TAXING TIMES

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Dear Clients, Family & Friends,

Year end greetings (how's that for politically correct?) to you! This year has not seen too many tax bills pass as our 'friends' in the other Washington have not done much except squabble, it seems.

On a happier (for about six months) note, the San Diego Padres made a great run at their third consecutive Division Title but could not quite do it this year. Oh well, what is it the Cub fans always say, "Wait until next year"? While I am writing about those Padres, my wife Nancy and I drove to Cooperstown, NY this summer to attend the induction ceremony to the Baseball Hall of Fame of Tony Gwynn (and some other guy named Cal Ripkin). It was a wonderful trip. We stopped at Mt. Rushmore, the Rock & Roll Hall of Fame in Cleveland and Dyersville, Iowa at The Field of Dreams. I was able to play left field (shoe-less of course), hit & pitch. It was quite a thrill.

Last year in this space, I told you Nancy & I were trying to set up a charity to help the kids of the school in Zambia we visited in 2006. That is just about done with the incredible help of one of my very generous clients. He saw the photos of the kids in my office and offered to pay his attorney to do all the very expensive work to get this going! We are hoping to have the charity set up in the next couple weeks. You can see some of our pictures from the school and other trips on www.wanderingtaxman.smugmug.com .

Now onto taxes.I have learned something very scary about current IRS tactics on people they are going to audit. Before contacting a taxpayer, they Google them to learn as much as possible about them. They have also started to call people BEFORE writing to them! They try to catch a person off guard. If this happens to you there are two reasons for you to not answer any questions: one - it may be a scam and not the IRS; two - you might not know how best to answer the questions. Refer ANY such callers to me! If is a scam, I will know. If not, I deal with the IRS every day. That is why you hired me. By the way - the IRS never initiates contact with taxpayers via email. If you receive one - it is a scam !

If you have any questions about any of the changes on the following pages or any other tax questions, please feel free to call or e-mail me. Some of these changes are for 2007, some for 2008 and some don't take effect until 2010 (I don't know why they bother with such changes as there are two more years for another Congress to change it again and dash our plans!)

There has only been one major tax law passed this year (SBWOTA). There is another one in the works but due to political wrangling it has not become law yet. The popular opinion of those of us in the tax business is that it will pass in December. Keep your fingers crossed as many of the provisions are 'extenders' of current provisions that help us out (such as the sales tax deduction for 2008 and beyond) as well as a 'patch' for the dreaded Alternative Minimum Tax (AMT).

Below are changes from the new law as well as other notable items:

Higher Kiddie Tax age coverage : (this changed for 2007 and is now changing yet again for 2008). Those parents who, before SBWOTA, had been planning to sell much of their child's portfolio when she turns 18 in 2008 best realize that the magic age of 1 is no longer operative. Beginning on January 1, 2008, the age of 18 moves to 19 or those who are full time students under age 24.

Roth Conversions : This is one that is a goody but does not help out until 2010. Starting that year, this $100,000 income limitation is lifted on making contributions to a Roth IRA. You can start taking advantage of this change now however. If you are in that income bracket, you can start making contributions to a non-deductible IRA this year and then convert it to a Roth in 2010.

Charitable Contributions : Starting in 2007 IRS requires that money donations of any amount be backed up by paperwork from the charity (including a cancelled check if that was the payment method) indicating the amount, date and name of the charity. It used to be donation of under $250 did not need such substantiation. Get a receipt!

Clothing and household donations : Only items donated that are in at least "good" condition are deductible.

Special IRA Contributions rule : For 2007 the IRS allows IRA holders who are at least 70-1/2 years old to make charitable contributions of up to $100,000 from their IRA without realizing income. If you are so inclined to do so for 2007, the transfer must be completed by 12/31/07 (this is one of those we are hoping will be extended and even allow people as young as 59 ½ to do this).

Mortgage Insurance Premiums : If you have this kind of insurance, the premiums are deductible if your income is below $100,000. For 2007 ONLY .

IRA : Here is a funny/sad one - if your employer is bankrupt or indicted, you can put $3000 into an IRA.

Residential Energy Credit : ETIA allows for tax credits for increasing the energy efficiency of homes (new or old). This applies only to years 2006-2007 so Act FAST!! . Over those years you may receive a TOTAL credit of $500 for the installation of equipment such as central air conditioning, heat pumps, water heaters, furnaces, insulation and exterior doors and windows. Also, solar water heaters qualify except those for spas and swimming pools (the most in need of that kind of heater). There is also a credit of up to $2000 for the installation of fuel cell plants based on energy savings.

Pending Legislation : In addition to waiting for the sales tax deduction to be made permanent (maybe write to your congressional representatives), I am watching for the following extenders:

- Above the line college tuition deduction

- Teacher's expense deduction

- Mortgage Insurance deduction

- AMT fix or revocation

- Work Opportunity and Welfare to Work tax credits

Vehicle Mileage : The mileage rate for business use of a vehicle in 2007 is 48.5 cents per mile. For 2007 that has been raised to 50.5 cents. If you use your auto for business purposes, please remember to bring in your filled out log book. I have plenty of them if you need another.

Last year I told you about the new Roth 401k - here is a recap since I think it is a very valuable tool for the small business owner out there, as well as those of you who are employees of companies with a traditional 401k plan. It is not too late to establish the plan for 2007. Like the Roth IRA, any contributions are not tax deductible but grow tax free & when taken as retirement income, the distributions are tax free. For someone under 50 years old the maximum contribution is $15,500 for 2007. If you are over 50, you can put in $20,500. This is a terrific planning opportunity as I doubt we are ever going to see lower tax rates than we have today & the old adage about retirees being in a lower bracket than they are while they work is not true for many people. If you are an employee of a company with a 401(k) plan now, the firm needs to amend their plan prior to you participating in it.

I have sent out a few e-mail newsletters. If you have not received them and would like to receive future ones, please make sure I have your correct address. The past newsletters are available on my website.

If you have questions about any of these items, or other tax issues, please call me. You can also call me to confirm or schedule your appointment for tax season.

See you soon,

Chris Fleck

Enrolled Agent

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