Rebate checks floated as way to boost economy

According to an article on CNNPolitics.com on income taxes and the economy:

Treasury Secretary Henry Paulson ended his third meeting of the day with House leaders Wednesday night with no indication of a deal on a $150 billion economic stimulus package.

But a GOP leader told reporters more public comments could be expected Thursday morning.

House Minority Leader John Boehner, R-Ohio -- who spent an hour and a half with Paulson and House Speaker Nancy Pelosi, D-California, on Capitol Hill on Wednesday night -- would not say if leaders were close to a deal.

"We're hopeful," he said. "We'll have more to say tomorrow morning."

Pelosi would not answer questions about any announcement of a deal. "We're moving toward that," she said. "We're not at that place yet."

The late-night negotiations are a sign of the urgency of the talks as the United States slogs through an economic slowdown.

While the final details are still being negotiated, officials in both parties said the current outlines of the package would give individuals a tax rebate check in the neighborhood of $800, while families could receive up to $1,600.

The main sticking point in the negotiations is who the rebate checks should target. Bush has said he wants rebates for those who pay income taxes.

But Democrats say such an approach would mean tens of millions of households would get only a partial rebate or none at all -- about 65 million, the liberal Center for Budget and Policy Priorities estimates.

That group includes those whose tax bill is so low that their rebate would be much less than $800 or $1,600, as well as low-income households with no income tax liability because of credits and other tax breaks. It would also include households that do not have to file a tax return.

The current strategy is for Pelosi and Boehner to iron out the details with Paulson as soon as next week and then get the package passed in the House by the first week of February, according to officials in Congress and in the Bush administration. That will then pressure the Senate to pass the same version by mid-February before lawmakers leave town for the Presidents Day recess.

Even if that goal is reached, however, Bush administration officials acknowledge it may take several more weeks before the Treasury Department can actually cut the rebate checks and get them in the mail for consumers -- a task that will be more difficult because the Internal Revenue Service is very busy now dealing with 2007 tax returns.

One senior official noted the president signed a similar 2001 round of tax rebates around Memorial Day, after the IRS's busy season.

"We're working with the IRS right now to figure this out," the official noted.

Individual Income Tax Extensions: A Necessary Evil?

Every year large numbers of individual income tax returns are put on extension. For many people extension is a dirty word. Unfortunately, in a busy tax preparation business extending individual income tax returns is unavoidable. The reason for this is due in large part to the timing of certain deadlines.

In order to calculate wash sales the schedule D cannot be completed until the end of January. Also, employers are not required to distribute W2’s until the end of January. Both of these factors reduce the amount of time to prepare the return from 3 months 15 days to 2 months 15 days.

Brokers are not required to distribute 1099’s until the end of February. If the form 1099 is incorrect the corrected version may not come out until March. This reduces the amount of time to prepare the return to 1 month 15 days or maybe even less.

The deadline for corporate income tax returns is March 15th as opposed to the individual deadline, which is April 15th. Therefore, the preparer is forced to deal with the corporate returns before the individual returns. This reduces the amount of time to prepare an individual return to less than one month.

If you are the member of a partnership the preparer will need to have the K1 from the partnership return before completing your return. The IRS does not require the partnership to provide the K1 until April or if an extension is granted October. This being the case it may be impossible for the preparer to complete your individual income tax return by the April 15th deadline.

The factors listed above illustrate tax-preparers have a small window of time between receiving all information needed and April 15th deadline. This window in many cases can be less than a month. For a tax-preparer with hundreds of clients it is impossible to complete everyone’s individual income tax return within this small window of time.

Schedule D Software: No Substitute for a Tax Professional

Hiring a tax professional to prepare your Schedule D can be a costly. Currently, there are many software packages on the market that advertise a “do it yourself” approach to Schedule D preparation. It is easy to be seduced by these claims, as the price of the software can be much lower than the cost of a tax professional.

Unfortunately, depending on your trading, generating a Schedule D is not as easy as it sounds. When it comes to calculating wash sales, stocks and stock options are substantially identical securities. Many of the software packages on the market will not calculate the wash sales on this type of trading correctly and manual adjustments need to be made. Without a thorough knowledge of the wash sale rule you will not be able to make the proper adjustments.

The wash sale rule is just one of many obstacles in the path of creating a proper Schedule D. Other events that many software programs can’t handle are stock splits, spin offs, and option assignments, just to name a few. If any of these events have taken place in your trading account, it is no longer a simple matter of downloading your trades into the software and then having it spit out a Schedule D. Instead you will need to know the tax code well enough to be able to adjust for these events.

CEO, Jim Crimmins Offering Tax Planning Advice in Irvine, CA

Jim Crimmins, CEO of Traders Accounting will be offering timely advice on tax planning to attendees of their upcoming day trading training seminar on January 24^th in Irvine, California at the Online Trading Academy. These seminars are great for individuals who are experts in day trading or thought looking to starting up a day trading business. For a future schedule of day trading training seminars visit Traders Accounting.

Supreme Court Limits Trusts' Tax Deductions

The Supreme Court upheld limits Wednesday on income tax deductions for trusts and estates, ruling against the family that created Pepperidge Farm.

The court said trusts ordinarily may not deduct the full cost of investment advice on their income tax returns. Those expenses are deductible only when they exceed 2 percent of adjusted gross income, the same limits faced by individual filers, Chief Justice John Roberts said for a unanimous court.

The case arose over a relatively small tax dispute, $4,448, involving the income tax return filed by the trust established by the will of Henry A. Rudkin, former chairman and founder of the Pepperidge Farm company.

