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September 30, 2005
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 Gina Singleton
Office Manager
Gina
Singleton joins us as the firm's Office Manager and Jay
Hoover's Executive Assistant. Gina joined our team last month,
following a 15 year career with national accounting firms Deloitte &
Touche and Arthur Andersen.
Gina is in charge of downtown office administrative matters such as
billing, payables, processing client deliverables and managing due
dates. Gina also coordinates Jay’s appointment scheduling.
 Joe
Hicks
Accounting & IT Paraprofessional
Joe Hicks joins us as the firm's Accounting & IT Paraprofessional.
Joe joined our team last month as well, following an eight tenure as
a Field and Office Administration Staff of A.C.T. where he was
responsible for training and implementing new programs and training
staff to be more effective along with handling accounts receivable
and payable and web design and communications. Joe will be
assisting our professional staff with various client projects and
QuickBooks training. Joe is also our webmaster to ensure our
website continues to be a dynamic resource site for clients and
other interested parties.
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 More than half of Americans participating in a recent
survey said they are behind schedule when it comes to planning and
saving for retirement. Almost a third said they are behind by “a lot.”
That may be a fair assessment. Many survey respondents —
including 41% of those age 45-54 and 39% of those age 55 and up —
reported having less than $25,000 of savings and investments, not
counting the value of their primary residence.
Are you on track with your planning and saving?
Before you decide, consider some of the reasons you could need more
money for retirement than you now anticipate.
You may have to retire earlier than planned. Many
people do. Health, family, and work-related issues often lead to early
retirements.
You may not want to sell your home. Census data
reveal that most homeowners age 65 and over remain in their
pre-retirement homes after they retire. So, planning to “cash in” on
your home’s value may not be realistic. While a reverse mortgage is one
way to tap into home equity without selling the home, it’s a strategy
that carries a certain degree of risk.
You may have to spend a lot on health care. Many
companies are cutting back on health coverage for retirees, and Medicare
doesn’t pay for everything. Even if you buy supplementary health
insurance, the premiums plus your out-of-pocket costs could add up to a
considerable amount.
Your retirement could last a long time. The
average 65-year-old has a life expectancy of 18.1 years. For a
65-year-old couple, there is a 39% chance that at least one of them will
survive to age 90.
You can’t know for sure how your retirement will play
out. But it certainly makes sense to do what you can now to plan and
save for your retirement. We’re available to help you map out a
strategy. Please call for an appointment if you’d like to discuss your
financial situation.
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check out the link at the top of the page
to find other calculators on this and other financial issues. |
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I
intended to use some of the money
in my individual retirement account for my son's college tuition.
Since I am under age 59 ½, will I
have to pay a penalty on the withdrawal?
The 10% early withdrawal penalty does not apply to IRA
distributions to the extent the amount distributed does not exceed
qualified higher education expenses for the year. Watch your
timing, though, the Tax Court recently held that the penalty exception
is not available for IRA funds withdrawn to pay off a loan or credit
card balance from an earlier tax year, even though the debt was incurred
to finance higher education expenses.
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A dependent child with investment income and/or
employment earnings may have to file an income-tax return with the IRS.
A return should be filed for the 2005 tax year if:
For a dependent child with only unearned income, the
standard deduction is $800. For a dependent child with earned income,
the standard deduction is equal to the greater of (1) $800 or (2) $250
plus the child’s earned income (maximum deduction of $5,000).
Example. In
2005, Emily has $500 of interest income and $1,500 of earnings from a
part-time job. She is entitled to a standard deduction of $1,750 ($250
plus $1,500). Since Emily’s gross income of $2,000 is more than her
$1,750 standard deduction, Emily must file a tax return.
When certain requirements are met, the income of a
child who is under age 14 can be included on his or her parents’ return,
eliminating the need to file a separate return for the child. Even if
eligible, parents shouldn’t automatically go this route because it
sometimes results in a higher overall tax bill for the family.
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The Treasury
Department and the IRS are responding quickly to help millions
of victims of Hurricane Katrina, the greatest natural disaster
to ever hit the U.S. In a series of rapid-fire announcements,
the Treasury and the IRS have ...
(more)
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 To help defray expenses, many people who own second
homes rent their properties for part of the year. This raises a
number of questions: Is the rental income taxable? Does renting the
home affect the deductibility of mortgage interest and property
taxes? May rental-related expenses be deducted?
You’ll want to know the rules if you plan to rent
out your second home. Basically, the tax implications of renting
your home will depend on the number of days it is rented during the
year and the number of days you use it for personal purposes.
