This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.

Here are a few financial planning suggestions that can add to your peace of mind about financial matters and simplifying your life:

• At least once a year, write down your investment goals and what strategy you will use to reach them. This will keep you focused.

• Instead of giving money to many different charities, pick a few that are important to you, and give them a larger amount. This type of directed giving not only makes more sense, but will make it easier to track your donations at tax time.

• Inventory your household possessions, with a camera or camcorder if you desire. Keep the inventory at work or in a safe-deposit box. This inventory will help should you need to submit a homeowner’s insurance claim.;

• Use one insurance agent and one financial adviser for your transactions.

• If you have doubts about entering into a transaction, don’t do it. You’ll probably save yourself money, time, and aggravation.

Most small businesses will, at some point in their life, go to a bank or other lending institution to borrow money for expansion of their operation. Many small business owners, however, initially fall victim to several of the common and potentially destructive myths that concern applying for loans. For example, first-time borrowers commonly believe…

• Lenders are lined up and eager to provide money to small businesses.
• Banks are willing sources of financing for start-up businesses.
• Loans are obtained by talking the lender out of funds.
• When it comes to seeking money, the company speaks for itself.
• A bank, is a bank, is a bank, and all banks are cold, impersonal institutions.
• Banks, especially large ones, do not need and really do not want the business of a small firm.

Research shows that 67 percent of all small businesses that borrow money get that money from commercial banks. This places banks among the largest sources of credit; and makes them one of the most vital components to small business survival. Understanding what your bank wants, and how to properly approach them, can mean the difference between getting your money for expansion and having to scrape through finding cash from other sources.

A Mile In The Banker’s Shoes
There is a name for people who simply walk into a bank and ask for money…Bank Robbers. To present yourself as a trustworthy businessperson, dependable enough to repay borrowed money, you need to first understand the basic principles of banking. Your chances for receiving a loan will greatly improve if you can see your proposal through a banker’s eyes and appreciate the position that they are coming from.

Banks have a responsibility to government regulators, depositors, and the community in which they reside. While a bank’s cautious perspective may be irritating to a small business owner, it is necessary in order to keep the depositors money safe, the banking regulators happy, and the economic health of the community growing.

Picking A Local Favorite
Banks differ in the types of financing they make available, interest rates charged, willingness to accept risk, staff expertise, services offered, and in their attitude toward small business loans.

Selection of a bank is essentially limited to your choices from the local community. Banks outside of your area are not anxious to make loans to your firm because of the higher costs of checking credit and of collecting the loan in the event of default.

Furthermore, a bank will typically not make business loans to any size business unless a checking account or money market account is maintained. Out-of-town banks know that non-local firms are not likely to keep meaningful deposits at their institution because it is to costly in both time and expense to do so.

Ultimately your task is to find a business-oriented bank that will provide the financial assistance, expertise, and services your business requires now and is likely to require in the future. We can assist you in deciding which bank will best suit your needs and provide the greatest value.

Realize The Value Of Schmooze
Devote time and effort to building a background of information and goodwill with the bank you choose, and get to know the loan officer you will be dealing with early on.

Building a favorable climate for a loan request should begin long before the funds are actually needed. The worst possible time to approach a new bank is when your business is in the throes of a financial crisis. That’s like walking into a funeral parlor carrying a body!

Remember that bankers are essentially conservative lenders with an overriding concern for minimizing risk. Logic dictates that this is best accomplished by limiting loans to businesses they know and trust.

Experienced bankers know full well that every firm encounters occasional difficulties; a banker you have taken the time and effort to build a rapport with will have faith that you can handle these difficulties.

A responsible reputation for debt repayment may also be established with your bank by taking small loans, repaying them on schedule, and meeting all facets of the agreement in both letter and spirit. By doing so, you gain the bankers trust and loyalty. He or she will consider your business a valued customer, favor it with privileges, and make it easier for you to obtain future financing.

Enter With A Silver Platter
Lending is the essence of the banking business and making mutually beneficial loans is as important to the success of the bank as it is to the small business. This means that understanding what information a loan officer seeks, and providing the evidence required to ease normal banking concerns, is the most effective approach to getting what is needed. A sound loan proposal should contain information that expands on the following points:

• What is the specific purpose of the loan?
• Exactly how much money is required?
• What is the exact source of repayment for the loan?
• What evidence is available to substantiate the assumptions that the expected source of repayment is reliable?
• What alternative source of repayment is available if management’s plans fail?
• What business or personal assets, or both, are available to collateralize the loan?
• What evidence is available to substantiate the competence and ability of the management team?

