Chapter I

Introduction
Control Your Financial Future
No one but you can better track
the expenses you had during the year.

“ I cannot live without books.” –Thomas Jefferson

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Many people do not realize the excellent write-offs they have through their place of work and the great opportunity they have to pay themselves a huge refund from the government each year. The survey that was completed on this area shows only 12% of individuals in management knew of such tax breaks. Please read carefully the following pages, and be sure to take the necessary steps this year so you can also receive the refund you deserve from our federal and state governments.

Please Note: This information should only be used to help you in planning the preparation of your taxes and not to be expected to completely cover all of your individual tax benefits or how to complete your tax returns.

Normal year-end tax planning strategies will not necessarily work due to the complex changes that occur each year. Each individual will need to look closely at their situation to determine whether to accelerate or postpone income and whether to claim deductions or hold them. There are some general guidelines that apply.

In general, deductions will be worth more this year than in later years. Income taxed in the top tax brackets will be taxed at a lower rate in the coming year. The exception to this is if there are significant capital gains or tax shelter losses. In such situations, a careful review and evaluation should be made of your potential tax status.

Many deductions are no longer available since the 1986 Tax Reform and other more minor reforms made since. Look carefully before taking a deduction.

1) Medical expenses anticipated in the current year should be tracked to meet or exceed the 7.5% floor.
2) Consumer debt should be paid off. Consolidating your personal loans into a home equity loan on your personal residence is a wise strategic move so long as the loan does not exceed your original cost plus improvements to the home. Interest rates being near their low point causes this move to be extremely wise.
3) Refinance your residence for any large medical bills or educational expenses to be incurred within a reasonable amount of time on incurring the loan. Use funds you would have otherwise used for these purposes for investments.
4) Control payments for items falling into the miscellaneous expense category, and keep good records of these payments. Subscriptions to investment newsletters and related investment services are not deductible at this time. All tax information is deductible.
5) Review your IRA and Roth IRA contribution. You may be disqualified in a particular year.

Previous tax reform bills created sweeping reforms to the tax system. They have done everything but simplify the tax code. The key to minimizing taxes is to do a tax projection for this year and next year to determine what combination of income and deductions will minimize your taxes for each of these years. Tax planning in this matter will allow you to determine if you have any income or deductions that can be shifted from one year to another. We have provided below some general guidelines; however, each individual will have exceptions:

1 ) Postpone income—Income will generally be taxed at reduced rates this year and even lower rates next year. It is best to shift discretionary income to next year if it will be taxed at a lower rate next year. The exception is if the reduced deductions and other income causes your effective tax rate to be higher in the next year.
2) Take long-term capital gains—Normally, the maximum tax on long-term capital gains is at 20% for the current year, with 28% on certain collectibles sold. Preparing a tax projection for this year and next year is the best way to determine the strategy to minimize taxes. If the investment is a good investment and you intend to hold it for several more years, selling for tax benefits right now may not be the right move.
3) Accelerate medical expenditures—Today, the floor is 7.5%. If you have incurred medical expenses which exceed or come close to the 7.5% floor, schedule a checkup, buy new glasses, or take elective surgery which you were planning to do next year. Caution: The expense must have been incurred this year or earlier. Next year's services cannot be deducted this year (i.e., expenses are on a calendar year basis for most individual taxpayers).
4) Pay off consumer loans—Beginning in 1987, deductibility of interest on a car, credit cards, and personal loans was phased out. (Interest on your home loan is not affected.) Pay off these loans by taking out a home equity loan. Do not borrow more than the amount you originally paid for the home plus improvements, regardless of how much it has appreciated. Note: Interest on business use of car, credit cards, bank loans, and education loans is still deductible. Don't miss these deductible interest payments!
5) Big ticket items—Sales tax on an auto, boat, or any other big-ticket items is not deductible.
6) Prepay business-related expenses—Unreimbursed business expenses, tax planning and preparation fees, professional or union dues, uniform costs, safety deposit boxes, and other miscellaneous deductions will only be deductible from now on to the extent miscellaneous deductions exceed 2% of adjusted gross income. Subscribe on a long-term basis to business and tax related periodical subscriptions before the end of this year and get a discount for multiple-year subscriptions as an added bonus. (On a cash basis,
these types of costs are deductible in the year paid.)
7) Accelerate charitable contributions—You may be subject to tax on donations of appreciated property this year. Check into this on each specific tax rule regarding such donations.
8) Restructure your tax shelter contributions—The deduction for losses on passive investments in which you do not materially participate was phased out beginning in 1987. This year passive losses are either not deductible on passive income or limited on rental property. Do not necessarily rush to sell the limited partnerships or rentals that have been giving you losses to reduce your income. Selling those investments now may be costly. Your wisest move may be to acquire new passive investments that are structured to
provide a profit which can be used to offset the passive losses. Unleveraged real estate partnerships are an excellent example of such an investment.
9) Pay back taxes—Local taxes are deductible in the year you paid them. Try to pay these back years in full for all years at once to be able to take a deduction on your federal tax return.

A study by the United States Department of Health and Human Services claims 96% of American citizens will not reach financial independence. The Internal Revenue Service tells us 85% of American citizens that reach the age of 65 won't have $250 in the bank! By keeping track of your expenses in your profession, you can substantially increase your take-home pay and actually become wealthy with a financial plan. Constantly review your taxes and how to reduce them. Let's get started on the specifics of this book and help you become knowledgeable about your tax write-offs and bring you closer to financial independence.

Please take some time on this schedule and find out where you are. In what tax bracket are you? This tax rate schedule is for your federal tax only. You would need to add in your particular state tax as well to get an idea of where you stand in tax payments.

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