Evans-Graff, Inc.

On July 31 the IRS announced it is launching a new Online Payment Agreement (OPA) application through national partnerships with the tax professional community. OPA is a fully automated, interactive Web-based tool for creating an installment agreement. Members of tax professional organizations are using OPA to apply for payment agreements for clients who owe taxes. This application will eliminate the need to write or call the IRS toll-free number for assistance. When fully implemented, OPA will provide an easier way for taxpayers and tax professionals to voluntarily resolve tax liabilities.

The IRS is warning taxpayers to be on the lookout for a new e-mail scam that uses the Treasury Department's Electronic Federal Tax Payment System (EFTPS) as a hook to lure individuals into disclosing their personal information. This latest e-mail scam is the first one known to reference EFTPS. EFTPS, which is used by more than six million taxpayers, allows businesses and individuals to pay all their federal taxes online or by phone. More information is found in IR-2006-116 .

Any person in a trade or business who receives more than $10,000 in cash in one transaction or in two or more related transactions must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

The definition of cash includes U.S. and foreign currency, and can include cashier’s checks, money orders, bank drafts or traveler’s checks with a face amount of $10,000 or less. A business must file Form 8300 with the IRS within 15 days of the transaction. Information on the filing requirements of Form 8300 is available on the Workbook on Reporting Cash Payments over $10,000 page on www.IRS.gov, or in Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business). Additionally, questions can be e-mailed directly to the IRS Detroit Computing Center.

The IRS released formal guidance on its new tip reporting procedure, the Attributed Tip Income Program (ATIP). ATIP expands the existing IRS tip reporting and education program by offering employers in the food and beverage industry an additional tip reporting program. ATIP reduces industry recordkeeping burdens, has simple enrollment requirements and promotes reporting tips on Federal income tax returns. Details and requirements for participation for employers and employees are available in Revenue Procedure 2006-30, Attributed Tip Income Program.

"What Should I do with My Old 401(k)?"

If you leave your employer, it is very wise to roll your 401(k) into a new plan. It is possible for accounts to disappear as your previous employer switches custodians of its pension plan.

Rollovers are a tax-free event.

Your options include rolling your 401(k) into:

Your new employer's 401(k) - (which often has fewer options for you)
An existing IRA you have
A new IRA

"What is Probate?"

Probate is the legal process of transferring ownership of an asset from the deceased to a beneficiary.

The process, on average, takes 6-18 months and costs between 3%-10% of your estate's value due to attorney fees and court costs.

Common misconception: A Will rarely prevents probate for estates over $200,000. The simplest method to avoid probate is creating a Revocable Living Trust.

"Does My Infant Need a Social Security Number?"

When you file a tax return, you must provide a social security number for each dependant you claim. If you've adopted a child and he/she does not have a social security number, you can apply for an adoption taxpayer ID number. The form used for this is Form W-7A, This must be filed with the IRS. The number is used inplace of the social security number on your tax return. To Obtain this form, you can contact IRS at 1-800-TAX-FORM or download it from the website at www.irs.gov

"I Am Just Married/Divorced. Do I Need to Change My Last Name?"

Always be sure that your name matches what is registered with the Social Security Administration. Differences in names on a tax return and a social security number could expectantly increase a tax bill or reduce the amount of a refund, if any.

For newly married couples: when the wife takes her new husband's last name but doesn't register with the Social Security Administration and a tax return is filed, the IRS computers will not be able to match the name to the new social security number.

For newly divorced couples: if the woman takes back her previous name and does not register with the Social Security Administration, the same scenario would apply.

"How Do I File a Name Change?"

Any Social Security office will have the appropriate document to fill out (Form SS-5). You can also apply at www.ssa.gov or by calling toll free at 1-800-772-1213. The verification usually takes two weeks.

The following are answers to frequently asked questions and tips related to taxes.

The benefit of annuities is tax-deferred growth. Rather than pay taxes annually on your interest, you keep the tax payment which can earn interest for the duration of the annuity. You pay taxes only when you withdraw funds.

Annuities are contracts through insurance companies. There are three common types of annuities:

Fixed annuities
Index annuities
Variable annuities

Fixed annuities are similar to a CD by offering a fixed interest rate for a specific number of years. After the term of the contract, you receive your principle + accumulated value. They have no market risk.

