Tax News

The new standard deduction for single or married filing separately status is $5,150.

The new standard deduction for married filing joint status is $10,300.

The new standard deduction for head of household status is $7,550.

The new personal exemption is $3,300 per person.  The only exception to this is if you can be claimed as a dependent on someone else’s return, then this exemption is disallowed.

For all the OTR drivers, the per diem rate that became effective January 1^st, 2006 at $52 per day, 75% deductible will remain the same for 2007.

There is now one definition of a qualifying child for dependency exemption, head of household, child tax credit, earned income credit, and credit for child and dependent care expenses (call for details).

Beginning January 1, 2007, you will need a receipt or cancelled check to be able to deduct any contribution to charities, regardless of the amount.

Investment News

Below is an article contributed by Lori Smith of A.G. Edwards.  Since it is that time for most of us to be considering what to do for retirement, I felt the article was a good one for this time of year.  Lori will be contributing investment articles monthly or quarterly, so be sure to check back at least once a month for the latest - Lisa Bentley, owner.

Simple Strategies for Tax-advantaged Investing

 

As the old adage goes, only two things in life are certain: death and taxes.  While that’s slightly humorous at first, because we know every American citizen is required to pay what the government deems their fair share, the reality is that taxes can take a significant toll on your investments.  Fortunately, however, there are several simple investment strategies that can help you take advantage of certain tax breaks the government has actually afforded you as an investor.

While it may seem rather obvious, you need to remember that taxes can actually work against your efforts to achieve your financial objectives.  That’s why you need to consider taking advantage of accounts that let you defer – or in some cases even completely avoid – paying taxes on your earnings.  Following are some examples of tax-advantaged investments that can help you make the most of your money.

To find a tax-advantaged investment, you may not have to look any further than the company you currently work for.  One of the best ways to save money is through an employer-sponsored retirement plan.  You may be familiar with some of the most recognizable options, such as 401(k) and 403(b) plans, but others like SIMPLE IRAs, 457 plans and Owner-Only 401(k) plans share some of the same advantages. 

All of these plans allow you to defer a portion of your salary into an account, and that money reduces your taxable income at the end of each year.  In addition, the money in that account has the potential to grow tax deferred until you withdraw it, assuming you follow certain guidelines.  In addition to being taxed at your normal income tax rate, any funds withdrawn before age 59½ are considered early retirement distributions and may be subject to a 10 percent IRS penalty.  On the other end of the spectrum, taxable withdrawals must generally begin at age 70½ for most individuals.  By staying invested and taking distributions in the way they were intended – systematically during retirement – your retirement savings can benefit from years of additional tax-deferred earnings.

Another option for tax-deferred or tax-free growth involved Individual Retirement Accounts, better known as IRAs.  Like an employer-sponsored plan, a traditional IRA offers the opportunity for your money to grow tax-deferred until withdrawn.  However, in contrast to 401(k) plans, the money going into your IRA account must come from your own deposits, which are made after income taxes.

Anyone can contribute to a traditional IRA, but not everyone can get a tax deduction for their contributions.  If you are covered by an employer-sponsored retirement plan and your modified adjusted gross income (MAGI) is above certain levels, you may not be able to deduct any of your traditional IRA contributions, or possibly just a portion.  But if you’re not covered by an employer-sponsored plan (or if neither you nor your spouse is covered by an employer-sponsored plan), 100 percent of your contribution – up to government contribution limits – is tax-deductible, regardless of your MAGI.

Whether your contributions are deductible or not, you still get the benefits of tax-deferred growth on earnings.  The same age limits and penalties as employer-sponsored plans apply as well, but again, if you use the plans in the way they were intended, you can see significant benefits when you compare your earnings potential to what you would otherwise receive if you had to pay taxes on your earnings.

In addition to these retirement plan options, there are other individual investments that offer certain tax advantages.  Depending on your investment objectives, tax free* municipal bonds and fixed annuities – just to name a few – could be valuable additions to your overall portfolio.  Talk to your financial consultant and your tax advisor to see how you can make the most of tax-advantaged investing.

A.G. Edwards generally acts as a broker-dealer, but may act as an investment advisor on designated accounts, and the firm's obligations will vary with the role it plays.  When working with clients the firm generally acts as a broker-dealer unless specifically indicated in writing.  To better understand the differences between brokerage and advisory services, please consult Important Information About Your Relationship With A.G. Edwards on agedwards.com.