Truthfully, I hate to admit it, but I do sometimes make mistakes. Last month, I mentioned something about the sale of a personal residence in response to an question that came to me over the Internet. Two errors occurred. Here is a reprint of the question and answer, with the corrected words underlined. My thanks to observant Mike Kahan (my son) and Ken of Xensei Corporation's support team.

QUESTION: Hi! I am so angry I could scream and I really need some help. Those idiots in congress make me furious. I sold my home in February and the capital gains tax break, to my knowledge, will not help me because they decided May 6 was a good day instead of Jan. 1 where it belongs! It isn't fair to make me pay a tax on a paper only gain. All of the money from the sale of my home went into the new home, but it was less expensive so they say I made money on my home. If you have any advise, I would really appreciate it! Thanks! Paula (via the Internet)

ANSWER: Paula: I truly hate to bring bad news to you, but the law is very specific. Your new home must cost at least the same or more than the selling price of your old home. Otherwise, you have a tax. However, you could spend money fixing up your new home (renovations) during the first two years of ownership as your principal residence and add that to our basis of the new home. If that new basis exceeds the selling price of the old home, you win.

A caller identified himself as "Jim Price" of the Internal Revenue Service and told the taxpayer someone was using her name to file for a tax refund and needed to check a little personal information from her. Guess what? The IRS does not call and ask for personal information over the phone. Guess what happened to this taxpayer; yes, she lost some money. DO NOT GIVE OUT PERSONAL or YOUR FINANCIAL INFORMATION OVER THE PHONE TO SOMEONE YOU DO NOT KNOW. It could cost you dearly. Thanks to the 9/3 Wall Street Journal.

The Tax Relief Act of 1997 deserves to be renamed because it adds 285 new sections, 824 code amendments, 36 retroactive provisions, 5 changes effective after 1998, 69 changes effective Jan 1, 1998, and about 110 changes effective when the President signed the new law.

"A sure sign that the Internet's pioneering days are waning is the arrival of the accountants." So says Computer Reseller News. (9/15/97)

Businesses are now demanding that investments in an Intranet (a network WITHIN your own facility) and Web site projects (a network for those OUTSIDE your facility) are justified by cost savings or the contribution to strategic business objectives. It has become increasingly important to show what kind of payoff a company can expect from their Internet investment. Companies are now measuring costs and account for such intangible benefits as time-to-market and customer satisfaction through almost instantaneous access to product information and customer support.

Intranet and Internet projects are almost at the same stage as client/server applications were five years ago. Some are trying out the technology as they move from simple document sharing applications to more mission-critical projects.

If you are now producing a catalog for your outside salespeople or for customer use in placing orders, think about using a web site on the Internet. You can make changes whenever you wish and those updates would be instantaneously available (at almost NO cost). There are many ISP's (Internet Service Providers) offering a direct link to the Internet, such as The Xensei Corporation (our ISP). Your ISP can set up and maintain your Intranet and your Web site, usually at very reasonable costs. Of course, you can learn how to do it and maintain your own web site. Two-thirds of large businesses now OUTSOURCE web hosting.

You could use your Internet access to have the availability of constant communications between you and your outside sales force or a remote or branch location through e-mail service.

Note: We are not selling Internet access, but merely telling you about something you probably already know, but need a little reminder.

It's hard to miss discussion about the Year 2000 problem. That is the problem that arises when computers must cope with the need to make the transition from the year 1999 to 2000 (going from 99 to 00). Many computers were built and software developed to recognize only dates in the 20th century by using the last two digits of the year. Some people believe when January 1, 2000 starts, the Internal Revenue Service will not operate and planes will not fly.

How serious is the problem? It depends upon the size of the company and, more particularly, upon the company's computer platform. You should conduct an assessment of all systems including the systems that feed into the accounting system. Your primary system may be Year 2000 compliant, but some of the systems they integrate with may not (especially if you have custom programs written for you).

DON'T WAIT UNTIL 1999 TO FIND OUT YOU CANNOT MOVE INTO 2000.

Via the Internet: QUESTION: I am thinking about selling a rental property but I am worried about paying the capitol gains tax. Is there a way around it? We did some work on the property. Will this help? Do I need receipts.

ANSWER: Rose and Keith, there is no way to get around it.

While you owned the rental property, you took depreciation, and now will have to give it back as ordinary income (up to the amount of depreciation deducted or the extent of the capital gain, whichever is smaller).

If you did some work on the property in previous years, you would have deducted it as repairs or maintenance or you depreciated it as improvements. Either way, you cannot use those costs again.

As with any deduction, you may need receipts to support your claim. It is best to have a diary listing the date, type of project and cost to go along with the receipts.

I wish I could have given you a better tax answer, but the law is pretty clear. If you earn it, you pay tax on it. There are very few exceptions to the rule.

Remember my motto: "It's not what you make that counts, it's what you keep."

Your question, and my answer may appear in a future edition of Tax Tips and Facts. Your name (Rose and Keith, no last name or e-mail address) will appear. Thanks for reading TAX TIPS AND FACTS.

Regards from
Roger
:-)

By doing just a little extra work, mutual-fund investors can save on taxes when redeeming shares.

Because it's easier to calculate and requires less documentation, most investors in mutual-funds determine the cost of their shares sold for tax purposes by the "average-basis" method.

However, by switching to the "specific share identification" method and selling the most expensive priced shares first, a smaller gain will usually result -- and less tax will be due that year.

To use this method however, investors have to keep records of the price they paid each time they bought the fund's shares. Then when selling, they must specify to their broker or mutual fund company which shares they'd like to sell. For example, "I'd like to redeem all of the shares that were initially bought for $50.25."

To document which shares were sold, investors using this method should request written confirmation from the broker or mutual fund company restating which shares were sold.

The Taxpayer Relief Act of 1997 covers an increase in exemption amounts. The new law increases the unified credit to $1 million. However, the increase is phased in slowly in several steps over nine years from 1998 to 2006. In light of the increased exemption, taxpayers should review all wills and trusts with formula clauses that relate to the unified credit to ensure that these clauses will self-adjust to reflect the increasing exemption amounts over the nine-year period.

Check with your attorney or your CPA and see if you have a potential problem.

Do your checks indicate that you are signing in your official capacity as an officer of your corporation or limited liability company? Do you know you could be held personally liable for a check that does not? By placing the words "Authorized Signature" just under the signature line may prevent that breach of the corporate veil. We strongly suggest you look at each company check and have those words added to the check at the next printing. Until then, be sure to write your title next to your name.

This tip is not given to you as legal advice. It is from years of experience with clients.

If you like our work, recommend us to a friend. If you are not happy with our work, please call me and let's talk about it. We will both appreciate it.

If you are a Kahan client, and you would like to have a FREE spot in TAX TIPS AND FACTS to tell us about your company, its products or services, simply send us a brief story, an overview of your company's products and future plans. We may edit the information and include it in a future edition. Send the information to Roger A. Kahan, CPA via mail, e-mail or FAX it.