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December 2009
Client Line Home Page
Section 529 Plans
Some helpful taxplanning tips
Line Items
News you can use
Tax Deductions for Telecommuters
New IRS Rulings
Converting unused
leave to retirement
benefits
Twenty years ago,
telecommuting was
rare. Today, millions
of employees work
from offices in their
homes. Having a
home office changes
many things — and
could open up the
opportunity for additional tax deductions.
Compounding
A look at how savings
grow
Profile
Tracking a business's
financial information
Refund Option
Time To Grow?
Small business
expansion strategies
Passing the Tests
Basically, as long as their work-from-home arrangement passes
the IRS's "home office" tests, telecommuting employees may
deduct certain related expenses. To qualify, a home office must be
established for the convenience of the employer (not the
employee). In addition, the office space must be used regularly
and exclusively for business (no doubling as a guest room on
weekends), and it generally must serve as the employee's principal
place of business or as a place to meet with clients or customers.
An office located in a separate structure not attached to the
residence also can qualify if it's used exclusively and on a regular
basis in connection with business.
Q&A
Available Issues
What's Deductible?
Once a home office passes the qualification tests, the following
expenses are generally deductible:
Direct expenses (e.g., painting and repairs) related to the home
office
Indirect expenses (such as utility costs and homeowners
insurance) related to the percentage of the home the office
occupies
The cost of traveling from the office to other work locations in the
same trade or business
Even if a home office doesn’t pass the IRS tests,
telephone expenses (including long distance
business calls on an employee’s home phone and
the cost of a second phone line used exclusively
for business) and the cost of office supplies are
deductible. Unreimbursed
computer-related costs are also
deductible if certain requirements
are met.
Expenses are reported as a miscellaneous itemized deduction,
subject (in total) to the 2%-of-AGI (adjusted gross income) floor.
The deduction amount is limited to the income the taxpayer earns
at the home office (and by other factors), although excess
deduction amounts may be carried forward and deducted in a
future tax year.
In Your Office
Working from home can be mutually beneficial to employees and
their employers. Just be aware that the home office tax deduction
rules are strict and complicated. Contact us if you'd like us to
review them with you.
During the upcoming
filing season, taxpayers
will have the option of
telling the IRS they
want to use a specified
amount of their
personal income-tax
refunds to buy U.S.
savings bonds. The IRS
will arrange for the
bonds to be mailed.
There is no need to
open an account with
the Treasury
Department in advance.
Only Series I bonds will
be offered. Series I
bonds are bought at
face value and accrue
interest until redemption
or, if earlier, until final
maturity in 30 years.
The interest rate
combines a fixed rate
and a variable
semiannual inflation
rate.
Series I bonds generally
may not be redeemed
during the first 12
months after purchase.
Bondholders forfeit the
most recent three
months of interest if
they redeem their bonds
within the first five
years. No more than
$5,000 of U.S. savings
bonds (any series) may
be purchased in a
calendar year.
December 2009
Client Line Home Page
Section 529 Plans
Some helpful taxplanning tips
Line Items
News you can use
A 529 Crash Course
New IRS Rulings
Converting unused
leave to retirement
benefits
Looking for a tax-smart way to save for Junior's college education?
Section 529 college savings plans get high grades. There are no
income restrictions, contribution limits are generous, and you get a
tax break: As long as funds in the account are used to pay
qualified education expenses for the designated beneficiary,
investment earnings are exempt from federal — and state, in many
cases — income taxes. But planning missteps could erase some of
the benefits.
Compounding
A look at how savings
grow
Profile
Tracking a business's
financial information
Do Your
Homework
Time To Grow?
Small business
expansion strategies
Q&A
Available Issues
Not saving enough
can be a problem.
But saving too much
in a Section 529 plan
also can be a
problem. If you save
more than your child
can use, you risk
having the balance
paid out as a
nonqualified
distribution unless
you have another
child (or qualifying
family member) you
can name as
beneficiary. The
portion of a nonqualified distribution represented by investment
earnings will be taxed as ordinary income, regardless of whether
the earnings come from interest, capital gains, or dividends — and
a 10% penalty tax also will be due. (Some exceptions apply.)
Avoid problems by comparing costs at public and private colleges
and making a conservative estimate of how much your child will
need.
The Name Game
Your child can be the beneficiary of more than one Section 529
plan. If a friend or relative contributes to a 529 plan on your child's
behalf, it's a good idea to keep the account in that person's name
rather than putting it in yours. This will keep the gift from being
counted as parental assets for financial aid purposes.
