news & noteworthy
Alerts, Updates and Other
Tax and Accounting Tidbits for Business and Home
Presented electronically by Norman, Johnson & Co., PA Certified Public Accountants
Are you playing the market? – The mortgage market that is. Across the nation
Americans are playing the mortgage market: refinancing their homes and pulling
out cash to the tune of $600 billion in 2004 alone. Much of that refinancing
was accomplished through the use of adjustable rate loans and now those rates
are creeping up. Maybe it’s time to
reverse that process and put money into your home’s equity. How can you do
that? Refinance those adjustable rate and interest only loans into a fixed rate
loan. Yes, the payments will likely be higher – that’s the equity going back
into your home.
In
the second half of 2004 approximately 63% of new mortgages were adjustable and
another 23% were interest only. Those are surprising numbers when fixed rates
are at a historic low. Although these loans make home ownership more affordable
they make it more dangerous too. With interest rates on a steady increase,
payments for these non-fixed loans will soar. For example: if you have a
$200,000 interest only mortgage at 5%, you’ll be paying $833. If these rates
head into the 6.5% range the payments jump $250 to $1,083. That difference can
sink a tight budget for a family that stretched to buy a house.
A Taxing Task – According to an AP survey, seven out of ten individuals
said preparing their federal income taxes was too difficult, but 51% were
unwilling to have government simplify the process by getting rid of tax credits
and certain deductions. That outlook along with the 20% of Americans that pay
no tax at all are the primary hurdles to wholesale changes needed to simplify
the current overly complex tax system.
New Social Security limit for 2006 – The maximum amount of earning subject to Social
Security taxes will increase to $94,200 in 2006 from 2005’s $90,000 cap. This
means some 11.3 million workers will pay more taxes.
Worthy Quote: “I guess I
should warn you, if I turn out to be particularly clear, you've probably
misunderstood what I've said.” – Alan Greenspan, master of the verbose and
painfully detailed explanation. The parting Federal Reserve Chief is replaced
today by Ben Benanke.
Extended Extensions – New for 2005 tax returns is the 6 months automatic
extension from April 15th through October 15th. Previously
the first extension was for 4 months and a second extension would take the true
procrastinator through October 15th. Now one extension does it all.
SC extensions will also conform to this new 6 month rule. As always, the
extension does not extend the time for payment of taxes. You must still
estimate the tax balance due to avoid interest and penalties.
401(k) OK – More companies considered 401(k) plans their primary
retirement savings vehicle in 2005 (64%) than in 2003 (55%). Smaller companies continue
to favor SEPs and SIMPLE plans due to their
simplicity and lack of tax return filing requirement.
Crystal Ball on 2006: According to the Experian-Gallup
Personal Credit Index, 68% of U.S. Consumers think things are looking up for
2006. 30% are “very” optimistic. Americans have a variety of reasons for
thinking 2006 will be a good year:
§
57% of those who
are employed expect to earn more money in ‘06 than ‘05. Only 6% expect a
decline.
§
30% of workers
anticipate a promotion in the coming year.
§
50% of consumers
plan to make home improvements in the coming year.
§
38% anticipate
paying off their debt.
§
36% hope to earn
a higher credit score.
§
21% plan to by a
new car.
§
19% will go back
to school.
But
all the news isn’t good. Some 14% of consumers who have a credit card only pay
the minimum amount each month, up from 7% last year. And 26% say they are
uncomfortable with their current debt level, which averages $4,072. More bad
news – the credit card minimums are going up this year which will mean
additional pressure for those already over-stretched with credit card debt.
New IRS Mileage Rates –Beginning
§
44.5 cents per
mile for business miles driven;
§
18 cents per mile
driven for medical or moving purposes; and
§
14 cents per mile
driven in service of charitable organizations, other than activities related to
Hurricane Katrina relief.
Watching the Calendar: The tax due date count down starts – 43 days
until March 15th for corporate tax returns; 76 days for personal returns, April
17th this year.
Got a friend or associate that needs help
with accounting, taxes, or financial planning? We appreciate
your referrals. Invite your referral to call for a complimentary conference to
review their situation.
Norman, Johnson & Co., PA is a
Spartanburg, SC based CPA firm which was founded in 1990. The firm offers a wide range of audit, accounting,
tax, business consulting, and financial planning services for individuals,
businesses, governmental entities, and not-for-profit clients.
This newsletter is published
monthly on the first of each month and alerts and special topics as they are
deemed informative. Information contained in this newsletter is derived from
sources believed to be accurate. You
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