Online Advisor - December 2009

Major Tax Deadlines For December 2009

* December 15 - Fourth estimated tax payment is due for calendar-year corporations.

* December 31 - Last day to set up a Keogh retirement plan for 2009. Deductible contributions for 2009 can be made any time up to the filing deadline for your 2009 return.

* December 31 - Deadline to complete 2009 tax-free gifts of up to $13,000 per recipient.

* December 31 - Deadline for paying expenses you want to be able to deduct on your 2009 income tax return.

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, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.

* 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 you or your business, contact our office.

What's New in Taxes

Homebuyer's credit extended

Under prior law, an eligible first-time homebuyer could claim a maximum credit of $8,000 for a principal residence purchased before December 1, 2009. The credit began to phase out for single filers with a modified adjusted gross income (MAGI) above $75,000 and joint filers above $150,000.

Under a new law signed November 6, 2009, the credit is available for home purchases made before May 1, 2010 (July 1, 2010, if a binding contract exists before May 1). Also, the phase-out threshold increases to $125,000 of MAGI for single filers and $225,000 for joint filers. The homebuyer credit may be elected on a 2009 tax return for a qualified purchase in 2010.

Not just for first-timers: If you buy a home after November 6, 2009, and have owned and used the previous home as your principal residence for five consecutive years in the last eight years, you may claim a credit of up to $6,500.

New limit for everyone: No credit is allowed for purchases after November 6, 2009, if the price exceeds $800,000.

New rules in 2010 open Roth IRA conversions to everyone

Beginning in 2010, the rules governing Roth IRA conversions will undergo a significant change.

Traditional IRA to Roth IRA conversions will be available to everyone, creating a financial planning opportunity that didn't exist previously. Under the 2009 rules, taxpayers with income of more than $100,000 cannot convert a traditional IRA to a Roth IRA. Tax legislation enacted in 2006 changed the rules and ends the $100,000 income limit, effective January 1, 2010.

The Roth IRA has been a popular investment vehicle, with its ability to give taxpayers tax-free distributions once the account has been in existence for five years and the taxpayer has reached age 59½. Another Roth benefit is the lack of required minimum distributions once the owner reaches age 70½.

The conversion to a Roth does have a cost. When you convert a traditional deductible IRA to a Roth, you must include the entire amount converted in your taxable income.

If you do a conversion in 2010, you are allowed to report half of the income on your 2011 tax return and the remaining half on your 2012 tax return. You can also choose to pay the taxes due on the conversion on your 2010 return. While prepaying seems counterintuitive, remember that present federal tax rates are set to expire December 31, 2010. Postponing income into future years could mean a bigger tax bill.

The new conversion rules are particularly advantageous to those upper-income taxpayers who could never participate in a Roth. Now taxpayers in high tax brackets will have access to Roth IRAs. One possible strategy is to set up a traditional IRA with nondeductible contributions in 2009 and then convert it to a Roth in 2010.

It's important to weigh the pros and cons of a conversion in your individual situation. Please give us a call if you would like to discuss the best strategy for you.

New Business

NOL carryback extended by recent law

Normally, a business can carry back a net operating loss (NOL) for only two years before carrying it forward for up to 20 years. A prior law change allowed a carryback for three, four, or five years to qualified small businesses for NOLs in tax years beginning or ending in 2008.

A new law, the "Worker, Homeownership, and Business Assistance Act of 2009," extends the longer carryback regardless of the size of the business. This election is generally available for NOLs incurred in either 2008 or 2009.

Caveat: Under the new law, an NOL carried back to the fifth year is limited to 50% of the taxable income for the year. Any remaining NOL may offset income in the remaining four years.

Wages or dividends? An important tax question for shareholder-employees

S corporations are the most popular form of corporate business structure. There are excellent tax planning benefits uniquely available to S corporation shareholders who are also employees, not the least of which is the opportunity to manage self-employment and payroll tax liabilities. Unlike sole proprietorships, for example, S corporations can pay wages to shareholder-employees and also distribute income to them as corporate dividends, which are free of the payroll taxes that apply to wages.

* Do a comparison

If your business is a sole proprietorship with net income of $200,000, 92.35% of this amount (or $184,700) will be subject to self-employment tax. The social security portion of the tax is 12.4% on the first $106,800. The Medicare tax of 2.9% applies to the full $184,700. So your self-employment tax will be $18,600. You can take a deduction for 50% of this tax.

If you incorporate and elect to be taxed as an S corporation, the result can be dramatically different. Again assume that your business income is $200,000, and the corporation pays you a salary of $60,000 (which you can demonstrate as reasonable). You and the corporation, as your employer, will pay a combined 15.3% on your $60,000 salary as payroll (FICA) taxes. The total tax is $9,180. The remaining $140,000 of business income can be distributed to you as S corporation dividends free of payroll or self-employment taxes. The result is a significant tax savings.

The IRS is very much aware of the potential for abuse by taxpayers paying unreasonably high or low salaries. In the example above, if the IRS determined that your salary was set low to avoid taxes, you could face a reclassification of all or part of your $140,000 S corporation dividends as wages subject to payroll taxes. The key: Pay reasonable and well-documented salaries.

* So what is "reasonable"?

Determining whether wages are reasonable involves many factors, including the nature of the services performed, the responsibilities involved, the time spent, the size and complexity of the business, prevailing economic conditions, compensation paid by comparable firms for comparable services, and salaries paid in prior years. There are no hard and fast rules, and there is no definition of "reasonable" in the tax law. To analyze this strategy for your particular business situation, give us a call.

What's New in Finances

Try a different gift idea this year

Are you searching for gift ideas for the holiday season? It's never easy, especially for older children and teenagers. They're too old for toys, but do they really need another sweater or computer game?

Have you thought of giving financial gifts? They may sound less exciting, but in the long run they'll be much more appreciated. And financial gifts can grow in value over time.

Here are a few ideas you might want to consider.

* Fund a child's Roth IRA. If your teenagers worked this summer, chances are they spent their earnings. But they can use your gift to open a Roth IRA, up to the amount of their earnings or the regular $5,000 limit. The IRA will grow tax-free, and by the time the teenager retires, your gift should have compounded to a substantial tax-free retirement fund.

* Fund a 529 education account. Anyone can contribute to a child's Section 529 college savings plan, which accumulates savings for tuition and living expenses. There are no income restrictions on the donor, and few practical limits on the amount that can be saved. Your gift will grow tax-free in the plan.

* You could also make your gift to a Coverdell education savings account. These IRA-like accounts also grow tax-free, but there's a limit on total contributions of $2,000 a year from all sources. The amount of your gift may also be limited, depending on your income.

* Consider this gift if you just want to encourage an interest in saving and investing. Buy a small number of shares in a mutual fund and package them with a book on basic investing. The child can watch the investment grow over time and can enjoy dividend payouts too. Modest amounts of investment income can be tax-free to children, although the kiddie tax may apply at higher levels.

Please contact our office for more ideas and information on the tax aspects of giving financial gifts.

Develop three habits to stay out of debt

Staying out of debt is simple, but it's not easy. It requires fortitude. It means foregoing impulsive purchases in exchange for long-term financial freedom. Staying out of debt requires that you deny cravings, at least temporarily, for the "must-have" stuff that beckons from every mall, television advertisement, and magazine.

Personal debt can be categorized as necessary or unnecessary. Necessary debt can generally be linked to assets such as your home mortgage, a basic car for getting to work, or a college degree. Unnecessary debt, on the other hand, might include routine credit card charges or installment loans for items that rapidly decline in value.

If your goal is long-term financial freedom, avoiding unnecessary debt is crucial. Three simple habits can help you achieve this goal.

1. Live below your means. Much of the stuff that seems so essential today will, in fact, grow less desirable over time. Of course, living below your means requires that you discover what those "means" are. For many people, this means tracking your income and expenses over a period of time - a month or more - to learn where your money comes from and how it's spent. You might be surprised. That cup of gourmet coffee on the way to work, that weekly meal at the fine dining establishment, that car payment for the latest sedan - all cut into your disposable income. By spending less on such items, you'll be able to save for the future and develop long-term wealth.

2. Save for emergencies. By setting aside money in easily accessible accounts, you avoid racking up credit card bills when unexpected expenses occur. Such expenses could include trips to the emergency room, replacing the water pump on the family car, or patching a hole in the roof. A reserve fund can also help you survive periods of unemployment without incurring additional debt.

3. Use debt wisely. If you decide to incur debt, know what you're doing. Slow down, take a deep breath, think about how valuable this item will seem three months from today. Also ask yourself whether you can pay off these new charges out of next month's income.

Staying out of debt isn't glamorous, and it requires more than a little self discipline. But the long-term benefits are substantial. If you'd like additional suggestions for developing habits of financial discipline, give us a call.

Take a Break

Season's Greetings

This is the time of year to pause and reflect on our blessings and to express our appreciation to the many people who enrich our lives.

May we take this opportunity...

* To wish you and yours the happiest of holidays and a healthy and prosperous 2010.

* To thank you for your business in 2009.

* To remind you that we welcome your referrals. We would be pleased to have you mention our name to friends and associates who may need our services.

The information contained in this newsletter 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 the Online Advisor, or for assistance with any of your tax or business concerns, contact our office.

Online Advisor - November 2009

Major Tax Deadlines For November 2009

During November: It's wise to estimate your 2009 income tax liability and review your options for minimizing your 2009 taxes. Call us if you would like to schedule a tax-planning session.

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, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.

