Lower your taxes BIG TIME 2015 edition wealth building tax reduction secrets from an IRS insider

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www.allitebooks.com Wealth-Building, Tax Reduction Secrets from an IRS Insider 2015 Edition including updates from the American Taxpayer Relief Law Sandy Botkin, CPA, J.D New York Chicago San Francisco Athens London Madrid Mexico City Milan New Delhi Singapore Sydney Toronto www.allitebooks.com 00_Botkin_FM.indd 03/07/15 4:00 PM Copyright © 2015 by Sandy Botkin All rights reserved Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher, with the exception that the program listings may be entered, stored, and executed in a computer system, but they may not be reproduced for publication ISBN: 978-0-07-184964-7 MHID: 0-07-184964-5 The material in this eBook also appears in the print version of this title: ISBN: 978-0-07-184960-9, MHID: 0-07-184960-2 eBook conversion by codeMantra Version 2.0 All trademarks are trademarks of their respective owners Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark Where such designations appear in this book, they have been printed with initial caps McGraw-Hill Education eBooks are available at special quantity discounts to use as premiums and sales promotions or for use in corporate training programs To contact a representative, please visit the Contact Us page at www.mhprofessional.com TERMS OF USE This is a copyrighted work and McGraw-Hill Education and its licensors reserve all rights in and to the work Use of this work is subject to these terms Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw-Hill Education’s prior consent You may use the work for your own noncommercial and personal use; any other use of the work is strictly prohibited Your right to use the work may be terminated if you fail to comply with these terms THE WORK IS PROVIDED “AS IS.” McGRAW-HILL EDUCATION AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE McGraw-Hill Education and its licensors not warrant or guarantee that the functions contained in the work will meet your requirements or that its operation will be uninterrupted or error free Neither McGraw-Hill Education nor its licensors shall be liable to you or anyone else for any inaccuracy, error or omission, regardless of cause, in the work or for any damages resulting therefrom McGraw-Hill Education has no responsibility for the content of any information accessed through the work Under no circumstances shall McGraw-Hill Education and/or its licensors be liable for any indirect, incidental, special, punitive, consequential or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility of such damages This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise www.allitebooks.com Contents Introduction: Rich or Poor—Your Choice ix Part Wealth-Building Tax Secrets for Small and Home-Based Business Owners Chapter Why You Would Be Brain Dead Not to Start a Home-Based Business (If You Don’t Already Have One) This chapter explains why everyone who is employed should have some kind of business, preferably a home-based business If you don’t have one, you are losing thousands each year Chapter How to Deduct Your Fun How to deduct your golf, sporting tickets, movies, and plays— and audit-proof all these deductions You will learn some IRS inside secrets related to Dutch-treat meals and learn about the great $75 exception to keeping receipts, as well as the home entertainment exception You will be having twice as much fun if you know it’s deductible! Chapter How to Turn Your Vacation into a Tax-Deductible Write-Off This chapter deals with how to deduct your travel and vacation expenses It will put thousands in your pocket 22 iii www.allitebooks.com 00-Botkin_FM.indd 10/28/14 6:43 PM iv Contents Chapter Income Shifting and Income Splitting: One of the Greatest Single Wealth-Building Secrets How would you like to completely deduct the equivalent of your kids’ college education, room and board at college, and their weddings? You can, with income shifting This chapter also deals with a great tax planning technique called the gift-sale technique and the “Botkin Trust,” which allows a double deduction for equipment—and has been approved in numerous Supreme Court cases I love this chapter! Chapter How to Turn Your Car into a Tax-Deductible Goldmine Learn the five methods of IRS-bulletproofing your automobile deductions This is a must if you use your car for business Chapter Home Office: The Misunderstood Key to Saving $15,000 Every Five Years This chapter explains how to convert your home into a taxdeductible money machine, using little-known audit-proofing strategies One of my students told me that this chapter reduced her taxable income by $100,000 Chapter Beating the Dreaded IRS Audit What you when you get a letter from the IRS “inviting you in for a chat”? This chapter covers what your chances are of being audited, your audit rights, how to reduce your chances of being audited, what to if you don’t have the money to pay the IRS, and much more This is a great chapter and you should read it carefully Chapter How to Shield Yourself from the IRS Weapon of Classifying a Business as a Hobby This chapter illustrates the practical steps necessary to withstand any “hobby attack” by the IRS I have been so successful with clients who have used this information that many accountants have asked me for copies of this book because of this chapter alone If you are running a business out of your home, this chapter could save you a bundle and prevent lots of IRS problems 38­­ 54 79 98 112 www.allitebooks.com 00-Botkin_FM.indd 10/28/14 6:43 PM Contents Part How to Incorporate to Shelter Your Wealth Chapter Finding the Best Corporate Entity for Your Business Here’s a great overview of the pros and cons of incorporating vs being a sole proprietor or being a limited liability corporation Chapter 10 Forming a Nevada Corporation or a Limited-Liability Corporation in Nevada Many well-known, wealthy personalities (and many artists) incorporate in Nevada You will learn exactly why This has been a well-kept secret—until now! Chapter 11 How to Eliminate up to 40 Percent of Your Social Security and Medicare Tax with an S Corporation This technique works especially well for Middle America businesses Chapter 12 How to Get Assets and Money into a Corporation Tax-Free This chapter explains what should and what should not be transferred to a corporation It also covers a crucial topic that has killed many businesses: dealing with co-owners and partners Finally, if you terminate your corporation at a loss, it explains a method that will give you an ordinary loss rather than a less-valuable capital loss Part Every Fringe Benefit Available to Small and Home-Based Businesses v 123 125 148 153 157 163 Chapter 13 Fringe Benefits You Will Love, Part This chapter deals with most of the wonderful tax-free fringe benefits that you can have in almost any small business that are not covered in other chapters I will discuss such perks as payment for parking, transportation, exercise equipment, employee achievement awards, and much more 169 Chapter 14 Fringe Benefits You Will Love, Part This chapter continues the discussion of tax-free fringe benefits from Chapter 13, with parking, transit passes, vanpools, cafeteria plans, qualified profit-sharing plans, SEPs, SIMPLE IRAs, and more 197 