Important Notice Brian DiBella has left the firm. Gary Gomola and all of the other staff
members We are now located at 213 Court Street,
Suite 204, Middletown CT 06457
CLIENT ALERT - SUMMER 2000The information contained in this newsletter is designed to keep our clients and friends informed of developments and ideas which we feel are important. Should any subjects be of interest please call one of us. The articles contained in this newsletter are not intended as a substitute for legal, accounting or tax advice. You should seek professional advice on the particular issues which concern you. Give It Away!
Why do we sometimes advise our clients to give away assets as part of the estate planning process? It allows you to leave more to your next generation and less to the IRS. Of course you never want to give so much away that it could negatively impact your retirement lifestyle. After all, why did you accumulate it in the first place? But let’s assume that you have more than you expect to need during your and your spouse’s lifetime. Let’s also assume that you have enough assets to have a taxable estate (currently $650,000 per person), and that you have already done any applicable basic marital and credit shelter trusts (if you have not done this - call us immediately). At this point you figure you are going to be leaving something to your children and/or grandchildren. We encourage you to consider giving them gifts now. You and your spouse can each give $10,000 per year, per donee with no gift or estate tax consequences. Here is what happens; If you give them the $10,000 now and they invest it at 6%, in 10 years they will have $17,908. If you hold the $10,000 and it grows to $17,908 and you die in that 10th year, your beneficiaries will only get $8,059 with the other $9,849 going to federal estate tax. Who would you rather have your money? We can even make a case for giving them more than $10,000. Traditional estate planning usually attempts to keep your lifetime exclusion (the $650,000) intact, or not to make gifts in excess of the exclusion. That might not always make sense. When you die your entire net taxable estate is subject to tax at roughly 55%, including the money that is going to go out in taxes. When you make a large gift and pay the gift tax you are reducing your future estate by the gift and the amount of the tax, not to mention the future appreciation on the gift. As a gross (and oversimplified) example; to give your children an additional $1,000,000 you need to have $1,555,000 ($1,000,000 for the gift and $555,000 to pay the gift tax). To leave an additional $1,000,000 on your death you need to have $2,222,222. ($2,222,222 less 55% tax of 1,222,222). This discussion has focused only on federal estate and gift tax. It has ignored state transfer taxes, federal and state income taxes, as well as capital gains and basis issues, which would have no effect if we are talking about gifting cash. However, our conclusion could change depending on the type of non-cash asset (and its basis) that you are considering using. We would be pleased to review your situation with you. Are You Wealthy? Do you assume that estate planning is only for the wealthy? Estate planning is an absolute necessity for anyone with over $650,000 in assets. Still sound like a big number? When you start throwing in the value of your retirement plans, life insurance proceeds, and your house you can get there real fast. Call us, we want to help. Written by Gary R. Gomola, CPA, CVA - Partner Your Social Security Earning
Statement: In October, 1999, the Social Security Administration (SSA) began sending earnings reports to all workers over the age of 25 who are not yet receiving benefits. The report is scheduled to arrive three months before your birthday every year. This 4-page statement contains a year by year display of your earnings and an estimate of benefits you are eligible for now and in the future. This will allow you to plan for your financial needs when you retire, if you become disabled, or if you die and leave survivors. We recommend that you check this information carefully. The statement contains the data the SSA will use to calculate your benefits. If there are errors, you should correct them immediately. The three most common errors are: Name, date of birth, or social security number - this information comes from your social security records. To correct an error, file Form SS-5 with the SSA. Address - this information comes from your most recent tax return. If you have moved, file Form 8822 with the IRS. Earnings - this information comes from your present and past employers. If the error has occurred with your present employer, contact your payroll office. If the error is from a former employer, contact SSA (1-800-772-1213 or go to a local office) and be sure to have your W-2 and your income tax return for the year in question. We recommend employers request the free booklet Employer Information About The Social Security Statement. This will guide your payroll or personnel department in answering questions your employees may have. It can take the SSA up to nine months to compile all the wage reports sent in by employers and to receive self-employment earnings reported on individual tax returns from the IRS. Your full 1999 earnings may not be included in your report, although your benefits will be calculated based on the incomplete information, which will result in an incorrect projection. If you receive your statement and 1999 earnings information is incomplete, do not contact Social Security until after October 1st. You may request an earnings statement at any time by filing Form SSA-7004; it will take about 4 weeks to be sent. If you are receiving social security benefits and still working, you need to request the earnings statement because you will not automatically receive one. A few notes about retirement . . . Your earnings statement will list your "full retirement age". The age 65 limit has increased for people born after 1938 and varies between 65 and 67 depending on year of birth. Your retirement benefits are still available at age 62, but the reduction for early retirement will be greater than it is for people retiring now. Effective January 1, 2000, a new law allows workers who have reached full retirement age (65 in year 2000) to work without their benefits being reduced because of the amount of their annual earnings. Your annual earnings affect the amount of social security benefits only until you reach your full retirement age. Thereafter, you will receive your full benefits no matter how much you earn. For 2000, if you are under full retirement age, $1 in benefits is deducted for every $2 earned over $10,080. In the year you reach full retirement age, $1 in benefits is deducted for every $3 earned over $17,000. In the month you reach full retirement age, you get full benefits regardless of earnings. Written by Robyn M. Sparks, CPA - Manager Everyone Loves A Free Lunch, Especially If The IRS Is Buying As with all expenses, to be deductible a meal must be an "ordinary and