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 you or your business, contact our office.

What's New in Taxes

Little change for 2010 tax numbers

There was minimal inflation in 2009; therefore, tax numbers that are annually adjusted for inflation will see little or no change for 2010. The IRS has released the 2010 numbers for the more than three dozen tax breaks that are subject to annual inflation adjustments.

Among the numbers you'll use for your 2010 tax planning and for filing your 2010 tax return in 2011:

* The exemption amount for each taxpayer and each dependent remains at $3,650.

* The standard deduction amount increases slightly for heads of household in 2010, going from $8,350 to $8,400. Singles will see no change in their standard deduction; it remains at $5,700. The standard deduction for married couples filing a joint return will be unchanged at $11,400.

* The annual gift tax exclusion will remain at $13,000 for 2010.

The Social Security Administration has announced that the maximum earnings subject to social security tax will not change for 2010. The taxable wage base will stay at $106,800.

Year-end tax reminders

The clock is ticking on tax moves you might benefit from if you act before December 31. Here are some year-end reminders.

* If you don't itemize your deductions, you may still deduct 2009 property taxes you pay, up to a $500 limit for singles and $1,000 for couples.

* If your small business doesn't have a pension plan, consider establishing one to get a tax credit of up to $500 in each of the plan's first three years.

* Max out contributions to retirement plans. You can put away $16,500 in a 401(k) plan ($22,000 if you're 50 or older), $11,500 in a SIMPLE ($14,000 for 50 and older), or $5,000 in an IRA ($6,000 for 50 and older).

* Need a new vehicle? Buy before year-end to take a deduction for sales taxes on up to $49,500 of the purchase price. Income limits apply.

* Consider buying equipment for your business to utilize the $250,000 first-year expensing option and 50% bonus depreciation.

* Get your investment records in order so you can make wise year-end sell decisions, either to rebalance your portfolio at the lowest tax cost or to offset gains and losses.

Contact us for a year-end review of tax-cutting options suited to your specific situation.

New Business

Time's running out for 2009 business tax planning

Although it's getting late in the year, small business owners still have time to reduce their 2009 tax bill.

The bottom line of tax planning for small businesses is minimizing taxable income and maximizing deductible expenses. Unless you expect a higher tax bracket in 2010, consider deferring income until next year. You might wait until January to mail out sales invoices or to ship sold goods. This might sound counter-intuitive, but remember, income deferred to January will not be reported on your tax return until you file for 2010.

The flip side of reducing taxable income is increasing your deductions. Try to accelerate business expenditures planned for next year into 2009. Stock up on supplies or take a business trip earlier than planned. If you need to purchase major equipment, consider buying before year-end. Up to $250,000 can be written off in 2009 for new and used business equipment acquired and placed in service before December 31. First-year 50% bonus depreciation can also be taken on new equipment purchases made in 2009.

Accrual-basis businesses can reduce taxable income by writing off bad debts, as long as there is adequate documentation. Identifying obsolete inventory might also score a deduction. One of the surest methods for cutting business taxes is a qualified retirement plan. If you already have a plan established, be sure to contribute the maximum allowed for 2009.

Your business may already qualify for some deductions but lack one thing: proper accounting records. For instance, the business use of your personal vehicle is deductible, but only if you keep detailed records. You may also be eligible for a home office deduction. But without documentation, you could lose the write-off.

Finally, do a quick review of your estimated tax payments before year-end. This will tell you where you stand, and possibly save you tax underpayment penalties to boot.

A little year-end planning could pay big dividends come April 15. Give our office a call today to discuss tax-cutting strategies for your business.

Take time to do a "banker" review

Have you taken a look at your company's banking relationship lately? Chances are you opened an account at a local branch when you started the business and haven't changed since. But your business and its banking needs have almost certainly changed.

Periodically, it's a good idea to examine how well your bank is serving your needs. You and your accountant or bookkeeper should arrange to meet with your local bank manager or loan officer. Your goal is to summarize your company's performance and banking needs, and then ask the bank how it can best serve you. Topics to discuss include:

* Fees. Is your current fee structure the best for your business? Explore alternatives that might reduce fees. Consider switching to an "analysis" method, where you earn credit for the deposits you maintain.

* Payment processing. Review how you pay your bills to vendors and how you deal with payments from customers. Would more use of electronic payment processing improve your operations? Would your business benefit from cash management techniques to improve cash flow?

* Loans. Do you have or will you need a business loan or line of credit? If so, discuss possible rates, terms, and alternatives. Remember, most banks want to make sound loans. Put that to your advantage in discussions.

* Deposits. Banks are also hungry for deposits. Discuss how much you keep on deposit and how you are compensated for those amounts. If your business has large cash balances at certain times, discuss possible short-term investments.

* Other services. Discuss other banking needs such as company credit cards for executives who travel.

Your bank should be your business advocate. Keep the communication open and the pressure on to make sure it fills that role.

What's New in Finances

Three important IRA reminders

As you do your tax and financial planning over the next several months, keep these current and future IRA rules in mind:

* If you are required to take annual distributions from your IRA or other retirement plan, remember that these required minimum distributions (RMDs) were suspended for 2009.

* If you're 70-1/2 or older, you can make a 2009 donation of up to $100,000 directly from your IRA to a qualified charity without treating the donation as a taxable IRA distribution.

* Beginning January 1, 2010, the $100,000 income limit for converting a traditional IRA to a Roth IRA is eliminated. This rule change essentially allows everyone at every income level to convert a traditional IRA to a Roth.

Start an IRA for your working child

Most children are not into saving for the future. But the current tax and investment benefits are worth considering. A few dollars invested at an early age can return large sums at retirement time.

The Roth IRA can be especially beneficial for young people because they will have many years of compounded earnings within the IRA, earnings which could go income-tax-free forever. And in many cases, the lack of a current tax deduction for the contribution results in little or no change in the child's current income tax.

Take this example. Sara is age 17 and earned $3,000 from her summer job. She is entitled to invest in an IRA up to the amount of her earnings or $5,000, whichever is less. If Sara made a single, one-year contribution of $3,000 to an IRA, her fund would grow to $49,000 by the time she's 65 years old, assuming a 6% annual return. Even if the return rate were only 4%, her IRA would still be worth almost $20,000. And that is for a single year's contribution. If she continued to invest $3,000 at 6% every year to age 65, she would have more than $750,000.

What if Sara waits until she is 25 years old to start her IRA? The accumulated dollars at age 65 would be about 60% of the above number. So, those first eight years could be worth a quarter of a million dollars at retirement.

If Sara spends her earnings, she can still benefit from an IRA. Since she had "earned" income, she is entitled to contribute to an IRA regardless of the source of the funds. If her mom and dad or grandma want to give Sara the money, it can be used to fund the IRA. Think of this possibility when you're trying to decide on birthday and holiday gifts for loved ones.

Young people should be encouraged to start investing at an early age. It is a great habit to get into, and it just might keep them from being among the 95% of retirees who require financial assistance from others when they retire.

For details or assistance with your financial concerns, give us a call.

Take a Break

A few numbers to contemplate…

* Half the cookies baked in the United States are chocolate chip.

* Spam controls 75% of the canned luncheon meat market.

* 52% of twins have names that start with the same initial.

* The U.S. has 5% of the world's population and 80% of the lawyers.

The information contained in this newsletter 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 the Online Advisor, or for assistance with any of your tax or business concerns, contact our office.

Online Advisor - October 2009

Major Tax Deadlines For October 2009

* October 1 - Generally, the deadline for self-employeds and small businesses to establish a SIMPLE retirement plan for 2009.

* October 15 - Deadline for filing 2008 individual tax returns on automatic extension of the April 15 filing deadline.

* October 15 - If you converted a regular IRA to a Roth IRA in 2008 and now want to switch back to a regular IRA, you have until October 15, 2009, to do so without penalty.

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, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.

* 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 you or your business, contact our office.

What's New in Taxes

A new vehicle could bring tax savings

If you're thinking of buying a new car, truck, motorcycle, or motor home this year, you might benefit from a tax break included in the "Recovery Act of 2009." Here are the details.

* You can deduct state and local sales taxes paid on up to $49,500 of the purchase price of a qualifying vehicle.

* Qualifying vehicles generally include new (not used) cars, light trucks, motorcycles, and motor homes purchased after February 16, 2009, and before January 1, 2010.

* The deduction can be claimed on your 2009 tax return regardless of whether or not you itemize other deductions.

* The deduction phases out for single taxpayers with income between $125,000 and $135,000. For joint filers, the phase-out range is $250,000 to $260,000.

For more information or planning assistance, give us a call.

Mortgage debt relief: Answers to frequently asked questions

To compound the financial woes resulting from a foreclosure or other mortgage restructuring for your home, the IRS generally imposes tax when debt is cancelled. In other words, you're taxed on the amount forgiven by the lender as if you actually received it as income. However, Congress provided some relief to homeowners under the "Mortgage Forgiveness Debt Relief Act of 2007."

Here are the answers to several common questions in this area.

* What relief does the recent law provide? Generally, it excludes tax on cancellation-of-debt income realized from a foreclosure, short sale, or other mortgage restructuring. This tax break only applies to debt used to buy, build, or improve your principal residence. It isn't available for vacation homes or investment property.

* Is there a limit? Yes. The exclusion can cover the tax due on up to $2 million of forgiven debt ($1 million if you're married and file separate tax returns). Any excess is taxable under the general rules.

