IRS won't adjust mileage rate midyear

Summer's here, but that doesn't mean you should forget about taxes. Why not take a few steps to cut your 2004 tax bill?

* Summer travel. Are you planning a summer business trip? You may find that you and your spouse can travel for little more than you would have paid on your own. For example, if a double hotel room costs $200 and a single room costs $175, you can still deduct $175 as a business expense even if the two of you get the double. A similar strategy may be possible with rental cars and airfare (for example, two family discount tickets in place of one full-fare ticket).

* Home rental. If you are going to be out of town for a while, consider renting out your home while you're gone. The IRS allows you to receive up to 14 days of rental income per year completely tax-free. In fact, you don't even have to report the income on your return.

* Second home. Do you own a boat or recreational vehicle? As long as it has sleeping space, bathroom, and cooking facilities, you may be able to claim it as a second home and deduct the interest payments on your loan.

* Summer job. If you run a business, consider hiring your child for the summer. Your son or daughter can earn up to $4,850 tax-free in 2004, and you get a business deduction for the same amount. Even better, you can shift another $3,000 to your child, tax-free, as long as he or she uses the money to make a deductible IRA contribution.

Enjoy your summer — and save taxes! Please give us a call; we are here to help you with your tax planning. We can be contacted at (781)453-8700.

Recordkeeping required for business cell phone use

If you use a cell phone for business calls, you need to keep good records in order to take a tax deduction for your expenses. A recent Tax Court case ruled that the stringent recordkeeping requirements that apply to vehicles and computers used for business also apply to cell phones.

How to bring your children into the family business

Many entrepreneurs dream of bringing their children into the family business. But all too often the dream turns bad. The reality can be family turmoil, shattered employee morale, and a damaged company. Here are some ways to avoid the most common pitfalls:

* Before hiring your children, discuss your work with them often. If their eyes glaze over whenever you raise the subject, perhaps they should be allowed to pursue other interests.

* Encourage your children to finish their education first, and allow them to work outside the company for at least a couple of years. When you finally do hire them, they'll come with experience, discipline, and realistic expectations.

* Don't try to supervise family members yourself. Instead, have them work under capable non-family managers.

* Ensure that your children are supervised, evaluated, and compensated as though they were unrelated employees in comparable jobs. Demanding more or paying children less than their position calls for is likely to discourage them and incur their resentment. Demanding less or paying too much will make other employees resentful.

Workers still own too much company stock

A recent study conducted by Hewitt Associates revealed an alarming fact: Workers still hold too much of their employer company's stock in their retirement accounts. According to the study, workers at large companies with 401(k) plans had 40% of their accounts invested in company stock. About 25% of workers had more than half of their retirement funds invested in their employer's stock.

While owning large amounts of stock in the company that you work for isn't always disastrous, it certainly can be. Remember what happened at Enron and WorldCom? Diversification is one of the basic principles of successful investing, so if you own too much of your company's stock, take the steps necessary to protect your savings — diversify!

Are you searching for an investment that keeps costs to a minimum, helps you diversify, and encourages a long-term outlook? If so, you may want to consider index mutual funds.

* What they are. Index mutual funds track an index such as the Standard & Poor's 500 by purchasing the investments that comprise the index. The idea is to produce the same returns as the index. In effect, the fund is "buying the market."

* Cost management. All mutual funds have fees, even no-load funds which let you purchase shares without a sales charge. But many of the transaction expenses generated by attempts to time the market — buying and selling as prices fluctuate — are reduced or eliminated in index funds. That's because fund managers typically just buy and hold the stocks and bonds in the index being followed.

This "passive" investing has the additional benefit of reducing management fees, since changes to individual indexes tend to occur infrequently, diminishing the need for day-to-day oversight. Another plus: Less buying and selling may result in lower capital gains tax.

* Diversification. Just starting to invest? You can purchase shares in a single index fund composed of a broad cross-section of U.S. stock or bond markets. More experienced? If your asset allocation needs to be adjusted, funds following specific U.S. or foreign market indexes may help bring your portfolio into balance.

* Long-term view. You can invest in index mutual funds through a fund company or a broker. Buying shares directly from a fund company may give you the option of establishing an automatic investment program so you can make regular purchases. This "dollar-cost averaging" has a long-term benefit: Over time, because you invest in both up and down markets, your average price per share goes down.

* The risks. Index mutual funds invest in stocks and bonds and carry the same risks as those securities. In addition, fees, management experience, and methods of achieving stated investment objectives vary.