news & noteworthy September 1, 2006
Alerts, Updates and Other
Tax and Accounting Tidbits for Business and Home
Presented electronically by Norman, Johnson & Co., PA Certified Public Accountants
Drink Responsibly – Drinking responsibly now has a new meaning. Credit
cards are more and more being used for small purchases such as sodas, pretzels,
and candy bars. Two years ago cashless transactions were introduced at many
fast-food restaurants. Now these “micro transactions” are hitting Coke
machines. Statistics are revealing that consumers spend 50% more at vending
machines when they use plastic instead of cash. So when you see that credit
card ready vending machine, eat and drink responsibly, it may help both your
wallet and your waistline.
Pension Plan Changes –
During the summer the President has signed Pension
Reform Act of 2006 into law. Some of the highlights are as follows:
- The Savers’ Credit due to expire was made
permanent. The credit is a non-refundable tax credit available to eligible
taxpayers who satisfy certain gross income levels and make contributions
to retirement plans and IRAs.
- If available at your company, 401(k) plan
participation is automatic at the 3% level unless you opt out. It then
increases up to 6% through year 4.
- Non-spouse beneficiaries may roll over benefits
they receive from a 401(k) plan to an IRA
- You may rollover a 401(k) distribution to a Roth.
IRA by paying the taxes due. Income restrictions would apply.
- Vesting schedules for employer contributions to a
401(k) are sped up.
Worthy Quote: “Carpe per
diem - seize the check.” – Robin
Williams in a take off on his popular movie mantra.
Payroll Tax GOTCHA!!! –
The IRS may be ready to pounce on you for a penalty situation you don’t
suspect. If you withhold income taxes
and FICA from payroll checks, you are required to deposit this money in a
timely fashion based on certain IRS rules (see below). The problem is the requirements change as
your payroll withholdings grow. Maybe last year you were required to deposit at
the end of each month but this year you are required to deposit semi-weekly. It
is your responsibility to monitor this and make the appropriate deposit
schedule change. If you don’t the IRS will likely send you a sizable penalty
assessment bill! The requirements are explained in IRS Circular E and if you are
preparing payroll you need to have a copy and be familiar with it.
Basically the rules go like this: There are two deposit
schedules, monthly and semi-weekly. Before the beginning of each calendar year
you must determine which schedule you are required to use. Your deposit
schedule is based on a so called “4 quarter look back period”. The look back
period is July 1 through June 30 of the year just completed. If your total
payroll tax liability for that period was $50,000 or more, you are a semi-weekly
depositor. The IRS does not necessarily advise you when you change from the
monthly to semi-monthly schedule.
The Basics of Social Security – Ever wonder how they compute Social Security benefits
and if the system will be available when you retire? Check out this article on
our website: The
Basics of Social Security.
SIMPLE Plan reminder – A SIMPLE retirement plan is generally regarded as a
simplified version of its big brother, the 401(k) plan. It is easier to
establish, maintain, and administer than its big brother. If you plan to start
a new SIMPLE retirement plan for 2006 but haven’t as yet, you must complete the
plan documents for a 2006 plan before October 1st of this year. If
you would like help in establishing a SIMPLE retirement plan please give us a
call.
Tax Matters: Households subject to the alternative minimum tax,
referred to simply as “AMT”, pay an average of $2,770 more in taxes than other
taxpayers. Four million taxpayers were hit with the AMT last year. ~ The IRS
budget for 2006 is $10.7 billion dollars with almost half ($4.7 billion) going
to enforcement efforts. ~ The personal exemption for 2006 has been increased
$100 to $3,300. Whoopee. ~ E-filing is permitted for returns on extension if
filed by the deadline of October 15th.
Watching the Calendar: Extended calendar year corporate returns are due
September 15th; extensions of 1040 returns are due October 15th.
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
periodically and alerts and special topics as they are deemed informative.
Information contained in this newsletter is derived from sources believed to be
accurate. You should discuss any legal,
tax, or financial matters with the appropriate professional before applying
them to your specific situation.
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