Accounting News and Notes

A Savings Incentive Match Plan for Employees, a SIMPLE IRA plan is well suited for smaller employers. A company can select his plan if it has as little as one employee up to one hundred. A SIMPLE IRA is a relatively new entrant into tax law, and were established so small businesses could offer substantive benefits to their staff without the burdens of a SPD/Originating Plan Document to set up a plan, and the “top heavy” testing which a 401K requires. All monies taken out of an employee’s paycheck and forwarded to a retirement account of any type are immediately vested and owned by the employee. However, they are subject to the tax law and guidelines of any established plans and their contracted documents. SIMPLE IRA’s have to be set up by October 1st of this year in order for them to be effective for 2007. Employees can set aside out of their payroll $10,500 in 2007. This limit is indexed and is updated periodically for inflation. For those over fifty years of age there is a “catch-up” provision which allows for an additional $2500 to be withheld each year. The company then as a required matching which ranges from two to three percent so employees also receive the result of this benefit.

One of the most widely debated, contested, and misunderstood issues of tax law is how to handle the deduction of business vehicles for the business owner. Just recently the IRS announced that 2007 purchasers of qualified hybrid vehicles will be able to continue to claim the Alternative Motor Vehicle Credit. The proclamation came after the IRS completed its quarterly review of the number of hybrid vehicles sold. The amount of the credit available is based upon the type and year of the vehicle purchased so be sure to consult tax tables to be sure of a vehicles eligibility and the amount of the credit to be claimed. At purchase you should ensure that you obtain a copy/written acknowledgment of the vehicles certification credit from the dealer as the credit amounts vary based upon the quarter the vehicle was purchased as well as the amount of the vehicles sold.

Recent Uncertainty in the Mortgage Market

In light of tightening of credit the home mortgage industry there is evidence that perhaps loans that were made in the past are no longer going to be accessible to those who do not qualify. In the last several years in response to a good economy and increased competition, loans were extended for which the underwriting requirements were not as strict or severe as they had been in the past. As a result there has beeen a recent shakedown of the good credits from the bad and a day of reckoning/correction in the marketplace.

Interest only loans have been very popular as of late offering the allure of a lower payment as no principal payments are required. But as with all marketing teasers there is always a catch and for mortgage loans there is no exception. If you have substantive other capital available to pay off a loan if need be then a interest loan might be a prudent and wise decision. However, many utilized this option for the purchase of homes which were really beyond their financial means. Remember “Creative Financing Means You Probably Cannot Afford It.” Wise and careful money managment dictates that you should always live below and not up to your standard of living that your income affords you. In this way you will best be able to handle the inevitable financial road bumps which will happen along the way.

It is wise that one acquires an equity line on their home as an additional insurance policy to handle any financial emergencies as well as making these monies potentially deductible.  Mortgage interest continues to be the largest itemizations that one can take when preparing their taxes and equity interest, as long as you meet certain exceptions, will help lower your overall tax bill.

The shakeout in the market/DOW will more than likely continue for an extended period but those in the market should not react but rather respond to the volatilites. Though some/mabye even all of your investments both pre and after tax may have fallen, you should still evaluate your dollars invested in light of other alternative opportunities. Human response being what it is will typically steer us to sell at the lowest possible price out of our fear while reality/intellectually a depressed stock cycle might be providing the highest opportunity for future bargains and increased returns. Though a volatile market necessitates an increased state of awareness and examination of your investment portfolio, it might not necessarily be a time to make any sell decisions. Working with both your CPA and financial advisor through these times will help guide and direct you towards making wise decisions.

Don’t Delay: File Today

Extensions are a legal way of notifying the IRS that you plan to file your return after the original due date. Both C and S Corporate returns are due March 15th of each year or two and a half months after year end. Personal returns, Partnerships, LLC’s, and LLP’s are generally required to be a calendar year return and are due April 15th of each year or three and a half months after year end.

The IRS allows a six month extension for both Corporate and Personal Returns, however please note that this is solely an extension of time to file and not an extension of time to pay and any late payments will result in assessments from both the IRS and state for penalties and interest. Please be advised that the penalties are even worse if you do not file the extension or the original return by the due date. These incentives are simply in place to give you time to file and pay. The Corporation and Personal extensions are for six months and accordingly expire on September 15th and October 15th respectively. There are no valid extensions available after this date.