Even a brief examination of these points suggests the need for you to do your homework before making a loan request. It is a virtual certainty that an experienced loan officer will ask probing questions about each of them. Failure to anticipate these questions, or to provide unacceptable answers, is damaging evidence that you may not completely understand the business and/or are incapable of planning for your firm’s needs.

Note: Use of the following financial and loan calculators will assist you in preparing a sound loan proposal and will allow you to understand what you are asking for.

• Commercial Loan Calculator
• Loan Amortization Calculator
• Lease vs Buy Analyzer

Here are a few additional steps to take before applying for your loan…

Write A Business Plan
To present you and your business in the best possible light, the loan request should be based on and accompanied by a complete business plan. This document is the single most important planning activity that you can perform. A business plan is more than a device for getting financing; it is the vehicle that makes you examine, evaluate, and plan for all aspects of your business. A business plan’s existence proves to your banker that you are doing all the right activities. Once you’ve put the plan together, write a two-page executive summary. You’ll need it if you are asked to send "a quick write-up."

Have An Accountant Prepare Historical Financial Statements
You can’t talk about the future without accounting for your past. Internally generated statements are OK, but your bank wants the comfort of knowing an independent expert has verified the information. In addition, you must understand your statement and be able to explain how your operation works and how your finances stand up to industry norms and standards.

Note: Use of our Financial Ratios Calculator will assist in this process.

Line Up References
Your banker may want to talk to your suppliers, customers, potential partners or your team of professionals, among others. When a loan officer asks for permission to contact references, promptly answer with names and numbers; don’t leave him or her waiting for a week.

Walking into a bank and talking to a loan officer will always be something of a stressful situation. You’re exposing yourself to the possibility of rejection, scrutiny, and perhaps even criticism of your business. Preparation for, and thorough understanding of this evaluation process, is essential to minimize the stressful variables and optimize your potential to qualify for the funding you seek.

Keep in mind that many times a company fails to qualify for a loan not because of a real flaw, but because of a perceived flaw that was improperly addressed or misrepresented. Finally, don’t be shy about calling your us with questions; our experience and advice can help prepare you for working with your bank.

As you approach retirement, there are various matters that you should take care of. Here are some of the items you should check:

Health Insurance. Are you among the lucky few who will continue to be covered after retirement? If not, you'll need to replace the coverage. If you will be eligible for Medicare, you may want to start checking up on "Medigap" coverage.

Tip: Before you retire, take care of any non-emergency medical, dental, or optical needs (if your employee plan coverage is broader than Medicare).

Other Types of Insurance. Once you retire, you may need to replace employer-provided life insurance by buying added life coverage. You should also consider purchasing long-term health care insurance to cover the risk that you'll need a lengthy nursing home stay in the future.

Social Security. Decide whether you want to take early Social Security benefits if you're retiring before your full retirement age. You can get 80% of your benefits at age 62.

Tip: For most people, taking Social Security benefits at their full retirement age makes the most financial sense. Be sure to discuss this with a financial advisor if you think you might need to take early benefits.

Company Plan Payout. It's important to plan well in advance how you'll take the payout from your pension plan or 401(k) plan. Will you transfer the funds to an IRA? How will the funds be invested?

Relocation. If you're planning on moving to another state, check out various states to see what the financial ramifications of living there will be.

Tip: If you'll be relocating, it might be a good idea to buy the new home before retirement.

Generally speaking, your estate plan should be reviewed every two years to determine whether it needs to be changed or updated.

Additionally, if any of the following events occur, you’ll probably need to update your estate plan (i.e., your will, health care documents, powers of attorney, life insurance coverage, and post-mortem letters).

• Divorce
• Marriage or remarriage
• Birth/adoption of child
• Death of spouse or child
• Sale of residence or purchase of new residence
• Retirement
• Enactment of new tax laws

Tip: We suggest that you consult with the professional who prepared your estate plan should any of these events occur.

Here are some of the steps you may need to take:

1. Change an executor,
2. Revise a will to account for an increase in assets,
3. Reassess your life insurance needs,
4. Add or change a power of attorney,
5. Change legal documents to comport with state laws if you move to a different state,
6. Change wills or trust instruments to account for changes in beneficiaries, or
7. Change your post-mortem letter to reflect new assets, changes in executors, or other changes.

Tip: Because of the recent changes to the estate tax laws, many estate plans may need to be revised.

For 2008, personal exemptions and standard deductions will rise, tax brackets will widen and income limits for retirement plans will allow workers to save more for retirement, thanks to inflation adjustments announced by the Internal Revenue Service.

