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DeTaxUS “The American Republic will endure, until politicians realize they can bribe the people with their own money.” CONTENTS:
INTRODUCTION Our Mission is to Abolish the Federal Income Tax
DeTaxUS was officially launched Thanksgiving Day 2001 with the e-mailing of 2,400 invitations to join, sent to folks who’d either expressed an interest or were associated in some way with the founders. The response to date has been very encouraging. We thank you. Our guarantee is very simple. If you don't learn something from being a member of DeTaxUS that saves you at least double the cost of your membership on your taxes over the next year, we'll gladly refund 100% of your enrollment fee, no questions asked. Besides our monthly newsletter, “Standing Up for Financial Liberty,” you will have access to our Members-Only website which will soon be loaded with information you can use everyday to improve your finances. We anticipate that you will find DeTaxUS to be a helpful resource to move yourself from where you are to where you want to be financially. We only ask that you be patient during our startup phase, realizing that we are not yet where we want to be financially either. Providing some of the features we’ve planned will be costly, so we will be adding them one at a time as revenues from subscriptions and product sales allow. We want to keep membership as inexpensive as possible so that every taxpayer who wants to participate will be able to afford to join us. Again, welcome! We hope you'll enjoy this second issue of "Standing Up For Financial Liberty." Warmest regards, Cory Layne & Royal Fletcher "We have rights, as individuals, to give as much of our own money as we please to charity; but as members of Congress we have no right so to appropriate a dollar of public money." 1. TAX NEWS ECONOMIC STIMULUS BILL Congress is still working on the second tax relief bill. The bill that passed in the House a couple of weeks ago is bogged down in the Senate. As of yesterday, the White House and congressional Democrats are at odds over which taxes to cut and how generous benefits should be to unemployed workers. The White House wants to accelerate rate reductions included in the tax relief bill signed into law earlier this year and eliminate the corporate alternative minimum tax to encourage companies to hire more workers and buy new equipment. In addition, the White House backs extending unemployment benefits by 13 weeks and using state block grants for immediate needs such as health-care costs. Democrats oppose speeding up the Bush tax cut and are seeking direct federal subsidies to help unemployed workers pay for health insurance. Senate Majority Leader Tom Daschle, D-South Dakota, vowed to keep the Senate in session until a stimulus bill passes. TAX CUTS DON’T CAUSE DEFICITS “In the surreal world of Congress, your income presumptively
belongs to the government, which decides what members of
society deserve federal largesse. Any income you get to keep
is generously 'given' to you by the federal government. Tax
cut proposals are studied to determine the 'cost' to government,
and opposition is rallied with the cry 'we can't afford it.'
Perversely, this mentality is touted by politicians who claim
that tax cuts are fiscally irresponsible. They endlessly repeat
the lie that Reagan-era tax cuts caused deficits, when in truth
it was the inability of Congress to control spending which
ballooned our national debt. In fact, 1980s tax cuts increased
federal revenues, because economic output expands when
government takes less. To hear big spending, pro-tax politicians
claim they represent fiscal responsibility strains the limits of
believability.” Statute of Limitations Generally, the IRS has 3 years after you file to audit your return and reassess your taxes. They can go back 6 years if they determine that you are guilty of civil fraud (for something like understating your tax bill by $5,000 or more). There is no statue of limitations on criminal fraud. The IRS has 10 years to collect the balances due AFTER the tax return is filed (3 years to assess and 7 years to collect). The 10 year clock stops running (at least temporarily) if during that time:
