Hundreds of ways to save BIG MONEY at tax time—updated for 2012!
Fully updated for the new tax year, How to Pay Zero Taxes 2012 reveals all the secrets for keeping as much of your money as the law allows.
How to Pay Zero Taxes 2012 lays out simple strategies that are sure to save you money—this year, next year, and beyond. From converting personal expenses into business deductions to avoiding (or surviving) an IRS audit, Jeff Schnepper’s guide comprehensively covers more deductions than any other tax book, all conveniently organized into six easy-access categories: exclusions, credits, general deductions, “below the line” deductions, traditional tax shelters, and super tax shelters.
NEW FOR 2012, COMPLETE COVERAGE OF:
- Newtax laws
- Exemptions, credits, and exclusions
- Special capital gains and dividends rules
- Increased IRA and retirement plan limits
- Job hunting and relocation expenses
- Theft and casualty losses
- Child care and elder care
- Educational and Roth IRAs
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About the Author
Jeff A. Schnepper, Esq., is the author of multiple books on finance and taxation, including all twenty-eight previous editions of How to Pay Zero Taxes. He is a financial, tax, and legal advisor for Estate Planning of Delaware Valley and operates a tax, accounting, and legal practice in Cherry Hill, New Jersey. Mr. Schnepper is Microsoft’s MSN MONEY tax expert, an economics editor for USA Today, and tax counsel for Haran, Watson & Company.
Read an Excerpt
HOW TO PAY ZERO TAXES, 2012Your Guide to Every Tax Break the IRS Allows!
By Jeff A. Schnepper
McGraw-HillCopyright © 2012 The McGraw-Hill Companies, Inc.
All right reserved.
Chapter OneTax Insanity
"Our income tax system is overly complex. It distorts investment decisions and encourages people to put money into schemes to reduce their tax bills instead of into enterprises to create jobs and help our economy grow."
BILL BRADLEY, New Jersey senator (1984)
"The words of such an act as the Income Tax ... merely dance before my eyes in a meaningless procession: cross-reference, exception upon exception—couched in abstract terms that offer no handle to seize hold of—leave in my mind only a confused sense of some vitally important, but successfully concealed, purport, which it is my duty to extract, but which is within my power, if at all, only after the most inordinate expenditure of time. I know that these monsters are the result of fabulous industry and ingenuity, plugging up this hole and casting out the net, against all possible evasion; yet at times I cannot help recalling a saying of William James about certain passages of Hegel: that they were, no doubt, written with a passion of rationality; but that one cannot help wondering whether to the reader they have any significance save that the words are strung together with syntactical correctness...."
JUDGE LEARNED HAND, Thomas Walter Swan, 57 Yale L.J. 167, 169 .
Q: What's the difference between Obama's cabinet and a penitentiary?
A: One is filled with tax evaders, blackmailers, and threats to society. The other is for housing prisoners.
"I don't believe in a law to prevent a man from getting rich; it would do more harm than good."
"Politicians tax the middle class for the same reason some people rob banks. That's where the money is."
FORBES MAGAZINE May 11, 1992
"If our current tax strucure were a TV show, it would either be 'Foul-ups, Bleeps and Blunders,' or 'Gimme a Break.' If it were a movie, it would be 'Revenge of the Nerds' or maybe 'Take the Money and Run.' And if the IRS ever wants a theme song, mabye they'll get Sting to do 'Every breath you take, every move you make, I'll be watching you.'"
PRESIDENT REAGAN, in remarks to students at Northside High School, Atlanta, Georgia, June 6, 1985
WHAT'S NEW THIS YEAR
Senator Olympia Snowe (R-Maine) hit the nail on the head last year when she said, "It's all political theater. It's not about legislating anymore. It's all for the next election that's coming very shortly." That pretty much describes 2011. But we did have an interesting year:
A Joint Tax Committee Report revealed that 51 percent of households not only owed no federal income tax for 2009, but that 30 percent of all households got back a check for their full income tax bill and more resulting from refundable credits.
In January, the IRS launched IRS2Go, a free application for the iPhone and Android market, an app that lets users check their refunds and access help lines over the phone.
