• September 1999

  Welcome to ONLINE ADVI$OR.

  Our monthly online newsletter provides useful tax, business, and financial planning information as part of our firm's commitment to total client service.

  The information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.

  For more information on anything in ONLINE ADVI$OR, or for assistance with any of your tax, business, or financial planning concerns, contact our office.

   

   

  Major Tax Deadline for September 1999

  September 15 - Due date for individuals to pay third quarter installment of 1999 estimated income tax.

  September 15 - Due date for filing 1998 tax returns for calendar-year corporations that had an automatic extension of the March 15 filing deadline.

  Note: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business. For information on the tax deadlines that apply to your business, contact our office.

   

   

  What's New in Taxes

  Congress passes $792 billion tax cut

  On August 5, 1999, both the House and Senate approved a ten-year, $792 billion tax cut. The bill, H.R. 2488, narrowly passed in the House with a 221-206 vote. The margin was even narrower in the Senate, with a 50 to 49 vote.

  President Clinton has indicated that he will veto the bill when it reaches his desk. However, a review of the provisions in this bill may be an indicator of possible tax changes that might actually become law later this year or next.

  Among the main proposals in the bill:

  * A one-percentage point drop in tax rates, phased in from 2001 to 2005.

  * A reduction in the marriage penalty.

  * An increase in allowable contributions to retirement plans.

  * Gradual elimination of the estate tax.

  * An increase in tax breaks for education and health care expenses.

  * A reduction of capital gains tax rates.

  * Gradual phasing out of the alternative minimum tax.

  * Numerous tax breaks for businesses, including an increase in the deduction allowed for business meals from the current 50 percent to 60 percent.

  Most of the proposed tax cuts would become effective toward the end of the ten-year period; fewer than 1 percent of the cuts would come in 2000.

   

  Want more tax breaks? Cut Your AGI

  In their tax planning, most people focus on increasing deductible expenses, but this is only half the battle. Reducing adjusted gross income (AGI), the last number on the first page of the tax return, can be just as important. More than 20 tax-saving deductions and credits, including some of the most common, decrease as AGI increases.

  For example, the personal and dependency exemptions that allow $2,750 per family member to escape taxation are reduced after AGI exceeds $189,950 on a joint return ($126,600 for singles). Itemized deductions, which include home interest and real estate taxes, begin phasing out when AGI exceeds $126,600. Losses on rental property are cut back when AGI passes $100,000, and education credits start to disappear once AGI exceeds $80,000 for joint filers and $40,000 for singles.

  Effective tax planning involves increasing deductions and reducing AGI to retain the full value of those deductions.

  Consider these moves

  Here are some moves to consider if you're trying to reduce AGI:

  Contribute the maximum to employer-provided retirement plans. If you are self-employed, consider establishing a plan. Contributions reduce AGI, and plan earnings aren't taxable until they are withdrawn.

  Consider replacing interest-bearing accounts with tax-free investments. In the highest tax brackets, returns are often comparable, but earnings aren't counted toward AGI.

  Invest in tax-efficient mutual funds, instead of funds that usually distribute large gains that you must report as income.

  In 1999, business owners may deduct up to $19,000 worth of equipment that normally would be capitalized and depreciated over several years. However, to receive the full benefit, total assets purchased can't exceed $200,000 for the year.

  These ideas for lowering AGI provide a double benefit since they also reduce your taxable income. For more tax-saving ideas, or for help in implementing those discussed here, give us a call.

   

  New Business

  Postal Service denies e-mail rumor

  The United States Postal Service is denying a rumor currently being circulated on the Internet via e-mail.

  The rumor contends that a "Congressman Schnell" has introduced legislation (Bill 602P) to allow the federal government to charge five cents on every e-mail message delivered over the Internet. Internet Service Providers would collect the surcharge and turn it over to the Postal Service.

  "Completely false," says the Postal Service. "There is no Congressman Schnell, no such proposed legislation, and no Postal Service support for such a charge for e-mail messages."

   

   

  Smart Business

  Troubleshoot your business

  The old saying, "An ounce of prevention is worth a pound of cure," is especially true in business. Identifying problems before they become crises can make the difference between a business that succeeds and one that fails. Every business owner or manager should develop a system that gives him early warning of trouble in the business.

  What to monitor and at what frequency will depend on your kind of business. A manufacturing business will be checking different numbers than a service business. As owner or manager, ask yourself what numbers are important in your company for industry comparison. How often should you check them for signs of problems?

  Don't let the important numbers be lost in a sea of data; learn what information gives you the clearest picture of how your company is doing.

  The information many owners and managers find essential includes the following:

  * Cash flow
  A healthy cash flow is the life blood of any business. You must be able to foresee cash shortages and prepare for them. Short-term, last-minute borrowing can be expensive for a company, and bankers are not impressed by crisis-style management.