By law, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being adjusted for 2008. Key changes affecting 2008 returns, filed by most taxpayers in early 2009, include the following:

• The value of each personal and dependency exemption, available to most taxpayers, will be $3,500, up $100 from 2007.
• The new standard deduction will be $10,900 for married couples filing a joint return (up $200), $5,450 for singles and married individuals filing separately (up $100) and $8,000 for heads of household (up $150). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
• Tax-bracket thresholds will increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket will be $65,100, up from $63,700 in 2007.
• The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $4,824, up from $4,716. The income limit for the credit for joint return filers with two or more children is $41,646, up from $39,783.
• The maximum Hope credit, available for the first two years of post-secondary education, is $1,800, up from $1,650 in 2007.
• The income limit for the savers credit is $53,000 for joint filers (up $1,000), $39,750 for heads of household (up $750) and $26,500 for singles and married persons filing separately (up $500). Low-and moderate income workers who contribute to a retirement plan, such as an IRA or 401(k), may qualify for the credit, which is available in addition to any other tax savings that apply.
• The contribution amount allowed for Roth IRAs begins to phase out for joint filers with incomes exceeding $159,000 (up from $156,000) and $101,000 (up from $99,000) for singles and heads of household.
• For contributions to a traditional IRA, the deduction phase-out range for an individual covered by a retirement plan at work begins at income of $85,000 for joint filers (up from $83,000) and $53,000 for a single person or head of household (up from $52,000).
• Participants in most employer-sponsored 401(k) plans and 403(b) plans for employees of public schools and certain tax-exempt organizations can contribute up to $15,500, unchanged from 2007. Individuals, age 50 or over, can make an additional contribution of up to $5,000, also unchanged from 2007.
• Individuals participating in SIMPLE retirement plans can contribute $10,500, unchanged from 2007. Those, age 50 or over, can make an additional contribution of up to $2,500, also unchanged from 2007.
• The annual contribution limit for most defined contribution plans rises to $46,000, up from $45,000 in 2007.

Note: More information about the pension and retirement plan-related changes can be found in IR-2007-171. Other inflation adjustments are described in Revenue Procedure 2007-66.

Part or all of a child's investment income may be taxed at the parent's rate rather than the child's rate. Because a parent's taxable income is usually higher than a child's income, the parent's top tax rate will often be higher as well. This special method of figuring the federal income tax, “kiddie tax” only applies to children who are under the age of 18. For 2007, it applies if the child's total investment income for the year was more than $1,700. Investment income includes interest, dividends, capital gains, and other unearned income.

Kiddie Tax Facts:

• It only affects children through age 17 in 2007 and then starting in 2008, through age 18 or 23 for full-time students.
• It only applies to unearned income, which is typically investment income held in the child’s name. Income from other sources, such as employment, is not affected by the Kiddie tax.
• For 2007, only unearned income over the annual earnings limit of $1,700 is taxed under the Kiddie Tax rules.
• Kiddie Tax does not apply to married couples filing a joint return.
• Kiddie Tax does not apply if the earned income of a student over age 17 exceeds half of the child’s living expenses. Living expenses include food, housing, clothing, medical, dental, education and other necessary costs of support. Students over 17 are considered independent from their parents if they provide more than 50% of their own support.

To figure the child's tax using this method, fill out Form 8615, Tax for Children Under Age 18 With Investment Income of More Than $1,700, and attach it to the child's federal income tax return.

Alternatively, a parent can, in many cases, choose to report the child's investment income on the parent's own tax return. Generally speaking, this option is available if the child's income consists entirely of interest and dividends (including capital gain distributions) and the amount received is less than $8,500. However, choosing this option may reduce certain credits or deductions that parents may claim.

These special tax rules do not apply to investment income received by children who are age 18 and over. In addition, wages and other earned income received by a child of any age are taxed at the child's normal rate.

Call us for more information or see IRS Publication 929, Tax Rules for Children and Dependents.

Note: Congress has once again tightened the age requirements on the Kiddie Tax for tax year 2008. In May 2007, Congress amended the Kiddie tax rules again as part of the Iraq spending bill. The Kiddie Tax age limit will increase in 2008 to affect children’s investment income through age 18 and full-time students through age 23. The Kiddie Tax rules in 2007 affect children’s investment income through age 17.

Your federal tax filing status is based on your marital and family situation. It is an important factor in determining whether you must file a return, your standard deduction and your correct amount of tax.

Your marital status on the last day of the year determines your status for the entire year. If more than one filing status applies to you, you may choose the one that gives you the lowest tax obligation.

