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Volume 4, Issue 3, March 2006

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Your Taxes – What's New for 2005?

Among the changes this year for individuals:

Increased standard mileage rate for business use of vehicles

Special temporary tax breaks for those who provided assistance to hurricane victims (i.e. those who housed victims for 60 continuous days, those who used their vehicles for volunteer work, etc.)

As of 2005, there will be one definition of a “qualifying child” for each of the following:

Child Tax Credit

Earned Income Credit

Credit for Child and Dependent Care Expenses

Head of Household

Dependency Exemption

Special temporary tax breaks for hurricane victims

More stringent rules for charitable vehicle donations

The maximum amounts that may be contributed to certain retirement accounts have increased; for example, for most people the amount that may be contributed to a traditional IRA has increased from $3,000 to $4,000

The personal exemption has been increased to $3,200 for 2005, an increase of $100. However, this exemption is reduced, (or phased out entirely), if your income exceeds the following amounts for each filing status:

The friendly professionals at your local Kemper CPA Group LLP office can assist you with determining for which deductions and credits you may be eligible. Contact us today – we can help!

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Understanding the Roth 401(k) Option

The Roth 401(k) was created as part of the Economic Growth and Tax Relief Reconciliation Act of 2001, which permitted employers to begin offering the plan on January 1, 2006. As its name suggests, the Roth 401(k) blends features from both the Roth Individual Retirement Account (IRA) and the traditional 401(k). Contributions you make to a Roth 401(k) are made with after-tax dollars, just as they are with the Roth IRA, while the plan is offered through your employer, as it is with a traditional 401(k).

Because contributions are made with after-tax dollars, the account will grow tax-free, and when you make a withdrawal during retirement, you won’t be taxed, provided you are at least 59 ½ and have held the account for at least 5 years.

When deciding if the Roth 401(k) is the right option for you, consider the following:

Roth 401(k) accounts are subject to the same contribution limits as traditional 401(k)s – $15,000 for 2006 for those under age 50, and $20,000 for those aged 50 and older. You can split your contributions between a traditional 401(k) and a Roth 401(k), giving a maximum of $7,500 to each account, $10,000 if you’re over age 50.

Anyone whose employer offers the Roth 401(k) option may contribute. Individuals who could not contribute to a Roth IRA account because of the income restrictions (between $95,000 and $110,000 for single filers and $150,000 and $160,000 for those who are married filing jointly) are eligible to contribute to the Roth 401(k).

Although you must start taking distributions from your Roth 401(k) at age 70 ½ if you leave the money in the account, you can pass the funds in your Roth 401(k) account on to the next generation by rolling it into a Roth IRA.

Employer match contributions are still made with pre-tax dollars, which will go into a separate account, and you will be taxed when you withdraw those funds.

You may wish to contribute post-tax dollars in a Roth 401(k) now if you expect to fall into a higher bracket in retirement. If, however, you expect to fall into a lower bracket during retirement, it may make more sense to contribute pre-tax dollars to a traditional 401(k) now, and pay taxes when you are in a lower tax bracket.

The Economic Growth and Tax Relief Reconciliation Act of 2001 is set to expire in 2010; if Congress does not extend the provision that created the Roth 401(k), the plans may not be around in the future.

Because there are tax benefits for investing in a 401(k), it is important to determine what switching to a Roth 401(k) will do to your bottom line. If you would like assistance making this calculation, or if you would like additional information about the Roth 401(k) option, contact the tax professionals at Kemper CPA Group LLP.

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The Electronic Federal Tax Payment System

The U.S. Department of Treasury provides a free tax payment system – the Electronic Federal Tax Payment System (EFTPS), which allows taxpayers to make electronic tax payments either online at www.EFTPS.gov or by phone, at any time of day. EFTPS is available for individuals and for businesses, and it provides taxpayers with a secure method for making tax payments. The service may be used to make all federal tax payments, including income, employment, estimated, and excise taxes.

EFTPS offers the flexibility of paying on a weekly, monthly, or quarterly basis, and payments can be initiated 24 hours a day, 7 days a week. The funds are automatically transferred from your bank account to the Treasury’s account on the day that you schedule the payment, provided the payment is initiated by 8:00 P.M. (ET) at least one calendar day before the payment’s due date. EFTPS also allows you to schedule tax payments in advance of the due date – up to 120 days in advance for businesses, and 365 days in advance for individuals. You can cancel or change a scheduled payment up to two business days in advance of the scheduled date.

You can enroll online by visiting www.EFTPS.gov, a secure government Website. IRS Publication 966, The Secure Way to Pay Your Federal Taxes contains additional information about enrollment in EFTPS.

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Loose Change

The March/April 2006 issue of the “Loose Change” newsletter includes the following articles:

Contact Kemper Capital Management LLC for all of your investing needs.

Investment advisory services offered by KCPAG Financial Advisors LLC, a registered investment advisor. Securities officered through Securities America, Inc., a registered broker/dealer. Member NASD/SIPC. Thomas A. Moore, John D. Porter, Polly Reynolds, Shawna D. Horne, Jeffery C. Holt, CA insurance Lic. #0E38034, Jessica Daugherty, Sheila R. Lautenbacher, Joseph M. Mendes, CA Insurance Lic. #0C62535, Regina S. Hughes, Gregory Meador, Marcia Elder, Registered Representatives. Insurance services offered through KCPAG Insurance Services LLC. Kemper Capital Management LLC and its subsidiaries are not affiliated with Securities America.

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Kemper Technology Consulting – Now in Effingham, IL!

The partners and staff of Kemper Technology Consulting, a division of Kemper CPA Group LLP, are pleased to announce that they have expanded to include the Effingham, Illinois area. While Kemper Technology Consulting services have always been available to Kemper CPA Group LLP clients, our increased presence in the area means that our technology consultants are better equipped than ever to provide exactly what you need – better business solutions.

The Effingham location is under the leadership of Darryl Newton, Business Solutions Professional. Together with the Kemper Technology Consulting staff, Darryl will be working to help clients find solutions to their business needs through the utilization of a variety of products – Microsoft, Sage Software, Hewlett Packard, Symantec, Cisco, Novel, Gateway, and Intuit, among others.

Kemper Technology Consulting is located in the existing Kemper CPA Group LLP location at:

408 South 4th Street
Effingham, IL 62401

Stop by, give us a call at 1-800-887-4995, or email us to see what Kemper Technology Consulting can do for your business.

Kemper Technology Consulting
Robinson, IL
618-546-5633
www.kempertc.com
Evansville, IN  •  Indianapolis, IN  •  Paducah, KY  •  Effingham, IL

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Please be advised that, based upon current Internal Revenue Service (IRS) rules and standards, the advice herein is not intended to be used, nor can it be used, as the sole basis for decisions. Additional issues may exist that could affect the treatment of the individual transactions, and this narrative does not provide a conclusion with respect to all such issues.

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