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*** Ask TaxMama Volume 7, Issue #323 August 26, 2005 ***
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http://taxmama.com/taxcalendar.html
09.15.2005 Corporate Tax Returns Due
09.21.2005 - 09.22.2005 EA Exam
10.17.2005 Personal Tax Returns Due
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JOB OF THE WEEK visit the NEW http://taxmama.careerbank.com
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Work and play in romantic New Mexico, as trust administrator for
the Office of the Special Trustee for American Indians (OST)
http://taxmama.careerbank.com/job.cfm/190605.htm
Take the new 2005 Salary Survey
http://www.careerbank.com/resource/ssurvey/salary_survey.cfm
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Dear Family,
This morning's e-mail started out on a very
disturbing note - on more than one level.
A dear friend, who went into the hospital for
tests yesterday due to intense headaches, just
learned that he has a brain tumor. Thank goodness,
it's operable. That's disturbing enough.
What's even more disturbing are two things I really
want you to think about in your own lives - and
those of your family and friends. Please don't
brush this aside. It's important.
Please read Two Points of Darkness, below.
A nice thing happened yesterday. My friend dropped
in to pick up some stuff and was telling me about
her new bookkeeper. This part-time lady stepped in
to help after some personnel disasters and started
looking at their various bookkeeping systems. (One
of their personnel disasters had installed a cumbersome,
complicated billing system and had refused to teach
anyone how to use it, thinking it was job security
for him. The fool!)
Anyway, this fresh, young lady took one long look
at the idiot system that required a dozen complicated
steps to deal with invoicing and receipt of payments,
then declared that it could all easily be handled in
QuickBooks, their main accounting system - and it would
only take one step to accomplish what he'd done in a
dozen steps. AND it would be a part of the main books,
where it belonged, instead of having to duplicate
information. (Yeah, I had commented on how odd it was
that it had been set up separately, too...but was too
busy solving the immediate problem to look at the
larger picture.)
Anyway, the nice thing about it all was, suddenly,
the personnel disasters of the last month or so,
and all the resulting discoveries of the under-
billing and other errors - well, they're turning
into a windfall. As a result of all the problems,
income will probably rise by about 10%, once all
customers start getting billed properly, or having
their credit cards charged - and costs will go
down. [That fool was overpaid for what he was (or
wasn't) doing anyway.]
This reminds me of when I used to do temporary
work, back when I was in college. (For about 10
years.) I'd tell AccounTemps and Accountants
Overload to send me on the jobs that other temps
had walked off of. (They'd pay me premium fees for
taking the undesirable jobs.) And it would usually
turn out that the reason they'd walk off the job
or project because the employer was expecting the
work to be done right - and the temp couldn't
figure out some fool system in the company that
wasn't working properly. I was always pretty good
about pinpointing the systemic problem; finding a
way to fix it - or to work around it. Like this
young lady, I rarely just used the system, as is,
when there was obviously a better, or easier way
to get the job done.
Why bring this up now? Because this is a good time
to look at your systems. All of them. Your accounting
system. Your reporting systems. Your company's
network, or intranet. And all the ways that information
flows between you, your staff, your clients/customers,
your vendors, the government; even your advertising.
Are there things that are taking you longer than they
should? Are you duplicating effort? Can you spend
less to acquire your customers? Or target higher
quality customers? Can you speed up your computer or
your network, without a lot of cost, or sacrificing
quality?
Take a look.
Another thing my friend learned was that her company's
network could be speeded up and secured for only about
$3,000. Pretty cheap. AND that too many of her staff
were downloading music and files into software tools
like Real Player and other high bandwidth tools.
Uh, why are staff compromising ANYONE's system at work
with that kind of stuff. If your staff really wants to
listen to music - it's MUCH cheaper to just buy a
transistor radio, or a plug-in radio, or even a
portable CD player for each office - and let them
listen to whatever they like - like back in the low-
tech days, without slowing down your whole network -
or running the risk of picking up a virus.
Look at your staff's habits. Look at your own.
That's your mission for this week...should you
choose to accept it.
And remember, if you are caught or captured, TaxMama's
office will disavow all knowledge of you and your
impossible staff.
Best wishes,
Eva Rosenberg, EA
Your TaxMama is watching...out for you.
