TAX TIPS AND FACTS
As written by Roger A. Kahan, CPA
 

 
 
Volume 17, Issues No. 4 & 5
April/May/June 2003

ROGER A. KAHAN
Tax and Business Advisor, Wealth Care Professional
Serving the tax and financial needs of individuals and small to medium businesses
1214 Park St., Suite 203
Stoughton, MA 02072-3738
VOICE: 781.963.RAK-1 (963-7251)
E-mail: kahan@rak-1.com

RAK-1

40522
Registered Representative with and securities offered through
SunAmerica Securities, Inc., Member NASD, SIPC.
Investment Advisory services offered through
U.S. Financial Advisors, LLC, a Registered Investment advisor
139 Wood Road * Braintree, MA 02184 * 781.849.9200

Copyright © 1995 - 2002 Roger A. Kahan, CPA
ALL RIGHTS RESERVED
 
 
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      TOPICS COVERED IN THIS ISSUE
 

 
 
We need a new name
Thank you, thank you, thank you
Do what you do best
ALIMONY
Insurance illustrations
What is long-term care insurance
The case for diversification
Two Score and Some Years Ago
Investments for retirement
Watch out for this
Foxwoods Faithful
Two new tax scams
Rule of 72
Nexus in another state
If we only had more time
Certified?
When is it time to partner with a CPA
Ten tax tips to chew on
Stock write-off
Publication available
 
 
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     WE NEED A NEW NAME
 

      

  
 

After 17 years, we find that TAX TIPS AND FACTS no longer tells what this publication contains. There are tax tips, financial planning and investment tips, computer tips, general business tips and yes, sometimes even a joke or two. Help us find a name. Call, email, fax, and snail-mail - whatever method is comfortable to you.

The person submitting the winning name will get a prize of dinner for two at a local restaurant.

CPAs need to communicate to clients their use tax responsibilities and ask them to report, either on Form 1 or the ST-11, any use tax due.

Leaving line 33 blank will not cause the income tax return to be incomplete, but the statute of limitations will not start running until either the ST-11 is filed or line 33 is answered. The statute will start running even if the box is checked that no use tax is due. If the ST-11 has been filed and the use tax paid, taxpayers should fill in the box to indicate that no use tax is due.
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     THANK YOU
 

      

  
 

THANK YOU FOR THE BEST TAX SEASON EVER.

It is because of YOU that we are late publishing this combined April/May edition of TAX TIPS AND FACTS. We increased our client base substantially this year, caused by what you have told others about our professional services. Our territory has expanded to about 25 states and we continue to grow.

THANK YOU, THANK YOU, THANK YOU. Roger
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       DO WHAT DO YOU DO BEST
 

 
 

In your business or as an employee, you do some things extraordinarily well. People pay for what you and your employees have to offer.

Don't spend your valuable time doing things you don't enjoy or fully understand. Do what you do best. Delegate the rest to experienced professionals. Sometimes, it is hardest to let go of the tasks you least like to perform. Try it; you and your family may appreciate the change in you.
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       ALIMONY
 

 
 

Question: "Is alimony deductible when paid by me?"

Answer: Generally, alimony is deductible by the person who pays it and taxable income to the person that receives it. However, child support is neither deductible by the payor nor is it taxable to the recipient.
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      INSURANCE ILLUSTRATIONS
 

 
 

Insurance illustrations can vary greatly, depending upon which insurance carrier is used, the variety of financial assumptions (interest/dividend rates) and health underwriting factors. What does this mean to you, the consumer? It means that you must ask each professional with whom you are dealing, what assumptions were made to arrive at the numbers in your illustration. Remember that the cheapest policy is not always the best policy. Know who you are dealing with, and know what you are dealing with.

Let us become your life or health insurance professional. Ask for a quote.

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     WHAT IS LONG-TERM CARE INSURANCE?
 

 
 

Private, long-term care insurance helps pay for the high cost of nursing home care or home health care. The average cost for a year's stay in a nursing home is now about $60,000; the cost is considerably higher in many areas of the country. Long-term care insurance premiums and other costs associated with receiving long-term care are tax deductible as a medical expense (subject to limitations). Call us for more information about long-term care coverage.
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      THE CASE FOR DIVERSIFICATION
 

 
 

Virtually any investment can have some risk associated with it. The stock market can rise and fall; an increase in interest rates can cause a negative fluctuation in the bond market. The basic key to successful investing is to reduce that risk while seeking an attractive return on your investments. One of the most effective ways to reduce your risk is to diversify your portfolio - “Don’t put all of your eggs in one basket.” Spreading your capital among a number of different investments may protect you from a significant drop in any one of them. Likewise, the power of diversification might smooth your returns over time.

For complete information on any of the above, including charges and expenses, obtain a prospectus. Read it carefully before investing. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be higher or lower than their original cost
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      TWO SCORE AND SOME YEARS AGO...
 