* How does the exclusion affect your basis in the home? You must reduce your basis (the amount used to determine taxable gain or loss from a home sale) by the amount of cancelled debt excluded from taxable income. For example, if a loan restructuring results in cancellation of $50,000 of debt on a home with a basis of $450,000, your basis is reduced to $400,000. This could increase your taxable gain when you sell the home, although the first $250,000 of gain ($500,000 for joint filers) may still be sheltered by the home sale exclusion.

* How do I know how much debt is excluded? Your lender will send you Form 1099-C (Cancellation of Debt) showing the amount of debt forgiven and the fair market value of property given up through foreclosure. It also sends the IRS a copy of the form. The IRS encourages homeowners to check this information carefully.

* What is a short sale? Instead of foreclosing on a home, a lender may allow you to sell it for less than the mortgage amount and take the proceeds in full satisfaction of the debt. For instance, let's say you still have a mortgage of $250,000 on your home, but the home's value has dropped to $225,000. Assuming the bank agrees to a short sale and you incur $15,000 in selling expenses, you turn over the remaining $210,000 to the bank. The $40,000 difference, which will be reported on Form 1099-C, qualifies for the tax exclusion on cancellation-of-debt income.

* Is this tax relief permanent? No. Initially, the tax exclusion only applied to debt forgiven in 2007, 2008, or 2009. But the economic stimulus law passed last year - the "Emergency Economic Stabilization Act of 2008" - extended this tax break for three years through 2012.

This is just a brief overview of the new mortgage debt relief available to homeowners. Call us if you have questions pertaining to your situation.

New Business

Our workforce is changing

Things are changing on the job front. Here are a few workforce numbers reported recently.

* If the trend reported in June 2009 continues, women will soon make up the majority of the nation's workforce. In June 2009 women held 49.83% of the country's 132 million jobs. This will be the first time in history that women constitute a majority on the job front.

* The Labor Department reports that in the first five months of 2009, 5.3% or some 7.6 million workers held more than one job.

* According to the Pew Research Center, the U.S. workforce is getting older. By 2016, 22.7% of the workforce will be aged 55 and older. Reasons cited include the effect of the current economic downturn on retirement savings and the extra years young people remain in school instead of joining the workforce.

* The Bureau of Labor Statistics reports that between 2000 and 2008, the number of workers aged 65 to 69 rose 25%. Workers in the 70 to 74 age group increased 32%, those in the 75 to 79 age group increased 38%, and those 80 and older increased 67%. It's clear that as people live longer, their attitudes toward retirement are changing.

Six questions to ask before starting a business

Throughout America, in rural towns and large cities, companies come and go with clockwork frequency. That specialty store with the ragged sign and lousy service? It's been replaced by a funky restaurant that serves great linguini. Yesterday's bicycle shop is today's bakery. It's no wonder. Creating a company that can survive even a few years is not an easy feat.

If you recently lost your job or have always dreamed about being your own boss, you may be contemplating a new business venture. Before launching a small business, increase your chances of success by answering a few simple questions.

1. Is there a market for my product or service? Test your target demographic. This can be as simple as putting together focus groups who will provide honest feedback. You might also attend trade shows to network with others in similar markets. Consider reviewing census figures for your area. For example, are you planning to sell baby clothes when most people in your target area are empty nesters?

2. How much money will I need? You'll want to review sales revenue and expense forecasts for the first year of planned operations. By the way, don't count on friends, relatives, or bankers to bail you out if cash flow doesn't meet expectations. A basic rule is that the company should have enough cash to survive - without tapping loans, credit cards, or lines of credit - for at least a year. For many people, that means starting the business while keeping their day job.

3. Do I have a business plan? A detailed business plan will help you think through all aspects of your company's start-up phase. It defines what you're selling. It lays out marketing strategies, start-up capital requirements, overhead expenses, expected cash flow, and plans for business growth. It should include a summary of your experience in that product or service.

4. Are my books in order? Whether you keep your own records or hire someone else to perform this important task, you should know whether your business is profitable on a monthly basis. That means tracking all expenses, including payroll costs and inventory. A sales-only focus has doomed many small businesses to failure.

5. How should the business be structured? Sole proprietors are liable for the business debts, taxes, and legal costs of their companies. You might want to consider setting up your firm as a corporation or limited liability company. Analyze this important decision at the outset so that you understand your options.

6. Should I set up a website? Whether or not you plan to use the Internet for sales, you can't ignore the potential value of an online presence. It might create a higher degree of visibility for your small business and enable you to advertise your main selling points to the general public. A website also gives the opportunity to promote your activities or offer special incentives.

Starting a small business is not for the faint of heart. For guidance in getting off to a good start, give us a call.

What's New in Finances

Income levels down in 2008 and not much improvement expected in 2009

The Census Bureau's annual report on income and poverty provides a snapshot of the state of the U.S. economy.

According to the report, the median American household income dropped 3.6% in 2008, the steepest drop since the government began keeping records in 1947. Income was at its lowest dollar level since 1997.

It's expected that 2009 will probably be even worse, with a 5% decline in incomes expected.

Other statistics from the report:

* The number of people living in poverty rose to 13.2% in 2008, up from 12.5% in 2007. That's the highest poverty rate since 1997.

* Thanks to Medicare, Medicaid, and the state Children's Health Insurance Program, the number of Americans without health insurance remained the same as the previous year.

* Women continued to earn 77% of what men made in 2008, unchanged from 2007.

Credit card fraud: Will you be the next victim?

Credit card fraud has been around since the advent of credit cards, but the thieves have advanced with technology.

At first, crooks used low-tech maneuvers like robbery, dumpster diving, or mailbox crashing to steal cards, statements, and merchant receipts. Although still popular, these methods are being eclipsed by more sophisticated techniques that range from phone scams and phishing to phony websites and spyware.

Phone scammers use lies to trick victims into disclosing their credit card numbers and other sensitive information. The callers might say they're asking for charitable donations, selling goods or services, or "updating" your account information.

Phishing is the online equivalent, where scammers send e-mails claiming to be from legitimate sources like PayPal, eBay, banks, or even the IRS. The e-mails usually direct recipients to official looking websites that use various pretexts to elicit credit card information.

Spyware can be installed on your computer when you open an unsolicited e-mail attachment. Although less frequent, skilled hackers can also insert spyware through unpatched weaknesses in Windows or Web browsers.

The spyware sends the desired data (credit card numbers, etc.) to remote servers whenever the victims enter the information.

Here are steps you can take to guard against fraud.

* Photocopy credit cards and other important documents that you keep in your wallet. Use the copies to notify your bank and credit card companies if your wallet is lost or stolen. Then cancel the cards and put a hold on all charges.

* Always review your bank and credit card statements to make sure the charges are legitimate. Notify issuers immediately of any unauthorized entries. Then consider changing your account number or canceling the card.

* Shred statements or receipts before disposing of them.

* Never give personal information to an unsolicited caller. Scammers can falsify names and numbers that appear on your caller ID. Look up the company's number to make sure it's legitimate; then call back if you wish.

* Don't open e-mail attachments from unknown parties, and don't respond to unsolicited e-mail requests for personal information.

* Avoid writing down your PIN or passwords, and shield the numbers when using ATMs or similar machines. Even if nobody is nearby, thieves may have affixed hidden cameras.

* Protect your computer with a firewall, anti-virus software, and an anti-spyware program and update them.

* The IRS does not use e-mail to contact you. Do not open or respond to such e-mails.

Take a Break

History of federal income tax rates

Tax rates are expected to go higher in the coming years. For a look at tax rates over the years, here's a partial history of our federal income tax rates for individuals since the income tax was created in 1913.

Federal Income Tax Rates Since 1913

The information contained in this newsletter 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 the Online Advisor, or for assistance with any of your tax or business concerns, contact our office.

Online Advisor - September 2009

Major Tax Deadlines For September 2009

* September 15 - Due date for individuals to pay third quarter installment of 2009 estimated tax.

* September 15 - Due date for filing 2008 tax returns for calendar-year corporations that had an extension of the March 16 filing deadline.

* September 15 - Due date for filing 2008 partnership tax returns that had an extension of the April 15 filing deadline.

* October 1 - Deadline for businesses to adopt a SIMPLE retirement plan for 2009.

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, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.

* 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 you or your business, contact our office.

What's New in Taxes

The IRS reminds taxpayers to use new tax breaks

The IRS has issued a news release reminding taxpayers to take advantage of the tax breaks provided in the "American Recovery and Reinvestment Act of 2009," the recovery law passed earlier this year.

Among the tax benefits that are available for a limited time:

* First-time homebuyer credit of up to $8,000 for homes purchased before December 1, 2009.

* Deduction for state and local sales and excise taxes paid on the purchase of a new car, light truck, motor home, or motorcycle. No limit on the number of vehicles you may buy, but the deduction per vehicle is limited to tax on up to $49,500 of the purchase price. Higher-income taxpayers won't qualify for the deduction, and the deduction ends after 2009.

* Credit for energy-efficient home improvements of up to $1,500 for improvements done in 2009 and 2010.

* American opportunity tax credit of up to $2,500 for qualifying higher education expenses for 2009 and 2010.

The IRS is so concerned that taxpayers will not utilize these tax breaks that it has also launched a YouTube video site and an iTunes podcast with information about these tax breaks.

Do a year-end investment review to cut taxes and increase returns

This is a good time of year to review and rebalance your investment portfolio. Although the recent market volatility has been disastrous for many investors, there may still be some year-end moves you can make that will cut your 2009 taxes and increase your after-tax returns. As you identify investments to buy and sell, keep the following tax implications in mind:

* First, remember that any sales you make within your retirement accounts are free of tax. If you need to trade just to rebalance your portfolio, consider doing it in your IRA or 401(k) plan.

