Janell A. Israel & Associates
Charities And Churches Warned
To Stay Out Of Politics
Though national elections
are not until next year, the IRS is reminding charities, churches, and other
nonprofit organizations to stay out of politics. A 2006 report on political
activities showed a steep increase in the number of complaints about improper
activities by these organizations. The tax-exempt status of nonprofit
organizations is dependent on their refraining from engaging in partisan
political activities.
In its attempt to increase
compliance with the rules, the IRS has issued guidance on what constitutes
legal and illegal activity. Details can be found in Revenue Ruling 2007-41 on
the IRS's Web site www.irs.gov.
Manage "AGI" To
Keep Tax Breaks From Disappearing
At tax time it pays to read
the fine print. A variety of allowances, deductions, credits, and exemptions
are phased out as income rises. If your income reaches these
"phase-out" levels, you may lose tax benefits.
For example, let’s
say you finally snag that big promotion. If the promotion causes this
year’s income to climb into the phase-out zone, your deduction for
college bond interest or child credits may be reduced. The result? You earn
more money, but more of it is taxed. Your big promotion — after taxes
— is now smaller.
Some items subject to
phase-out income levels are the child tax credit (starts at $110,000 for joint
filers), the Hope and Lifetime Learning credits ($94,000 to $114,000), Roth IRA
eligibility ($156,000 to $166,000), and the college bond interest exclusion
($98,400 to $128,400). These phase-out levels are for "adjusted gross
income" — also known as AGI — on 2007 joint returns.
Clearly, many middle-class
families and small business owners reach these income levels. And these are
just a few of the items affected by phase-outs. Others include personal
exemption amounts, rental real estate passive loss allowances, exclusion of
social security benefits, charitable deductions, and medical deductions.
How can you avoid losing
all or part of these tax benefits as your income rises? One way is to manage
your AGI, the main number used to determine your taxable income. The goal is to
manage income levels so you won’t lose tax benefits for which you would
otherwise qualify. Here are three suggestions.
* Take more
"above-the-line" deductions. These deductions are reported on your
tax return above where the AGI is calculated. They include contributions to
individual retirement accounts, self-employed retirement plans, and health
savings accounts. Other "above-the-line" deductions are alimony
payments, moving expenses, payments for student loan interest, and
self-employed health insurance.
* Reduce your
business’s taxable income. Companies are taxed on their net income. To
reduce this year’s taxable income you might consider sending out invoices
in late December so you’ll receive payments after year-end. Bumping up
year-end expenses — such as business equipment purchases, advertising,
and repairs — is another strategy to keep your AGI below the phase-out
levels.
* Defer income. Even if you
don’t own a business, you can sometimes push your income into the
following year, thus lowering your AGI. For example, you might work out an
arrangement with your boss to receive a bonus in January rather than December.
Or you might wait to sell that hot stock until after year-end.
For assistance with the tax
planning that will help you retain your tax benefits, give us a call.
What's New in BUSINESS:
Is Your Worker An "Employee"
Or An "Independent Contractor"?
There’s an ongoing
debate that’s almost as old as the tax code itself. If you have people
working for your business, should you classify them as employees or as
independent contractors?
Classifying your workers as
independent contractors generally saves you money. That’s because you
avoid paying employment taxes and benefits on their behalf.
In most instances, however,
very few of your workers actually qualify as independent contractors. If the
IRS determines that you misclassified your employees as contractors, you could
end up paying back all of the employment taxes and benefits that should have
been paid over the years. Depending on the size of your workforce, the cost to
you could be substantial, potentially bankrupting your business.
How can you ensure that you
properly classify your workers? Start with the factors listed by the IRS to
determine a worker’s classification. If you maintain control over your
workers through hiring, training and supervision, scheduling the work to be
done, and by providing them with tools and materials, your workers are most
likely your employees. The same holds true if you pay your workers a set salary
or an hourly wage and have the right to let them go at any time.
As a general rule, if you
only have the right to control or direct the result of the work and not the
means and methods of accomplishing the result, the individual may qualify as an
independent contractor.
If your business employs
independent contractors, take steps to protect yourself and your business. The
IRS is currently focusing its audit efforts in this employment tax area. Be
consistent with how you classify your workers, and follow how other businesses
in your industry classify their workers. And don’t forget to send a Form
1099-MISC to any contractor who earns more than $600 from you during the year.
To find out more about
properly classifying your workers, please give us a call.
What's New in Finances:
What’s New On The Home Front?
Existing home sales fell to
a four-year low in May, with the median home price declining for the 10th
straight month.
According to the National
Association of Realtors, the number of homes for sale is now the highest in 15
years.
To add to the housing
market's woes, mortgage companies are tightening requirements for home loans.
Buyers are expected to have higher credit scores and to put down larger down
payments.
Marriage? Divorce? Review Your Finances
After A Change In Marital Status
If you are getting married,
divorced, or have recently lost your spouse, you certainly have a lot on your
mind. While you may feel overwhelmed with all there is to do, it is important
not to overlook financial matters when your marital status changes. Some
actions you may want to consider include the following:
* Will. Update your will
and power of attorney if you have them. If you do not, hire a lawyer to draw
them up for you.
* Life insurance. Review
your life insurance coverage. Given the recent events in your life, you may
want to change your beneficiary and the amount of your coverage.
* Beneficiaries. Review the
beneficiaries you have named for your 401(k) and IRA plans. Make any changes
that are appropriate given your new circumstances.
If you’re getting
married, review your combined contributions to 401(k) plans to make sure
you’re maximizing both employers’ matching contributions.
* Withholding. Adjust your
Form W-4 (income tax withholding form) for your change in marital status and
any change in the number of your dependents.
If you’re getting
married and both you and your spouse work, check to see if you will be affected
by the marriage penalty. If so, you may need to adjust your payroll
withholding.
* Health insurance. Analyze
your health insurance options. If you are getting married, you may be able to save
money by joining your spouse’s plan or by having your spouse join your
plan.
If you are divorcing or
have lost a spouse and have relied on him or her for health insurance, you
should investigate the COBRA laws, which may allow you to retain your insurance
coverage for up to 18 months.
* Disability insurance.
Consider purchasing disability insurance if someone will be dependent on you
for financial support.
* Auto insurance. Talk to
your automobile insurance agent. If you are getting married, you may save money
by combining separate policies. You may also qualify for a marriage discount.
* Prenup. Consider a
prenuptial agreement if you’re getting married and you have children from
a previous marriage or have substantial assets.
* Name and address. Notify
the Social Security Administration if you change your name. If you move, notify
the IRS of your address change.
Getting your affairs in
order after a change in marital status is an important step toward financial
well-being. For any assistance you need, contact our office. We can help you
sort through your options and find the right choices for your new situation.
Take a Break
A graying America: Some Statistics To Ponder
* The number of Americans
over the age of 65 is projected to double by 2030 to 72 million.
* The fastest growing
category of Americans is the 85-and-older group.
* The wealthiest 20% of
older Americans have an average net worth of $328,432, not counting their
homes.
* 14,000,000 seniors say
they have health conditions such as heart disease, arthritis, or other chronic
illnesses.
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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 anything in this newsletter,
or for assistance with any of your tax, business, or
financial strategy concerns, contact our office.