 
 

...our fathers brought forth upon this nation a new tax, conceived in desperation and dedicated to the proposition that all men and women are fair game.

Now we are engaged in a great mass of calculations, testing where that taxpayer or any taxpayer so confused and so impoverished can long endure.

We have met on Form 1040. We have come to dedicate a large portion of our income to a final resting place with those men who here spend their lives that they may spend our money.

It is altogether anguish and torture that we should do this, but in a legal sense we cannot evade, we cannot cheat, we cannot underestimate this tax. The collectors clever and sly, have gone far beyond our power to add and subtract.

Our creditors will little note and not long remember what we paid here, but the Internal Revenue Service and Department of Revenue can never forget what we report here.

It is for us taxpayers rather to be devoted to the tax return which the Government has thus for so nobly created. It is from these vanquished dollars that we take increased devotion to the few remaining; that we hereby highly resolve that next year shall not find us in a higher income tax bracket; that this taxpayer (underpaid and overworked), shall figure out more deductions and that "TAXATION OF THE PEOPLE, BY THE CONGRESS AND FOR THE GOVERNMENT" shall not cause our solvency to perish from the earth.
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      INVESTMENTS FOR RETIREMENT
 

 
 

Did you know the average American worked until April 19, 2003 to pay for all federal, state, and local taxes?

This means Americans spend about 32% of the year working just to pay taxes.

If you are currently paying taxes on assets invested for retirement, we may have the solution. We have programs that offer long-term investment products where all interest, dividends, and capital gains accumulate tax deferred (according to current tax provisions).

For complete information on any of the above, including charges and expenses, obtain a prospectus. Read it carefully before investing. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be higher or lower than their original cost
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      WATCH OUT FOR THIS:
 

 
 

If someone is promoting a tax savings plan that sounds too good to be true, it probably is.  The plan may be an abusive tax shelter.  Be careful if the promoter says:

you will never pay taxes again
the IRS didn't want you to find out about this
this is a new promotion so your CPA doesn't know about it yet
you can get a full deduction of your initial investment in the early years
you can deduct the cost of your child's education
the plan involves multiple trusts, partnerships, or other entities
you can deduct the cost of your personal residence
some of the entities involved in the plan are foreign
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      FOXWOODS FAITHFUL
 

 
 

Did you hear about the new frequent user program at Foxwoods Casino? You get a plastic card with a magnetic strip that keeps track of your winnings and losings. After 10 years if you are a big winner you keep the winnings. If you are a loser they refund you all the money you lost! Wow, count me in!

No, sorry that’s not really available at Foxwoods; but there is an investment that acts quite like that. You put your money in (use almost any machine or investment you want to) and after ten years you keep the winnings! If you lost, you may get your money back in cash.
The thing is not everybody qualifies to play this game. You need the right kind of money:

  • Short Term money - No good, sorry
  • Mid Term money - Nope … sorry
  • Money requiring high liquidity - No can do
  • Long Term growth money - OK … you are in.

Call me for more information.
Past performance does not guarantee future results. Not FDIC or Broker insured.
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      IRS WARNS OF TWO NEW TAX SCAMS
 

 
 

The IRS has issued a warning detailing two new tax schemes that target the families of those serving in the armed forces and e-mails users. In both schemes, people represent themselves as being from the IRS. In particular, the IRS warns consumers to beware of any variation of a scenario in which a telephone caller posing as an IRS employee tells a family member that he is entitled to a $4,000 refund because his relative is in the armed forces and then requests a credit card number to cover a $42 fee for postage. The scammer provides an actual IRS toll-free number as the call back number in order to make the call seem legitimate. However, the scammer then makes numerous unauthorized purchases with the victim's credit card number.

In another scheme, victims receive an e-mail that appears to be from the IRS. The e-mail contains links to a non-IRS Internet web page that asks for personal and financial information. Such information could be used to steal the respondent's identity and get access to sensitive financial date or accounts.

Taxpayers who are on the receiving end of one of the scams should contact the Treasury Inspector General for Tax Administration (TIGTA) by calling the toll-free fraud referral hotline at 1-800-366-4484, faxing a complaint to 202-927-7018 or writing to the TIGTA Hotline, P.O. Box 589, Ben Franklin Station, Washington, D.C. 20044-0589 or by accessing TIGTA's website at www.ustreas.gov/tigta.
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      RULE OF 72
 

 
 
The Rule of 72 is an investing rule of thumb that says your savings will double, approximately, in the number of years you determine by doing the following.
1. Start with the number 72.
2. Divide by the interest rate you earn on your deposits.

