How to Pay Zero Taxes 2013: Your Guide to Every Tax Break the IRS Allows

By Jeff A. Schnepper

Hundreds of DEDUCTIONS, CREDITS, and EXEMPTIONS--updated for 2013!

Fully updated for the new tax year, How to Pay Zero Taxes 2013 reveals all the secrets for keeping as much of your money as the law allows.

How to Pay Zero Taxes 2013 lays out simple strategies that are sure to save you money--this year, next year, and beyond. From converting personal expenses into business deductions to avoiding--or surviving--an IRS audit, Jeff Schnepper's guide comprehensively covers more deductions than any other tax book, all conveniently organized into six easy-access categories: exclusions, credits, general deductions, "below the line" deductions, traditional tax shelters, and super tax shelters.

How to Pay Zero Taxes provides everything you need to know about:

• New tax laws
• Exemptions, credits, and exclusions
• Special capital gains and dividends rules
• Increased IRA and retirement plan limits
• Job hunting and relocation expenses
• Theft and casualty losses
• Child care and elder care
• Educational and Roth IRAs

• Language: English
• Publisher: McGraw-Hill Education
• Release date: Dec 7, 2012
• ISBN: 9780071803632

Book preview

Also by Jeff A. Schnepper

How to Pay Zero Estate Taxes

Inside IRS

Professional Handbook of Business Valuation

New Bankruptcy Law

Can You Afford to Retire?

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This book is normally dedicated to my mogul,

Barbara, who taught me how to love, and to

my children, Brandy, Joshua, Allison, Mario, and Jonelle,

who gave me five more reasons why.

If I had the choice of doing it all over

again, I would begin by loving you again.

Also normally dedicated to the memory

of Frisco T. D. Schnepper, Tiger T. C. Schnepper,

and to Fred and Bruno, who now give me paws,

BUT

Forget it, guys ... This one’s

for my Bianca Rose Conlin,

and her brothers Drew Ethan Conlin, Tyler Evan Conlin, and Spencer

Henry Conlin who redefined my universe!

Contents

ACKNOWLEDGMENTS

CHAPTER 1

Tax Insanity

CHAPTER 2

Is It Legal?

