| CROW, SHIELDS & BAILEY, PC |
ISSUE 2 |
June 2000
|
| CROW, SHIELDS & BAILEY, PC |
ISSUE 2 |
June 2000
|
From the Editor
Exciting news - we now have a name! In our first edition last quarter, we asked for suggestions from you, our readers, and what a response we received. After sorting through nearly 50 names and taking votes from our team, we decided that "CSB News" was best.
Congratulations to our two winners - Danny Rickert and Barb Frerman. Danny is a client and serves as Vice President of Marketing at Therapy Management Services. Barb is our Gulf Shores office manager. Barb came close to disqualification after she won our office pool for the Kentucky Derby - does she have every contest rigged? But we felt obligated to reward her anyway. So as promised, Barb gets a gift certificate to Mango’s in Orange Beach and Danny to Ruth’s Chris Steakhouse in Mobile.
Several entries were worthy of honorable mention, and we even considered having a different name for each issue. But "CSB News" got the most votes and we think it’s a great name. Thanks to all of you who participated. -JRS
Team Member Profile
REGINA LACY RUSSELL (GINA)
Gina joined our firm in 1997 and became our newest partner on January 1 of this year. Working primarily in our tax department and with our bookkeeping team, Gina also has experience in business valuations and is working toward her Business Valuation Analyst designation. Her experience comes in handy for our clients who need valuations for any reason including buy/sell agreements, gifts, estates, divorce and expert testimony in litigation cases.
Gina graduated from McGill High School in 1982 and was the valedictorian of her class! After attending Louisiana State University for three years, she graduated in 1986 from the University of South Alabama with a degree in accounting, becoming a CPA in 1988.
She started her career with Russell, Thompson, Butler & Houston, CPAs, becoming a partner in 1995. After leaving in 1996 to do part-time consulting work, we were fortunate to have her join us in 1997.
There are three Russell children, all boys - Brian, 10, Bradley, 8 and Thomas, 4. They attend St. Ignatius Church and School. Gina’s hobbies include running and gardening when she can work it in between her boys’ sporting events. Sometimes all three have a baseball game on the same night!
Large Crowd Gathers for QuickBooks Seminar
The seminar held in our Mobile office on February 15th was a big hit! Before a capacity crowd, QuickBooks advisors Trey Mayhall and J.D. Martin taught participants how to navigate through their bookkeeping activities using America’s #1 small business accounting software.
Seminar topics included:
- Versions and releases of the QuickBooks software
- Setting up the software
- Maintaining your checking account
- Controlling payroll
- Managing accounts receivable and payable.
While enjoying a continental breakfast and coffee during the breaks, participants were able to get answers to specific questions. Attendees also learned that CS&B is a QuickBooks professional advisor, and each left with their own copy of our QuickBooks operating guide.
Our next QuickBooks seminar will be in July. If you’re interested, please contact Deborah Martinsen (our Mobile office manager) at Deborahm@csbcpa.com
The CAB
Has Your Business Ever Used a CAB?
No, not a yellow cab like the one you ride in. "CAB" is an acronym for "Customer Advisory Board," and it’s a way to get feedback from your customers.
Should you do it? Yes.
Are you apprehensive about doing it? Probably, if you’re like most business owners including us.
Our first client advisory board was conducted earlier this year and was facilitated by our friend Mark Kirkpatrick, a tax attorney. We got many ideas from the CAB, including:
- publishing a newsletter
- having a toll-free number to help clients from out of the area reach us, and
- upgrading our e-mail to improve communications
A CAB is a wonderful medium to find out what your customers are thinking, and to get ideas on how to improve your business. It’s much better to find out about problems in this way than to have your customers leave because of issues that are never addressed.
The Client Advisory Board is just one of the offerings we are making available through our Business Development Consulting team. Contact Jimmy Hartman at jimmyh@csbcpa.com for more information.
Below are the major IRS and Alabama tax filing deadlines. These are also on the IRS web site at www.irs.gov and the Alabama Department of Revenue web site at www.ador.state.al.us. The deadlines listed below are for individuals and calendar year corporations. If you have a business that files on a fiscal year, the deadlines will be different. Also listed are the new deadlines for contractor licenses.
Please call us if you need specific deadlines for your business.
June 15, 2000
Individuals & corporations - Pay the second installment of estimated federal and Alabama income taxes due.
July 31, 2000
Quarterly payroll tax returns - File Federal Form 941, Alabama Form A-1, Alabama Unemployment Form UCCR-4.