* If you're selling investments to weed out poor performers, remember that losses can cut your tax bill. You can use capital losses to offset taxable gains, plus up to $3,000 of other income. If you still have losses left over, you can carry them forward to use in future years.

* Not all dividends on stocks and mutual funds are taxed at the same rate. "Qualified" dividends paid by most U.S. and some foreign companies enjoy lower rates of 5% or 15%, depending on your tax bracket.

* You can often manage the size of your gain or loss when you decide to sell some, but not all, of a particular stock or mutual fund. To do this, you must have kept good records of the date and the price for each share purchase. By selling the highest cost shares first, you'll minimize your taxable gain or maximize your loss. You must specify the particular shares you are selling at the time you sell.

* Don't forget to include any reinvested dividends when you calculate your cost basis for mutual fund shares.

* If you're planning to buy or sell mutual fund shares close to year-end, take the tax consequences of the fund's year-end distribution into account.

* If you want to dispose of stock that has appreciated, consider donating it to your favorite charity. You can generally claim a deduction for the appreciated value and avoid paying any tax on your gain.

Give us a call to find out more about year-end investment planning.

New Business

IRS urges small businesses to use tax breaks

The "American Recovery and Reinvestment Act," the economic stimulus law passed earlier this year, included a number of tax-saving opportunities for businesses. Because some of these tax breaks are available for a short time only, the IRS is urging small businesses to act now to benefit from the provisions.

* Equipment purchases. The $250,000 limit for immediately expensing qualified equipment purchases was extended through 2009. The deduction is gradually reduced once annual equipment acquisitions exceed $800,000. Both new and used equipment qualify for this tax break. Sport utility vehicles are still subject to the $25,000 expensing limit.

In addition to the expensing option, purchases of new equipment, software, and qualified leasehold improvements can qualify for 50% first-year bonus depreciation through the end of 2009.

* Expanded net operating loss carryback. The 2009 law extended the carryback period for 2008 net operating losses from two years to as many as five years. To be eligible for the extended period, a business's average annual gross receipts for the last three years must be $15 million or less.

This option is available to eligible taxpayers for a limited time. A corporation that operates on a calendar-year basis, for example, must file a claim by September 15, 2009, while eligible individuals (sole proprietors, partners in a business partnership, and S corporation shareholders) have an October 15, 2009, deadline.

* COBRA credit. Employers providing the 65% COBRA health insurance premium for former employees claim credit for this subsidy on their quarterly or annual employment tax returns. According to the IRS, businesses can ease cash flow problems by reducing their employment tax deposits by the amount of the credit.

For guidance in identifying and utilizing both new and old tax breaks for your business, give us a call now.

Is your business prepared for flu season?

The government is encouraging businesses to look ahead to the upcoming fall and winter flu season and to make plans to minimize the flu's effects on business productivity. Flu season may be worse this year due to the H1N1 or swine flu which still has not been effectively brought under control.

Some actions being suggested by government officials:

* Encourage vulnerable workers to get the flu vaccine as soon as it becomes available (pregnant women, health care providers, older individuals, and those with asthma, for example).

* Clean work areas, stock up on hand sanitizers, encourage frequent hand washing.

* Send workers home at the first sign of flu symptoms, and encourage them to stay home for at least 24 hours after fever abates.

* Consider staggering work shifts or letting employees work at home if a company-wide outbreak seems likely.

Your business should also consider developing a plan for operating if a flu pandemic strikes. The U.S. government has started to plan for the consequences of a pandemic, but in the chaos that would accompany a serious outbreak of flu, your business can't rely only on the government. At this point, it's probably too early to make concrete plans. But it's not too early to start thinking about the possible effects on your business and how you would deal with them.

Consider the following issues:

* Loss of employees. How would you cope if perhaps 25% of your employees were sick and unable to report for work? How would your business be affected?

* Quarantined employees. What would happen if a significant number of your employees were quarantined and unable to report to work? Could they work from home? It's quite possible that compulsory quarantine would be imposed if an area is affected by an outbreak.

* Loss of a supplier. How would you be affected if a major supplier lost employees and cut back production? How much inventory do you keep on hand?

* Disruption in shipping. A pandemic could well disrupt transportation and shipping. This could affect both your supplies of materials and your ability to ship a product.

* Loss of communications. In a worst case, telephone and/or Internet service could be interrupted. How would this affect your ability to do business?

The potential problems and the solutions to them are different for every business. There are certainly no easy answers. But the businesses that come through a pandemic in the best shape will be those that have done their planning! Make a start by assessing your vulnerabilities and thinking of possible responses.

What's New in Finances

New credit card rules become effective

The new "Credit Card Accountability, Responsibility and Disclosure Act of 2009" (CARD), which is designed to protect consumers from unfair credit practices, generally does not take effect until February 2010. But a few provisions went into effect on August 20, 2009.

Credit card companies must now give consumers 45 days notice before changing interest rates or fees. However, they don't need to warn you of a rate increase if your payment is late by 60 or more days.

The new law will not allow credit card companies to count your payment as late unless they've sent their bill at least 21 days before it is due.

Provisions in the law which go into effect next year will restrict rate increases on existing card debt and marketing to college students.

As things change, update your beneficiaries

Although life's only certainties may be death and taxes, we rarely enjoy planning for them. But without planning, your assets can go to unintended recipients - including the government.

* Only the first step. Naming your beneficiaries is only the first step. It's just as important to periodically review the beneficiaries designated by your will, insurance policies, investment accounts, retirement plans, and similar documents. Examine each document carefully, because some assets may pass to the beneficiaries named in the governing document, regardless of the terms of your will.

Example: You name your husband as sole beneficiary of your life insurance policy and your 401(k) plan. After a few years, you divorce and remarry. You remove your ex-husband from your will and name your new husband as the insurance beneficiary, but you forget about the 401(k) plan. The result: When you die, your ex-husband probably will inherit the plan assets.

Events that might require changing beneficiaries include marriage, birth, divorce, death of a beneficiary, increases or decreases in your wealth, changes in tax law, or simple changes of heart. Even in the absence of a triggering event, it's wise to review your designations regularly. A beneficiary may have fallen out of favor. A once-needy beneficiary may have become wealthy, enabling you to divert your assets elsewhere. Ongoing changes to estate tax law may mandate different approaches to beneficiary selection.

* Where to start. When reviewing your beneficiary designations, start by listing the relevant documents. In addition to your will, personal life insurance, and active retirement plan, include employer-provided life insurance and life insurance associated with services such as credit cards, medical plans, and trade associations. You'll also need to look at stock purchase plans, stock option plans, and similar benefit programs.

If you haven't reviewed your beneficiary designations lately, think about doing it soon. For assistance in your review, give us and your attorney a call.

Take a Break

Millions, Billions, Trillions: Just how much money is it?

The recent stimulus law provided about $800 billion dollars in an effort to get the U.S. economy back on track. The proposed 2010 federal budget hit the $3.5 trillion mark.

Just how much money is that? Most people have a hard time envisioning such astronomical amounts. Here's a visual that might help.

$1,000,000 - If you laid one million one-dollar bills end-to-end, you would have a path 95 miles long.

$1,000,000,000 - A billion one-dollar bills laid end-to-end would go around the earth almost four times. (The earth is about 25,000 miles around.)

$1,000,000,000,000 - A trillion one-dollar bills laid end-to-end would go around the earth 3,800 times. So a $3.5 trillion federal budget would wrap the world 13,000 times in one-dollar bills. And that, fellow taxpayers, is a lot of money.

Online Advisor - August 2009

Major Tax Deadlines For August 2009

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, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.

* 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 you or your business, contact our office.

What's New in Taxes

An update on tax collections

The economy hasn't been doing well, and when the economy slumps, so do tax collections. The American Institute for Economic Research reported a 34% drop in federal taxes collected in April 2009 compared with April 2008. For the 12 months ended in April 2009, tax revenue dropped 44% compared to a year earlier.

On the topic of taxes: President and Mrs. Obama reported 2008 income of $2.7 million and paid $855,000 in federal income tax. Vice President and Mrs. Biden reported $269,000 of income and paid $47,000 in federal income tax.

Put midyear tax planning on your summer agenda

Summer's here, and probably the last thing on your mind is tax planning. The problem is that if you wait until December, there's little time for changes to take effect. But if you take the time to plan now, you still have six months for your actions to make a difference on your 2009 tax return. With the recent tax changes, planning for the reduction of your 2009 taxes is more important than ever. Here are some suggestions to get you started.

* Pull out your 2008 income tax return, and review your income and deductions. Did you lose any credits or deductions because your income was above a certain threshold amount? If so, what can you do to keep this year's income below the threshold?

* You might want to schedule home improvement projects to benefit from the tax credits available for energy-saving expenditures on your principal residence.

* Evaluate your investment portfolio. If you have been avoiding the disheartening news, now is the time to reassert control over your investments. Review your holdings to see if you should take some losses to offset other income. If you're considering investment purchases, analyze the type of income you'll be receiving from the assets you buy. Then stash the investment in the proper account (taxable, deferred, or nontaxable) to achieve maximum return and tax savings.