If the bankruptcy court determines that you have the means to pay or your offer or petition is denied, the clock starts running again. Otherwise after 10 years, any uncollected balance is usually written off unless the IRS can prove fraud. If the IRS has previously placed a lien against you, you can call the IRS at 1-800-829-1040 and have them check each year covered by the lien to see how you stand. If the 10 years has elapsed, you can ask IRS to close out those years and remove any liens they might have filed. They won't remove them unless you ask. WARNING: The statute of limitations is based on filing date or due date whichever is LATER, so the IRS takes the stand that if you haven’t filed a return, you can be held liable indefinitely on the assumption that if you didn’t file before the due date, the statute of limitations doesn’t actually start until you do file. 2. JOKE OF THE MONTH Stock Market Dictionary for the Past Year Investor Momentum Investing - The fine art of buying high and selling low. Value Investing - The art of buying low and selling lower. Broker - Poorer than you were in 1999. P/E ratio - The percentage of investors wetting their pants as this market keeps crashing. Standard & Poor - Your life in a nut shell. Stock Analyst - Idiot who just downgraded your stock. Bull Market - A random market movement causing an investor to mistake himself for a financial genius. Bear Market - A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry and the husband gets no sex. Stock split - When your ex-wife and her lawyer split all your assets equally between themselves. Financial Planner - A guy who actually remembers his wallet when he runs to the 7-11 for toilet paper and cigarettes. Market Correction - The day after you buy stocks. Call Option - Something people used to do with a telephone in ancient times before e-mail. Yahoo - What you yell after selling it to some poor sucker for $540 per share.Windows 2000 - What you jump out of when you're the sucker that bought Yahoo for $540 per share. Institutional Investor - Past year investor who's now locked up in a nut house. Profit - Religious guy who talks to God. 3. TAX TIPS If you are like me taxes are a nightmare and some of these tips may be confusing to you. The purpose of DeTaxUS is to eliminate this confusion for good. For now our tips and a good Accountant are the only relief for taxes. The tax reduction bill of July 2001 reduces rates gradually over the next several years. Therefore, income you receive this year will cost you more in taxes than next year; expenses you deduct this year will save you more than next year. Plan NOW to take advantage of a few things you can do to cut your business and personal taxes for 2001. Except for funding your retirement plan(s), there’s not much you can do about your 2001 taxes after Dec 31. Take Full Advantage of Pension Plans If your business has a tax deductible retirement plan (SEP, Keogh, SIMPLE or 401k), put as much as you can into it. If you don't have one of these plans, you have until Dec 31 to set one up (except the SIMPLE for which the cutoff was 9/30). You can contribute 2001 funds into most of these plans up to the date you file your return. Best check with your accountant for specific rules. It's important to understand that you can fund a Roth IRA and a SEP, SIMPLE, and/or Education IRA in the same tax year. The $2,000 restriction is only applicable to the combination of regular and Roth IRAs. You can fund a Roth IRA even if you are covered by a company retirement plan -- pension, profit-sharing, 401(k), etc. Putting money into your 401(k) or traditional pension plan reduces your taxes. It’s like a guaranteed first year’s yield equal to your marginal tax rate. In the 27.5% bracket, a contribution of $5,000 is worth an additional $1,375 in tax savings. In the 27.5% bracket, only $1,000 into your fund reduces your taxes by $275. That’s an additional $275 to invest, compounding until you withdraw the money. You also get the benefit of tax deferral. Each year you’ll be receiving passive income on “bonus” money that would have been taxed and taken by the IRS had you invested outside your pension. If your company matches any of your contributions (fully deductible to your business), you’ve immediately doubled your money -- risk free -- by those matches. A 100% return on investment (ROI). Catch Up Your 401(k) Contributions Generally, 401(k) contributions must be made throughout the year, but some 401(k) plans allow for "catch-up" contributions in December if your contribution level is less than the maximum allowed (2001 maximum is $35,000). Using your December bonus to fund your 401(k) might be a good way to avoid some current taxes. If your employer (you, if you own the business) matches some of your contributions, even better. Check with your company's benefits administrator. Roth IRA for Young Investors A Roth IRA is a great way for kids to become wealthy. Age is not a determining factor. As long as your child has earned income with which to open the Roth IRA account, and as long her income is under $100,000, she can put away up to $2,000 a year, and pay no income or capital gains tax on the earnings ever (or at least until Congress changes the law again). Contributions to Roth accounts aren’t deductible. So, rather than give your child an allowance and put money away in a savings account on his behalf, put him to work in your business, pay him a wage (deductible to you), and let him pay his own expenses and contribute to his own Roth IRA. If the child is under 18 and earning less than $4,000 a year, she will