the dead horse to a supervisory position.
* Terminate all live horses to redefine productivity.
* Arrange to visit other sites to benchmark how THEY ride dead horses.
* Provide an incentive bonus for the jockey.
* Schedule a meeting with the dead horse to discuss his productivity problems.
* Do a cost analysis study to see if contractors can ride it cheaper.
* Hire another consultant to refute the first consultant's opinion that the horse is really dead.
* Bring in a motivational speaker to see if you can't get the horse to rise from the dead.
* Form a team, positioned to shift the horse's paradigm.
* Finally, if all else fails, prop the horse up, put ribbons in his mane & tail, and see if you can't find a buyer.



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