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DeTaxUS Newsletter CONTENTS:
"The hour is fast approaching, on which the Honor and Success of this army, and the safety of our bleeding Country depend. Remember officers and Soldiers, that you are Freemen, fighting for the blessings of Liberty -- that slavery will be your portion, and that of your posterity, if you do not acquit yourselves like men." INTRODUCTION Our Mission is to Abolish the Federal Income Tax
We just celebrated the 4th of July with flags and fireworks, parades and picnics, music and mirth. Some of us felt great pride and patriotism swell up in our bosoms as we thought about the founders of this great nation and the sacrifices they made to "secure the blessings of liberty for ourselves and our posterity." Many of them died in battle on village greens and riverbanks, under cannon fire from the British man-o-wars along our shores, or from raging fevers from infections and diseases without the aid of antibiotics or even aspirin. Many were hanged by the British as traitors or spies. Many had their businesses shut down, their property confiscated or their homes burned to the ground and their families arrested or scattered to the four winds. Great sacrifices were made knowingly for the sake of freedom. Had they lost, the signers of the Declaration of Independence would have been hanged en masse as traitors to the crown. Winning the fight would enrich none of them. Even as victors many lost everything they owned and died as paupers. But they died as free men, without regrets for their actions. Their rebellion gave birth to the first nation on earth ruled by laws, not by men, where the People are the sovereigns and the government is the servant, rather than the other way around. Let us dedicate ourselves to preserving that freedom, ensuring to ourselves and our posterity the continued rights to life, liberty and property. Let's never be too cowed by the unchecked power emanating from the politicians in Washington to remember that they only have the power the People vest in them, and the People can take it back anytime we want. Warmest regards, Cory Layne "The preservation of the sacred fire of liberty, and the destiny of the republican model of government, are justly considered deeply, perhaps as finally, staked on the experiment entrusted to the hands of the American people." 1. TAX NEWS Deduction for Hybrid Vehicles Federal tax law allows individuals to claim a deduction for the incremental cost of converting a motor vehicle to a clean-burning fuel. The electricity in so-called hybrid gas-electric vehicles is a clean-burning fuel. By combining an electric motor with a gasoline-powered engine, these hybrid vehicles obtain greater fuel efficiency and produce fewer emissions than similar vehicles powered solely by conventional gasoline-powered engines. The amount of the deduction depends on the particular hybrid automobile being purchased and will be set in the coming months after manufacturers document for the IRS, as specified in Revenue Procedure 2002-42, the incremental cost of each vehicle's electric motor and related equipment. This incremental cost will provide the basis for a one-time deduction of up to $2,000 in the year the vehicle is first used. Individuals take this deduction as an adjustment to income. They do not have to itemize deductions on their tax returns to claim it. Once set, the deduction would apply not only to returns being filed for tax year 2002, but also for the previous two years for which such hybrid vehicles were available. The deduction could be claimed for a past year by filing an amended return. ============== Tax Moratorium for Statutory Stock Options IRS Announces Extension of FICA and FUTA Tax Moratorium for Statutory Stock Options (Notice 2002-47, TDNR PO-3199) The Treasury Department has bowed to pressure from Congress and industry specialists and backed off its stated intentions to collect withholding taxes on Incentive Stock Options and Employee Stock Purchase Plans. IRS will not be charging payroll taxes on employee stock purchase plans (ESPPs). They're extending the moratorium indefinitely. ============== Comprehensive Audits [Editor: 50,000 out of 96 million returns is pretty low odds, but watch your back, it could be time-consuming and expensive if you are picked.] An article in the Wall Street Journal described the Internal Revenue Service plans to revive its random audit process for 2001 tax returns. The agency plans to examine approximately 50,000 returns, chosen randomly, in an effort to gauge taxpayer compliance and update the agency's own expectations. The random audits will take four forms, ranging from brief examinations by IRS staff and not involving any contact with taxpayers, to highly invasive line-by-line examinations of every amount listed on the tax return. Only about 2,000 returns are expected to be chosen for the detailed audit. Those tax returns will be chosen from various income groups and will include returns of average wage earners as well as small-business owners. The IRS has performed random line-by-line audits in the past, but the annual policy was disbanded in 1988. Information from the audits will be used to recalibrate the IRS's Discriminant Function System, commonly referred to among tax professionals and IRS staffers as the DIF score. The DIF score is a secret calculation used to determine a range of acceptability that the IRS can expect from taxpayers in different occupations and income brackets. The IRS computer scores returns and selects returns that fall outside of the acceptable DIF range. Tax returns are further sifted to select returns that are most likely to produce significant additional taxes from the errors probably contained therein. Senator Charles Grassley (R-IA), said of the IRS plans, " The information from these audits will allow the IRS to target its limited resources on examining those taxpayers who are most likely to be up to no good, while leaving honest taxpayers alone." [Editor: Yeah, right!] David Keating, senior counselor at the National Taxpayer's Union, has suggested that the IRS should compensate those audited taxpayers who will need to hire a tax professional to assist them with the comprehensive audit. [Editor: I wouldn't hold my breath.] The IRS does not have plans to continue the random