Index annuities offer interest based on gains in a market index, such as the S&P 500 Index or Dow Jones Index. These gains are locked in every year. During a down year, you earn zero interest or a minimal interest rate. Like fixed annuities, they have no market risk.

Variable annuities are mutual funds "inside" an annuity. They are subject to full market gains and losses, and, unlike fixed and index annuities, have typical fees and loads associated with securities.

If you are in the habit of using the federal government as a savings bank, consider having your withholdings changed and instead have an amount deducted from your check and deposited into your local bank as a savings deduction. You earn at least a small amount of interest and the government is not receiving free use of your money. That money is also available throughout the year should an emergency arise, the very purpose of a savings account for most individuals.

Almost everything you own and use for personal purposes, pleasure or investment is a capital asset. When you sell a capital asset, the difference between the amounts you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss. While you must report all capital gains, you may deduct only capital losses on investment property, not personal property. Here are a few tax facts about capital gains and losses: · Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040. · Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.

· Net capital gain is the amount by which your net long-term capital gain is more than your net short-term capital loss.

· The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income and are called the maximum capital gains rates. For 2005, the maximum capital gains rates are 5%, 15%, 25% or 28%.

· If your capital losses exceed your capital gains, the excess is subtracted from other income on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately).

Under section 121(a), a taxpayer may exclude up to $250,000 ($500,000 for certain joint returns) of gain realized on the sale or exchange of the taxpayer's principal residence if the taxpayer owned and used the property as the taxpayer's principal residence for at least two years during the five-year period ending on the date of the sale or exchange.

"What is the Child Tax Credit?"

With the Child Tax Credit, you may be able to reduce the federal income tax you owe by up to $1,000 for each qualifying child under the age of 17.

A qualifying child for this credit is someone who meets the following criteria:

• Dependent Is claimed as your dependent

• Age Was under age 17 at the end of 2005

• Relationship Is your son daughter, adopted child, grandchild, stepchild or elgible foster child, stepsibling or their descendant

• Citizenship Is a U.S. citizen or resident alien

The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending on your filing status.

• Married Filing Jointly- $110,000

• Married Filing Seperately- $55,000

• All others- $75,000

In addition, the Child Tax Credit is generally limited by the amount of income tax you owe as well as any alternative mininum tax you owe.

"How Do I claim the Child and Dependent Care Credit?"

For 2005, you may use up to $3,000 of the expenses in a year for one qualifying individual, or $6,000 for two of more qualifying individuals. These dollar limits must be reduced by the amount of any dependent care benefits provided by your employer from your income.

To claim the credit for child and dependent care expenses, you must meet the following conditions:

• Income You must have earned income from wages, salaries, tips or other taxable employee compensation, or net earnings from self-employment

• Payee The payments for care cannot be paid to someone you can claim as your dependent on your return or to your child who is under age 19

• Filing Status Your filing status must be single, head of household, qualifying widow(er) with a dependent child or married filing jointly

• Care The care must have been provided for one or more qualifying persons

• Home The qualifying person must live with you for more than half of 2005

There are some limitations on the amount of credit you can claim. If you received dependent care benefits from your employer, other rules apply. For more information on the Child and Dependent Care Credit, see Publication 503, Child and Dependent Care Expenses. You may download these free publications from IRS.gov or order them by calling 1-800-TAX-FORM (1-800-829-3676).

"Are You Elgible For A Tax Credit?"

Taxpayers should consider claiming tax credits for which they might be eligible when completing their federal income tax returns. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are refundable – taxes could be reduced to the point that a taxpayer would receive a refund rather than owing any taxes. Below are some of the credits taxpayers could be eligible to claim:

• The Earned Income Tax Credit is a refundable credit for low-income working individuals and families. Income and family size determine the amount of the credit. For more information, see IRS Publication 596, Earned Income Credit.

• The Child and Dependent Care Credit is for expenses paid for the care of children under age 13, or for a disabled spouse or dependent, to enable the taxpayer to work or look for work. For more information, see IRS Publication. 503, Child and Dependent Care Expenses.

• The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.

