Taxes Articles

Donating Cars To Charity New Tax Rules

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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.

In America There Are Two Tax Systems

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"In America there are two tax systems, one for the informed and one for the uninformed. Both systems are legal."

One of America's most famous jurists, Justice Learned Hand made this statement over forty years ago. When used today, one would certainly have to include the little understood world of Individual Retirement Accounts (IRA's). The point I am making here is that we all need to keep ourselves informed about what IRA alternatives are available to us. Being uniformed about these IRA alternatives almost certainly means we are not taking full advantage of the opportunity to secure better returns on our retirement dollars.

The vast majority of Americans have since their (IRA's) introduction in 1974 allowed our IRAs and 401Ks to be directed by someone else, such as the friendly Broker and their Wall Street affiliates. This easygoing very passive approach "let someone else do the work for me" attitude may well have continued forever had it not been for the Wall Street crash of 2000. With more than a trillion dollars lost in IRA and 401K equity alone, it challenged the very way we viewed Wall Street.

The clear fact is if we Americans had known or understood back in 1974 that our IRAs and 401K's could be used to purchase real estate related items like Tax Lien Certificates, Tax Deeds and Mortgage Notes, millions of American baby boomers would today be retiring with vast sums of cash and assets inside of their IRAs and 401Ks.

NASDAQ reported on March 10, 2005 that it had risen to 59% of what it was five years earlier! This means $100,000.00 invested in NASDAQ listed companies in 1999 would be worth something like $59,000.00. That's very sad, but it's where most Americans are today. Magazine, newspaper and television advertising campaigns have created the illusion to millions of Americans that those Wall Street products were the only financial products you could buy. This is not the fact and as outlined above Wall Street has not preformed too well over the last 30 years.

Real Estate on the other hand has out performed everything over the last 30 years by a very long way. IRAs and 401K's in general have over ninety percent of their funds in financial products. This may well lead you to ask "Why?" Are those Wall Street financial products superior in any way to real estate investments?" No! Here are some quotes taken from two very repected publications:

"... since the major housing organizations began keeping records in the 1960s, there has never been a year in which the average existing U.S. residence lost value. Not a one. "FORTUNE Magazine, August 12, 2002

"It is striking that after the longest, strongest bull market in history, the average American built more wealth owning a home than investing in the stock market ."DENVER Post, March 14, 2002

After reading these quotes, it really is hard to understand why our IRAs and 401K's are not 90% real estate versus 10% Wall Street products. Maybe it's time for all of us to get just a little more informed about those hard earned dollars before it's too late!

Fcc S Proposed Change Could Raise Phone Taxes

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Americans are speaking out against a proposal by the Federal Communications Commission (FCC) that could raise millions of people's phone bills. The proposal by FCC Chairman Kevin Martin has to do with a tax called the Universal Service Fund (USF).

The USF tax was established to help ensure that low-income and rural consumers have access to affordable phone services. Currently, USF money is collected on a "pay-for-what-you-use" system; a tax based on how much interstate long distance a person uses. The less a person uses long distance, the less he or she pays.

However, the FCC is proposing a monthly flat fee instead. The proposed monthly flat fee would apply to all phone numbers and other connections, regardless of how few interstate long-distance calls are made. That could raise taxes on 43 million U.S. households by more than $700 million.

Callers in California, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Ohio, Pennsylvania, Texas and Virginia stand to be the biggest losers. Taxpayers in 10 of those 12 states-all but Texas and Minnesota-already pay more in federal USF taxes than their states get back for schools, hospitals and rural connectivity. Under the proposed FCC plan, that disparity would grow even wider. The most conservative estimate of the proposed plan-where the USF fee would shift from the current structure to a flat $1 fee, per phone line, per month-indicates that 11 of the 12 states would end up paying more into the USF than they currently do.

According to the Keep USF Fair Coalition, a consumer advocacy group, this USF proposal has grave implications for the future of telephone service nationwide. The proposed USF change also affects anyone who has friends or relatives in any of those 12 states, or does business with a person or company located there.

With low-income and elderly consumers already hit with high gas prices, higher home energy costs and continued inflation in medical prescriptions, the wide range of diverse groups in the Keep USF Fair Coalition is opposing the FCC's proposed "number"-based plan. These groups caution against balancing USF finances on the backs of the very consumers whom they were intended to help.

Highlights Of Irs List Of 2005 Tax Scams

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Each year, the IRS lists various scams taxpayers get caught up in. The top 2005 scams include several that manipulate laws governing charitable groups, abuse credit counseling services or rely on refuted arguments to claim tax exemptions. The agency is warning taxpayers about the growth of identity theft schemes with some particularly bold thieves even pretending to be IRS agents.