P.S. If you're in business, you MUST read
Small Business Taxes Made Easy
http://www.taxmama.com/AskTaxMama/book/
P.S.S. TaxMama has baby clothes!
http://www.cafepress.com/taxmama/138360
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To comment on any articles in this issue, please,
DON'T send me back the whole issue. Send a note to
mailto:taxmama@taxmama.com?subject=AskTaxMamaComment
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ADDRESS CHANGES - Please, do NOT send them to me to do.
There is a link at the bottom of this issue. Please click
on it and you will be able to make updates and changes
yourself. And faster.
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Media Tour and Classes
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Join me in San Diego!
For Tax Professionals - Meet TaxMama
When: Tuesday, September 13. 2005
10:30 a.m. - 2:00 p.m.
Where: The Handlery Resort, San Diego, CA
Who: CSEA Chapter Meeting
What: Special Issues Affecting Clients With
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How: To RSVP, call 800-642-1040. Leave a message.
CPE: 2 CPE credits
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September 14, 2005
How to Run Your Business Instead
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Guests, Joseph & Jacqueline Freeman
who've moved back to the farm...
and now control their lives and finances
Learn to get rid of your stress and
increase your income.
Please sign up here
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NOT ACCEPTING ANY MORE STUDENTS
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THESE QUICKIE RESOURCES!
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101 WAYS TO BE YOUR BEST
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Small Business Taxes Made Easy
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Custom autographed book, just for you - $17.50
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And a CD of a GreatTeleseminars interview with Dan Janal
Should I Incorporate or What?
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This Week's Tax Quips
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If you haven't subscribed yet, you're not
just missing some juicy tips. You're also
missing daily news and other commentary.
Please - accept a complimentary subscription
from your cheery TaxMama
http://www.taxmama.com/taxquips/
This weeks pearls of wisdom are at:
http://www.asktaxmama.com
/podcast/
MONDAY - Die Now � File Later?
http://www.asktaxmama.com/podcast/index.php?id=39
TUESDAY - Total Write-Off
http://www.asktaxmama.com/podcast/index.php?id=40
WEDNESDAY - Reamed on Withholding
http://www.asktaxmama.com/podcast/index.php?id=41
THURSDAY - Time Share Titillation
http://www.asktaxmama.com/podcast/index.php?id=42
FRIDAY - Stamp Collecting
http://www.asktaxmama.com/podcast/index.php?id=43
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Two Points of Darkness
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This is for you. Point ONE will help you re-think
your life-style and your spending. While Point TWO
will open your eyes to a valuable resource you
may well be entitled to, but have forgotten.
Back to the story of my friend with the tumor.
1)He didn't go in for an examination sooner
because he had no medical insurance. Why didn't
he have medical insurance?
He's an unemployed corporate executive who
typically earned a very healthy income - generally
at least 3 - 4 times what I average in a year.
Yet, why is it that people, and I see this often,
who earn six-figure incomes don't manage to save
enough money so that when they are unemployed for
extended periods of time, they can't afford
fundamental things like health insurance?
The point I want YOU to think about is financial
blindness. Are you feeling all cozy and secure in
your steady job or position? Are you being paid
really well - but still managing to run up debt
and live beyond your means?
STOP IT!
Just, flat out stop overspending. Why the heck
can't you live well on $150,000 or $200,000 or
more, without spending more than you earn each
and every month?
If you're in this boat, it's time to take a
serious look at your spending and see where
you can cut back. People in your income-level,
in jobs, have a tendency to lose those positions
due to mergers or other sudden events - and it
often takes 6 months to 2 years to return to
that earning level.
2. Why didn't my friend think of going to the
Veterans Administration (VA) sooner? Why is it
that white-collar folks, executives, people at
the top of the heap never think of applying for
VA benefits - especially after you've been out
of work for an extended time and your COBRA
coverage has expired?
I've come to notice that often, when you think
of VA patients, what comes to mind is either
current military, retired admirals, lifers, or
indigents with some syndrome left over after
Vietnam or other military service trauma. You
don't think of corporate executives.
YOU FORGOT YOU'RE A VETERAN!