• Adoption Credit: Adoptive parents may qualify for a tax credit of up to $10,630 for qualifying expenses paid to adopt an eligible child. The credit may be allowed for the adoption of a child with special needs even if you do not have any qualifying expenses. For more information, see the instructions for Form 8839, Qualified Adoption Expenses.

• Credit for the Elderly or the Disabled: This credit is available to individuals who are either age 65 or older or are under age 65 and retired on permanent and total disability, and who are U.S. citizens or residents. There are income limitations. For more information, see IRS Publication 524, Credit for the Elderly and the Disabled.

Can I Get Earned Income Tax Credit?

Millions of Americans forfeit critical tax relief each year by failing to claim the Earned Income Tax Credit, a federal tax credit for low-to-moderate income individuals who work. Taxpayers who qualify and claim the credit could owe less federal tax, owe no tax or even receive a refund. In 2004, more than 21 million taxpayers received approximately $39 billion in EITC. However, the IRS estimates 25 percent of people who qualify for the credit do not claim it.

If you were employed for at least part of 2005 and at least age 25, but under age 65, you may be eligible for the EITC based on these general requirements:

* You earned less than $11,750 ($13,750 if married filing jointly) and did not have an any qualifying children

* You earned less than $31,030 ($33,030 if married filing jointly) and have one qualifying child

* You earned less than $35,263 ($37,263 if married filing jointly) and have more than one qualifying child

Subject to the income and tax liability limits, the adoption credit and the exclusion from income of benefits under an adoption assistance program for the adoption of a child with special needs is $10,160 regardless of the amount of qualified adoption expenses.

The following changes apply to the child and dependent care credit for 2004.

• The credit can be as much as 35% (previously 30%) of your qualified expenses

• The maximum adjusted gross income amount that qualifies for the highest rate increased to $15,000 (previously $10,000).

• The limit on the amount of qualifying expenses increased to $3,000 for one qualifying individual and $6,000 for two or more qualifying individuals.

• The amount of income that is treated as having been earned by a spouse who is either a fulltime student or not able to care for himself or herself increased to $250 a month if there is one qualifying individual and $500 a month if there are two or more qualifying individuals.

The credit for increasing research activities has been extended to include research expenditures paid or incurred prior to January 1, 2006.

The work opportunity credit and the welfare-to-work credit have been extended, subject to certain limitations. The credits, available to employers for part of the wages paid to certain employees, are available for employees beginning work prior to January 1, 2006.

"What Are the Tax Rates For Children's Income?"

Part or all of a child's investment income may be taxed at the parent's rate rather than the child's rate. Because a parent's taxable income is usually higher than a child's income, the parent's top tax rate will often be higher as well. This special method of figuring the federal income tax only applies to children who are under the age of 14.

For 2005, it applies if the child's total investment income for the year was more than $1,600. Investment income includes interest, dividends, capital gains, and other unearned income.

To figure the child's tax using this method, fill out Form 8615, Tax for Children Under Age 14 With Investment Income of More Than $1,600, and attach it to the child's federal income tax return. Alternatively, a parent can, in many cases, choose to report the child's investment income on the parent's own tax return. Generally speaking, this option is available if the child's income consists entirely of interest and dividends (including capital gain distributions) and the amount received is less than $8,000. However, choosing this option may reduce certain credits or deductions that parents may claim. These special tax rules do not apply to investment income received by children who are age 14 and over. In addition, wages and other earned income received by a child of any age are taxed at the child's normal rate.

"How Do I Pay My Taxes Correctly?"

When filing your return, remember to make sure your tax payment check or money order is payable to the "United States Treasury."

