Correspondence From The IRS ? Yikes!

It's a moment every person dreads. You pick up the mail and there is an envelope from the IRS. It's not a refund check. What do you do?

Don't Panic

Each year, the IRS sends out millions of "correspondence audits" to taxpayers to request payment of taxes, notify them of a change to their account or request additional information. These audits normally cover a very specific issue, often notifying you of additional small amounts of income for which you owe tax. Each letter and notice provides specific instructions explaining what you should do if action is necessary to satisfy the inquiry.

Most correspondence can be handled without calling or visiting the IRS. You simply follow the instructions in the letter and the matter is put to rest. Alternatively, you can contact the IRS to contest the matter. Simply call the telephone number indicated on the letter or write an explanation as to why you disagree. Make sure to include copies of any supporting documentation you want considered by the IRS. Typically, it will take the IRS between one and two months to respond. During the first quarter of the year, it can take two to three months.

Sometimes, the IRS sends a second letter or notice requesting additional information or providing additional information to you. Be sure to keep copies of any correspondence with your records. The IRS has been known to lose track of actions involving a taxpayer's account.

Worse Case Scenario

Everybody has a few really bad days in his or her life. You know, the car breaks down, you spill coffee on your shirt while driving to work?you get notice of a full blown audit from the IRS. The first step you take should not be drinking to excess or driving for the border. You have rights when the IRS comes calling and one of them is particularly important.

Representation

You have the right to be represented by an accountant or attorney at your audit. Under no conditions should you even consider going to an audit by yourself. Doing so would be like throwing red meat to a lion. Instead, spend the money to get representation and let them handle the audit. In most cases, you won't even have to go to the audit.

Nightmarish tax audits are generally a thing of the past. A letter from the IRS should not cause you to faint. Usually, the news isn't that bad. If it is, hire representation and let them handle it.

Richard Chapo is CEO of <a target="_new" href="http://www.businesstaxrecovery.com">http://www.businesstaxrecovery.com</a> - Obtaining tax refunds for small businesses by finding overlooked tax deductions and credits through a free tax return review.

1031 Exchange Rules and Requirements

Following is a reproduction of the IRS's rules and requirements for 1031 tax deferred exchanges with regards to real property. If you have any questions regarding the sale of your real property or questions about what qualifies for a 1031 exchange or not, please consult your tax professional.

Sec. 1031. - Exchange of property held for productive use or investment

(a) Nonrecognition of gain or loss from exchanges solely in kind
(1) In general
No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.
(2) Exception
This subsection shall not apply to any exchange of -
(A) stock in trade or other property held primarily for sale,
(B) stocks, bonds, or notes,
(C) other securities or evidences of indebtedness or interest,
(D) interests in a partnership,
(E) certificates of trust or beneficial interests, or
(F) choses in action.
For purposes of this section, an interest in a partnership which has in effect a valid election under section 761(a) to be excluded from the application of all of subchapter K shall be treated as an interest in each of the assets of such partnership and not as an interest in a partnership.
(3) Requirement that property be identified and that exchange be completed not more than 180 days after transfer of exchanged property For purposes of this subsection, any property received by the taxpayer shall be treated as property which is not like-kind property if -
(A) such property is not identified as property to be received in the exchange on or before the day which is 45 days after the date on which the taxpayer transfers the property relinquished in the exchange, or
(B) such property is received after the earlier of -
(i) the day which is 180 days after the date on which the taxpayer transfers the property relinquished in the exchange, or
(ii) the due date (determined with regard to extension) for the transferor's return of the tax imposed by this chapter for the taxable year in which the transfer of the relinquished property occurs.
(b) Gain from exchanges not solely in kind
If an exchange would be within the provisions of subsection (a), of section 1035(a), of section 1036(a), or of section 1037(a), if it were not for the fact that the property received in exchange consists not only of property permitted by such provisions to be received without the recognition of gain, but also of other property or money, then the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such other property.
(c) Loss from exchanges not solely in kind
If an exchange would be within the provisions of subsection (a), of section 1035(a), of section 1036(a), or of section 1037(a), if it were not for the fact that the property received in exchange consists not only of property permitted by such provisions to be received without the recognition of gain or loss, but also of other property or money, then no loss from the exchange shall be recognized.
(d) Basis
If property was acquired on an exchange described in this section, section 1035(a), section 1036(a), or section 1037(a), then the basis shall be the same as that of the property exchanged, decreased in the amount of any money received by the taxpayer and increased in the amount of gain or decreased in the amount of loss to the taxpayer that was recognized on such exchange. If the property so acquired consisted in part of the type of property permitted by this section, section 1035(a), section 1036(a), or section 1037(a), to be received without the recognition of gain or loss, and in part of other property, the basis provided in this subsection shall be allocated between the properties (other than money) received, and for the purpose of the allocation there shall be assigned to such other property an amount equivalent to its fair market value at the date of the exchange. For purposes of this section, section 1035(a), and section 1036(a), where as part of the consideration to the taxpayer another party to the exchange assumed (as determined under section 357(d)) a liability of the taxpayer, such assumption shall be considered as money received by the taxpayer on the exchange.
(e) Exchanges of livestock of different sexes
For purposes of this section, livestock of different sexes are not property of a like kind.
(f) Special rules for exchanges between related persons
(1) In general If -
(A) a taxpayer exchanges property with a related person,
(B) there is nonrecognition of gain or loss to the taxpayer under this section with respect to the exchange of such property (determined without regard to this subsection), and
(C) before the date 2 years after the date of the last transfer which was part of such exchange -
(i) the related person disposes of such property, or
(ii) the taxpayer disposes of the property received in the exchange from the related person which was of like kind to the property transferred by the taxpayer, there shall be no nonrecognition of gain or loss under this section to the taxpayer with respect to such exchange; except that any gain or loss recognized by the taxpayer by reason of this subsection shall be taken into account as of the date on which the disposition referred to in subparagraph (C) occurs.
(2) Certain dispositions not taken into account
For purposes of paragraph (1)(C), there shall not be taken into account any disposition -
(A) after the earlier of the death of the taxpayer or the death of the related person,
(B) in a compulsory or involuntary conversion (within the meaning of section 1033) if the exchange occurred before the threat or imminence of such conversion, or
(C) with respect to which it is established to the satisfaction of the Secretary that neither the exchange nor such disposition had as one of its principal purposes the avoidance of Federal income tax.
(3) Related person
For purposes of this subsection, the term ''related person'' means any person bearing a relationship to the taxpayer described in section 267(b) or 707(b)(1).
(4) Treatment of certain transactions This section shall not apply to any exchange which is part of a transaction (or series of transactions) structured to avoid the purposes of this subsection.
(g) Special rule where substantial diminution of risk
(1) In general
If paragraph (2) applies to any property for any period, the running of the period set forth in subsection (f)(1)(C) with respect to such property shall be suspended during such period.
(2) Property to which subsection applies
This paragraph shall apply to any property for any period during which the holder's risk of loss with respect to the property is substantially diminished by -
(A) the holding of a put with respect to such property,
(B) the holding by another person of a right to acquire such property, or
(C) a short sale or any other transaction.
(h) Special rules for foreign real and personal property
For purposes of this section -
(1) Real property
Real property located in the United States and real property located outside the United States are not property of a like kind.
(2) Personal property
(A) In general
Personal property used predominantly within the United States and personal property used predominantly outside the United States are not property of a like kind.
(B) Predominant use
Except as provided in subparagraph [1] (C) and (D), the predominant use of any property shall be determined based on - ''subparagraphs''.
(i) in the case of the property relinquished in the exchange, the 2-year period ending on the date of such relinquishment, and
(ii) in the case of the property acquired in the exchange, the 2-year period beginning on the date of such acquisition.
(C) Property held for less than 2 years
Except in the case of an exchange which is part of a transaction (or series of transactions) structured to avoid the purposes of this subsection -
(i) only the periods the property was held by the person relinquishing the property (or any related person) shall be taken into account under subparagraph (B)(i), and
(ii) only the periods the property was held by the person acquiring the property (or any related person) shall be taken into account under subparagraph (B)(ii).
(D) Special rule for certain property
Property described in any subparagraph of section 168(g)(4) shall be treated as used predominantly in the United States

Neda Dabestani-Ryba is a licensed Realtor in Maryland. She is a member of the President's Circle of Top Real Estate Professionals. She can be reached at (800) 536-3806 or visit her website for more information: <a target="_new" href="http://neda.dabestani.pcragent.com/">http://neda.dabestani.pcragent.com/</a> Prudential Carruthers REALTORS is an independently owned and operated member of Prudential Real Estate Affiliates, Inc., a Prudential Financial company. Equal Housing Opportunity.

Tax Trap #4 -- The Quagmire of Depreciation

If you are a Small Business Owner or Self-Employed Person, there's one especially lucrative tax break that not only puts money in your pocket, it also makes the filing of your business tax return much simpler.

What am I talking about? It's called the Section 179 deduction, and if there's one tax break you need to understand, this is it. Here's why:

The Section 179 deduction enables the Small Business Owner to "expense" (i.e. deduct in the current year) up to $102,000 of the cost of most business equipment, rather than use those stingy and complicated depreciation rules that require you to write-off the cost over five or more years.

What's so great about that?

Think about it like this: I've got a dollar and I'd like to give it to you. You have two choices -- I give it to you now, or I give it to you 5 years from now.

Which do you prefer?

Obviously, you'd rather have it now, right?

And why is that?

Because of what you learned way back in Finance 101: something your banker calls "the time value of money."

I'll spare you a boring textbook definition. Instead, let's just assume we agree on this simple point: Is a dollar worth more today or 5 years from today?

It's worth more today.