CHAPTER 3

How Our Tax System Works

CHAPTER 4

Exclusions—Tax-Free Money

A   Alternatives to Earned Income

1. Hospitalization Premiums

2. Group Life Insurance Premiums

3. Group Legal Services Plans

4. Accident and Health Plans

5. Employee Death Benefits

6. Merchandise Distributed to Employees on Holidays

7. Expenses of Your Employer

8. Meals and Lodgings

9. Employee Discounts

10. Workers’ Compensation

11. Cafeteria Plans

12. Dependent Care Assistance Program

13. Employer Educational Assistance

14. Employee Awards

15. Clergy Housing Allowance

16. Miscellaneous Fringe Benefits

B   Donative Items

17. Gifts, Bequests, and Inheritances

18. Scholarships and Fellowships

19. Prizes and Awards

C   Investors

20. Interest on State and Municipal Obligations

D   Benefits for the Elderly

21. Public Assistance Payments

22. Social Security and Other Retirement Benefits

23. Annuities

24. Sale of Your Home

E   Miscellaneous Individual Exclusions

25. Carpool Receipts

26. Damages

27. Divorce and Separation Arrangements

28. Life Insurance

29. Qualified State Tuition (§529) Programs

30. Your Home—The Mother of All Tax Shelters!

31. Disabled Veteran Payments

32. Exclusion of Income for Volunteer Firefighters and Emergency Medical Responders

33. Unemployment Benefits

34. Homeowner Security

35. Reimbursed Costs to Parents of Children with Disabilities

36. Wrongful Conviction and Incarceration

37. Restitution Payments

38. Frequent Flier Miles

F   Schedule of Excludable Items

CHAPTER 5

Credits—Dollar-for-Dollar Tax Reductions

A   Estimated Tax and Withholding Exemptions

B   Credits

39. The Earned Income Credit

40. Excess Social Security Tax

41. The Child and Dependent Care Credit

42. Credit for the Elderly or Permanently and Totally Disabled

C   Special Credits

43. Work Opportunity Credit (Formerly Targeted Jobs Tax Credit)

44. Welfare to Work Credit

45. Research Tax Credit

46. Orphan Drug Tax Credit

47. Adoption Assistance

48. Hope Scholarship Credit

49. American Opportunity Tax Credit

50. Lifetime Learning Credit

51. Child Tax Credit

52. Disability Credits

53. Health Insurance Credit

54. Saver’s Credit

55. Small Employer Credit

56. Electric Vehicle Credit

57. Credit for Residential Energy Efficient Property

58. Energy Saving Home Improvement Credit

59. Energy Efficient Appliances

60. Hybrid Vehicles Credit

61. Telephone Tax Refund

62. First-Time Home Buyer Credit

63. Making Work Pay Tax Credit

64. Plug-in Electric Drive Vehicle Credit

65. Plug-in Electric Vehicle Credit

66. Conversion Kits

67. Treatment of Alternative Motor Vehicle Credit as a Personal Credit Allowed against AMT

68. Small Business Health Insurance Credit

69. Foreign Tax Credit

CHAPTER 6

Above the Line Deductions

A   Deductions for Adjusted Gross Income

70. Trade and Business Deductions

71. Employee Business Expenses of Actors and Other Performing Artists

72. Employee Business Expenses

73. Alimony

74. Interest on Qualified Education Loans

75. Retirement Plan Payments

76. Self-Employment Tax

77. Health Insurance Deduction for Self-Employeds

78. Moving Expenses

79. Clean Fuel Vehicles

80. Deduction for Qualified Higher Education Expenses—Tuition and Fees

81. Legal Fees

82. Classroom Materials

83. Medical Savings Accounts (Archer Medical Savings Accounts)

84. Health Savings Accounts

85. Sales Tax Deduction on Motor Vehicles

CHAPTER 7

Below the Line Deductions

A   The Importance of Filing Status

B   Tax Planning with Itemized Deductions

86. Medical Expenses

87. Income Taxes

88. Real Property Taxes

89. Personal Property Taxes

90. Interest

91. Mortgage Insurance

92. Charitable Contributions

93. Casualty Losses

94. Theft Losses

95. Miscellaneous Trade and Business Deductions of Employees

96. Job Loss Insurance

97. Travel Expenses

98. Transportation Expenses

99. Meals and Entertainment Expenses

100. Gifts

101. Reimbursable Employee Business Expenses

102. Educational Expenses

103. Limit on Itemized Deductions

C   Schedules of Deductions

104. Medical Deductions

105. Deductible Taxes

106. Charitable Deductions

107. Casualty and Theft Loss Deductions

108. Miscellaneous Deductions

109. Employee Miscellaneous Deductions

110. Investor Deductions

CHAPTER 8

Traditional Tax Shelters

A   Deferral and Leverage

111. Real Estate

112. Fees in Public Real Estate Partnerships

113. Oil and Gas

114. Equipment Leasing

115. Single-Premium Life Insurance

116. Cattle Feeding Programs

117. Cattle Breeding Programs

118. Tax Straddles

119. Art Reproduction

120. Noncash Gift Shelters

121. Municipal Bond Swaps

B   How to Analyze a Tax Shelter

122. Getting Out of the Tax Shelter

123. Master Limited Partnerships

124. Abusive Shelters

CHAPTER 9

Super Tax Shelters

A   Family Shifts

125. Unearned Income of Minor Children

126. Outright Gifts

127. Clifford Trusts

128. Interest-Free Loans

129. The Schnepper Shelter: Gift Leasebacks

130. The Schnepper Deep Shelter

131. Family Partnerships

132. Family Trusts

133. The Schnepper Malagoli Super Shelter

134. Employing Members of the Family

135. Author’s Delight

B   Running Your Own Business

136. Your Home

137. Your Car

138. Meals and Entertainment

139. Travel and Vacation

140. Gifts

141. Advertising

142. Deductible Clothes

143. Creative Deductions—Busting the IRS

144. Medical Premiums

145. Borrowing from Your Company

146. Miscellaneous Corporate Advantages

CHAPTER 10

Investment Planning to Save Taxes

147. Short Sales

148. Broad-Based Index Options and Regulated Futures Contracts (RFCs)

149. Wash Sales

150. Premiums on Taxable and Tax-Exempt Bonds

151. Original Issue Discount (OID)—Taxable Bonds

152. Original Issue Discount (OID)—Tax-Exempt Bonds

153. Market Discount

154. Municipal Bond Swaps

155. Employee Options—Nonqualified

156. Incentive Stock Options

157. Year-End Stock Sales

158. Fund Strategies

159. Dividends

160. Tax-Exempt Income

161. Old Prices

162. Alternative Minimum Tax for Individuals

163. U.S. Savings Bond Exclusion

164. Madoff Losses

CHAPTER 11

Last-Minute Tax Planning

165. Defer Taxes

166. Accelerate Expenses

167. Accelerate Special Deductions

168. Dependents and Personal Exemptions

169. Phase-out of Exemptions

170. Timing Strategies

171. Retirement Plans

172. Individual Retirement Plans (IRAs)

173. H.R. 10 or Keogh Plans

174. Marital Status

175. The Goldinger Deferral

CHAPTER 12

The Economic Growth and Tax Relief Reconciliation Act of 2001

176. Marginal Rate Reductions

A   Individual Income Tax Rate Structure

B   Phase-out of Restrictions on Personal Exemptions

C   Phase-out of Itemized Deductions

177. Tax Benefits Relating to Children

A   Increase and Expand the Child Tax Credit

B   Extension and Expansion of Adoption Tax Benefits

C   Child Care Credit

178. Marriage Penalty Relief Provisions

A   Standard Deduction Marriage Penalty Relief

B   Expansion of the 15 Percent Rate Bracket for Married Couples Filing Joint Returns

C   Marriage Penalty Relief and Simplification Relating to the Earned Income Credit

179. Education Incentives

A   Modifications to Education IRAs

B   Private Prepaid Tuition Programs; Exclusion from Gross Income of Education Distributions from Qualified Tuition Programs

C   Exclusion for Employer-Provided Educational Assistance

D   Modifications to Student Loan Interest Deduction

E   Eliminate Tax on Awards Under the National Health Service Corps Scholarship Program and the F. Edward Hebert Armed Forces Health Professions Scholarship and Financial Assistance Program

F   Deduction for Qualified Higher Education Expenses

180. Pension and Individual Retirement Arrangement Provisions

181. AMT Relief

182. Health Insurance for Self-Employed

183. Income Tax Treatment of Certain Restitution Payments to Holocaust Victims

184. Estate, Gift, and Generation-Skipping Transfer Tax Provisions

A   Phase-out and Repeal of Estate and Generation-Skipping Transfer Taxes; Increase in Gift Tax Unified Credit Effective Exemption

