Kulzick Associates, PA
Client Update - December 11, 2000
This newsletter contains:
Financial Strategies
Divorce and IRAs can present tax problems
Take control of your consumer debt
Service of the Month
Bookkeeping
What's New In Taxes
IRS targets fraudulent trusts
Act now to see lower taxes next April
Major tax deadlines for December
Smart Business
Fringe benefits give a double tax break
News From Us
Check out our web site
Add a friend to our mailing list
Note for AOL users
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Divorce and IRAs can present tax problems
A recent court case points out the hazards of dipping into an IRA as part of a divorce settlement.
The taxpayer involved was required by the divorce decree to divide his IRA equally between himself and his spouse. He withdrew half the IRA funds and transferred them to his spouse. The IRS said the withdrawal was taxable income to the husband and, furthermore, a 10% penalty applied because he was not yet 59-1/2. The Tax Court agreed with the IRS.
There are ways to transfer IRA and other retirement funds in a divorce without being taxed. If you are involved in a divorce, Dr. Kulzick has special training in the complexities of taxes and financial settlements. We can work with your attorney to reduce taxes and future complications in divorces. It is important that we be involved from the beginning. For more information, see our litigation section.
Take control of your consumer debt
Consumer debt can be the biggest detriment to securing a sound financial future. You may find yourself in a vicious cycle that seems hopeless to overcome. But with determination and a proper plan, you can take charge of your finances.
- Identifying where your money goes is the first step toward gaining financial control. There are many good computer programs useful in tracking your money. In your analysis, don’t forget to account for spending from ATM withdrawals, cash, etc.
- Develop a monthly budget and stick to it. Plan for periodic obligations like insurance and taxes. Make your budget rigid but achievable. Your monthly budget must include debt payments above the minimum required.
- Make a list of what you owe (balances, monthly payments, interest rates, etc.). Consider moving your high-interest rate credit card to lower-interest rate cards, but be prepared for rate increases after the introductory period. Read the fine print carefully.
Which debt should you pay off first? One approach is to concentrate first on the debt with the highest interest rate. Once you’ve paid that off, cancel the account and focus on the debt with the next highest interest rate. If all your debt carries similar interest rates, focus on paying off the smallest debt first and then move on to the next largest.
Taking control of your debt and learning to live within your means will enhance your chances for a sound financial future.
Service of the Month - Bookkeeping
Are you running a small business and also trying to do your own bookkeeping? Do you have a bookkeeper, but they don't have enough time to get everything done? We have a variety of bookkeeping answers for your business.
- We can provide complete bookkeeping on a monthly or quarterly basis on our systems. Pickup and delivery can be arranged and the included services are flexible to meet your needs.
- If you want access to information on your own system, we can work with QuickBooks or Peachtree at your business, providing complete bookkeeping on a monthly basis.
- On-site bookkeeping provides a trained QuickBooks bookkeeper, with CPA backup, to work at your location weekly or monthly to handle businesses with greater needs.
- Should you want to do it all yourself, we can help you with setup and training for QuickBooks or Peachtree. We can also periodically verify data entry at your site, or pick up part of the load so you can spend more time on higher-value activities.
If any of the above sound interesting to you, or you have another idea for how we can help you with your bookkeeping, call today, so we can discuss your particular needs.
IRS targets fraudulent trusts
The criminal investigation division of the Internal Revenue Service is targeting abusive trust schemes – both promoters of illegal trusts and taxpayers who utilize them. Both domestic trusts and foreign (offshore) trusts are used by promoters. The basic scheme is to have a series of vertically layered trusts with each trust distributing income to the next layer. The result is to illegally reduce the taxpayer’s taxable income to next to nothing.
There are many legal trusts, typically used for estate planning and charitable purposes, but fraudulent trusts are tax evasion schemes which are illegal. To find out more about the kinds of trusts considered fraudulent, visit the IRS web site at www.treas.gov/irs/ci.
Act now to see lower taxes next April
A little year-end planning can make a big difference in the liability you'll see on your 2000 tax return next April.
Consider these last-minute moves to cut your taxes.
- Check the tax credits for which you could be eligible. If you’re in danger of losing a credit because your income is too high, consider steps to reduce income, or shift income into next year.
- Purchase business equipment before year-end to utilize the $20,000 expensing option. Check the rules that could limit your tax benefit from year-end equipment purchases.
- If you turned 70-1/2 in 2000, check the rules for taking your first required minimum distribution from your retirement plans.
- Review your investment gains, and consider taking offsetting losses before year-end.
- If you’re short of cash at year-end, pay deductible expenses with your credit card to squeeze the tax benefit into 2000.
Contact our office for other tax-cutting suggestions and help in choosing those best suited to your individual situation. For complete information on year-end tax-cutting tips see our web site: 2000 Year-end Tax Planning
Major tax deadlines for December
*Early in December - Check the amount of 2000 tax you have prepaid through withholding and quarterly estimates. If you're underpaid, consider increasing your withholding before year-end. Withholding is considered to have been paid evenly throughout the year. This could prevent you being charged underpayment penalties for 2000.*During December - Remember that if you are giving employees "bonuses" that these are normally classified as "salary" and subject to both payroll taxes and income tax withholding.
*December 31 - Last day to pay expenses you hope to deduct on your 2000 return - such as medical bills, property taxes, IRA administrative fees, and charitable contributions. Pay expenses with a credit card if you don't have the cash. You'll get the deduction in 2000 even though you pay the credit card bill in 2001.
*December 31 - Last day to set up a Keogh plan for 2000. Deductible contributions for 2000 can be made any time up to the filing deadline for your 2000 return.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.*January 15, 2001 - Fourth quarterly 2000 estimated tax payment due for both individuals and businesses.
**January 15 - Fourth installment of 2000 U.S. Corporate Income tax payment is due for those businesses qualified to pay estimates quarterly.
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.
Fringe benefits give a double tax break
If you want to motivate or reward your employees, give them a tax-free benefit. The cost of certain benefits you offer your employees can be nontaxable to them and tax-deductible to your business. Some fringe benefits you might want to consider offering your employees:
- Pay your employees' health insurance premiums or reimburse them for medical expenses.
- Pay certain mass transit or parking costs.
- Pay the premiums for up to $50,000 of group term life insurance coverage. Amounts paid for insurance in excess of $50,000 are taxable to your employees.
- Allow employees to purchase your company's merchandise at a discount. As long as the discount rate doesn't exceed the gross profit percentage on the merchandise, the benefit is free of tax to the employee.
- Give holiday gifts of nominal value. As long as the gifts are not in cash or gift certificates, your employee gets a tax-free gift and you get a tax deduction.
Most of these benefits must be provided equally among all your employees. If you discriminate in favor of certain key or highly compensated employees, the benefits could be taxable to them. Certain of these benefits may NOT be paid to 2% or greater owners (or their spouses) of S-Corporations and Partnerships. Check with us first!
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.
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© Copyright 2000 Raymond S. Kulzick. All rights reserved. 001211.
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