2005 Scam Highlights

1. Credit Counseling. The IRS warns taxpayers to be careful with credit counseling organizations that claim they can fix credit ratings, promote debt payment agreements or charge high fees, monthly service charges or mandatory "contributions" that may add to debt. The IRS Tax Exempt and Government Entities Division has made auditing credit counseling organizations a priority because some of these tax-exempt organizations, which are intended to provide education to low-income customers with debt problems, are charging debtors large fees, while providing little or no counseling.

2. Identity Theft. It pays to be choosy when it comes to disclosing personal information. Identity thieves have used stolen personal data to access financial accounts, run up charges on credit cards and apply for new loans. The IRS is aware of several identity theft scams involving taxes. In one case, fraudsters sent bank customers fictitious correspondence and IRS forms in an attempt to trick them into disclosing their personal financial data. In another, abusive tax preparers used clients' Social Security numbers and other information to file false tax returns without the clients' knowledge. Sometimes scammers pose as the IRS itself. Last year the IRS shut down a scheme in which perpetrators used e-mail to announce to unsuspecting taxpayers that they were "under audit" and could set matters right by divulging sensitive financial information on an official-looking Web site. Taxpayers should note the IRS does not use e-mail to contact them about issues related to their accounts.

3."Claim of Right" Doctrine. In this scheme, a taxpayer files a return and attempts to take a deduction equal to the entire amount of his or her wages. The promoter advises the taxpayer to label the deduction as "a necessary expense for the production of income" or "compensation for personal services actually rendered." This so-called deduction is based on a misinterpretation of the Internal Revenue Code and has no basis in law.

4. "No Gain" Deduction. - Taxpayers attempt to eliminate their entire adjusted gross income (AGI) by deducting it on Schedule A. The filer lists their AGI under the Schedule A section labeled "Other Miscellaneous Deductions" and attaches a statement referring to court documents and including the words "No Gain Realized."

5. Corporation Sole. Participants apply for incorporation under the pretext of being a "bishop" or "overseer" of a one-person, phony religious organization or society with the idea that this entitles the individual to exemption from federal income taxes as a nonprofit, religious organization. When used as intended, Corporation Sole statutes enable religious leaders to separate themselves legally from the control and ownership of church assets. But the rules have been twisted at seminars where taxpayers are charged fees of $1,000 or more and incorrectly told that Corporation Sole laws provide a "legal" way to escape paying federal income taxes, child support and other personal debts.

6. Offshore Transactions. Despite a crackdown, individuals continue to try to avoid U.S. taxes by illegally hiding income in offshore bank and brokerage accounts or using offshore credit cards, wire transfers, foreign trusts, employee leasing schemes, private annuities or life insurance to do so. The IRS continues to aggressively pursue taxpayers and promoters involved in such abusive transactions.

7. Zero Return. Promoters instruct taxpayers to enter all zeros on their federal income tax filings. In a twist on this scheme, filers enter zero income, report their withholding and then write "nunc pro tunc"- Latin for "now for then"-on the return. The IRS takes a very poor view of this tactic.

8. Employment Tax Evasion. The IRS has seen a number of illegal schemes that instruct employers not to withhold federal income tax or other employment taxes from wages paid to their employees. Such advice is based on an incorrect interpretation of Section 861 and other parts of the tax law and has been refuted in court. Recent cases have resulted in criminal convictions, and the courts have issued injunctions against more than a dozen persons ordering them to stop promoting the scheme. Employer participants can also be held responsible for back payments of employment taxes, plus penalties and interest. It is worth noting that employees who have nothing withheld from their wages are still responsible for payment of their personal taxes. The employees, however, can sue their employer for damages.

Inappropriate tax schemes come and go, so the 2005 list is fairly standard stuff with one exception. The spread of identity theft schemes is troubling, particularly when thieves pretend to act as IRS agents. The IRS does not contact people by email, so don't fall for the scam. Be careful out there.

Reforming How Businesses Are Taxed

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Tax reform is a lot like the weather-everyone talks about it but no one seems to do anything about it. Incoming Treasury Secretary Henry Paulson could change that by focusing on the need for corporate tax reform.

Congress should not ignore the tax rules governing individuals, but modernizing America's business tax system is critical to promoting growth, creating jobs and narrowing the budget deficit. In deciding how best to proceed, Secretary Paulson and Congress must recognize four things.