  On the other hand, when cash flow in a company is abundant, it is management's responsibility to be sure large amounts are not left in noninterest-bearing accounts.

  * Expenses
  What and where a company spends for materials, supplies, and operations should be examined at least monthly. Where there are variations from the norm, management should investigate further. Large single items should be scrutinized, as well as areas open for abuse - such as travel, meals, and entertainment expenses.

  In paying invoices, the company should be taking advantage of discounts where appropriate.

  * Receivables
  If your receivables are getting older and older, your customers are using you as their banker. Monitor receivables closely to determine that the number of days' sales outstanding is not increasing. A 30, 60, 90-day receivables aging schedule should be reviewed monthly and late payers contacted soon and often.

  * Inventory
  Watch inventory levels closely. You want to be able to fill customers' orders, but you do not want inventory to be so large that portions become obsolete. Also, be wary of getting too much money tied up in inventory, especially through slower sales periods.

  * New business, new orders
  New business signals a healthy, growing business. Monitor your marketing efforts to see how much new business is being generated. Follow through to see that new business is handled timely and efficiently so that new customers are not lost due to poor service.

  * Completion time
  Keep tabs on how long it takes your company to make a sale, fill an order, or complete a service job. If completion time begins to increase, your costs are likely to increase, too, while profits decrease.

  Find out the cause of delays and correct the problem. If you're a manufacturer, look for production or supply problems. If you're a service company, perhaps delays are caused by poor scheduling of personnel.

  Check back orders; customers get very unhappy with delays. Monitor the workload in your company so you can make adjustments early enough to keep customer goodwill.

  * Seek assistance if necessary
  Some companies with problems in these areas are not able to design corrective measures without outside help. The time and money spent for professional assistance will come back in greater profitability.

   

   

  What's New in Financial Planning?

  One less Y2K problem to worry about - your social security check

  If you receive social security checks, you'll be happy to know that you shouldn't experience any Y2K delays in receiving payments. The Social Security Administration has tested its systems that produce Social Security and Supplemental Security Income (SSI) payments and says they're Y2K compliant. The Social Security Administration says that all 50 state Disability Determination Services (DDSs) that support medical determinations in the social security disability claims process have also been tested and made Y2K compliant.

  And if you get your checks in the mail, here's more good news: The U.S. Postal Service says its systems will be ready for the Year 2000, also.

   

   

  Take Some Steps Now to Enjoy a Happy New Millennium

  By now you've heard about the Y2K bug. Because many computers were programmed to read only the last two digits of a year, there's the possibility that on January 1, 2000, they will read "00" and think it is the year 1900. That causes concern that computers and databases could crash, and other devices controlled by computer chips could malfunction.

  What should you as an individual do to prepare for Y2K? Well, you don't need to retreat to your bunker in the woods, but you shouldn't ignore the issue either. Instead, you should avoid panic and take some sensible precautions. The Y2K bug may produce some limited problems in this country, but given the preparations that businesses have made, we shouldn't experience anything approaching a national disaster.

  Plan as you would for a blizzard, hurricane, or earthquake. Be prepared to go without power or water for up to three days, make sure your prescription medications aren't about to run out, and if you're really worried, have a little extra cash on hand. Do some advance checking around the house to make sure that items such as computers and alarm systems will still work in the year 2000. The Internet is a great source of Y2K information from manufacturers.

  But avoid any extreme measures and don't be taken in by the doomsayers. The list below gives some "do" and "don’t" suggestions. With a few sensible precautions taken in good time, we can all enter the new millennium in good shape.

  Do:

  Prepare to live for three days without heat, power, or water.

  Stockpile a few days' food and water, plus candles, matches, and batteries.

  Make sure essential prescriptions have been refilled.

  Keep your financial records for November and December in a safe place.

  Arrange to have a little extra cash on hand at year-end.

  Make sure your car has a full tank of gas.

  Check that your computer and software are Y2K compliant.

  Don't:

  Withdraw all your savings from the bank. (The burglars hope you do.)

  Buy a six-month supply of grains and vegetables.

  Give up your job and move to a remote cabin (unless that's your retirement plan).

  Wait until December 31st before you begin planning.

  Fall for a Y2K scam.

   

   

  Chuckle of the Month

  The cost of higher education -

  There's one teenager who didn't go to college this year. He asked his parents to give him the money it would cost to send him. They did, and he retired on it.

   

   

  ONLINE ADVI$OR is issued monthly to provide useful information. Return to this site every month for helpful tax-cutting suggestions, business information, and financial planning tactics.

  The information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.

  If you would like more information on anything in ONLINE ADVI$OR, or if you'd like to be on our mailing list to receive other tax, business, or financial planning information from time to time, please contact our office. We're here to help you minimize your taxes, manage your business more profitably, and identify financial planning strategies suited to your situation.

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Copyright 1998 Richard C. Woodbury P.C. CPA