Form 5500 Annual Return/Report for Employee Benefit Plans - File for retirement and cafeteria plans (due to change in forms, this has been extended to October 31 for this year only).
August 15, 2000
Individuals - For those individuals that filed extensions on April 17, file Forms 1040 and 40 and pay any additional taxes due. Contributions to retirement plans for self-employed individuals that filed an extension are due.
Individuals - For those individuals that filed extensions for their gift tax returns, file Form 709.
September 15, 2000
Individuals & corporations - Pay the third installment of estimated federal and Alabama income taxes due.
Corporations - For those that filed extensions, file Form 1120 or 1120S, Form 20 or 20S, and Alabama Form PSA and pay any taxes due. Federal tax payments must be deposited at your bank using Form 8109 or using Electronic Federal Tax Payment System (EFTPS). Contributions to retirement plans for those corporations that filed extensions are due.
Alabama General Contractors Licensing Board - Annual License Renewal
Renewal forms for all companies were due December 1, 1999.
Renewal financial packages are due as follows:
Company Name (beginning with:) Due date:
A or B January 31, 2000
C or D February 29, 2000
E, F or G March 31, 2000
H, I or J April 30, 2000
K, L or M May 31, 2000
N, O, P, Q, or R June 30, 2000
S, T, U, V, W, X, Y or Z July 31, 2000
Many people believe the estate tax applies only to the rich. But under current laws, this simply is not true.
For example, a married couple has $100,000 in their 401(k) plans, $50,000 equity in their home, $50,000 of personal property (including cars) and $750,000 of life insurance. Whose worried about estate taxes - not this couple, right?
Wrong! They could be subject to over $100,000 in estate taxes.
It is possible to pass $675,000 each to heirs with no estate or gift tax, for a total of $1,350,000 of "lifetime exemption." But if your wills are not updated, and you haven’t coordinated your beneficiary designations and titling of property, you could pay estate tax even though your combined estates are less than $1,350,000. And like the couple above, you could end up leaving money to Uncle Sam instead of your heirs.
If you would like to discuss this or other financial planning matters with us, please contact Trey Mayhall at treym@csbcpa.com for a free initial consultation.
I’m 65 - May I please work?
Good news to the growing population of individuals age 65 and older. You may now work and not worry about your Social Security benefits being cut back.
On April 7, President Clinton signed into law the Senior Citizens’ Freedom to Work Act of 2000. The Retirement Earnings Test for people at full retirement age (65 and older) was repealed. No longer is there a reduction of social security benefits for these older individuals who earn wages or have self employment earnings. Prior to this change, if you were age 65 to 69, your Social Security benefits were reduced $1 for every $3 of earnings above $17,000.
Unfortunately, the new law doesn’t affect individuals age 62 to 64. If you’re in this age bracket, your benefits are still reduced $1 for every $2 of earnings above the earned income limit of $10,080 a year. Example: You are age 63 and earn wages of $20,000 in 2000 and are also entitled to receive $7,200 in social security benefits. Based on the limitation factor, your benefits will be reduced by $4,960 ($20,000 - 10,080 = $9,920/2) with you receiving net social security benefits of $2,240.
Corporate Privilege and Income Tax - What’s Up?
As we reported to you last quarter, the Alabama franchise tax was ruled unconstitutional and replaced by a "privilege" tax. The old "shares" tax remained in effect, and was combined with the privilege tax on one "Form PSA" for year 2000.
This form was due March 15 for corporations and April 17 for limited liability entities. The law was passed in late 1999, and the form was not available until the middle of February, 2000. Getting the word out to all of our clients and filing the forms on time made for a very interesting tax season!
Guess what - the law has changed again. Voters decided in March to repeal the shares tax, and increase the corporate income tax rate from 5% to 6.5%. So what does this mean for your company?
All entities will still be required to file a "privilege tax" form by March 15 or April 15 of 2001. Corporations will pay shares tax at a reduced rate for 2001; $1.33 per $1,000 of taxable shares compared to $5.30 per $1,000 for 2000. The shares tax is repealed effective January 1, 2002. The income tax rate for C corporations goes up to 6.5% (effective for taxable years beginning on or after January 1, 2001) and "S" corporations are not affected since they generally pay no income tax. Therefore, the overall tax burden for S corporations should be reduced with the repeal of the shares tax.
As we go to press, House Bill 671 has been passed by the legislature and is awaiting the Governor’s signature. This bill makes technical corrections to the Alabama Business Privilege & Corporate Shares Tax Act of 1999. We’ll keep you informed as to how these changes may affect your business.