Whether you are filing your current year’s return, a prior year’s return or an amended return, always provide your correct name, address, Social Security number, daytime telephone number, tax year and form number on the front of your check or money order. Enclose your payment with your return, but do not staple it to the form. Do not mail cash with your tax return. If you have a balance due on your 2005 Form 1040, complete and include Form 1040-V, Payment Voucher, when sending your payment and tax return to the IRS. This will help the IRS process your payment more accurately and efficiently. If you are paying by electronic debit of your bank account, you will need to know your account number and your financial institution’s routing number. You can check with your financial institution to make sure that an electronic withdrawal is allowed and to get the correct routing and account numbers. If you are paying by credit card, call toll free or visit the Web site of either service provider listed below and follow the instructions:

* Link2Gov Corporation: 1-888-PAY-1040 (1-888-729-1040), www.pay1040.com
* Payments Corporation: 1-800-2PAY-TAX (1-800-272-9829), www.officialpayments.com
The service providers charge a convenience fee which may vary between the providers. You will be told what the fee is during the transaction and you will have the option to either continue or cancel the transaction. You can also find out what the fee will be by calling the provider’s toll-free automated customer service number or visiting the provider’s website. You will be given a confirmation number at the end of the call.

"What's the Difference Between a Tax Deduction and a Tax Exemption?"

Tax exemptions and tax deductions reduce the taxable income of a large share of American taxpayers. Exemptions are predetermined amounts by which you can reduce your taxable income. Deductions are actual expenses that the IRS allows you to deduct.

Deductions such as alimony, capital losses, moving expenses, business losses, and deductible IRA and Keogh contributions can offset gross income, even if you don't have enough deductible expenses to itemize your deductions.

Personal expenses such as medical costs, mortgage interest, state and local taxes, employee business expenses, and charitable contributions are deductible only if you itemize your deductions.

Both deductions and exemptions are phased out at high levels of income.

For the tax years in 2005, you can deduct 3% of the smaller of:

1. Your taxable income (adjusted gross income if you are an individual) determined without regard to this deduction
or

2. Your qualified production activities income from the following trade or business activities.
a. Construction performed in the United States
b. Engineering or architectural services performed in the United States for construction projects in the United States
c. Any lease, rental, license, sale, exchange, or dispositon of:

Tangible personal property, computer software, and sound recordings that you manufactured, produced, grew, or extracted in whole or in significant part within the United States.
Any qualified film that you produced.
Electricity, natural gas, or potable water you produced in the United States.

"What Are the Standard Tax Deductions for 2005?"

In general, the amount of the basic standard deduction varies according to your filing status.

The projected 2005 deductions are:

Single: $5,000

Head of Household: $11,300

Married filing jointly or qualifying widow or widower: $10,000

Married Filing Seperately: $5,000

For the tax years in 2005, you can deduct 3% of the smaller of:

1. Your taxable income (adjusted gross income if you are an individual) determined without regard to this deduction, or
2. Your qualified production activities income from the following trade or business activities.

a. Construction performed in the United States
b. Engineering or architectural srvices performed in the United States for construction projects in the United States
c. Any lease, rental, license, sale, exchange, or other dispositon of:

i. Tangible personal property, computer software, and sound recordings that you manufactured, produced, grew, or extracted in whole or in significant part within the United States.
ii. Any qualified film that you produced.
iii. Electricity, natural gas, or potable water you produced in the United States.

"What Are the New Standard Deductions for 2006?"

The new standard deduction for 2006 will be $10,300 for married couples, $5,150 for singles and $7,550 for heads of household.

"What Interest is Allowed as Above-the-Line Deductions

All business interest, as well as rental and royalty interest payments, is allowed as above-the-line deductions.

"Can I Deduct the Cost of Career Counseling?"

You can deduct the cost of career counseling as a miscellaneous deduction, but generally only if you're looking for a job in the same line as your current one.

"What are the Limits on Charitable Contributions?"

For most people, the limits on charitable contributions don’t apply. Only if you contribute more than 20% of your adjusted gross income to charity is it necessary to be concerned about donation limits. If the contribution is made to a fully accredited charity, the deduction is limited to 50% of your adjusted gross income.

You should contribute, rather than trash, old clothes, furniture and equipment that you no longer use. If you bring in old clothes or furniture to Goodwill or the Salvation Army, make sure that you get a receipt. Never throw such contributions into a bin where no receipt is available.

"What Contributions are Deductible?"

You can deduct contributions only if they are made to or for the use of a qualified recipient. No charitable contribution deduction is allowed for gifts to other kinds of organizations, even if those organizations are exempt from U.S. income tax.

IRS Publication 78 lists the organizations to which contributions are deductible, identifies each by type, and states their corresponding limit of deductibility.