Yet, millions of ordinary people, like you - or
your son or daughter, or you friend's son or
daughter, served a full stint in one of the
armed services, including the Reserves. You've
probably not forgotten the experience. Yet, you
don't think of the VA, except when it comes time
to get a mortgage - or perhaps an education.
Why not?
health insurance is becoming more and more
expensive. Isn't it time to find out if you're
entitled to take advantage of the VA for medical
care?
Or look at your family members or friends who
you know are struggling with the costs, or who
are out of work. Help them find out if they
qualify for VA medical benefits.
Don't hesitate because you think those facilities
are for the poor or street people. The VA has
some of the most highly skilled medical staff
around. After all, presidents, generals and
admirals get their care there, don't they?
And while we're looking at the VA, when was the
last time you thought of getting re-educated or
re-trained, as technology starts whizzing over
your head? Have you checked to see if you still
qualify for VA educational benefits? They're
not just for kids freshly released from the
service, you know.
Look at the Veterans Administration website:
http://www.va.gov/
Aside from health benefits, the VA offers
vocational rehab, education - and they have
job openings. In fact, as a veteran, you have
preference getting hired in the system.
(See notes about applicant eligibility.)
http://jobsearch.usajobs.opm.gov/a9va.asp
So, wherever you are in life, don't forget you're
also a veteran - and if you need the VA's services,
please, take care of yourself and your family -
and get the care and help you need.
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Splitting Up an LLC
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From: The Internet
Dear TaxMama,
My partner and I established an LLC to breed and
race Thoroughbreds. All horses are owned 50/50.
My partner has decided he no longer wants to be
involved with the breeding operation. We would like
to do an exchange where he would trade his 50% of
the mares for my 50% of some of the racehorses. We
would transfer ownership from the LLC to our personal
ownership. All horses are fully depreciated and
expensed.
Can we do this? What else do we need to do?
Thanks,
Madeline
<TaxMama Replies>
Dear Madeline,
You definitely need to get a competent tax
professional involved, not a freebie columnist.
You have a lot of issues here.
1) Mares and racehorses are not treated the same
way by the tax code. One is breeding stock, the
other is racing stock - or inventory.
2) You have a potential dissolution here.
3) You won't be filing a partnership return any
longer. You'll be filing a Schedule C.
4) Distribution of LLC or partnership assets, even
with -0- basis isn't as straightforward as it looks.
5) Even though you have -0- basis, you will have
to take fair market value of each animal into account.
IRS has special rules about distributing assets to
partners or members who contributed those assets to
a partnership/LLC within 7 years before having the
assets returned to them.
There will be a tax effect if either of you sell or
dispose of those animals within a specified period of
time after they've been distributed to you.
But yes, ALL of it is doable.
Please have someone do it right.
Best wishes,
Eva Rosenberg, MBA, EA
http://www.TaxMama.com
Author of the new book from McGraw-Hill,
Small Business Taxes Made Easy
http://www.taxmama.com/AskTaxMama/book/
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Maximum 401(k) or IRA
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From: Charlotte , NC
Dear TaxMama,
What is the maximum amount that an individual
can contribute to a 401(K) plan if he had
already claimed a full deduction for a
traditional IRA?
Anu
<TaxMama Replies>
Dear Anu,
Actually, you've got it backwards.
When you work for a company that covers you with
a 401(k) plan, depending on the level of your
income, you may not be able to contribute
anything to a deductible IRA.
It makes no difference if you put $10.00
or $10,000 into the 401(k) - if that retirement
plan box is checked off on your W-2.
In fact, it gets worse, if your spouse was covered
by a 401(k) or employer plan, your deductible
IRA contributions might be restricted.
You can read more about it here:
http://www.irs.gov/publications/p590/ch01.html#d0e1917
Scroll down to Table 1-2 to see the income limits.
For instance, if you're single and are covered by
an employer plan and you earn more than $55,000,
you may as well max out your 401(k) contribution
because you won't get to deduct your IRA.
I'm glad you're asking this early in the year. You
still have time to pull that money out of the IRA.
Or you can leave it in and use it as a non-deductible
IRA. If you do, be sure to keep a permanent record
of the fact that this year's contribution isn't
deductible.
When you pull your money out someday, you won't be
paying tax on this year's contribution - just on
the earnings.
So, have I confused you enough?