B   Expand Estate Tax Rule for Conservation Easements

C   Modify Generation-Skipping Transfer Tax Rules

D   Availability of Installment Payment Relief

185. Sunset

CHAPTER 13

The Job Creation and Worker Assistance Act of 2002

186. Bonus Depreciation

187. Net Operating Losses

188. Classroom Materials

189. Electric Vehicle Credit

190. Work Opportunity Tax Credit

191. Welfare to Work Tax Credit

192. Archer Medical Savings Account

193. Liberty Zone Benefits

CHAPTER 14

The Tax Relief Reconciliation Act of 2003

A   Rate Reductions

B   The Marriage Penalty

C   The Alternative Minimum Tax

D   Child Tax Credit

E   Dividends/Capital Gains

F   Deduct Your SUV—Election to Expense

CHAPTER 15

Income Averaging and Hurricane Tax Breaks

CHAPTER 16

2006 Tax Reform

A   The Tax Increase Prevention and Reconciliation Act of 2005

B   The Pension Protection Act of 2006

C   Tax Relief and Health Care Act of 2006

CHAPTER 17

Tax Reform, 2007–2008

A   The Mortgage Forgiveness Debt Relief Act of 2007

B   The New Debt Relief Act

C   The Economic Stimulus Act of 2008

D   The Heroes Earnings Assistance and Relief Act of 2008

E   The Housing and Economic Recovery Act of 2008

CHAPTER 18

2009 Tax Changes

194. Making Work Pay Tax Credit

195. Reducing the COBRA Bite

196. First-Time Home Buyer Credit Expanded

197. American Opportunity Tax Credit

198. Energy Credits

199. Plug-in Electric Drive Vehicle Credit

200. Plug-in Electric Vehicle Credit

201. Conversion Kits

202. Treatment of Alternative Motor Vehicle Credit as a Personal Credit Allowed against AMT

203. AMT Patch

204. Earned Income Credit

205. Child Tax Credit

206. Section 529 Plans

207. Unemployment Benefits

208. Qualified Transportation Benefits

209. Estimated Taxes

210. Motor Vehicle Sales Tax

211. Business Depreciation

212. NOL Carrybacks

CHAPTER 19

More Tax Changes

A   The Hiring Incentives to Restore Employment (HIRE) Act of 2010

B   The Patient Protection and Affordable Care Act

C   Small Business Jobs Act of 2010

D   The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010

CHAPTER 20

How to Avoid/Survive an IRS Audit

APPENDIX A

Cost Recovery/Depreciation

APPENDIX B

Business Use of Listed Property

APPENDIX C

Auto Leases

INDEX

Acknowledgments

I wish to thank Nancie Crook, Barbara Thomassian, Pat Berenson, Ronnie Smith, and Anne McVay, without whom this book could not have been written, and the U.S. Congress and the IRS, without whom this book wouldn’t have been needed.

I also want to thank Sayes B. Block and Paul Malagoli, CLU, AEP, and ChFC, for their encouragement and professional guidance; Sandi Walker, April Napolitano, and Anne Rigney, for their typing and editorial assistance; my editors at McGraw-Hill, Mary Glenn, Jane Palmieri, Tania Loghmani, and Zach Gajewski; and Sri Haran, CPA, Robert Doyle, Steve Leimberg, Jeff Kelvin, Joel Petchon, John McFadden, Kenn Tacchino, Bill Rotella, George Hasenberg, Frank Kesselman, John Oxley, Stephen D. Leightman, Noeleen McLoughlin, Julian Egnaczyk, Ed Caldwell, CPA, Al Blum, Brian Hans, Harry K. Sorenson, CPA, Patrick O’Rouke, CPA, S. Scott Davison, Zulma Lombardo, Morris Abraham, Richard and Janice Schank, Mark S. Fineberg, CPA, Anthony Lyras, and Ron Campbell for their professional assistance; and Simba T.C. Schnepper Conlin, Bruno T.D. Conlin, and Fred T.C. Schnepper, who give me reason to paws. Special thanks to Stephanie Davison-Thompson and Brian Lance for research and editorial assistance and to Bill Fox for his investment insights.

CHAPTER 1

Tax Insanity

Our income tax system is overly complex. It distorts investment decisions and encourages people to put money into schemes to reduce their tax bills instead of into enterprises to create jobs and help our economy grow.

BILL BRADLEY, New Jersey senator (1984)

"The words of such an act as the Income Tax ... merely dance before my eyes in a meaningless procession: cross-reference, exception upon exception—couched in abstract terms that offer no handle to seize hold of—leave in my mind only a confused sense of some vitally important, but successfully concealed, purport, which it is my duty to extract, but which is within my power, if at all, only after the most inordinate expenditure of time. I know that these monsters are the result of fabulous industry and ingenuity, plugging up this hole and casting out the net, against all possible evasion; yet at times I cannot help recalling a saying of William James about certain passages of Hegel: that they were, no doubt, written with a passion of rationality; but that one cannot help wondering whether to the reader they have any significance save that the words are strung together with syntactical correctness...."

JUDGE LEARNED HAND, Thomas Walter

Swan, 57 Yale L.J. 167, 169 [1947].

Q: What’s the difference between Obama’s cabinet and a penitentiary?

A: One is filled with tax evaders, blackmailers, and threats to society. The other is for housing prisoners.

—DAVID LETTERMAN

I don’t believe in a law to prevent a man from getting rich; it would do more harm than good.

ABRAHAM LINCOLN

Politicians tax the middle class for the same reason some people rob banks. That’s where the money is.

FORBES MAGAZINE

May 11, 1992

If our current tax strucure were a TV show, it would either be ‘Foul-ups, Bleeps and Blunders,’ or ‘Gimme a Break.’ If it were a movie, it would be ‘Revenge of the Nerds’ or maybe ‘Take the Money and Run.’ And if the IRS ever wants a theme song, mabye they’ll get Sting to do ‘Every breath you take, every move you make, I’ll be watching you.’

