Janell A. Israel & Associates
December 2007 Tax Newsletter

WHAT'S NEW IN TAXES:
Big Tax Changes Ahead

Beginning in January 2008, the tax rate on certain dividend income and long-term capital gains goes from 5% to 0% for taxpayers in the bottom two regular tax brackets (10% and 15%). If you're a single filer with income less than about $32,000 or married with income less than about $64,000, the new zero long-term capital gain rate could apply to you. In that case, you may want to postpone planned sales until 2008.

Also in 2008, the "kiddie tax" expands to cover children up to age 19. For full-time students, the age limit will be even higher - up to age 24. Now is the time to review your child's investments and time planned sales to avoid any adverse effect the new rules could have on your situation.

Do A Year-end Tax Review Of Your Investments

This is a good time of year to review your investments. If you're not meeting your financial goals for the year, there's still time to make changes. Make sure your portfolio is appropriately balanced among stocks, bonds, and other investments. Keep it well diversified, without too much at risk in any one sector. And you'll want to weed out investments with poor future prospects.

As you identify investments to buy and sell, keep the following tax implications in mind:

* When you sell assets, you'll have a capital gain or loss. Remember that capital gains on assets held for more than 12 months enjoy lower tax rates. For shorter holding periods, you'll pay tax at ordinary income rates.

* Don't forget to include any reinvested dividends when you calculate your cost basis for mutual fund shares.

* You can use capital losses to offset capital gains. Excess capital losses can even offset a limited amount of ordinary income.

* Watch out for the "wash sale rule." If you sell stock and then reacquire substantially identical securities within 30 days of a sale, you can't deduct a loss from the sale.

* Not all dividends on stocks and mutual funds are taxed at the same rate. "Qualified" dividends paid by most U.S. and some foreign companies enjoy lower rates of 5% or 15%, depending on your tax bracket.

* Beginning in January 2008, the tax rate on certain dividend income and long-term capital gains goes from 5% to 0% for taxpayers in the bottom two regular tax brackets (10% and 15%). There may be strategies you should consider to take advantage of this rate change, such as timing investment sales or deductible expenses.

* Interest income from corporate and U.S. bonds is generally taxed as ordinary income.

* Income from most state and municipal bonds is usually tax-free. The financial benefit of owning tax-free bonds depends on your tax bracket, among other factors.

*Changing investments within a tax-sheltered retirement account doesn't have any immediate tax consequences. You'll pay tax at ordinary income rates when you take distributions.

Remember, taxes shouldn't drive your investment decisions, but they are an important factor to consider. For guidance with the tax issues in your investment review, give us a call.

NEW BUSINESS:

Survey Estimates 2008 Pay Raises

An August 2007 survey conducted by WorldatWork revealed that employers are expecting to increase salaries by 3.9% in 2008.

WorldatWork is an association of human resource professionals. Their survey indicated that employers will be keeping pay increases just a bit above the inflation rate of 2.7% for the twelve months ended June 2007. The need to stay competitive in the marketplace by holding costs down was cited as one reason for the relatively small payroll increases for next year.

Though pay-raise estimates are low, estimates of bonuses for performance excellence are definitely higher. Businesses expect to spend about 12% of total payroll on bonuses, hoping to reward and retain valued employees.

WHAT'S NEW IN FINANCES:
Many Stay On The Job Even After Age 65

It's no longer unusual to find people of retirement age choosing to continue working. According to the Employee Benefit Research Institute, in 2006 about 30% of Americans aged 65 to 69 were still working, up from 18% in 1985.

While the majority of older Americans who still work cite financial reasons, more and more people are working longer because they want to, rather than because they have to.

Longer life spans leave many retirees eventually bored with retirement and returning to work. Others never leave the work force even when they become eligible for retirement benefits.

Some related facts:

* Social Security was established in 1935 with age 65 as full retirement age. At that time average life expectancy in the U.S. was 61.7 years.

* Today the average 65-year-old male will live an additional 19.2 years. The average female will live an additional 21.8 years. Furthermore, there's an 11% chance that the 65-year-old man will live to age 95 and a 19% chance that the 65-year-old woman will live that long.

TAKE A BREAK

Season's Greetings

This is the time of year to pause and reflect on our blessings and to express our appreciation to the many people who enrich our lives.

May we take this opportunity . . .

* To wish you and yours the happiest of holidays and a healthy and prosperous 2008.

* To thank you for your business in 2007.

* To remind you that we welcome your referrals. We would be pleased to have you mention our name to friends and associates who may need our services.

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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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