Janell A. Israel & Associates
What's New in taxes:
Five New Tax Scams Included In 2007 "Dirty
Dozen"
Each year, the IRS publishes its list of
top tax scams known as the "dirty dozen." The 2007 list includes five
new scams uncovered by IRS auditors and criminal investigators.
New to the list this year are the
following scams:
* Telephone excise tax refund abuses.
Taxpayers request large, obviously improper amounts for the telephone tax
refund.
* Abusive Roth IRAs. This scam involves
shifting under-valued property to a Roth IRA. In one variation of the scam,
promoters suggest moving under-valued common stock into a Roth IRA,
circumventing the annual contribution limit and allowing otherwise taxable
income to go untaxed.
* American Indian employment credit.
Taxpayers claim an American Indian employment or treaty credit which is not
allowed.
* Domestic shell corporations. These
entities are formed for the purpose of underreporting income, nonfiling of
returns, money laundering, financial crimes, and possibly even terrorist
financing.
* Structured entity credits. Promoters of
this scheme set up partnerships to own and sell state conservation easement
credits, federal rehabilitation credits, and other tax credits. Once the
credits are used, investors in the partnerships get a K-1 claiming a loss to be
deducted on their tax returns. The investment in the partnerships are not
valid, and the losses are not deductible.
The IRS reminds taxpayers that falling for
any illegal tax scheme promoted by con artists can result in penalties and even
criminal prosecution.
Taxes and Your Child's Summer Job
Your son, Jake, a junior in high school,
announces that he's found himself a job for the summer. How will that affect
his tax situation and yours?
* Jake will owe taxes on his earnings,
just like any employee. But in practice, he might end up paying zero or very
little tax. He can use his standard deduction to offset the first $5,350 he
earns for this year. After that he'll pay taxes at a 10% rate on the next
$7,825 of earnings.
* Usually, Jake will have income tax
withheld from each paycheck. He'll fill out a Form W-4 when he starts work.
That will determine how much tax is taken out. If he doesn't plan to work the
full year, he might want to claim an extra withholding allowance on the form to
reduce the taxes withheld.
* He'll also have payroll taxes (social
security and Medicare) taken from each paycheck. These will count towards his
lifetime social security earnings record.
* Generally, you can still claim Jake as a
dependent on your tax return even if he takes a standard deduction for himself.
That assumes he still meets the usual tests for a dependent, including age
(under 19 or under 24 if he's a full-time student), living with you for at
least half the year, and you providing at least half his support.
* Jake can't claim a personal exemption
for himself if you are entitled to claim him as a dependent on your return.
* Jake should file a tax return for 2007.
That will ensure that he receives a refund of any excess taxes that were
withheld. There are limited exceptions; contact our office for details.
What's New in Finances:
New Rules On Inheriting A 401(k)
For surviving spouses, inheriting a 401(k)
is relatively painless since the 401(k) can be rolled over into an IRA in the
spouse’s name. For others, however, inheriting a 401(k) plan can trigger
significant tax. That is, until the passing of the Pension Protection Act of 2006. Now, nonspouses may get a
break as well.
Nonspousal heirs who receive a 401(k),
457, or 403(b) plan may roll over the funds into what is called an
"inherited IRA." Although nonspouses must begin receiving taxable
distributions from the inherited IRA in the following year, the payments may be
spread over their expected lifetime.
There are certain traps to avoid. The
timing of the rollover is critical, and the rules must be followed precisely.
Also, the money must transfer directly from the 401(k) to the inherited IRA
without passing through your hands.
For details and assistance in benefiting
from the new rules, give our office a call.
Stocks: Deciding When To Sell Is As Critical As
Deciding When To Buy
If you are serious about managing your
stocks, it's important to have a selling strategy. What is yours? Investors
tend to give a lot of thought to the buying decision, but little consideration
to the sell decision. Here are some situations that may indicate it's the right
time to sell.
* To offset some gains. If you have some
losing positions, you might want to use them to offset taxable gains.
* When there are no tax consequences. If
you hold stock in a retirement fund, you may want to cash in some gains without
any tax impact.
* To take some money off the table. If a
stock has had a nice run, you might want to sell a portion to recoup part of
your investment. You can continue to invest in the stock but with locked-in
gains.
* A shift in the fundamentals. If the
economy changes quickly, an industry becomes vulnerable, or negative news can
affect a specific stock. It might be time to sell.
* When you've given up on a stock. If a
stock has been declining or flat-lining for an extended period, it might be time
to get out. Sometimes you have to sell low in order not to sell even lower
later on.
* To take a contrarian position. If the
market has gotten a little frothy and all the news is optimistic, it might be
time to harvest gains.
* When something else catches your eye.
You might want to take advantage of another opportunity by selling one stock to
buy another.
* When cash becomes attractive. If the
economic outlook is gloomy, it might be time to increase your cash reserves.
* When you hit your target price. If the
fundamentals are the same at this point, it might be time to sell.
The wise investor knows it's important to
have a disciplined stock selling strategy. Be sure you give as much thought to
selling a stock as to buying it.
Take a Break
Too Many Messages?
Do e-mails and text messages add to worker
efficiency and productivity? Not according to a survey of British workers. The
survey showed that -
* Almost two out of three people check
their electronic messages outside of office hours and when on holiday.
* Half of all workers respond to an e-mail
within 60 minutes of receiving one.
* One in five will break off a business or
social engagement to respond to a message.
* Nine out of ten people thought
colleagues who answered messages during face-to-face meetings were rude, while
three out of ten believed it was not only acceptable, but a sign of diligence
and efficiency.
According to Dr. Glenn Wilson, a
psychiatrist who monitored the effects of all this messaging in clinical
trials, "...this obsession with looking at messages, if unchecked, will
damage a worker's performance by reducing their mental sharpness." His
research showed the IQs of those who tried to juggle messages and work fell by
10 points. The IQ drop was even greater in the men who took part in the tests.
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