Having trouble keeping up with changes to the tax law? In April 2011, IRS Commissioner Shulman reported that there have been about 3,500 tax law changes since 2000.
More than half of small businesses spend at least $5,000 and 40 hours per year just to file their taxes according to a National Small Business Association survey.
Our government tax enforcers are still having problems:
The IRS improperly transferred hundreds of millions of dollars in taxpayer payments to its Excess Collections File.
A March Government Accounting Office (GAO) report revealed that taxpayer data are at risk of being disclosed, modified, or destroyed because of material weaknesses in IRS internal control systems. About 74 percent of previously reported information security weaknesses still remained unresolved or unmitigated.
A June 2011 report by the Treasury Inspector General for Tax Administration (TIGTA) found that IRS databases are increasingly being targeted by attackers and that the IRS needs to increase its security diligence.
An August 2011 TIGTA report showed that only 19 percent of written inquiries from taxpayers received timely and accurate responses. In another study, the percent dropped as low as 8 percent.
The TIGTA reported that the IRS has been doing a better job of detecting and preventing fraudulent returns. But, I guess that doesn't apply to prisoners and those with kids. The number of fraudulent tax returns filed by state and federal prisoners in the United States doubled from 18,103 in 2004 to 44,944 in 2009. That allowed $295.1 million in illegal tax refunds. The IRS reported that between 23 and 28 percent of earned income tax credits (EITCs) each year are issued erroneously. For 2009, that was $13 billion in improper payments.
The IRS didn't do much better with cars or other credits. As much as 20 percent of the $163.9 million in credits claimed for electric and alternative motor vehicles was claimed in error according to a February TIGTA report. The IRS also allowed 125,762 individuals to erroneously receive $111.4 million in stimulus-related tax credits. If this is doing "better," how bad was it before?
The TIGTA did find that the IRS needs to improve the security of a Web portal used by preparers to electronically file returns. I guess the IRS failed to show its security concerns when it awarded a tax processing contract to a company that admitted to having information on 1.5 million payment cardholders and 1.1 million Social Security numbers stolen by computer hackers.
The TIGTA found that the IRS also divulged personal taxpayer records and information over the phone without properly authenticating taxpayer identity.
Because of multiple use of taxpayer identification numbers, the IRS accepted $380 million in erroneous tax exemptions and tax credits in 2007.
In July 2011, the TIGTA reported that the IRS may have violated over 32,000 taxpayers' tax lien rights with improper notifications.
The IRS found over 245,000 identity theft incidents last year. Since 2004, there have been 470,000 incidents of identity theft affecting more than 390,000 taxpayers.
TIGTA auditors found that taxpayers had to wait an average of one hour to receive assistance as per an August 2011 report.
The good news—the IRS provides a special toll-free phone line for hearing and speech impaired taxpayers. The bad news—the IRS ignores most of the calls! Out of the 350,000 calls made to the special line, only 339 were responded to by the IRS.
Really? The Center for Plain Language gave the IRS its Grand ClearMark Award for clear language in its simplified notices, as required under the Plain Writing Act signed in October 2010.
2010 WAS WHEN ...
2010 was a great year for tax preparers. Congress "solved" any and all economic and social problems with multiple changes in the tax code while shamefully delaying any action on the estate tax and tax extenders by playing politics rather than providing clear and long-term rules for playing the tax game. But, we had fun:
It's become harder and harder to reach executive level in government service if you actually pay your taxes. New York Congressional representative Charlie Rangel was forced to resign as Chairman of the House Ways and Means Committee, which writes all our tax rules, because he couldn't follow them. I guess anybody could forget to report $75,000 in rental income.
Lael Brainard was nominated and approved to be undersecretary for international affairs despite late real estate tax payments, questionable home office deductions, late unemployment insurance payments for household employees, and questions as to their legal work status.
You didn't have to be a senior executive to be bad. IRS employee Lattice Murray pleaded guilty to stealing cash and mail addressed to the IRS facility where she worked.
IRS revenue officer Albert Bront threatened to kill tax agents who investigated his fraudulent returns and was hit with a 16-count indictment.
IRS employee Colette Browne was charged with filing 32 fraudulent returns and embezzling over $100,000.