For example, if the interest rate you receive on your deposits is 7.2 percent, you would double your money in about 10 years:

1. Start with the number 72.
2. Divide by 7.2 to get a result of 10.

Keep in mind that the Rule of 72 does not include taxes or inflation. Also, the rule assumes that you compound your interest yearly at a fixed rate of return over a long period of time. If you compound more frequently, you could save more or double your money sooner.
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      NEXUS IN ANOTHER STATE
 

 
 
If you have nexus, or “substantial physical presence” in another state, they will expect you to pay income and sales/use taxes on revenue generated there.
Definitions of “substantial” vary, and some states are more aggressive than others to find and levy taxes on businesses with nexus within their boundaries. Some major considerations are:
1. Do you have a sales office within another state?
2. Do you provide service (other than just delivery of product or basic sales assistance) to customers in another state?

This is only a guide to show how some states have ruled. Call me for more information.
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      IF WE ONLY HAD MORE TIME!!
 

 
 

There just aren't enough hours in the day. Where can we squeeze that in? Americans are constantly griping about their temporal tribulations. But there is one way that our time starvation can be satisfied: Moolah. Given the choice of having extra time or more money, most Americans will grab at the cash, a recent survey says. Perhaps it's the tough economic times or perhaps a desire to get paid what we think we are worth. Either way, it's a reversal of attitude from the go-go '90s, when money was flowing and time off was what we could have used more of.

What do you think? 781-963-7251
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      CERTIFIED?
 

 
 

Your doctor is certified.
Your lawyer is certified.
Is your accountant certified?
If your accountant isn’t a Certified Public Accountant, think twice about where you are getting your advice. Who do you want handling your financial and business matters?

The Massachusetts Society of CPAs represents over 8,800 certified public accountants working in public accounting, industry & business, government and education.

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      WHEN IS IT TIME TO PARTNER WITH A CPA?
 

 
 

The Massachusetts Society of CPAs recommends that you partner with a CPA in 2003, particularly if you:

  • Will report income over $100,000;
  • Need tax-saving advice and assistance;
  • Need assistance with tax documents;
  • Are considering tax-saving investments;
  • Are self-employed or a business owner;
  • Have children in college and education expenses;
  • Have significant or unusual transactions; or you
  • Want a professional review of your tax return before filing.
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      TEN TAX TIPS TO CHEW ON...
 

 
 

Is your 401K loosing weight? CPAs know the best ways to save for retirement without sacrificing your life now.

Re-financing? CPAs have borrowing tips.
New equipment investment? CPAs can maximize the tax write off.
College bound kids? CPAs know what plans are best for saving.
Bad Economy? Good time to ask a CPA how to gift and save on estate taxes.
Experiencing Capital Losses? CPAs know the ways to deal.
Considered real estate? What’s cost segregation analysis!
Year-end tax planning with a CPA pays off!

Do you have an effective Financial Plan? A CPA’s creativity and independence helps make a good one.

Running a closely held business? Good management ideas by a CPA are key.

I am now writing TAX TIP OF THE WEEK that is periodically distributed over the Internet to a select list of people. Items may also appear in the printed monthly version. If you would like to be included in the weekly electronic distribution, just send your e-mail address with the subject of: “TTW subscribe” to kahan@rak-1.com and please include your name, city, and state of residence in the content of the message. We cannot accept a new name without a location.

Thanks.
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      STOCK WRITE-OFF
 

 
 

A “worthless securities” deduction isn’t available for securities that have any value at all - even only a couple of cents - so you will have to sell the shares to realize your loss on them for tax purposes.

However, any fees that you incur on the sale of the shares will be added to your basis in the shares. This will increase your tax loss on them accordingly.

Planning for the future is a lot like planting a tree. You’ve got to do it today if you want your family to enjoy it tomorrow.

Did you know we do more than just prepare, compile, and crunch numbers? We are not just “bean-counters.” We can also advise you on estate and business planning and offer financial strategies to meet your goals. As your CPA, we know your needs better than any other professional.

DON’T FORGET:
“ IT’S NOT WHAT YOU MAKE THAT COUNTS;
IT’S WHAT YOU KEEP!”
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      PUBLICATION AVAILABLE
 

 
 

The Internal Revenue Service announced that a revised Publication 520, Scholarships and Fellowships is now available. You can get a copy of this publication by calling 1-800-TAX FORM, writing to the IRS Forms Distribution Center nearest you, or, download it from the IRS internet web site at www.irs.gov

If you are pleased with our services, please tell others. If you are not pleased with our service, please tell us; that way we can please you.
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Roger A. Kahan is a Certified Public Accountant, Business Advisor, and Wealth Care Professional with an office in Stoughton, Massachusetts, serving the tax and financial needs of individuals and small to medium sized businesses almost anywhere in the United States. And with the advent of the Internet, his professional consultation extends into several other countries.

Roger is always seeking additional clients and professionals wishing to save money and better manage their own, a friend, a relative, or a client's personal or business life. Do you know of someone that could use our professional services? Please let us know if we can use your name in an introductory letter or phone call.

Thank you.

Remember: “A failure to plan is a plan to fail.” (Anonymous.)
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ROGER A. KAHAN