And that's why the Section 179 deduction is so valuable.

Huh?

Let's use an example to bring all this financial theory into reality.

You buy $5,000 worth of office equipment in 2004. Under normal depreciation rules, you wouldn't get to take a deduction for $5,000 in 2004. Instead, you'd write off the $5,000 over 6 years -- part in 2004, part in 2005, etc.

If you're in the 35% tax bracket, you get your $1,750 in tax savings over 6 years. Yawn. That's a long time!

You'd get your deduction, and the resulting tax savings, but you'd have to wait 6 years to realize all the benefits.

Section 179 says that if you meet certain requirements, you can deduct the full $5,000 in 2004. You reduce your taxes by $1,750 in Year 2004.

So let me repeat my rhetorical question: Uncle Sam has $1,750 he'd like to give you. When do you want it? All at once, or spread out over 6 years?

That's the beauty of Section 179.

But you have to meet certain requirements to benefit from Section 179. One requirement concerns the total amount of equipment you can deduct rather than depreciate. In 2002, the amount was $24,000. And for 2003, the amount was originally set at $25,000.

Then Congress and the President passed a new tax bill in late May 2003 that raised that amount to a whopping $100,000. And since that $100,000 gets adjusted for inflation, in 2004 the maximum Section 179 deduction is now $102,000.

Never liked depreciation? Well, you can pretty much kiss it good-bye now. If your business buys more than $102,000 of equipment in a single year, it ain't so "small" any more! So this new law should cover all small businesses. Enjoy!

One final note: A few other requirements must be met to claim the Section 179 deduction. Here's a brief, but not comprehensive, overview:

1. Most personal property used in a trade or business can be deducted via Section 179. Real property cannot. Typical examples of personal property include: office equipment such as computers, monitors, printers and scanners; office furniture; machinery and tools. Real property means buildings and their improvements.

2. The $100,000 amount (adjusted for inflation) can be used through 2007. In 2008, unless new legislation is passed, the amount goes back down to $25,000.

3. There are special rules regarding the application of Section 179 to the purchase of business vehicles. (Where there are tax breaks, there are always expections!) For example, the special "SUV rule" that allowed 6,000 LB vehicles to be fully deducted (up to the $100,000 amount) was recently changed to $25,000, effective October 22, 2004.

4. Your total Section 179 deduction is limited to the business' annual profit. In other words, you cannot use the Section 179 to create or increase a loss.

This is known as the "taxable income limitation." For "C" Corporations, this limitation is very cut and dried. But if your business is an "S" Corporation, Partnership, LLC, or Sole Proprietorship, it may not be as limiting as it seems. For these non-"C" Corp businesses, the Section 179 deduction can be used to offset both business and non-business income.

And if you're married filing jointly, the Section 179 deduction can offset your spouse's income, including W-2 income.

Example: You start a new business in 2004 that ends up with a loss for the year of $5,000 (before taking the Section 179 deduction). Your spouse has W-2 income of $60,000. Even though your business is unprofitable, you can still take the full Section 179 deduction of $5,000 (again, assuming your business is an entity other than a "C" Corporation).

Be sure to consult with your tax professional to get the scoop on all the Section 179 rules.

Wayne M. Davies is author of 3 tax-slashing eBooks for the self-employed, available separately or as a 3-volume set, "The Ultimate Small Business Tax Reduction Guide". <a target="_new" href="http://www.YouSaveOnTaxes.com/ultimate-guide">http://www.YouSaveOnTaxes.com/ultimate-guide</a>

To get your free copy of Wayne's 25-page report, "How To Instantly Double Your Deductions" visit: <a target="_new" href="http://www.YouSaveOnTaxes.com">http://www.YouSaveOnTaxes.com</a>

Requirements To Produce Tax Information (Whats Up With That?)

"What we've got here is a failure to communicate."
--Strother Martin in Cool Hand Luke

Statutory Law

Governments pass laws, it's what they do. It is the job of others to interpret the laws that Parliament has made.

Statutory Construction

It is "presume[d] that the legislature avoids superfluous or meaningless words, that it does not pointlessly repeat itself or speak in vain. Every word in a statute is presumed to make sense and to have a specific role to play in advancing the legislative purpose": Tower v. M.N.R., [2004] 1 F.C. 183 (F.C.A.) per MALONE J.A. per curium at para. 15.

Also Communities Economic Development Fund v. Canadian Pickles Corp., [1991] 3 S.C.R. 388, per IACOBUCCI, J. at page 408 Interpretation of the Canadian Income Tax Act ("ITA") in practice is primarily done by the Canada Revenue Agency ("CRA"); followed closely by tax accountants and lawyers with the tying vote going to the Courts.

The Legislative Purpose

To raise money and implement federal policies.

The Accounting/Legal Purpose

To assist taxpayers to legally structure their affairs so as to minimize the taxes they must pay: IRC v. Westminster, [1936] A.C. 1 (H.L.), at p. 19 and Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536 (S.C.C.), at p. 540.

It is not difficult to foresee that the legislative objective and private sector tax adviser will frequently disagree. While CRA wins many such arguments by default (e.g., the taxpayer can't, or won't, fight) for those that do contest a restrictive or erroneous interpretation of the ITA, there is a heartening rate of success.

A caveat should be interjected here, this presumes challenges where have been made thoughtfully; that is, were CRA "got it wrong" and the taxpayer has called them on it. Frivolous challenged or specious arguments (i.e., R. v. Klundert) are not going to succeed.

Legislative Tools

In order to expedite the collection of taxes Parliament has given CRA broad powers to enforce the ITA, some require taxpayers to cooperate under a compulsion of law.

While such compulsion may be permissible in the civil context (R. v. McKinlay Transport Ltd., [1990] 1 S.C.R. 627), the same is not true if the information sought or seized by CRA will be used to prosecute the taxpayer for an offence under the ITA (R. v. Jarvis [2002] 3 S.C.R. 757; s. 7 of the Canadian Charter of Rights and Freedoms).

Thus the following material assumes a CRA civil audit, but if you believe that in your situation CRA abused these provisions while you were under a criminal prosecution (e.g., s. 239(1)(d) ITA for evasion) then obtain immediately legal advice.

S. 230(1) ITA: Books & Records

Every "person" carrying on business or required to pay, or collect, taxes under the ITA is required to keep records and books of account at their place of business or residence. What books? Enough to enable you to calculate the taxes and for CRA to see that you did it correctly. "Person" includes corporations (s. 248(1) ITA).

This ties into with the obligation on each Canadian taxpayer to estimate the amount of the taxes payable in any taxation year under s. 151 ITA.

S. 231.1(1) ITA: Inspect, Audit & Examine Books

Someone from CRA may, enter your place of business to inspect, audit or examine your books and records, or those of another taxpayer, to see you fulfilled your obligation under s. 151, above. They may not enter your home without a search warrant, unless you invite them in.

Although the wording of this provision is broad, it is not unlimited: the person has to be authorized, their approach has to be at a reasonable time(s), the request has to be related to enforcement of the ITA and it is restricted to "inspect[ing], audit[ing] or examination[s]."

If you are subject to such a "compliance audit" you will want to have your accountant involved as soon as possible in the process.

If, however, you are audited and shortly thereafter charged with an offence under the ITA speak with your lawyer as this "audit," it may have violated s. 7 of the Charter and the Jarvis principles.

S. 231.2(1) ITA: Requirements To Provide Information and Documents ("RPIDs")

If CRA wants you (or a third party) to produce (a) information or (b) any document the Minister of National Revenue ("MNR") may, for any purpose related the ITA, give notice served to you, or that third person, personally requiring production, within a reasonable time, of stipulated materials listed in the notice: Tower, above, s. 17.

Like you, CRA must follow the wording of s. 231.1(1) ITA (Ludmer v. Canada, [1995] 2 F.C. 3 (F.C.A.), CHEVALIER D.J. at p. 17).

CRA does get this wrong from time to time. Just how serious their error is you can discuss with your lawyer. An irregular RPID doesn't necessarily mean the evidence will be excluded, but the mere possibility is sufficient to justify your lawyer thoroughly reviewing the memoranda, RPIDs and related materials for errors.

Only the MNR (or his delegate) can issue RPIDs. RPIDs must be subject to prior approval and the delegate must act in a quasi-judicial manner; or in other words, if they don't act unreasonably.

The Supreme Court of Canada has held that a taxpayer may have substantive defences to successfully attack RPIDs and any resulting prosecution (McKinlay Transport), defence which include:

1) unauthorized fishing expeditions by CRA (James Richardson & Sons, Ltd. v. M.N.R. [1884]1 S.C.R. 614 at p. 623), and

2) there is no a genuine and serious inquiry into a taxpayer's liability (relying on Canadian Bank of Commerce v. A.G. Canada (1962), 35 D.L.R. (2d) 49).

The court ruled that the test is objective, which means that what's important is statutory compliance not CRA's good faith.

If the Requirement power was used improperly and all of the resulting information was obtained in violation of the Charter then your lawyer may ask the Court to exclude the evidence: Charter s. 24(2).

If search warrants were obtained "based solely on information gleaned in violation of the Charter [those warrants] are invalid": R. v. Evans, [1996] 1 S.C.R. 8 at para. 26.

S. 231.2(2) ITA: Unnamed Persons

The MNR shall not impose on any third party a RPID to provide information or any document relating to any one, or more, unnamed persons without prior judicial authority.

The Supreme Court of Canada has held that warrantless searches are prima facie a violation of s. 8 of the Charter: R. v. Collins, [1987] 1 S.C.R. 265 per LAMER, J. at para. 22 and it then becomes a question of fact whether that violation was "reasonable."

