Dear Clients & Friends:

Tax season just ended last month, the holiday season is upon us and tax season 2006 is just around the corner. Tax season 2005 will be remembered for the inception of e-filing and when many clients gave us their information later than usual.

More than 270 clients sent us their tax information after March 15, creating an impossible work load for my staff and me. In addition, the Internal Revenue Service eliminated the August 15 extension and extended all tax returns to October 15. This took the pressure off many clients to provide us with information by August 15 and many waited until the end. This also created a tremendous workload for us. We were receiving information from clients up until October 15. Accordingly, in order for us to be able to prepare your tax returns by April 15, we need your information by March 25. For clients on extension, we need your information by September 25.

E-filing is mandated by New York State for tax practitioners who prepare more than 100 tax returns. Now that we have completed a tax season of e-filing, the process should be smoother in the future. Unless you advise us otherwise, all tax returns, wherever possible, will be e-filed. The e-filing procedures are summarized below.

In order to e-file your tax return, we will be sending you a copy of your tax return to review and retain for your records. Included will be Form 8879 that you will need to sign authorizing us to file the tax return on your behalf. This form must be sent back to our office immediately in order to complete the e-file process. Without this form we are prohibited from e-filing your tax returns. E-filing will decrease the time it takes for you to receive your refund. It will save you the problem of having to mail your Federal and State income tax returns. If you have a balance due, you can either pay by check or electronically transfer the balance due on or about the due date. When we e-file tax returns, we will receive an acknowledgment within 48 hours that the IRS and State have received and accepted the tax return. We will then notify you by mail of their acceptance.

The e-filing process will offer you, the client, the ease and convenience of us, the CPA firm and tax preparer, filing your Federal and State tax returns for you once we have received your authorization. If you want to further decrease the time it takes to receive your tax refunds, please provide us with your bank name, type of account, bank account number and routing number. The Internal Revenue Service and the State will electronically deposit your tax refund into your bank account. This will eliminate a check being mailed to you, further reducing the time it will take to receive your refund. As your CPA firm, e-filing entails additional work for our office. We will have to keep track of the tax returns we send you, monitor the acceptance of your tax returns and then e-file your Federal and State tax returns. There will be a cost for us being mandated to provide this service. All e-filed tax returns will be subject to a $50 e-file processing charge. Any additional immediate family members tax return at the same address will be charged an additional $25.

There have been some tax changes for 2006. Effective January 1, 2006, the "kiddie tax" under which a child’s income is taxed at the parents rate, has been increased from age 14 to under age 18.

For 2006 and 2007 there is a $500 residential energy credit available for primary personal residences. The credit is $50 for an advanced main air circulating fan, $150 for energy-efficient qualified natural gas, propane or oil furnace or hot water boiler and $300 for energy-efficient building property including heat pumps, central air and water heaters. No more than $200 of the $500 lifetime maximum may be attributable to window expenditures. There is also a $2,000 credit available for solar equipment.

Starting in 2007, donations of any amount must be backed up by paperwork that includes either a canceled check or a written note from the charity indicating amount, date and name of the charity. Accordingly, cash donations of any kind without documentation are not deductible.

Please be aware that starting in 2010, there will be no maximum income level to restrict conversion of a traditional IRA into a Roth IRA. Maximizing that opportunity, however, can begin immediately for those taxpayers presently over the limit. This strategy calls for making annual contributions to a nondeductible IRA that can be converted into a Roth IRA in 2010 when the income cap is lifted. You will have to pay taxes if you convert a traditional IRA into a Roth IRA and you will also have to pay taxes on the income earned in a nondeductible IRA upon conversion.

We will continue to monitor what, if anything, Congress will pass between now and the end of the year and we will advise you, if applicable.

Effective January 1, 2006, the unified estate and gift tax exemption increased to $2 million. In addition, the annual gift exclusion increased to $12,000.

We continue to advise our clients to fully maximize allowable contributions to tax deferred retirement programs. For self-employed and corporate clients, you must open a profit-sharing plan by December 31, 2006, however, the plan contributions can be funded up to the due date of the tax return, including extensions. The maximum contribution to a profit-sharing plan in 2006 is $44,000 and will increase to $45,000 in 2007.

IRA’s, on the other hand, must be funded by April 15, 2007. The maximum contribution to a traditional and Roth IRA through 2007 is $4,000. An individual who is at least 50 years old by the end of the year is allowed to make an additional contribution to a traditional IRA or Roth IRA of $1,000. We always recommend a Roth IRA contribution if you are able to do so.

Contributions to a Roth IRA are not tax deductible. The maximum yearly contribution is phased out for higher income taxpayers. Roth IRA’s are phased out for single taxpayers with adjusted gross income between $95,000 and $110,000, married taxpayers filing jointly between $150,000 and $160,000 and married taxpayers filing separately between $0 and $10,000. Effective in 2007, these limits will now be inflation adjusted with the phase out starting at $99,000 and $156,000 respectively.

401K plans are widely used. The maximum 401K contribution is $15,000 for 2006 and will increase to $15,500 in 2007. Individuals who will be at least 50 years old by the end of the year may contribute an additional $5,000 in 2006 and 2007.

The social security tax rate has remained the same at 6.2% with the wage base increasing from $94,200 in 2006 to $97,500 in 2007. Social Security benefits will rise by 3.3% in January 2007. The normal retirement age for Social Security is going up again. The full retirement age for people born in 1941 is 65 years and eight months. For those born in 1942 it is 65 years and ten months. Retirees below full retirement age can earn up to $12,960 per year or $1,080 per month in 2007 without loss of benefit. The Medicare Part B monthly premium will be $93.50 in 2007 an increase of $5.00 from 2006. In 2008, higher income beneficiaries will pay as much as $162.10 per month.

As of January 1, 2007 the optional mileage allowance for owned or lease vehicles, including vans and pick ups, will increase to 48.5¢ per business mile.

In regard to our entity clients, effective January 1, 2007, all entity clients will be required to sign an engagement letter with my firm. This engagement letter will clearly define what our role as your CPA firm is. Engagement letters are becoming standard amongst CPA firms and it has been strongly recommended to us by our insurance carrier.

There have been positive changes to our firm in regard to personnel. Our staff consists of Cathy Hughes who is our accounting manager and can be reached at extension 309. Beth Cohen has joined our staff as a tax manager. She has twenty plus year’s experience with both small and large firms and can be reached at extension 306. Patty Palumbo is our office manager and can be reached at extension 301. Rochelle Sherman is a bookkeeper who can be reached at extension 307 and Donna Popeil is an administrative assistant and can be reached at extension 308. We are excited about the new additions to the staff.

This firm was started almost twenty five years ago and has continued to grow. We are a full service firm, here to assist in all aspects of your business and individual tax planning needs. Understand that we stay within the realm of our expertise. We utilize the knowledge and ability of other individuals on our team when the need arises. Over the years we have developed business relationships with many competent individuals who can assist you with your business and financial needs. These individuals include investment advisors, mortgage brokers,

attorneys and insurance agents. By addressing your needs and giving you the service you require, we know that we have instilled in you a mutual sense of confidence and loyalty.

We thank you for your past business and hope that your faith in us will continue. We have always treated your referrals with the same courtesy, respect, and care that you have received from us.

We urge anyone who needs to go over their 2006 tax projections or requires any tax planning to make an appointment as soon as possible.

My staff and I would like to wish you and your family a safe, happy, healthy holiday season and a prosperous New Year.

Very truly yours,