Account ownership is important for tax reasons, too. The IRS has
proposed rules that make the entire amount of a nonqualified
distribution taxable except for the amount the account owner has
contributed. So if generous Aunt Sophie funds a 529 plan for your
child that is in your name, and your child doesn't use all the money
for college, you could end up paying income tax on the entire
nonqualified distribution, not just the earnings.
Taxing Changes
If you want, you can roll over your 529 plan to a different plan — as
long as no other 529 accounts that name your child as beneficiary
have been rolled over in the past 12 months. Otherwise, the
rollover will be considered a nonqualified distribution.
December 2009
Client Line Home Page
Section 529 Plans
Some helpful taxplanning tips
Line Items
News you can use
New IRS Rulings
Converting unused
leave to retirement
benefits
Compounding
A look at how savings
grow
Newly minted college graduates had received 20%
fewer job offers by September 2009 compared to the
same time the year before. The average starting salary
offer of $48,633 was 1.2% lower than in 2008,
according to the National Association of Colleges and
Employers.
Profile
Tracking a business's
financial information
Time To Grow?
Small business
expansion strategies
Q&A
Social networking sites are increasingly being used to
research job candidates. Forty-five percent of hiring
managers surveyed by CareerBuilder in mid-2009
reported using such sites. While 18% said they'd found
content on the sites that caused them to hire
candidates, 35% had rejected candidates on the basis
of what they'd found.
Available Issues
Business owners ranked above 10 other occupational
groups in terms of overall well-being, according to a
recent study of close to 101,000 working adults
surveyed by Gallup and Healthways, a healthmanagement company. Well-being was measured
using several criteria: emotional and physical health,
job satisfaction, healthy behavior, access to basic
needs, and self-reports of overall life quality.
Two cities in Japan, Tokyo and Osaka, ranked number
one and number two in Mercer's Cost of Living survey
(March 2009) covering 143 cities worldwide. At number
eight, New York was the only U.S. city among the 20
most expensive.
The general information in this publication is not intended to be
nor should it be treated as tax, legal, or accounting advice.
Additional issues could exist that would affect the tax treatment
of a specific transaction and, therefore, taxpayers should seek
advice from an independent tax advisor based on their
particular circumstances before acting on any information
presented. This information is not intended to be nor can it be
used by any taxpayer for the purpose of avoiding tax penalties.
December 2009
Client Line Home Page
Section 529 Plans
Some helpful taxplanning tips
Line Items
News you can use
Putting Unused Leave To Work
New IRS Rulings
Converting unused
leave to retirement
benefits
Surveys show that
many employees
don't take all the
paid vacation time
they have coming to
them. Chances are
good that many of
those same
employees are not
saving adequately
for retirement. Can
the unused paid
time off be
converted to
retirement benefits?
Compounding
A look at how savings
grow
Profile
Tracking a business's
financial information
Time To Grow?
Small business
expansion strategies
Q&A
Available Issues
It is possible for employers to add provisions to their 401(k) or
profit sharing retirement plans that allow plan contributions to be
made in lieu of vacation, sick, or other similar paid leave. Recent
IRS guidance* gives details regarding several different
arrangements.
In one, the employer contributes the dollar equivalent of unused
paid time off that employees would otherwise forfeit at year-end to
their profit sharing plan accounts.
In another, employees may elect to receive the value of their
unused paid time off in cash or have the amounts contributed to
their 401(k) accounts.
Still other arrangements provide for contributions to the
retirement plan upon termination of employment.
Contributions made under the different arrangements the IRS
outlined will not disqualify the employer's retirement plan as long as
annual contribution limits are not exceeded and the plan continues
to meet the nondiscrimination rules. The contributed amounts are
not taxable to the employees until distributed from the plan.
* Revenue Rulings 2009-31 and 2009-32
December 2009
Client Line Home Page
Section 529 Plans
Some helpful taxplanning tips
Line Items
News you can use
Compound It!
New IRS Rulings
Converting unused
leave to retirement
benefits
Are you trying to figure out what it will take to reach a financial
goal? Be sure to consider the potential benefits of compounding —
earning money on your initial principal and on the earnings you
reinvest. Here’s a simple example that shows the growth of a $100
investment in $100 increments.
Compounding
A look at how savings
grow
Profile
Tracking a business's
financial information
Time To Grow?
Small business
expansion strategies
Q&A
Available Issues
Assumes a hypothetical 6% average annual return, no withdrawals, and
reinvestment of account earnings. Your returns may be different. Results
are rounded down to the nearest hundred dollar level.
At a 6% average annual return, a $100 investment will grow to
about ten times its original value ($1,000) in 40 years. Don’t have
40 years to invest? You can still benefit from compounding. In the
example, the first additional $100 is earned in 12 years. But
because the account has grown, the next $100 is earned in only
seven years. And still another $100 is added after just five more
years of investing.
