Kulzick Associates, PA
Client Update - November 6, 2000
This newsletter contains:
Financial Strategies
Social security taxes and benefits to increase in 2001
Who should own your life insurance policy?
Service of the Month
CFO On-Site
What's New In Taxes
Act before December 31 to cut this year's taxes
Major tax deadlines for November
Smart Business
Give your business a service check-up
Maintain good travel and entertainment records
News From Us
Check out our web site
Add a friend to our mailing list
Note for AOL users
Unsubscribe
Social security taxes and benefits to increase in 2001
The Social Security Administration announced October 18 that both social security taxes and social security benefits will go up in 2001.
Effective January 1, 2001, the amount of wages subject to social security taxes will increase to $80,400. The maximum social security tax for employees will go from the 2000 maximum of $4,724 to $4,985 for 2001. The maximum for self-employed individuals will increase from the current $9,448 to $9,970. There is no change in the Medicare tax of 1.45% on all employee wages and 2.9% on all self-employment income.
Also starting in January, there will be a 3.5% inflationary adjustment to social security benefits.
Who should own your life insurance policy?
There may be good reasons why you shouldn't own your life insurance policy. If you die owning your life insurance, the proceeds from the policy will be included in your estate. If you leave your entire estate to your spouse, the insurance proceeds, along with the rest of your estate, won't be subject to estate tax. But the insurance money eventually could be taxed in your spouse's estate. If you don't leave your estate to a surviving spouse, the insurance proceeds could be subject to immediate estate tax.
One way to keep life insurance proceeds out of your estate is to put your insurance policy in an irrevocable trust while you're still alive. At your death, the policy proceeds would be paid to the trust, and your spouse could draw income from the trust for life. When your spouse passes away, the trust would dissolve and distribute its assets to your children or other heirs, free of estate tax.
Another way to keep life insurance proceeds out of your estate is to have another person own your life insurance – your spouse or your child, for example. However, having a trust or other individual own your life insurance policy means you lose the right to change beneficiaries, or to assign, cash in, or borrow against the policy.
If you currently own your policy, there could be gift tax consequences in changing the ownership. Consult us and your attorney for assistance in deciding the best strategy in your particular situation.
Service of the Month - CFO On-Site
Are you a small company that needs a Chief Financial Officer but can't afford the $60,000 to $80,000 price tag? We may have an answer for you.
On a contractual basis, one of our highly experienced CPAs can arrange to be in your office on a fixed schedule (for example, every Thursday afternoon) and available on the phone throughout the week to handle your administrative, financial, accounting, and computer problems. We also have the less extensive CFO On-Call service where we can assist you by phone, fax, and e-mail.
If you need someone to oversee the administrative end of your business for you so that you can devote your valuable time to sales and operations, this could be the answer.
Each assignment is different, but some of the tasks we can provide on an on-going basis are: Supervision of administrative staff, review and correction of accounting entries, updating and maintenance of your computer network, compilation of a graphical weekly snapshot of your business allowing you to see at a glance where your business is heading, oversight of special projects such as specialized governmental reporting - the list of ways this could relieve you of your administrative burdens is endless.
Obviously, the time of our very best people is limited, so we can only accept two of these assignments so that we can reserve sufficient time in our office to work with our many other loyal clients. If you might be interested, call today, so we can discuss your particular needs.
Act before December 31 to cut this year's taxes
Time is running short for making moves that will minimize your taxes for 2000. If you haven't done your year-end planning yet, make time now before it's too late. Some strategies to consider:
* Shifting income and deductions between tax years is a common approach for delaying and sometimes permanently reducing taxes. If your income tax bracket will be about the same for this year and next, the best strategy might be to defer income until 2001 and accelerate deductions into 2000. On the other hand, if you expect your tax bracket to increase next year, simply reverse this plan.
* If you are close to the cutoff point between itemizing or taking the standard deduction, consider bunching your deductible expenses (medical expenses, state and local taxes, charitable contributions, mortgage and investment interest) into every other year. You can then alternate between itemizing one year and taking the standard deduction the next, saving tax dollars by doing so. Keep in mind that medical, charitable, and miscellaneous itemized deductions are limited to a percentage of your income, so they are best utilized in years when your income is lowest.
* Deciding which investments to sell, and when, can have a big impact on your taxes. Most investments must be held more than twelve months to receive the preferred, long-term capital gain tax rate. Make sure you meet the holding period, or you'll pay taxes at your higher ordinary tax rate.* If you have capital gains from sales made earlier in the year, consider dumping under-performing investments at a loss to offset these gains. If losses exceed gains, you might want to create some taxable gains before year-end. Rules prevent taxpayers from receiving a current tax benefit from net losses in excess of $3,000.