While it helps, being on the government teat wasn't a prerequisite for cheating on your taxes. In April 2010, the Department of Justice and the IRS announced fraud charges against 26 New York City tax preparers.
And then there were the "successes" of the Internal Revenue Service itself:
A report by the Treasury Inspector General for Tax Administration (TIGTA) found that errors in the Modernized e-Filing system limited its utility and caused it to erroneously reject tax returns. The $78 million MeF Release 6.1 was deployed in February 2010 and subsequently rejected 23 percent of the electronic returns filed.
The TIGTA in July 2010 found security weaknesses in IRS contractors which placed "confidential information at risk of unauthorized access and disclosure."
The IRS also failed to expeditiously process paper checks resulting in the loss of thousands of dollars in interest for the agency.
The TIGTA also found $20 million in erroneous credits issued by the IRS under the Making Work Pay program.
Then there was another $20 million in erroneous refunds issued to nearly 14,000 taxpayers as a result of dishonored and bounced checks for payments.
Then our tax masters failed to make timely and appropriate lien determinations on more than $1.4 billion in delinquent taxes.
IRS oversight could have been more focused. At least 130 companies that received federal funds under the Troubled Asset Relief Program (TARP) owed taxes totaling $530.8 million at the time they received government funding.
The IRS didn't do much better with home buyer credits. A TIGTA study reported $636 million in bogus claims, including 500 people under age 18 and one "home buyer" only four years old. One hundred IRS employees filed dubious claims, and 256 filers took the credit for homes at just five addresses. That's your tax dollars at work with a computer system that won't work!
Putting perpetrators in jail didn't appear to work. 1,295 prison inmates, including more than 200 serving life sentences, received $9.1 million in fraudulent home buyer tax credits. One home was used by 67 inmates to claim credits.
Taxpayer security is still an issue. The Government Accounting Office (GAO) found control and processing weaknesses that "continue to jeopardize the confidentiality, integrity, and availability of financial and sensitive taxpayer information."
But, there was some good news:
Laura Schultz, a house cleaner in the Denver area, received an erroneous $122,783 tax refund. Being honest, she voided the check and returned it to the IRS. Being a government agency, the IRS then billed her for $80 in taxes owed.
IRS Commissioner Douglas Shulman revealed that nine out of ten taxpayers use either a tax preparer or third party software to complete their tax returns. Well, that's good news if you're a tax preparer or sell software.
The IRS has established a global high wealth industry division to make sure high wealth taxpayers pay their share. These "wealth squads" will go after taxes on income from high net worth individuals regardless of its source or country of origin.
I think the Tax Court got this one right: William C. Naylor, Jr., set up a foundation to store his sperm and, in conjunction with a sperm bank, distribute it to recipients of his choice. The Tax Court found that the foundation "did not promote health for the community" and denied the foundation status as a tax-exempt organization.
2009 WAS FINE
I'm beginning to understand now. The tax code is the Holy Grail—the answer to all our social and economic problems. If we have a problem, it can be solved through the tax code. Need to sell more cars? Simple! Make the sales tax on their purchase deductible, even for those taking the standard deduction, and create a "clunkers credit." But, then again, the government does own General Motors, doesn't it?
Still, I stand by my argument. Your house went down in value? Stimulate the real estate market by making real estate taxes on a principal residence deductible, again, even for those taking the standard deduction.
Oil prices getting too high again? Stimulate "green" energy alternatives with credits that reduce your taxes on a dollar-for-dollar basis.
On June 11, 2009, Rep. Carolyn Maloney (D-NY) introduced a bill that would give an employer a 50 percent tax credit on up to $10,000 for "qualified breastfeeding promotion and support expeditures." Talk about milking the system.
You can't say 2009 was a quiet year taxwise.
The Internal Revenue Service released a Taxpayer Attitude Survey on February 2, 2009, which found that 89 percent of Americans think it unacceptable for people to cheat on their taxes. The other 11 percent appear to be headed for the president's cabinet. President Obama's pick to lead the Department of Health and Human Services, former Senate Majority Leader Tom Daschle, apologized for owing $140,000 in back taxes and interest. In 1998, he was quoted as saying, "Make no mistake, tax cheaters cheat us all and the IRS should enforce our laws to the letter." The president's selection for the first Chief Performance Officer for the federal government, Nancy Killefer, failed to pay tax on her household help. Both had the good graces to withdraw from consideration. And then there was Ron Kirk, nominated to be the U.S. trade representative. He "forgot" to report $37,000 in speaking fees assigned to a charity, but he managed to remember taking a deduction for $7,500 of the donation. And then there was $7,400 in pro basketball tickets without a business purpose.