www.allitebooks.com 00-Botkin_FM.indd 10/28/14 6:43 PM vi Contents Part Miscellaneous Tax Strategies Chapter 15 The Four Most Overlooked Real Estate Tax Deductions in America Here are the big four: (1) the large deduction for mortgage points, (2) the new universal exclusion that will allow you to avoid up to $500,000 of gain on your properties every two years, (3) choosing to make “repairs” vs “improvements” on your property, and (4) one of the biggest tax deduction mistakes in divorce situations In fact, not get divorced without reading this chapter! Chapter 16 Making Colleges Less Expensive with Tax Planning This chapter highlights qualified tuition plans for your kids’ future education,which will enable you to pay for college with tax-free savings This chapter also explains the benefits of both the Lifetime Learning Credit and the Hope Tax Credit, both of which result in a dollar-for-dollar reduction in your taxes The chapter also covers the rules of deducting student loan interest Chapter 17 Tax Planning for Stock and Bond Investments This chapter deals with many of the most important tax issues for investors so that they can substantially reduce their taxes on these investments Chapter 18 Trader versus Investor: The Best Kept Secret Around This chapter will discuss the little known benefit of being a stock and commodities trader 217 219 232 245 258 Chapter 19 Tax Scams and Other Shams This chapter deals with some of the latest tax and other scams that are being perpetrated today 271 Chapter 20 The Top 10 Tax Questions This is one chapter you don’t want to miss 286 Appendix A: 2014 Projected Tax Rates 295 Appendix B: How to Find a Good Accountant 298 www.allitebooks.com 00-Botkin_FM.indd 10/28/14 6:43 PM Contents vii Appendix C: Health Savings Account 301 Appendix D: What the New Health Reform Law Means to You 303 Index308 www.allitebooks.com 00-Botkin_FM.indd 10/28/14 6:43 PM This page intentionally left blank www.allitebooks.com Introduction Rich or Poor—Your Choice When a person with money meets a person with experience, the person with experience will get some money and the person with money will get some experience —Harvey MacKay, How to Swim with Sharks Without Being Eaten Alive T his is not a financial planning book or a book about money However, it will probably put more money in your pocket each year than any other book you’ve read This is also not a book about investing or wealth building However, the information contained here could probably create more wealthy people than any wealth-building book Finally, this is also not a book that will show you how to your own taxes In fact, there are no tax forms in this book However, it will probably reduce your taxes more than any idea that an accountant has given you and more than any idea that you may have read about in any other book Lower Your Taxes—Big Time! is a practical book on tax strategies and IRS auditproofing techniques You will not only learn to significantly reduce your taxes with proven strategies developed over many years; you will, at the same time, lower your chances of being audited and make your tax return “IRS-bulletproof.” This sounds contradictory, but I promise you that these statements are true Read the quote at the beginning of this chapter again I intend to give you the experience you need so you can become both “a person with money” and “a person with experience.” There are costly ways to gain experience, as anyone who has been thoroughly audited will tell you, and not-so-costly ways This book is the not-so-costly way for you The idea for this book began to develop when I was a trainer of IRS attorneys While working at the IRS, I realized that many people were overpaying their taxes ix www.allitebooks.com 00-Botkin_FM.indd 10/28/14 6:43 PM 306 Lower Your Taxes—Big Time! Author’s observation: Thus, individuals whose household income (using 2009 amounts) exceeds the above-listed amounts (e.g., $43,320 for an individual or $88,200 for a family of four) won’t be entitled to claim the pre­mium assistance credit Author’s elaboration: Although there will be a penalty for not enrolling in the government plan for the first few years, it will be a small penalty Thus, why would anyone enroll in the plan? Why not wait until you have a medical problem and then enroll There will be no preexisting conditions; thus, you can enroll any time, even when you find out that you have a major ailment such as cancer Moreover, the credit is refundable, which means that you can get more money back from the government than you paid in Thus, if you paid in $3,000 in taxes but get a refundable credit of $4,000, you would not only get back all the $3,000 in taxes that you paid to the government but would also get a check for an extra $1,000! 10. Right now Flexible Spending Accounts (FSAs) can’t be set up for more than percent owners/stockholders This will be liberalized to allow for small businesses to use FSAs However, maximum deductions will be limited to $2,500 per year, per employee 11. Domestic partners can’t be covered as spouses unless you are a federal employee, and illegal aliens are not covered under this bill Other exemptions are for those of “religious conscience” and for certain hardship cases This area is unclear and will require some IRS regulations 12. Employer-provided health insurance can now cover dependent children under age 26 (which used to be between ages 21 and 23 depending on the plan and the state) 13. All health insurance lifetime maximums and preexisting conditions will be waived 14. The Patient Protection and Affordable Care Act eliminates deductions for subsidies for employers who maintain a prescription drug plan for retirees eligible for Medicare Thus, some retirees will have to pay more for their prescription drug coverage 15. Right now you can deduct medical expenses that exceed 7.5 percent of your AGI This number will rise to 10 percent of AGI on or after 2013 except for individuals who are age 65 Those age 65 by that date will be subject to the older rule of 7.5 percent of AGI threshold 16. There is an excise tax on medical devices that will make these items more expensive However, normal items that you can buy over the counter, such as eyeglasses, contact lenses, and hearing aids, won’t be subject to the new excise tax 17. Employer-provided adoption assistance will be increased from $12,170 to $13,170 starting in 2010 18. Congress and government workers covered under a government plan are exempt from this program What does that tell you about the law? 21_Botkin_APPN.indd 306 11/6/14 12:52 PM Appendix D What the New Health Reform Law Means to You 307 Phase-In Schedule 90 days after enactment: people with no insurance will have access to high-risk pools 180 days after enactment: prevents insurers from denying people who get sick and prevents insurers from barring children with preexisting conditions In addition, insurers can’t have any lifetime caps on medical reimbursements Finally, children under age 26, who are dependents, can stay on parents’ policy 2011: Requires insurers to spend 80 percent of premiums on medical services if a small group plan or for the individual market Large group plans must spend 85 percent of premiums on medical services 2013: Increase in Medicare payroll tax by 0.9 percent on earned income if you have AGI of $200,001 or more