pay no income tax on her 2001 wages and you are not required to withhold taxes or Social Security. Even a 7-year- old can do some chores in the business each week. If you’re worried about the stock market, you don’t have to invest in stocks. To be more conservative, you can invest in U.S. Treasury securities. However, this may be the ideal time to buy stocks – at substantially discounted prices. Contribution Limitations Your total combined contributions to regular and Roth IRAs can't exceed $2,000 (or 100% of your income if you make less than $2,000) for the tax year. So, you'll want to decide which savings plan is best for you, and put that $2,000 contribution in the appropriate IRA. Because of the Roth IRA phase-out, "splitting" your $2,000 IRA contribution into a regular IRA and a Roth IRA may be your only option if you want to make the full $2,000 contribution. You qualify for at least a partial deduction on your regular IRA contribution if your adjusted gross income is less than $43,000 ($63,000 on a joint return). Note: Alimony is considered "earned income" for IRA contribution purposes. If you make Roth IRA contributions or conversions, be sure to keep good records. It will be very important if you should decide to take an early distribution. Gift Appreciated Property to Shift Income The benefits of using this technique can be huge. If you sell stock or real estate at a gain, it will be taxed to you at your ordinary tax rate if held less than one year or, if over one year, at the capital gains rate of 20%. With a little planning, you can cut your taxes on stock, real estate, and collectibles sales by as much as 50%?! Just give the stock, real estate or collectibles to your children or grandchildren. The next day or some years later, they can sell the gifted property and have the gain taxed at their tax bracket. If you have relatives in the 15% bracket, this could save your family a bundle! If they are at least 14 years of age by year end and are in the 15% tax bracket, any long term gain is taxed to them at a special 10% long term capital gains rate, not at your normal long term rate of 20%. This can result in a whopping savings of 50% of the tax! Note: This technique should only be used with children or grandchildren who are at least 14 years of age. Otherwise, any gain over $1,400 is taxed to their parents at their tax rate. Planning needs to take into account gift tax limitations. The annual gift tax exclusion is $10,000 for 2001. (In 2002, it’s $11,000.) You and your spouse can each give any one person up to $10,000 each year, so you can gift a large investment in increments to one child or spread the owner- ship among many children or grandchildren. We’ll talk about moving appreciated assets into trusts in another issue. What You Give, You Can Receive Back when stocks were going through the roof, did you put some in your kids’ names so that the gains would be taxed at their lower rates? And now you could use some tax losses to offset other gains? You can reverse the process. If your kids are 18 or older, let them gift the securities back to you. Then you sell them and take the losses on your return. Using the annual gift tax exclusion of $10,000 for 2001 and two children who can gift you and your spouse each $10,000, that would amount to a total of $40,000 without any gift tax impact. That assumes, of course, that the stock’s still worth $40,000. Note: If the investments have been made in Uniform Gifts To Minors Accounts (UGMA), you’re not allowed to gift the stock back to yourself, but if your child is 18 or older, she can initiate the transfer. Section 179 Deductions When you purchase business assets, you must depreciate them over a number of years. But, the Section 179 election allows you to "expense" the entire cost of the asset in the year purchased. For 2001, the Section 179 election amount is $24,000. Computers, office furnishings, machinery or other business equipment (not vehicles) are eligible. If the equipment is used only partially for business, then a prorated share can be expensed. The best way to prove business use and to be able to show the IRS how you prorated partial use, especially in a home- based business where the IRS questions every deduction, is to keep a log. For example, if you purchase a computer for the business, but you allow your children to use it to do their homework or play games, have a log sheet next to the computer or a time logging program in the computer, where each user can log his or her start and end times for each use. Note: if you play games during your “coffee break” that still counts as business use. We all need a break now and then and most states have labor laws requiring breaks. :0) Prepaid Expenses Prepay some deductible business expenses. Even if you
have to tap a credit line for cash, saving the difference
between a low rate of interest and a much higher rate
of tax can be significant.