Cheating on his taxes didn't deter Timothy Geithner from becoming Treasury Secretary. His taxes were found to be underpaid in 2001, 2002, 2004 and 2005. (Nobody looked at 2003?) But then again, who better to put in charge of the IRS than someone who requests a ruling on the law and then ignores it? But, he did pay up, when caught.
Talking about the law, surprise, it changed again! The year started with the American Recovery and Reinvestment Act of 2009 passed on February 17. That was just the beginning. The details of these and other changes, and how to respond to their opportunities, are found in Chapter 18.
GOT STIMULATED IN 2008
Rebate, rebate, rebate!
That's all we heard in 2008. Once again Congress, in its infinite wisdom, decided that you could be trusted to spend your own money and spent many millions of your dollars to send some back to you—to stimulate the economy. The IRS estimated that the reallocation of hundreds of IRS collection staff members to answering taxpayer telephone calls about the stimulus payments alone would result in up to $565 million in foregone enforcement revenue. According to the Treasury Inspector General for Tax Administration, calculations of the economic stimulus payments by the IRS may have been wrong in nearly 400,000 cases. More than 100,000 self-employed taxpayers received larger checks than they were entitled to and 25,000 clergy members didn't get the rebates owed to them. The details of this give-back are covered in Chapter 17 as part of the Economic Stimulus Act of 2008.
Chapter 17 also discusses the tax aspects of three more tax law changes—both 2008's Housing Stimulus Bill and the Hero's Earnings Assistance and Relief Act, as well as the Mortgage Debt Relief Act of 2007, which was passed and signed into law on December 20, 2007. We also had the Emergency Economic Stabilization Act in October 2008 in response to our economic and financial meltdown.
Because of the last minute changes in the law, more than 3 million and as many as 13.5 million taxpayers in 2008 were unable to even file their returns until February 11 because the forms were wrong—again! Let's not even think about the cost to update and correct all the tax preparation programs and educate the public. As noted by National Taxpayer Advocate Nina Olson, "When taxpayers do not claim tax benefits because they do not know about them, Congress's intent in providing the tax benefits is undermined and taxpayers understandably question the fairness of the tax system." She was referring to the last minute 2006 changes that resulted in 1.4 million fewer claims for deductions that were extended but weren't even on the forms that finally went out to confused taxpayers.
The IRS computer system remains a mess. The IRS still lacks adequate procedures to identify identify theft victims or adequate systems to even determine the number of tax-related identity thefts that occur. From 2002 to 2006, identity theft related to refund fraud rose by 396 percent, while employment related identity theft increased by 129 percent. Call 800-908-4490 if you have an identity theft issue.
2007 SUCKED BLOOD
I guess the IRS is a great training ground. First they want your money; now they want your blood! Former IRS Commissioner Mark W. Everson left that position in April 2007 to head the American Red Cross. In July, his successor, Kevin M. Brown, declared that he too was leaving the IRS to serve as chief operating officer for the American Red Cross. Unfortunately, Mr. Everson was caught in a tryst with one of his employees and the Red Cross wrote him off.
Excerpted from HOW TO PAY ZERO TAXES, 2012 by Jeff A. Schnepper Copyright © 2012 by The McGraw-Hill Companies, Inc.. Excerpted by permission of McGraw-Hill. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
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Most Helpful Customer Reviews
Very informative book with great ideas. Big drawback was going through old data in book that was apparently copied and pasted from previous books. Old data was absolutely unnecessary and a waste of my time to read over. I read the entire book, cover to cover, in a week and a half, then mailed it to my brother in Maryland. Good Value!
Not applicable to 99% of regular people. If you have the trust funds and businesses necessary to leverage Jeff's topics, you have accountants doing it for you already. It saved me $0 on my taxes.