for single taxpayers and $250,001 or more for married taxpayers filing jointly In addition, there will be a 3.8 percent Medicare tax on unearned incomes such as interest, dividends, rents, and royalties if your income is more than the limits noted here This also applies to dividends from S corporations 2014: Provides subsidies in the form of credits for families earning up to 400 percent of the federal poverty level, which for a family of four would be up to $88,000 of AGI (based on 2009 federal poverty level) In addition, most employers who have 50 or more full-time employees must provide qualified coverage to their employees or face penalties Finally, most individuals who not have health insurance must get coverage or face penalties 2018: There is an imposition of 40 percent excise tax on high-end insurance policies Thus, if you want a “Cadillac plan,” you will pay a bundle for it Author’s elaboration: I just don’t get the 40 percent excise tax If I want to pay for a better plan, why can’t I that without the government charging me a huge excise tax? What’s next? If I want a bigger house, fancier car, or fancier watch than the average person, should I have to pay a huge excise tax? This is a very strange development It is proposed that this Patient Protection and Affordable Care Act will provide coverage to over 32 million additional people However, with the same number of doctors, this will mean much longer waits and perhaps more costly coverage Although there are some great provisions in the new law such as waiving preexisting conditions and lifetime benefit caps, the increased taxes and costs incurred for most small businesses will probably exceed the decrease in health premiums, resulting in an overall increase in total health costs and taxes to self-employed businesses Thus, I don’t see any job creation resulting from this law In fact, it may well cost a lot of jobs 21_Botkin_APPN.indd 307 11/6/14 12:52 PM Index A Accountants, 108, 298–300 how to find a good accountant, 298–300 Actual expense method, IRS standard rate vs., 57–58, 71 Add backs, 61–63 Address: change of, 105 of home office, displaying, 90 Adjusted gross income (AGI), 171, 175 and income splitting/shifting, 39 investor status and, 261–262 Adoption assistance, 163, 175 Advertising, 117 Advertising scams, 278 AGI (see Adjusted gross income) Alabama Securities Commission, 280 Alcohol, 290 American Opportunity Credit, 239–242 American Taxpayer Relief Law, 60 C corporations, 135 transit pass limits, 199 Amortization, 221–222 Annual lease table rule, 67 Annual lease value method, 200–201 Annual Lease Value Table, 49 Annual share transaction statement, 253 Annuities: in tax-advantaged investments, 255 tax-deferred, 246 Antiques, 94 Application for Taxpayer Assistance Order (IRS Form 911), 102 Appreciated property, 47–48, 51 Assets: LLC asset protection, 144 tax-advantaged investments and, 255 transfer of money and, 157–161 Associated entertainment, 11–13 Athletic facilities, 164, 181–183 Auditors, IRS, 99 Audits/audit-proofing (IRS), 9, 98–111 “audit lottery,” 100–101 automobile mileage, 69–75 DIF (Discriminant Function System), 104 documentation, 33–35, 107–108 dressing appropriately for, 107 entertainment deductions and, 10–12 evidence tampering, 109 hasty agreement to adjustments, 108 home office, 86–87, 89–91 income range percent audited, 100–101 limiting scope of, 107 most frequent, 54 national revenue obtained from, 100 preparing for, 106–109 “rat fee,” 109 real estate universal exclusion, 225–226 reducing chance of, 104–106 special agents, 108–109 statistics on likelihood of, 100–101 tape-recording, 103 taxpayer rights, 101–104 and trusts, 109–110 Automobiles (see Vehicles) B Bank accounts: foreign, hiding income in, 273 separate business accounts, 116 Basis: automobile adjusted, 65–67 inheritance, 47 mutual fund, 251–255 partnership, 129–130 stock, 140, 143 BBB (Better Business Bureau), 118, 275 Below-market loan rules, exceptions to, 185 Better Business Bureau (BBB), 118, 275 Bicycle riding, tax free dollars for, 199 Boatner case, 264 Bonds: calculation process for, 246, 248 308 22_Botkin_INDX.indd 308 11/6/14 7:13 PM Index dealer definition and, 259 entity types in purchasing, 259 FIFO, 250–251 holding strategy for, 250 municipal, 245 series EE/series I, in QTPs, 237 Treasury, 246 Book scams, 280 Bridge loans, 186 Buffett, Warren, 276 Bush, George, 219 Business: classification as hobby vs (see Business vs hobby classification) combining entertainment with, 28, 30 courses and programs for, 233–234 home-based, 3–7 new, losses against income in, 290–291 principal place of, 81–84 promotion, 15 (See also Home office) Business days, 26–32 Business gifts, 15–16 Business meals, 9–12 documentation, 12, 14 requirement for deducting, 9–11 Business mileage, 54–55, 67–70, 75 flowchart for determining, 70 personal mileage vs., 68–70 Business organization forms, 125–146 C corporation, 134–138 entity selection flowchart, 126 general partnership, 129–131 limited partnership, 132–133 limited-liability corporation, 143–145, 151, 160, 170 Nevada corporation, 136, 145, 148–152 S corporation, 40, 138–142, 153–155, 249 sole proprietorship, 127–129, 170 Business travel (see Travel expenses) Business vs hobby classification, 112–121 advance research into ventures, 118 benefits from business losses, 112–113 business plan/projections, 115 business-like conduct of activities, 116–117 criteria for, 114–120 history of income/losses, 119 horse/dog breeding, 116, 289 income from other sources, 119 loss carryover/carryback, 113 network marketing, 115, 117 operating like similar businesses, 117–118 postponing determination of, 114 presumption based on profit, 113 prior business experiences, 118 regularity of activity, 118–119 suspicious activities, 119–120 training and, 118 Business/business use, converting automobile to, 55–56 Buy-sell agreement, 131, 137 22_Botkin_INDX.indd 309 309 C C corporations, 134–138 advantages of, 134–136 disadvantages of, 136–137 who should operate as, 137–138 Cafeteria plans, 134, 166, 203–205 California, sales tax in, 151 California Public Research Group (CALPIRG), 283 Canceled flights, 28 Capital: for C corporations, 135 for general partnerships, 129 for limited partnerships, 132 for S corporations, 142 for sole proprietorships, 128 Capital gains, 249, 261 avoiding consequences of, 47, 51 corporate, 135, 249 as investment income, 246, 261 long-term, investor status and, 260 losses and, 246–249 from qualified small business stock, 140–141 rates, 260 S corporations and, 249 set rate of, 246 of traders, long-term, 265 Capitalization, 149 Car (see Vehicles) Carryback/carryover, of losses, 113, 127 Cents per mile method, 201–202 Cents per mile rule, 67 Chain letters, 277 Change of address form, 105 Charging order, 144 Charitable contributions/organizations tax scam, 275 Charitable deduction rules, automobile, 64–65 Charity events, 13–15 Charter boat operations, 117 Chauffeurs, tax free, 165, 194–195 Children: adoption assistance fringe benefit, 163, 175 dependent child’s business services/wage sheet, 45 handicapped, 236 income shifting/splitting, 42–46, 48 Kiddie tax, 48, 235 Civic organizations, dues to, 18 Clients, in home office, 84 Closely connected spouse rule, 13–14 Colleagues, visiting, 29 Collectibles, 246, 247 College expenses, 232–243 American Opportunity Credit, 