Kulzick Associates, PA
Client Update - October 6, 2000
This newsletter contains:
Financial Strategies
Capital gains tax rates will drop next year
Teach your children about money
Service of the Month
New Business Startup
What's New In Taxes
Time is running out for 2000 tax cuts
Taxes and college financial aid
Business cash method change deadline
Major tax deadlines for October
Smart Business
Take steps to reduce employee turnover
News From Us
Check out our web site
Add a friend to our mailing list
Note for AOL users
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Beginning in 2001, the capital gains tax rates drop for certain assets. For taxpayers in the 28% or higher regular tax brackets, the rate on certain capital gains will drop from the current 20% to 18%. And for those in the 15% regular tax bracket, the capital gains rate will drop from the current 10% to 8%.
* Here are the rules.
Generally, the new rates will apply to capital assets held more than five years. However, if the individual’s regular tax bracket is higher than 15%, the five-year period applies only to assets acquired after December 31, 2000.
Taxpayers in the 15% bracket can use the 8% rate on assets held more than five years and sold after December 31, 2000. The asset need not be acquired after 2000.
There is a special election that will allow higher bracket taxpayers to treat an asset acquired before January 1, 2001, as if it were acquired on January 1, 2001. Individuals making this election must treat the asset as if it were sold on January 1, 2001 (or the next business day), and pay any income tax due on this “sale.” The new 18% rate could then be used when the asset is actually sold five or more years later.
For assistance in planning to take advantage of the new, lower rates, give us a call.
Teach your children about money
Teaching your children about money is one of the best things you can do for them. Too often, youngsters are sent into the world without the necessary financial skills to survive. The result can be massive consumer debt, lost opportunities, bankruptcy, and even failed relationships. With proper guidance, your kids can develop sound financial habits that will serve them a lifetime.
Dealing with money is a natural part of life. Learning to live within a budget, regardless of age or income, is one of the most important lessons you can impart to your child. Introduce budgeting at an early age. An allowance can be an excellent way to teach kids about saving and spending money. Establish a scheduled pay date and avoid giving advances. This discipline should reinforce planning and discourage impulse buying. Encourage your children to save at least half of what they earn for purchasing big-ticket items.
Your children also need to understand the “hidden” costs of their purchases. The stated price of an item isn't the only expense. For example, beyond the automobile sticker price, they need to budget for applicable sales and excise taxes. Then they face the ongoing costs of licensing, insurance, gas, and upkeep.
Finally, teach your children how to make their money work for them. Illustrate the power of compounding with the following example. If they save a dollar a day from age 12 until age 65, and earn an annual return of 6%, they will accumulate over $140,000. Invest that same amount at 10%, and the result will be over $725,000.
Create enthusiasm for investing by establishing specific family goals. Encourage each family member to contribute to a special investment account for a designated purpose, such as vacation. Your children will experience a sense of satisfaction as they watch their monthly investments grow toward that goal.
Instilling financial literacy at an early age is key to helping your child build a solid financial future.
Service of the Month - New Business Startup
If you are starting a new business, or have a friend who is thinking of going into business, we can help. For example, we can setup a new corporation for you, complete within three days, including everything. Payroll is another new business hassle. We can help you avoid problems and penalties by getting setup correctly from the beginning. You can stay focused and avoid costly, but common mistakes with our new business advice and counseling. As always, our services are customized to meet your specific needs.
Give us a call at 305-233-2280 for personalized attention and reliable, practical advice. It’s hard enough to get a new business going without worrying about all the tax and administrative technicalities.
Time is running out for 2000 tax cuts
Congress is pushing to make some tax law changes before it adjourns for fall election campaigning.
Previous bills which would have reduced the marriage penalty for working couples and gradually phased out the estate tax were vetoed by President Clinton.
There seems little hope for other tax changes Congress had hoped to make, including relief from the alternative minimum tax for middle-income taxpayers.
Congress and the President may still agree on legislation that would increase the contribution levels allowed for tax-advantaged retirement plans, such as IRAs and 401(k) plans. These changes would not go into effect until next year, however.
Taxes and college financial aid
Every parent knows how expensive a college education can be. But many have questions about the income tax treatment for different types of college financial aid. Here’s an overview:
* Scholarships, fellowships, and grants - These are not taxable to degree candidates to the extent that they are used to pay for qualified tuition and related course expenses. Payment for room, board, and incidental expenses are taxable, as are payments to non-degree candidates. Note that parents who furnish more than one-half of a student’s total support may be entitled to a dependency exemption on their income tax return. The amounts received in the form of a scholarship are not considered part of total support.
* Payment for services - Work-study arrangements often help pay for college. Generally, all payments for services are taxable as wages to the student who earns them, though some payments may not be subject to social security and Medicare taxes.
* Tuition reductions - Typically, this is a benefit for college employees, their spouses, and dependent children. Generally, a tuition reduction benefit is nontaxable if it is restricted to undergraduates, does not discriminate in favor of highly compensated employees, and is not a payment for services.
* Student loans - Proceeds from student loans are not taxable. When the loan is repaid, some or all of the interest paid may be tax deductible (subject to income limitations). The income tax laws regarding college financial aid are complex. For details about the rules that apply to your particular circumstances, please give us a call.
Business cash method change deadline November 13, 2000
Recent IRS regulations allow qualified businesses with annual receipts of $1 million or less to use the cash method of accounting, retroactive to 1999.
To change from accrual to cash method for 1999 returns already filed, taxpayers must file an amended 1999 return by November 13. Call us if you'd like details.
Major tax deadlines for October
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.
October 16 - If you converted a regular IRA to a Roth IRA in 1999 and now want to switch back to a regular IRA, you have until October 16, 2000, to do so without penalty.
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.
Attracting and retaining good employees is the number one issue facing most businesses today. The U.S. Department of Labor estimates that it costs a company one-third of a new hire’s annual salary to replace an employee.
While competitive salaries are important in a tight labor market, employees list other items as equally important: career development, flexible hours, and employee relations, to name a few. Consider the following tips for reducing turnover:
* Make your company one that employees are proud to work for. This might include giving your employees paid time off for community involvement, such as volunteering in a school, senior center, or community organization of their choice. The publicity will enhance your company’s reputation and add to your employees’ sense of accomplishment.
* Make your company family-friendly. In-house childcare or flexible work hours often reduce absenteeism and increase an employee’s productivity.
* Adopt a flexible benefits plan. Allow employees to choose what is most important to them from a menu of benefits.
* Establish a mentoring program for new employees. Team a seasoned employee with a new hire to help in learning needed skills and understanding the company culture.
* Offer technical, financial, wellness, and self-improvement seminars. If you don’t have the resources or space to accommodate this, contact your local community college or hospital.
* Create partnerships between employees and your company by setting common goals. Share profits through incentive bonuses.
* Finally, listen to your employees. Ask your employees what is collectively and individually important to them. Establish open communication and prove that management is interested in employee input by implementing and rewarding worthy suggestions.
Establishing a reputation as a company that cares for its people will help you attract and retain good employees.
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© Copyright 2000 Raymond S. Kulzick. All rights reserved. 001006.
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.
Contact rkulzick@kulzick.com with questions or comments about this web site.
Copyright © 2000 Kulzick Associates, PA - Last modified: September 13, 2008