September, 2006
Weighing the Telecommuting Option
September, 2006
Weighing the Telecommuting Option
Current estimates suggest that 22.2 million employees telecommute at least once a week. Higher gas prices are likely to spur even more interest in the telecommuting model. If your company is entertaining the idea of letting some employees work from home, several considerations could impact your decision making.
A good Fit? You may be looking at telecommuting primarily as an employee recruitment and retention tool. But not all jobs are suitable for telecommuting, and not all employees and supervisors adapt well to work-from-home arrangements.
Job Duties. Telecommuting is most appropriate for jobs that do not involve frequent face-to-face contact with coworkers, customers, or clients.
Employee characteristics. Well-organized individuals capable of working independently without direct supervision are more likely to be successful telecommuters.
Supervision. That said, telecommuting employees still need some degree of oversight. Expect there to be a learning curve as supervisors develop and implement work-flow processes and procedures to accommodate employees' telecommuting arrangements.
Home Environment. Even the most dedicated employees may not be productive working at home if the environment is not conducive to work. Excessive distractions or the lack of an appropriate work space can hinder productivity.
Additional Issues Before implementing a telecommuting arrangement, also check into the following:
Insurance. Determine the impact on workers' compensation and other business insurance.
Payroll. You'll need a system for nonexempt employees to submit their work hours. As for exempt employees, be cautious about racking their hours more closely than you would if they were working in the office, since that could lead to an obligation to pay overtime.
State taxes. Your company could be exposed to additional sales and income taxes if having a telecommuting employee in another state establishes a physical business presence in that state, and the company previously had no presence there. Before hiring an out-of-state telecommuter, you will want to determine the impact it will have, if any, on your company's taxes.
If you are one of the millions of Americans who own U.S. savings bonds, you may want to review your holdings. Many older bonds have stopped earning interest - that means their current rate of return has dropped to zero, and you should cash them in and put the money to more productive use.
Here is a list of bonds that are no longer earning interest, supplied by the Bureau of the Public Debt.*
*Updated May 3, 2006. View the list at www.treasurydirect.gov.
Although Roth individual retirement accounts (IRAs) offer some nice tax advantages, high earners have not been able to use them effectively due to tax law restrictions. A new law changes this, starting 2010.
What a Roth IRA Has to Offer Roth IRA contributions are not tax deductible, so taxpayer get no immediate benefit from contributing. But account earnings are not taxed, and earnings can be withdrawn tax free once the account owner is at least age 59-1/2 and five years have elapsed from the year of the first Roth contribution.*
Individuals who prefer to leave their money invested can do so. The tax law's minimum distribution rules don't apply until after the account owner's death - and, even then, beneficiaries can typically stretch account withdrawals over their life expectancies, if desired. With its years of tax-free earning potential, the Roth IRA can be a good deal for taxpayers.
The Restrictions Taxpayers need to have earned income to contribute to a Roth IRA. Even with earned income, taxpayers can't contribute to a Roth IRA if modified adjusted gross income (AGI) exceeds $100,000 ($160,000 for married-joint filers.)**
Roth IRA Conversions A traditional IRA can be converted to a Roth IRA by paying taxes on the balance (less any amount attributable to nondeductible contributions). However, if modified AGI, not including income from the conversion, is more than $100,000, a conversion isn't permitted. Married individuals making a conversion must file a joint return.
The limitations will no longer apply starting in 2010. Anyone with a traditional IRA will be able to convert it to a Roth IRA, regardless of income or filing status. And, while 2010 seems far off, there is something high earners can do not to make the most of the liberalized rule.
The Strategy Contribute now to a traditional IRA and then to a post-2009 Roth conversion. There are no income restrictions on nondeductible traditional IRA contributions, even for participants in employer-sponsored retirement plans. The tax payable on conversion may be small due to the nondeductible nature of the IRA contributions. (IRA earnings through 2009 will be taxed.) After conversion, all earnings on the Roth IRA balance will be tax free if you meet the distribution requirements.
*Tax-free distributions are available in certain other situations as well.
**If AGI is between $95,000 and $110,000 ($150,000 and $160,000 for married-joint filers), a partial contribution is allowed.
Do you know what programs are running on the computers and laptops your business owns? You should. The use of unauthorized or pirated software violates federal law and can compromise the security of your computer network by exposing it to all sorts of electronic threats, such as spyware, viruses, worms, and more.
It Can Happen
Unauthorized software can end up on your company's computers in various ways, most of them innocent. You may be inadvertently violating the terms of a software license, for instance. Or the license may have expired without your being aware.
Well-meaning employees might bring programs from home, or download them from the Internet, to help with a work-related project. Workers also might add software for less conscientious reasons, such as file sharing, Internet chatting, and game playing.
A Costly Lesson
Managing your software assets is more than just a matter of good business practice. You could be audited - either by a software vendor or by one of two associations that represent the software industry. The fine for copyright infringement can be as high as $150,000 per occurrence.
