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Staff News
Rob Carmines was a speaker at the 19th
Annual Creative Solutions Users Conference, held in San Francisco
this November. He was one of only eight CPAs nationwide asked
to present on the topic of Managing Your Accounting Practice.
Rob also had an article, Simple Rules
for Retiring Rich, published in the November, 1999 issue of the
Virginia Peninsula Chamber of Commerce’s publication, Enterprise.
We are pleased to announce that Keith
Pendleton has joined our firm as Marketing Coordinator. His previous
experience includes two years as Marketing Coordinator at the
national headquarters of Jackson Hewitt Tax Service.
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Washington Watch
Congress passed the “Ticket to Work Incentives
Improvement Act of 1999”. The President has signed the act, surprising
many observers of the Washington scene. The act extends a number
of expiring tax provisions and also includes other time-sensitive
provisions and a number of revenue offsets. A brief highlight
is as follows:
Extenders – Minimum tax relief via using
non-refundable personal tax credits to offset the regular tax
liability in full, not just the amount by which the regular tax
bill exceeds the alternate minimum tax for individuals. However,
for 1999, the credits are not allowed to offset the amount by
which the alternate minimum tax exceeds the regular tax calculation
(in 2000 and 2001, it will also offset the minimum tax liability).
The work opportunity tax credit and the welfare-to-work tax credit
have been extended to December 31, 2001. The ability to expense
the cost of environmental remediation expenses is extended through
2001 as well.
Revenue offset provisions – Individuals
with adjusted gross income of over $150,000 in 1999 must pay either
the lesser of 108.6% of their 1999 tax or 90% of their actual
2000 tax as estimated tax payments in 2000 to avoid a penalty
for underpayment. For 2001, it rises to 110%. Also, the ability
to get a charitable deduction from purchasing charitable split-dollar
insurance has been eliminated.
There has been a number of other changes
affecting everything from definitions of foster children for purposes
of the earned income tax credit to allowing a two year window
of opportunity for clergy to elect to come back under social security
coverage. As ramifications of any of these provisions which may
affect our clients are identified, we will notify you.
Y2K?
Ready or not, here it comes! Please take some time to address
any Y2K issues with respect to your personal and business computers
or equipment before 1/01/00 strikes. There are numerous resources
available at the Microsoft web site, as well as information posted
on the web site of many software and computer manufacturers.
Here is a tip many are overlooking, in Windows 95 and 98 there
is an icon called “Regional Settings” in the control panel display.
A part of these settings includes setting the default date format
for windows programs. Be sure to set your date to a MM/DD/YYYY
format including 4 digits for the year. This warning has been
issued by Microsoft, but has not been highly publicized. Please
be aware that all of our software and equipment is fully Y2K ready.
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Year-end Planning!
As you approach the end of the year,
you should be looking at the tax ramifications of any transactions
which occurred in 1999, as well as those which may still happen
prior to year-end. Here are a couple of quick items to think
about:
- Bunching deductions into 1999
- Deferring Income until 2000
- Charitable gifting using appreciated
stock
There are many other tips and tricks that
can yield significant tax savings. If
you are concerned about your tax situation, please give us a call
so we can help you analyze any beneficial last minute moves.
Calling us January 1, 2000 may be too late.
Also, keep us in mind for assisting
you with bookkeeping or payroll needs in the coming year. Our
payroll rates are less expensive than the national companies and
you get our personal service!
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Estate Inventory
The death of a loved one is such a difficult
time, without having to worry about tax issues. However, because
of the tax ramifications in the future, one task you will need
to undertake is to make a list of all of the property the decedent
owned as of the date of his death. If he owned the property with
someone else, you will also need to include how title was held
for that property (i.e., joint tenants, community property, etc.).
When you begin making the list, don't
forget to include life insurance policies, stocks, bonds, real
estate, personal property (jewelry, clothing, works of art, furniture,
etc.) and retirement plans. The dollar value you assign to each
item should be the value as of the date of death. In the case
of more valuable items, such as a home, you should get a written
appraisal to determine the value.
While taking an inventory of property
may
seem unnecessary now, it is very important.
If you dispose of any property, the inventory list will help at
tax time to determine whether there is any taxable gain or loss.
This information is important whether it be this year or in the
future. In addition, a filing of the inventory may be required
with the City or County in which the decedent lived. Finally,
an estate tax return may be required in certain situations, depending
on the value of the decedent’s estate.
If you have any questions regarding estate
inventory, please don't hesitate to call this office to discuss
this further.
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The Virginia Education
Savings Trust
Qualified state tuition programs (QSTPs)
are the hottest college savings programs in the country. Last
year we pointed out the advantages of the Virginia Prepaid Education
Program which allows families to prepay tomorrow's college tuition
for Virginia's public colleges and universities at current prices.
