Janell A. Israel & Associates
Beginning next month, the
IRS plans to audit about 13,000 individuals for tax year 2006 as part of a
research project to update the Service's audit selection process. Audits will
focus on those parts of the individual's tax return that cannot be verified
through third-party information reports sent to the IRS.
If the program is extended
for several years, as the IRS hopes, it will also provide information about the
tax gap (the difference between taxes owed and taxes actually collected).
New Business:
Make The Right Choice In
Deducting Car Expenses
Taxpayers generally may use
one of two methods for computing business car expenses: the actual cost method
or the standard rate method. The standard mileage rate may not be used in
certain situations; the actual cost method may be used by any taxpayer.
* Standard mileage
With the standard mileage method, you simply multiply your business miles
driven during the year by the IRS’s standard rate. The rate, which is set
by the IRS each year, is 48.5¢ per mile for 2007. If you use the standard
mileage deduction, you can also deduct related tolls, parking fees, and the
business portion of interest expense on your car loan. (Interest expense is not
deductible by employees.)
* Actual cost
With the actual cost method, you can deduct the actual expenses of operating
the car for business. These expenses include gas, tolls, insurance, parking,
repairs, maintenance, registration and license fees, loan interest (except
employees), and depreciation.
* Recordkeeping
Regardless of the method you select, you need records to support the deduction.
You’ll need to keep track of your mileage under both methods, but the
actual cost method requires more record-keeping than the standard mileage
method.
Only the business portion
of your total mileage is deductible. For example, if your business mileage is
15,000 and your total driving mileage is 20,000 this year, you can deduct 75%
of your total automobile expenses if you choose the actual cost method. If you
choose the standard mileage method, you multiply your 15,000 miles of business
driving by 48.5¢ a mile and deduct $7,275.
* Tax impact
You might be inclined to choose the standard mileage rate to simplify your
recordkeeping, but before you opt for this method, consider the potential
impact of each method on your tax bill. The price for using the mileage
rate’s simplicity may be lost deductions. If you drive often or long
distances for business, or if your car expenses are high, the alternative
actual cost method may be better.
If it’s advantageous,
you can switch to the actual cost method even if you started with the standard
mileage rate. Be aware, however, that once you begin using the actual cost
method on a vehicle, you can’t switch to the standard mileage deduction
for that vehicle. In making your decision, you should consider how long
you’ll keep the car and the estimated total tax savings under each
method.
The rules governing
business car deductions are full of exceptions and limitations. To be certain
you use the method that’s right for you - and that maximizes tax savings
- give us a call. We can review your situation and your options with you.
What's New in Finances:
Have You Gone Too Paperless?
It can be convenient to cut
out "paperwork" by conducting your financial activities online. But
if you do your banking and your investing through online bank and brokerage
services, your heirs may have trouble sorting through your finances once
you’re gone.
Putting some information on
paper - even in a world trying to go paperless - is probably a good idea. At
least record basic information about your assets, the names of advisers, and
the location of your estate planning documents. Include any other information
your heirs will need in order to locate various things and to be able to follow
your wishes concerning the disposition of your estate.
What’s More Important
— Saving For Children’s College Or Your Retirement?
A college education.
Retirement. What do these major life events have in common? One shared
characteristic is that each comes with a price tag. Here’s another: If
you have school-age kids, you might be facing the challenge of having to decide
which goal to save for. They’re both important. So how do you make the
choice?
Here are some suggestions
that can help you reach a sensible solution.
* Eliminate excuses for not
making a decision. Procrastination can be costly. For example, to accumulate
$100,000 in five years, you’d have to deposit a little over $1,500 every
month in an account that earns 4%. But with a ten-year time horizon, assuming
the same return, you can build up $100,000 by socking away less than half that
amount, or approximately $700 per month.
What you need to know:
Estimate the total amount required for both goals, how much time you have, and
how much cash you’ll need to set aside on a regular basis.
* Expand your resource
horizon. Once you’ve computed the expense side of the equation, figure
out how much you can afford to save. You may find that, with one pool of income
and two goals, there’s not enough money to fully fund both goals.
But who says you have to
pay for everything yourself? Turn an obstacle into an opportunity by searching
out alternatives. For instance, while your income in retirement may be
dependent in large part on your savings, there are plenty of options for paying
college tuition.
Where to look: Investigate
the possibility of advanced placement credits while your child is still in high
school. Other potential sources of help include scholarship prospects, federal
work/study programs, and summer internships.
* Adopt a flexible approach.
Broadly speaking, you have three alternatives for divvying up your available
savings between the two goals. You can save for retirement only, save for
college only, or opt to do both.
Yet within each alternative
are creative strategies. As an illustration, you could start out by saving
strictly for retirement, shift toward saving for college when your child
reaches a certain age, then switch back after graduation.
Caution: Be careful of
falling into the deadline trap. It’s likely your kids will attend college
before you retire. Since the tuition deadline is closer, you might be tempted
to reduce or eliminate retirement plan contributions in the early years of your
savings plan in order to focus on education savings.
But consider this: A
typical retirement will generally last longer and cost more than your
child’s education. By putting college tuition first, you could end up
with less than you need in your retirement nest egg. Instead, take your overall
time horizon into account.
For assistance with the numbers,
give us a call.
Take a Break
Looking Back 100 Years
Compare the following
statistics for 1907 with today. What a difference 100 years makes!
* The average life
expectancy in the U.S. was 47 years.
* A three-minute call from
Denver to New York City cost $11.
* There were only 8,000
cars in the U.S. and only 144 miles of paved roads.
* Alabama, Mississippi,
Iowa, and Tennessee were each more heavily populated than California.
* The average U.S. wage was
22 cents an hour.
* 90% of all U.S. doctors
had no college education.
* The American flag had 45
stars. Arizona, Oklahoma, New Mexico, Hawaii, and Alaska hadn’t become
states yet.
* The population of Las
Vegas was 30.
* There was no
Mother’s Day or Father’s Day.
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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.
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