238–242 deductibility of, 233–234 Economic Stimulus Law and, 235 Lifetime Learning Credit, 239–242 medical exceptions and, 236–237 prepaid tuition, 234 Qualified Higher Education Expenses, 235–236 Qualified Tuition Programs, 232, 234–237 11/6/14 12:52 PM 310 Index College expenses (Cont.) rising tuition costs, 232 series EE and series I bonds, 237–238 student loan interest deduction, 241 tax credits for, 238–242 Commuting, 194 by bicycle, 199 company-provided transit passes/parking/vanpools, 166, 197–199 company-provided transportation/limos/chauffeurs, 165, 194–195, 198 nondeductible costs example, qualified transit passes, 198–199 qualified vanpools, 198 (See also Vehicles) Commuting valuation rule, 68 Commuting value method, 202–203 Company-provided benefits: adoption assistance, 163, 175 corporate purchase of homes, 165, 191–192 no/low-interest loans, 164, 184–187 transit passes/parking/vanpools, 166 transportation/limos/chauffeurs, 165, 194–195, 198 trips, 165, 190–191 vehicles, 166, 199–203 Constitutional trusts, 109 Constitutionality, of taxation, 109–110 Consumer product testing, 172 Consumer Response Center, 283 Consumption taxes, 262 Continuity: in general partnerships, 130 in limited partnerships, 132 in sole proprietorships, 128 Control: in limited partnerships, 133 in sole proprietorships, 127 Control employees, 68 Convenience of employer, 210 Conventions, 28, 32 Corporate bond interest, 247 Corporate purchase of employee home that declined in value, 191–192 Corporate veil, 149–150 Corporate-provided transit passes/parking/vanpools, 166, 197–199 Corporations, 106, 133–145 C, 134–138 capital gains/losses, 135, 140, 249 definition of incorporate, 133 Delaware, 150–151 disguised corporate ownership tax scam, 274 limited-liability, 143–145, 151, 160, 170 Nevada, 136, 145, 148–152 new, property transfer to, 159 “piercing the corporate veil,” 149–150 S, 40, 138–142, 153–155, 249 sole stockholder in, 40 transferring assets/money into, 157–161 Country club dues, 18–19, 165, 189–190 22_Botkin_INDX.indd 310 Credit cards: identity theft and, 282, 283 “preapproved,” 282, 284 Credit monitoring, 283 Credits (see Tax credits) Cruise ships, 26–28 D D’Arcangelo, David, Day care, 85–86, 163, 173–175 Days in transit, 27 De minimis fringe benefits, 164, 178–180 below-market loan rules, 185 examples of, 178–179 Dealers, 259–260, 267 Defined-benefit plan, 213–214 Delaware corporations, 150–151 Dental expenses, 176 Department of Justice, on identity theft, 280–282 Dependent child’s business services/wage sheet, 45 Depreciation, 49, 92–95, 247 automobile/vehicle, 55–56, 58–61, 65–66 equipment expensing vs., 94–95 home office equipment, 93–95 real estate, 228 with simplified home office deductions, 89 2014 limits of, 58 Desperation approach, 74–75 DIF (Discriminant Function System), 104 (See also Audits) “Dirty dozen” tax scams, 272–275 Disability insurance fringe benefit, 164, 177–178 Discounts, for qualified employees, 164, 180–181 Discriminant Function System (DIF), 104 Discrimination: employee discount rules and, 181 fringe benefits and, 163–168, 170, 172, 173 medical reimbursement and, 40–41 relocation expense reimbursement allowed, 192 Divorce, property transfer as part of, 229 Documentation, 116–117, 292 audit, 33–35, 107–108 automobile mileage, 69–75 business meals, 12, 14 country club dues, 18 hired relatives, 44–46 home office, 89–91, 94 income shifting/splitting, 44–46 of incorrect Form 1099, 106 of IRS advice received, 99 lodging, 25, 33–34 lost, desperation or reconstruction approach for, 74–75 meals, 25 mileage logs as, 71–74 paper vs electronic, 69 square footage, 88, 89 taxpayer service representative, 99 techniques for audit-proof, 33–35, (See also Audits/ audit–proofing [IRS]) (See also Receipts; Record keeping; Tax diary) 11/6/14 12:52 PM Index Dog breeding, 116 Double taxation, 136, 138, 160 Double-category method, 251–252 Dry cleaning, 23 Dues, country club/health club, 18–19, 165, 189–190 Dumpster diving, 281 Dutch-treat rules, 14–15 E Economic stimulus: college tuition under, 235 scams, 272 (See also American Taxpayer Relief Law) Education: assistance, 165, 187–189 business training, 118 college tuition, 232 deductibility of expenses for, 233–234 out of town, 29 paying for children’s, 42–46, 48 tax credits for, 238–242 for traders, 264 training scams, 276–277 (See also College expenses) Elections, 95 filing all entitled, 105 mark-to-market, 263–264 S corporation, 138 Employee discount rules, 11, 181 Employees: automobile provision for, 68 company-provided trips for spouses and, 165, 190–191 consumer testing of products by, 172 control, 68 corporate purchase of declined value home of, 191–192 discounts for, 164, 180–181 exempt from medical coverage, 41–42 highly compensated, 40–42, 163–168, 170–171, 173 home office claims by, 93 IRS, 102 meals for, 18 part-time, 181 party invitations to, 18 qualified employee discounts, 164, 180–181 qualified move/relocation expense reimbursement for, 192–194 relocation loans, 165, 185–187 restaurant, tax-free meals for, 211 of sole proprietors, 128 spouses as, 24–25, 39 tax laws shafting, working condition fringe benefit for, 171, 187–189 Employer, convenience of, 210 Enron, 148, 152 Entertainment, 8–19, 290 audit-proofing, 10–12 business meals, 9–12, 14 business promotion as, 15 charity events, 13–15 22_Botkin_INDX.indd 311 311 combining business with, 28, 30 country club/health club dues, 18–19, 165, 189–190 fifty-percent rule, 14–18 gifts of, 15–16 home, 16–18 100 percent deduction of, 17–18 spouses and, 13–14 summary of strategies for deducting, 19 travel and, 24–33 Entities: entity selection flowchart, 126 types of, 259 (See also Business organization forms) Equifax, 284 Equipment, 48–50 automobile, 64 exercise, 164, 181–183 expensing vs depreciating, 94–95 home office, deductible, 94–95 home office, depreciation of, 93–95 purchase of $500,000 worth, 95 working condition fringe benefit, 163, 171 Estate taxes, 274 Evidence tampering, 109 Exclusive use rule (home office), 86–87 Exercise equipment: deductions for, 181–183 as fringe benefit, 164 Exercising the option, 207 Expenses: college (see College expenses) dental, 176 home office indirect expense methods, 87–89 medical, 39–42, 301–302 (See also Health insurance) on-the-road, 23–24, 26 relocation, 165, 185–187, 192–194 transportation, 23, 27, 165, 194–195 travel (see Travel expenses) Expensing, equipment depreciating vs., 94–95 Experian, 284 F F R McDowell case, 212 Fabulous offer scams, 279 Fair Labor Standards Act, 194 Fair market value: in leasing, 49–50 lower of cost or, 94 “Familiarization trips,” 119 Family estate trusts, 110 Family travel, 25 Federal poverty line (2009), 305 Federal Trade Commission (FTC), 283 FIFO (first-in-first-out), 250–251 Fifty percent rule, exceptions to, 15–18 for meals, 14–18 Finger in the wind approach, 75 First-in-first-out (FIFO), 250–251 11/6/14 12:52 PM 312 Index First-week rule, 73 Flat taxes, 262 Flights, canceled, 28 Flowcharts: automobile disposal decision, 65 business mileage determination, 70 business travel, 30 entity selection, 126 Foreign bank accounts, hiding income in, 273 Foreign travel, 26, 31–32, 34 Foreign trusts, 109 Form 843, 274 Form 911, 102 Form 911, 102 Form 940, 46 Form 941, 46 Form 1065, 128, 129, 133 Form 1065, 143 Form 1065, 143 Form 1099, 105–106, 274 Form 1120, 136 Form 1120, 136 