PRESIDENT REAGAN, in remarks to students at Northside High School, Atlanta, Georgia, June 6, 1985

WHAT’S NEW FOR 2012

SHAMEFUL!

I don’t want to get on a rant here but our Congress has all the character of an egg yolk frying on the asphalt road behind my grandfather’s barn on a hot summer day. Since when did having a three-digit IQ disqualify someone from running for office? Are our choices limited only to the left-hand leg of the bell curve? As we crawl out of a recession, I’m reminded of my 92-year-old mother-in-law’s comment, "Recession? I lived through the depression of the 1930s and this is a depression." Does anybody think a sane business person would take the risk and invest and expand when the tax rules keep changing (maybe) and the cost of employee healthcare is subject to a new law that nobody understands and few agree upon.

As I write this, we approach what some call a fiscal cliff and others refer to as tax Armageddon. If Congress does nothing, we are facing the biggest tax increase in the history of the Internal Revenue Code. Between the expiration of the Bush tax cuts (which were extended in 2010 for 2 years through 2012 and the expiration of the extenders, deductions will be lost, rates will increase, credits will disappear, and the marriage penalty will return in full force. The maximum tax on dividends will jump from 15 percent to as much as 43.4 percent! According to the Tax Policy Center, four out of five U.S. households would face an average of $3,701 more in taxes. Add mandated spending cuts to this tax hike and on January 1, 2013, we’re scheduled to suffer an $8 trillion hit!

Here’s the part that really gets me angry. Everybody agrees on what should be done. But nobody in Congress has the backbone to do anything until after the November elections. So once again politics is trumping economics and sanity. Once again hundreds of millions of dollars will be wasted on reprogramming IRS computers and tax preparation programs at the last minute. More of your tax money will be spent redoing IRS forms. It’s hard to play the game if the rules keep changing. It’s even harder if the rules change in December when the year is already up.

According to the Joint Committee on Taxation in March 2012, the prior cost of kicking the can down the road for tax cuts, extenders, estate tax, etc. through fiscal year 2012 is 967.7 billion in wasted dollars. Add to that decreased stability and the inability to properly budget into the future, and you have a framework for economic impotence.

Don’t blame the IRS. Commissioner Doug Shulman has warned, If Congress can’t act by the end of the year, and even starts to think about retroactive legislation of things like the AMT, which have already expired, you could have a real disaster in the filing season, where there is total confusion, where some people are filing under one law and others under another.

What else happened since last year? Well, the IRS did have some issues:

• The IRS delayed tax refunds early this filing season for 7.8 million tax returns because of fraud detection problems with its computer system.

• It was revealed that the IRS paid $3.2 billion in erroneous American Opportunity Tax Credits during the first 5 months of 2010 to 2.1 million taxpayers.

• The Service either failed to notify or incorrectly notified 61,427 tax payers about their need to start repaying the First-Time Home Buyer Credit.

• The Tax Inspector General for Tax Administration (TIGTA) reported that the IRS failed to securely operate its computer network... . The TIGTA also found that the IRS needed to gain tighter control over its wireless technology and improve security to protect data from computer attacker exploits. Weaknesses in the Internal Revenue Service’s financial and tax processing systems continue to jeopardize the confidentiality, integrity, and availability of sensitive taxpayer information. No surprise that the number of fraudulent returns jumped to 2.2 million in 2011, up from just 457,369 in 2009.

• Somebody got the math wrong. The IRS sent out 8.6 million math error notices, but almost 138,000 taxpayers disputed the computer-generated adjustments.

• Tax returns that were incorrectly prepared by IRS volunteers, if filed, would have caused taxpayers to pay almost $10,000 more than they owed and would have kept them from receiving legitimate refunds of $4,000 according to a TIGTA study. Of the 36 returns audited, only 14 were prepared correctly.

• Another TIGTA study found more than $697 million in wrongly claimed investment theft deductions causing a revenue hit to the Treasury of over $41 million.

• The percentage of customer service phone calls that actually reached IRS representatives in fiscal year 2012 fell to 61 percent, down from 70.1 percent in 2011. That’s what happens when Congress cuts the IRS budget by 2.5 percent, and the IRS responds by eliminating 3.1 percent of its full-time employees.

• TIGTA also found the IRS’s new e-file system error prone and still unable to ensure the accurate processing of individual tax returns.

There was some good news:

• For 2011, the IRS scored a 73 percent on the American Customer Satisfaction Index survey, way up from only 32 percent in 1998.

• The IRS was ranked third out of 15 large agencies in the Best Places to Work in the Federal Government survey for 2011, up from eighth place as recently as 2008.

• Why is it so much fun to work at the IRS? It may have something to do with a forfeiture relating to a Nevada brothel. I guess the job with the Secret Service was already taken.

• According to the TIGTA, IRS inability to detect identity theft could result in the issuance of $21 billion in fradulent refunds over the next 5 years.

The best tax tip of the year? A Cleveland waitress received an erroneous tax refund of $434,712. She had requested a refund of only $754.

WE SURVIVED 2011

Senator Olympia Snowe (R-Maine) hit the nail on the head in 2011 when she said, It’s all political theater. It’s not about legislating anymore. It’s all for the next election that’s coming very shortly. That pretty much described 2011. But we did have an interesting year:

• A Joint Tax Committee Report revealed that 51 percent of households not only owed no federal income tax for 2009, but that 30 percent of all households got back a check for their full income tax bill and more resulting from refundable credits.

• In January the IRS launched IRS2Go, a free application for the iPhone and Android market, an app that lets users check their refunds and access help lines over the phone.

• Having trouble keeping up with changes to the tax law? In April 2011, IRS Commissioner Shulman reported that there have been about 3,500 tax law changes since 2000.

