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DeTaxUS “The ideal Government of all reflective men, from Aristotle onward, is one which lets the individual alone -- one which barely escapes being no government at all. CONTENTS:
INTRODUCTION Our Mission is to Abolish the Federal Income Tax
The Members area of the website is taking shape and new information and resources are being programmed and uploaded. Optimistically, we will have enough of it finished by the end of January to close it to the public and send you your user ID and password. One of the resources is a library with historical and inspirational documents which you will be able to download or print out for your own use. Among them are the Declaration of Independence, the Constitution, writings of Thomas Jefferson, James Madison, Benjamin Franklin, and other American patriots; motivational literature, such as, Acres of Diamonds, The Richest Man in Babylon; how-to’s on various personal and business- related subjects. We’ve also begun building our “Store” with products and services that you may find useful which we have checked out and have found reliable. From tax preparation to financial management to personal enrichment, if it can help our members save on their taxes, increase their incomes, or improve their lives, we will search for the best products and services at the best prices and pass the savings along to you. As a DeTaxUS member you will receive substantial discounts or rebates by ordering through DeTaxUS. Warmest regards, Cory Layne & Royal Fletcher "If we can prevent the government from wasting the
labors of the people under the pretense of caring for
them, they will be happy." 1. TAX NEWS The taxpayers' revolution to end the complex and confusing income tax is underway on several fronts. The "Fair Tax" movement to convert from the income tax to a consumption tax is gaining momentum nationwide and a few congressmen are ready to support it. We consider a national sales tax only the "lesser of two evils" and will promote reducing the size and scope of the federal bureaucracy to its constitutionally mandated functions so that the income tax can be replaced with NOTHING. New Boston Tea Party In Massachusetts, Libertarian Carla Howell and her Committee for Small Government has just wound up a successful petition drive to get an initiative on the ballot for next November to abolish the Massachusetts state income tax. Over 100,000 signatures were collected with 75,629 certified by counties and cities all over the state (more than ENOUGH to get on the ballot). See “9 Reasons to End the Income Tax in Massachusetts:” Small Government Alaskan citizens voted to repeal their state income tax in 1979. There are currently eight other income tax free states: Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Massachusetts would be the 10th. A similar movement is underway in Oregon. Though Tennessee's legislature has tried several times to institute an income tax, the People have voted it down every time. Unlike the States, abolishing the federal income tax can't be done with a ballot initiative. It will take a constitutional amendment to repeal the 16th Amendment (as the 18th Amendment creating prohibition was repealed by the 21st). Getting Congress to support such a constitutional amendment will take the concerted efforts of many people, so it may take a few years, but we have started the process through DeTaxUS and other grassroots organizations. It is just a matter of getting more than ENOUGH people involved in the process. You will soon have the capability, through the DeTaxUS website, to email your congressman and senators and encourage them to support the bill to repeal the 16th Amendment. Each letter your representative receives represents the feelings of up to 1,000 taxpayers who will never write. So you can make a difference. You will find easy instructions on what to write and where to send it. By joining DeTaxUS in its infancy, you are in the vanguard. As a Charter Member you will be one of the leaders, not just a follower who jumps on the bandwagon when we are near the end of the march. You've also saved 25% on your membership which includes a 12-month subscription to the DeTaxUS newsletter, and starting soon, a weekly tax or money management tip. (A short one, I promise.) 2. JOKE OF THE MONTH If Automobiles Were Like Software At a recent computer expo (COMDEX), Bill Gates reportedly compared the computer industry with the auto industry and stated "if Ford Motor Company had kept up with the technology like the computer industry has, we would all be driving $25.00 cars that get 1,000 miles to the gallon." In response to Bill's comments, Ford issued a press release stating: If Ford Motor Company had developed technology like Microsoft, we would all be driving cars with the following characteristics:
3. TAX TIPS The tax reform bill passed in July 2001 created a new 10% bracket for the first $6,000 of income for Single, $10,000 for Head of Household, and $12,000 for Married Filing Jointly. It was made retroactive to January 1, 2001. Most taxpayers were sent a check for 5% (the difference between the old 15% rate and the new 10% rate), in September or October. This amounted to $300, $500 or $600 per household, depending on their prior year’s filing status. If your income changed from 2000 to 2001, or you became self-employed and did not have taxes withheld, you may find you owe more when you file. Top 4 Marginal Rates were reduced by 0.5% for 2001 27.5%......30.5%......35.5%......39.1% ============== If you are one of the smart people who has set up an individual or small business pension plan, you may have until the date you file your return or the due date (whichever is earlier) to add funds to it and still claim the deduction for 2001. ============== If you have Adjusted Gross Income (AGI) of more than $199,450 the exemptions for