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DeTaxUS "Inasmuch as most good things are produced by labor, it follows that all such things of right belong to those whose labor has produced them. But it has happened, in all ages of the world, that some have labored, and others have without labor enjoyed a large proportion of the fruits. This is wrong and should not continue. To secure to each laborer the whole product of his labor as nearly as possible, is a worthy subject of any good government."
CONTENTS:
INTRODUCTION Our Mission is to Abolish the Federal Income Tax
Tax season is winding down for the majority of taxpayers. Except for those who have filed for automatic extensions, April 15 will be the grand finale. Accountants who have been working day and night for 6 or 8 weeks straight will take a few days off, then come back to fairly normal hours for the next several months working with their clients on tax planning for 2002 and filing occasional returns for those who extended. People ask me why I'm not an accountant any more, and I tell them I got tired of the same old routine. That's true. But it is also true that the longer I played the tax tactics game, the more frustrated I became with the system itself. Why should you have to keep records that don't benefit you personally? Do you really care that you don't have a receipt for clothes or furniture you donated to the Salvation Army? Did you buy medical insurance to claim a tax deduction or to protect yourself against financial ruin? Whose business is it that you deposited more than $5,000 in your checking account? Why do we put up with having the government dictate how we run our financial affairs? Ask your friends and neighbors a few of those questions, and see how they respond. Then tell them you joined DeTaxUS and you're taking a stand. Warmest regards, Cory Layne & Royal Fletcher PS - Charter Memberships at $18.00 a year will end April 15. Membership in DeTaxUS will be $24.00 a year after that date. "It will be of little avail to the people that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant
changes that no man who knows what the law is today can guess what is will be tomorrow." 1. TAX NEWS The Job Creation and Worker Assistance Act of 2002 On March 9, 2002, President George W. Bush signed the Job Creation and Worker Assistance Act of 2002 (H.R.3090). This act is a scaled back version of the economic stimulus package proposed immediately after the tragedy of September 11, 2001. A major provision, special depreciation allowance for qualified property, affects 2001 tax returns. Special Depreciation Allowance creates a 30% first year bonus depreciation for "qualified" property. Congress defined "qualified" property as follows:
The special allowance reduces the depreciable basis of the asset. Normal first year depreciation is then calculated on the adjusted basis. For example, a five year asset placed in service December 1, 2001, with a cost of $100,000 could qualify for the special depreciation allowance of $30,000. First year depreciation would then be calculated on the remaining $70,000 basis for ordinary depreciation of $14,000. Total depreciation for the first year would be $44,000. This amount could be increased by electing Section 179 expense. For 2001, the maximum Section 179 expense is $24,000. If the maximum amount of Section 179 expense was elected on this same asset the calculation would be as follows:
The Act allows the special allowance deduction for Alternative Minimum Tax purposes, therefore, no AMT adjustment will result. Congress also increased the passenger automobile limit by $4,600 for automobiles placed in service after September 10, 2001. In other words, the maximum amount of depreciation expense (including Section 179 expense and special allowance) for qualified vehicles is $7,660. NOTE: Many states have informally indicated that they will not be adopting the changes. They have indicated that taxpayers may want to extend their state returns until additional guidance is provided from the various states' departments of revenue and legislatures. Those who have indicated that they will not be conforming to the federal changes have generally instructed taxpayers to create an addition on the Other Additions line of the state tax form. Contact your individual state for specific guidance. Other provisions of the Act:
Most personal and commonly used business forms will be available online by April 8th. Some have not yet been issued by IRS [e.g., the Form 1045] ============== OFFSHORE BANK ACCOUNTS TARGETED . . .IRS has reached agreement with American Express, VISA, and MasterCard to share information on tax evaders who use offshore bank accounts in tax havens such as the Bahamas and the Cayman Islands. It is estimated that billions of dollars have been squirreled away. IRS will be using credit card activity reports - which are processed in the United States - to track unreported income and to determine who has not filed tax returns. On Wednesday, March 27, 2002, IRS won approval from a federal court in San Francisco to obtain credit card and debit card records from cards issued by banks or other financial institutions in the Cayman Islands, Bermuda, Hong Kong, Switzerland and a host of other foreign jurisdictions. The records in question date from 1/1/00 through 12/31/01. The judge found that IRS had demonstrated reasonable basis for believing that many of the cardholders were not complying with US tax laws. 2. JOKE OF