Make tax-wise investment moves
If any of these tax deadlines apply to you, circle them on your calendar.
 
  March 15 - Deadline for Calendar year corporation to elect S corporation status for 2002.
  March 15 - Deadline for filing 2001 tax returns for calendar-year corporations.
 
  April 1 - Deadline for taking your first IRA distribution if you turned 70 1/2 in 2001.  Unless you're still working, this deadline also applies to your other retirement accounts.
  April 15 - Deadline for filing 2001 individual tax returns.
  April 15 - Deadline for filing 2001 partnership returns.
  April 15 - Deadline for filing 2001 gift tax returns.
  April 15 - Deadline for making your 2001 IRA contribution.
  April 15 - First installment of 2002 individual estimated tax is due.
 
  June 15 - Second installment of 2002 individual estimated tax is due.		 Are you wondering how to get a higher return from your investments without taking on any more risk?  If you're like many investors, some simple tax planning might do the trick.  By taking advantage of the current tax rules, you may be able to increase the after-tax return on your investments.

  Utilize tax-deferred plans.  Start by evaluating whether you're maximizing your tax-deferred investment opportunities, such as IRAs, 401(k)s, and other retirement plans.  Remember, you owe no taxes on the investment income earned within these accounts until you withdraw the money.  The contribution limits for all retirement plans increase this year, so you can put aside even more investment dollars in these tax-deferred accounts. 
  How advantageous is tax-deferred growth?  If you invest $10,000 in a tax-deferred account earning 8% a year, your investment will grow to $46, 600 in 20 years.  Assuming a 35% tax rate, a similar investment  

held in a taxable account would grow to just $27,600.

  Check out tax-free investments. Don't overlook the tax-free savings opportunities currently available to your including both IRAs for your retirement or education savings accounts and Section529 plans for your children's education.  When you withdraw money from these accounts, you'll generally owe no income tax on the earnings, as long as certain conditions are met.  If you're one of the higher tax brackets, switching to tax-exempt bonds and bond funds might increase the after tax return on your investments.  But be aware that this strategy could also trigger the alternative minimum tax or subject otherwise tax-free social security benefits to tax.

  Consider where investments belong. As you choose investments, consider which type of investment belongs in which type of account.  Keep in mind that investments like tax-free municipal bonds should not be held in retirement accounts.  You'll earn a lower return and convert what would be a tax-free income into a taxable distribution.
  High-dividend stocks may be a good choice for your tax-deferred accounts.  But growth stocks, where the return comes mostly from capital appreciation, should probably go into your taxable accounts.  There you can take advantage of the lower tax rates on long-term capital gains.
  The rules for Roth IRAs are different, because Roth earnings can be tax-free.  Consider keeping those investments which generate the greatest total earnings in your Roth IRA.

  While taxes should not be your main investment concern, reducing your impact can help boost your next worth.  To discuss the role that taxes play in your investment strategy, please call.

 
What's new in taxes...
IRS proposes new audit plans
  The Internal Revenue Service has proposed a plan to randomly audit approximately 50,000 returns to measure how well taxpayers are complying with tax laws.
  The new program, called the National Research Project, will target 2001 tax returns beginning this fall.  The Service plans to use the statistics gathered from these audits to design new standards for its general audit selection process.
  In order to gather tax compliance data, the IRS proposal calls for several different audit methods, including line-by-line audits on about 2,000 returns.  The IRS says these complete audits won't be as arduous as the old TCMP (Taxpayer Compliance		 Measurement Program) audits, which one taxpayer described as undergoing an autopsy without the benefit of death.

Check your income tax withholding at work
  Did you substantially overpay or underpay your 2001 taxes?  Do you expect your income and deductions to change this year?  If so, consider giving your employer a new Form W-4 to adjust your withholding at work.  This will permit your employer to withhold the amount that comes closer to what you'll actually owe on your 2002 tax return.
  If you underpay your income taxes, you may face penalties.  If you overpay, you're making an interest-free loan to the IRS.

More companies can use the cash method
  A recent change in IRS policy will allow many businesses to change from the accrual method of accounting to the cash method.  Most small business owners prefer the cash method because it requires less bookkeeping, it's easier to understand, and it matches cash receipts with a company's income tax liability.
  Under the cash method, taxpayers generally report income to the IRS in the year they receive payment from customers.
  Under the accrual method, taxpayers report income when a sale is made to a customer regardless of when the bill is paid.  Since many customers don't pay their bills immediately, businesses using the accrual method often have to come up with money for taxes before they receive payment from their customers.
  Before the IRS changed this policy, businesses that carried inventories could use the cash method only if they had annual gross receipts of $1 million or less.  Now businesses with revenue of $10 million or less will be eligible to use the cash method.
  Some businesses are 		prohibited from using the cash method even though their income doesn't exceed $10 million.  This includes retailers, wholesalers, certain manufacturers, mining operations, and publishing or recording businesses.  Certain entities, such as C corporations and partnerships with corporate partners, are also excluded from using the cash method.
  To find out whether your business might benefit from changing it's method of accounting, contact our office for a review.
 

 
 
Need more time to file?
  If you can't file your tax return by the April 15 deadline, use Form 4868 to ask the IRS for up to four additional months to complete your returns.  Even if you have not problem filing by April 15, getting an extension might be a good idea in certain situations.  It extends the time for some pension contributions, for example.  Be aware, however, that Form 4868 extends only your filing deadline; it does not give more time to pay taxes due. 

Taxing humor...
"Internal Revenue Service:  The world's most successful mail order business."
 - Bob Goddard

"Death and taxes are both certain...but death isn't annual."
 - Anonymous

"A fine is a tax for doing something wrong.  A tax is a fine for doing thing right."
 - Anonymous

"A taxpayer is someone who works for the federal government but who doesn't have to take a civil service examination."
 - Ronald Reagan

"This is the season of the year when we discover that we owe most of our success to Uncle Sam."
 - The Wall Street Journal

"For every $50 you earn, you get $10 and they get $40."
 - Jay Leno explaining Form 1040

All material presented in this newsletter is for general information only and should not be acted upon without further details and/or professional assistance.