• More than half of small businesses spend at least $5,000 and 40 hours per year just to file their taxes according to a National Small Business Association survey.

Our government tax enforcers are still having problems:

• The IRS improperly transferred hundreds of millions of dollars in taxpayer payments to its Excess Collections File.

• A March Government Accounting Office (GAO) report revealed that taxpayer data are at risk of being disclosed, modified, or destroyed because of material weaknesses in IRS internal control systems. About 74 percent of previously reported information security weaknesses still remained unresolved or unmitigated.

• A June 2011 report by the Treasury Inspector General for Tax Administration (TIGTA) found that IRS databases are increasingly being targeted by attackers and that the IRS needs to increase its security diligence.

• An August 2011 TIGTA report showed that only 19 percent of written inquiries from taxpayers received timely and accurate responses. In another study, the percent dropped as low as 8 percent.

• The TIGTA reported that the IRS has been doing a better job of detecting and preventing fraudulent returns. But, I guess that doesn’t apply to prisoners and those with kids. The number of fraudulent tax returns filed by state and federal prisoners in the United States doubled from 18,103 in 2004 to 44,944 in 2009. That allowed $295.1 million in illegal tax refunds. The IRS reported that between 23 and 28 percent of earned income tax credits (EITCs) each year are issued erroneously. For 2009, that was $13 billion in improper payments.

• The IRS didn’t do much better with cars or other credits. As much as 20 percent of the $163.9 million in credits claimed for electric and alternative motor vehicles was claimed in error according to a February TIGTA report. The IRS also allowed 125,762 individuals to erroneously receive $111.4 million in stimulus-related tax credits. If this is doing better, how bad was it before?

• The TIGTA did find that the IRS needs to improve the security of a Web portal used by preparers to electronically file returns. I guess the IRS failed to show its security concerns when it awarded a tax processing contract to a company that admitted to having information on 1.5 million payment card-holders and 1.1 million Social Security numbers stolen by computer hackers.

• The TIGTA found that the IRS also divulged personal taxpayer records and information over the phone without properly authenticating taxpayer identity.

• Because of multiple use of taxpayer identification numbers, the IRS accepted $380 million in erroneous tax exemptions and tax credits in 2007.

• In July 2011, the TIGTA reported that the IRS may have violated over 32,000 taxpayers’ tax lien rights with improper notifications.

• The IRS found over 245,000 identity theft incidents last year. Since 2004, there have been 470,000 incidents of identity theft affecting more than 390,000 taxpayers.

• TIGTA auditors found that taxpayers had to wait an average of one hour to receive assistance as per an August 2011 report.

• The good news—the IRS provides a special toll-free phone line for hearing and speech impaired taxpayers. The bad news—the IRS ignores most of the calls! Out of the 350,000 calls made to the special line, only 339 were responded to by the IRS.

• Really? The Center for Plain Language gave the IRS its Grand ClearMark Award for clear language in its simplified notices, as required under the Plain Writing Act signed in October 2010.

2010 WAS WHEN ...

2010 was a great year for tax preparers. Congress solved any and all economic and social problems with multiple changes in the tax code while shamefully delaying any action on the estate tax and tax extenders by playing politics rather than providing clear and long-term rules for playing the tax game. But, we had fun:

• It’s become harder and harder to reach executive level in government service if you actually pay your taxes. New York Congressional representative Charlie Rangel was forced to resign as Chairman of the House Ways and Means Committee, which writes all our tax rules, because he couldn’t follow them. I guess anybody could forget to report $75,000 in rental income.

• Lael Brainard was nominated and approved to be undersecretary for international affairs despite late real estate tax payments, questionable home office deductions, late unemployment insurance payments for household employees, and questions as to their legal work status.

• You didn’t have to be a senior executive to be bad. IRS employee Lattice Murray pleaded guilty to stealing cash and mail addressed to the IRS facility where she worked.

• IRS revenue officer Albert Bront threatened to kill tax agents who investigated his fraudulent returns and was hit with a 16-count indictment.

• IRS employee Colette Browne was charged with filing 32 fraudulent returns and embezzling over $100,000.

• While it helps, being on the government teat wasn’t a prerequisite for cheating on your taxes. In April 2010, the Department of Justice and the IRS announced fraud charges against 26 New York City tax preparers.

And then there were the successes of the Internal Revenue Service itself:

• A report by the Treasury Inspector General for Tax Administration (TIGTA) found that errors in the Modernized e-Filing system limited its utility and caused it to erroneously reject tax returns. The $78 million MeF Release 6.1 was deployed in February 2010 and subsequently rejected 23 percent of the electronic returns filed.

• The TIGTA in July 2010 found security weaknesses in IRS contractors which placed confidential information at risk of unauthorized access and disclosure.

• The IRS also failed to expeditiously process paper checks resulting in the loss of thousands of dollars in interest for the agency.

• The TIGTA also found $20 million in erroneous credits issued by the IRS under the Making Work Pay program.

• Then there was another $20 million in erroneous refunds issued to nearly 14,000 taxpayers as a result of dishonored and bounced checks for payments.

• Then our tax masters failed to make timely and appropriate lien determinations on more than $1.4 billion in delinquent taxes.

• IRS oversight could have been more focused. At least 130 companies that received federal funds under the Troubled Asset Relief Program (TARP) owed taxes totaling $530.8 million at the time they received government funding.

• The IRS didn’t do much better with home buyer credits. A TIGTA study reported $636 million in bogus claims, including 500 people under age 18 and one home buyer only four years old. One hundred IRS employees filed dubious claims, and 256 filers took the credit for homes at just five addresses. That’s your tax dollars at work with a computer system that won’t work!

