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Sources Of Advice For US Tax-Payers

by Mike Godfrey, Tax-News.com, New York

31 December 2001


The Internal Revenue Service will again offer a daily series of Tax Tips for the 2002 filing season beginning January 2, 2002. Approximately 75 tips will be available, with at least one for each business day until the April 15 tax deadline. The Tax Tips will be available on the IRS Web site at http://www.irs.gov , in the news section.

The IRS says that its Tax Tips will offer concise, useful information on topics affecting millions of taxpayers, covering a wide range of topics, from child credits and higher education benefits to Individual Retirement Accounts and Social Security issues. Sample topics include:

  • What's new for 2002;
  • Common errors to avoid when preparing your taxes;
  • Free tax help from the IRS
  • When Social Security benefits are taxable;
  • What to do if you can't pay your taxes.

A sample Tax Tip follows, describing the updated version of Publication 17, "Your Federal Income Tax." The publication, which has just been released, has been updated for the 2002 filing season.

From stock sales to student loans, people can get many of their questions answered in this 280-page publication. A sampling of the items covered in 38 chapters:

  • Need help deciphering the mysteries of the Roth IRA? Try Chapter 18 for retirement accounts;
  • Do you have a new child in the house? See Chapter 35 for the Child Tax Credit;
  • Are you selling stock for the first time? Check Chapter 17 for capital gains. If you're unloading losers, capital losses are there, too.
  • Do you need to report the profit on your home sale? See Chapter 16 for some good news. Generally, you only need to report the sale of your home if your gain is more than $250,000 ($500,000 if married filing a joint return). And the best part about Publication 17? It's free.

Of course the IRS isn't the only organisation offering help with taxes - there are many specialist sources of advice, some free and some not so free. If it's automobile-related tax advice you're after, try Edmunds.com ( http://www.edmunds.com ), which claims to be the web's leading consumer resource for unbiased automotive information.

This tax season, Edmunds explains how to achieve a tax deduction by donating an old car to charity. However, says Edmunds, the IRS is paying close attention to the value placed on donated vehicles.

"Taxpayers who itemize deductions on their tax returns can deduct, within limits, the fair market value of their contributions to qualified charities," says Edmunds' December 3 press release entitled "IRS and State Charity Officials Urge Care When Making a Car Donation." The release goes on to warn, "The fair market value of the taxpayer's car may be substantially different from the 'Blue Book' value."

According to IRS Publication 561 entitled "Determining the Value of Donated Property," "Fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts."

The Edmunds.com True Market Value(R) (TMV(R)) automotive pricing tools were developed to provide this type of information, serving as the industry's best guide to market value pricing and the only pricing system designed with the consumer in mind.

The IRS directs taxpayers to consider a full range of criteria such as accessories, mileage and condition in determining the appropriate value of their vehicles. The TMV Used Vehicle Appraiser ( http://www.edmunds.com/products/tmv/ ) asks for these and other facts about each vehicle, then provides a valuation report. The report may be of use in preparing your return and it is a good practice to keep it with your tax papers in the event of an audit. As with all tax matters, you should always consult a certified tax advisor.

"The TMV is, in essence, what you would expect to pay or receive for your vehicle given current market conditions, and it should be useful in approximating the value the IRS expects you to claim," according to Jeremy Anwyl, President of Edmunds.com.

The Used Vehicle Appraiser presents each user with three sets of TMV prices representing the three types of used vehicle transactions: dealer trade-in (what you should expect to receive from the dealer as a trade-in), dealer retail (what you should expect to pay a dealer for this vehicle), and private party (what you should expect to pay or receive in a private party transaction). Anwyl suggests that taxpayers take all three values to their certified tax advisor when determining their deductions.

If you have a tax problem related to stock options, on the other hand, you could try the Compensation Design Group. Says CEO Frank Glassner: 'Employees across the nation have a few more days to write their New Year's resolutions, get new calendars and make important tax decisions that could mean the difference between a manageable tax bill and a major headache.'

"In our uncertain economic climate, the last thing beleaguered employees need to worry about is being hit by a big tax bill from stock purchased in their company," said Glassner. "But if they don't take the proper steps within the next few days, they may be left paying hefty taxes on company stock they purchased during the year."

Glassner said it would be particularly disheartening to see employees in the volatile high tech market pay huge taxes on stocks purchased in a devalued company. "Even if a company's stock value plummeted, as so many did, the employees who purchased stock would still be responsible for the taxes owed on the paper profits they earned when they purchased the shares," he said.

Depending on the compensation packages designed by the company, employees have a variety of choices in selecting stock options. "Whether employees selected `incentive' stock options or the most commonly-issued type of option, `nonqualified stock options,' they will have to make critical decisions now or face serious consequences with the tax man," said Glassner.

He said regular income taxes on profits won't be owed by employees who used "incentive" stock options, but they may have to pay the alternative minimum tax. One way to avoid this is to sell their shares before year-end, though they would still owe regular short-term capital gains taxes on the difference in price paid for the stock and the price received when it is sold.

Employees who used "nonqualified" stock options don't have the choice of selling their shares before year-end, according to Glassner. They will owe income taxes on their paper profits. "What's really nasty about this is that even though the employee may have exercised his options, he would have to hold the stock for a year to get capital gains treatment," said Glassner. "Even if the stock tubed, the employee has to pay tax on the gain in value from the date of grant to the date of exercise. If the underlying stock is of significantly less value a year later, the employee has to pay the tax on the higher price, and he may not have the proceeds to do so."

Headquartered in New York, the Compensation Design Group focuses on delivering cost effective and customized compensation, benefits and human resources programs. The company's team of experts is among the nation's top professionals in the field and is dedicated to ensuring that the client experience with the Compensation Design Group is both rewarding and profitable.


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