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
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APRIL 2009 NEWSLETTER
WHAT'S NEW......
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.
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.
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, 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%.
MONTHLY ARTICLES
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.
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 build up. 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.
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.
This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, click here.
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