Form 2553, 138 Form 2553, 138 Form 4852, 274 Form 4952, 261 Form 8822, 105 Form K-1, 133 Form SS-4/SS-5, 136 Form W-2, 45 Form W-4, 45 Four hour/one minute rule (travel), 28 401(k), 254, 288 Franchising, 115 Fraud Information Center (National Consumer League), 280 freecreditreport.com, 283 Fringe benefits, 169–215 adoption assistance, 163, 175 C corporation, 134–135 cafeteria plan, 166, 203–205 company-provided no/low-interest loans, 164, 184–187 company-provided transportation/limos/chauffeurs, 165, 194–195, 198 company-provided trips for spouses/employees, 165, 190–191 company-provided vehicles, 166, 199–203 consumer testing of products, 172 corporate purchase of employee home that declined in value, 191–192 corporate-provided transit passes/parking/vanpools, 166, 197–199 day care, 163, 173–175 de minimis, 164, 178–180, 185 defined-benefit plan, 213–214 disability insurance, 164, 177–178 educational assistance, 165, 187–189 employee discounts, 164, 180–181 exercise equipment/gym, 164, 181–183 general partnership, 131 health insurance, 164, 175–176 health/country club dues reimbursement, 165, 189–190 22_Botkin_INDX.indd 312 highly compensated employees, 163–168, 170–171, 173 and hiring your spouse, 38–39 lodging, 167, 209–212 meals, tax-free, 167 no-additional-cost, 163, 173 occasional supper money, 164, 179 pension/profit-sharing plans, 212–215 phantom stock, 167, 206–207 profit sharing, 168 relocation expense reimbursement, 165, 185–187, 192–194 restricted property/restricted stock for services rendered, 205–207 restricted stock, 166 retirement advice, 183–184 self-insured medical reimbursement, 164, 176–177 simplified employee pension, 213 small businesses and, 169 stock options, 167, 207–209 summary of, 163–168 underused, 207 working condition, 163, 171, 187–189 Frivolous arguments, tax scam, 272–273 FTC (Federal Trade Commission), 283 Fuel credit scam, 273 Furniture, depreciation of home office, 93–95 G General partnership, 129–131 buy-sell agreement, 131 disadvantages of, 130–131 who should operate as, 131 Gifts: business, 15–16 leaseback technique, 48–50 shift-the-tax technique, 46–48 Golf: athletic facilities fringe benefit, 182–183 50-percent rule, 11 Goodwill entertainment, 11 Government bonds: in QTPs, 237 Series EE/Series I, 237–238 Grocery bills, 14 Gross income limitation (home office), 92 (See also Adjusted gross income) Gross profit percentage, 181 Guest book, 90, 91 Gym/exercise equipment: deductions for, 181–183 as fringe benefit, 164 H Handicapped children, 236 Health club dues, 18–19, 165, 189–190 Health insurance, 164, 175–177, 303–307 (See also Selfinsured medical reimbursement) 11/6/14 12:52 PM Index Health reform law, 303–307 medical insurance exceptions, 176 phase-in schedule for, 307 Health savings account (HSA), 301–302 Heavy vehicles, 59–61 Highly compensated employees, 40–42, 163–168, 170–171, 173 Hobbies (see Business vs hobby classification) Home entertainment, 16–18 Home office, 79–96 address/phone number display, 90 administrative duties in, 82–84 audits/audit-proofing, 86–87, 89–91 day-care center qualification, 85–86 deductions available with, 87–89 depreciation and, 92–95 documentation, 89–91, 94 employee claims of, 93 exclusive use rule, 86–87 first-year tax refund, 81 indirect expense methods, 87–89 inventory/product sample storage as qualification, 85 logbook for business visitors, 90, 91 meeting or greeting clients in as qualification, 84 photographing, 89 principal place of business qualification for, 81–84 problems with claiming, 92–93 professionals denied deductions for, 82 purchase of $500,000 worth equipment, 95 regular business use rule for, 86 required record keeping, 94 rules for deducting, 80–87 separate structure qualification, 84 simplified deduction method, 89 Soliman case, 82–84 square footage for, 87–89 tax return election of, 95 telephone, 90 work-activity log, 90–91 (See also Residence) Home Tax Credit, 236 Home-based businesses, 3–7 Home-equity loans, unnecessary, 292, 293 Hope Tax Credit (see American Opportunity Credit) Horses, 116, 289 Household income, federal poverty line for, 305 HSA (health savings account), 301–302 I Identity theft, 280–285 common means of, 281–282 phishing scams and, 272 Improvements, real estate, 222–225 Income: adjusted gross, 39, 171, 175, 261–262 applying losses against, 5–6, 290–291 business vs hobby, 119 dividends as, 259–260 gross, home office limit on, 92 household, federal poverty line for, 305 22_Botkin_INDX.indd 313 313 investment, capital gains as, 246, 261 offshore hiding of, 273 ordinary, 259–260 range percent audited, 100–101 reasonable salary concept, 154–155 reasonableness of wages, 44 reporting, 105–106 tax liability by type of, 247 of traders vs investors, 265 undistributed, 154 unreported, 105 yearly income statement, 116 zero wages tax scam, 274 Income shifting/splitting, 38–52 documentation, 44–46 equipment protection, 48–50 gift-leaseback technique, 48–50 gift/shift-the-tax technique, 46–48 hiring children for, 42–46 hiring spouse for, 38–41 IRS forms for, 45–46 medical expenses and, 39–42 real estate, 50 S corporation advantage of, 139 sale-leaseback technique, 51–52 Income Tax Act, 109, 110 Incorporation (see Corporations) Indirect expense methods, home office, 87–89 Individual Retirement Account (IRA), 288 Roth, 43 scams, 273 SIMPLE, 214–215 Inheritance scams, 277 Inheritances, fair-market-value basis for, 47 Innocent Spouse Tax Relief, 104 Insurance: disability, 164, 177–178 health, 164, 175–177, 303–307 self-insured medical, 39–42, 140, 164, 176–177 Intent test, 31 Interest, 164 applicable federal rates, 184–185 automobile loan, 292–293 company-provided no/low-interest loan, 164, 184–187 corporate bond, 247 home office with mortgage, 81 income types with, 247 student loan, 241 Internal Revenue Code, 109–110 for associated entertainment, 11 “trader status” and, 264–266 for travel, 35 Internal Revenue Service (IRS), agent promotions, 100, 109 auditors, 99 “business as hobby” weapon of, 112–121 deductible weekends private ruling by, 26–27 disability tax-planning strategy approved by, 177–178 hierarchy of officers in, 99–100 11/6/14 12:52 PM 314 Internal Revenue Service (IRS) (Cont.) most frequent audits by, 54 and phishing scams, 272 publication on scams by, 275 special agents, 108–109 Sutter rule of, 15 taxpayer service representative, 99 training, 99, 100 (See also Audits/audit-proofing [IRS]; IRS Forms) Inventory storage, home office qualification, 85 Investment: capital gains and, 246 completely tax exempt, 245 dealer status, 259–260 expenses, 261–262 fully taxable, 246 mutual funds as distinct from, 246 percent rule, 262 partially tax exempt, 245–246 placing in right accounts, 254 property, 289–290 real estate, fix-up, 290–291 retirement account best options for, 254 table/overview of taxes on various types of, 247 tax implications of, 245–246 tax treatment by type of, 267 tax-advantaged accounts, 254, 255 taxpayer mistakes in taxes on, 250–251 percent rule, 261–262 Investment scams, 275–277, 279–280 Investors, 260–262 problems for, 261–262 tax treatment summary for dealers/traders and, 267 traders vs., 264–266 IRA (see Individual Retirement Account) Irrevocable trust, 49 IRS (see Internal Revenue Service) IRS Forms: 843, 274 911, 102 940, 46 941, 46 1065, 128, 129, 133, 143 1099, 105–106, 274 1120, 136 2553, 138 4852, 274 4952, 