tax strategy

New rules have given the IRS even more power in striking down transactions that save taxes. The issue is something called “economic substance.” Basically, the doctrine of economic substance means that the tax strategy must have an economic reason, not just a tax reason.

In 2006, the IRS won an additional $62 million in taxes from a single corporate transaction that flunked the economic substance test. So, how can you make sure the strategy you’re using will pass IRS muster?

There has been a lot of talk about what changes we can expect as tax provisions expire over the next few years and a new administration takes the White House.

It looks like there is one consensus: raise individual income tax rates and cut corporate tax rates.

The IRS just released the results of its study on the consequences of the 2004 American Jobs Creation Act. For one year, American corporations had one year to bring back overseas income at a very low 5.25%. Normally the rate would have been 35%.

Since I changed my program to do reviews of tax returns up front for free, I’ve seen a lot of different strategies (or lack thereof).

I’ve been doing this a lot of years now. I think I might have been the first to come up with the term “Tax Strategist.” And while I wasn’t the first to talk about tax loopholes, I was the first person to get it trademarked and then registered. (Diane Kennedy’s Tax Loopholes® ) So, it’s interesting to go back and look at the differences in the plans I see come in now.

I have a new client who was a victim of one of these “tax strategy” companies that charge huge fees and don’t sign returns. In this particular case, the “tax strategy” company just folded up their tent and ran away. Now my client is left trying to sort out the aftermath. Unfortunately, I think the big fee that they paid to this company is the least of their troubles.

How do you know whether the person giving you tax advice is a shyster or a strategist?

Here are the problems that I saw from this guy touting himself as a “tax doctor”.

The latest tax cutting bill from Congress reminds me of 2001. The Economic Stimulus Act is designed to hopefully jump start the economy by giving tax cuts to business owners and put some spending cash in the hands of consumers, just like in 2001. In 2001, the country was reeling from the change from dot com to dot bomb. Now, in 2008, the country is reeling from the change of real estate boom to real estate bust. Or rather, the fall out from the mortgage meltdown.

Now that I’m doing tax strategies and we’re advertising DKAffiliated, we’re getting a LOT of interest from you. It seems that we’ve received at least one email from every part of the country saying, more or less, the same thing: “I can’t find anyone in my area who understands my business and/or investments. Can you help?”

Where do we draw the line between private, protected information and public information? Where tax strategies are concerned, there is no line - at least not according to Congress.

I’ve spent the last 4 years writing books, building websites and developing a massive non-profit fund-raising effort. My company still got requests every day for personalized tax strategies, but for the past 4 years we’ve had to say that I no longer do them.

Something I often see when reviewing client files are very complicated tax strategies that involve moving money from one entity to another. There can be some great tax advantages to these complicated strategies, and I’ve made plenty of similar recommendations.

I’m betting that most of you have heard the wildly-successful advertising campaign, “What Happens in Vegas, Stays in Vegas.” That same idea applies to tax deductions as well!