your family are phased out. This phase out of exemptions will be phased out in 2005 – 2008 (unless Congress reneges on it). ============== Currently up to 80% of your itemized deductions, such as home interest, property taxes, state income tax and charity, get phased out if your earnings exceed $132,950. ============== Use the "Head of Household" filing status even if your ex-spouse claims an exemption for the child. You may have given your ex-spouse the deduction in the divorce settlement for making child support payments. You can still use the Head of Household filing status if the child actually resides with you and you have physical custody. ============== Don't report interest earned on Series E, EE, or Treasury bonds/bills/notes on your state tax return. Though this interest is taxable for federal purposes, it is not taxable by the states. ============== Student Loan Interest: up to a maximum adjustment of $1,500. The interest must be paid in the first 60 months of the loan, and the loan must have been used for qualified education expenses. NOTE: you do not have to itemize your deductions on Schedule A to claim the adjustment against AGI for student loan interest paid. ============== Deductions for Non-Itemizers: Alimony paid, pension plan deductions (Keogh, SEP, SIMPLE, IRA, etc.), student loan interest, job-related moving expenses, medical insurance for the self-employed, penalty for early savings withdrawal, and deductions for self-employment taxes are all available to you – even if you do not itemize deductions. ============== Tax Credits you may be able to take advantage of: The Child Tax credit for 2001 increased to $600 per child under age 17. In the past, this credit could wipe out your tax bill, but you lost the benefit of any excess. Now, a portion of this credit is a 'refundable' credit, based on income. If your income is low enough, you can actually wipe out your tax bill, and receive money from Uncle Sam (read: from other taxpayers who subsidize this credit). ============== The maximum dependent care credit for 2001 is $2,400 for one dependent (child under 13 or disabled dependant of any age) and $4,800 for two or more. If you own a business your business can take a 25% tax credit (up to $150,000 max) for child care provided to employees. If your spouse is an employee and you need to send junior to day care or preschool for a few hours a day so you can work together on the business you may be able to take advantage of both credits, especially if the actual cost of care exceeds the 1040 limitations. 4. PLANNING for 2002 Start Planning Your 2002 Taxes Now Prior to 2002, you generally could not deduct the cost of attending college. Costs associated with obtaining a graduate degree were deductible only if it didn't qualify you for a new trade or business and were deductible only as a miscellaneous itemized deduction. Starting in 2002, you can deduct up to $3,000 in higher education costs as an adjustment to gross income. By reducing your AGI, you also reduce the threshold for itemized deductions such as medical and miscellaneous deductions. Congress put some limits on this. First, the deduction does not apply to any amounts you receive from education IRA’s, prepaid tuition plans or 529 plans (see below). It also doesn't apply if you get any education credits, such as the Hope credit or Lifetime learning credit. Finally, if your AGI exceeds $65,000 as an individual or $130,000 as a married couple filing a joint return, you get no deduction. If you are married filing a separate return, you can’t take the deduction at all. Are you totally confused yet? Another reason for getting rid of this whole convoluted tax system. ============== Starting in 2002, you can increase contributions to a non-deductible Education IRA to $2,000. In 2001, you could only contribute $500. All income growth in these accounts is tax-free. The amount you can contribute starts phasing out when your AGI exceeds $95,000 as a single and $190,000 if married filing a joint return. This account can also be used for elementary and high school costs in non-public schools, as well as college expenses. Perhaps even better than the Education IRA is a prepaid tuition plan that is tax-free. Until recently these plans were only available at state universities, but the law now allows private colleges and universities to set them up. Here you contribute yearly funds during childhood, and tuition is paid from this fund when the child is ready for college. Many colleges lock-in the tuition cost, saving you even more down the road. There are no income limits on these plans. The downside is you may be locked into only one school or a small selection of colleges within your state. A similar option is a Section 529 Plan. This plan is usually set up by the state in conjunction with a bank or financial institution where you can contribute money for your child's college and even graduate school based on current costs. You may not be able to deduct all of your contributions, but the payouts are tax-free. This plan can be used to pay tuition, room and board for any accredited college or university. Each state may have different contribution limits. If the designated child doesn't use the funds, you may transfer them to other children, grand children or nephews and nieces. There are also no income limits to these plans. ============== Starting in 2002, the dependant care credit goes up 5% and the amount of care that the credit applies to also goes up. If you earn more than $28,000, this won’t help you much. ============== Starting in 2002, you and your employees can get financial planning for retirement on a tax free basis. This is a non- discriminatory fringe benefit. If you are self-employed you can utilize this benefit by hiring your spouse. ============== If you are considering adopting a child, you can take a $5,000 tax credit for certain