First, America's Tax System Must Be Competitive. Every day we make choices based on cost: If gasoline is selling for 10 cents less on the left-hand side of the street than on the right, few of us turn right to fill up the car. Similarly with taxes: They are a cost that a business rightly considers as it locates new plants, creates distribution networks and hires workers. Taxes are not the only or most important cost to be considered, but they do matter. The U.S. system must change to remain competitive.

Second, Tax Rates Matter. A critical aspect of tax competition is the tax rate. Regrettably, while individual rates have been reduced, the corporate rate has remained unchanged since the 1990s.

In contrast, lowering tax rates has become the rule of the day in Europe. Significantly, lower rates do not mean lower revenues. Economist Martin Sullivan of the independent publication Tax Notes has confirmed that tax rate reductions in European countries have led to increased tax revenues. Moreover, a recent study of more than 70 countries by the American Enterprise Institute strongly links lower corporate rates with higher wages. Corporate tax reductions should do the same here.

Third, The Tax Base Matters, Too. The amount of revenues raised by a tax system is the product of the tax rate and the tax base. While some incentives-such as those for research and education-have wide support, a growing consensus favors lower rates and a broader tax base to reduce complexity, ease tax administration and minimize the government's role in picking "winners" and "losers."

Fourth, Complexity Matters. A primary advantage of lowering taxes through a rate reduction is that such a system is much easier to construct and, hence, simpler for taxpayers to follow. Simple is good, because complexity represents a daunting, hidden tax on American business. The Tax Foundation estimated that in 2005 it cost taxpayers $265 billion to comply with federal income tax laws, with business's share being a staggering 55 percent.

It is time to embrace corporate tax reform in order to promote growth, create jobs and reduce the trade and budget deficits.

Michael P. Boyle is President of Tax Executives Institute, an organization of more than 6,000 corporate tax professionals.

Getting Payroll Tax Figured Out

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There is nothing escaping payroll tax. It is something that you will need to deal with from the day that you get your first job until the day you retire. Payroll tax is the amount of money that comes out of your paycheck each and every time for the various services that you need to pay for. And, there is even a specific tax that is for the use of payroll as well. Nothing is certain...

If you are a business owner, then you realize that you will need to take care of these payroll tax needs for your employees. The problem is that you cannot possibly take care of that information for your employees on your own. You need various types of help in collecting it, figuring it out, and keeping track of it. While this is quite difficult in most cases, the good news is that there are some excellent payroll tax software programs that can help you and cut down on the various needs that you have. Payroll tax software is a great way to make sure that you are getting the right information as well. There is nothing worse than making the wrong payments or not following through on something that you are responsible for, for other people. Payroll tax software can help you do what you need to do effectively and do it right the first time.

Whether you are updating your payroll tax or if you are looking for a new option to consider for your new business, having the right payroll tax software is important. You'll find a wide variety of options available to you right here on the web. Take some time to look through those options so that you'll find just what you need. You will find discounted and very complex programs. You will find those designed just for your business and it's needs. And, you'll find these all available for your budget needs as well. Payroll tax is something we can't avoid but it doesn't have to be that difficult either.

Tax Deductions For Your 2005 Hybrid Automobile

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With the recent push by President Bush for alternative fuel strategies, much confusion has arisen regarding tax incentives for hybrid vehicles. This article clarifies the issue for you.

Tax Deductions for Your 2005 Hybrid Automobile

People buy hybrid vehicles for different reason. They are good for the environment. They get much better mileage, which saves money. There are tax incentives for buying them. With the recent energy plan put in place by the federal government, there is a lot of confusion regarding the tax incentives.

Specifically, the question for most people is whether they can claim a tax deduction or a tax credit when they buy a hybrid. Here is the breakdown:

The Good - If you purchased a hybrid vehicle in 2005, you can claim a tax deduction.

The Bad - If you purchased a hybrid vehicle in 2005, you cannot claim a tax credit.

The Ugly - If you had waited till 2006, you could have claimed a tax credit.

Tax credits save you a lot more money than tax deductions. Tax deductions are applied to your gross income like any other deduction. This helps lower your tax bill, but tax credits are much more powerful. Tax credits are not taken out of your gross income. Instead, tax credits are taken out of the exact amount of tax you owe the government. If you owe the government $10,000 after filling out your tax return and can claim a $2,000 tax credit, your final tax bill is $8,000.

