JULY 2008 NEWSLETTER - VOL 2
IRS issues political activity reminder to tax-exemptsEvery presidential election year, the IRS issues a reminder to tax-exempt organizations, such as churches and charities, not to engage in prohibited political activities.
By law, organizations with a 501(c)(3) tax-exempt status, may not "participate in, or intervene in (including the publishing or distributing of statements) any political campaign on behalf of (or in opposition to) any candidate for public office."
Organizations can engage in advocating for or against issues and, to a limited extent, ballot initiatives or other legislative activities.
Tax-exempt organizations that break the rules risk losing their tax-exempt status. More information about the law pertaining to political campaign activity and tax-exempt status can be found at the IRS web site (www.irs.gov).
It's time for midyear business planningIt's time to do a midyear review of your business tax planning. Here are six ideas to consider.
* Establish a retirement plan if you don't already have one. Examining the choices now gives you time to select the best plan for your business and to get the paperwork completed. Then you'll be set to make contributions as your cash flow allows - and to take the deduction on your 2008 tax return. Another plus: You may be able to claim a credit on your 2008 tax return for the costs of establishing the plan.
* Hire your kids. If your child is under age 18 and works for your unincorporated family business, there are no social security or Medicare taxes on the child's pay. Wages paid to the child are also deductible. Just make sure the compensation is reasonable for the work actually performed.
* Deduct equipment purchases. You can expense up to $250,000 of business equipment purchased this year. If you buy new equipment (not used), you may also qualify for 50% bonus depreciation in 2008.
* Check your benefits. If you offer health benefits to your employees, look into tax-advantaged plans such as health savings accounts, flexible spending accounts, or health reimbursement arrangements. These plans can reduce your taxes and help control your benefit costs.
* Start a business. Planning to acquire or start a business this year? Keep good records of your costs to get the business off the ground, including advertising costs, legal fees, and accounting expenses. Up to $5,000 of these expenses could be deductible on your 2008 tax return.
To discuss the tax-saving ideas best suited for your business, give us a call.
Are children priceless?Parents generally consider their children to be priceless, but one group has put a price tag on children.
The parenting Web site BabyCenter, using data from the College Board and the Department of Agriculture, estimates that raising a child born today through college will cost more than $338,000. If the child goes to a private college, add $70,300 to that amount.
The numbers vary depending on region of country, with the West totaling $426,190 (including private college tuition) and the Midwest costing $392,116.
You can enjoy a vacation home and cut your taxes - with some careful planning and a little discipline.
Vacation home planning can save your tax deduction
The IRS rules can be complex and potentially restrictive, so a word of caution is in order as you plan the use of your vacation home.
Owners of vacation homes often rent out the property when they're not using it themselves. Renting out your vacation home may or may not make sense for you. The principal variables are the number of days you rent the property, the number of days of personal use, your individual tax situation, and your personal wishes for the use of your vacation home.
Rent for 14 days or less and a simple tax break is available. If you rent your vacation home for 14 days or less, all of the rental income is tax-free. This attractive tax benefit can help provide cash for your mortgage and other expenses.
Rent for more than 14 days and your tax planning and personal life become more complex. If you rent your vacation home for more than 14 days, all your rental income is reportable. Whether you treat the income and expenses as a second residence or as rental property depends on the personal use of your vacation home relative to the time the home is rented out. This test is made annually and determines the nature of deductions, loss carryovers, and the tax treatment if the vacation home is sold.
Please call us to guide you through the IRS rules to find the rental strategy that meets your financial goals, yet ensures the personal enjoyment of your vacation home.
Many companies know how to SAY customer service; they just don't know how to DO customer service. Yet, good customer service leads to repeat sales and referrals, which lead to higher revenues and profits. The result is a stronger, more secure business.
Customer Service: Does your business just say it or do it?
Your sales staff knows this well. Their results are directly affected by customer perceptions. Other employees, such as those in support and back office functions, may not think of themselves as serving the customer. But the fact is that every employee has an impact, direct or indirect, on the customer's experience. An incorrect shipment, a late delivery, or a mistake on an invoice, all result in poor service. A goal of your business should be to meet, and preferably exceed, customer expectations as often as possible.
How do you teach every employee that customer service is part of their job? The answer is a combination of communication, training, and good management.
* Communication. Make all employees aware of the importance of customer service to the business as a whole. Explain the role they play in achieving good service. Consider posting measures of sales for all to see. If appropriate, develop measures of accuracy or error-free performance and track and share the results.
* Training. Every employee with customer contact should be trained on good service, whether it's a salesperson, a receptionist, or a delivery driver. For those in support roles, emphasize how cooperation and teamwork can contribute to good service. Instill a culture that serving the customer is everyone's job.
* Good management. As the owner or manager, your actions and your priorities set the tone for the company. Employees will follow your lead and pay attention to the things you consider important. Look for ways to measure customer satisfaction and show your employees that you're monitoring it. And don't overlook the other way to improve customer service - minimizing the things that go wrong. Make sure you're aware of errors and complaints. Set goals for improved performance and hold people to them.
Finally, involve your employees. Make it clear that better service is a shared goal and ask for their suggestions. You might be surprised how well they respond.
With today's shrinking home values, rising adjustable mortgage rates, and tighter loan standards, many people are turning to their 401(k) plans as sources of needed cash. But early withdrawals can exact a heavy price, and even borrowing from a 401(k) can have adverse consequences.
Think before breaking your 401(k) nest egg
* Due to the tax effect, withdrawing funds from a qualified retirement plan is not like taking cash out of your bank account. A 401(k) withdrawal is taxed as ordinary income, and if you're under age 59-1/2;, a 10% penalty usually will be added to the tax. Borrowing from a 401(k) generally is preferable to simply withdrawing the funds, because no tax applies to the loan proceeds.
However, many plans either restrict their participants' borrowing or don't allow borrowing at all. Where loans are permitted, they're individually limited to the lesser of $50,000 or one-half of the borrower's plan assets. Most 401(k) loans require interest at one or two points above the prime rate, and the loans must be fully repaid within five years, unless the proceeds are applied to a personal residence. The borrower must sign a legally enforceable loan agreement and adhere to the agreement's terms.
* If you leave your job with a 401(k) loan outstanding, you'll generally have 30 to 90 days to either fully repay the loan or face being taxed (and penalized, if you're under age 59-1/2) on the outstanding balance.
When you repay the loan, you'll be paying with after-tax dollars, and you'll be taxed again on those dollars when you withdraw them upon retirement. And unlike ordinary mortgage interest, the interest paid on a 401(k) loan used to buy or improve a home is not deductible.
* Borrowing from a 401(k) is an especially bad idea for funding an ongoing cash need. For example, using the proceeds to offset a hike in your adjustable mortgage payments would only compound the problem. You'd be burdened with an additional loan, the proceeds eventually would run out, and the mortgage payments almost certainly would not go back down.
* Finally, borrowing from your 401(k) tends to defeat the purpose of participating in the plan in the first place - to accumulate funds for a comfortable retirement. Removing money from a fund slows its growth, particularly since most people must cut back on current contributions in order to make repayments.
Call us if you're thinking about borrowing from your 401(k) or you'd like to discuss other funding sources. We'll help you make the decision that's right for your individual circumstances.
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.