Take steps not to become software compliant.
For businesses that sell merchandise, customer returns and exchanges are unavoidable. Rather than trying to defy this reality, some retailers look at returns and exchanges as opportunities to deliver a good dose of customer service.
Carrot or Stick?
Think about it. Do you want a return/exchange policy that punishes customers for returning purchases - either financially or by making it difficult in other ways? Or would it be better to draft a policy that gives customers a more positive message. They can buy from you with confidence, knowing that purchases can be returned it there's a legitimate problem?
Your return/exchange policy should spell out as many details as possible. Copies should be posted where customers and salespeople can see them and on your website. Remember, a customer-friendly return policy just might be one of your best sales tools.
The federal excise tax on telephone service dates back to 1898. But technology has come a long way since 1898, and since 1965 when the current law defining taxable "communications services" was written. Recently, several taxpayers challenged the excise tax in court - successfully. And not the IRS has stopped collecting the 3% excise tax on long-distance calls.*
Say "Hello" to Refunds Not only has the century-old tax been disconnected, but taxpayers are also entitled to a refund or credit of the amount of tax paid on long-distance service billed after February 28, 2003, and before August 1, 2006. The credit or refund may be requested on taxpayers' 2006 income-tax returns (or a return for their tax year that includes December 31, 2006).
Individual taxpayers have a choice. As long as they have their phone bills, they can request a refund or credit for the actual amount of tax they paid for long-distance telephone service during the refund period. Interest on the credit or refund will count as taxable income in the year received. Taxpayers who want to avoid the paperwork can apply for a general "safe harbor" refund amount on their 2006 income-tax return.
Businesses are required to have records substantiating their requests for refunds or credits. Any portion of a refund or credit attributable to tax payments that were deducted as business expenses will be considered income in the tax year the refund is received or accrued, to the extent the payments reduced the business' tax liability.
*The tax still applies to local-only service, but not to bundled service under a plan that does not separately state the charge for local service. At press time, Congress was considering legislation that would repeal the tax in its entirety.
Expenditures by U.S. charitable non-profits required to file reports with the IRS reached almost $945 billion in 2003, accounting for approximately 9% of the country's gross domestic product, says the National Council of Nonprofit Associations in a new report. The charities held assets totaling $1.76 trillion.
Employee benefit costs represented 40.2% of total payroll expenses in 2004, according to the U.S. Chamber of Commerce. Medically related expenses represented 11.9% of expenditures; retirement and savings plans, 8%; and payments for time not worked (e.g., paid holidays), 10.5%.
In a recent poll conducted for the American Institute of CPA's, over half of the respondents who were members of Generation X (born between 1964 and 1980) said they do not expect Social Security to be a retirement option.
The IRS recommends that taxpayers take advantage of paperless recordkeeping and off-site storage to protect financial and tax records in case of hurricanes and other disasters. Documenting the contents of a home with photographs or on videotape can be important for insurance reasons. IRS Publication 584, available at www.irs.gov can be used to compile a room-by-room list of belongings.
Sometime in the next several years, the Harringtons are planning to sell their home of 20 years and relocate. They know they should be able to exclude up to $500,000 of sale gain from their taxable income. What they are not sure about is what kind of financial records they'll need to figure out their gain.
To calculate the amount of gain when selling a house - or any other investment, for that matter - tax-payers must figure out their basis: the amount they have invested. So the Harringtons will need documents showing the purchase price of their home, the amount of their down payment, and their settlement and closing costs.
Over the years, the Harringtons have put a lot of money into their home. The costs of home improvements, such as their new in-ground pool, add to their basis. So they'll need records of those expenses, too. (General maintenance costs, such as having the house painted, have on effect on basis.)
Some tax events reduce basis. For example, if the Harringtons deducted any casualty losses, depreciated a portion of the home for home office use, and/or received any residential tax credits, those amounts will have to be subtracted. Typically, tax records should be kept for three years. But records related to the purchase and improvement of a home should be kept until the home is sold - plus another three years.
Question: I thought the cost of my car insurance was based primarily on my age and my driving record. But a friend said that the type of car I drive will also affect the price of my insurance. Why is that?
Answer: Though your age and your driving record are important factors used to predict how likely you are to have an accident, insurance companies base premiums on other factors as well. Typically, insurers analyze automobile statistics to see how different cars withstand collisions and protect occupants and to determine which cars are most likely to be stolen. The cost of repair can also affect the premium calculation.
Question: I've read that a mutual fund's portfolio turnover can affect my investment return. Why is that?
Answer: Portfolio turnover measures the percentage of the fund's investments that are sold during the year. A higher turnover can mean a larger income-tax bill for you. You'll have to pay taxes on any capital gains the fund realizes and passes through you. This will lower your after-tax return on your investment.