Just before adjourning for 2006, Congress passed the Tax Relief and Health Care Act. President Bush signed the bill into law on December 20, 2006. The law retroactively reinstates a number of tax breaks that had expired at the end of 2005, making them effective for 2007. Here’s a brief overview of what was extended.
* The itemized deduction for state and local sales tax was reinstated for 2007. This is a boon for taxpayers in states without a state income tax, but taxpayers who pay both state sales and income taxes can deduct whichever is higher.
* Middle-income taxpayers can claim a deduction for up to $4,000 of qualifying higher education expenses for 2007. This is an above-the-line deduction so you don’t need to itemize to claim it. However, income limits apply.
* Teachers can claim a deduction for classroom supplies that they pay for out of their own pocket. This is also an above-the-line deduction, with a limit of $250.
* The law also extends a number of business tax credits and deductions, including the research credit, the work opportunity and welfare-to-work credits, and the 15-year recovery period for certain leasehold and restaurant improvements.
* The Energy Tax Incentives Act of 2005 provided several tax credits and deductions intended to promote energy conservation. Though these tax breaks generally were not scheduled to expire until the end of 2007, the new law further extended certain ones through 2008.
The new law makes other miscellaneous changes to the tax code. For additional information and guidance in your tax planning, give Craft, Noble & Company a call.
Are you eagerly awaiting a 2006 tax refund? Hopefully you’ve given some thought to how you can put the money to good use. While “good use” may be in the eye of the beholder, you should really consider the following:
Pay down debt. If you have high interest credit card balances, consider using your refund to pay them down. By doing so, you are essentially investing the funds at a significant guaranteed rate of return. Put another way, paying off a credit card with an 18% interest rate is equivalent to earning 18% on your money.
Invest in an IRA. If you’re debt-free, you can use the refund to invest in either a traditional IRA or a Roth IRA. Not all taxpayers will qualify for either type of IRA, but if you do, making such an investment might save you tax dollars currently and build a nest egg for your future.
Invest in an education account. It’s never too early to plan for your children’s education. Why not use your refund to start a “529 Plan” education savings account? It is a tax-saver in the long run.
Here’s the real issue with refunds: Why receive a big refund at all? Why give the government an interest-free loan? Instead, consider adjusting your payroll withholding to put more money in your pocket on a monthly basis. You can then use those funds to begin an automatic investment plan, such as an IRA or other savings plan, paying interest to yourself instead of to the government. For assistance in adjusting your withholding, give Craft, Noble & Company a call.
According to the Federal Reserve, debit card use has now surpassed credit card use. Unfortunately, debit card fraud has also grown, reaching $662 million in 2005, a 21% increase from the previous year.
Though debit cards are convenient to use, they put consumers at greater financial risk for two reasons: (1) the cards directly access an individual’s bank account, so your money can be withdrawn by scam artists, and (2) debit cards don’t provide the same legal protection against fraud that comes with credit cards.
To help protect yourself when using a debit card, heed the following tips:
* Check the ATM or card-reader for signs of tampering (tape, loose connections, etc.).
* Check for hidden cameras before entering your PIN, and shield your fingers on the keypad.
* Check your bank and credit statements carefully.
* If you suspect fraud, close the account immediately.
* Don’t let your card out of your sight, especially at gas stations, restaurants, or convenience stores where your card’s data could be copied and used by scam artists.
* Report errors, no matter how small, to the financial institution that issued the card.
In most industries, a 12% to 15% annual growth rate is probably manageable. Some new businesses may double their sales each year for the first five years before reaching the level where a 15% annual rate is healthy.
Rapid growth may require more inventory and more space. Who or what will fund the growth? A 15% annual growth can probably be funded by retained earnings. A more rapid growth may require an injection of cash.
Contact Craft, Noble & Company for assistance identifying business projections that can help you reach your goals for growth while developing a plan to sustain it into the future.
Remember reading about Warren Buffett’s $43.5 billion donation to charity? In 2006, the rich followed Buffett’s lead and donated a record amount to charitable causes.
According to The Chronicle of Philanthropy, there were 21 donations of $100,000,000 or more made by individuals in 2006. The 60 most generous givers (excluding Buffett) donated $7,000,000,000 (yes, seven billion) in 2006.
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