There are five filing status options:

• Single. Generally, if you are unmarried, divorced or legally separated according to your state law, and you do not qualify for another filing status, your filing status is Single.
• Married Filing Jointly. If you are married, you and your spouse may file a joint return. If your spouse died during the year and you did not remarry, you may still file a joint return with that spouse for the year of death. This is the last year for which you may file a joint return with that spouse.
• Married Filing Separately. Married taxpayers may elect to file separate returns.
• Head of Household. Generally, you must be unmarried and paid more than half the cost of maintaining a home for you and a qualifying person for more than a half of year.
• Qualifying Widow(er) with Dependent Child. You may be able to file as a qualifying widow or widower for the two years following the year your spouse died. To do this, you must meet all four of the following tests:
  1. You were entitled to file a joint return with your spouse for the year he or she died. It does not matter whether you actually filed a joint return,
  2. You did not remarry in the two years following the year your spouse died,
  3. You have a child, stepchild, or adopted child (a foster child does not meet this requirement) for whom you can claim a dependency exemption, and
  4. You paid more than half the cost of maintaining a household that was the main home for you and that child, for the whole year.

After the two years following the year in which your spouse died, you may qualify for head of household status.

Note: For more information about filing status, call us or see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.

You must file a tax return if your income is above a certain level. The amount varies depending on filing status, age and the type of income you receive.

The IRS uses the following income thresholds to determine whether you must file a federal income tax return for 2007.

Single Taxpayers
If you expect to file a single return, the IRS requires you to file a return for 2007 if your gross income for the year is at least: $8,750 if you are under age 65. $10,050 if you are at least age 65.

Married Filing Jointly
For married persons filing jointly, you are required to file a return if gross income for 2007 is at least: $17,500 if both of you are under age 65. $18,550 if one of you was at least age 65. $19,600 if both of you were at least age 65.

If you are not living with your spouse at the end of the year or on the date that a spouse should die, the IRS requires you to file a return if your gross income is at least $3,400. Each personal exemption in 2007 is worth $3,400. Married filing separately. For married persons filing a separate return, no matter what age, you must file a return if gross income is at least $3,400.

Head of Household
For persons filing as head of household, you must file a return for 2007 if gross income is at least: $11,250 if under age 65. $12,550 if at least age 65.

Qualifying Widow or Widower
For persons filing as qualifying widow or widower with dependent child, you must file a return for 2007 if gross income is at least: $14,100 if under age 65. $15,150 if at least age 65.

Even if you don't earn this much income, other situations exist to determine whether you must file a tax return. For example, a dependent has to file a return for 2007 if they received more than $850 in unearned income or more than $5,350 in earned income. Other situations include:

You Owe Certain Taxes
If you owe FICA or Medicare taxes (also called payroll taxes) on unreported tip or other reported income that were not collected, you must file a return. You must also file a tax return if you are liable for any alternative minimum tax. You must also file a return if you owe taxes on individual retirement accounts, Archer MSA accounts or an employer-sponsored retirement plan.

Advance Earned Income Tax Credit Payments
The Earned Income Tax Credit is a federal income tax credit for eligible low-income workers. The credit reduces the amount of tax an individual owes, and may be returned in the form of a refund. If your receive advance payments for the earned income credit from your employer, you must file a return.

Self-Employment Earnings
If your net earnings from self-employment are $400 or more, you must file a return.

Church Income
If you earn employee income of at least $108.28 from either a church or qualified church-controlled organization that is exempt from employer-paid FICA and Medicare taxes, you must file a return.

Call us for more information about filing requirements and your eligibility to receive tax credits.

Make Charitable Contributions
Consider making charitable contributions before year-end both to obtain the maximum tax deduction and to fulfill any charitable programs or commitments you may have established.

Buy a New Car
If you need a new car, now is the time to purchase or lease. Frequently, dealers are anxious to clear out last year’s inventory prior to year-end. In making your choice, consider the federal tax (and occasional state tax) advantages for buying fuel-efficient vehicles.

Examine Investments
Examine your current investments to determine those with unrealized losses. Consider selling those investments to take the loss this year. You can deduct up to $3,000 in capital losses in excess of capital gains. However, do not let the tax savings outweigh the investment potential. You might consider "swapping" for a similar company in the same industry if you like the potential of the industry.

Pay Tax-Deductible Expenses
Consider paying tax-deductible expenses prior to year-end. Some common examples are real estate taxes, quarterly state or local income taxes, investment-related expenses, dues. These must be paid by December 31 to obtain a deduction this year. Professional guidance will be helpful here. Call us.

Evaluate Your Progress
Evaluate your progress for the year. How close were you to your budget? Recalculate your net worth. Compare it to the value at the beginning of the year. How did you do?

Copyright © 2007  All materials contained in this document are protected by U.S. and international copyright laws. All other trade names, trademarks, registered trademarks and service marks are the property of their respective owners.