* Adjust your retirement plan contributions. Are you still making contributions based on last year's numbers? Maximum amounts have increased for some plans in 2009. You can contribute up to $11,500 to a SIMPLE, up to $16,500 to a 401(k), and up to $5,000 to an IRA. Remember to add catch-up contributions if you'll be 50 by the end of December.

* Factor two recent tax changes into your planning for retirement fund withdrawals if you're 70-1/2 or older. First, the option to make a direct nontaxable donation of up to $100,000 from your IRA to a charity has been reinstated. Second, the requirement to take a minimum distribution from your retirement plan is waived for 2009. This applies to 401(k) plans, 403(b) plans, certain 457(b) plans, and IRAs.

* Now is the time to do tax planning for the upcoming fall college expenses. Check out the various tax breaks, including the new, enhanced Hope credit (renamed the American opportunity credit).

* The estate tax is still alive and well, so as part of your midyear review, do any updating that's needed to your will and other estate documents.

* Do some business tax planning, too. Plan your equipment purchases to benefit from the extension of 50% bonus depreciation for new equipment and up to $250,000 first-year expensing for new or used equipment.

Mix business with your summer vacation and you might be able to deduct some of your travel expenses on your 2009 tax return. To benefit, the primary reason for your trip has to be business.

Making time for 2009 tax planning now not only helps reduce your taxes, but also helps to put you in control of your entire financial situation. Tax planning should be a year-round process, but it's especially effective at midyear. Give us a call for guidance in implementing the best moves for your particular situation.

New Business

IRS defines new groups for work credit

The work opportunity tax credit is available to businesses that hire workers from certain disadvantaged target groups. The credit is based on the first-year wages paid to qualifying employees.

The "American Recovery and Reinvestment Act of 2009" added two new groups to the list that qualifies for the work opportunity credit: unemployed veterans and disconnected youth. The IRS recently published the definitions of these new categories.

An unemployed veteran is one who left the military during the five years prior to being hired and who received unemployment benefits for at least four weeks during the year prior to being hired.

A disconnected youth is an individual age 16 through 24 who has not been regularly employed or attending school during the six months prior to being hired, and who lacks basic skills for employment.

Consider incremental cost in business purchasing

If you run a business, you probably make many different kinds of purchasing decisions. You might buy some items infrequently and only one at a time (for example, computers). At the other extreme, there are probably some items that you buy regularly and in relatively large quantities. For a print shop, paper might be your highest volume purchase. For a manufacturing business, it might be plastic or steel.

If you are responsible for buying large quantities of a single item, you'll want to become familiar with the concept of "incremental cost." It sounds forbidding, but it's relatively easy to understand, and it can be a powerful tool.

Example: Product X is a vital part of your business, and it's available at the following prices:

Based on average price per unit, an order of 4,000 would seem to offer the best deal, at $2.19 per unit. But take a closer look. In this example, it costs an additional $2,000 to order 4,000 units instead of 3,000 units, which means that each of the additional 1,000 units has an incremental cost of $2.00.

However, the incremental cost to go from 2,000 to 3,000 units is exactly the same - $2.00 per unit, or a total of $2,000. In this example, your incremental cost does not decline after 3,000 units, so that's the quantity you might decide to order.

In real life, your purchasing decisions may be more complex, and you may need to consider issues like cash flow and storage costs. Even so, the concept of incremental cost can be a help. For assistance with cost decisions in your business, give us a call.

What's New in Finances

Social security and Medicare to go broke earlier than expected

The federal government estimates that Medicare and social security will run out of money even sooner than previously predicted. According to these latest estimates, Medicare will be depleted in 2017, and the social security trust fund will run out in 2037.

As baby boomers retire and sign up for social security and Medicare, these programs will be paying benefits to millions more. It's estimated that the number receiving social security benefits will increase by one to two million a year from 2009 through 2032. In the 1990's, by comparison, about half a million beneficiaries were added each year. Starting in 2011, more than one million people will be added to Medicare each year.

Consider direct education gifts - There's no limit and no taxes

There are many ways to pay for a child's education, but one of the methods that you might not be aware of is that of direct education gifts.

In 2009 a person is allowed to give up to $13,000 to another individual without running afoul of the gift tax exclusion. However, if a payment is made directly to a qualifying education institution, the $13,000 per person annual gift limitation does not apply. Not only are the gift tax limitations removed, making substantial education payments in this manner could also reduce the taxable estate of the person making the gift, thereby reducing exposure to estate taxes.

In this case, a "child" doesn't have to be your offspring. It can be a niece, nephew, grandchild, or anybody else of any age, either related or unrelated. And the term "education" isn't limited to only college tuition. The rules also apply to private education institutions where tuition is a requirement for entry, such as elementary and high schools.

However, only tuition is allowed to be paid under these rules. Books, room, board, supplies, and entertainment aren't eligible for this exclusion.

It's even possible to make payments for multiple school years at one time, so you're not limited to making annual gifts for each school year. A potential pitfall to this multiple-year strategy is that once the funds are given to the institution, they can't be refunded. If the student decides not to attend that institution, your tax-saving plan will have backfired.

While this gift and estate tax savings strategy might seem simple, contact us for assistance to ensure the desired outcome.

Take a Break

A thought to ponder...

You're never as old as you're going to get. (Does that make you feel better?)

The information contained in this newsletter 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 the Online Advisor, or for assistance with any of your tax or business concerns, contact our office.

Online Advisor - July 2009

Major Tax Deadlines For July 2009

* July 31 - Due date for filing retirement or employee benefit plan returns (5500 series) for plans on a calendar year.

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, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.

* 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 you or your business, contact our office.

What's New in Taxes

Changes affect 529 plans

Two changes could affect your 529 college plan. First, during 2009 and 2010, you can use 529 funds for tax-free purchases of computers, peripherals such as printers, certain educational software, and Internet access. Second, for 2009 you are permitted to make two investment strategy changes (in addition to changes made when switching the plan's beneficiary). Previously only one annual change was allowed.

Follow the road to savings with tax credits

A tax deduction should never be overlooked, but it's a tax credit that can make a big difference in your tax bill. While a deduction will reduce your tax liability, it will only reduce it by your marginal tax rate. For example, if you're in the 25% bracket, a $1,000 deduction will save you $250 in taxes. But a credit is a dollar for dollar reduction of your tax liability. Regardless of your tax bracket, a $1,000 credit will reduce your tax liability by the full $1,000. In some cases, a credit will reduce your liability even below zero (called a refundable credit), giving you a refund of more taxes than you actually paid. Here are some of the more valuable credits.

* First-time homebuyer credit. This is a new refundable credit that provides a credit of up to $8,000 for first-home purchases in 2009 made by November 30.

* Child tax credit. If you qualify and meet income limits, you'll receive a $1,000 credit for each dependent child under age 17.

* Retirement savings contribution credit. This credit is for low- and middle-income taxpayers who contribute to a retirement plan, such as an IRA or 401(k). This overlooked credit is as much as 50% of the retirement contribution to a maximum credit of $1,000. There is also a credit for businesses who establish new pension plans.

* Energy credits. There are many energy-related credits - from the purchase of an alternative fuel vehicle, to the installation of solar/fuel cell property in a residence, to the production of biodiesel or ethanol.

* Foreign tax credit. The foreign tax credit lets you claim a credit on your federal tax return for taxes paid to a foreign country.

* Work credits. Credits are available to businesses for hiring certain low-income employees, employees residing in certain geographic locations, or various minority employees.

With over 40 credits available to individuals and businesses, all with their own rules and qualifications, it's easy to overlook some of them. Call us if you would like to review the credits for which you might qualify.

New Business

Final increase in federal minimum wage this month

July 24, 2009, brings the third and final increase in the federal minimum wage mandated by the "Small Business and Work Opportunity Act of 2007." That law was signed by George W. Bush on May 25, 2007.

The minimum wage increased to $5.85 on July 24, 2007, and again last July to $6.55. This final increase raises it to $7.25 an hour.

New COBRA health subsidy: What employers and employees need to know

Job loss brings many challenges to families, and that often includes obtaining affordable health insurance coverage. Under a 1985 federal law referred to as "COBRA," many employees who are discharged can keep health insurance coverage provided by their former employer for as many as 18 months. But to do so, the employee has to pay 100% of the COBRA premiums.

* Employees' subsidy

The economic stimulus law enacted last February significantly reduces the cost of COBRA health coverage for those who lose their jobs.

Qualified individuals who timely elect COBRA coverage are required to pay only 35% (instead of 100%) of these premiums. The remaining 65% of premiums are paid by the employer, but reimbursed by the federal government through tax credits. This subsidy is available for up to nine months after the job loss.

Those qualified for the subsidy include terminated employees and their family members who are eligible for COBRA coverage at any time from September 1, 2008, to December 31, 2009. Employees who voluntarily terminate employment or who are qualified to participate in another group health coverage plan (such as a spouse's employer's plan or Medicare) are not eligible for the subsidy.

The subsidy is phased out for higher-income taxpayers. For singles, the phase-out starts once modified adjusted gross income (AGI) exceeds $125,000. It is fully phased out at $145,000. The phase-out for married taxpayers filing jointly begins with modified AGI of $250,000 and is complete at $290,000. Any part of the subsidy paid to an individual that is subject to phase-out because of these income limitations must be repaid as an additional tax on the employee's federal income tax return.

* Employers' credit

COBRA coverage is only required for employers with 20 or more full- and part-time employees, but many states sponsor plans similar to COBRA for small employers.

An employer that sponsored a health insurance plan that included COBRA coverage is required to pay 65% of the COBRA premium if the terminated employee pays the remaining 35%. The government reimburses the employer through tax credits on the employer's quarterly payroll tax returns.