14 or Fewer Rental Days
You get a break with this strategy: All the rental
income you collect is tax free. Property taxes on the home are
deductible as an itemized deduction, as is mortgage interest
(assuming the home is your qualified residence). But forget about
depreciation, advertising expenses, utilities, maintenance, and
other expenses related to the rental. They’re not deductible.
Limited Personal-use Days
Your home will be considered investment property for
tax purposes only if you limit personal use of the home to no more
than 14 days during the year or 10% of the number of days it is
rented out, whichever is greater.
Example. You rent your vacation home for 180 days in
2005. Ten percent of 180 is 18, and 18 is greater than 14. So, the
home will be considered investment property in 2005 if it is used
personally for no more than 18 days.
Rental income on investment property is taxable, and expenses
allocated to the rental use of the home may be deducted against that
income. Sounds good, but note: If rental expenses exceed rental
income, your ability to deduct the loss may be restricted by the tax
law’s passive activity rules.
Very generally, the passive activity rules permit
you to use your real estate rental losses only to offset passive
income (such as income from a partnership in which you are a limited
partner who doesn’t materially participate). The exception: You may
deduct a loss of up to $25,000 if you actively participate in
managing the property by approving tenants, arranging repairs,
deciding on lease terms, etc. The $25,000 loss allowance is phased
out as adjusted gross income rises from $100,000 to $150,000. Even
if a loss were disallowed under the passive activity rules, you’d
still be able to use your rental expenses to offset the rental
income from the property.
Other Mixed Use Situations
What if your situation doesn’t match either of the
above-described scenarios? In other words, you rent your home for
more than 14 days, but your personal use exceeds the 14-day/10%
limit.
In this case, your home is treated as a residence.
The rental income will be taxable. As for expenses, they must be
divided between rental and personal use. (The process is a bit
tricky.) Total deductible rental expenses can’t exceed gross rental
income. Any excess rental expenses may be carried forward for
possible deduction in future years.
What Constitutes Personal Use?
Days that you occupy the home are counted as days of
personal use, unless the primary reason for your personal use of the
home is to perform repairs and maintenance. Days that a family
member uses the home generally are counted as personal use days,
even if the family member pays you rent.
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The IRS recently clarified some issues
regarding the
deduction for a self-employed individual's health insurance
expenses.
Whose name?
A sole proprietor can still claim the deduction when
the medical care insurance policy is issued in his/her name rather
than the name of the trade or business.
Which business?
The deduction can't exceed earned income from the
trade or business with respect to which the medical plan is
established. Net profits from more than one trade or business
cannot be added when calculating the deduction limit.
Multiple plans.
However, if a person has more than one trade or
business, each with a medical plan, the deduction is available for
the cost of coverage under each plan, up to the net earnings of that
specific trade or business. So, for example, if one business
had a dental plan and another business had a health plan, the
earnings limit would be calculated separately for each.
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New Medicare prescription drug
benefits (Part D) will become available on January 1, 2006. Medicare
recipients who want the coverage will be able to begin signing up for it
starting November 15, 2005.
Available through stand-alone
prescription drug plans (for about $37 a month) or as part of coverage
under a Medicare Advantage plan, the standard Part D drug benefit is
structured in tiers. The table shows the standard amounts that
individuals with Part D coverage will be required to pay out-of-pocket
for their prescriptions each year. (Note that premium and cost-sharing
subsidies will be available to qualifying low-income beneficiaries.)
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Annual Prescriptions
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Covered
Individual Pays
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Medicare
Part D Pays |
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First $250
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$250 |
$0 |
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Next $2,000 |
25% — $500 maximum |
75% — $1,500 maximum |
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Next $2,850 |
100%— $2,850 maximum |
$0 |
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Over $5,100
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5% of cost |
95% of cost |
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Example.
Glen currently has no prescription drug coverage
and spends approximately $3,500 annually on
prescriptions. If Glen enrolls in Medicare Part
D, he’d be required to pay $2,000 for the
prescriptions [($250 + $500) + ($3,500 -
$2,250)]. After adding in insurance premiums of
about $444, Glen would still save a little more
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Enrollment in Medicare Part D is voluntary.
Individuals who are eligible for the coverage shouldn’t wait to consider
their options and determine whether they want to enroll. While it will
be possible to enroll after the initial six-month enrollment period, a
penalty of 1% of the base premium (payable for life) generally applies
for each month enrollment is delayed. The penalty will be waived for
those who had better coverage through military or retiree health
insurance. Retirees who have prescription drug coverage through a Medigap plan will have to pay the penalty if they switch to Part D
coverage after the enrollment period.
For many retirees, prescription drugs are a
major expense. If we can help you weigh your insurance options, please
let us know.
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