To rebut this presumption the onus will be on the Crown/CRA; but normally a "search will be reasonable if it is authorized by law, if the law itself is reasonable and if the manner in which the search was carried out is reasonable" (Collins, at para. 23).

In other words, an RPID will be legal if:

* the ITA was followed, exactly (Tower);

* if it was done in the civil context (McKinlay Transport);

* if there was a genuine and serious inquiry into a taxpayer??s liability (Canadian Bank of Commerce); and

* the taxpayer was named (s. 231.2(2) ITA; Artistic Ideas Inc. v. Canada (CRA), 2004 FC 573 (F.C.T.D.) per SNIDER, J.);

And, an RPID will not be valid and enforceable if:

* the ITA was not followed;

* if the MNR??s delegate didn??t act quasi-judicially;

* if the RPID was used as part of an investigation (Jarvis);

* if CRA was "fishing" (Richardson & Sons); and

* if CRA didn't obtain prior authorization for the RPID (Hunter v. Southam Inc., [1984] 2 S.C.R. 145 DICKSON J.)

This is a simplified version of the law, only your lawyer can give you advice about your particular situation.

S. 231.3(1) ITA: Search Warrants

CRA can apply to a judge for a search warrant ("SW") without notice to you.

A CRA officer must swear an Information to Obtain (s. 231.3(2) ITA) and under s. 231.3(3) ITA a judge may issue the search warrant if they are is satisfied that there are reasonable grounds to believe:

(a) an offence under the ITA was committed;

(b) a document or thing that may afford evidence of the offence; and

(c) the building to be searched is likely to be contain such a document.

S. 231.3(3) ITA now reads "may issue" rather than "shall" because the Baron v. Canada, [1993] 1 S.C.R. 416 declared the former invalid as a violation of s. 8 Charter because it unduly restricted judicial discretion in refusing to issue search warrants. So you can see judicious challenges can change not only the results, but the law as well.

S. 487 Criminal Code

Provides an alternative procedure for applying for SWs, similar to the foregoing; which in practice, CRA uses regularly; as you might imagine s. 487 has been extensively litigated and it is generally well understood by the criminal bar.

S. 231.5(1) ITA

Where any document is seized, inspected, examined or provided under ss. 231.1 to 231.4 ITA the CRA officer my make copies. Such copies, when certified, have the same probative force as the original.

S. 231.5(2) ITA

No person shall hinder, molest or interfere with any person doing anything he is authorized to do under ss. 231.1 to 231.4. If you think that CRA has violated your rights or otherwise failed to comply with the ITA ?V then call your lawyer. Don't try to stop them yourself.

S. 238(1) ITA

Provides that every "person" who has failed to file a return as and to comply with the sections of the ITA listed therein is guilty of an offence and in addition to any other penalty (e.g., s. 162(1) ITA). If convicted a taxpayer is subject to a fine and imprisonment

The Bottom Line

Although the CRA uses these provisions frequently, they don't always do so correctly.

Some CRA officers have testified that they followed CRA "practices" rather than the ITA per se (e.g., s. 231.2(2) ITA), but as only the statutory provisions that are binding this may give your lawyer grounds to challenge CRA use or reliance on any materials found.

Parliament has spoken, but sometimes CRA hasn't listened; that "failure to communicate" may, if your lawyer decides circumstances warrant it, may justify challenging CRA on their use of their requirement powers.

Staff Writer For - Tax Evasion Resources - <a target="_new" href="http://www.taxevasionresources.com">http://www.taxevasionresources.com</a>

How Likely Are You To Be Audited?

Statistics for Individuals

Unfortunately, the IRS increased its rate of auditing individuals in 2003 when compared to 2002. The increase was approximately 14%, but still constituted only 6.5 audits for every 1,000 taxpayers. Put another way, the risk of being audited on your personal return is less than 1 in 100.

In regard to the above numbers, it is important to note that the IRS pursued a large number of &quot;correspondence audits&quot; instead of face?to?face meetings. As the name suggests, these audits consists of correspondence being sent from the IRS to a taxpayer regarding a contested issue. The taxpayer can respond to the audit or pay the accessed amount depending upon the request of the IRS.

Favorable Audit News For Businesses

The audit rate for businesses is much lower than those for individuals. In 2002, the IRS audited roughly 2.2 out of every 1,000 businesses. In 2003, this rate dropped slightly to 2.1 out of every 1,000 businesses.

The IRS has attributed the decline in business audits to the &quot;explosive growth&quot; in tax shelters, which requires the Agency to pursue more expensive and time consuming audits due to the complexities involved in the plans. The Agency reported pursuing more than 2,200 such shelters in 2003, which the audits taking an average of 7 1/2 months longer than normal corporate audits.

Audit Risk

Whether you are a business or individual taxpayer, your risk of being audited is very low. The nominal risk, however, is not a license to pursue frivolous deductible claims on your returns. As long as you stick to valid deductions, you should be able to sleep without much concern.

Richard Chapo is CEO of <a target="_new" href="http://www.businesstaxrecovery.com">http://www.businesstaxrecovery.com</a> - Obtaining tax refunds for small businesses by finding overlooked tax deductions and credits through a free tax return review.

Gambling Income and Expenses - Tax Requirements

Hit a big one? With more and more gambling establishments, keep in mind the IRS requires people to report all gambling winnings as income on their tax return.

Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse and dog races and casinos. Unfortunately, gambling income also includes the fair market value of prizes such as cars, houses, trips or other non-cash prizes.

Generally, if you receive $600 ($1,200 from bingo and slot machines and $1,500 from keno) or more in gambling winnings and your winnings are at least 300 times the amount of the wager, the payer is required to issue you a Form W-2G. If you have won more than $5,000, the payer may be required to withhold 25 percent of the proceeds for Federal income tax. However, if you did not provide your Social Security number to the payer, the amount withheld will be 28 percent.

The full amount of your gambling winnings for the year must be reported on line 21, Form 1040. If you itemize deductions, you can deduct your gambling losses for the year on line 27, Schedule A (Form 1040). You cannot deduct gambling losses that are more than your winnings.

It is important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.

Face it, the IRS gets you coming and going. Well, I'm off to play poker.

Richard Chapo is CEO of <a target="_new" href="http://www.businesstaxrecovery.com">http://www.businesstaxrecovery.com</a> - Obtaining tax refunds for small businesses by finding overlooked tax deductions and credits through a free tax return review.

Donating Cars To Charity - New Tax Rules

On June 3, 2005, the IRS released guidance on charitable deductions for donated vehicles. The American Jobs Creation Act (AJCA) radically changed the amount of the deduction taxpayers can claim for their donated car.

Fair Market Value v. Actual Sales Price

When donating a car to charity, a taxpayer traditionally was allowed to deduct the fair market value. The new law changes this valuation to the actual sales price of the vehicle when sold by the charity. The taxpayer is also required to get written and timely acknowledgment from the charity in order to claim the deduction

The AJCA does provide some limited exceptions under which a donor may claim a fair market value deduction. If the charity makes a significant intervening use of a vehicle--such as regular use to deliver meals on wheels-- the donor may deduct the full fair market value. For example, driving a vehicle a total of 10,000 miles over a one-year period to deliver meals is a significant intervening use.

The AJCA also allows a donor to claim a fair market value deduction if the charity makes a material improvement to the vehicle. Under the guidance, a material improvement means major repairs that significantly increase the value of a vehicle, and not mere painting or cleaning.

Interestingly, the IRS has also added an exemption not included in the AJCA. On its own, the IRS has determined that taxpayers can claim a deduction for the fair market value of a donated vehicle if the charity gives or sells the vehicle at a significantly below-market price to a needy individual, as long as the transfer furthers the charitable purpose of helping a poor person in need of a means of transportation.

If you intend to assert one of these exemptions, how do you determine the fair market value? Generally, vehicle pricing guidelines and publications differentiate between trade-in, private-party, and dealer retail prices. The IRS consider the fair market value for vehicle donation purposes to be no higher than the private-party price.

The new provisions of the Americans Job Creation Act certainly make it less attractive to donate a car to charity. Using the exemptions, however, you can still create a sizeable deduction while helping others who are less fortunate.

Richard Chapo is CEO of <a target="_new" href="http://www.businesstaxrecovery.com">http://www.businesstaxrecovery.com</a> - Obtaining tax refunds for small businesses by finding overlooked tax deductions and credits through a free tax return review.

Tax Tips for Home-Based Business Owners

As tax time approaches, many home-based business owners begin completing their forms or paying their accountants with trepidation. This nervousness comes from two sources: a fear of being audited and a fear of having to pay a lot. For the most part, both of these fears are unfounded.

For one, audits are rare. In fact, only 0.5% of taxpayers are subjected to audits every year. And if you do beat the odds, keeping good records and maintaining receipts will help you weather the IRS storm.

Obviously you have not control over whether or not your return is chosen for an audit, but you can control how much you are going to owe the government this year. Most people who own small or home-based businesses end up paying more than they should in taxes simply because they are not taking advantage of all their deduction possibilities, even those that are right around them every day.

Your Automobile

You may not realize it, but one of your biggest potential tax savers is sitting in your garage right now. Most people realize that their car can be a tax write-off if it is used for advertising purposes, but the majority of home-based business owners don't realize that it they may also be eligible for deductions as well.

For example, if you drive your car to the post office to buy stamps for your business or if you drive to the office supply store to stock up on paper clips, you can claim that mileage on your taxes. You can even claim the mileage if your business-related stop was made on the way to picking your daughter up from ballet class or dropping your dog off at the vet.

In addition, you can write-off other automobile related expenses such as gas, insurance, and parking costs if they pertain to any business related activity.