• Putting perpetrators in jail didn’t appear to work. 1,295 prison inmates, including more than 200 serving life sentences, received $9.1 million in fraudulent home buyer tax credits. One home was used by 67 inmates to claim credits.

• Taxpayer security is still an issue. The Government Accounting Office (GAO) found control and processing weaknesses that continue to jeopardize the confidentiality, integrity, and availability of financial and sensitive taxpayer information.

But, there was some good news:

• Laura Schultz, a house cleaner in the Denver area, received an erroneous $122,783 tax refund. Being honest, she voided the check and returned it to the IRS. Being a government agency, the IRS then billed her for $80 in taxes owed.

• IRS Commissioner Douglas Shulman revealed that nine out of ten taxpayers use either a tax preparer or third party software to complete their tax returns. Well, that’s good news if you’re a tax preparer or sell software.

• The IRS has established a global high wealth industry division to make sure high wealth taxpayers pay their share. These wealth squads will go after taxes on income from high net worth individuals regardless of its source or country of origin.

• I think the Tax Court got this one right: William C. Naylor, Jr., set up a foundation to store his sperm and, in conjunction with a sperm bank, distribute it to recipients of his choice. The Tax Court found that the foundation did not promote health for the community and denied the foundation status as a tax-exempt organization.

2009 WAS FINE

I’m beginning to understand now. The tax code is the Holy Grail—the answer to all our social and economic problems. If we have a problem, it can be solved through the tax code. Need to sell more cars? Simple! Make the sales tax on their purchase deductible, even for those taking the standard deduction, and create a clunkers credit. But, then again, the government does own General Motors, doesn’t it?

Still, I stand by my argument. Your house went down in value? Stimulate the real estate market by making real estate taxes on a principal residence deductible, again, even for those taking the standard deduction.

Oil prices getting too high again? Stimulate green energy alternatives with credits that reduce your taxes on a dollar-for-dollar basis.

On June 11, 2009, Rep. Carolyn Maloney (D-NY) introduced a bill that would give an employer a 50 percent tax credit on up to $10,000 for qualified breast-feeding promotion and support expeditures. Talk about milking the system.

You can’t say 2009 was a quiet year taxwise.

The Internal Revenue Service released a Taxpayer Attitude Survey on February 2, 2009, which found that 89 percent of Americans think it unacceptable for people to cheat on their taxes. The other 11 percent appear to be headed for the president’s cabinet. President Obama’s pick to lead the Department of Health and Human Services, former Senate Majority Leader Tom Daschle, apologized for owing $140,000 in back taxes and interest. In 1998, he was quoted as saying, Make no mistake, tax cheaters cheat us all and the IRS should enforce our laws to the letter. The president’s selection for the first Chief Performance Officer for the federal government, Nancy Killefer, failed to pay tax on her household help. Both had the good graces to withdraw from consideration. And then there was Ron Kirk, nominated to be the U.S. trade representative. He forgot to report $37,000 in speaking fees assigned to a charity, but he managed to remember taking a deduction for $7,500 of the donation. And then there was $7,400 in pro basketball tickets without a business purpose.

Cheating on his taxes didn’t deter Timothy Geithner from becoming Treasury Secretary. His taxes were found to be underpaid in 2001, 2002, 2004 and 2005. (Nobody looked at 2003?) But then again, who better to put in charge of the IRS than someone who requests a ruling on the law and then ignores it? But, he did pay up, when caught.

Talking about the law, surprise, it changed again! The year started with the American Recovery and Reinvestment Act of 2009 passed on February 17. That was just the beginning. The details of these and other changes, and how to respond to their opportunities, are found in Chapter 18.

GOT STIMULATED IN 2008

Rebate, rebate, rebate!

That’s all we heard in 2008. Once again Congress, in its infinite wisdom, decided that you could be trusted to spend your own money and spent many millions of your dollars to send some back to you—to stimulate the economy. The IRS estimated that the reallocation of hundreds of IRS collection staff members to answering taxpayer telephone calls about the stimulus payments alone would result in up to $565 million in foregone enforcement revenue. According to the Treasury Inspector General for Tax Administration, calculations of the economic stimulus payments by the IRS may have been wrong in nearly 400,000 cases. More than 100,000 self-employed taxpayers received larger checks than they were entitled to and 25,000 clergy members didn’t get the rebates owed to them. The details of this give-back are covered in Chapter 17 as part of the Economic Stimulus Act of 2008.

Chapter 17 also discusses the tax aspects of three more tax law changes—both 2008’s Housing Stimulus Bill and the Hero’s Earnings Assistance and Relief Act, as well as the Mortgage Debt Relief Act of 2007, which was passed and signed into law on December 20, 2007. We also had the Emergency Economic Stabilization Act in October 2008 in response to our economic and financial meltdown.

Because of the last minute changes in the law, more than 3 million and as many as 13.5 million taxpayers in 2008 were unable to even file their returns until February 11 because the forms were wrong—again! Let’s not even think about the cost to update and correct all the tax preparation programs and educate the public. As noted by National Taxpayer Advocate Nina Olson, When taxpayers do not claim tax benefits because they do not know about them, Congress’s intent in providing the tax benefits is undermined and taxpayers understandably question the fairness of the tax system. She was referring to the last minute 2006 changes that resulted in 1.4 million fewer claims for deductions that were extended but weren’t even on the forms that finally went out to confused taxpayers.

The IRS computer system remains a mess. The IRS still lacks adequate procedures to identify identify theft victims or adequate systems to even determine the number of tax-related identity thefts that occur. From 2002 to 2006, identity theft related to refund fraud rose by 396 percent, while employment related identity theft increased by 129 percent. Call 800-908-4490 if you have an identity theft issue.