The total depreciation deduction (including the section 179 deduction and the special depreciation allowance) you can take for a passenger automobile (not a truck, van, or electric vehicle) that you use in your business and first place in service is:

1. $10,610 if you claim the 50% or 30% special allowance; or

2. $2,960 if you elect not to claim any special allowance for the vehicle, the vehicle in not qualified property, or the vehicle is qualified Liberty Zone property.

The Educators' Deduction which had expired in 2003 was restored for two more years

Limits on the deduction- The deduction cannot be more than 50% of the amount of wages you reported to your employees on Forms W-2.

"Can I Deduct the Cost of My Hybrid Vehicle?"

Yes, the 2006 Ford Escape Hybrid and the 2006 Mercury Mariner Hybrid are both valid for a deduction of $2,000 on the IRS tax form 1040.

"What Items are Deductible as Interest?

The following items are generally deductible as interest:

mortgage interest or "points," if you are the buyer;

mortgage prepayment penalties;

interest on a business loan and investment interest.

The 60-month limit on interest payments no longer applies and the restriction on voluntary payments of interest has been lifted. You now get the deduction, no matter how long it takes you to pay off the loan.

"What can be Itemized?"

If you itemize, you can deduct the following main expenses: medical and dental expenses, taxes, interest, charitable contributions, and casualty and theft losses.

Expenses which can be itemized: investment expenses, safe deposit fees, professional education, employee job-hunting expenses and tax-preparation fees.

"I've heard that there is a limit on itemized deductions. Is this true?"

Some of your itemized deductions may be limited if your adjusted gross income is more than $139,500 in the year 2006 ($69,750 if you are married filing seperately).

Generally, you can deduct only 50% of your business-related meal expenses. You can deduct a higher percentage for meal expenses while traveling away from your tax home for business purposes if the meals take place during or incident to any period subject to the Departement of Transportations "hours of service" limits.

"How can Elective Medical Expenses be Deducted?"

Elective medical expenses can be accelerated to meet the criteria of exceeding 7.5% of your adjusted gross income. Consider charging fees to the year desired of the tax advantage. The deduction is allowable in the year charged, even if paid in another year. Orthodontia is a good example.

Beginning in 2003, the self-employed health insurance deduction percentage increases to 100 percent.

"What Do I Need to Prove my Deductions?"

You either have proof of your deductions or you lose them. Always keep your receipts and checks if you want to deduct them. Deductible receipts and checks should always be kept for at least three years from the due date of the year filed, or the actual date filed, if later. Unless the IRS can prove fraud, the statute of limitations to disallow deductions is three years.

A salary reduction plan allow employees to convert potentially non-deductible expenditures into deductible expenses. Employer and employee save on Social Security and Medicare expenses and employer saves additional costs of workers compensation. You can set up salary reduction plans for the following: Group life insurance payments, health-care payments, disability premiums, dependent care assistance programs (including child care).

"What can I Deduct from Season Tickets?"

Eighty percent of the cost that many colleges now charge fans to simply have the right to purchase season tickets to their basketball or football games is deductible. That is because the government considers it a charitable donation to the financial institution. No amount paid for the purchase of tickets is deductible.

The maximum section 179 deduction you can elect for property you purchased and placed in service beginning in 2003 has increased from $24,000 to $100,000. This amount will be adjusted for inflation for 2004 and 2005.

"Deducting Solicited Contributions"

Any solicited quid pro quo contributions of more than $75 require the charity to tell you in writing how much is deductible.

For business start-up costs and organizational costs of corporations and partnership paid or incurred after October 22, 2004, you can elect to deduct up to $5,000. Also, the amortization period for certain business start-up costs and organizational costs paid or incurred after October 22, 2004, has been increased to 15 years.

Buying stocks isn't free, you always pay commissions and may also pay transferring fees if you change brokerages. These expenses should be added to the amount you paid for a stock. When you sell the shares subtract the commission from the sale price of the stocks. Think of these costs as a write-off because they were direct expenses incurred to help you make your money grow.

If you bought books, supplies, computer equipment, or supplementary materials, thanks to the Job Creation and Worker Assistance Act of 2002, up to $250 of such classroom material can now be deducted above the line! That means that you get the deduction regardless of whether you itemize.