Be sure to keep records, however. You will want to have a small notebook in your car at all times so you can jot down your start and stop mileage as well as a note about the business activity in which you are engaged. Keep all gas, parking, and insurance receipts as well if you plan to claim those as business expenses.

Your Family

If you pay your children an allowance, you can also count these as deductions if you hire them as part of your staff. Any business owner knows that the money he or she pays to employees does not count as part of their profit. The same is true for home-based businesses.

Most business owners also know they can find employees among their own family without raising any eyebrows. The same is true for home-based businesses. You can hire your fourteen year old to help you answer phones, file, or type up correspondence. You can offer your eight year old a job emptying wastebaskets, straightening your office, etc. Then you pay them a certain amount of money every week for their labor.

Again keeping records is essential. Keep track of the hours your children work for you as well as the activities they do. Pay them, if possible, by check from your business account. You can set up a checking or savings account for the children in which the money can be deposited.

Your Home

Obviously if you worked in a small office building you could deduct the amount of rent you paid for that property from your taxes, as well as the costs of all the equipment and expenses. Well, just because you work out of your home that does not mean you lose out on those deductions.

Chances are you have a small area of your home that is set aside for your business purposes. Now while you cannot write-off the cost of your entire house, you can write-off the cost of that area.

What you do is determine what percentage of your home's total square feet is dedicated to your business. For example, if your office takes up 10% of your home's total area and you pay $600 per month for the property, you can claim $60 per month as a business expense which would be $720 per year.

The same formula works for your utilities, such as electricity, water, and telephone (unless you have a separate line just for business). All of your equipment - your computer, printer, scanner, cell phone, printer ink, etc - is also tax deductible.

Remember to keep track of those expenses and hold on to your receipts in order to claim them on your taxes.

When it comes to tax time, no home-based business owner needs to feel afraid. By taking advantage of all your potential deductions and keeping thorough records, you can not only significantly reduce your yearly tax bill, but you can also prepare yourself in the rare event you may be chosen for an audit.

Vishal P. Rao is the owner of: <a target="_new" href="http://www.work-at-home-forum.com/">http://www.work-at-home-forum.com/</a> An online community of people who work at home.

Euro Tax Haven Threat

Media reporting of a new EU savings tax directive has left many people wondering whether European tax havens could soon become obselete.

The July directive requires banks throughout Europe, including low and no tax areas such as Gibraltar, Monaco, Malta and Andorra, to disclose bank account owner information to their home country's tax authority.

But Roger Munns, Managing Director of tax haven property specialists Tribune Properties, says that some of the reporting has been less than accurate.

'The purpose behind this directive is primarily aimed at those who hold illicit funds, such as drug dealers, who will need to look outside of the European banking system to place large cash deposits. The main attraction of Monaco and Andorra is the zero per cent income and inheritance taxes, and this remains intact and there are no plans whatsoever to change this'.

Monaco and Andorra have long been favoured destinations for the well to do, but with new technology allowing businessmen and women to run their offices from anywhere in the world, operating from low tax bases has seen added interest for Europe's primary tax havens, doubling property prices in the last ten years.

Both Monaco and Andorra are outside the EU, and their signing of the directive voluntarily is often overlooked in the media's analysis of any effects on the two small countries long term popularity.

Property prices have risen steadily over the last decade, often topping ten per cent a year, but this year has seen a slow down of that increase.

Property Price Uncertainty

Both Monaco and Andorra's property prices have seen a levelling off this year, according to Tribune Properties, but say this can be explained by factors other than the new EU directive. Tribune say that in Monaco the passing of Prince Rainier earlier this year cast a shadow over the Principality, while in Andorra the local market has slowed as Andorrans struggle to keep up with the price of property, fuelled by buyers from around the world seeking residency.

Two other factors have contributed to the slow down in the first half of the year which could be reversed in the second half ? the absence of UK buyers awaiting the outcome of their election in May which saw the Labour Government returned for a historic third term with Tony Blair as Prime Minister and possible tax rises in the pipeline, and buyers holding US dollars who were hit by the rise in value of the Euro ? which has now peaked following the EU Constitution 'No' votes in France and The Netherlands in June.

Both Andorra and Monaco require new residents to live there for six months a year to maintain their residency (but Andorra doesn't police this once residency is granted). Andorra property prices start from just over 200,000 Euros for a one bedroom apartment, while Monaco is more expensive with one bedroom apartments from around 600,000 Euros.

Tribune Properties offer details of properties for sale in both Andorra and Monaco. For Andorra property visit <a target="_new" href="http://www.propertyandorra.com">http://www.propertyandorra.com</a>, for property and real estate in Monaco and Monte Carlo visit <a target="_new" href="http://www.monacoproperty.net">http://www.monacoproperty.net</a>. Property in Malta is also available at <a target="_new" href="http://www.maltaproperty.info">http://www.maltaproperty.info</a>

Tax Deductions - Mr. C.P.A. Can I Deduct a Pizza? You Too Can Deduct Your Fun By Using Tax Tips

Recently, I stumbled across a concept that could change your financial life. You can call it a paradigm shift or a new perspective or just a different way to look at things.

This single concept can save you tens of thousands of dollars each year. Its soooo powerful and yet its completely underutilized. Learning this simple technique can dramatically impact your financial picture.

<a target="_new" href="http://m123.infusionsoft.com/go/MikeDrew/MikeDrew/Pizza">Tax Deductions the rich use to stay ahead</a>

I was speaking about tax savings at a seminar and there was a spontaneous outburst of questions.

Can I deduct my health insurance? How about my new truck? I'm taking horseback riding lessons. Are they deductible? What about my vacation?

As we worked through people's list of concerns, it dawned on me. You've been trained to ask the wrong question. Let's suppose you call up your C.P.A. and ask, &quot;Hey Lenny, Can I deduct a Pizza? What do you suppose Lenny's response would be?

He'd probably think you had gone mad ? &quot;Are you crazy, he'd say. You can't deduct a Pizza!&quot;.

<a target="_new" href="http://m123.infusionsoft.com/go/pfbsaff/MikeDrew/Pizza">Tax Strategies</a>

But if you called me and asked the same question, you'd get a different response altogether. I'd probably pause for a moment and respond &quot;Well, that depends.&quot; You see, if you and I went to an Italian restaurant and ordered Pizza and a couple of beers, the meal would be deductible (at the rate of 50%) so long as we discussed business.

Same thing with your vacation if you conducted your annual meeting while you traveled. The equestrian lessons are deductible as education and the new truck is deductible to the degree that you use it for business. Which brings up a key point: It's not the item, it's the circumstances.

<a target="_new" href="http://m123.infusionsoft.com/go/pfbsaff/MikeDrew/Pizza">Tax Deduction Secrets</a>

Most business people and their advisors wrongly focus on the item (the truck, the lessons, and the trip). The trick is to make your circumstances open the door to the tax deductions.

So, instead of asking &quot;Is this deductible&quot; ? you should start asking HOW is this deductible? Then, all you have to do is create the circumstances that allow for the deduction!

All the Best,
Drew Miles, The Tax Saving Attorney

Drew has combined what he learned during formal education, informal education and twenty five years of business experience in the development of programs designed to teach people how to build and preserve lasting wealth. He is an author, teacher and international speaker in the areas of asset protection, and tax saving and wealth building strategies.

The Annual Gift Tax Exclusion: Getting The Edge

Whether helping the kids with a down payment on their first home, paying the premiums on a life insurance policy in an irrevocable trust, or moving appreciated assets to a younger generation, annual gifting will touch the lives of millions of Americans. But before the transfer is made, an investor should spend some time looking at the investment and the tax ramifications of the property to be passed.

Much of the gifting itself will be done under the Annual Gift Tax Exclusion, a method that alleviates both a gift tax and the need to report the transfer. This exclusion applies to gifts only between individuals. Gifts made to charities and other organizations fall under a completely different set of rules.

The transfer is not deductible by the donor nor is it taxable to the recipient. Currently (in calendar year 2005), the annual exclusion is set at $11,000. In the future, this can be adjusted for inflation, but only in $1,000 increments. Spouses can increase their gifts to others to a maximum of $22,000 and, finally, gifts between spouses, like love, knows no limits.

Most transfers are done for one of two reasons. In the past, passing along property to diminish the value of an estate and, therefore, estate taxes was a major consideration in estate planning. This is still used extensively for larger estates but, under current law, fewer estates are subject to the tax. If the estate has no tax exposure (and if nursing care is taken care of), many advisors recommend not to gift at all but, instead, toallow the assets to receive a &quot;stepped up&quot; tax basis upon death.

Gifting to allow for current use of assets has been and continues to be popular. Often a parent wants to see a child use the gift immediately in order to enjoy an extended vacation or to make a major purchase. Here, it is expected that any gift of securities will be converted into cash with the appropriate tax paid.

Both donors and recipients should be aware that various gifts for educational or medical purposes may not reduce the annual exclusion. You should check with your tax advisor to determine whether this applies to a your specific situation.

Certain kinds of property (real estate, art, collectibles, closely held business interests, etc) should be appraised before a transfer is made. Consulting an expert in the particular field is usually a good idea to calculate the fair market value of the property.

Another circumstance requiring professional help is when &quot;spending down&quot; an estate for Medicaid purposes. An elder law attorney should be consulted for help in this area.

The actual gift of marketable securities or cash is fairly straightforward. Giving a check to someone or journaling over securities is enough to complete the gift. However, before making the gift, you should understand some of the potential tax considerations.

Let's first look at stock that has appreciated in value. Remember, whatever tax basis the donor in the gifted property will become the recipient's tax basis. If the donor is in a higher tax bracket than the recipient, it is often wise to gift the stock to the recipient and let the recipient sell the stock at his or her lower tax bracket.