necessary" expense of carrying out your business for the year. Meal expenses are a
"grey" area because they have both personal and business elements. So,
there’s a new restaurant you’ve been dying to try. C Even after you pass the above tests, current tax law generally only lets you deduct 50% of the meal cost. So, if you’ve spent $2,000 on meals for the year, you can only deduct $1,000. Luckily, there are a few exceptions to the 50% rule. Owners and bookkeepers should pay attention to these exceptions and point them out to their tax preparers. Otherwise, they may be limiting the tax benefits. One of the exceptions to the 50% exclusion is for expenses mainly for your employees who are not highly compensated. For example, suppose your company has a Christmas party or company picnic. Those meal expenses are 100% deductible because everyone is invited. What if your employees are working late and you order in pizza? That expense is 100% deductible also. Expenses for on-site meals for the employer’s convenience are not subject to the 50% exclusion. The same would be true for meals provided at shareholder meetings, director meetings, and employee meetings under similar circumstances. Employers may also deduct 100% of meals provided to employees as a de minimis fringe benefit. Their value is not included in the employee’s gross income. These would be meals (or even meal money) that your business provides to employees occasionally. The amount must be reasonable, and the habit must not be regular. These expenses should be so small and infrequent that you could argue that accounting for them is impractical. As you can see, there are numerous instances where a meal would be 100% deductible to your business. We suggest that two separate meal and entertainment expense accounts be set up in your chart of accounts, one for meals subject to the 50% exclusion, and one for those that are not. We will then have all the information we need to give you and your company the greatest tax benefit. Written by Tania M. Crosby - Senior Accountant
Thank you in advance for your input. To show our appreciation for your time, all responses received by September 30, 2000 will be put in a drawing for a $50 gift certificate to a Middletown area restaurant. Please cut this section out and mail it to us. Or, send an e-mail to feedback@ctcpas.com Choice Of Entity And The Self-Employment Tax Many times we sit down with our clients to discuss starting a business. Typically, one of the first things to decide is the form of organization that the business will take, whether it’s a Corporation, Partnership, Sole-proprietorship, etc. With the recent introduction of LLCs, there are more choices than ever. We have been advising many of our clients to form LLCs, either single member, or multi-member, as they offer the limited liability characteristics of a corporation and the tax simplicity of a partnership or sole-proprietorship. However, in certain situations, this might not be the most tax advantageous way to operate. For example, if the owner or owners of an LLC are making well in excess of 6 figures the entire income will be subject to the self-employment Medicare tax of 2.9%. This is because all of the income from an LLC is considered from self-employment and subject to the tax. Comparing this situation to a business being formed as an S-Corporation, a portion of the earnings can be taken as compensation, subject to the Medicare tax, with the balance taxable as a dividend. These taxable dividends are income taxable but not subject to the self-employment tax. Also, the amount considered compensation must not be so understated the IRS could successfully assert that some or all of these dividend distributions should be re-characterized as wage compensation. It is also possible to minimize the self-employment tax without forming a corporation. This is done by utilizing the IRS "check-the-box" regulations to have the LLC taxed as a corporation and then electing S-Corporation status. There are many other points to consider before forming a business, and the above scenario many not apply to everyone. Each situation should be evaluated separately to determine the choice of business entity that is most appropriate. Written by Brian C. DiBella, CPA - Partner
Thanks to all off you who tried to open our treasure chest, it helped add a little fun to the stresses of tax season. The following picked winning keys and won the prize listed: Free Tax Return ; Patricia Pavelkops. $100 Off Tax Return; William & Laura Gaffers. $50 Off Tax Return; David Maurad, Helen Chapin, Nikolai & Eliana Lieders. $25 Off Tax Return; John & Carole Bystrek, Susan Pekrul, Lonnie & Mary Woolard. $15 Off Tax Return; John & Charlene Baulski, Bernice Bell, Lamont Benedict. Two Destinta Movie Passes; David & Marie Black, Louis & Kathleen Cortezzo, David & Suzanne Trykowski, Patricia & Paul Lux, Ron & Cindy Marchinkoski, Raymond & Barbara Moore, Jeff & Mary Lewis.The articles contained in this newsletter are not intended as a substitute for legal, accounting or tax advice. You should seek professional advice on the particular issues which concern you. Edited by Gary R. Gomola, CPA, CVA July 2000 Home | About Us | Our Staff | Newsletters | Links |
an
you invite a customer, and make a night of it on Uncle Sam? Maybe. The meal must be
"directly related" to your business. This means you need to have discussions at
some point during the meal that will relate to producing income in the near future.
Generating a feeling of goodwill toward your business is not sufficient. The relationship
to your guests should be business, not predominately social. And finally you must keep
good records. If the expense is $75 or more, you need to have documentary proof, such as a
receipt and a record that shows, where and when, the business reason, and the business
relationship of the people involved. 
We Want Your Feedback