261 8822/change of address, 105 capital gains investment, 261 K-1, 133 LLC, 143 partnership, 128, 133 Schedule C, 143, 263, 266 Social Security Card application, 136 SS-4/SS-5, 136 for traders, 263, 266 W-2, 45 W-4, 45 IRS standard rate method, actual expense method vs., 57–58, 71 22_Botkin_INDX.indd 314 Index J Job hunting, 29–30 Job scams, 279 K Kiddie tax, 48, 235 Kiplinger’s retirement letter, 280 L Laundry, 23 Lawsuits, statistics on, 128 Liability: in C corporations, 134 in general partnerships, 130 in limited partnerships, 132 in limited-liability corporations, 143 of Nevada corporations, 149–150 of S corporations, 139 of sole proprietors, 128–129 Lifelock, 283 Lifetime Learning Credit, 239–242 Like-kind exchange (investment property), 290 Limbs, loss of, 177 Limited partnership, 132–133 Limited-liability corporation (LLC), 143–145, 151, 170 advantages of, 143–144 disadvantages of, 144–145 property transfer with, 160 who should operate as, 145 Limos, tax-free, 165, 194–195 LLC (see Limited-liability corporation) Loans: automobile, interest on, 292–293 bridge, 186 company-provided, 164, 184–187 employee relocation, 185–187 home-equity, 292, 293 no/low-interest, 164, 184–187 origination fees, 219–220 processing fees, 219–220 refinanced, 221, 222 student, 241 Lodging, 286–287 documenting expenses for, 25, 33–34 exclusion for meals, 210–211 fringe benefit/tax-free, 167, 209–212 receipts for, 33, 34 with relatives, 33–34 Logbook, for business visitors, 90, 91 Logs: mileage, 71–74 90-day, 73, 74 perfect one-day, 71–73 work-activity, 90–91 Loss of limb/organ, 177 11/6/14 12:52 PM Index Losses (financial): applying income against, 5–6 benefits of business, 112–113 C corporation stockholders taking, 137 capital gains and, 246–249 carryback/carryover of, 113, 127 new business, 290–291 ordinary, 260 passive, 133 rental property, 287–288 use of corporate, 140 Lottery, audit, 100–101 Lower of cost or fair market value rule, 94 M MACRS (modified accelerated cost recovery system), 58–59 Madoff, Bernard, 275 Mailing, tax return, 104–105 Malpractice, 134 Management: money managers, 275 specialized, 134, 139 Market, short-term swings in, 264, 265 Market value: automobile, 56 fair, 49–50, 94 Marketing, network, 6–7, 18, 115, 117, 278, 291–294 Marketing plan, 116 Mark-to-market, 259 Mark-to-market election, 263–264 Master of business administration (MBA), 234 Mayer case, 265 Meals: business, 9–12, 14 documenting, 25 Dutch-treat, 14–15 employee, 18 exceptions for, 212 exclusion for, 210–211 occasional supper money, 164, 179 requirements for deducting cost of, 9–11 with spouses, 13–14 taken alone, 22 tax-free, 167 Medical expenses, 39–42 and exceptions to Qualified Tuition Programs, 236–237 HSA for, 301–302 receipts for, 40 (See also Health insurance) Medical reimbursement plan, 39–42 employees exempt from, 41–42 self-insured, 39–42, 164, 176–177 Medicare, 303, 307 and LLCs, 144 and S corporations, 138–139 surcharge, 297 Meet/greet test, 84 Middle America, 153 22_Botkin_INDX.indd 315 315 Mileage: business, 67–70, 75 business vs personal, 68–70 cents-per-mile method, 201–202 documentation, 69–75 flowchart for determining business mileage, 70 Military, qualified, real estate deductions for, 228 Mirror test, 46 Misuse of trusts, 274 MLM (multilevel marketing), 278, 293–294 Modified accelerated cost recovery system (MACRS), 58–59 Moeller case, 265 Money, transfer of assets and, 157–161 Money managers, 275 Mortgage interest, home office and, 81 Mortgage loans, employee-relocation, 164, 185–187 Mortgage points, 219–222 amortizing points paid, 221–222 bulletproofing deduction of, 220–221 paid by seller, 221 recent changes on, 220–221 Motive, profit, 114–115, 117–119, 292 Multilevel marketing (MLM), 278, 293–294 Municipal bonds, 245 Musicians, home office claims for, 93 Mutual funds, 248, 250 calculating basis of, 251–255 investment as distinct from, 246 record keeping of, 251 MYfico.com, 283 N National Consumer League, 280 Net-square-footage method (indirect expenses), 89 Network marketing, 291–294 advantages and disadvantages of, 6–7 documenting intent in, 115, 117 entertainment deductions for, 18 MLM scams and, 278 Nevada corporation, 136, 145 advantages of, 149–150 to avoid sales taxes and other liabilities, 151–152 Delaware corporations vs., 150–151 forming, 148–152 myths about, 148–149 Newsletters, job, 279 Nigerian scams, 277 90-day log, 73, 74 No-additional-cost fringe benefit, 163, 173 No-hassle approach, 73–74 Nondiscrimination rules, for qualified employee discounts, 181 North American area, travel in, 32 Number-of-rooms method (indirect expenses), 87, 89 O Occasional supper money, 164, 179 One percent rule, 262 11/6/14 12:52 PM 316 One-day log, perfect, 71–73 One-week loophole, 31 On-the-road expenses, 23–24, 26 “Ordinary and necessary,” 18 Ordinary income, 259 Ordinary losses, 260 Owners, discrimination toward, 173 Ownership, disguised corporate, 274 Ownership vs residence test, 226–227 P Paperwork: with C corporations, 136 cost of added, 136 electronic vs paper documentation, 69 with LLCs, 144–145 Parking, 166, 197, 199 Parties, employee invitations to, 18 Partnership: basis, 129–130 general, 129–131 limited, 132–133 limited-liability corporation, 143–145, 151, 160, 170 startup checklist, 131 Part-time employees, 181 Passenger automobiles, 59–60, 64 (See also Vehicles) Passive losses (limited partnerships), 133 Patient Protection and Affordable Care Act, 303–307 Pensions/pension plans, 212–215 distribution, 288 fringe benefits, 168 qualified, 212–215 simplified employee pension plan, 183–184, 254 (See also Retirement) Perfect one-day log, 71–73 Phantom stock fringe benefit, 167, 206–207 Phishing scams, 272 Photograph, home office, 89 Physicals, routine, 42 Piercing the corporate veil, 149–150 P-I-G rule, 15 Pollock v Farmers’ Loan & Trust Company, 109 Ponzi scams, 275 Preferred stock, 158 Prepaid college tuition, 234 Principle of duplication, 117 Privacy, corporate, 150–151 Prize scams, 279 Products: false advertising of, 278 MLM, deducting purchase of, 293–294 testing, 172 Professionals, denial of home office deductions for, 82 Profit: presumption based on, 113 sharing, 168 Profit motive, 114–115, 117–119, 292 Profit sharing, 213 22_Botkin_INDX.indd 316 Index Promotion: of IRS agents, 100, 109 of your business, 15 Property: appreciated, 47–48, 51 corporate transfer of, 157–161 fully depreciated, 49 gifting, 46–48 gift-leaseback of, 48–50 investment, like-kind exchange for, 290 rental, 28–29, 50, 222–225, 287–288 restricted, 205–207 sale-leaseback technique, 51–52 transfer, 157–161, 229 working condition fringe benefit, 163, 171 Protest, tax, 110 Public offerings, 135 Pure trusts, 109, 110 Pyramid scams, 277–278 Q QSBS (qualified small-business stock), 135–136, 140–141 QTPs (see Qualified Tuition Programs) Qualified employee discounts, 164 limitations on, 180–181 nondiscrimination rules for, 181 Qualified Higher Educational Expenses, 235–237 Qualified military, 228 Qualified move, defined, 192–194 Qualified parking, 199 Qualified pension plans, 212–215 Qualified relocation expense reimbursement fringe benefit, 192–194 Qualified Savings Plans, 235–236 Qualified small-business stock (QSBS), 135–136, 140–141 Qualified stock options fringe benefit, 167, 207–209 Qualified transit passes, 198–199 Qualified Tuition Programs (QTPs), 232, 234–237 beneficiaries