The Clean Fuel Vehicle Deduction has retained at the $2,000 level through 2005.

The total depreciation deduction you can take for an electric vehicle that you use in your business and first place in service in 2004 is:

1. $31,830 if you claim the 50% or 30% special allowance; or

2. $8,880 if you elect nopt to claim any special allowance.

For tax year 2006, the standard mileage rate for the cost of operating your car increased to 44.5 cents a mile for all business miles driven for 2006. The standard mileage rate allowed for use of your car for medical reasons decreased to 18 cents a mile. The mileage rates per mile driven in service of charitable organizations, other than activites related to Hurrican Katrina relief is 14 cents per mile.

The maximum section 179 expense deduction for sport utility vehicles and certain other vehicles placed in service after October 22, 2004, is $25,000.

The total depreciation you can take for a truck or van (such as a minivan or SUV) built on a truck chassis that you use in your business and first place in service in 2004 is: 1. $10,910 if you claim the 50% or 30% special allowance; or 2. $3,260 if you elect not to claim any special allowance for the vehicle.

You may be able to claim an additional 50% percent special depreciation allowance for property acquired after May 5, 2003.

Estates over the federal limit are subject to taxes that reach over 45% for the amounts over the limit.

2005 $1.5 million 47%
2006 $2 million 46%
2007 $2 million 45%
2008 $2 million 45%
2009 $3.5 million 45%
2010 Tax Repeal 0%
2011 $1 million 50%
2012 $1 million 50%
2013 $1 million 50%

In 2005, every estate holder who dies can pass $1.5 million of their estate tax-free to heirs. Unfortunately, the remainder is subject to estate taxes.

You may double your estate tax exemption if you are married by using a properly prepared Revocable Living Trust.

There are also planning techniques to minimize the effectof the tax consequences on your beneficiaries. Contact (480) 229-6220 for more information or assistance.

A taxpayer other than a corporation generally can exclude up to 50% of a gain on the sale or trade of qualified small business stock held more than 5 years. This is called the section 1202 exclusion. Beginning in 2005, the exclusion is increased as much as 60% of your gain if you meet the following additional requirements:

1. You sell or trade stock in a corporation that qualifies as an empowerment zone business during substantially all of the time you held stock.

2. You acquired the stock after Dec. 21, 2000.

The IRS will double the business expense threshold to $5,000 from $2,500 for filing the form 1040, Schedule C-EZ.

"What If I cannot Pay Income Taxes?"

If this year’s tax filing deadline will be a “pay” day for you and you cannot pay the full amount you owe, you should still file your return by the due date and pay as much as you can.

You can charge your taxes on your American Express, MasterCard, Visa or Discover cards. To pay by credit card, contact one of the service providers at its telephone number or Web site listed below and follow the instructions. The service providers charge a convenience fee based on the amount you are paying. Do not add the convenience fee to your tax payment.

Official Payments Corporation
1-800-2PAY-TAX (1-800-272-9829)
www.officialpayments.com
Link2Gov Corporation
1-888-PAY-1040 (1-888-729-1040)
www.pay1040.com

"How Do I File For Taxes For Free?"

If you have access to a computer and the Internet you may be eligible to prepare and file your 2004 federal tax return electronically — for free. Filing electronically is fast, accurate and secure. People who file electronically generally get their refunds more quickly than those who file paper returns. The software eliminates most common errors, such as math errors, that can hold up a refund. You will also get an acknowledgment of receipt of your electronically filed return from the IRS. In 2004, more than 61 million taxpayers filed their tax returns electronically.

"Do I Have to Pay the IRS on Child Support Payments I Recieved?"

No, you don't have to report child support payments received on your IRS tax return. Child support payments are neither taxable to the recipient on his/her IRS tax return, nor tax deductible by the payer on his/her IRS tax return. Any alimony payments that include an element of child support payments are not taxable on your IRS tax return as to the child support payments element. If tax deductible alimony payments include an element of child support payments and partial payments are made the payments must be credited first to the non tax deductible child support payments.

"Do I Have to Pay Tax to the IRS on Alimony Payments I Receive?