If the fair market value of the stock is below the donor's original cost, then the donee must use the fair market value of the property as of the date of the gift in determining his or her tax basis. If you find yourself in this situation, the donor should consider selling the asset and then gifting the cash proceeds to the recipient.

Obviously, there will be times when a gift needs to be made regardless of the consequences; but, when time allows, you should do your homework to see what works to your best advantage.

Glenn (&quot;Chip&quot;) Dahlke, a senior contributor to the Living Trust Network, has 28 years in the investment business. He is a Registered Representative of Linsco/Private Ledger and a principal with Dahlke Financial Group. He is licensed to transact securities with persons who are residents of the following states: CA. CT, FL, GA, IL. MA, MD. ME, MI. NC, NH, NJ, NY.OR, PA, RI, VA, VT, WY.

If you have any questions or comments, Chip would love to hear from you. You may contact him by email at <a href="mailto:dahlkefinancial@sbcglobal.net">dahlkefinancial@sbcglobal.net</a>. You may also contact him at the Living Trust Network's web site at <a target="_new" href="http://www.livingtrustnetwork.com">http://www.livingtrustnetwork.com</a>

Copyright 2005. LivingTrustNetwork, LLC. All rights reserved.

Understanding Marketing Tax Deductions

Marketing is a necessary expense in running practically any business and the IRS acknowledges as much. You may run advertisements on or in the Internet, radio, television, magazines, newspapers and other media to sell your products or services. You should be deducting all of the associated costs on your tax returns.

Ordinary Marketing Expenses

Marketing costs must be "ordinary and necessary" business expenses in order to be deductible. Put in layman's terms, you marketing must be reasonably related to the promotion of your business and the expense amount must be a reasonable amount.

Deductible Marketing Expenses

Common deductible marketing expenses include the costs associated with the following items:

A. Yellow Page Advertisements,

B. Business Cards,

C. Advertisements in print media such as newspapers,

D. Telemarketing,

E. Business Cards,

F. Web site costs including creation and maintenance,

G. Costs for Advertisements on the Internet,

H. Billboards, and

I. Graphic design costs.

Goodwill Marketing For Your Business

Marketing that is intended to portray your business positively can be deducted. Such marketing creates a long-term potential for business and, thus, falls within the ordinary and normal requirements of the tax code. Examples of such marketing include:

A. Sponsoring local youth sports teams,

B. Distributing samples of your business product, and

C. Costs associated with prizes offered by your business in a contest.

As long as your marketing expenses can be reasonably related to the promotion of your business, you should be deducting said expenses from your gross revenues. If you failed to claim any such expenses on your tax returns, your probably overpaid your taxes.

Richard Chapo is CEO of <a target="_new" href="http://www.businesstaxrecovery.com">http://www.businesstaxrecovery.com</a> - Obtaining tax refunds for small businesses by finding overlooked tax deductions and credits through a free tax return review.

About Income Taxes; Tidbits

1812

The first attempt to impose an income tax on America occurred during the War of 1812. After more than two years of war, the federal government owed an unbelievable $100 million of debt. To pay for this, the government doubled the rates of its major source of revenue, customs duties on imports, which obstructed trade and ended up yielding less revenue than the previous lower rates.

And to think that the Revolution was started because of Tea Taxes in Boston?

Excise taxes were imposed on goods and commodities, and housing, slaves and land were taxed during the war. After the war ended in 1816, these taxes were repealed and instead high customs duties were passed to retire the accumulated war debt.

What is Taxable Income?

The amount of income used to arrive at your income tax. Taxable income is your gross income minus all your adjustments, deductions, and exemptions.

Some specific taxes:

Estate Taxes:

One of the oldest and most common forms of taxation is the taxation of property held by an individual at the time of death.

The US still has Estate Taxes, although there are proposals to do away with them.

Such a tax can take the form, among others, of estate tax (a tax levied on the estate before any transfers). An estate tax is a charge upon the deceased's entire estate, regardless of how it is disbursed. An alternative form of death tax is an inheritance tax (a tax levied on beneficiaries receiving property from the estate). Taxes imposed upon death provide incentive to transfer assets before death.

Canada no longer has Estate Taxes.

Most European countries have Estate Taxes, one prime example is Great Britain which has such high Estate Taxes that it has just about ruined the financial well-being of most of Britain's Nobility which has been forced to sell vast Real Estate holdings over time.

. Such a tax can take the form, among others, of estate tax (a tax levied on the estate before any transfers). An estate tax is a charge upon the decedent's entire estate, regardless of how it is disbursed. An alternative form of death tax is an inheritance tax (a tax levied on individuals receiving property from the estate). Taxes imposed upon death provide incentive to transfer assets before death.

Capital Gains Taxes

Capital Gains are the increases in value of anything (including investments or real estate) that makes it worth more than the purchase price. The gain may not be realized or taxed until the asset is sold.

Capital gains are normally taxed at a lower rate than regular income to promote business or entrepreneurship during good and bad economic times.

Frank Vanderlugt
Accountant
<a target="_new" href="http://www.tax-attorney.biz">http://www.tax-attorney.biz</a>

Tax Trap #2 -- Double Taxation: Isnt Once Enough?

Have you been thinking about incorporating your small business or self-employment activity? The advantages are many!

For starters, you'll be protecting yourself and your family from the possible of a business ending lawsuit. Forming a corporation is Step One on the path known as "Asset Protection" -- you are moving from the world of unlimited liability to the world of limited liability.

(NOTE: For further insight into the legal advantages of incorporating, check out the article: "It Can Happen To You: Why Any Sole Proprietorship Is A Risky Business" at http://www.YouSaveOnTaxes.com/happen-to-you.html)

From a tax standpoint, there are both advantages and disadvantages to incorporating. Yes, forming a corporation can either reduce your taxes or increase your taxes, depending on what type of corporation you create.

There are two main types of corporations: "C" Corporations and "S" Corporations -- and which type you choose can make all the difference in the world of taxes.

NOTE: The question of "C" Corp vs. "S" Corp has no effect on the asset protection provided by your corporation. This is a tax issue, not a legal issue.

A "C" Corporation can lead you into a Tax Trap known as "double taxation". Yes, income from a "C" Corporation can actually be taxed twice -- once when it's earned on the corporate level and again when it's paid to you, the shareholder, in dividends.

There are several ways to avoid double taxation. Often the easiest way is to tell the IRS that you choose to be an "S" Corp instead of a "C" Corp. The profits of an "S" Corp are not taxable to the corporation; instead, those profits are reported directly on the shareholder's personal income tax return and are therefore only taxed once.

And once is enough, don't you think!

Of course, any article on Choice of Entity must contain the old disclaimer, "Consult your tax professional" -- I am not prescribing a one-size-fits-all approach to this issue. But for many small biz owners and self-employed folks, the "S" Corporation is a good fit because it provides protection from personal liability and avoids the nasty tax trap of double taxation -- two great benefits worth checking into.

Should you incoporate your sole proprietorship and then decide that the "S" Corporation is the right fit, you must inform the IRS that your corporation is choosing "S" Corporation status by filing Form 2553, which is, in effect, an application to become an "S" Corporation.

IMPORTANT: If you incorporate and do not file Form 2553, you are automatically considered to be a "C" Corporation by the IRS. In other words, to be a "C" Corporation, you just incorporate; there is nothing you have to do to inform the IRS you want to be a "C" Corporation.

There are critical rules regarding how and when to file Form 2553, so be sure to read the instructions carefully, or check with your tax pro.

Failure to file Form 2553 on time or filing Form 2553 incorrectly results in a rejection of your corporation's "S" Corp application, and the corporation is then by default treated as a "C" Corp, subject to double taxation, the very trap you were trying to avoid.

To download a copy of Form 2553, go to: http://www.irs.gov/pub/irs-pdf/f2553.pdf

The instructions for filing Form 2553 are found here: http://www.irs.gov/pub/irs-pdf/i2553.pdf

Wayne M. Davies is author of 3 tax-slashing eBooks for the self-employed, available separately or as a 3-volume set, "The Ultimate Small Business Tax Reduction Guide". <a target="_new" href="http://www.YouSaveOnTaxes.com/ultimate-guide">http://www.YouSaveOnTaxes.com/ultimate-guide</a>

To get your free copy of Wayne's 25-page report, "How To Instantly Double Your Deductions" visit: <a target="_new" href="http://www.YouSaveOnTaxes.com">http://www.YouSaveOnTaxes.com</a>

Small Businesses: Company Car Vs. Personal Mileage Reimbursement In Hurricane Katrinas Wake

With gas prices at an all time high before Hurricane Katrina left her mark on our nation, most Americans were hoping that gas prices would settle down once summer passed. But gas prices have jumped as much as 80 cents a gallon across the country once Hurricane Katrina destroyed the Gulf Coast and impacted all of our lives.

While Hurricane Katrina is a horrible tragedy, it's not just affecting the Big Easy. Hurricane Katrina will impact every single American that commutes to work, takes a vacation, or shops online.

Company Car vs. Mileage Allowance

Companies and individuals alike are now concerned that the federal mileage deduction or their company's gas mileage reimbursement will no longer cover the costs of operating a vehicle for business purposes.

At the beginning of 2005, the IRS standard federal mileage reimbursement rate for business use of a personal vehicle (including vans, pickups or panel trucks) was 40.5 cents a mile for all business miles driven, up 3 cents from 37.5 cents a mile in 2004; The primary reason for the increase was higher prices of vehicles and fuel in 2004.

Christopher Tanis, District Manager of a restaurant chain in New York State travels for business to 5 different stores per week. For him, the 2005 federal reimbursement rate worked out quite well, and he opted for using his personal vehicle instead of using a company car. Now that fuel costs are so high, he's decided to re-examine the financial feasibility of mileage reimbursement.