THE MONTH Jones applied to a finance agency for a job, but he had no experience. He was so intense that the manager gave him a tough account with the promise that if he collected it, he'd get the job. Two hours later, Jones came back with the entire amount. "Amazing!" the manager said. "How did you do it?" "Easy," Jones replied. "I told him if he didn't pay up, I'd tell all his other creditors he paid us." ============== Two men were in a restaurant and ordered fish. The waiter brought a dish with two fish, one larger than the other. One of the men said to the other, "Please help yourself." The other one said "Okay", and helped himself to the larger fish. After a tense silence, the first one said, "Really, now, if you had offered me the first choice, I would have taken the smaller fish!" The other one replied, "What are you complaining about? You have it, don't you?" 3. TAX TIPS
Foreign tax credit: Do you have mutual funds that invest in foreign stock? Or do you own individual stocks in overseas companies? If so, you probably are charged a "foreign tax" on the dividends that you receive. Not sure how to report those foreign taxes? You can certainly take them as an itemized deduction. But, for those of you who don't itemize or find it more valuable to take the credit, you can do so right on your Form 1040. If you meet certain criteria, you no longer have to file Form 1116, but check it out anyway because the form and instructions provide valuable details on how to include the credit on your Form 1040. ============== Gambling losses are taken as an itemized deduction but can't exceed your winnings. Gambling losses aren't subject to the 2% floor on miscellaneous itemized deductions, nor are they subject to the 3%-80% overall limitation on itemized deductions. When you gamble and lose, you should keep records of your ticket purchases (canceled checks, credit card charges, losing tickets, etc.). In some cases, taxpayer estimates have been allowed, but documentary evidence is preferable by far. Casinos issue 1099's for each slot machine payout over $1,200.00 and for certain large payouts on other games, such as Keno. The uninitiated often pay taxes on the full amount of the winnings because they don't know how to substantiate their losses. If you send the casino your 1099's at the end of the year, they will send them back to you with a statement stating that you lost the same amount. Since most slot players, over time, tend to win back only 94-97% of the money pumped into the slot machines and the house has the edge in most other games, unless you are exceptionally lucky, your losses will probably be greater than your winnings. It's a good idea to keep track of your wins and losses in the event you are ever audited. I keep a small spiral notebook in my shirt pocket (it is my day planner, address book, memory jogger and expense tracker). I jot down the date, name of casino, and my stake (the total cash in my wallet and pockets) when I enter the casino. When I leave, I jot down my total cash on hand (often ZERO, occasionally in the thousands). When I get home I transfer the data to my computer (I use Quickbooks), but a simple ledger book from any office supply store will suffice. In it I keep a running tally of wins and losses. Just subtract your original stake from the total you brought home. Negative amounts go under Losses (debit), positive amounts go under Wins (credit). Subtract losses from your running total, add wins. You'll always know where you stand and whether your gambling is under control. I used to be a "Player" but I gradually became a "Gambler." A Player is a person who goes to a casino to have fun, knowing full well that he or she will probably lose and plays only with money s/he is willing lose as the cost of entertainment. A Gambler, on the other hand, goes expecting to win, often does, and is disappointed when s/he doesn't. Luck runs in streaks, and a good gambler uses money management strategies, knows when to cut his/her losses, and goes home to wait until the luck returns. A bad gambler (a compulsive) keeps throwing good money after bad and disappointment turns to frustration, then to anger, sometimes rage. There are programs, such as Gamblers Anonymous, to help compulsive gamblers overcome their addiction. Any disallowed losses when you use the Schedule A Miscellaneous Deduction option can be carried forward to the next year. If you gamble on a regular basis, you can claim you are a professional gambler and use a Schedule C to report income and losses, thereby avoiding the loss limitation incurred when you use the Schedule A Miscellaneous Deduction option. You can also deduct travel to and from the casino. Comps may be considered income by some IRS auditors, though you may argue that they are nontaxable perks provided by the casino to attract your business and are of little cost to the casino and should be treated the same as nontaxable meals and lodging provided to employees for the convenience of the employer. Of course if you have a winning year, you also have to pay Self-Employment taxes, but you get to deduct 50% of the amount on your Schedule C. Losses on your Schedule C can be used to offset other income. ============== Dates to Reckon With April 15, 2002 INDIVIDUALS:
CORPORATIONS:
PARTNERSHIPS:
TRUSTS & ESTATES:
April 30, 2002
June 17, 2002
July 31, 2002
August 15, 2002
Sept. 16, 2002
October 31, 2002
Dec. 16, 2002
