Broker Check

November 2, 1992

          By now the election is over and hopefully we are wiser to certain truths. Washington does not run our economy. It cannot jump start it like a car with a drained battery. Recovery never was easy to manage, but it is even more tricky in an interdependent world economy. The U.S. economy is run by millions of private decision makers. This is not a typical economic slowdown we are going through. It is a worldwide restructuring-new technology and higher productivity. It involves new industrial nations not just backward third world countries, downsizing of corporations everywhere, competition in world markets and rising world trade despite the potent political appeal of protectionism (a la Smoot Hawley tariff). Basically a return to individual decision making, in business, the marketplace, and in politics-democracy vs. totalitarianism.

Widespread Understaffing

          An AICPA survey of 427 North American companies found 40% do not have enough staff to meet their current needs and requirements for the years ahead. Of the understaffed companies, 80% do not have the budget to expand the work force and another 15% cannot find properly skilled employees.

Baby Boomers Worried

          The Pennsylvania Institute of CPAs found baby boomers most worried by financial concerns. The baby boom generation is divided into 2 waves, the first, 37-46 year olds and the second wave, 28 to 36 year olds. Of the clients, company owners or managers in the first wave, 49% were financially somewhat better off than their parents at the same age. Another 34% of the first wave baby boomers were much better off than their parents. A chief financial concern for 77% of the first wavers was financing their children`s education, for 32% health care and for another 32% job security.

          The second wavers were not as well situated as their older counterparts. While 45% of the second wave boomers were financially somewhat better off than their parents, another 26% said they were worse off. The principal financial concerns for second wavers were buying a first home (54%), maximizing current income (47%) and funding their children`s college education (39%).

Energy Policy Act of 1992

Several changes have been made in the area of tax free transportation fringe benefits provided to employees after 1992. Employees will be able to exclude from their gross income up to $60 per month (up from $15) in employer provided transportation benefits. Such benefits include transit passes, tokens and van pooling arrangements. The $60 limit will be adjusted for inflation after 1993. The exclusion is not available to self-employed individuals. More importantly, the exclusion for employer provided parking will be limited to $155 per month. The term "parking" refers to parking provided to employees on or near the employer business premises or on or near a location from which the employee commutes to work in a van pooling arrangement. The exclusion is not available to self-employed individuals.

          It will be more difficult for some individuals to deduct their away-from-home travel expenses after 1992. Under the Act, if a taxpayer employment away from home lasts more than one year, the employment will be treated as indefinite and the related travel expenses (i.e. meals and lodging) will not be deductible.

          The backup withholding rate on reportable payments such as interest and dividends will increase to 31%, effective for amounts paid after 1992. For gambling winnings the rate will increase to 28% from 20% and the threshold subject to withholding rises to $5,000.

          At the closing of a real estate transaction, the portion of any real property tax which is treated as a tax imposed upon the purchase will be reported on an information form (1099 type). This change is intended to reduce the chance that both buyer and seller claim deductions for the same amount of real property taxes paid. Taxpayers who claim deductions for qualified residence interest from seller financed mortgages will be required to report on their tax returns, the name address and taxpayer identification number of the person to whom the interest was paid. Further, the Act requires that any person who was required to be named on another taxpayer`s return with regard to qualified residence interest to provide a TIN. Anyone who fails to satisfy the reporting requirements or to supply a TIN would be subject to information reporting penalties.

Payroll Tax Deposit Rules Simplified

          Starting in 1993, a new Federal payroll tax deposit system goes into effect. Under the new system, employers will know before the start of a calendar year whether they will have to deposit employment taxes on a monthly or semi-weekly basis for the entire year. Which category an employer falls into for a particular year will depend on the amount of employment taxes it reported for a one-year lookback period ending the preceding June 30. For calendar year 1993, the lookback period is the year from July 1, 1991 to June 30, 1992.

Continuing Education

          In the past month I attended three courses, one on a pension and profit-sharing plan update, one on deferred compensation and the third on a discussion of the Employer Health Care problems and alternatives.

Year End Planning

          Thanksgiving is coming and when you see Santa at the end of the parade you should remember that it is time for year end tax planning. Make your appointments now!!

          We wish you and yours a very Happy Thanksgiving and if you have any questions about these or any other matters, please call us.