investment income.
subsidaries of S corporations.
- Eliminate pre-1983 earnings and profits arising during an S
corporation year, regardless of whether the corporation was
an S corporation in its first taxable year beginning after
December 31, 1996.
- Permit an electing small business trust (ESBT) to deduct
interest expense it incurs when ir borrows funds to purchase
S corporation stock.
Revenue provisions (offsets).
The 2007 Small Business Act pays for the above benefits by:
- Raising the kiddie tax age from under-18 to under-19 (under-24 if a student).
- Extending - from 18 to 36 months - the period in which IRS must notify a taxpayer of the taxpayer's liability with respect to a tax return before IRS must suspend the accrual of interest and penalties relating to that liability.
- Eliminating the requirement that IRS hold a collection due process hearing before issuing a levy on delinquent employment taxes.
- Expanding preparer penalties to all types of tax returns (e.g., employment, excise, exempt orgs., estate and gift tax) and increasing the penalty amounts.
- Creating a new penalty on claims for refund that are filed without any reasonable basis
- Increasing the penalty for bad checks and money orders.
Please keep in mind that the above is only the highlights of
the most important changes in the new law. Give us a call
at you earliest convenience for more details on how this
effects you.
2007 Planning
Dear Client:
The Just-ended tax filing season probably taught you a thing
or two about what you might have done differently in 2006.
In hindsight, everything is 20/20. At the time however, things
often aren't so clear.
The good news is that you can take some proactive steps
between now and the start of next year's filing season. We're
ready to lend you a hand. Let's take a look at some key areas
of your tax planning.
Retirement Planning
The world of retirement planning is hugely complex and it's getting
even more so. Last year's big new pension law, the Pension
Protection Act of 2006 (PPA), made many changes to the nation's
pension laws, which directly impact how you save for retirement.
One of the easiest ways to reduce your taxable income is to
maximize your contributions to eligible retirement plans. Are you
contributing the most you can?
The PPA increased the benefit and contribution limits for elective
deferrals to 401(k) and some other plans to $15,000 in 2006 and
after, subject to a cost-of-living adjustment. Individuals age 50
and older can make "catch-up" contributions of up to $5,000 for
401(k)s and some other plans. Your employer may also offer what
is called a Roth 401(k) that could be very valuable to some
taxpayers depending on their incomes and where they are in their
careers.
Under the PPA, you can contribute up to $4,000 to an IRA in
2007. After 2008, this amount in indexed for inflation in $500
increments. Individuals who are age 50 and older can make even
larger contributions thanks agains to the catch-up rule. They can
contribute an additional $1,000 to an IRA. A spousal IRA and an
IRA for a child who has a weekend or summer job are other great
tools to help reduce your tax bill. We'll be happy to sit down with
you and thoroughly review your retirement planning strategy.
Educational Expenses
Saving for college is another long-term project. One of the most
taxpayer-friendly incentives are "529" plans (named after Section
529 in the Tax Code). Every state and many colleges and universities
offer these plans. Some 529s are pre-paid tuition plans. Either way,
you'll likely get some valuable tax benefits. However, you have to
read the fine print of these plans very carefully. You don't want high
fees or poor returns to take away from the tax benefits.
Estate Planning
Many people don't think of the tax breaks that go along with estate
planning. Just like retirement planning, estate planning is very
complicated and it is different for different people. An estate plan
that may work great for you friends or neighbors may not be ideal
for you. Don't get duped into a "one size fits all" estate plan.
One tax-related estate planning tool is very simple. Make a gift.
Gift-making is often overlooked when designing an estate plan. You
can make tax-free gifts of up to $12,000 each year to each person.
For married couples, the tax-free amount is doubled to $24,000.
Gift-making is especially valuable if you have children or other
beneficiaries who really could use part of your estate today. A gift
leaves a lasting legacy.
Giving to Charity
Giving to charity has traditionally been a popular tax break. As
you've likely heard, the rules for deductiing your gifts to charity are
stricter than even before. We first saw this a few years ago when
the IRS issued tough new rules on how much you can deduct when
you donate a car or truck to charity.
Last year, also as part of the PPA, Congress said enough is enough
when it comes to over-valued donations of used clothing and
household items. Generally, your clothing and household items must
be in good or better condition to be deducted. This year, tough new
rules for contributions of cash kick-in. In most cases, you need a
receipt or bank record to prove your donation. If you haven't been
saving your receipts, give the charities a call. They may be able to
give you duplicates. These changes are very important. Don't
hesitate to call us if you have any questions.
Changes Every Year
The tax laws change every year. A deduction you took last year
might not be available this year. You can't keep up with all the
changes. Fortunately, we're here to do that for you.