qualifying for, 236–237 contributions to, 236 medical exceptions to, 236–237 Qualified Higher Educational Expenses, 235–237 Qualified Savings Plans, 235–236 series EE/series I government bonds, 237 Qualified vanpools, 198 Questions: about tax-advantaged accounts, 254 to ask potential accountants, 298–300 top ten tax questions, 286–294 R “Rat fee,” 109 Real estate, 50, 129, 219–230 depreciation, 228 fix-up investments, 290–291 mortgage points, 219–222 new tax laws on, 228–229 11/6/14 12:52 PM Index repairs vs improvements, 222–225 tax-advantaged accounts and, 255 transfer to regular corporation, 160 transfers as part of divorce, 229 universal exclusion for, 225–229 Real estate investment trusts (REITs), 255 Real Estate Tax Secrets of the Rich (Botkin), 229 Reasonable salary, 154–155 Rebate, fraudulent promises of, 272 Receipt of restricted property/restricted stock, 205–207 Receipts, 9, 117 educational assistance, 188 medical expense, 40 travel-related, 24, 33–34 Reconstruction approach, 74–75 Record keeping: home office, 94 mutual funds, 251 for your business, 116–117 (See also Audits/audit-proofing [IRS]; Documentation; Logs; Tax diary) Record share transactions, 253 Reform: health reform law, 176, 303–307 tax, 262 Refunds: filing false claims for, 274 first-year home office tax refund, 81 Registered mail (for tax returns), 104–105 Regular business stop, mileage and, 68 Regular business use rule (home office), 86 Reimbursement: of health/country club dues, 165, 189–190 medical, 39–42, 164, 176–177 of relocation expense, 165, 185–187, 192–194 REITs (real estate investment trusts), 255 Relatives: hired, 44–46 and Kiddie Tax, 48 lodging with, 33–34 (See also Spouses or significant friends) Relocation expenses, 165, 185–187, 192–194 Rental property, 28–29, 50, 222–225 losses, 287–288 repairs vs improvements to, 222–225 Repairs (real estate), 222–225 Residence: company purchase of, 165, 191–192 disqualifying use after home was principal, 229 ownership vs., 226–227 Restaurant: deducting expenses related to, 290–291 tax-free meals for employees, 211 Restricted stock fringe benefit, 166, 205–207 Retirement: advice about, 183–184 best investments for, 254 defined-benefit plan, 213–214 fringe benefit, 212–215 Kiplinger’s letter, 280 profit-sharing plans, 213 22_Botkin_INDX.indd 317 317 SIMPLE IRAs for, 214–215 simplified employee pension plan, 183–184, 213, 254 (See also Individual Retirement Account; Pensions/ pension plans) Retirement scams, 273 Retroactivity, real estate, 228 Return on investment (ROI), 245 Return-preparer tax fraud, 274 Revenue agents, 100, 109 ROI (return on investment), 245 Ropfogel case, 265 Roth IRA, 43 Routine physicals, 42 Rowland v Lepire, 149 S S corporations, 40, 138–142 advantages of, 138–140 capital gains/losses for, 140, 249 disadvantages of, 141–142 election of, 138 taxation overview for, 153–155 test for qualification as, 141 who should operate as, 142 Salary, reasonable, 154–155 (See also Income) Sale: automobile trade-ins vs., 64–67 securities, 266 wash-sale rule, 248, 249 Sale-leaseback technique, 51–52 Sales tax, 151 Savings account, health, 301–302 Savings Incentive Match Plan for Employees (SIMPLE), 214 Scams, 271–285 advertising, 278 book, 280 fabulous offer, 279 identity theft, 280–285 inheritance, 277 investment, 275–277, 279–280 job, 279 phishing, 272 Ponzi, 275 pyramid, 277–278 seminar/investment, 279–280 tax, 272–274 telephone, 279 Schedule C: for LLCs, 143 trader use of, 263, 266 Season’s tickets, 13 Section 179 expense election, 94–95 Section 1244 stock, 135 Securities: dealer, 259 short-term holding of, 265–266 titles of, 265–266 trader purchase/sale of, 266 (See also Stock[s]) 11/6/14 12:52 PM 318 Index Self-employment tax, 154 Self-insured medical plan, S corporation, 140 Self-insured medical reimbursement, 39–42, 164, 176–177 Seller, points paid by, 221 Seminar scams, 279–280 Seminars, 28, 32, 276–277 SEP (see Simplified employee pension) Series EE bonds, 237–238 Series I bonds, 237–238 Shares: annual transaction statement, 253 record share transactions, 253 tracking, 251–253 traders’ volume of, 266 Shift-the-tax technique, 46–48 Shop Exchanges, 304 Shoulder surfing, 281 Showing horses, 116 SIMPLE (Savings Incentive Match Plan for Employees), 214 SIMPLE IRAs, 214–215 “Simplification,” tax, 8–9, 16, 31, 39, 58, 92 Simplified employee pension (SEP), 183–184, 213, 254 Simplified home office deductions method, 89 Single-category method, share tracking, 252 16th Amendment, 109 Slavery tax credits (tax scam), 275 Social Security card, 136 Social Security number, 283 Social Security taxes: for children, 43 and LLCs, 144 and S corporations, 138–139, 154 for a spouse, 38 for 2014, 297 Software: tax preparation, 106 trading software scams, 275–276 Sole proprietorship, 127–129, 170 Soliman case, 82–84 Special agents, 108–109 Specialized management, 134, 139 Spouses or significant friends: closely connected spouse rule, 13–14 company-provided trips for employees and, 165, 190–191 as employees, 24–25, 39 hiring, 38–41 Innocent Spouse Tax Relief, 104 Startup costs: for general partnerships, 129 for limited partnerships, 132 for sole proprietorships, 127 States, corporate veil tests in, 149–150 Statistics: audit likelihood, 100–101 home-based business, identity theft, 282 lawsuit, 128 Stock(s): basis, 140, 143 buying back, 248–249 C corporation and, 134–136 22_Botkin_INDX.indd 318 calculation process for, 246, 248 control of voting, 158 dealer definition and, 259 double-category method for tracking, 251–252 entity types in purchasing, 259 FIFO, 250–251 holding strategy for, 250 phantom, 167, 206–207 preferred, 158 QSBS, 135–136, 140–141 qualified stock options, 167, 207–209 REIT, 255 restricted, 166, 205–207 S corporation and, 39 tracking shares in, 251–253 traders’ volume of shares, 266 transfer of property for, 158, 159 (See also Securities) Stockholders: C corporation, 137 fights, 137 LLC, 143 meetings, 136 protection/privacy of, 150–151 tax efficient funds and, 253–254 Storage, home office and, 85 Strange bed rule, 23 Strike price, 207 Student loan interest, 241 Supper money, 164, 179 Supplies, automobile, 64 Sutter rule, 15 Swimming pools, 182, 183 T TAO (Taxpayer Assistance Order), 102 Tape-recording, audit, 103 TAS (Taxpayer Advocate Service), 102, 103 Tax: avoidance vs evasion of, 110 constitutionality of, 109–110 disability tax planning strategy, 177–178 first-year home office tax refund, 81 frequent/top ten questions on, 254, 286–294 protests, 110 reforms, 262 “simplification,” 8–9, 16, 31, 39, 58, 92 2014 rates, 295 (See also Fringe benefits; Medicare; Social Security tax; specific topics) Tax credits, 238–242 education, 238–242 fuel tax, 273 home, 236 Lifetime Learning Credit, 239–242 slavery, 275 Tax diary, 10–11, 14, 117 company-provided vehicles, 199–200 home entertainment, 18 11/6/14 12:52 PM Index obtaining, 264 time sheets and, 44–45 “trader status” and, 264 travel expense, 35 (See also Documentation; Logs; Record keeping) Tax efficient funds, 253–254 Tax laws, 109–110 American Taxpayer Relief Law, 60, 135, 199 Economic Stimulus, 235 employees shafted by, Fair Labor Standards Act, 194 Income Tax Act, 109, 110 new real estate laws, 228–229 Patient Protection and Affordable Care Act, 303–307 Taxpayer Relief Act of 1997, 260 two sets of, 3, 258 Tax liabilities/benefits: for C corporations, 134–137 