Fall 2007 Volume XVII, No. 1 Newsletter

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Fall Notes:

winterI’m absolutely thrilled by what we do. The work is always challenging, whether it’s tackling multi-state issues, changes in entities, retirement plans, or ever-evolving tax law changes. Our clients are terrific - sophisticated, energetic, knowledgeable, and loyal. Our staff is so professional -- this includes Ellen & Scott on the corporate side and Jeff & Marilee on the individual side. Their average work experience is sixteen years. Finally, the circle of resource professionals available to us are first rate, be it insurance professionals, attorneys, bankers, brokers, payroll providers and financial planners.

Alternative Minimum Tax, which we continue to address in our newsletters, remains a particular nuisance on many of the individual tax returns which we prepare. AMT comes with its own set of rules which parallel the regular federal income tax system. AMT is triggered when a taxpayer claims large deductions for unreimbursed employee expenses, has many personal exemptions or has high state and local taxes. On March 22, our industry parent group, the American Institute of CPA’s (AICPA), called on Congress to repeal the AMT, saying that unless Congress acts, 23.4 million taxpayers are likely to be subject to AMT in 2007. That represents about 26 percent of individuals paying income tax. Ouch!

What We Offer:

  • Business Advisory Services - bank financing, strategic planning, insurance planning.
  • Personal Financial Planning - net worth review, investment review, estate review.
  • Corporate Income Tax Preparation - navigating the complex Federal tax system.
  • Income Tax Planning - providing assistance in evaluating the overall tax picture.
  • Personal Income Tax Preparation - concise returns delivered in a timely fashion.
  • Representation - representation before Federal and State tax authorities.
  • Consulting - turning your manual accounting system into a comprehensive Quickbooks solution. Quickbooks training, set-up, and maintenance.

IRA’s and You:

A little-known provision in the Tax Increase Prevention and Reconciliation Act (“TIPRA”), signed into law in May 2006 has propelled traditional IRA’s to the forefront of tax and financial planning on behalf of higher-income individuals. “TIPRA” was highly publicized for extending the lower tax rates on capital gain and qualified dividends beyond 2008. Buried under the volumous text of the Act were TIPRA’s revisions to the rules regarding the Roth IRA.

Beginning in 2010, TIPRA removes the $100,000 income threshold for converting a traditional IRA to a Roth IRA. Therefore, in 2010 and beyond, any owner of a traditional IRA may convert his or her account to a Roth IRA, regardless of their annual incomes so long as they are willing to pay the income taxes in the year of the conversion.

This line of reasoning led us down another path: What about using the non-deductible IRA, the IRA nobody thinks about funding anymore?? Why would a non-deductible IRA suddenly look attractive? The answer is that when a non-deductible IRA is converted to a Roth IRA, only the appreciation in the non-deductible IRA is taxed at the time of conversion. Now there is ample time to fund a non-deductible IRA every year up to 2010, and because of TIPRA, one may make a non-deductible IRA contribution for each year thereafter, then immediately convert it to a Roth IRA. Thus, the elimination of the income threshold in 2010 permits virtually everyone with earned income to take advantage of the Roth IRA!

Financial Planning Corner

Lifelong Financial Tips:

  • Get Specific with your Goals: There’s an old expression: “If you don’t know where you’re going, any road will lead you there.” When it comes to your money, you need to have specific goals. They can be as simple as: “Put aside $500 a month for a down payment on a new home until we have $15,000, “ or “Pay back credit card debt in one year with $300 a month minimum.”
  • Focus on Needs, not Wants: Wish lists can be wonderful things to have - as long as you don’t use your credit card to turn every wish into immediate reality. Understand the difference between niceties and necessities, and be willing to forego what you don’t really need to stay on plan.
  • Keep it Simple: Often we get too complex in our planning. Result? Plans turn into burdens and are quickly abandoned. So don’t try to become an investment banker overnight. Just focus on what’s most important to you. Is it having enough money for retirement, financial security for loved ones, college? You decide and then take simple, straightforward action.
  • Know your Weak Points: Understand your own personal psychology and avoid the triggers that will make you spend more or save less. For example, if you know you’re undisciplined, try to have money taken out automatically for saving or investing.
  • Be Realistic: If you’ve never saved a penny in your life, you’re not going to magically put aside thousands of dollars a month. So start small. It’s all about consistency. Far better to build up, than give up.
  • Be Prepared: Life is all about change. Good things or bad can affect your financial planning. Be ready. Planning for the unexpected can make seemingly disastrous events like a job layoff, a house fire, or a long-term illness far less devastating than they might otherwise be.
  • Get Good Advice: Get help when you need it: a banker for a mortgage, a lawyer for your will, a CPA for more complex financial planning needs.

Estate Taxes, A Legislative Update:

For the next year (through 2008), you would need to own at least $2 million in assets before you even have an estate concern. And in 2009, the lifetime exemption jumps to $3.5 million. In 2010 the estate tax could be fully repealed, at least for one year. After that, nobody really knows - the House of Representatives has considered a $5 million estate exemption for each individual.

Maryland, however, decided to “de-couple” from the federal tax code, and independently set its own estate tax exemption. The end result is that a Maryland taxpayer will have an estate tax to contend with when the value of that taxpayer’s estate exceeds $1 million, regardless of what the Federal exemption may be at the time of his or her death. In this event, the excess amount above the $1 million mark will be taxed by Maryland at a flat 16 percent.

For planning suggestions to minimize this potential tax, please feel free to contact our office.

2007 Dollar Limitations for Retirement Plans:

Annual dollar limit for defined contribution plans $45,000
Maximum salary deferrals for 401(k), 403(b) plans $15,500
Catch-up contribution limits for 401(k), 403(b) plans $5,000
Maximum salary deferral for SIMPLE IRA plans $10,500
Catch-up contribution limits for SIMPLE IRA plans $2,500
Maximum IRA contribution $4,000
Catch-up contribution limits for IRA’s $1,000
Social Security taxable wage base $97,500


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Matthew R. Horowitz, C.P.A.
(410) 312-7622 • email
10015 Old Columbia Rd. Suite B-215, Columbia, Maryland 21046