2007 SUCKED BLOOD

I guess the IRS is a great training ground. First they want your money; now they want your blood! Former IRS Commissioner Mark W. Everson left that position in April 2007 to head the American Red Cross. In July, his successor, Kevin M. Brown, declared that he too was leaving the IRS to serve as chief operating officer for the American Red Cross. Unfortunately, Mr. Everson was caught in a tryst with one of his employees and the Red Cross wrote him off.

In December 2006, Congress passed an extenders package that gave renewed life to the research and development credits, deductions for college tuition, above-the-line deductions for teacher expenses, and the sales tax deduction. Unfortunately, the 2006 tax forms had already been printed without these changes. The IRS incurred additional costs of $410,000 for printing and $1.3 million for postage for the new sales tax tables alone.

In 2007, the IRS eliminated the telefile program, a free telephone filing service. It had been used by about 2 million taxpayers in 2005. Half of those reverted to filing paper tax returns, slowing the refund process and increasing IRS processing costs. Those who paid tax preparers or purchased software spent nearly $24 million to file their taxes in 2006.

The Treasury Inspector General for Tax Administration revealed that of the 106 million refunds totaling $228 billion issued by the IRS to individual taxpayers in 2004, taxpayers voluntarily returned approximately 51,000 refunds totaling $302 million. The report estimated that about half of those erros were due to IRS mistakes!

It’s a good thing the former IRS commissioner was a computer expert. In five weeks to April 13, 2007, the IRS sent upward of $300,000 worth of one time $30 federal telephone tax refunds to a single JPMorgan Chase Bank account in Ohio. Personally, I would have called first... .

2007 was a tough year all around. More than 450,000 federal workers and retirees were revealed to owe the IRS a whopping $3 billion in back taxes. You didn’t have to work for the government to get in trouble. More than 125 Jackson Hewitt tax preparation branches run by five franchises of the company were shut down for preparing fraudulent returns. That cost the government $70 million in lost revenue. Even Joseph Francis, the creator of Girls Gone Wild, was indicted for tax evasion!

2006 WAS NO PICNIC

DUH! Somebody give them a calendar. On May 17, 2006, President Bush signed a tax bill into law. Its technical name is the Tax Increase Prevention and Reconciliation Act of 2005! Maybe Congress was so impressed with corporate crooks back-dating options that it thought back-dating laws could generate back-dated votes?

We’ll talk about what opportunities and traps that law offers in a later chapter.

The IRS building in Washington, D.C. was closed by a flood costing $13 million. It’s almost biblical, isn’t it? But, rather than wetting the bottoms of bureaucrats who are only struggling to do an impossible job, I suspect the flood was really a warning to those across the street in the Capitol who create the devilish complexity we call the tax law.

The General Accounting Office reported that the lowest available estimate of the cost of complying with federal tax code is $107 billion—a whopping 1 percent of the nation’s gross domestic product. In January 2009, National Taxpayer Advocate Nina Olson pegged the cost at $193 billion a year, 14 percent of the total taxes collected.

In 1969, the total number of pages of federal tax rules was 19,500. By 2009, it had increased to 70,320. Back in 1913, it was only 400 pages.

In 2006, the General Accounting Office visited alleged tax preparers at 19 outlets affiliated with major tax preparation chains. They were not happy with the results of their test returns. Nearly all of the returns were prepared incorrectly and were accompanied by very bad tax advice. Errors ranged from incorrect refunds of almost $2,000 to a liability of $1,500.

Is the tax law complicated? H'R Block, the country’s largest tax preparer, blew its own tax liability by $32 million! Couldn’t it find someone to help with its taxes?

How about General Electric? In May 2006, it filed a 24,000-page tax return with the IRS.

By 2008, 62 percent of Americans were using professionals do their tax returns. In 2006, that included three of the four senior lawmakers on the Senate Finance and House Ways and Means Committees, the panels charged with writing our tax law. Another 22 percent purchased tax software. By 2010, 90 percent of the tax returns done were prepared by professionals or with computer software. Our code ain’t simple!

A National Disgrace

I had a dream last night. I’d died and was taken by the devil down below to suffer my eternal torment. After all, I was an attorney. But, I couldn’t believe my eyes. The place was a frozen wasteland, with huge mountains of ice and snow.

I was amazed. Congress had actually passed a simple tax law that helped taxpayers!

Then, I woke up. And I woke up mad!

Is the only difference between our government and the Mafia that the Mafia is organized?

If con is the opposite of pro, is Congress the opposite of progress?

Who was the prophetic visionary who designed all the streets in Washington, D.C. to go in circles?

Is anybody in charge here?

Our Tax Code

Our tax code is a disgrace! Thousands of words dancing without rhythm or connection, failing to make a point. As a tax attorney, I’m embarrassed.

According to former Treasury Secretary Paul O’Neill, ... the complexity of our Tax Code is the worst problem facing our society.... Paul doesn’t spend a lot of time in hospitals or hang with the homeless. But, I feel his pain.

I’m not the only one who’s embarrassed. Rep. Steny Hoyer (D-MD), House Democratic Whip, saw it the same way. Our tax system is an embarrassment that treats many taxpayers unfairly. His view on the code was no less frank. The Internal Revenue Code is a Kafkaesque maze of complexity that confounds millions of Americans every single year.

To make sure we don’t ever understand the code, Congress changes it each year. We’ve had over 46 major tax law changes in the last 49 years! Remember, it was Albert Einstein who said, The hardest thing in the world to understand is the income tax. And, he said that way before it became a whopping 70,320 plus page, 25-volume beast.

Here are some numbers directly from the IRS. The average taxpayer who files a Form 1040 needs 22 hours. Add a single rental property or a Schedule C for your business and the hours jump to 32.

