1996 Client News Letter

December 24, 1996

Dear Clients and Friends:

This year has brought us some tax changes. The changes are not dramatic, but given that this was a presidential election year, not much more could be expected. The changes were part of broader politically popular pieces of legislation ("Small Business Job Protection Act of 1996", "Health Insurance Portability and Accountability Act of 1996", and "Personal Responsibility and Work Opportunity Reconciliation Act of 1996"). We will have to wait and see if more significant changes are addressed next year.

SIGNIFICANT CHANGES ENACTED - 1996 NEWS

Most of the changes enacted are effective for 1997. Therefore, they will not help in 1996, but we have something to look forward to.

Spousal IRAs

The maximum amount that can be contributed to an IRA on behalf of a nonworking spouse has been increased from $250 to $2,000. The total contribution cannot exceed the earned income of the working spouse. Unfortunately, the rules for deducting an IRA contribution when either spouse participates in another plan have not changed.

Self Employed Health Insurance

The deduction for health insurance premiums by self employed individuals is currently 30% of the premiums paid. The portion deductible will increase to 40% in 1997 and 45% in 1998- 2002. Further increases are scheduled for later years.

Expensing of Business Equipment

The amount of otherwise depreciable equipment that can be written off in the year of purchase is currently $17,500 subject to certain limitations. The maximum amount is being gradually increased ($18,000 in 1997 increasing to $25,000 in 2003 and beyond).

Qualified Retirement Plans

Certain changes were made to the rules governing qualified retirement plans. The purpose of these changes are to make plans easier to administer and more accessible for employees. The law also temporarily suspends the 15% excise penalty for substantial withdrawals in a single year. Retirement plan rules will still be complex, and time will tell if the changes help reduce the complexity.

OTHER MATTERS - 1996

Mutual Funds - Capital Gains Distributions

Mutual funds which invest in equities may have recognized substantial amounts of capital gains in 1996. The gains are generally distributed by the end of the tax year. If you have any of these funds, gains will be reported to you as additional taxable income in 1996.

Estate Planning

Family Limited Partnerships are useful tools to transfer wealth to family members in a way that can minimize the estate tax burden. This tool is especially useful to transfer assets, that are not easily divided, in a manner that retains control over the asset for as long as possible. If you would like to discuss this or any other estate planning matters further, please do not hesitate to contact our office.

Taxpayer Bill of Rights

A new law titled "Taxpayer Bill of Rights 2" was enacted in 1996. The purpose of the law is to make it easier for taxpayers to deal with the Internal Revenue Service and resolve disputes. We can only hope that the stated purpose is achieved.

1996 Technology Update

We have recently completed an upgrade of our computer capabilities. We now have e-mail and internet capabilities. Our web site at http://www.bmn-cpa.com is currently under construction. We will use the site to keep you up to date on current developments and provide other useful information. Our e-mail addresses are as follows:

We look forward to hearing from you utilizing this technology or the traditional modes of communication.

RECOMMENDATIONS - 1996

Capital Gains

Long term capital gains tax rates are currently capped at 28%. In addition, there are proposals to lower the rates in the future. There is no way to tell if there will be a cut, but even without the cut capital gains are advantageous. Thus investments in assets with capital gain potential (growth stocks or mutual funds holding growth stocks) will continue to be tax favored.

Qualified Plan Contributions

Take advantage of the maximum allowable contributions that you can make to qualified plans. For example: If you are an employee you can contribute to your employer's 401(k) or 403(b) plans if such plans are offered. If you are self employed, you can contribute to a self employed retirement plan. If you do not already have a plan established, certain plans need to be set up by December 31, 1996. You may also be able to make a deductible contribution to an IRA. We will be glad to discuss your particular situation with you to determine the best approach.

1996 Year End Tax Planning

This is the time of year to review your anticipated tax picture for 1996 to determine if any steps should be taken before the end of the year to take best advantage of existing rules and plan for upcoming changes. We suggest estimating your income and deductions and calling us to discuss what steps might be appropriate.

FIRM MATTERS - 1996

We were saddened during 1996 with the death of the founding partner of our firm, Merle L. Buckler. Merle had retired in 1992 and was residing in New Jersey at the time of his death. He will be greatly missed by family, friends and colleagues alike.

We are pleased to have two new additions to our firm. Denise Brezarich is a Staff Accountant who recently graduated from Robert Morris College and had previously been an intern with our office. Janine Kapcin is our new Secretary/Receptionist. We welcome both to our firm.

Our firm remains committed to serving your needs for tax, accounting and auditing services and business and estate planning. We look forward to hearing from you.

Have a Happy New Year!

Mitchell K. McKenney, CPA

Jennifer Nadzadi, CPA

1996 Client News Letter

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