Employer Provided Educational Assistance The exclusion for employer-provided educational assistance has been extended through December 31, 2001, for courses beginning after May 31, 2000 and before January 1, 2002. So, if you want to give a bonus to an employee who has been going to school during 2001, give it to her in the form of an education reimbursement. It’s fully deductible to your company, but non-taxable to her, and it is not subject to payroll taxes. If you don’t already have such a plan in place, you will need a corporate resolution or a formal memorandum to implement one. Estimated Tax Safe Harbor Provisions If you have had a large increase in your income this year and have not had enough taxes withheld in the current year (either via withholding or estimated tax payments), you may have a hefty balance due to the IRS on April 15th and still avoid any underestimated tax penalties. Under the "safe harbor" provisions, if your adjusted gross income is more than $150,000 ($75,000 for married filing separate), no penalties will be charged as long as you have paid at least 110% of the tax incurred on your 2000 return. Don't Let Tax Considerations Blur Your Judgment Don't make financial decisions based entirely on the tax issue. Remember that tax “ write-offs” only affect a percentage of income and losses. In the 27% bracket, a tax deduction of $100 will only save you $27 in taxes. You need to focus on the other $73? Unless the expenditure is likely to generate more income, it may not be in your best interest to spend the money. Keep Good Records Record keeping is crucial. As Congressman Ron Paul pointed out, the IRS and our “lawmakers” in Washington, thinking that your money is theirs, are convinced that any deductions and credits they allow you are gifts from the government. You have to prove you have a right to those deductions. And the only way to prove those deductions is to keep good records. Every year, I do returns for folks who tell me they donated clothing and furniture to their local charity thrift shop, but they didn't bother to get a receipt. They feel rather embarrassed to ask for one, saying it makes it look like they are only giving to get a deduction. Well, I'm sorry, but NO RECEIPT, NO DEDUCTION. An expensive mistake. Consider a couple paying 33% in combined federal and state income taxes. A $300 deduction would save them $100 in taxes. Say it takes them 10 minutes to obtain a receipt, that savings would work out to $600 an hour. That’s most likely more than your lawyer and CPA make. Heck, you could earn a good living carting your neighbors old stuff to the local thrift store, collecting the receipts for them, and charging them just half their tax savings. :0) The Moral? Get receipts for all deductible expenses. Keep good records. You never know when the IRS might demand to see them. Keep them for at least four years. I have records going back to the first year I paid income taxes in 1963. I was 17 and setting type in a print shop after school for $2.00 an hour -- good money at the time. I’m not very sentimental, so I have very few photos and mementos from my youth. But every now and then I glance through my ancient tax returns and payroll records ($78 a month when I was a private in the Army in 1964), and I am amazed, both at the amount of money that has passed through my hands, and how inflation has raised the price of nearly everything except computers and other electronic items. Start Planning Your 2002 Taxes Now The January issue will help you get started. Indoors or out, no one relaxes 4. DEBT AND CREDIT Debt Elimination Game - Yes, getting out of debt can be fun! Check it out at: Debt Game 5. RESOURCES There are several FREE tax organizers available online. Most are provided by paid tax services, but you don’t have to use their services to download their freebies. Tax Checklist: Tax Checklist A pdf formatted tax organizer: Tax Organizer For small business: Small Biz Checklist For clergymen: Clergy Checklist For truckers: Trucker's Checklist 6. EDITORIAL Your Fair Share? Last week we kicked off our first marketing campaign to tell everyone we knew about DeTaxUS and what we have to offer our members and affiliates. One young fellow, who I know is struggling to get his fledgling Internet business into a positive cash flow position, responded with a curt statement, “hey dude My response to him was a bit more long-winded: So what is my fair share? What is your fair share? Do you even know where your income tax money goes? And why should the government have first dibs on your income anyway? Why should you have to meet government deadlines or face penalties? Why should you be held accountable for incorrect advice from the IRS? Why should you have to fill out numerous forms and maintain volumes of records? Why should you have to worry about being audited for up to 3 years after you file? Why should you have to tighten your belt while the government spends uncontrollably? We're not saying NOT to pay your fair share, but let's base it on something you can control. The wealthy have all kinds of tax shelters and financial strategies to avoid paying high taxes. The working class has few. A consumption tax, rather than an income tax, would actually get more from the affluent, who spend a lot, than the middle class who spend less, and the poor would pay next to nothing if food, rent, education and medical costs were exempt. The states are already set up to collect sales and use taxes and remit the federal share, such as the gas tax and other excise taxes, to the federal government. No paperwork or stress for the taxpayer. Think about how the income tax affects YOU. It has nothing to do with whining. It has to do with survival; with personal freedom; with personal privacy. Check us out. We're on your side. DeTaxUS ============================= Actually, when it comes to paying one’s fair share, the wealthy, even with all the loopholes and expensive tax attorneys, are paying a disproportionate share of the income taxes (as they would continue to do with a consumption-based tax). According to IRS data for the 1997 tax year, the top 1% of taxpayers, those with adjusted gross income (AGI) of $250,700 or more, paid 33% of the total income taxes for that year. The top 5% of all taxpayers in 1997, with AGI greater than $108,000, paid 52% of all income taxes. The top 10%, with AGI over $79,000, paid 63% of the total. Read that again... The top 10% of all taxpayers paid 63% of the total income tax collected. The bottom 90% of all taxpayers paid only a 37% share. The bottom 50% paid only 4% of the total federal income tax. Note: these statistics don't include Social Security or Medicare taxes, only income taxes. 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: 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. Copyright© 2001 by DeTaxUS, Inc. Copyright
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