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News Releases
Alisa Morris
Director of Marketing
212-303-1880
amorris@rssmcpa.com
TAX SEASON: LAST MINUTE ADVICE FOR BUSINESSES AND INDIVIDUALS
- NEW YORK, NY – January 2004 - You may believe that it is too late to implement tax saving ideas and financial planning strategies for year end, but there is still time for individuals and business owners to take advantage of opportunities to achieve their financial goals.
- It’s Not to Late to Set Up a Retirement Plan for 2003 in the Form of a SEP – Simplified Employee Pension Plan
This plan requires minimal paperwork and depending upon one’s income up to $40,000 may be contributed. This is an employer sponsored plan so you may have to include employees in the plan.
- It’s Not to Late to Make IRS – Traditional and Roth – Contributions for 2003
You have until April 15, 2004 (but not later even if you are on extension) to make the IRA contributions. Whether IRAs are deductible depends on whether you are a participant in a qualified plan and your income level. Don’t forget additional catch-up contributions for those 50 and over.
- Required Minimum Distribution from Retirement Plans and IRAs
Required distributions from IRA and in some cases, qualified plans for those taxpayers who have attained 70 ½ or older must be taken on an annual basis. If the taxpayer became 70 ½ years in 2003, he has to take his first minimum distribution for 2003 no later than April 1, 2004. Another distribution will have to be taken in 2004 by December 31st. Moreover, new tables have been issued which reduces the required amounts.
- Dividend – What Qualifies for the 15% Rate
The Jobs Growth Reconciliation Act of 2003 has lowered the tax rate on non-corporate taxpayers’ dividend income to 15% (5% for taxpayers in the 15% bracket). While, these lower rates will apply to most types of dividend income, there are exceptions. For example, distributions from money market funds out of interest earned by the fund are not distributions of qualified dividends.
- Estate Tax Changes Taking Effect in 2004
Several estate tax changes are scheduled to go in effect during 2004. For 2004, the applicable exclusion amount will rise to $1.5 million from $1.0 million. In addition, the tope rate is reduced to 48%. These changes, as well as many other recent changes to the estate tax laws, will require you to review and even change your current estate plan.
- Alternative Minimum Tax Planning – Lower Rates, More Taxpayer’s Affected
AMT will impact more and more middle class taxpayers. Although the Jobs Growth Reconciliation Act of 2003 attempts to reduce the number of taxpayer’s subject to the AMT by increasing the AMT exemption, more unwary taxpayers may be caught in its net as the regular tax rates are more lower and closer to the AMT tax rate.
- Charitable Giving in Light of the New Tax Law
The tax deduction associated with charitable giving has always operated as an incentive; it effectively lowers the cost of any particular charitable deduction. At first blush, the 2003 Act’s reduction in tax brackets from 27%, 30%, 35% and 38.6% to 25%, 28%, 33% and 35% seems to lower the incentive. However, the 2003 Act also increases the alternative minimum tax (AMT) exemption. The interrelated computations among the regular tax, itemized deductions and the AMT are complicated. Suffice it to say that increased AMT exemption restores some of the incentive taken away by the reduction in regular tax. Only a complete tax projection will show the current tax saving associated with any particular charitable contribution.
- Charitable Annuity Trusts
They come in two flavors: Charitable remainder annuity trust (CRAT) and charitable lead annuity trust (CLAT). In the first, the charity gets principal after the individual gets income, for a period. In the second, the charity gets income for a period and the individual gets principal after that period. For charitably inclined individuals, a Charitable Annuity Trust combines an immediate tax deduction for a charitable contribution with a guaranteed income stream for a term of years or for life. Considering the current low interest rate on many investments (bank accounts, certificates of deposit, etc.), a charitable annuity trust may offer a better investment for some individuals.
- Your Domicile and NY Estate Tax
The New York estate tax applies to New York State residents, and non-residents who have property in New York State. New York State residents pay New York tax on their entire estates. Non-residents only pay tax on their realty or tangible personal property located in New York State (bank accounts and brokerage accounts for non-residents are excluded). An individual may change his or her domicile from New York by setting up domicile in another state. Domicile is measured by ownership of a principal residence, days present in the state, and personal and family connections to the state.
- Investing in Light of the New Tax Law
The reduction in tax rates on dividends from ordinary income tax rates (up to 35%) to capital gain rates (5 % or 15%, depending upon tax bracket) has increased the attractiveness of corporate dividends. Formerly, one received the lowest rate by investing in “growth stocks,” those that paid little or no dividends but increased in value. The disadvantage was that the investor had to cash in his investment by selling the stock in order to get cash back. Now, dividend paying investments are as attractive from a tax perspective. An investor may get a cash stream from an ongoing investment at the same favorable tax rate for cashing in an investment. This is an example of having one’s cake and eating it, too. This provision expires at the end of 2008.
RSSM can offer last minute strategies for individuals and businesses including investing in regular and Roth IRA’s, developing last minute retirement plans for businesses and maximizing benefits for estates and trusts.
“Do not make the mistake of thinking that tax time is too late to find ways to minimize your tax burden and to plan for retirement, there are many straightforward, easy steps to take to achieve this goal.”
RSSM, a member of the SEC Practice Section of the AICPA, was founded in 1956 and has over 100 professionals, including 16 partners and four principals. We are a full service firm offering consulting services, including estate planning, litigation support and forensic accounting, management information systems consulting, business valuations, employee benefits, executive compensation, executive search and retirement planning in addition to the traditional services of accounting, auditing and tax planning and preparation. Recently RSSM has been ranked in Public Accounting Report and Bowman’s Accounting Report as one of the Top 100 Accounting and Consulting firms in the United States and in Crain’s New York Business as one of the Top 25 CPA firms in the New York City metro area. We can also offer services on both a national and international level through our membership in IA International, a worldwide association of independent accounting firms.
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For information contact:
Alisa Morris
Director of Marketing
(212) 303-1880
amorris@rssmcpa.com
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