The new subsidy may make it possible for laid-off workers to continue affordable health insurance coverage until new employment and coverage can be found.

What's New in Finances

Factor graduation rates into choice of college

As college costs seem to increase every year, you might want to look at graduation rates for the colleges being considered by your family. After all, six years of college will certainly cost more than four.

A recent report from the American Enterprise Institute revealed that hundreds of colleges are failing to graduate their students in six years. According the the report, "four-year" colleges in this country graduate an average of 53% of entering students within six years. Individual colleges fall even below this national average, with some having six-year graduation rates as low as 30%.

Completing college within four years can depend on factors beyond the school's responsibility - factors such as student finances and ability. Nevertheless, it's smart to consider graduation rates in choosing what college to attend.

How to raise financially literate children

If everything your children ever learned about personal finances came from the mass media, they might think credit is a limitless resource and savings something you only find on a clearance rack. To fill in the gaps in their financial education, parents should teach their children the fundamentals of handling money. But where do you start? Perhaps begin with the following benchmarks of financial literacy.

* Time Value of Money

One of the most essential of all financial concepts is the time value of money. Children should be shown the benefits of saving money, watching it grow, and patiently deferring purchases until a future time. When children grow a little older, they can learn the reverse lesson: how debt today results in accumulated interest costs down the road. To illustrate the point, show them a loan amortization schedule for a typical car or home loan. That will get their attention.

* Transactional Skills

In today's cashless society, your children will someday need to know how to write a check, use a debit or credit card, and how to bank online. When they are ready, consider setting aside a morning to take them to the bank, introduce them to a representative, and set up their first checking account and bank card under the tutelage of the banker. Children will appreciate this rite of passage to adulthood, and they will learn how to navigate an ATM or bank Web site the right way, not just the way you do it.

* Keeping Good Records

You might feel a little hypocritical when pointing out your children's recordkeeping shortcomings, but they probably need your help more than you think. Knowing how to reconcile a checkbook and track where they spend their money is a valuable life skill. Developing a system for safely storing receipts, warranties, and other valuable papers is also important. When they begin driving, point out the location and importance of the vehicle proof of insurance and registration.

* Reflecting Your Values

Like any other area of life, you will naturally want to pass down truisms that have guided you financially. Succinct phrases often suit this purpose quite effectively, such as, "keep a little gas in the tank, a little money in the bank." Or, "don't place all your eggs in one basket." Sound corny? Perhaps. But such sayings today might just remind your children of something important tomorrow.

Those who value philanthropy should consider including their children in the charity selection process. Teach them why certain causes are important to you, and how you determine the amount to give. Perhaps you could give your children gifting discretion over a small sum of charitable dollars.

* Investments 101

The day will eventually come when your children will be ready to talk investments, retirement, and taxes. Feeling intimidated yet? There is no need to fear. Our firm can assist you and your children with these advanced topics. Being financially literate is not child's play. But then again, neither is being a parent.

Take a Break

O say, can you sing our national anthem?

Surveys have shown that many Americans don’t know the words to our national anthem. The National Anthem Project is going to cities across the country to reteach the words to people.

If you tried to sing The Star Spangled Banner and got a bit muddled in the middle, here’s how the first stanza goes:

O say, can you see, by the dawn’s early light,
What so proudly we hailed at the twilight’s last gleaming?
Whose broad stripes and bright stars, through the perilous fight,
O’er the ramparts we watched, were so gallantly streaming?
And the rocket’s red glare, the bombs bursting in air,
Gave proof through the night that our flag was still there.
O say does that star spangled banner yet wave
O’er the land of the free, and the home of the brave?

Happy Independence Day! And if you would like to sing the other stanzas in our national anthem, go to www.thenationalanthemproject.org.

Online Advisor - June 2009

Major Tax Deadlines For June 2009

* June 15 - Second quarter 2009 individual estimated tax is due.
* June 15 - Due date for calendar-year corporations to pay second installment of 2009 estimated tax.
* June 15 - Due date for calendar-year trust and estates to pay second installment of 2009 estimated tax.

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, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.

* 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 you or your business, contact our office.

What's New in Taxes

School's out! That means moving time for millions

Millions of people move each year, often during the summer months when children are out of school. If you're considering a move this summer, be aware that moving can have some important tax consequences.

* Retirement plans. If you have a retirement plan at work, you may have several choices upon leaving a job. You can roll your retirement funds into an IRA, possibly roll the money into a new employer's plan, or perhaps even leave the money in your former employer's plan. Keep in mind that any amount distributed directly to you is subject to automatic 20% income tax withholding, and you may also face a 10% early withdrawal penalty.

* 401(k) loans. Facing a layoff or new job and need cash? Tap your 401(k) balance only as a last resort. If you have an existing 401(k) loan, pay it off. If you leave your employer and can't repay the loan within a preset time, the loan balance is considered a withdrawal. As such, you'll be hit with income taxes and possibly a 10% penalty.

* Job search expenses. Expenses incurred to search for a new job are tax-deductible, even if your job search doesn't land you that coveted position. To qualify, you must be looking for a job in the same occupation.

* Moving expenses. If your job-related move qualifies (the IRS has both a distance and a time test), you can deduct the costs of moving your household goods and your family.

* Home sale. When you sell your home, you can exclude up to $250,000 of the gain from your taxes. The exclusion amount is $500,000 for married couples filing a joint return. To qualify for the full exclusion, you must have owned and occupied the house as your main home for two out of the five years prior to its sale. A partial exclusion may apply if you fail the two-year test due to a job-related move.

If you're considering a job-related move and want help sorting out the tax issues, give us a call.

Energy-saving home improvements could cut your 2009 taxes

President Obama signed the "American Recovery and Reinvestment Act of 2009" into law on February 17, 2009. Among the various provisions in the law are new energy tax credits that can really add up to savings for the homeowner. Making energy-saving improvements to your home will help to save on utility bills, enhance your efforts to go "green," add value to the home, and perhaps reduce your tax bill for 2009. These residential energy tax credits fall into two main categories: energy efficiency improvements and renewable energy systems. In many cases, the "Recovery Act" adjusts or extends similar energy credits previously available.

* Energy efficiency

The "Recovery Act" adjusts the residential energy property credits previously allowed, increasing the tax credit to 30% and the maximum aggregate cap to $1,500. The credit applies to eligible property placed into service in your principal residence during 2009 and 2010. Qualifying improvements for this energy credit include insulation; exterior windows and doors; central air conditioning systems; water heaters and furnaces burning natural gas, propane, or oil; stoves using renewable biomass fuel such as wood, pellets, and plants; hot water boilers; electric heat pump water heaters; certain metal roofs; and advanced main air circulating fans.

Installation of these items as part of a newly constructed home does not qualify for the credit. For certain eligible items, the credit can be calculated based only on the cost of materials; for other items, the cost of installation also can be included. This credit is not subject to income phase-outs, and the credit is allowed under the alternative minimum tax.

* Renewable energy

The 2009 law also generally removes the tax credit dollar limits for renewable energy systems. Such property includes solar hot water heaters, geothermal heat pumps, and wind energy systems. The tax credit, available through 2016, is up to 30% of the cost, including both labor and materials. Primary residences, second homes, and rental units qualify for this credit; existing and newly constructed structures are eligible.

Now may be the right time to upgrade the energy efficiency of your home. To discuss the tax breaks available for the improvements you have in mind, give us a call. We can help you sort through the details.

New Business

2009 vehicle deductions

Each year the IRS publishes depreciation limits for business vehicles first placed in service that year. Because 50% bonus depreciation is allowed only for new vehicles, these limits are different for new and used vehicles.

For new business cars, the first-year limit is $10,960; for used cars, it's $2,960. After year one, the depreciation limits are the same for both new and used vehicles purchased in 2009: $4,800 in year two, $2,850 in year three, and $1,775 in all following years.

The 2009 first-year depreciation limit for trucks and vans is $11,060 for new vehicles and $3,060 for used vehicles. Limits for both new and used vehicles in year two are $4,900, in year three $2,950, and in each succeeding year $1,775.

For details relating to your 2009 business vehicle purchases, contact us.

New rules for NOLs

Essentially, a net operating loss or NOL is generated when a business has more deductions than income.

Under prior rules, a business that had an NOL could carry that loss back only two years for a refund of taxes paid in those earlier years. (The business could also choose to carry the loss forward for up to 20 years.)

The "American Recovery and Reinvestment Act of 2009" changed the carryback period to as many as five years. The new rule applies only to 2008 net operating losses in companies with average gross receipts over the last three years of $15 million or less.

* Planning opportunities

The carryback periods of three, four, or five years are elective. That means that the taxpayer can choose how long to carry back the NOL as long as it doesn't exceed five years.

This opens up many tax planning opportunities, especially if taxable income has fluctuated significantly over the years. Not only that, it's a terrific benefit to taxpayers with NOLs larger than could be absorbed over the traditional two-year period.

As an alternative to carrying the loss back to prior years, you can still elect to forgo the carryback altogether and simply carry your losses forward to reduce future taxes.

Remember that the new NOL rules are elective, and you may choose to carry losses back as you see fit for up to five years.

There are filing and time restrictions on this tax break for businesses, so contact us if you need details and filing assistance.

What's New in Finances

"Do Not Call" doesn't prevent scammers

Registering with the National Do Not Call Registry is supposed to keep you from getting all those annoying mass marketing phone solicitations.