2000 IRS Mileage Rates
Business mileage 32.5 cents per mile; charity 14 cents, medical 10 cents.
You might be surprised at the growing popularity of electronic or "e-filing" of tax returns for 1999. The IRS reports that about 30 million 1999 returns were filed by computer through April of this year. That’s a 27.5% increase over last year. Furthermore, most of these "e-filing" taxpayers had their refunds directly deposited into their bank accounts, instead of waiting on a check to come via regular "snail mail."
Should you e-file your return? Maybe. We found that most of our clients who e-filed received their refunds in 8 to 15 days, which is exactly the time frame advertised by the IRS. And the IRS states that the chance of receiving an IRS notice is reduced with e-filing, since the return must be checked immediately on-line for any discrepancies.
Electronic filing is available through October 16, so if you extended your return it’s not too late. Contact a member of our tax team if you’re interested or want more information on the e-filing program.
Dear Tax Man:
My husband and I both work and earn about $70,000 each in wages. He is covered by a 401(k) plan, to which he contributes the maximum each year, but my employer does not have a retirement plan. Can I make a deductible IRA contribution?
Susan
Hello Susan:
You sure can. But watch out. If your combined income increases, you are limited. Let me explain.
The IRA rules provide that if you are not an "active participant" in a qualified plan (such as a 401(k)), you may contribute $2,000 to an IRA and deduct it on your tax return. This is true regardless of your income level.
Marriage complicates the rules a bit. Prior to 1998, if your spouse was an active participant in a qualified plan, you were also considered an active participant. So under this rule, Susan, you could not make a deductible IRA contribution.
With changes made by the Taxpayer Relief Act of 1997, you are not considered an active participant in a qualified plan merely because your spouse is. But this rule begins to phase out when combined adjusted gross income exceeds $150,000.
So Susan, as long as your joint adjusted gross income (AGI) is less than $150,000, you may make a deductible IRA contribution of up to $2,000. Once AGI goes over $150,000, your deduction is phased out 20 cents for each dollar of AGI in excess of $150,000; the deduction is completely phased out at $160,000.
Dear Tax Man:
I’m going steady with my girlfriend Betty and she’s going steady with me. We receive our mail in the same mail box and we watch the same TV. She is bugging me about filing a joint return. What do you think?
Yours truly, John P.
Good Morning John P.:
One can only assume that you and Betty are living together without a marriage license. At first glance, it appears that filing as married taxpayers is not allowed. But that depends on the definition of "married" under federal tax law. More on that later.
First, you should know that marital status is determined as of December 31. It makes no difference on what date you are married during the year - if you are married as of midnight on December 31, you are considered married all year.
Second, married taxpayers have only two choices 1) married filing separate, and 2) married filing jointly. From my experience, filing jointly produces a lower tax liability in almost all cases. However, filing married separate can be advantageous in certain situations, and your accountant should alert you if it will save you money. You cannot be married and file as two single taxpayers.
Now, are you and Betty "married" for tax filing purposes? Quite possibly so, if you are considered married under common law and your state of residence recognizes common law (Alabama does). You should check with an attorney as to what constitutes a common law marriage.
If you and Betty are not married under common law, and you do not exchange marriage vows by December 31, then you must file as single taxpayers. You did not mention dependents, but if there are children or elderly parents living with you, then "head of household" status may apply.
Oftentimes, if taxpayers have separate incomes they are better off filing as two single individuals than as a joint married couple. This is referred to as the "marriage penalty," and though there has been much discussion about its elimination, it still exists.
* Tax Man is a freelance CPA who gave up a lucrative 25-year practice for health reasons. His story is one of modern worker "burnout" and may sound familiar to many.
It started one morning in early April. Tax Man was slumped at his desk staring at yet another 1040 on his computer screen; his mind overloaded with complex tax laws, his fingers numbed by carpal tunnel syndrome, his eyes weary from the steady glow of the computer. It was time and he knew it. He couldn’t handle another day, much less another grueling three-month marathon of insanely long hours and impossible deadlines, otherwise known as "tax season."
Retreating to a remote camp on the Yukon River, Tax Man now lives far removed from the trappings of civilization and operates as a "virtual accountant." He spends his days fishing, bird watching, and gardening; and in his spare time, dispensing tax advice in cyberspace to confused taxpayers around the globe, using his satellite modem laptop (phones are not allowed in camp).
We are fortunate to have established a professional liaison with Tax Man, and will bring you a sampling of his wisdom each quarter. Remember - tax laws are complicated, and interpretation may vary with only a slight change in facts. Please consult with us before taking any action on tax matters.
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