============== We must confine ourselves to the powers described in the Constitution, and the moment we pass it, we take an arbitrary stride towards a despotic Government." 4. PLANNING for 2002
Pension and IRA Changes:
Health Insurance Premiums: In 2001 you were allowed to deduct 60% of the health insurance premium costs for both you and your family if you were self-employed. This was not an itemized deduction but was deducted in figuring Adjusted Gross Income. Starting in 2002, this amount goes up to 70% and will go to 100% in 2003. By incorporating your business and paying yourself as an employee, the corporation can deduct 100% of your medical insurance premiums in 2002, even if it is an individual policy, so long as the corporation pays the premiums directly or has a medical reimbursement plan in place. ============== Want to do a good deed and get a tax deduction to boot? You can deduct, as a charitable contribution, up to $50 per school month for housing an exchange student (grade 12 or lower) sponsored by a qualified organization. You might also be able to deduct, as a charitable contribution, expenses that exceed payments received from a charitable organization for providing support for qualified foster-care individuals placed in your home. ============== Insurance Trusts: Although life insurance paid to some heirs avoids probate, life insurance that is owned by you or paid by you is included in your estate at the full face value of the policy! Avoid having insurance included in your estate. Set up an irrevocable insurance trust. This is a trust that you can't revoke that has the ownership of the insurance. All proceeds are paid to the trust upon your death. The trust either owns enough assets to pay the premiums, or you can fund the payments as grants to the trust. This trust will avoid probate, avoid all estate taxes upon your death (as long as the trust is set up at least 3 years before), and avoid all probate and estate taxes upon your spouse's death. The cash can be used to pay any taxes owed on your business or on other property or for the support of your family. This is a major planning technique that most people should immediately institute. 5. RESOURCES
The Motley Fool has a handy expense calculator to help you work out your spending patterns: ============== "If a nation values anything more than freedom, it will lose its freedom; and the irony of it is that, if it is comfort or money it values more, it will lose that too." -- William Sumerset Maughan, 1941 6. EDITORIAL April 15 is upon us again. The season of coffee jitters and cussing as accountants and taxpayers alike spend innumerable hours trying to figure out how to fill out ever more complicated forms with incomprehensible instructions. Millions of people have already filed and have made an error related to a new line on their federal tax form. This line is for the Rate Reduction Credit, which taxpayers use if they did NOT receive last summer's Advance Payment for the maximum amount for their filing status. The IRS has automatically corrected most of the errors and amended those tax returns. Now Congress has passed yet another "economic stimulus" bill that is retroactive to 2001 (see Tax News, above), so many taxpayers will have to file amended returns to take advantage of the changes. Last year I spent the evening of April 16 (the 15th fell on a Sunday so the filing date was extended to the 16th) standing on the road on the way to the Provo, Utah, main post office handing out flyers on the insanity of the income tax and talking to folks about alternatives. These were people who had procrastinated until the last possible moment and had spent the final weekend cramming like school kids facing a tough exam. Nearly every person agreed that something should be done about the income tax, but most could not even imagine doing away with it altogether. The question asked most often was "…but how will they pay for the government without the income tax?" How indeed! Read Article I, Sections 8 and 9 of the Constitution at: If Congress stuck with the enumerated functions assigned to the House and Senate and didn't try to run the States and control the Citizens (both of which exceed the authority of Congress), there would be enough revenue from excise taxes, import duties and the creation of "money" to more than cover the cost of government. NO INCOME TAX IS NEEDED. Cory Layne P.S. Your comments and suggestions are welcome. We will try to respond to all of them personally and will include a selection of them in future newsletters and on the DeTaxUS website. Send email to: Editor P.P.S. Let us know how you feel about the income tax. Your opinion is always welcome. You can join our online forum to discuss tax issues by going to: P.P.P.S. You can help by sharing our vision with other over-taxed Americans. DISCLAIMERS: The information contained herein is general in nature and is not intended as legal, accounting or tax advice by DeTaxUS, Inc. The reader should seek professional guidance prior to taking any action based upon this information. DeTaxUS, Inc. shall have no obligation to inform the reader of any changes in tax laws or other which may affect the information provided. Portions of this newsletter may have been extracted from articles received for republication. Credit is given where the author is known. Unsigned articles and information gathered from government publications and websites are accepted as public domain. Copyright© 2002 by DeTaxUS, Inc. Copyright
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