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Will Your Nest Egg Be Consumed by Taxes?

Dear Clients and Friends,

     August is upon us already, along with the stifling heat.  At times like this I begin to look forward to cool fall days. “Carpe Diem” (seize the day) would remind us to live in the present.  Can living in the present include some planning for the future?  I sure hope so, since that is a prominent part of the service we offer.

       For many businesses we either prepare or review interim-financial statements to project the expectations for the year.  This naturally leads to tax planning recommendations.  For others, we assess the ten or eleven month results, as we approach the calendar year end, with the same end in mind.  It is the planning that is important, not necessarily when it is done.  Another sound business practice that works hand-in-hand with this is the preparation of annual budgets.  Every business, no size excluded, should prepare a budget as it begins each new year.  We can help you with this also.

On the individual or personal side, we often hear the buzz words “wealth management.”  This is a catch phrase that encompasses various aspects of financial planning.

     For younger couples raising children, the hot topic revolves around the most strategic way to fund and pay for college.  Closely following is the need for financial independence.  This involves investment, insurance and retirement planning, and ultimately estate planning.  Also, with aging parents and people generally living so much longer, we have to consider long-term care as well.

My intent is not to stress you out with all the planning talk, but to make you aware that as these needs arise, we can help “quarterback” the process, which may include investment advisors, insurance agents, trust officers, and attorneys at any given time.

     So, back to the present.  Carpe Diem.

Sincerely,

Nick

     Why are retirement accounts subject to this double tax burden? If you die owning an IRA or 401(k), your plan will be considered an asset in your estate and, like every other asset, it could be subject to estate tax. And since most retirement plans contain untaxed income, your plan could also be hit with income tax, on top of the estate tax, when it is distributed to your heirs.

     Retirement plans create additional complications because they are structured as trusts, which means that each plan legally has its own beneficiary. In a good estate plan, the beneficiary of an IRA or 401(k) is coordinated with the beneficiary named in your will or living trust. In a poorly planned estate, retirement plan assets can end up with heirs you never intended. Even if your plan assets end up in the right hands, your heirs can be saddled with a huge income tax bill.

     In an area as complex as this one, it’s impossible to lay down rules that apply to every situation. But there are some common danger signals.

· You don’t know who is named as beneficiary.

· You’ve named your estate as beneficiary.

· You have never considered naming a child or grandchild as your beneficiary.

· You are nearing age 70½, and you haven’t given much thought to your “minimum required distributions.”

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Professional Accounting Expertise

Small Business Gets Tax Breaks in New Law

      The Small Business and Work Opportunity Tax Act of 2007, signed into law on May 25, offers tax breaks for you and your business – and also contains less beneficial provisions that may require changes to your tax plan.

     Here’s an overview:

Additional Section 179 deduction.   For 2007, you can expense up to $125,000 of business assets, including furniture, equipment, and computer software. Under prior law, the maximum Section 179 expense for this year was $112,000. In addition, the special rule for the Gulf Opportunity Zone is now effective through 2008. This rule applies to specific areas affected by Hurricane Katrina and allows an extra Section 179 deduction of as much as $100,000.

Extended Work Opportunity Tax Credit.   The credit, scheduled to expire after 2007, has been extended through August 31, 2011, and the definition of several “targeted groups” was expanded. The credit offsets part of your income tax when you employ workers such as veterans or vocational rehabilitation referrals.

Simplified family business filing requirements.   If you wanted your spouse to take an active role in your business but hesitated because you thought you’d have to file a partnership return, now may be the time to act. Starting this year, you can elect to allocate business income on your joint Form 1040 tax return.
Tip: Splitting business income can affect future social security benefits.

Expanded kiddie tax.   For 2007, if your  dependent child, who is under age 18,  receives net unearned income of more than $1,700, the excess is taxed at your higher rate. Beginning in 2008, the tax will apply to children under age 19 and to students under age 24.

     Every year there are natural disasters that remind us how easily we can lose essential tax and financial records. After a disaster, you’re more likely than ever to need certain records to file insurance claims or apply for loans.

     It’s smart to take the time to identify key records, make copies, and find a secure place to store them. Here are some suggestions to get you started.

     You don’t need to copy every tax and financial record. Your banks, credit card companies, and investment brokerages will have records of your accounts and can probably supply details of recent transactions if needed. Your employer will have current payroll records, and IRA or 401(k) plan trustees will have details of your accounts.

     Keep a master list of all account numbers, with a contact phone number for each. That will make it easier to recover information after a disaster. If you handle transactions online, include your user ID and passwords.

     Keep documents supporting the purchase of your home or investment properties. Also keep records of expenses for remodels or other improvements that change your cost basis in the property.

     Your broker should have details of your original investments in stocks or bonds, but copy details of any investments you purchased independently. That includes numbers of U.S. savings bonds that you own.

     Make sure your will and estate planning documents are stored safely, either at your lawyer’s office or in another secure place.

     Consider keeping copies of your last three years’ tax returns, even if your tax preparer has duplicates. And finally, include a recent backup disk from your home computer.

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Your Business Can Benefit By Cross-Training Your Employees

      Have you considered the benefit to your business of cross-training your employees? Cross-training, or job rotation as it’s sometimes called, can be a win-win situation for you and your employees. Large companies often use it to prepare managers for high-level corporate positions. But it can be equally useful for employees on the shop floor or in general office positions.

     You can do cross-training in several ways. At its simplest, you rotate employees to learn different job skills within a department. Or you might move people to different departments for a formal three- or six-month assignment before they return to their original position. In some cases, it’s a regular progression of assignments designed to move an employee up the career ladder. How you implement cross-training will depend on the size and nature of your business.

     Advantages for the company include:

· Greater flexibility in moving staff to deal with unexpected workload.

· Reduced turnover because employees feel challenged.

· Greater teamwork between departments.

· Development of a broader range of skills in employees.

· Having employees see more of the “big picture” of company operations.

     For the employees, the advantages include:

· Learning new skills, perhaps breaking the monotony of a position.

· Feeling appreciated by the company, increasing motivation to excel.

· Seeing growth opportunities within the company instead of looking elsewhere.

     However, cross-training is not without its costs and risks. Managers may resist having to train new employees, and productivity may suffer in the short term. Employees are always nervous about change, and they may be worried about having to learn new skills. It’s critical to think through the goals of your program very thoroughly beforehand. Communication is the key. It’s essential to get everyone involved before you start and to stay involved yourself to deal with problems or issues that arise. If you do it right, cross-training can produce benefits for all concerned. 

Company Update

     Valerie Caldwell has joined the firm as a team supervisor.  She received her bachelor’s degree from University of Cincinnati and was previously employed on the audit staff of a regional CPA firm.  She resides in Troy with her husband and two sons. 

     Heather Fetter has been promoted to senior accountant.  She holds a bachelor’s degree from Wright State University.  Heather recently completed her 5^th year with the firm.  She resides in Troy with her husband, son, and daughter.

     Nicholas Nolan  was recently presented a 30 year service award in recognition of his outstanding dedication, commitment and personal leadership.  He is a graduate of Wright State University with a bachelor of science in business.  Nick has been a CPA for over 33 years.

This newsletter provides general tax, financial, and business information for our clients.  The information should not be acted upon without further details and/or professional assistance.