However, that’s not the whole story.
In Virginia QSTPs have two varieties.
The second is the Virginia Education Savings Trust (VEST). Essentially
the VEST is a state-sponsored mutual fund that functions as a
tax deferred investment vehicle. This plan is targeted to accumulate
funds for the education of taxpayer's children (or grandchildren),
hopefully, at a pace sufficient to exceed the rate of inflation
for college costs. As long as the funds are used for qualifying
higher education expenses, the earnings are taxed to the beneficiary
when they are withdrawn. At the time of withdrawal, income is
recognized under favorable "annuity rules" which means
only a percentage of the accumulated fund, comprised of fund lifetime
cumulative earnings, are taxed. The remaining portion of distributions
is taken by the beneficiary tax-free. If funds are distributed
in excess of qualified higher education expenses, the balance
is taxed to the recipient beneficiary with a 10% penalty tax added
to the earnings component. The Virginia plan has the added feature
that all qualified withdrawals are state income tax free.
As with the prepaid tuition programs,
the rollover and beneficiary redesignation provisions of these
plans allow for substantial planning and parental control. Account
owners can change the designated beneficiary at any time. A plan
unused for one child can be redesignated or rolled over to another
state's program to benefit another child, or even for the benefit
of grandchildren.
The educational savings plans differ
from the prepaid tuition programs in that tuition amounts are
not "locked in". The plan owner is exposed to the risk
that tuition rates will grow faster than the investment account
and they will fall short of their education savings goals. However,
the positive side is that the savings plans offer more flexibility
than the prepaid tuition programs and there is tremendous upside
potential from excellent overall performance of the stock markets.
The gift and estate consequences of these
accounts are also very favorable. The account owner retains the
power to redesignate beneficiaries and also has the power to revoke
the account. Even though the control is there as long as the account
still exists, at death it is not taxed to the owner's estate.
There is currently no better estate planning
tool that meets the objective of control without estate tax consequence.
The VEST solves the classic problem of the grandparent that wishes
to gift to their grandchildren money for their college education
but wants to keep control of unspent educational funds.
If you are interested in knowing whether
you may take advantage of the features of the Virginia Educational
Savings Trust, give us a call.
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Squeezed By Student
Loans
In recent years, colleges and graduate
schools have experienced an increase of older students. And many
of them are borrowing money for their education. Baby boomers
still owe some $11.5 billion on student loans according to Sallie
Mae. Most of this debt is related to their own undergraduate or
graduate study. Even more interesting, some in this group have
borrowed for their children’s educations before fully repaying
they’re own student loans. Loading up on debt that may take as
long as 20 years to repay is never a step to take lightly. Some
of the factors you should consider before you borrow are as follows:
- Realistically assess your ability to
repay. Consider all the obligations you now have such as your
mortgage, car payment, etc. as well as those you are expecting
to take on in the future.
- If you (or your child) is offered a
financial aid package that consists of scholarships and student
loans, try to find out whether the scholarship portion (the
money that won’t be paid back) will be available at the same
level every year. You don’t want to borrow more than you planned
so that your program can be completed.
- Don’t forget about your retirement.
Evaluate whether the education loans could prevent you from
building a sufficient nest egg. If so, you should weigh all
other alternatives before you sign for a loan.
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Steep Penalties Await
“Responsible Person”
In a cash flow crunch, it can be tempting
to skip making federal payroll tax deposits. This is a risky
business, as the majority shareholder of a company that was delinquent
in its deposits recently found out. The shareholder was not a
corporate officer or director and was not involved in the company’s
day-to-day affairs. However, he was held personally liable for
the payment of the taxes that had been withheld from the pay of
company employees. The reason: He had been aware of the corporation’s
mismanagement and had done nothing to correct it. While the shareholder
did not meet several IRS criteria for being a “responsible person”,
he did contribute substantial funds to the corporation and had
the authority to write checks.
The IRS identifies a “responsible person”
as any individual with the authority to collect, account for,
or pay withheld income, Social Security, and Medicare taxes who
willfully fails to see that the taxes are paid. Individuals targeted
by the IRS generally are responsible for day-to-day financial
management, are officers or members of the company’s board, or
have an ownership interest in the organization.
If at all possible, it’s best to voluntarily
pay outstanding payroll taxes before the IRS assesses a penalty.
If only a portion of the tax can be paid, specify that the payment
is for “trust fund” (i.e., withheld) taxes. Otherwise, the IRS
could first apply funds to the employer’s portion of the payroll
taxes, which wouldn’t relieve the responsible person of liability.
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