for general partnerships, 129 for limited partnerships, 132 for limited-liability corporations, 144 for Nevada corporations, 148–149, 151–152 for S corporations, 138–139, 153–155 for sole proprietorships, 127 Tax Reduction Institute (TRI), 29, 206, 211 Tax returns, 95, 274 IRS processing of, 104 method of mailing, 104–105 neat, 105 nonresident corporate, 148 preparer tax scam, 274 professional preparation of, 106 professional review of, 106 sales tax and, 151 use of software for, 106 Tax scams, 272–275 charitable contributions/organizations, 275 claiming zero wages, 274 disguised corporate ownership, 274 economic stimulus, 272 filing false claims for refunds, 274 frivolous arguments, 272–273 fuel credit, 273 hiding income offshore, 273 phishing, 272 retirement, 273 return-preparer tax fraud, 274 slavery tax credit, 275 Tax-advantaged accounts, investment and, 254, 255 Tax-deferred annuities, 246 Tax-deferred investment, 246 Taxpayer Advocate Service (TAS), 102, 103 Taxpayer Assistance Order (TAO), 102 Taxpayer Relief Act of 1997, 260 Taxpayers: aggressive, 98–101 investment tax mistakes by, 250–251 as investors, 260–262 rights of, 101–104 taxpayer service representative, 99 Telemarketing fraud, 280 22_Botkin_INDX.indd 319 319 Telephone, 90 Telephone scams, 279 Temporary business stop, 68 Tennis courts, 182, 183 Tests: 100 percent deduction, 34 consumer product, 172 corporate veil state, 149–150 intent, 31 meet/greet, 84 mirror, 46 ownership vs residence, 226–227 principal place of business, 82 product, 172 relocation distance, 193 S corporation qualification, 141 Theater tickets, 11–13 Time sheets, 44–45 Top ten tax questions, 286–294 Trade-in, automobile sale vs., 64–67 Traders, 258, 263–268 advantages of, 263–264 deductible expenses for, 266–268 defining “trader status,” 264–266 investors vs., 264–266 long-term gain allowed for, 265 securities purchase/sale control by, 266 short-term market swings and, 264 tax treatment summary for investors/dealers and, 267 transaction frequency for, 264–265 volume of shares for, 266 Trading software scams, 275–276 Training (see Education) Transfer: of assets/money into corporations, 157–161 property, 157–161, 229 real estate, 160 Transit, days in, 27 Transit passes, 166, 197–199 Transportation expenses, 23, 27 company-provided transportation/limos/chauffeurs, 165, 194–195, 198 corporate-provided transit passes/parking/vanpools, 197–198 unsafe condition rule, 194 TransUnion, 284 Travel agents, 15 Travel expenses, 22–35, 286–287 automobile deductions in, 25 business days, 26–32 canceled flights, 28 company-provided trips fringe benefit, 165, 190–191 corporate-provided transit passes/parking/vanpools, 197–198 cruise ships and, 26–28 documentation, 33–35 driving distance per day, 25–26 education, 29 entertainment and, 24–33 flowchart, 30 foreign, 26, 31–32, 34 11/6/14 12:52 PM 320 Index Travel expenses(Cont.) four hour/one minute rule, 28 job hunting, 29–30 laundry/dry cleaning, 23 meals, 25 North American area, 32 100 percent deduction of, 18, 34 one-week loophole, 31 receipts for, 24, 33–34 rental property, 28–29 seminar/convention, 28, 32 strange bed rule, 23 tax diary, 35 travel days/days in transit, 27–28 visiting colleagues as, 29 Treasury bonds, 246 TRI (see Tax Reduction Institute) Trips, company-provided, 165, 190–191 Trusts: family estate trust (pure trust), 109, 110 foreign, 109, 110 gift-leaseback, 49 misuse of, 274 taxes and, 109–110 TRW, 284 Turbo Tax, 106 Two percent rule, 261–262 Two-car strategy, 55–56 annual lease table rule, 67 annual lease value method, 200–201 audit-proof documentation, 69–75 automobile disposal decision, 65 bonus depreciation, 60 business mileage rules, 54–55, 67–70 business travel deductions for, 25 buying vs leasing, 61–64 charitable deduction rules for, 64–65 commuting highway, 198 company-provided, 165, 166, 194–195, 198–203 converting to business use, 55–56 depreciation of, 58–59, 65–66 employee, 68 fuel credit scam, 273 gift-leaseback, 49–50 heavy vehicles, 59–61 interest on loans for, 292–293 maintenance supplies/equipment, 64 market value of, 56 parking, 166, 197, 199 passenger, 59–60, 64 sale vs trade-in of, 64–67 two-car strategy, 55–56 writing off trucks, 60 (See also Mileage) Visitors, business, 29, 90, 91 Voting stock, control of, 158 U W Universal exclusion, real estate, 225–229 audit-proofing, 225–226 ownership vs residence test, 226–227 prior depreciation, 228 Unsafe condition rule, transportation and, 194 Usable square footage method (home office), 87, 88 Wages, reasonableness of, 44 Wash-sale rule, 248, 249 Weddings, 42–46 Weekends, deductible, 26–27 Work-activity log, home office, 90–91 Working condition fringe benefit, 163, 171, 187–189 V Vacation deductions (see Travel expenses) Vacation offers, free, 279 Vanpools fringe benefit, 166, 197–198 Vehicles, 54–76 actual expense vs IRS standard rate, 57–58, 71 add back table for, 61–63 adjusted basis, 65–67 22_Botkin_INDX.indd 320 Y Yellow Pages, 117 Z Zero wages claim (tax scam), 274 11/6/14 12:52 PM .. .Wealth- Building, Tax Reduction Secrets from an IRS Insider 2015 Edition including updates from the American Taxpayer Relief Law Sandy Botkin, CPA, J.D New York Chicago San Francisco Athens... more than any idea that an accountant has given you and more than any idea that you may have read about in any other book Lower Your Taxes Big Time! is a practical book on tax strategies and IRS. .. learn to significantly reduce your taxes with proven strategies developed over many years; you will, at the same time, lower your chances of being audited and make your tax return IRS- bulletproof.”
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Xem thêm: Lower your taxes BIG TIME 2015 edition wealth building tax reduction secrets from an IRS insider , Lower your taxes BIG TIME 2015 edition wealth building tax reduction secrets from an IRS insider , Chapter 1. Why You Would Be Brain Dead Not to Start a Home-Based Business (If You Don’t Already Have One), Chapter 2. How to Deduct Your Fun, Chapter 3. How to Turn Your Vacation into a Tax-Deductible Write-Off, Chapter 4. Income Shifting and Income Splitting: One of the Greatest Single Wealth-Building Secrets, Chapter 5. How to Turn Your Car into a Tax-Deductible Goldmine, Chapter 6. Home Office: The Misunderstood Key to Saving $15,000 Every Five Years, Chapter 7. Beating the Dreaded IRS Audit, Chapter 8. How to Shield Yourself from the IRS Weapon of Classifying a Business as a Hobby, Chapter 9. Finding the Best Corporate Entity for Your Business, Chapter 10. Forming a Nevada Corporation or a Limited-Liability Corporation in Nevada, Chapter 11. How to Eliminate up to 40 Percent of Your Social Security and Medicare Tax with an S Corporation, Chapter 12. How to Get Assets and Money into a Corporation Tax-Free, Part 3. Every Fringe Benefit Available to Small and Home-Based Businesses, Chapter 13. Fringe Benefits You Will Love, Part 1, Chapter 14. Fringe Benefits You Will Love, Part 2, Chapter 15. The Four Most Overlooked Real Estate Tax Deductions in America, Chapter 16. Making Colleges Less Expensive with Tax Planning, Chapter 17. Tax Planning for Stock and Bond Investments, Chapter 18. Trader versus Investor: The Best Kept Secret Around, Chapter 19. Tax Scams and Other Shams, Chapter 20. The Top 10 Tax Questions

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