* If you've decided to sell a mutual fund, consider doing so before dividend and capital gain distributions are made at the end of the year. Conversely, buying mutual funds at year-end may cause you to pay tax on distributions you don't generally benefit from. Remember that you must pay tax on dividends even if you reinvest them in additional shares of stock.
* Consider shifting income to children over 14 to take advantage of their lower tax bracket. If you gift shares in a mutual fund, for example, a child in the 15% bracket could sell shares and pay 10% on long-term capital gains. You would pay 20% tax on these gains if you are in a 28% or higher tax bracket.
* Gifts can save both income and estate taxes. You can generally make gifts up to $10,000 per year, per person, free from gift tax. Annual gifts can be increased to $20,000 if your spouse joins in. Take advantage of this year's tax-free gifting allowance by completing your gifts before December 31. For more information regarding gifts and taxes, see Can Gifts Reduce My Estate Taxes?.
* Consider donating certain appreciated stock to your favorite charity. You won't be taxed on the appreciation and will generally be able to deduct the fair market value of the stock as a charitable contribution.
* There's been a great deal of publicity about the marriage penalty. When people marry, they can end up paying more tax than they did as singles. Postponing a planned marriage until 2001 or finalizing an impending divorce in 2000 could save taxes. Your marital status on the last day of the tax year will determine your filing status. For more information, see Getting married? Time to talk about money.
* If you have dependent children entering college next year, your assessment for financial aid will be based on this year's tax return. Consider deferring income, fully funding all retirement accounts, accelerating investment losses, and postponing gains to hold down income.
Now is the time to schedule your tax planning meeting. We may be able to find things you can do before year-end that will increase your tax refund next year.
Major tax deadlines for November
November 13 - 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, 2000.
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.
Give your business a service check-up
As the Internet changes the way consumers shop, some businesses are concluding that finding the lowest price is the only thing customers care about. But consumers are making it clear that they value good customer service, and if they don't get it from you, they'll go elsewhere.
Give your business a customer service check-up to ensure that your customers will keep coming back again and again.
Customer service includes every element of the sales transaction between your business and a customer. Though you may consider customer service just a matter of being polite to customers, it actually involves many areas, including the following:
- Being truthful in advertising your product or service.
- Providing a product or service that meets or exceeds customer expectations.
- Being prompt in delivering your product or service.
- Letting customers know you appreciate their business.
- Handling customer complaints or other concerns promptly and politely.
- Being polite and cheerful in dealing with customers -- even when they're "just looking" instead of buying.
It may be helpful to have an outsider review your service quality or help you design an ongoing program to determine appropriate indicators for your business and monitor customer service. Call today if you would like to discuss this important area.
Maintain good travel and entertainment records
To deduct your business expenses for travel, entertainment, and use of a car, the IRS requires that you be able to substantiate them with "adequate records." At first glance, the requirements may seem complicated and burdensome, but they come down to capturing a few basic facts about each expense. The secret is to understand the requirements, put some simple record-keeping systems in place, and keep them up-to-date.
The basic requirements
First, let's look at some basic requirements that are common to each type of expense. The IRS requires that you capture four pieces of information about each expense:
- The date of the expense.
- The place of the entertainment or travel.
- The amount of the expense.
- The business purpose of the expense, including the business relationship of people entertained.
You must keep records of this information in the form of a diary, trip report, expense book, or expense statement. The information must be recorded close to the time of the expense -- for example, on a weekly basis or at the end of a trip. The IRS also requires supporting documentation such as receipts, hotel bills, or credit card slips to corroborate your records for all expenses over $25 (except when a standard per diem allowance is used for meals or travel).
Record-keeping suggestions
The easiest way to keep your records current is to use a standard expense record book, available from office supply stores, or to use the formatted pages provided in most day planners and appointment books. Develop the habit of filling in the details at the end of each day when you travel, or on the morning after a business dinner or other entertainment event.
If you have employees, a well-designed expense reimbursement form should capture the required information. Make sure your employees provide all the requested information and back it up with receipts.
You can claim expenses for business use of a car in two ways: by tracking your actual expenses for the year or by using a standard mileage rate (32.5¢ a mile in 2000). In either case, you must record the date, mileage, and business purpose for each trip and the total mileage for the year. If you track actual expenses, you must also keep records of all your expenses for gas, maintenance, insurance, and the initial cost of the car. Whichever method you use, the simplest way to keep records is to use a standard auto log and complete the information for every trip made. Regulations for business vehicles are very complex. For more information see: Deducting a Company Car
Although record-keeping requirements are relatively straightforward, the rules on what expenses you can deduct have grown more complex in recent years. Contact our office if you have questions on specific expenses or need help setting up a system to keep tack of expenses.
We've maintained a free information site on the web since 1997. There are currently over 220 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 have a friend or business associate who you think might benefit from this newsletter, we would be happy to add them to our distribution list. Just e-mail me with their full name and e-mail address.
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 or later 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. 001106.
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