It appears that the current recession has brought out scam artists hungry for revenue and unconcerned about the illegality of their sales pitches. During the first quarter of this year, the Federal Trade Commission received 450,000 complaints from those who signed up with the Do Not Call Registry, but who are still receiving unwanted calls.

Among the scams currently being pitched: extended auto warranties, swine flu cures, debt renegotiation plans, and free lunch seminars promoting "low-risk" investments.

Be aware that the scammers are especially active right now, and be very skeptical of offers and promotions made by phone or e-mail.

How to deal with finances after a spouse's death

The death of a spouse can leave the survivor with a bewildering array of financial problems. In many families, one partner handles all the financial matters. If that partner passes away first, without having discussed and documented the couple's financial affairs, the survivor may face a steep learning curve or make poor financial decisions out of ignorance.

In many cases, the surviving spouse will be the wife. In fact, recent studies indicate that seven out of ten baby boomer wives will outlive their husbands. So getting a handle on the family's financial affairs is especially important for women.

If you're dealing with the death of a spouse, here are a few guidelines to help you navigate.

* Locate important documents. These include wills, insurance policies, deeds, investment certificates, powers of attorney, birth and marriage certificates, bank statements, and vehicle titles. You'll need these documents to change beneficiaries, revise asset titles, and verify account balances.

* Keep paying bills. Don't risk losing your good credit by neglecting ongoing expenses.

* Check survivor benefits. Contact the Social Security Administration to learn about survivor benefits. Also call your spouse's former employer to find out about employee benefits, such as payouts of unpaid salary, unused vacation, and pensions.

* Decide how you'll handle life insurance proceeds. Benefits may be paid in a lump sum or an annuity. If you take proceeds in a lump sum, you'll want to place them at least temporarily in readily available investments, such as money market accounts. Survivors often live on insurance proceeds for many years, so think twice before using the insurance money to remodel the house, pay off the mortgage, or take an expensive vacation.

* Get competent legal and financial advice. Seek out qualified and trusted professionals to help you through the process of probate, taxes, and planning for your financial future. All too often, the surviving spouse makes irrevocable financial decisions or unnecessary purchases in the days and weeks following a partner's death. Unfortunately, widows and widowers are easy prey for con artists. Someone may call with a great deal on a "sure fire" investment, or attempt to capitalize on your grief by offering unnecessary goods or services. A trusted professional advisor can provide objectivity when such "opportunities" are presented.

* Plan before a death occurs. Ideally, you and your spouse will develop a financial plan before a death occurs. One way to organize such a plan is to set up a tabbed binder that outlines the family's financial affairs. One tab might list key contacts, such as lawyers, accountants, and business associates. Another tab might disclose the location of important documents.

Discussing and documenting your financial affairs will be time well spent. If you need assistance, give us a call.

Take a Break

Web surfing is good for the brain

A study by UCLA scientists found that Web surfing stimulates the brain and may possibly improve brain function. The study compared people aged 55 to 76 who surfed the Internet with those who didn't. MRI scans showed more brain activity in the group that surfed regularly, especially in the areas of the brain which are involved in complex reasoning and decision-making.

"A simple, everyday task like searching the Web appears to enhance brain circuitry in older adults, demonstrating that our brains are sensitive and can continue to learn as we grow older," said Dr. Gary Small, member of the research team.

The information contained in this newsletter 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 the Online Advisor, or for assistance with any of your tax or business concerns, contact our office.

Online Advisor - April 2009

Major Tax Deadlines For May 2009

* May 15 - Deadline for calendar-year exempt organizations to file 2008 information returns.

* June 1 - Deadline for IRA, SEP, SIMPLE, Roth IRA, MSA, and education savings account trustees to file annual statements (Form 5498) with the IRS, with copies to participants.

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, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.

* 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 you or your business, contact our office.

What's New in Taxes

IRS gives up on private debt collection

The use of private debt collection agencies to collect overdue taxes was started in 2006. Some in Congress have agitated for an end to the program from its very beginning. Now, after an extensive review of the cost-effectiveness of the program, the IRS announced that it will not renew contracts with the private agencies.

Instead, the IRS plans to hire an additional 1,000 collection personnel in 2009. The Commissioner stated that collection work is best done by IRS employees who, in these troubled economic times, have more options in dealing with taxpayers struggling to meet their tax obligations.

How long should you keep tax records?

After filing your 2008 tax return, you may be wondering how long to keep your tax records. Unless fraud, evasion, or a substantial understatement of income is involved, the IRS generally has only three years in which to question your return. If the IRS asks, you must be able to prove the validity of your tax return, which includes providing the underlying supporting data. How long you keep your paperwork depends directly on the statute of limitations, but here are some guidelines.

* Your copy of the tax return. Consider keeping it forever since you never know when this document will come in handy. Remember that in many cases, the IRS destroys original returns after four or five years. It's always best to have your copy to fall back on.

* Cancelled checks, bank/investment statements, and receipts. Keep them for seven years. Because of various combinations of the statute of limitations and technical provisions in the law, keeping them for seven years, rather than just for three years, is recommended.

* Stock or bond trade confirmation statements. Keep for seven years after the sale of the stock. For example, say that you bought 200 shares of stock in 1986 and sold them in 2008. You'll want to hold on to both the buy and sell confirmation statements until at least April 2015.

* Escrow closing documents and improvements to property. Keep for seven years after the sale of the property. Keep these documents to prove your cost of the property when it is finally sold. This is true for rental property, investment property, and even your personal residence. You might think that keeping cost basis records on your personal residence is no longer required because of the gain exclusion rules on the sale of a principal residence. That's not entirely true, since these laws could change at any time, or your gain could exceed the gain exclusion limits.

This listing is not all-inclusive, and you might have special circumstances. If you need any help with your recordkeeping requirements, give us a call.

New Business

Government jobs pay more than private sector jobs

Even as the economy struggles, workers in government jobs are enjoying an increase in pay and benefits.

According to the Bureau of Labor Statistics, the average private sector hourly wage in December 2008 was $27.35. Workers in government jobs were earning an average hourly wage of $39.25. These figures include pay and benefits, and it is in the area of benefits that the gap between private and public pay has widened. Public employees' benefits averaged $13.38 an hour, while private company employees averaged $7.98 an hour in benefits.

Health benefits were a major factor in the variance between public and private compensation. Government paid an average of $8,800 a year for a worker's medical insurance, while private companies paid $4,100.

How does your company measure up?

No matter how successful your business has been in the past, you can probably do better. And if you've been struggling to keep your head above water, there's certainly room for improvement. So how can you gain ground on the competition?

Try the process known in business circles as "benchmarking." This is a strategic technique for comparing various aspects of your business to the top marks in your particular industry or profession. Then you can play "follow the leader" by emulating the best practices in those areas where you need to improve.

Benchmarking first gained wide acceptance in the manufacturing sector. For example, suppose a manufacturing company determines that it can produce only 100 widgets per hour as opposed to 500 widgets an hour produced by a competitor. This indicates a need to improve the company's widget-making process. The same analytical tool may be extended to virtually every line of work.

Be mindful that benchmarking is not a one-shot deal. It is an ongoing process that requires you to continually challenge yourself to improve performance.

What aspects of a business might benefit from benchmarking? Naturally, this varies according to industry, location, and other factors, but the following areas are generally worth examination:

* Costs of producing goods or providing services.
* Length of time needed to design and market products.
* Procedures used in production activities.
* Personnel management procedures.
* Sales department activities.
* Marketing and advertising.
* Factors influencing public opinion about your products or services.

Benchmarking can create results where it counts - on the bottom line. Contact our office if we can assist with evaluating your business practices.

What's New in Finances

Credit card companies trim rewards

The economic downturn has claimed another casualty: the rewards programs offered by credit card companies. Used to encourage credit card holders to charge purchases, these programs offered cash rebates, airline tickets, and other freebies for each dollar charged.

Now banks are struggling to remain profitable and are cutting back on their rewards programs. Airlines, too, are trimming their free mileage programs by raising the number of miles required to qualify for free tickets.

If you use a credit card that offers rewards for purchases charged, be aware of these changes. You might want to monitor your rewards more carefully than in the past and cash them in before they expire or stricter redemption rules are put into effect.

Put your tax refund to good use

Did you recently receive an income tax refund? Here are some suggestions for making the most of it.

* Pay off consumer debt. This is generally one of the best uses for extra cash. For example, if you typically carry a credit card balance and pay 16% interest, you'll realize a 16% return if you pay off that debt. You probably won't save quite as much by paying off other types of loans, but you should consider that as well.

* Contribute to an individual retirement account (IRA). A contribution to an IRA is a good idea whether it's tax-deductible or not because IRA earnings grow tax-deferred. If you're self-employed and show a profit for the year, you can also make a tax-deductible contribution to a Keogh plan.

* Start or add to an education fund. Consider investing your extra money for your child's education. We can help you decide whether your education fund should be held in your name, your child's name, or in trust. We can also make sure that you don't get snared by the "kiddie tax."

* Invest in yourself. While planning for your family's education, don't forget yourself. Have you put off training for new job responsibilities or a new career because you couldn't afford it? Now that you have some extra cash, spending it on yourself may be the best investment of all. You also may be entitled to a tax deduction for education expenses that are required by your employer or that improve the skills required on your current job.

Don't just spend a tax refund; put it to work improving your financial well-being.

Take a Break

A history lesson…

Maybe if we did a better job of listening, history wouldn't have to repeat itself.