audits after the 2001 tax year audits are completed, but the agency has not ruled out the possibility that the process will continue after this year. 2. JOKE OF THE MONTH Some words which can be rearranged with no letters left over, and using each letter only once into: George Bush: Dormitory: Desperation: The Morse Code: Slot Machines: Animosity: Mother-in-law: Snooze Alarms: A Decimal Point: The Earthquakes: Eleven plus two: And for the grand finale: PRESIDENT CLINTON OF THE USA: 3. TAX TIPS August 15, 2002 - Personal Tax Returns - First Extension Expires ============== Nondeductible points: Last month I told you the qualifications for deducting points and loan origination fees for a mortgage on your personal residence. Points on a commercial loan must be amortized over the life of the loan. I just completed a tax consultation with a couple who had purchased a building for their small manufacturing company in December 1998. They were charged $5,125 in points to reduce the customary interest rate to a below-market rate. Though the CPA who prepared their returns in 1998 through 2001 had deducted the prepaid interest and property taxes paid at closing, he'd failed to deduct the portion of points which could have been amortized each year (.417% of the total or $21.35 per month for 20 years). He'd also failed to add other nondeductible closing costs to the basis in the property and thereby lost them a few dollars in tax each year due to taking less depreciation than they were entitled to. They refinanced the building in 2001 when they qualified for an even better interest rate through their bank. The original loan was paid off. The couple was then eligible to deduct the balance of the unamortized portion of the points ($4,587.15). Like depreciation on rental property, the IRS requires the amount to be reduced by past allowed amortization whether taken or not. I recommended that they file amended returns for 1999 through 2001 to claim the amortization and the additional depreciation on the increased basis in the building. The overall tax savings amounted to more than $2,000. It really pays to have your past three years tax returns reviewed by a qualified tax accountant. For small businesses, I highly recommend either Tax Toolbox ( http://www.taxtoolbox.com/order.html?d=2069 ) or TruTax from TruDynamics (contact cory@detaxus.com for further information). Either system includes a three year review along with other tax saving features. ============== Car Allowances: You are in sales or travel for your business and your employer gives you a car allowance each month rather than mileage or reimbursement for actual expenses. Let's say you get $300 a month. The $3,600 a year is shown on your W-2 as taxable income. You can deduct your actual expenses or the standard mileage allowance (34.5-cents a mile in 2001; 36.5-cents per mile in 2002) on Form 2106 If using actual expenses, you must prorate the business mileage against total mileage for the year. Don't forget to include auto insurance as well as gas, oil, repairs, auto loan interest, registration and taxes, car washes and detailing, seat covers, back supports, cell phone adapter and hands-free accessories, and anything else you spend on your car. Note: Tolls and parking fees, maps, other items specifically associated with business trips do not have to be prorated and can be taken in addition to standard mileage. ============== While we are talking about Form 2106, there are a lot of nonautomotive expenses you can deduct: briefcase, cell phone, an airline lounge membership if you travel a lot, e.g., American Airlines Admirals Club (if you belong to several, you can only deduct one, so take the most expensive), client entertainment and business gifts and regular travel expenses, e.g., motel, laundry, 50% of meals, and anything else that is necessary in the performance of your job. You will need to show any reimbursements from your company that are NOT included on your W-2. Sometimes the IRS will question these expenses and insist that your company should reimburse you for them, but in all audits I've been through I've been able to convince the examiner that the expenses were necessary to the performance of the job but that the company did not authorize expense accounts and did not fully reimburse the employee but took the position that it was part of the job, and higher wages were paid to encourage the employee to put out maximum effort, including covering his/her own expenses to generate business. Maximize your deductible travel expenses by properly documenting the business portion of your trips. Use the Travel Expenses section of Publication 463 We're right back where we were a couple of hundred years ago. "If, from the more wretched parts of the old world, we look at those which are in an advanced stage of improvement, we still find the greedy hand of government thrusting itself into every corner and crevice of industry, and grasping the spoil of the multitude. Invention is continually exercised, to furnish new pretenses for revenues and taxation. It watches prosperity as its prey and permits none to escape without tribute." 4. PLANNING for 2002 The Internal Revenue Service has released new life expectancy tables for you to calculate required withdrawals from your IRA's. The new tables appear in Publication 590SUPP, "Supplement to Publication 590, Individual Retirement Arrangements (IRAs)." The tables are effective immediately and are retroactive to January 1, 2002. At your option, you may use the old tables from Publication 590 as the new tables provide for a smaller required withdrawal from retirement plans, since the new tables show we are living longer. You can always take more than the tables minimum, you just can't take less. You are required to begin withdrawing money from your IRA accounts by April 1 of the year following the year in which you reach 70-1/2 years of age. Taxpayers who do not distribute at least the required minimum amount from their IRA accounts are subject to a 50% excise tax on the amount not distributed as required. [Editor: The government not only tells us how much we can save for our retirement, but how much we must take out of our savings and when. Septuagenarians take arms! It's time for a revolt!] ============== Interest on underpayments is now only 6%. If your taxes are