Poor Gas Mileage Cars are Losing Value

Chris Brown; owner of Auddie Brown Superstore, an automobile dealership located in Florence, South Carolina, commented "I think [the jump in gas prices resulting from Hurricane Katrina] is ridiculous because they act like we're running out of fuel and we've got plenty."

Selling cars, the standard expense for selling each vehicle used to include a full tank of fuel when they bought a car, once the price hit $2.50 a gallon, Chris starting limiting his fuel allowance to $10. Chris explains, "Some cars take $80 worth of fuel to fill up and on a new car we're lucky if we make $80 in profit on them -- especially the new cars. Our new car profit margin is at its lowest ever. At this point we're just glad to sell the car and bring in some inventory."

Now that gas prices have gone through the roof, small business owners are working furiously to dump those 6,000 pound gross vehicle weight fuel guzzlers they bought only a year or two previously under a tax loophole which allowed small businesses to write-off most of vehicle cost in one year.

Mr. Brown has experienced this situation on a larger scale than most of us, adding "People come in to trade their larger trucks and SUV's with poor gas mileage for smaller, better gas mileage vehicles. Most consumers are not only so upside-down (owing more on the car than its fair market value) but are finding it hard to trade-in these larger vehicles. Not only they are valued less because of gas prices but people just cannot afford the fuel that would be needed to maintain these lower gas mileage vehicles."

Weighing your Options

You, too, may have to analyze your <A target="_new" href="http://www.ConsultingMentor.com/Article.asp?97">business vehicle deduction</A> options, now that high fuel prices seem like they're here to stay. You may find that while maintaining a mileage log and claiming a car deduction or mileage allowance isn't right for your situation, the IRS will allow you to deduct actual vehicle expenses based on the percentage of business vs. personal miles. For those who use their vehicle mostly for business, minimal personal usage combined with the burden of record-keeping may justify a company car. There's no right answer for everyone. Literally, your mileage may vary. Consider your options and you'll find the way to steer yourself to the best tax advantages in these new circumstances.

Ann-Marie Patero is a freelance writer for <A target="_new" href="http://www.EnvisionSoftware.com">Envision Software</A>, publisher of Consulting Mentor, a website providing <A target="_new" href="http://www.ConsultingMentor.com">Consultant Resources and Consulting Articles</A> to Consultants world wide. If you're a consultant, freelancer, or considering starting your own small business, the resources at Consulting Mentor will help you improve your effectiveness, profitability, and overall success.

Taxing Overseas Firms for SOX Compliance

The Sarbanes-Oxley Act, also called the Public Company Accounting Reform and Investor Protection Act of 2002 was signed into law on July 30, 2002 by President Bush. In the aftermath of Enron, Arthur Andersen, Global Crossing, and WorldCom, SOX promises greater corporate accountability and transparency. Named after Senator Paul Sarbanes and Representative Michael G. Oxley, SOX focuses on the importance of ethical behavior in corporate governance-across the United States and now?overseas.

All countries have government-required laws like Sarbanes Oxley. In the UK, it's the "Combined Code on Corporate Governance," in The Netherlands it's the "Code Tabaksblatt," Germany has a "Bilanz Reform" and a "Bilanz Kontroll Gesetz." But then, why do we need SOX overseas since we already have the required laws? It's because companies with U.S. headquarters must ensure that all foreign outposts meet federal standards. This is the major cause of concern in the management and accounting circles. According to some experts, the Sarbanes Oxley Act might have dictated convoluted rules and regulations on the U.S. businesses. While the rules are concrete ideologies that prevent accounting scandals, the constant flux in the policies confuses businesses around the globe.

SOX compliance by vendors and business partners outside the U.S. is a frightening task. The risks and complications involved in enforcing the regulations for multiple firms around the world are enormous. The U.S. firms should keep themselves abreast of the data operations and data management followed by overseas vendors. This complicates the case further as the data should be integrated in financials or entered in balance sheets. Cumbersome processing of data would step up IT-related expenses.

The global impact of SOX is tremendous. At the moment, the UK Big Four firms are feeling SOX repercussions in their consulting sectors. <a target="_new" href="http://www.big4.com/">Big4.com</a> -a website for global Big4 alumni- receives periodic updates on the latest news and trends at the Big Four firms. The Big Four in UK reportedly lost GBP250 million in consulting fees since 2002-a direct outcome of Sarbanes-Oxley Act. Among the Big Four firms, PricewaterhouseCoopers faced a huge decline in their consulting fees. Causes for this decline can be attributed to:

? The increased cost of compliance that usurped consulting budgets.

? Independence restrictions in Sarbanes-Oxley have restrained companies from utilizing their auditors for many consulting services.

There is an apparent role reversal in consulting fees and audit services. If consulting fees have declined, audit fees have considerably increased. A whopping 30% increase in Big Four audit fees has been observed over a period of two years. This spike does not compensate for the revenues lost for consulting. Consulting was the major strength of the Big Four in the UK. But, in the present conditions, the significant decline in consulting fees clearly demarcates the performance of the Big Four in the UK.

According to a survey by an European firm, many overseas firms with their shares listed in the U.S. were not ready to meet the deadlines of Sarbanes-Oxley. Since European firms already have specific regulations, SOX compliance is extremely difficult. Some overseas firms have been attempting to get delisted from the U.S. stock markets since SOX's inception. Foreign firms about to get listed on overseas exchanges are also resisting to get listed in the U.S. These problems would take toll on the U.S. market performance and economy. But, the exit of foreign firms from the U.S. exchanges is not that easy. As per SEC guidelines, foreign firms holding 300 or more shareholders in the U.S. cannot delist from the U.S. exchange where they trade.

In the light of these problems, the Securities and Exchange Commission-in its bid to offer sustained flexibility-started modifying rules for overseas firms listed in the U.S. The SEC would facilitate foreign firms to delist their securities that are traded on the U.S. exchanges. Modifying SEC rules to accommodate European firms would create a state of unrest among the American managements.

The SOX compliance should be an &quot;all-encompassing&quot; formula-that which enables governments and managements worldwide to function efficiently and in rhythm. A level headed approach to weed out this disconcert would improve the situation.

Hi. I am Neil and am a <a target="_new" href="http://www.big4.com/">Big4.com</a> Alumni Member. I have been writing articles since my college days. Would love to interact and share my articles with other writers.

Take Control of Your Taxes

As everyone in the U.S. knows, we have just passed one of our most "favorite" times of the year: income tax season. If you are going to create and sustain wealth, it is inevitable that you will have to address your personal tax situation.

By "address," what I really mean is take control. This is true whether you live in the U.S. or just about any other country. Agree or disagree with the "fairness" of taxes, this is a subject that you must obtain some basic understanding if you want to significantly increase your wealth.

Before I start, let me say that I am certainly not a tax expert. And space does not permit going into detailed tax strategy. The purpose of this article is to explain why it is so important for you to take up the study of basic tax law and strategies, and even more important seek out the advice of a true tax expert.

Why is it important to understand taxes?

In most cases, taxes are your largest expense. This is probably the key reason that wealthy people spend so much time, effort, and money doing their best to minimize their tax expense. Depending on your tax bracket, your federal taxes may be as high as 28%-35% of your income! And then there are social security, state income taxes, property taxes, sales taxes, etc., etc. If you are generating all of your income from your wages (earned income), you may be lucky to actually keep 50% of what you really earn.

That is a staggering figure when you think about it. That means that if you have a salary of $50,000, you may be only keeping $25,000 of your earnings for your own purposes.

If you think I am exaggerating, pull out your last paycheck and look at the tax withholdings for taxes that have been taken off the top of your earnings. If you take your net earnings and divide them by the gross earnings, what is that percentage? Don't be shocked if it isn't about 40%. Then take a look at your sales taxes. In California, the sale tax is around 8.25%. So just doing a quick estimate, I'm already at about 48% in tax expense (assuming most of the money is spent on taxable items).

The cost of ignoring your tax expense and not doing everything legally possible to minimize it is huge. Of course, tax law can be exceedingly complex, and the penalties of making a mistake are high. So a large number of people, simply accept this large tax expense as inevitable. They concede defeat without really even trying to take any type of action to minimize the impact.

What are some actions that you can take?

1) Recognize that you can take action to reduce your tax expense. Too many people blindly assume that it is impossible to significantly reduce their tax expense. Either they think it is too complicated, too much trouble, or they are afraid that if they take deductions that are legitimate, that the government will come after them. If you assume there is nothing you can do (learned helplessness), you are right. If you assume you can improve your tax position, you're right. The fact is that while you must pay your legal share of taxes, the government actually wants you to take advantage of tax deductions and credits. That's why the laws were passed to allow for them.

2) Make a commitment to study basic tax law so that you have at least enough knowledge to speak with a tax advisor with a certain degree of intelligence. You can't take deductions that you are not aware of. Because of the potential savings, the study of tax law needs to be a fundamental part of your financial literacy education. Your two highest priorities must be to create wealth in the most efficient manner and protect it. And any protection strategy must include protecting it from over taxation. Don't just limit your study to books. Also seek out college classes, night-school, and seminars. But be careful of seminars as they can be a lot more expensive and not as thorough as a class from a community college.

3) Seek out a CPA and/or Certified Financial Planner to come up with a long range plan to minimize your taxes and increase your wealth. Start with the most experienced person you can afford and plan to pay for even more expert advice as your wealth increases. Ultimately, it will probably be less expensive to pay for outstanding advice than to over pay on your taxes. If you wait until tax time to come up with your plan, you have waited too long.