The information contained in this newsletter 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 the Online Advisor, or for assistance with any of your tax or business concerns, contact our office.

Online Advisor - April 2009

Major Tax Deadlines For April 2009

* April 1 - Deadline for taking your first required IRA distribution if you turned 70-1/2 in 2008. Unless you're still working, this deadline also applies to your other retirement accounts (except for Roth IRAs).

* April 15 - Individual income tax returns for 2008 are due.

* April 15 - 2008 calendar-year partnership returns are due.

* April 15 - 2008 annual gift tax returns are due.

* April 15 - 2008 income tax returns for calendar-year trusts and estates are due.

* April 15 - Deadline for making 2008 IRA contributions.

* April 15 - Deadline for employers to make contributions to certain retirement plans

* April 15 - First installment of 2009 individual estimated tax is due.

* April 15 - Deadline for amending 2005 individual tax returns (unless the 2005 return had a filing extension).

* April 15 - Deadline for original filing of 2005 individual income tax return to claim a refund of taxes. Each year some taxpayers have tax refunds due them for prior years, and unless a return is filed to claim the refund by the three-year statute of limitations, the refund is lost forever.

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, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.

* 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 you or your business, contact our office.

What's New in Taxes

IRS expands 2009 homebuyer credit

The IRS announced recently that taxpayers who qualify for the first-time homebuyer tax credit on a home purchased from January 1, 2009, through November 30, 2009, may claim the credit on either their 2008 income tax return due April 15, 2009, or on their 2009 tax returns due April 15, 2010. This option makes it possible for qualifying taxpayers to put money in their pockets in 2009, rather than waiting until next year to benefit from this tax break.

The first-time homebuyer tax credit provides a refundable credit of 10% of the home's purchase price, up to a maximum credit of $8,000. If the taxpayer lives in the home for at least three years, the credit does not have to be repaid. Income limits apply, with phase-out of the credit starting at $75,000 for single taxpayers and $150,000 for married couples filing jointly.

For first homes purchased from April 9, 2008, through December 31, 2008, a credit of up to $7,500 is available to qualifying taxpayers. This credit can only be taken on a 2008 tax return, and it must be repaid in 15 equal installments beginning with the 2010 tax year.

Use the "saver's credit" to cut your tax bill

Would you like to shave $1,000 off your income tax bill? Would your spouse like to join in the tax savings of up to $2,000 on a joint return? This potential savings comes in the form of a tax credit called the "retirement savings contributions credit" or "saver's credit." Unlike a tax deduction, a tax credit is a dollar for dollar reduction of the taxes you owe.

How do you qualify for this credit? By contributing to a retirement plan, you could be eligible for the saver's credit. This includes contributions to both Roth and traditional IRAs. It also includes salary deferrals into SEP, SIMPLE, 401(k), 403(b), and 457 plans.

How much is the credit? The credit ranges from 10% to 50% of the first $2,000 contributed to a retirement plan. In other words, the maximum credit is $1,000 for an individual. If you and your spouse both contribute at least $2,000 to your retirement accounts, you could qualify for up to a $2,000 credit on a joint return.

Are there limitations? Like many tax breaks, this credit decreases or phases out entirely once your income reaches certain levels. The credit is not available if 2008 income exceeded $26,500 for individuals, $39,750 for heads of household, and $53,000 for married couples filing a joint return. 2009 income limits are $27,750 for singles, $41,625 for heads of household, and $55,000 for married couples. In addition, you cannot take the credit if you are under age 18, a full-time student, or someone else's dependent.

Here's an example. Say you put $3,000 into an IRA and you qualify for the maximum $1,000 saver's credit. You can deduct your $3,000 contribution for a tax savings of $450 ($3,000 x 15% tax rate). Add this $450 tax savings to the $1,000 saver's credit, and your total tax savings equals $1,450.

If you haven't been contributing to a retirement plan, this tax credit adds yet another incentive to do so. You have until April 15, 2009, to make a 2008 IRA contribution that could reduce your 2008 taxes. For more information about the saver's credit or about retirement accounts, contact our office.

New Business

Big business expresses views on health care reform

According to a recent survey of 489 U.S. employers, big companies do not favor many of the proposals now being offered for reforming the country's health care system. Nearly 88% of those surveyed opposed the idea of replacing the tax exclusion for employer-paid health insurance premiums with refundable health care tax credits for employees.

Survey respondents also opposed requiring companies to contribute to individual health coverage for employees if the company didn't have group coverage.

The companies did indicate support for health care reforms that emphasized the individual's responsibility for health care.

Are you a fireman or a business manager?

In your business are you constantly putting out fires caused by cash shortages? How well you manage your cash flow affects your business's profitability and longevity. Here are a few "fire prevention" suggestions.

* Create a cash flow projection. A cash flow forecast should be one of the quarterly reports prepared in every small business. It consists of your beginning cash balance plus your expected receipts minus your expected disbursements. A forecast allows you to anticipate cash shortfalls in order to give you time to carefully consider all your financing options.

* Collect your money as fast as possible. Send invoices as soon as you ship goods instead of billing at the end of the month. Your invoices should clearly show the payment due date and any penalty for late payment.

* Follow up on delinquent receivables. The longer an account remains unpaid, the greater the chances are that you'll never see your money. Once an account becomes delinquent, make no more credit sales to that customer until the account is brought up to date.

* Postpone paying your bills. Take early payment discounts when it makes sense, but otherwise use the full grace period to pay your bills. You might want to pay early to key suppliers.

* Don't let inventory buildup. If your inventory includes slow-selling and high-cost items, consider making them special order items. Get rid of obsolete inventory to free up cash and valuable shelf space.

* Track your expenses. At least once a month, compare your spending with your budget. If you are spending more than you planned, it's a good indicator that you may need to take corrective action.

* Establish a lifeline of credit. Set up a line of credit before you need it. It takes time to secure a loan from a bank, and it may be more expensive and difficult to obtain credit when you really need it.

For a review of your company's cash management plan or for help in establishing one for your business, give us a call.

What's New in Finances

Federal Reserve releases financial statistics

A report from the Federal Reserve states that Americans lost a record 17.9% of their net worth in 2008. U.S. "net worth" is a measure of households' assets minus liabilities. The 2008 net worth was $51.5 trillion in 2008, the lowest since 2003. In just the fourth quarter of 2008, net worth dropped 9%, the largest quarterly decline recorded since 1951.

Other statistics from the report -

* Total home value fell 10.5% in 2008, the biggest drop on record. Total value of U.S. homes was $18.3 trillion, the lowest in five years.

* Stock market value dropped 39.9%. At $5.5 trillion, stock market wealth in 2008 was the lowest since 1996.

* In the fourth quarter of 2008, corporate profits fell 10.8%. Profits for the full year were down 8.8%.

Some tips for the twenty-something generation

Young people generally feel pretty good about life, but in today's troubled economic environment, they may wonder if they're making the right financial moves. Here are some simple (yet effective) financial strategies for people in their early twenties.

* Pay yourself first. Every time you get paid, put something aside in a savings or investment account. As a general rule, save 10% of your income. Even smaller amounts add up over time.

* Watch your plastic. Credit cards are an expensive form of debt, and it's easy to lose control of them. Try to pay your entire credit balance every month, even if it's a stretch. If you've been carrying a balance, buy nothing more on credit until the balance is zero.

* Keep a clean credit record. If you plan to own a home, buy a car, or start a business, you're going to need squeaky-clean credit. Keep all of your financial obligations current, and never make a financial commitment that you can't keep. If you fall behind on any obligation, talk to the creditor immediately to make alternate arrangements.

* Make sure you have top-notch medical coverage. You may not see a doctor even once this year. But if you do need medical care, it could be for something serious and expensive. Anything less than a good major medical policy could ruin you financially.

* Watch your expenses. At this point in your career, you may not receive large or frequent pay raises. But you can achieve the same effect by cutting expenses. Shop before you buy. Very similar - and sometimes identical products - are sold at widely varying prices. Wise shopping can be the equivalent of having a good-paying second job.

For assistance with financial strategies suitable for your particular age and situation, give us a call.

Take a Break

A penny for your tax thoughts...

* People who complain about taxes can be divided into two classes: men and women.

* "Next to being shot at and missed, nothing is really quite as satisfying as an income tax refund." - F. J. Raymond, comedian

* "A tax loophole is something that benefits the other guy. If it benefits you, it is tax reform." - Russell B. Long, U.S. Senator

* "The hardest thing in the world to understand is the income tax." - Albert Einstein, physicist

The information contained in this newsletter 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 the On line Advisor, or for assistance with any of your tax or business concerns, contact our office.

Online Advisor - March 2009

Major Tax Deadlines For March 2009

* March 2 - Farmers and fishermen who did not make 2008 estimated tax payments must file 2008 tax returns and pay taxes in full.

* March 2 - Payors must file information returns (such as 1099s) with the IRS. (Electronic filers have until March 31 to file.)

* March 2 - Employers must send W-2 copies to the Social Security Administration. (Electronic filers have until March 31 to file.)

* March 8 - Daylight Saving Time begins.

* March 16 - 2008 calendar-year corporation income tax returns are due.

* March 16 - Deadline for calendar-year corporations to elect S corporation status for 2009.

* March 31 - Deadline for payors who file electronically to file 2008 information returns (such as 1099s) with the IRS.

* March 31 - Deadline for employers who file electronically to send copies of 2008 W-2s to the Social Security Administration.

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, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.

* 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 you or your business, contact our office.