high, and you are one of the few who still get a higher rate of return on your investments, you may want to consider making smaller estimated tax payments. Or, if you must use high interest credit cards or cash advances to make these payments, don't do it. ============== Looking for a way to earn tax-free income? Consider fixer-uppers. There are huge numbers of run-down houses that can be bought, often with no money down (bank-owned, foreclosures, HUD, and private sales). Buy one. Move in. Fix it up. Sell after two years, or rent it for three years after living in it for two out of the five years. You can earn up to $250,000 ($500,000 if you're married) on the sale (even after adding the cost of your fix-up materials to your basis as capital improvements) for your "sweat equity" for those two years and owe no taxes at all. And if you have the time and the energy to do this, tax-free income goes a lot further than after-tax income. If you rent it, you'll have to file Schedule E to claim rental income, expenses and depreciation and depreciation would have to be recaptured on the sale, but it could increase your income substantially without increasing your taxes by much. Only down-side is you might have trouble finding a fixer-upper in a neighborhood you'd be comfortable living in, but even the best neighborhoods have occasional bargains due to irresponsible homeowners who don't maintain their properties properly. NOTE: Be sure to have the building inspected before you commit to the purchase to be sure there is no structural damage and get estimates on what it would cost to have a professional do the repairs so you have a good idea what's involved. 5. RESOURCES For college-bound kids or adults - have you seen FastWeb's Scholarship Search? They have a database of 600,000 scholarships, and it's FREE to use. Some of them require writing an essay to compete for qualification. Some require great grades. Some only financial need. Some require the recipient to be of Slovakian decent, be left-handed, or have a parent or grandparent who was a member of a particular World War I military battalion. Many go wanting for lack of qualified candidates, so it could pay to search for an odd-ball requirement that only a few people can meet. 6. EDITORIALS and ARTICLES An interesting article with a good definition of liberty: Understanding the Loss of Freedom Americans, if not all human beings, think they know how to define freedom. And, in all fairness most of them do understand personal freedom as it applies to themselves as individuals. However, when it comes to defining freedom in more general terms so as to allow its application to others, most people, in my opinion, are sorely under-educated. Human beings have a very hard time with the concept of allowing others to be as free as they themselves feel they deserve to be. Why? ============== For Immediate Release Tuesday, June 11, 2002 Study: Lawmakers' Urge to Splurge Hits Ten-Year High Of 5,501 Bills Introduced in '01, Just 50 Would Cut Spending (Alexandria, VA) - The urge to splurge taxpayer dollars didn't begin with this month's Supplemental Appropriations Bill, according to an exhaustive BillTally analysis released today by the non-partisan National Taxpayers Union Foundation (NTUF). Last year marked the first session of Congress in a decade where lawmakers of both major parties in the House and Senate had net average agendas that would increase federal spending. "Last year was a watershed not only for America's national security, but its fiscal security as well," said NTUF Senior Policy Analyst and study author Tom McClusky. "An escalating trend towards greater sponsorship of spending proposals became an all-out war of political opportunism for some lawmakers after September 11." This latest survey identified 690 House and 404 Senate bills introduced during 2001 that had a fiscal impact of +/-$1 million (out 5,501 bills of all kinds). Among the findings:
Click here for the complete release You can read The First Session of the 107th Congress: Brave New World, Same Old Congress? To check Spending totals and detailed reports for Members of Congress ============== Have you ever seen the original 1913 Form 1040? It was 2 pages. No additional schedules. Instructions were four pages. The instructions for 2001 were over 200 pages. Did you know that, back then, State officials, from the governor to the lowliest clerk, paid no tax on their compensation - unless they were paid by the Federal Government? Why do you suppose that was? They weren't required to pay income tax until 1939 when the Public Salary Act was passed by Congress and the Internal Revenue Code was amended to include State employees. Previously only Federal employees were taxed by the federal government [what the left hand gives the right hand can take away]. Public Salary Act of 1939, TITLE I -- "SECTION 1.§22(a) of the Internal Revenue Code relating to the definition of 'gross income", is amended after the words 'compensation for personal service' the following: "including personal service as an officer or employee of a State, or any political subdivision thereof, or any agency or instrumentality of any one or more of the foregoing." As to the rest of us who are not government employees, I've yet to find any public law requiring us to pay an income tax on our personal earnings. The general perception is that there is a law requiring every American to turn over a significant portion of his/her annual wages every year, and the courts (judges are government employees who fall under the Public Salary Act) back the IRS and other taxing agencies most of the time, but they manage to do so without citing any law requiring it, only precedents stating the findings of other courts in earlier cases. The majority of us pay, either out of a sense of duty to our country or due to fear of our government, but I question the authority of the government (federal, state and local) to exact tribute based on our time and labor. It is a form of slavery or involuntary servitude that I believe we must abolish while we still have some semblance of freedom left. Contact your congressman/woman and senators today and tell them to repeal the 16th Amendment and end the "slave" tax. 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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