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IRS reminds employers about tip credit changes
Employers are being reminded by the IRS about changes relating to the tip credit (known as the 45B credit). Even though the federal minimum wage is now $5.85 an hour, employers are to compute the credit on the previous minimum wage of $5.15. Also, employers who claim the credit must reduce their social security and Medicare tax deduction accordingly. Employers may now use the credit to offset the alternative minimum tax; previously the credit could only offset the regular income tax.
Tougher IRS requirements in 2008
Beginning in 2008, tax return preparers must meet tougher requirements before signing tax returns. Under the new rules, a tax preparer may not sign a return unless the practitioner believes each position taken on the return would "more likely than not" be sustained on its merits, or the position must be disclosed to the IRS. The new rules are likely to mean more paperwork and higher costs for accountants and their clients.
Are you holding investments in the wrong account?
You'll probably be reviewing your investment portfolio at year-end for tax and rebalancing purposes. As part of your review, check to be certain you are holding your specific investments in the right type of account. Your goal is to hold investments that produce ordinary taxable income in tax-deferred accounts and to hold those that produce tax-free or tax-favored income in your regular taxable accounts.
Consider this situation. If you hold tax-free municipal bonds in a tax-deferred retirement account, you are "sheltering" interest income from taxes that never would be taxed in the first place. Withdrawals from the retirement account will be taxed as ordinary income at rates up to 35%, and that includes interest from the municipal bonds. The result is that normally tax-exempt earnings eventually become subject to income tax.
Another example: Long-term capital gains are taxed at lower rates than interest income. So investments generating interest might be better held in retirement accounts, while investments generating capital gains might be better held in taxable accounts. Remember, withdrawals from retirement accounts (other than Roth IRAs) are taxed at ordinary income rates even if the income comes from long-term capital gains.
Tax-deferred retirement plans should outperform an investment account that is exposed to annual taxation. But if you're not careful where you hold specific types of investments, you could end up with less rather than more income.
Five ways to keep your best employees
How can you keep your best employees from quitting to take a new job? It isn't easy when job-hopping has become the norm, not the exception. But you should not stand by idly if workers begin leaving. Consider these five ideas for reducing employee turnover.
* Obtain feedback about the workplace. For instance, you might hold regular meetings - perhaps the last Friday of each month - for this purpose. Encourage employees to speak freely about their likes and dislikes. The discussion may open your eyes to changes that could help keep employees in the fold.
* Bend, but don't break. Frequently, employees decide to leave a company because it doesn't offer the flexibility they need. This could be related to child care issues or other family responsibilities. Examine your business structure to see if these needs can be reasonably accommodated through flex-time or some other means.
* Up the ante. Naturally, you have a better chance of retaining employees if you pay them more. But it's not always about money. Find the "hot buttons" to push for particular employees. For instance, you may sweeten the pot with bonuses or deferred compensation. Alternatively, non-monetary incentives such as increased vacation time might do the trick.
* Challenge employees who appear bored with their jobs. Assign them to new projects that will enable them to expand their skills. Most people prefer stimulating work and will welcome changes from their usual routine.
* Spell out your expectations. Many times, employees become frustrated because they aren't sure what you really want. Develop definitive guidelines that can provide direction.
Of course, there are no guarantees these ideas will work. But if you show a willingness to adapt, it will be easier to reduce employee turnover.
Year End Tax-Saving Tactics and Strategies Worth Considering
* Defer income - If cash flow permits, any payments your company can receive in January, as opposed to December, will reduce the current year end tax burden. When using this strategy, the company's entity structure and annual profits and losses should be considered.
* Contribute to a retirement plan - Make payments to an existing plan, or set up a plan prior to year-end. Contribution limits vary depending upon the plan type. There are numerous retirement plan options to choose from, it is recommended that you choose the plan that best fits your business, number of employees and retirement goals.
* Pay bonuses - If you've had a good year and want to reward employees (provided your accounting is done on an accrual basis), accrue year-end bonuses. Deductions are allowed for accrued bonuses to employees as long as they are paid within two-and-a-half months of year-end (March 15 for businesses with December 31 year-end).