Best wishes,
Eva Rosenberg, MBA, EA
http://www.TaxMama.com
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Foreign Mom
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From: Saint Louis, MO
I have a dependent (my mom) who stays in india.
I support her financially from US (I am
employed in the US).
Can she be counted as a dependent when I am filing
out my tax returns?
KD
<TaxMama Replies>
Dear KD
Your mother is lucky to have a devoted child
like you.
But the answer is NO.
For your mother to be a dependent, she'd have to
be a US citizen - or a US resident.
If she only holds a green card and lives out of the
country, then she would be a non-resident alien.
And you cannot claim a non-resident alien as a
dependent. Sorry...
But, of course, I know you won't neglect your
mother just because of our tax laws.
Best wishes,
Eva Rosenberg, MBA, EA
http://www.TaxMama.com
Author of the new book from McGraw-Hill,
Small Business Taxes Made Easy
http://www.taxmama.com/AskTaxMama/book/
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Because We Care
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MONEY FUNNIES
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Telemarketers...Getting Even
The phone rang as I was sitting down to my anticipated
evening meal, and as I answered it I was greeted with
"Is this Wilhiam Wagenhoss?" -- not sounding anything
like my name. So I said "Who is calling?"
The telemarketer said he was with The Rubber Band Powered
Freezer Company or something like that and then I asked
him if he knew Wilhiam personally and why was he calling
this number?
I then said, off to the side, "Get really good pictures
of the body and all the blood." Then I turned back to
the phone and advised the caller that he had entered a
murder scene and must stay on the line because we had
already traced this call and he would be receiving a
summons to appear in the local courthouse to testify
in this murder case.
I then questioned the caller at great length as to his
name, address, phone number at home, at work, who he
worked for, how he knew the dead guy and could he prove
where he had been about one hour before he made this call?
The telemarketer was getting very concerned and his
answers were given in a progressively more shaky voice.
I then told him we had located his position at his work
place and the police were entering the building to take
him into custody. At that point I heard the phone fall
and the scurrying of his feet, running away.
My wife asked me as I returned to our table why I had
tears streaming down my face. And so help me, I couldn't
tell her for about fifteen minutes.
My meal was cold, but after my revenge, very enjoyable!
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Contributed by Joyce Ragels, EA in Arizona
[Remember, we're always looking for SHORT, clean humor!]
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IRS and Tax NEWS
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Courtesy of IRS
Treasury Releases Regulations on Valuation of
Annuity Contracts Involved in Roth Conversions
The Treasury Department and the IRS issued proposed
and temporary regulations today clarifying the amount
of income that must be reflected when a traditional
IRA account that holds an annuity contract (or a
traditional IRA that is itself an annuity) is
converted into a Roth IRA.
Generally, when a traditional IRA is converted into a
Roth IRA, the fair market value of the account is
included in the individual's income, as if it were
distributed. However, the absence of a specific rule
addressing converted annuity contracts has led some
taxpayers to believe that the amount includable in
income upon conversion is the cash surrender value
(i.e., that amount that would be available upon
immediate surrender of the contract). This in turn
has led to the development and promotion of specially-
designed annuity contracts that are intended to
suppress the amount of income which must be
recognized upon conversion. These contracts provide
for temporarily depressed cash surrender values that
later "spring" up to a more realistic value. Under
the rules applicable to Roth IRAs, the amounts
received under those contracts will ultimately be
tax-free, if they are paid after a 5-year holding
period and attainment of age 59 �.
The regulations specify that the full fair market
value must be included in income upon conversion
and provide standards for determining that fair
market value. For example, if the conversion occurs
soon after the contract was sold, the fair market
value is generally its original purchase price.
These regulations, which will be effective for
transfers made on or after August 19, 2005, will
prevent taxpayers from using artificial devices to
understate the value of the contract.
For links to proposed regulations:
http://www.treas.gov/press/releases/js2689.htm
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Explore the center today and take advantage of its
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TaxMama On the WWW & Tooting Her Own Horn
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Critical Dates http://taxmama.com/taxcalendar.html
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Ask TaxMama is published by the good folks at http://taxmama.com
ISSN 15320790 � copyright, Eva Rosenberg, 1999 - 2005
TaxAnxiety Inc. P.O. Box 280549, Northridge, CA 91328
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