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MONTHLY TAX NEWSLETTER - JULY 2000

An index and links to our previous months' newsletters can be found at oldnews.html


Andrew D. Schwartz CPA Was Invited to Participate in Quote.com's University on 8/1/00 and 8/2/00

Andrew D. Schwartz CPA, the editor of the mdtaxes.com website, will participate as one of the experts for the 8/1 "Beyond the Honeymoon" session where he will answer questions posted during the day on Quote.com, and the 8/2 CHAT "Beyond the Honeymoon" session where he will be present in the chat room from 9 - 10 pm, ET.

Andrew was asked to participated in Quote.com's University because of the fun and informative website www.newlywedfinances.com that he has put together. If you are a newlywed, this website will help you and your spouse work through an initial financial plan.


How Does Social Security Work?

Call me naive, but I believe that social security will be around for a long, long time. I don't think that people will (or should) be able to rely on their monthly social security check as their only source of retirement income, but I do think that even the youngest of workers can count on receiving at least a small monthly check upon reaching retirement age.

That being said, the basic rules for social security, as they currently stand, are as follows:

  • To be eligible to collect social security, you need to pay into the system for at least ten years. You pay into the system if you are an employee and have the 6.2% social security tax withheld from you salary each pay period, or if you are self-employed and pay the 15.3% self-employment tax as part of your federal income tax return.

  • When the Social Security Administration calculates your benefit when you retire, your benefit will be based on your 35 years of highest earnings. If you work less than 35 years, each non-working year will still be factored in, thus reducing the benefit that you will be entitled to receive.

  • If you were born after 1959, your full retirement age will be 67. Full-retirement age has been 65 for many years. However, beginning with people born in 1938 or later, that age will gradually increase until it reaches 67 for people born after 1959.

  • Even though the full retirement age is increasing to age 67, you can still begin to collect your social security retirement benefits upon turning age 62. A person born after 1959 who starts taking benefits at age 62 will forfeit 30% of his annual retirement benefit for life. If you start collecting social security before reaching full retirement age, you will forfeit approximately 0.5% of your benefit for every month you retire early.

  • Once you reach full retirement age (age 67 if you were born after 1959), you can earn any amount of income without giving up any of your social security benefit. Prior to reaching full retirement age, a person collecting social security will forfeit $1 of benefit for every $2 of earned income over a certain threshold ($10,080 in 2000).

  • If you delay collecting from social security until after reaching full retirement age, your annual benefit will actually increase by as much as 8% per year until you reach age 70. Once you reach 70, your benefit will no longer increase, even if you continue to delay collecting.

  • If you are married, you will receive the greater of your earned benefit, or 50% of your spouses full retirement benefit, subject to certain restrictions.

A great place to get more information about your projected social security benefit is from the Social Security Administration's website which can be found at http://www.ssa.gov. In addition to containing plenty of easy to understand information, their site contains a calculator which enables you to calculate your projected benefit based on whatever criteria you enter.


TO DO LIST FOR JULY, 2000

Month

Income Taxes

Saving and Investing

 

July

  • If you changed jobs, give us a call to discuss filling out new W-4 Forms

  • Send us the requested information for us to work through your 2000 income tax projection

  • Update your monthly cash flow budget

  • If your Keogh accounts are worth more than $100,000, Form 5500-EZ due by 7/31/00


1999 & 2000 TAX FACTS

  • For 1999, the standard deduction for a single individual is $4,300 and for a married couple is $7,200. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes, real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses. For 2000, the standard deduction for a single person will be $4,400 and for a married couple will be $7,350.

  • For 1999, the personal exemption is $2,750. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. For 2000, the personal exemption has been increased to $2,800.
  • The maximum earnings subject to social security taxes has been increased to $76,200 in 2000 from $72,600 in 1999.
  • The standard mileage rate has been increased back to $.325 per mile as of January 1, 2000 from a rate of $.31 per mile as of April 1, 1999.
  • The maximum annual contribution to a 401(k) plan or a 403(b) plan has been increased to $10,500 in 2000 from $10,000 for 1999.


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