4) If you haven't already, start keeping detailed financial records. This is a good habit to get into even if you don't yet have a business. If you keep detailed records (using a computer program!) as you go through the year, it makes it much easier to turn over your records to your tax preparer when tax time comes.

5) When you record your income from your paycheck, be certain to record all deductions taken from your check. Don't just record the net. If you actively track your tax expenses deducted from the top of your wages, you will be more motivated to do everything possible to legitimately reduce that expense. If you simply record the net wages, you have probably fallen prey to the tax trap without a fight.

6) If you are an employee, make certain you are taking full advantage of your 401k and medical flex spending plan if available. Money set aside for your 401k (usually matched by your employer) helps reduce your taxable income. You have to pay taxes eventually, but hopefully by the time that happens you will be in a lower tax bracket. Medical flex spending plans help you pay for medical costs (including over-the-counter medicines, dental work, glasses, etc.) using pre-tax dollars. Flex spending plans are also available for child day care.

7) As soon as possible, replace your income from wages with income from your own business and unearned income from investments. Of course, this is easier said than done, but the benefits are huge. If your income comes from a business that you own, it's much easier to pay for expenses with pre-tax dollars. Obviously, you have to have a real business (not just a hobby) and the expenses must be legitimate business expenses, but this allows you to have a lot more flexibility in your tax planning. Realize that you can (I would say must) still start a business even if you have a full-time job. If you want to create great wealth (and minimize your tax expense), don't let fear, unbelief, or lack of knowledge prevent you from starting your own business. You must take action to overcome those obstacles.

Eventually, you need to target making the ultimate shift to getting your income from unearned income rather than wages. Unearned income is taxed at a lower rate than earned income. That's one of the ironies of our tax law: the more income that is "unearned" the lower your tax expense.

Some Power Affirmations Related to Helping you Take Control of Your Tax Expense

1) I am now in confident control of my tax expenses.

2) I have a clear understanding of basic tax law and strategies.

3) I regularly seek out sound tax advice from seasoned professionals.

4) My unearned income from investments is increasing everyday.

5) I record all financial transactions regularly and take advantage of every legitimate tax deduction.

6) I now take maximum advantage of my employee benefits including my 401k and flexible spending accounts.

7) I pay as many expenses as possible with pre-tax dollars.

8) I enjoy studying basic tax law, because I enjoy the savings my knowledge brings.

9) I am absolutely committed to increasing my financial intelligence everyday.

10) I now take full advantage of every legal tax deduction available to me.

11) I track my tax expenses and take every action possible to minimize that expense.

12) By studying books, taking college-level classes, and attending seminars, my financial intelligence is increasing everyday.

Copyright (c) 2005 Bill Marshall - All rights reserved. Feel free to republish this article provided you include the copyright information and the weblinks where possible.

For practical self-improvement tips, visit <a target="_new" href="http://www.poweraffirmations.com">http://www.poweraffirmations.com.</a> Get my new free e-book, "Power Affirmations: Power Positive Conditioning for Your Subconscious Mind"

Are You Overpaying Taxes If You Use Tax Preparation Software?

For many business owners the answer to this quandary is tax preparation software. Fill out a fairly simple interview, click &quot;print&quot; and out comes a completed return that will pass muster with the IRS. The answer to all your problems?or is it?

Can One Software Program Cover All Businesses?

Take a moment to consider the wide range of businesses that exist in the United States. Now cut that number down to those that can be categorized as &quot;Internet businesses&quot;. If you were asked to write a business plan to provide web design services to each of these services, how long would it be? It would be huge and completely useless because each business would have different needs. A Internet business selling flowers would have completely different needs from an online bank which would have different needs from a hosting company and so on. The only way you could create a practical plan for all Internet businesses would be to offer a collection of general services they could all use on their sites. Tax preparation software designers have the same problem.

There are over 15,000 pages in the tax code and over 100,000 pages of regulations interpreting those pages. Changes are made to the tax code ever year, and new regulations are issued constantly. If one were to create a list of questions for every tax deduction and credit detailed in those pages, the list of questions would be the size of a phone book! Yet, tax software programmers have somehow boiled it all down to a simple 30-minute interview process? Common sense should tell you that doesn't make sense.

As practical matter, tax software programs are designed to make sure that you claim a general set of deductions that are applicable to businesses across all industries. Most programs try to mask this fact by asking you to identify your business before proceeding. For a lark, you might try selecting another industry and then running through the interview process. You will find that the interview process is modified a bit, but you are still being asked the same basic tax deduction questions.

If you are only claiming general business tax deductions, you are paying more than you should in taxes. Ask yourself if you have seen any of the following questions in a tax software program interview:

Q. Do you store business inventory in your house?

Hint: You may be able to claim hundreds or thousands of dollars in deductions.

Q. Did you start a pension plan for your employees?

Hint: You may be able to claim a tax credit for the next three years totaling $1,500.

Q. Do you have a home-based business and a second office?

Hint: You may be able to deduct your commuting expenses each day. Yes, commuting expenses.

Q. Do you have business meetings at your home?

Hint: Did you charge your business for the space?

Q. Should you claim the standard mileage rate for your auto or the actual costs?

Hint: The standard mileage rate may not the best option.

Q. Did you modify your business location to comply with the Americans with Disabilities Act?

Hint: You may be able to claim a tax credit AND tax deduction for tax savings of $20,000 or more.

Q. Did you refinance your home?

Hint: The points you paid on your original mortgage are fully deductible now, not over the length of the loan.

This represents only the tip of the iceberg of available credits and deductions available to you. Just one of these deductions could save you thousands of dollars in taxes. Yet, you are never going to see these questions raised in a tax software program interview. The tax code and regulations are simply too large to be incorporated into a usable software program.

Your business is unique. You face and overcome issues and problems that are unique to your size, financial situation and particular business needs. Don't short change yourself by limiting your deductions by using tax software programs.

Richard Chapo is CEO of <a target="_new" href="http://www.businesstaxrecovery.com">http://www.businesstaxrecovery.com</a> - Obtaining tax refunds for small businesses by finding overlooked tax deductions and credits through a free tax return review.

Back To School ? Educators Deduct School Expenses

As teachers and students head back to school following a glorious summer, it's time to remind teachers to organize 2004 school expenses. Under a temporary tax code change, teachers can deduct certain school-related expenses from adjusted gross income.

Educator Expense Deduction

If you work in the education field, you may be able to deduct up to $250 from your adjusted gross income for 2004 taxes. Unfortunately, the deduction is only applicable to 2004, but there is a reasonable possibility it will be extended to the 2005 tax year and beyond. As a result, you should continue to keep records so you can claim the deduction if it is extended. So, who can claim it and what can be claimed?

&quot;Educators&quot;

Under the tax code provision, &quot;educators&quot; are defined as a fairly broad group of professionals. You are an education if you comply with the following guidelines:

1. You teach kids in kindergarten or through grade 12;

2. You are a teacher

3. You are an instructor

4. You are a counselor

5. You are an aide, or

6. You are a principal

If you fit within one of the above positions, there is an additional time requirement that must be met. You must work at least 900 hours in an elementary or high school during the year in question. This equates to roughly half a year.

Expenses

As an educator, you are allowed to deduct unreimbursed expenses you paid for school room items. Examples include books, computer programs, writing supplies and those little stars I used to love getting on my book reports. Just make sure the school is not covering the costs.

The educator expense deduction is a rather disappointing $250, but every deduction counts when it comes to taxes. Make sure you claim the deduction and keep your receipts for the write off.

Richard Chapo is with <a target="_new" href="http://www.businesstaxrecovery.com">http://www.businesstaxrecovery.com</a> - recovering overpaid taxes for small businesses. Visit our article page - <a target="_new" href="http://www.businesstaxrecovery.com/articles">http://www.businesstaxrecovery.com/articles</a> - to read more tax articles.

How to Reduce the Estate Tax Using the A-B Revocable Living Trust

In a past article I relayed the plight of the widow who stated:

"I didn't realize what an A-B Revocable Living Trust meant and that it had to be divided between the survivor and the deceased spouse and that I am limited as to what I can use from his share."

She told me that she only learned of this after her husband passed away. This is too late for many (there is a way to collapse an A-B Revocable Living Trust, which we'll talk about in another article).

First, what is an A-B Revocable Living Trust? I spend a great deal of time going over this in my free Multi-Media Course, available at http://www.livingtrustsecrets.com. Basically it is the splitting of a husband and wife's estate into two shares, his share and her share. The reason is to capture, or use, the estate tax unified credit amount that each spouse receives on death.

Let's explain. Since we know Uncle Sam likes to receive his inheritance too, whenever there is a death, we always need to ask "is there a tax?"

When we talk about taxes on death, we are talking about the federal estate tax (your state may also have a tax, sometimes called an estate tax or an inheritance tax. The difference is who is liable for payment of the tax? the estate or the inheritor? But let's not get side-tracked on the state tax. Let's stick with talking about the federal estate tax).

So let's say you have a "simple will." In a simple will, you will usually say "when I die, leave everything to my spouse." Very Simple.

Now, is there a federal estate tax? First, realize that the passing of property on death is a privilege and not a right. Therefore, it is taxable event. Even though it is a taxable event, however, the tax code tells us that everything that is left to our spouse is tax-free under what is called the "marital deduction." So, in our simple will example, there would be no estate tax since everything you leave to your spouse is tax free.

Uncle Sam is patient. He is willing to wait until the second spouse to die passes away. Now, he gets to collect his tax on the total of both shares: the husband's share and the wife's share.

What happened with the "simple will" is that you have wasted the federal estate tax unified credit amount (currently $1.5 million) that can be left tax free to anyone.

