|
Duben & Natividad, CPA's |
|||||||||||||||||
|
|
|||||||||||||||||
|
|
|||||||||||||||||
|
|||||||||||||||||
|
|
|||||||||||||||||
|
|||||||||||||||||
|
|
|||||||||||||||||
|
|||||||||||||||||
|
|
|||||||||||||||||
|
|||||||||||||||||
|
|
|||||||||||||||||
|
|||||||||||||||||
|
|
|||||||||||||||||
|
|||||||||||||||||
|
COMMUNICATIONS |
|||||||||||||||||
|
|
|||||||||||||||||
|
|
|||||||||||||||||
|
|||||||||||||||||
|
|
|||||||||||||||||
|
|||||||||||||||||
|
|
|||||||||||||||||
|
|||||||||||||||||
|
Monthly Newsletter |
|||||||||||||||||
|
|
|||||||||||||||||
|
|
|||||||||||||||||
|
|||||||||||||||||
|
|
|||||||||||||||||
|
|
Sitemap |
||||||||||||||||
|
||||
|
|
||||
|
|
NEWSLETTER DECEMBER 2001 REVIEW YOUR TAX ESTIMATES AND MAKE ADJUSTMENTS If you make quarterly estimated tax payments, you’re probably aware that your final installment for 2001 is due on January 15, 2002. As the end of the year approaches, you might want to take a few minutes to review your earlier tax projections, which may have been altered by this year’s turbulent events. · Adjust payments. If it appears that you have paid in too little in estimated taxes to date, adjust your fourth quarter payment to minimize any underpayment penalty. If enough as already been paid in, consider eliminating the last quarter’s payment. If you’re an employee-owner of your business, you might want to adjust your income tax withholding from wages before year-end. Call us if you’d like to schedule an appointment to review your 2001 estimated taxes before you make your fourth quarter payment. DON’T LET AUDIT NUMBERS MISLEAD YOU For about six years now, the number of IRS audits has been declining. In 1995, for example, the IRS examined approximately 1.9 million individual returns. In 2000, that number fell to about 620,000. Today, the chances that an individual return will be audited are, on average, about one-half of one percent (one in every 200 returns filed). Why have rates declined? The IRS cites three main reasons for declining audit rates. First, the number of IRS revenue agents and tax auditors has dropped by more than 2-% since 1995. Second, many IRS employees are now being used for customer service duties rather than reviews and audits. Third, the IRS Restructuring and Reform Act of 1998 gave the IRS some new responsibilities, and IRS agents had to be reassigned to deal with them. Are the statistics misleading? Don’t let the declining audit rates mislead you. According to the IRS commissioner, declining audit rates don’t tell the whole story. The audit rate numbers exclude the IRS’s routine use of computer matching techniques to find tax return errors. By one estimate, if you take computer matching and other error detection techniques into account, the audit rates are closer to one in every 16 returns. Who’s most likely to be audited? Some types of returns are audited more frequently than others. For example, your audit risk is higher if you participate in certain tax shelters, if your deductions are disproportionate to your income, if you live in certain targeted areas of the country, if you own a small business, if you deduct casualty losses, or if you participate in tax scams. Remember also that each return you file is open to IRS examination for at least three years after you file it. The period is extended to six years if you omit more than 25% of your income from a return. What’s next for the IRS? Earlier this year, the IRS published its plans for compliance and audit efforts for the next several years. And Congress recently gave the IRS a healthy budget increase to help it achieve its goals. Among the areas that will receive increased IRS attention are the following: · Underreported income from partnerships, S corporations, and trusts. · Abusive trusts and corporate tax shelters. · Fraudulent claims for the earned income credit. · Unpaid payroll taxes withheld by employers. · Claims for innocent spouse relief. Honest, careful, and timely preparation of your tax return is always good practice, and you won’t need to be concerned if the IRS comes knocking. YOU CAN CONTRIBUTE MORE TO RETIREMENT PLANS NEXT YEAR Retirement accounts remain one of the best ways to cut your current income tax bill and let your investments grow tax-deferred. With 2001 tax legislation, Congress increased the amount businesses and individuals can contribute to retirement plans and still qualify for favorable tax treatment. Here are some of the changes that take effect next year. · Higher IRA contribution limit. The amount you can contribute to your individual retirement account (IRA) increases from $2,000 in 2001 to $3,000 in 2002. · Higher contribution limits for other plans. The maximum contribution to a 401(k) plan, 403(b) plan, or salary-reduction SEP plan increases from $10,500 in 2001 to $11,000 in 2002. The limit for SIMPLE contributions increases from $6,500 to $7,000. Also, higher salary and annual benefit caps will allow employers to make larger tax-deductible contributions to company plans on behalf of their employees, starting in 2002. · Catch-up contributions. Beginning next year, workers aged 50 and older may make additional “catch-up” contributions to retirement plans. for IRAs and SIMPLE plans, the 2002 catch-up limit is $500. For other plans, such as 401(k)s, 403(b)s, and salary-reduction SEPs, next year’s allowable catch-up contribution is $1,000. · New tax credits. There’s a new tax credit for small businesses that set up a retirement plan after 2001. The credit of up to $500 a year applies to start-up costs incurred during the plan’s first three years. In 2002, lower-income taxpayers to contribute to IRAs or other retirement plans may qualify for a tax credit ranging from 10% to 50% of the amount they contribute. · Increased portability. Congress took steps to increase the portability of pension plan funds. So if you change jobs, you’ll find it easier to move your retirement fund to a new plan. Plan to take advantage of the increased tax incentives for retirement savings. For details or assistance, give us a call. This monthly newsletter provides business, financial planning, and tax information to clients and friends of our firm. None of this general information should be acted upon without first determining its application to your specific situation. For additional copies of this newsletter or further details on any article, contact us. |
|
||