December 2009
Client Line Home Page
Section 529 Plans
Some helpful taxplanning tips
Line Items
News you can use
New IRS Rulings
Converting unused
leave to retirement
benefits
Compounding
A look at how savings
grow
Profile
Tracking a business's
financial information
Emily has been struggling to keep her small
business’s financial information up to date. She
wants to know how she can improve her
recordkeeping to better manage her business.
Time To Grow?
Small business
expansion strategies
Emily needs a basic system that will allow her to access
reliable and timely information. One critical piece of
information that Emily wants to track on a routine basis
is how much cash her business has on hand.
Q&A
Available Issues
It is also important for Emily to know who owes her
business money and how much they owe so that she
can follow up on overdue accounts. And to keep track of
who her business owes money to, she should have a
list, in due-date order, of all accounts payable.
Emily also would like to better monitor inventory levels
so that she knows what she has in stock and what items
should be ordered. While she doesn’t want to lose sales
because of shortages, she knows that keeping too much
inventory in stock is expensive.
Monthly or quarterly financial statements will give Emily
a more complete picture of her business’s finances. She
will be able to monitor profitability, respond to requests
for financial information from lenders and suppliers, and
ensure that business loan requirements are being met.
Accurate, up-to-date financial information is critical to a
well-managed business. If you need help developing a
recordkeeping system for your business, please let us
know. We’d be happy to assist you.
Client Profile is based on a hypothetical situation. The
solutions we discuss may or may not be appropriate for you.
Talk to us before taking any action.
December 2009
Client Line Home Page
Section 529 Plans
Some helpful taxplanning tips
Line Items
News you can use
Time To Grow Your Business?
New IRS Rulings
Converting unused
leave to retirement
benefits
The idea of expanding in the aftermath of an economic downturn
may seem counterintuitive. But, if you’re in a strong financial
position, it may be an ideal time to look for opportunities.
As a small business owner, you have a lot going for you. You can
make decisions and implement changes more quickly than your
larger competitors, and you probably have a closer relationship
with your clients and customers. All these things are in your favor if
you’re thinking of adding new product lines or services.
Compounding
A look at how savings
grow
Profile
Tracking a business's
financial information
Play to Your Strengths
Time To Grow?
Small business
expansion strategies
Any serious expansion consideration should begin by identifying
your strengths. What keeps your customers and clients coming
back? Use the answer to identify products and services that might
be a good fit with your current business model. Doing so will allow
you to leverage your strengths and may open up valuable
opportunities to cross promote your new offerings. Once you have
some ideas, take a look at market trends and think twice about
those that are trending downward.
Q&A
Available Issues
Scout Out the Competition
Find out who’s selling what in your market and to whom. If you’ll be
competing for market share, consider whether — and how — you’ll
be able to generate enough sales to make your expansion viable.
If you’re considering introducing a new product or service to the
market, evaluate the potential demand before you commit.
Round It Out with Research
Market research can help you make educated projections.
Customer/client focus groups and questionnaires are two common
options. To get a broader picture, use the Internet. Many websites
provide free demographic and consumer spending information
based on Census Bureau and other government data. (The federal
government has a portal at www.fedstats.gov.) State and local
governments and business organizations generally have useful
resources, too.
Call Us
You’ll also want to look at
cost and growth
projections and
financing options.
We will be happy
to assist you.
December 2009
Client Line Home Page
Section 529 Plans
Some helpful taxplanning tips
Line Items
News you can use
New IRS Rulings
Converting unused
leave to retirement
benefits
Compounding
A look at how savings
grow
My wife is leaving her job after a year and a
half. Can she withdraw the money in her
SIMPLE IRA?
Profile
Tracking a business's
financial information
She can, but it might be costly. In general, a 25%
penalty tax applies to early distributions from a
SIMPLE IRA held less than two years. So unless
your wife qualifies for one of several exceptions
— she is age 59 1 / 2 or older, disabled, or wants
the money to pay unreimbursed medical or
higher education expenses, to name a few —
she will probably have to pay the penalty in
addition to federal and, perhaps, state income
taxes on the withdrawal.
Time To Grow?
Small business
expansion strategies
Q&A
Available Issues
I'm an officer and shareholder of an S
corporation. Must I take a salary?
In the IRS's eyes, you're an employee and you
must take a "reasonable” salary. You also will be
taxed on your share of the corporation's income
each year (after accounting for your salary),
even if it's not distributed to you. Consider adding
a tax distribution provision to your shareholders'
agreement that requires the corporation to
distribute enough money to shareholders to
cover the income taxes on their portion of the
corporation's income.
Copyright © 2009