Volume 11, February 2006

 

Certified Public Accountants

Fe         b 15th—last day for employees to file W-4s with employer.

Feb 28th—file copy  “A” of W2 with SSA.

Individuals

Corporations

Feb 28th—annual 1099 returns to report payments to recipients.

Mar 15th—Income Tax Returns  (1120, 1120S), for calendar year corporations or

Application for Extensions of 2004 returns mailed to IRS.

 

Note: The above due date may be different if filing electronically.

Tax Calendar

Feb and Mar 2005

 

According to IRS,

“Individual Tax returns for the year 2002 were 130.1 million, reporting $6.0 trillion of AGI”

 

 

 

 

“The total number of partnerships increased to 2.24 million, but net income decreased to $270.7 billion.

 

 

 

“Nonprofit charitable organizations held over $1.6 trillion in assets and filed over 240,000 information returns for Tax Year 2001.

 

mycpa@phcpa.net

visit us @ www.phcpa.net

Tel: (727) 786-8228 Fax: (727) 789-2021

1202 Nebraska Ave, Palm Harbor, FL-34683

Text Box: Edward C. LaBrecque CPA, MBA
Text Box: LaBrecque & Company, CPA’s

Money Taxes & You

For more information check with your financial adviser. OR

email us with a question

 

 

Individuals

Feb. 15th—Last Day for filing Form W-4 by employees who wish to claim exemption from withholding of income tax for 2006.

 

Corporations

Feb. 28th — Form W2 “A” copies together with transmittal Form 1096 must be filed with the Social Security Administration.

Mar. 15th—Due date for 2005 tax return (Form 1120 or Form 1120A) for calendar- year corporations 

Due date of 2005 income tax return for calendar-year corporation (Form 1120S).

Tax Calendar

Feb. & Mar. 2006

 

Note: The above due dates may be different if filing electronically.

 

 

 

 

 

 

 

Current Mortgage Rate

(This week of Feb. 06’)

30-yr fixed mtg.    5.82%

15-yr fixed mtg.     5.42%

 

(The week of Jan. 06’)

30-yr fixed mtg.    5.70%

15-yr fixed mtg.     5.28%

 

 

 

 

 

 

Equity Markets

This week of Feb. 06’

INDEX           YTD

DJIA             +0.75%

S&P 500      +1.34%

NASDAQ     +2.43%

S&P 400       +5.14%

Russell 2000  +8.12%

EAFE           +4.77%

 

Recently, the federal courts reviewed the position of whether or not taxpayers who are in bankruptcy and cannot afford to pay their tax bill can use the “offer in compromise” procedure to reduce the amount of their IRS bill.  In the past, the IRS refused to consider offers by taxpayers under the protection of chapter 11 or 13 bankruptcy using the defense that the Internal Revenue Manual did not allow the IRS to consider such offers because of potential legal and administrative problems.

Over the years, many a client has come to our office toting a shoebox filled with receipts, hand written notes on deductions to be claimed and/or coffee stained pages of tax questions to be answered.  For these people, the annual tax ritual begins early in the tax year and culminates early the following year when the shoebox lid is pulled over the box and taped shut for the trip to our office.

The Face of an AMT Taxpayer

Offers In Compromise while In Bankruptcy

Good news shoeboxer’s, you can make a change right now in how you collect your 2006 tax and financial information.  Our on staff QuickBooks Certified Pro Advisor recommends the new Simple Start edition of QuickBooks.  It’s easy to start using and very easy to maintain.  The program tracks money into and out of your personal and business accounts making it an ideal program for all individuals who have been reluctant to move form the shoebox to financial software.

Give us a call—we can make your transition to QuickBooks fast, easy and painless as well as give you access to our virtual network for online assistance without regard to where you reside.

Employees/students can deduct educational expenses if the course work allows them to improve or maintain their job skills or if their employer or the law requires them to attend the classes.  The educational expenses are not deductible if the courses are taken to prepare for a new trade or business or to comply with minimal employment requirements.

The tax court in these matters takes a “common sense” approach to determine if the courses are taken to qualify a taxpayer for a new trade or business by comparing it to the taxpayer’s tasks and activities before entering an MBA program with those performed after completing the degree program.  The tax court case results have been mixed.  In one case, the court found that the taxpayer’s job duties essentially had not changed though he had been promoted.  In this case, the cost of an MBA education was deductible.  In a second case, the tax court denied a deduction for the cost of receiving an MBA.  In this case, the taxpayer performed primarily technical duties before receiving an MBA degree, but began primarily performing managerial duties after receiving the graduate degree.  It is easier to meet the standard for this deduction if your employer requires you to improve rather than qualify under the look back/look forward rule.

Deducting an MBA

To Roth or Not

The alternative minimum tax (AMT) was designed by Congress in the 1960’s to ensure that high-income taxpayers—both corporate and non-corporate—would pay at least a minimum tax.  Today, everyone hypothetically must go through the AMT computation before filing a return to test for possible AMT

Contributions to Roth IRAs are not deductible.  However, if you satisfy all the requirements for establishing or maintaining a Roth account both the contributions and the earnings are not taxable at the time of withdrawal.  In 2006, the maximum Roth contribution is $4,000 or $4,500 for taxpayers over 50 and adjusted gross income not exceeding $110,000 or $160,000 for married taxpayers filing jointly.

 

“Shoebox” Taxpayers Be Prepared in 2006

liability.  Today, the AMT is not just a concern for the richie rich, it is a growing “trap” that ensnares hundreds of thousands of middle-income taxpayers.  Ninety-four percent of married couples with two or more children reporting income between $75,000 and $100,000 before standard or itemized deductions and exemptions pay AMT.  Married taxpayers filing jointly are more likely to have an AMT liability than unmarried taxpayers with similar incomes.  Retirees and business owners with significant long-term capital gains and dividend income that is subject to preferential low income tax preferences or other adjustments such as large depreciation deductions or net operating losses are all at risk.  Taxpayers who are residents in states with high local and state taxes are also more likely to pay AMT than residents in low tax states or no tax states such as Florida.

The last call for repeal of the AMT in 2000 was vetoed by then President Clinton.  President Bush’s Advisory Panel for Tax Reform reported last year that the AMT violated three principles:  it is not fair, it is not simple and it is not efficient.  Let us hope that the current winds of change blow this tax off the books, or, at the very least, reduce its affects on middle income taxpayers.

Here is a win for taxpayers trying to reorganize through the courts.  The court stated that revenue procedures including those in the Internal Revenue Manual were not mandatory.  Therefore, taxpayers who have an outstanding liability and are filing for bankruptcy protection under chapter 11 or 13 should consider an offer in compromise.

“To Roth or not” is decided strictly upon whether tax-free distributions of contributions and earnings on these contributions makes good tax planning sense.  Some people assume, rightly or wrongly, that they will be in a lower tax bracket when they retire and, therefore, the correct option is to make tax deductible contributions rather than Roth contributions.

This assumption is not always correct.  First, most retirees do not have sufficient deductions to itemize on their returns and they loose work-related deductions as well as loose the deductions and credits for dependents.  The net result is that retirement income has to be significantly lower before a retiree drops to a lower tax bracket.  Second, it is extremely difficult to predict what tax rates will look like more than five years in the future.  With these thoughts in mind, any individual who is more than 15 years from retirement should consider a Roth—it makes good money sense for those who wish to achieve later lifestyle goals.