Alimony is an amount paid by a person to a spouse or former spouse under a divorce or separation agreement. Usually, these alimony payments provide support to a spouse or former spouse. Alimony does not include child support payments or property settlement amounts.

Alimony received is generally taxable income on the recipient's IRS tax return in the tax year it is received; but there are exceptions. Generally your spouse or former spouse may deduct alimony paid on his or her IRS tax return in the tax year paid. Different rules apply to alimony agreements entered into or modified at different times.

If the payments are tax deductible to your former spouse on his/her IRS tax return they are taxable to you on your IRS tax return. Partial alimony payments that include both alimony and child support are allocated first to non tax deductible / non taxable child support.

* Form 1040 - Your Tax Return Starting Point. This form contains all the subjects that apply to your tax situation from filing status to underpayment penalty.

* Schedule A (Itemized Deductions) - an extensive list of expenses you are allowed to subtract from your taxable income.

* Schedule B (Interest & Dividends) - information on the income you've earned from interest and the portion of the earnings and profits or dividends you're entitled to.

* Schedule D (Capital Gains) - protecting your profit from the sale of assets like stocks, mutual funds, and real estate.

* Other Forms - additional forms to help you maximize your tax savings.

The Internal Revenue Service's new rules allow corporate officers or duly authoiruzed agents to sign employment tax forms by facsimile, including alternative signature methods such as computer software programs or mechanical devices.

The rules, outlined in Revenue Procedure 2005-39, will reduce the burden on business taxpayers by simplifying employment tax filing and lowering the number of returns rejected by the IRS because of signature issues.

Revenue Procedure 2005-39 applies to the following forms:
Any form in the 940 series, including Form 940, Employer's Annual Federal Unemployment Tax Return (FUTA); Form 941, Employer's Quaterly Federal Tax Return; Form 945, Annual Return of Withholding Federal Income Tax; and Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips.

The deposit threshhold for FUTA tax has been increases form $100 to $500.

"Do I Have to Pay Tax to the IRS on My Hobby Income?"

You must include on your IRS tax return hobby income. Tax deductions for expenses related to hobby income are limited to the amount of hobby income you report on your IRS tax return, and can be taken as tax deductions only if you itemize your tax deductions on IRS tax form 1040, Schedule A. The tax deductions are subject to the 2% AGI floor. If you collect stamps, coins, or other items as a hobby for recreation and pleasure, and you sell any of the hobby collection items, your gain is taxable as a capital gain on your IRS tax return. However, if you sell items from your hobby collection at a loss, you cannot deduct a net loss on your IRS tax return.

"Do I Have to Pay Tax to the IRS on My Independent Contractor Income?"

Lawyers, accountants, an independent contractor, subcontractors, public stenographers, auctioneers, etc., who "have their own business" and work in an independent trade, business, or profession in which they offer their services to the general public, are generally not employees but rather an independent contractor. Their income is taxable and reportable on IRS tax form 1040, Schedule C.

If you carry on a trade or business, except as an employee, you probably have to pay self employment tax (FICA) on your self employment income on your IRS tax return. A trade or business is generally an activity carried on for a livelihood or to make a profit. Self employment can include work in addition to your regular full-time business activities such as a side line business. It also includes certain part-time work that you do at home or in addition to your regular job.

For tax years beginning in 2004 and 2005, percentage depletion on the marginal production of oil or natural gas by independent producers and royalty owners is not limited to taxable income from the property figured without the depletion deduction.

Teenagers/students working at a part-time job won't have any income tax liability providing their investment income for the year is less than $250 and total income is $4,400 or less.

"Do I Have to Pay Tax to the IRS on My Partnership Income?"

A partnership generally does not pay income tax to the IRS. A partnership files an annual information tax return with the IRS, IRS tax form 1065, stating all items of taxable income and tax deductions. Included is the IRS tax form Schedule K-1 which details each partner's share of taxable income and tax deductions. If you are a member of a partnership that carries on a trade or business, your distributive share of partnership icome or loss is taxable to you on your IRS tax return. Partnership that is not withdrawn increases the value of your capital account.

"Do I Include Income From Foreign Sources On My Tax Return?"

