Kulzick Associates, PA
Client Update - September 5, 2000
This newsletter contains:
Financial Strategies
Finding Lost Assets
Reverse Mortgages
Education IRAs
What's New In Taxes
Amended Returns Expected
Major tax deadlines for September
Smart Business
Succession Plans
Possible New Employee Right
News From Us
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Note for AOL users
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Credit Cards Now Accepted
You can now use a credit card with Kulzick Associates. We are accepting Visa, MasterCard, American Express and Discover cards.
Web site helps you find lost assets
Americans are losing track of financial assets that are then claimed by the state governments. It's estimated that one of every eight people has forgotten about some bank account, tax refund, utility deposit, or other asset.
A free Internet site, www.missingmoney.com, has information from about 40 states which allows you to check for such assets you may have forgotten you had. You might want to have a look.
A reverse mortgage may let you have your cake and eat it, too
Many lenders now offer so-called "reverse mortgages" as a way for seniors to cash in on their home equity. These loans may also be called lifetime or reverse annuity mortgages.
* What is a reverse mortgage?
Just what is a reverse mortgage? Essentially, it's a loan where you borrow against your home in installments. Each month you receive a payment representing loan proceeds, and the loan gets bigger instead of smaller -- a "reverse mortgage." For homeowners with paid-for homes but little cash, reverse mortgages can provide the money needed for property taxes and other home expenses that might otherwise force them to sell their homes.
The older you are and the higher the value of your home, the bigger the reverse mortgage monthly payment for which you can qualify. Generally, you must be at least age 62 to apply. The loan is repaid (usually by selling your home) when you die, move out, or at the end of a set term.
Most people want an open-ended (also called life tenure) loan term. Under this arrangement, you get monthly checks until you die or move out of your home. If the loan is insured privately or through the FHA, you keep getting checks even after your home's value is less than the loan amount. And it should not be your (or your heirs') responsibility to make up the shortfall. That's what the insurance is for. Because you still own your home, you still pay the property taxes, insurance, and upkeep.
The reverse mortgage payments are not taxable, and they don't count as income for social security eligibility purposes. When the loan is repaid, any interest paid is then deductible.
* Watch the cost
Unfortunately, reverse mortgages are expensive. You can expect upfront fees of $5,000 or more on a $100,000 reverse mortgage, plus you'll pay monthly service charges and mortgage insurance premiums. Also, the power of compound interest works against you. Often the amount owed at the end will dwarf the cash actually received. Avoid loans where the lender keeps all the home price appreciation that occurs after you make the deal.
If you're interested, shop for a reverse mortgage as you would for any other loan. Make sure the basic terms of competing loans are comparable. Then go with the lowest price by comparing interest rates, upfront fees, and other charges.
To educate your family, start planning early
It's back-to-school time. As you send your youngsters off to school, it's also time to give serious thought to their higher education.
Today's tax laws offer several breaks that can help parents pay for college. One such break is the education IRA.
Nondeductible annual contributions of up to $500 can be made to an education IRA for any child under 18. Funds can accumulate and be paid out tax-free for college expenses, including books, room, and board.
Funds in an education IRA must either be paid out before age 30 or rolled into an education account for another child, or the IRA will be subject to tax and penalties.
If you are considering education IRAs, here are some planning suggestions:
* If your income is too high to let you establish education IRAs for your children, make a $500 gift to each child and have the child establish the IRA with himself/herself as the beneficiary.
* Because the annual contribution limit is so low, the longer an education IRA can grow, the more useful it will be as a source of funds for college. Start as early in your child's life as you can. You may also find it beneficial to roll an older child's IRA into the IRA of a younger child to get a longer compounding period.
* Shop around for an education IRA with reasonable fees. If fees are too high, they may eat up the account's annual earnings.
For details or assistance in this area, contact our office.
IRS expects three million amended returns
The 1999 tax filing season is generally over, and the last thing on most taxpayers' minds is filing another 1999 return. For an estimated 3.2 million taxpayers, however, a second, amended 1999 tax return is in the cards. That's the number of Form 1040X returns for 1999 that the IRS expects to receive.