So, what the A-B Revocable Living Trust is designed to do is to capture and preserve the federal estate tax unified credit amount available when the first spouse dies. It does this by creating what is often called the "credit shelter" trust.

The "credit shelter" trust (the "B" trust in an "A-B" Trust) is an irrevocable trust that springs into being out of your Revocable Living Trust when the first spouse dies. This trust is designed to be managed by the surviving spouse for the benefit of the surviving spouse, without giving the survivor any "taxable incidents of ownership."

What this accomplishes is that upon the death of the second spouse to die, the assets that had been placed into the "credit shelter" trust are not considered to be owned by the second spouse to die. Therefore, they are not included in or taxed as part of the second spouse to die's estate.

This can often save hundreds of thousands of dollars, since the federal estate tax rate kicks in at 37% and goes up from there.

Good luck and until next time,

Phil Craig

P.S. Feel free to forward this on to any friends.

Phil Craig is a licensed attorney and entreprenuer. He started practicing law at age 25 in 1979. He does not take on any more clients, but is advisor to some of the biggest names in the internet world. He shares his knowledge gained over the last 25 years at his Living Trust Secrets newsletter site: click here=========><a target="_new" href="http://www.LivingTrustSecrets.com">http://www.LivingTrustSecrets.com</a>

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The Annual Gift Tax Exclusion: Getting The Edge

Whether helping the kids with a down payment on their first home, paying the premiums on a life insurance policy in an irrevocable trust, or moving appreciated assets to a younger generation, annual gifting will touch the lives of millions of Americans. But before the transfer is made, an investor should spend some time looking at the investment and the tax ramifications of the property to be passed.

Much of the gifting itself will be done under the Annual Gift Tax Exclusion, a method that alleviates both a gift tax and the need to report the transfer. This exclusion applies to gifts only between individuals. Gifts made to charities and other organizations fall under a completely different set of rules.

The transfer is not deductible by the donor nor is it taxable to the recipient. Currently (in calendar year 2005), the annual exclusion is set at $11,000. In the future, this can be adjusted for inflation, but only in $1,000 increments. Spouses can increase their gifts to others to a maximum of $22,000 and, finally, gifts between spouses, like love, knows no limits.

Most transfers are done for one of two reasons. In the past, passing along property to diminish the value of an estate and, therefore, estate taxes was a major consideration in estate planning. This is still used extensively for larger estates but, under current law, fewer estates are subject to the tax. If the estate has no tax exposure (and if nursing care is taken care of), many advisors recommend not to gift at all but, instead, toallow the assets to receive a &quot;stepped up&quot; tax basis upon death.

Gifting to allow for current use of assets has been and continues to be popular. Often a parent wants to see a child use the gift immediately in order to enjoy an extended vacation or to make a major purchase. Here, it is expected that any gift of securities will be converted into cash with the appropriate tax paid.

Both donors and recipients should be aware that various gifts for educational or medical purposes may not reduce the annual exclusion. You should check with your tax advisor to determine whether this applies to a your specific situation.

Certain kinds of property (real estate, art, collectibles, closely held business interests, etc) should be appraised before a transfer is made. Consulting an expert in the particular field is usually a good idea to calculate the fair market value of the property.

Another circumstance requiring professional help is when &quot;spending down&quot; an estate for Medicaid purposes. An elder law attorney should be consulted for help in this area.

The actual gift of marketable securities or cash is fairly straightforward. Giving a check to someone or journaling over securities is enough to complete the gift. However, before making the gift, you should understand some of the potential tax considerations.

Let's first look at stock that has appreciated in value. Remember, whatever tax basis the donor in the gifted property will become the recipient's tax basis. If the donor is in a higher tax bracket than the recipient, it is often wise to gift the stock to the recipient and let the recipient sell the stock at his or her lower tax bracket.

If the fair market value of the stock is below the donor's original cost, then the donee must use the fair market value of the property as of the date of the gift in determining his or her tax basis. If you find yourself in this situation, the donor should consider selling the asset and then gifting the cash proceeds to the recipient.

Obviously, there will be times when a gift needs to be made regardless of the consequences; but, when time allows, you should do your homework to see what works to your best advantage.

Glenn (&quot;Chip&quot;) Dahlke, a senior contributor to the Living Trust Network, has 28 years in the investment business. He is a Registered Representative of Linsco/Private Ledger and a principal with Dahlke Financial Group. He is licensed to transact securities with persons who are residents of the following states: CA. CT, FL, GA, IL. MA, MD. ME, MI. NC, NH, NJ, NY.OR, PA, RI, VA, VT, WY.

If you have any questions or comments, Chip would love to hear from you. You may contact him by email at <a href="mailto:dahlkefinancial@sbcglobal.net">dahlkefinancial@sbcglobal.net</a>. You may also contact him at the Living Trust Network's web site at <a target="_new" href="http://www.livingtrustnetwork.com">http://www.livingtrustnetwork.com</a>

Copyright 2005. LivingTrustNetwork, LLC. All rights reserved.

Deducting Points On Home Refinances

Deduction of Refinance Points

Any points that you pay in the refinancing of your residence are tax deductible over the length of the loan in question. The deduction is allowable only if the residence is your primary home and the new mortgage replaces a previous one and/or is used to improve the residence. To the extent that money is taken out to pay off credit cards and non-residence costs, the points may not be used as a tax deduction.

Big Deductions By Refinancing Twice

If you refinanced your primary residence twice during 2004, you may be in for a very nice surprise. A significant tax deduction can be created when you refinance twice in one year. If you refinance a mortgage, you accelerate the deductible amount of points from the first mortgage and may claim the points from the first mortgage all at once.

As an example, assume that I refinanced my home in January 2004 and paid $3,000 in points. Interest rates continued to drop through 2004 and I then decided to refinance again in August. Because I paid off the original loan with the refinance, I am able to accelerate the value of the points of the January loan.

So, what tax deductions have I created for my 2004 filing period? Initially, I am going to deduct a percentage of the points off of my latest refinance. The deduction will amount to the total amount of points paid divided by the total months of the loan. This will not be a big deduction, but every little bit helps.

In addition to this amount, however, I will also deduct the full $3,000 in points that I paid on my January 2004 refinance! I am able to claim this deduction because I "accelerated" the deductibility of the points by paying of January mortgage with the August refinance.

By refinancing twice, I get a lower interest rate and a healthy tax deduction. Ah, the value of owning a home.

Richard Chapo is CEO of <a target="_new" href="http://www.businesstaxrecovery.com">http://www.businesstaxrecovery.com</a> - Obtaining tax refunds for small businesses by finding overlooked tax deductions and credits through a free tax return review.

Tax Reform, My Way

We need real tax reform and we need it now. Previous attempts have been made at tax reform, but they have only provided band-aid solutions that have still left us with too many quirks, complication, and read tape. There are several things Congress could do to simply the tax system and benefit the taxpayers and federal budget at the same time.

First, I would institute a simple two-tiered tax on earnings and passive income (interest, dividends, capital gains, etc.) that are not in a tax-sheltered account. They would be treated equally and no distinction would be made between long-term and short-term capital gains. Individuals (whether married or not) who have taxable earnings and passive income of less than $30,000 would pay no federal taxes. Amounts equal to or greater than $30,000 but less than $200,000 would be taxed at 25%. Amounts equal to or greater than $200,000 would be taxed at 30%.

Second, I would get rid of the quarterly estimated tax requirements and associated penalties for everyone except those who are habitually late (after April 15) filing their return and/or paying their taxes. Few things in our tax system are more complicated than trying to figure whether or not you paid enough estimated taxes, whether they were paid on time, and/or the penalty for not doing so. Even the IRS acknowledges how complicated it is to figure out this penalty, as they offer to calculate it for you.

Third, I would eliminate the annual limits on capital losses as well as those special &quot;wash sale&quot; rules, which further restrict the writing off of capital losses. The reporting of capital gains has never been limited and neither should capital losses. &quot;Wash sale&quot; rules restrict the writing off of capital losses for stocks and mutual funds sold at loss but bought back again within 30 days. As I mentioned in a previous writing, these rules can get very complicated, with those for figuring the estimated tax penalty being the only ones that are more difficult to understand.

Fourth, I would keep personal exemptions and child tax credits intact but eliminate all deductions except for charitable contributions and mortgage interest on one's primary dwelling. There would be no standard deduction or Earned Income Tax Credit.

Fifth, I would eliminate the Alternative Minimum Tax (AMT). This is probably the third most complicated item in the tax law. It was designed to make sure the rich pay at least some taxes, but the elimination of most deductions would accomplish this goal now by taking away most of their shelters.

Sixth, I would make some adjustments to inheritance and gift taxes. For the most part, they would not be treated any differently than ordinary income. However, there would be some exceptions. Inheritances and gifts passed from one spouse to another would be exempt from federal taxes. Inheritances of family farms and other legitimate businesses by any family member from another would not be taxable.

These changes would benefit individuals by making the tax system less complicated for everyone and taking a smaller percentage of income from most taxpayers (especially the middle class). The government would benefit from collecting more taxes because more people would be working and receiving higher incomes (as this system would encourage more investment in infrastructure). Also, more people would be encouraged to make more taxable passive income. The current system discourages taxable passive income. In addition, the extremely wealthy would have fewer options for sheltering their income.

Terry Mitchell is a software engineer, freelance writer, and trivia buff from Hopewell, VA. He also serves as a political columnist for American Daily and operates his own website - <a target="_new" href="http://www.commenterry.com">http://www.commenterry.com</a> - on which he posts commentaries on various subjects such as politics, technology, religion, health and well-being, personal finance, and sports. His commentaries offer a unique point of view that is not often found in mainstream media.