You are stuck with a tax deduction tax deduction if you purchased a hybrid in 2005, but at least it is a nice one. The deduction amount is $2,000 for vehicles certified by the IRS. They include:

Ford Escape Hybrid: Model Year 2006

Mercury Mariner Hybrid: Model Year 2006

Lexus RX 400h: Model Year 2006

Ford Escape Hybrid: Model Year 2005

Toyota Prius: Model Years 2001 through 2006

Toyota Highlander Hybrid: Model Year 2006

Honda Insight: Model Years 2000 through 2005

Honda Civic Hybrid: Model Years 2003 and 2005

Honda Accord Hybrid: Model Year 2005

To claim this deduction, you must have purchased a NEW hybrid. If the hybrid was used, you get nothing. Assuming it was new, the deduction is claimed on line 36 of the 1040 form. Make sure to write Clean Fuel in the space provided.

Sustainable Architecture Helps Texas Instruments Save Money

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Conserving energy is on the minds of most Americans today. With gas prices skyrocketing, everybody is looking for ways to save energy, which translates into saving money.

If it takes $500 to heat your home in the winter, imagine how much it costs to heat a huge factory. Obviously any company building a factory needs to be as frugal as possible. Now, you can learn from their innovations.

In a heartening move against resource guzzling habits of big industry, Texas Instruments recently built a "green" factory in a town near Dallas, Texas. The company had been tempted to build the plant overseas to cut costs, but instead got creative and redesigned the factory's blueprints to save money. It was a huge challenge and seemingly impossible feat for the design team, but it got done.

"We have to [approach energy consumption differently]...I think you do first have to set an impossible goal. Amazing things happen when people claim responsibility for the impossible," said Shaunna Sowell, the company's vice-president who oversees facilities world-wide.

Many changes were instrumented in building the new factory. Whereas the old factories were three stories, the new factory was redesigned to fit into two stories. More attention was paid to how the factory consumes its resources and short-cuts were adopted. Attention was also paid to the waste coming out of the factory, and now most of it is recycled. Passive solar construction techniques were used so the factory could become more self-sufficient.

"Green building is not necessarily about producing your own power with windmills and solar panels. It's about addressing the consumption side with really creative design and engineering to eliminate waste and reduce energy usage-it's the next industrial revolution," said Paul Westbrook, who aided Texas Instruments in building their new factory and has a solar-powered home himself.

Texas Instruments expects to save big on energy costs for the life of their new building. Month in and month out, their bills will be low because they designed their building with energy conservation in mind.

Dealing With Taxes If You Live And Work Outside The United States

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When solar cells first came on the scene in the 1950s, they were simple. Now, there are a wide variety of cells and more are coming as technology improves.

An Overview of Solar Cells Through The Years

Solar cells are the basic component of any active system used to convert sunlight into a form of energy. Traditionally, solar cells were used as the key part of panel systems that generated electricity or heat for homes. These days, the technology is used in a wide variety of applications, which means the style of solar cells vary per application.

A traditional solar cell consisted of some very basic pieces. The cell was typically a flat square made up of a glass or plastic panel attached over a crystallized silicone substance. The silicone was imbedded with metal wires. The process worked by having the sun strike the silicone, which kicked off neutrons. The neutrons produced a small electrical current that was collected by the wires. The electricity was in the form of direct current, which had to be converted to usable AC electricity with an inverter. The electricity was then stored in batteries or fed into the grid of the local utility company.

The problem with the first solar cells involved efficiency. To be frank, there was not much. Initial cells converted sunlight at a rate of one to six percent. More energy was lost in the conversion from direct current to AC. It worked, but was so inefficient that huge collections of solar cells were required to make enough energy.

As technology improved, the components of solar cells became more efficient. A silicone base was still used, but modified to convert more spectrums of the sunlight. As efficiency rose, the cost of using solar cells dropped because less where needed to form a panel. Still, efficiency was in relatively low, making the systems cheaper but not really cost effective compared to buying power from a utility.

These days, referring to solar cells is somewhat misleading. Much of the new technology is abandoning the traditional concept of cells. Instead, companies are thinking out of the box and coming up with entirely new platforms. Options include nanotechnology whereby quantum dots are developed to covert the sun to energy. When fully developed, the dots will be part of the paint you use on your house. Technically, you can call the dots cells, but they are not in the traditional understanding of the term. Other options include the use of Germanium as an alternative to silicone, but this hasn't been fleshed out as of yet. Thin solar cell technology is also popular, but involves the basic pieces of a traditional system.

Solar cells used to be fairly uniform with silicone, glass cells being the standard. The future of these solar cells is dubious, however, as companies seek out dramatic leaps in solar technology. In 30 years, we will look back at traditional cells like we now look back at the horse and buggy means of transportation.

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