Foreign source income includes earned and unearned income, such as:

* Wages and tips

* Interest

* Dividends

* Capital Gains

* Pensions

* Rents

* Royalties

An important point to remember is that citizens living outside the U.S. may be able to exclude up to $80,000 of their 2005 foreign source income if they meet certain requirements. However, the exclusion does not apply to payments made by the U.S. government to its civilian or military employees living outside the U.S.

For more information, check out IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. It’s available on the IRS Web site at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

The self employment tax rate on net earnings remains the same for 2005. This rate, 15.3% is a total of 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance). The maximum amount subject to the social security part for tax years beginning in 2004 increases to $87,900. All net earnings of at least $400 are subject to the Medicare part.

If you had net earnings from self employment of $400 or more you are probably liable to the IRS for self employment tax.

Net earnings are calculated by subtracting ordinary and necessary trade or business expenses from your total self employment income. You are self employed for this purpose if you are a sole proprietor, an independent contractor, a member of a partnership, or are otherwise in business for yourself.

You can be liable for paying self employment tax to the IRS even if you are currently receiving Social Security benefits. you had a small profit or net loss from your business but want to pay into the Social Security system, you may be eligible to file IRS tax form 1040, Schedule SE and use one of the two optional methods to compute your net earnings from self employment. See IRS tax Publication 533, Self-Employment

"Do I Have to Pay Tax to the IRS on My Sole Proprietorship Income?"

A sole proprietorship is the simplest form of business organization. The sole proprietorship has no existence apart from the owner. The sole proprietorship assets are the owner's personal assets, and the sole proprietorship liabilities are the owner's personal liabilities, and the sole proprietorship ends when the owner dies.

You do not have to carry on a regular full-time business to be a sole proprietorship. Part-time work, such as a side line business in addition to your regular job, may be a sole proprietorship.

The useful life of computer software leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, government unit, or a foreign person or entity, cannot be less than 125% of the lease term.

"Is it true that the Military Received Some Tax Relief While on Duty?"

Yes, it is called the Military Family Tax Relief Act of 2003. This legislation made the following changes:

1. The 5-year period that can qualify you to exclude the gain from the sale of your main home to be suspended by certain members of the uniformed services or Foreign Service while on official extended duty.

2. The tax-free treatment of the death gratuity paid to survivors of U.S. military members for deaths occuring after Sept. 10, 2001 increased from $6,000 to $12,000.

3. Amounts received as a qualifying military base realignment and closure fringe benefits are now excluded from taxable income.

4. The rules for filing a return that apply to members of the armed forces in a combat zone are extended to include members of the armed forces in a designated contingency operation.

5. Qualified military benefits include benefits under dependent-care assistance programs.

6. The additional tax on distributions from a Coverdell education savings account or qualified tuition plan does not apply to a distribution made on account of attendance at a military academy.

7. Reserve component members can claim an above-the-line deduction for overnight travel expenses such as transportation, loadging, and meals.

"What is the Maximum Amount of Mortgage Debt Allowed on a Residence?"

The maximum amount of mortgage debt on your residence is $1 million, or $500,000 in the case of a married individual filing a separate return.

Qualified production activities income is the excess, if any, of your gross receipts from the activities described above or over the sum of:

1. The cost of the goods sold that are allocable to such receipts.

2. Other deductions, expenses, or losses directly allocable to such receipts, and

3. A ratable portion of other deductions, expenses, and losses that are not directly allocable to such receipts or another class of income.

Qualified leasehold improvement property and qualified restaurant property placed in service after Oct. 22, 2004 and before Jan. 1, 2006, is 15-year property under MACRS.

You generally must depreciate the carryover basis of an acquired property over the remaining recovery period of the property exchanged or involuntarily converted.

For purposes of meeting the placed in service rule for the special depreciation allowance, multiple units of property sold after June 4, 2004, that are subject to the same lease generally qualify as placed in service on the date of sale if sold withing 3 months after the final unit is placed in service.

For the purposes of the 100 shareholder limit, members of a family may elect to be treated as a shareholder.

1. You sell or trade stock in a corporation that qualifies as an empowerment zone business during substantially all of the time you held stock.

2. You acquired the stock after Dec. 21, 2000.