The trust was funded with the proceeds of the sale of Pepperidge Farm to the Campbell Soup Co. The trust had $2.9 million in assets and $625,000 in income in 2000, the year of the disputed return.

The trust reported that it spent $22,241 on investment advice and deducted all of it on its tax return. The Internal Revenue Service said the expenses could be deducted only to the extent they exceeded the 2 percent floor. The discrepancy was $4,448.

The trust sued in U.S. Tax Court, which ruled for the government. The 2nd U.S. Circuit Court of Appeals affirmed the ruling.

The case is Knight v. Commissioner of Internal Revenue, 06-1286.

Advice on Tax Planning Seminar Coming to DC

On the 19th of January, the experts at Traders Accounting will be presenting at The Online Trading Academy in Vienna, Virginia. This one day seminar will offer the best advice on tax planning whether you are starting up a day trading business or already an expert. For more information or to register visit the Online Trading Academy.

The event will cover the following topics:

· Classification of Traders

· Starting up a day trading business

· Investors

· What is a Trader to do?

· Why Trade as a Formal Business?

· Mark to Market Accounting

· Taxation of Traders

· How Are Regulated Futures Contracts and other Section 1256 Contracts Taxed?

· Self-Directed 401k plans

For more information on Traders Accounting and their upcoming seminars please visit www.TradersAccounting.com.

ATTENTION: New York Residents With a Partnership or LLC.

Are you aware that there is a New York State form due by January 31, 2007 for all partnerships and LLC’s?

Here are a few helpful links to get these form filled out and filed BEFORE the deadline. Click here for the instructions and here for the actual form. If you are not sure what you need to do or have questions on the forms contact your accountant or tax firm for help.

Ordinary Income and Capital Gains

According to an article on ordinary income and capital gains taxes, profit you make from your stock investments can be taxed in one of two ways, depending on the type of profit:

• Dividends - When you receive dividends from your stock (either in cash or stock), these dividends get taxed as ordinary income. This is also true if those dividends are in a dividend reinvestment plan. If, however, those dividends occur in a tax-sheltered plan, such as an IRA or 401(k) plan, then they’re exempt from taxes for as long as they’re in the plan. In January, investors receive a 1099-DIV statement from the issuer of the dividends that includes information on the amount of dividends earned the previous year. Check with your tax advisor because the latest tax laws offer tax advantages for dividends.

• Short-term capital gains - If you sell stock for a gain and you’ve owned the stock for just one year or less, the gain is considered ordinary income. If you buy a stock on August 1 and sell it on July 31 of the following year, that’s less than one year. To calculate the time, you use the trade date (or date of execution). This date is the date that you executed the order instead of the settlement date. However, if these gains occur in a tax-sheltered plan, such as a 401(k) or an IRA, no tax is triggered.

Long-term capital gains
Long-term capital gains are usually much better for you as far as taxes are concerned. The tax laws reward patient investors. After you have held the stock for at least a year and a day (what a difference a day makes!), your tax rate will be reduced. Get more information on capital gains in IRS Publication 550 “Investment Income and Expenses”. Because the tax on capital gains is the most relevant tax for stock investors.

Managing the tax burden from your investment profits is something that you can control. Gains are taxable only if a sale actually takes place. (In other words, only if the gain is “realized.”) If your stock in GazillionBucks, Inc., goes from $5 per share to $87, that $82 appreciation isn’t subject to taxation unless you actually sell the stock. Until you sell, that gain is “unrealized.” Time your stock sales carefully hold on to them at least a year to minimize the amount of taxes you have to pay on them.

Why traders should not use a S Corp for trading.

S Corps are better than sole proprietorships, in that you do not have to pay self employment taxes, but with S corps you have to pay yourself a "reasonable salary", and take the balance of the income as either dividends or unearned income. The problem with the "reasonable salary" is that there is no clear rules’ regarding what is considered reasonable. You have to do a lot of research and document all the information that you find. Most Traders experience highs and lows during the year and having to pay a salary is just not feasible for most traders and why subject yourself to the 15.3% of additional taxes.

In some cases the best and logical solution would be to use a LLC (Limited Liability Company). You can take tax free distributions up to the amount of capital you contributed, and the income is passed on through a K1 and taxed at your personal tax rate. This is beneficial because any losses for expenses are passed on as an ordinary loss and is deductible from your ordinary income and you are able to pocket the additional 15.3%.

Here’s a link to a web page with some great, free tips, tricks and techniques for day traders.

Highlights include:

• Order placement


• Low risk ideas


• Using mental stops


• ‘The 5-minute rule’


• Knowing what indicators to monitor


• And more

*****

Traders Accounting provides tax consulting, entity formation, tax preparation and 401(k) services that help you efficiently establish and maintain your trading business. Lower your taxes, save time, and maximize the benefits of your trading business. Visit our site for a FREE trader tax action plan.

Home Office Expense- Have you moved during this year?

Home Office Expense- Have you moved during this year? If so, recalculate your home office and net home square footage. And remember hallways, entry ways, stairways and bathroom are common areas and not include in the home square footage. You are also able to deduct a second telephone line that you but in for your business, as well as a portion of the electric, gas, home owners insurance, home owners association fees, trash pickup, and your alarm system fees. Depending on what type of business you are running out of your home and what your tax status looks like you can even deduct a percentage of your mortgage interest and real estate taxes.

Other assets that you purchase for your home office are also either expenses or can be depreciated over the average life of the item.