adoption expenses. ($6,000 for children with special needs). You may want to wait until 2003 when the credit goes up to $9,000 and more items of expenses can be included in the computation. This credit gets phased out if your AGI is over $150,000 and is completely eliminated at AGI of $190,000. ============== He who gathers money little by little makes it grow. 5. RESOURCES IRS: Small Business Community area Everything you ever wanted to know about small business taxes: downloadable forms, IRS regulations, information and advice. Check it out and order your FREE copy of their Small Business Resource Guide on CD while you're there! After all you’re paying for it. Small Business Community 6. EDITORIAL The High Cost of Tax Compliance The federal income tax started in 1913. In 1945, the instructions for the 1040 income tax form were 4 pages. In 1955, that had quadrupled to 16 pages. By 1985, it had grown to 52 pages. The 2000 instruction book for the 1040 was 117 pages long. (Source: Associated Press story: “Tax Time More Difficult Than Ever,“ April 13, 2001 / National Taxpayer's Union) This year’s book will be no smaller in spite of promises from congressmen and senators to simplify the tax system. This insanity must end. The cost of compliance may soon (if it hasn’t already) eclipse the cost of the tax itself. A study by economist J. Scott Moody in Tax Foundation Background Paper No. 35 explains that many substantial costs of the overall "compliance burden" are excluded from the government’s estimate of $125 billion annually. For example, the productive value that people may have added to the economy if they had been working instead of filling out forms is excluded because estimating this "opportunity cost" is exceedingly difficult and speculative. The costs of the IRS, the Tax Court and all the litigation that taxpayers pay for when in dispute with these institutions are also excluded. [Taxpayers pay for both defense and prosecution.] Moody focuses on just the paperwork requirements that taxpayers must meet. Based on the IRS’s estimates of the number of hours required to fill out each form, he calculated that taxpayers spend 4.3 billion man-hours a year just in reading instructions and filling out forms. That is the equivalent of a work force of over 2,083,000 people – more than work in the auto manufacturing industry, the computer manufacturing industry, the aircraft manufacturing industry, and the steel industry combined. The US economy is highly affected by the state of tax law. Small businesses are overwhelmed with tax-related forms and paperwork: W-4’s to determine withholding for each employee; I-9’s to track citizenship status; W-2’s to report earnings for employees; 1099’s to report payments to subcontractors, independent reps and others; W-9’s to obtain tax ID’s from customers and payees. And that’s before they ever start figuring their tax liabilities. Employees, even those with no deductions, are at a loss when it comes to figuring out what they need to keep in the way of records and how to figure what tax credits they may be eligible for. Each of us is paying more and more each year of our “after tax” earnings to comply with the increasingly complicated income tax system. Even taxpayers with fairly simple returns are afraid to tackle the chore themselves, so they pay someone to do it for them. Tax preparers, some of whom are poorly trained, are in great demand this time of year. The new kid on the block is the electronic filing firm that offers “instant refunds” to people in a hurry to get back some of the money that has been withheld from their pay throughout the year. These are actually pre-refund loans, usually at high interest rates paid by discounting the amount the taxpayer would receive if s/he waited for the refund from the IRS. Here is a recent example of the dangers and complexity of the income tax system. Last week I sat down with a young salesman who works on commission as an independent rep for a national advertising company. He didn’t even know that he is a “company” himself and needs to file a Schedule C as a sole proprietorship. He’d been on the road so much during the past year that his motel, meals and mileage at the standard rate of 34.5-cents per mile wiped out a good chunk of his 1099 income, but he didn’t have many other business deductions other than his cell phone. The self- employment tax is computed at 15.3% of his net Schedule C income before exemptions and personal deductions. This is not income tax, it is the total for Social Security and Medicare taxes normally paid by the employer and employee combined. This tax had to be paid in addition to his income tax at 28%. Needless to say, he hadn’t planned on having to pay such a large bill to Uncle Sam and had spent his commission checks as they arrived. He’d been smart enough to spend his money on such things as paying off his car and making extra principal payments on his house, but now he’s going to have to hustle to come up with enough cash to pay his taxes. He would have been better off putting money into a self-directed IRA rather than paying down his mortgage, but it was too late by the time he came to me. Luckily, this was his first year being self-employed, so he will not be subject to penalties for not filing quarterly estimated taxes. Others will not be so fortunate. The biggest problem for most self-employed people is lack of proper documentation and receipts for all expenses. A well-annotated daily planner can help track most business expenses, but if you are audited, nothing beats receipts. The rules keep changing and even tax professionals have a hard time staying current. The income tax system needs to be scrapped and government pared down to the point that no other tax is needed to replace it. 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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