Occasionally, after the original tax return is filed, taxpayers learn of additional income they should have claimed or deductions they could have taken. Form 1040X (Amended U.S. Individual Income Tax Return) was designed for these situations.
Generally, you have three years from the time your return was filed or two years from the time the tax was paid, whichever is later, to file an amended return.
For any help you need filing an amended return, contact our office.
Major tax deadlines for September
* September 15 - Due date for individuals to pay third quarter installment of 2000 estimated tax.
* September 15 - Due date for filing 1999 tax returns for calendar-year corporations that had an automatic extension of the March 15 filing deadline.
* September 30 - Due date for 2000 Florida Intangible tax returns (Corporate and Individual) that had an extension.
* October 1 - Due date for filing 1999 Florida Corporate tax returns for calendar-year corporations that had an automatic extension of the April 1 filing deadline.
* October 15 - Due date for filing 1999 individual income tax returns that received a second extension of the April filing deadline.
Note: Businesses are required to make federal and state tax deposits on dates determined by various factors that differ from business to business. For information on the tax deadlines that apply to your business, contact our office.
Does your business have a succession plan?
Every family-owned business should have a succession plan to provide a smooth transition of ownership upon the owner's retirement or death. Each plan will be different, depending on the owner's wishes and the particular circumstances of the business. Here are some of the planning techniques you may want to consider.
* A buy-sell agreement provides for family members, partners, or the business itself to buy back the owner's shares upon certain specified events such as disability, retirement, or death. The agreement specifies the details of the sale and usually includes a pricing formula. Purchase of the stock is often funded by life insurance policies owned by the company or family members. Advantages are that the transfer of ownership is spelled out in advance, shares are kept out of the hands of competitors, and proceeds from the sale of the shares can be used to offset estate taxes.
* Gifting shares or partnership interests to family members can be an effective way to transfer ownership of the business over time. The law allows an annual tax-free transfer of $10,000 to each recipient (see Can Gifts Reduce My Estate Taxes? for more information). As an added advantage, the IRS allows you to discount the shares below their appraised value if they are a "minority interest" which does not control the business.
* Employee stock ownership plans (ESOPs) offer a tax-advantaged way to sell your business if you have no family successors. Special tax rules allow you to sell the company to your employees via an ESOP and invest the proceeds in stocks and bonds meeting certain tests, without being taxed on the gain. Employee-run businesses have had mixed success, however, so you should consider factors other than just the tax benefits.
These are just a few of the many planning techniques available to closely-held businesses. Contact us if you'd like to discuss a succession plan for your business.
Employers: Your employees have a new right
In mid-July 2000, the National Labor Relations Board (NLRB) issued a decision that expands "Weingarten rights" to non-union workers. Union workers have had Weingarten rights since 1975, rights that allow the employee to bring a co-worker to meetings with a boss that could result in disciplinary action.
The NLRB decision, which applies to both large and small companies, is being appealed in federal court. Many questions remain concerning what employers will be obligated to do. Stay informed as developments in this area occur.
We've maintained a free information site on the web since 1997. There are currently over 180 pages containing a wide variety of useful information. You can access either through indexes or through a "search" function. To check it out, click here.
If you are using AOL, you will need to access the internet in order to use the links in this newsletter or access our website. Unlike every other service, AOL remains a separate, proprietary system that is not part of the internet. However, recent customer and government demands have forced AOL to provide access links between their system and the internet.
To access the internet from the AOL proprietary system, you must either be using version 5 of AOL's browser (earlier versions cannot directly access the internet) OR go to AOL, link to the internet, minimize your AOL browser, and then bring up and use either Microsoft's Internet Explorer or Netscape's Navigator. These are the browsers everyone else uses and both are free. You can download them from Microsoft or Netscape. If you are using any ISP except for AOL, you are already accessing the internet and should have no problems.
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© Copyright 2000 Raymond S. Kulzick. All rights reserved. 000905.
This publication provides business, financial planning, and/or tax information to our clients. All material is for general information only and should not be acted upon without seeking appropriate professional assistance.