For bonuses given to owners:
* S Corps may deduct bonuses for shareholders or owners who have any percent ownership when bonuses are paid.
* C Corporations may only deduct bonuses for shareholders or owners who have 50% or more ownership when bonuses are paid in order to get the deduction.
* Make charitable contributions - If possible, make contributions prior to the beginning of the next year, so they may be deducted in the current tax year. Be sure to retain receipts. Cash contributions can now only be deducted if verified.
* Incur expenses - for cash-basis taxpayers - cash flow permitting - pay as many expenses as possible prior to year-end to maximize deductions.
* Some examples - utilities, printing new marketing collateral, office supply purchases, equipment purchases (In this case, you have multiple write-off options). The equipment must be in your office and in use by year-end.
* Write off bad debt - The IRS allows deductions for actual write-offs, not those allowed for in your "allowance for doubtful accounts." If the item is truly a bad debt - meaning you're able to show you've tried to collect the debt and payment is unlikely - go ahead and write it off. Note: Only businesses using the accrual method of accounting can write off bad debt.
* Write off obsolete inventory - if you have inventory, update your records, write off any obsolete or damaged inventory.
* Deducting equipment and assets -Section 179 Deduction - Generally assets
have to be depreciated, but under Section 179, a business or self-employed individual,
may be able to deduct the full amount of certain equipment, or asset purchases,
in the year of purchase.
Guidelines and considerations are as follows:
* Certain types of tangible personal property are eligible, such as furniture and fixtures, and machinery and equipment, and there is a very limited deduction for passenger automobiles. Real property and investment property are not eligible.
* For tax years beginning in 2007, the maximum deduction is $125,000.
* If your total qualifying property purchases exceed the $500,000 threshold, the maximum Section 170 deduction gets reduced.
* Section 179 deductions can't be used to make business income go negative. Deductions that reduce income below zero can be carried forward for an unlimited number of years to a year when the business has positive income and can be applied to that year.
* Increase energy efficiency to receive tax credits - specific tax credits are outlined in the Energy Policy Act of 2005. Generally, businesses are eligible for tax credits for buying hybrid vehicles, for building energy-efficient buildings and for improving the energy efficiency of commercial buildings. (For more information, see the U.S. Department of Energy's "What the Energy Bill Means to You.")
The IRS released the inflation-adjusted tax numbers for 2008 . . .
This is a brief summary of 2008 numbers useful in your work.
* ESTATE TAX - top rate remains at 45%, and the exemption amount remains at $2 million.
* ANNUAL GIFT TAX - exclusion remains at $12,000.
* SECTION 179 - expensing limit increases to $128,000. Phase-out threshold increases to $510,000.
* 401 (k) - maximum salary deferral remains at $15,500 ($20,500 for 50 and older).
* SIMPLE - maximum salary deferral remains at $10,500 ($13,000 for 50 and older).
* IRA - contribution limit increases to $5,000 ($6,000 for 50 and older).
* SOCIAL SECURITY - taxable wage limit increases to $102,000.
Retirees under age 65 can earn up to $13,560 without losing benefits.
* BUSINESS STANDARD MILEAGE - rate increases to 50.5 cents per mile from 48.5 cents per mile in 2007.
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Junk Mail
* Get smart about "privacy policies." By law, companies must ask your permission before selling your name and address to others. So look for seemingly innocuous statements in the mail (often labeled "privacy policy") and send them back with no permission granted.
*Always write "no mailing lists" on product warranties or rebates you send in.
*De-catalogue. Nearly all product catalogues use a cooperative database called Abacus. E-mail optout@abacus-us.com to stanch the flow.
*For credit-card offers, visit www.optoutprescreen.com, which is run by the credit reporting agencies. You can opt out for five year - or forever.
Happy Holidays
Thank you for the opportunity to serve you this past year. Warmest wishes
for a happy holiday season and a prosperous 2008. Your business is appreciated,
and your referrals are welcome. Please mention our name to friends and business
associates who may need our services.