Janell A. Israel & Associates
October/November 2006 Tax Newsletter
What's
New in taxes:
Telephone Tax To Be Refunded With Your 2006 Tax Filing
Did you know you may qualify
for an extra refund when you file your 2006 taxes? And if you qualify, you can
claim the refund by filling out just one extra line on your 2006 tax return.
If you subscribed to
long-distance telephone service between March 2003 and July 2006, you almost
certainly paid a federal tax on your telephone bill. But recent court decisions
ruled that the tax should not apply. So the IRS has come up with a simple
method to refund the taxes. They've developed standard refund amounts based on
the number of exemptions you claim.
The standard refund will be
$30 for one exemption, $40 for two, $50 for three, and $60 for four or more.
Normally you claim an exemption for yourself, one for your spouse, and one for
each dependent. So a married couple with one dependent would be eligible for a
$50 refund.
These amounts are based on a
survey of average telephone taxes paid by families of different sizes. If you
don't want to take the standard refund, you can always go through 41 months of
telephone bills and figure the actual amount you paid. Then you'll need to fill
out a special form to make your claim.
Businesses and nonprofits
are also eligible for refunds. Currently they'll have to figure the actual
taxes they paid, although the IRS is trying to develop simplified refunds for
them, too.
Let The
Tax Man Help With Child Care Costs
Are you a working parent
looking for ways to ease the burden of child care expenses? There are several
tax-saving strategies available to you.
* First, there's the
dependent care tax credit, a direct reduction to your tax liability. The amount
of the credit depends on the amount of your child care expenses, your adjusted
gross income, and how many children you have. The maximum credit is 35% of your
costs for child care while you work or go to school, up to a limit of $3,000
for one child and $6,000 for two or more children.
* Next, there is the
flexible spending account, an arrangement set up by some employers which allows
employees to set aside pre-tax dollars to be used for child care expenses.
However, you should be careful when establishing this type of account because
there is some risk involved. If your dependent care costs for the year are less
than your contributions to your account, you forfeit the unused balance. Also,
any tax-free reimbursement from the account reduces your eligible expenses for
the dependent care tax credit.
* Finally, you may have an
employer who is taking advantage of a business tax credit for providing child
care services for employees. Employers who provide such benefits can receive a
tax credit of up to $150,000, depending on the actual costs of running the
child care center. If you are lucky enough to receive this benefit, your
employer will report the total amount of your dependent care benefit on your
form W-2. The first $5,000 of this benefit is not taxable, but any benefit over
$5,000 per family will be included in taxable wages.
Give us a call if you would
like more information about the restrictions and requirements involved with
these tax-saving opportunities.
What's New in Finances:
New Pension Law Eases Rules
On Inherited Retirement Plans
If you inherit a retirement
account from someone other than your spouse, you will soon be able to roll over
the account to an IRA, an option that can save significant taxes. Prior to the
recently enacted Pension Protection Act of 2006, rollovers of inherited
retirement funds were permitted only for spouses.
The new rule becomes
effective in 2007. It's an important change to know about for children,
siblings, and other nonspouse beneficiaries of retirement accounts. The law
still has strict requirements for these rollovers, so if you need details, be
sure to give us a call.
Stock Market Hits New High
The big news for stock
investors came October 19, 2006, when the Dow closed at 12,000 for the first
time in history. The Dow is comprised of 30 major companies and is generally
seen as one measure of market activity.
You might find it
interesting to review Dow benchmarks on the way to this latest all-time high.
The Dow was created May 26, 1896, at 40.94. The first close above each level
thereafter were as follows:
LEVEL
DATE
1000……………November
14, 1972
2000……………January
8, 1987
3000……………April
17, 1991
4000……………February
23, 1995
5000……………November
21, 1995
6000……………October
14, 1996
7000……………February
13, 1997
8000……………July
16, 1997
9000……………April
6, 1998
10,000…………March
29, 1999
11,000…………May
3, 1999
12,000…………October
19, 2006
Couples: Take These Six Steps
To Financial Harmony
Most people need help from
time to time with their finances, and this can be especially true for couples.
Partners often struggle with differing perspectives about money, and these
differences can affect spending, saving, budgeting, and other financial decisions.
Regardless of these differences, however, the following tried-and-true
guidelines can help any couple achieve greater financial stability and
security.
1. Organize your finances.
Get a handle on your income and spending. How much are you really spending on
those dinners out? Many widely available financial software programs can help
you track finances and provide insight into your spending habits. By reviewing
how you spend money, you can focus on potential problem areas.
2. Set goals. How much will
you accumulate in bank accounts and investments over the next three years? Five
years? Ten years? Have you anticipated future expenses? Say, for example,
you're dreaming of a vacation in
Speaking of debt, it's a
good idea to set goals for becoming debt-free. Generally, you should pay off
high-interest credit cards first, then concentrate on
installment loans, then the mortgage.
Consider also refinancing
that adjustable rate interest-only mortgage to a fixed-rate mortgage. At some
point, most couples live on a relatively fixed income. You should plan for the
day when mortgage payments are only a memory.
3. Build an emergency fund.
Setting aside money for emergencies makes sense. Life can throw us curveballs,
and it pays to be ready. How much is enough for emergencies? As a general rule,
set aside three to six months of gross income in easily accessible accounts,
such as savings or money market accounts.
4. Save for retirement. If
you can participate in a retirement plan such as a 401(k), you should
definitely try to contribute up to the amount matched by your employer. The
earlier you start saving, the more you'll accumulate. It's that simple.
Individual retirement accounts (IRAs) are another great place to sock away
retirement savings.
5. Review your insurance
coverage. You should generally carry at least enough term life insurance to pay
off the outstanding balance of your mortgage, so your spouse or other survivors
won't be burdened with large mortgage payments. Catastrophic health insurance
is also a must. It's a good idea to review your insurance coverage every year
or so, to make sure the coverage keeps up with your changing circumstances.
6. Do some estate planning.
Even if you don't have kids, it's a good idea to ask an attorney to draft a
will and set up a financial power of attorney. This helps ensure that your
assets are distributed according to your wishes in the event of death or incapacity.
Although couples often fret
over differences about financial matters, by agreeing to follow some basic
guidelines, they can enjoy long-term financial security together.
Take
a Break
A penny saved? What is a
penny worth these days?
Do you pick up a penny when
you see it lying on the ground? Or do you, like many, consider pennies a
nuisance and think they ought to be discontinued?
It now costs 1.23 cents to
produce a penny, according to the U.S. Mint. High metal costs, combined with
production expenses, transportation, and labor, have resulted in penny minting
costs rising 27% in the past year.
So what's a penny made of?
From 1793 to 1837, a penny was pure copper. Then it was switched to bronze and
various other metals down through the years. The latest change occurred in 1982
with the penny being made of 97.5% zinc and 2.5% copper.
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The information contained in this newsletter 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
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