We spend more than 7.6 billion hours and over $193 billion each year complying with the tax code—just to figure out what we owe. That’s more hours than are used to build every car, van, truck, and airplane manufactured in America. That’s just your time.

Our government wants your money as well. According to the Tax Foundation, the average taxpayer had to work 107 days, until April 17, 2012, in order to earn enough to cover his federal, state, and local tax burden. They call it Tax Freedom Day. I call it Get Out of My Pocket Day. The group Americans for Tax Reform includes the cost of regulation. Its Cost of Government Day had us working for the government until July 15!

The Tax Code Is Driving Me Nuts!

The tax code is driving me nuts! I’ve got two law degrees and an MBA in finance. I’ve been licensed by the New Jersey Board of CPAs. I’ve taught taxation for over two decades, both on an undergraduate and a graduate level. And I still have no idea what they’re talking about half the time!

It’s been claimed that the only difference between death and taxes is that death, on occasion, is allegedly painless. Wrong! Death doesn’t become more complicated every time Congress meets.

Remember the Tax Foundation? If the average middle-income taxpayer’s 2012 salary, starting from January 1, went to pay taxes, it would have taken 100 percent of the earnings until April 17 to meet all the federal, state, and local payments due. That’s about one-third of the year, 107 days, or about 2 hours and 21 minutes of each eight hours’ earnings. In comparison, in 1930 it was only 57 seconds.

Here’s some more of the stuff making me crazy:

• On average, Americans now spend more time working to pay their taxes than they spend working to provide food and shelter combined.

• Former presidential candidate John F. Kerry illegally shaved $12,000 off his tax on his 2003 return. He sold a piece of art and reported the gain at the 15 percent rate. But, the profit on the sale of the art, as a collectible, should have been taxed at a 28 percent rate. If the nominee of the Democratic Party for president, with 57 Heinz varieties of tax lawyers and CPAs, got it wrong, what can the IRS expect from the rest of us?

• The IRS audit rate for 2005 was 0.93 percent, up from 2004’s 0.77 percent, up from 0.65 percent in 2003, and 0.57 percent in 2002. But who cares if they’re auditing the wrong people? The percentage of no change audits grew from 14 percent in fiscal 2001 to 18 percent in 2003, a significant increase and a waste of time and resources. Why? Easy. Their formulas for selecting returns were way out of date. They hadn’t been revised since the late 1980s. The IRS has updated its numbers. The data will be reflected in IRS audit selection in 2006.

• The fiscal 2006 numbers are in, with an increase from 0.93 percent to a whopping 0.98 percent. For fiscal 2007, it grew to 1.03 percent and then dropped to 1.01 percent in 2008. In fiscal 2009, it rose to 1.03 percent and 1.11 percent in 2010 and 2011. I’m not impressed.

But, are they real audits? According to Senator Max Baucus (Mont.) on April 29, 2004, I’m concerned that the IRS’s audit priorities are misplaced... . IRS is trying to bolster its audit figures, not by going after those who are deliberately trying to cheat on their taxes, but by sending out more letters regarding mathematical errors or mismatching of taxpayer information.

Of the 2010 IRS audits, 78 percent were done by mail, with no personal face-to-face contact. In 2011, 75 percent of the audits were correspondence audits.

One Treasury Inspector General for Tax Administration’s report showed taxpayers received incorrect answers to 43 percent of tax questions asked in a special study. The investigators concluded that about 500,000 taxpayers who visited Internal Revenue Service help centers got wrong or incomplete responses!

Our tax code is just too complex. Even the IRS agrees. Former Commissioner Mark Everson has remarked that Frequent changes to the tax code and rising complexity are perhaps the greatest obstacles to reducing paperwork burden... . I am concerned that tax law complexity may discourage taxpayers and adversely impact voluntary self-assessment that is at the heart of our tax system.

Responding to a report of IRS employees incorrectly preparing 19 of 23 tax returns in a December 2003 survey, Everson replied, Whatever you can do to simplify the code would really help us.

Guess what Commish? It would help the rest of us as well. If the code is too complex for the IRS and Jeff Schnepper, how about those of us who aren’t supposed to be tax experts?!

But, let’s not jump on the IRS. They don’t write the code. It’s those brain surgeons we send to Congress who have created this mess. In 1986, I was invited to the White House to consult on the proposed Tax Reform Act. I suggested that it include a provision requiring all members of Congress to do their own tax returns. I also suggested that all elections be held on April 16. Both my suggestions were rejected.

Since 1986, over 15,000 amendments were made to the U.S. tax code—that’s about three for each working day, and that doesn’t include the 2012 changes!

As I said up front, the tax code is driving me nuts. But, let’s see if I can add some sanity to your financial life. Tax planning is not for the timid. The laws are constantly changing and you have to keep up to minimize your tax liability.

You have to know the rules. That’s what How to Pay Zero Taxes is for. If you don’t know the rules, you can’t win the game.

According to Jerold Rochwald, Nuclear physics is much easier than tax law. It’s rational and always works the same way.

Ninety-three and one-half million Americans got tax refund checks in 2001, averaging $1,719. In 2002, 95.1 million taxpayers received an average refund of $1,967—proof that too much tax was taken from their checks. In 2003, the average refund was $1,988. In 2004, it jumped to $2,081, $2,171 in 2005, and it exploded to $2,237 for 2006, $2,309 for 2007, $2,400 for 2008, and $2,683 for 2009. The total refunded for 2009 was over $259 billion owed to 96.7 million taxpayers. For 2010, 51,980,000 taxpayers received a total of $160,185 billion in refunds, an average of $3,082 each. In 2011, the IRS paid out more than $288 billion in refunds to over 102 million taxpayers—an average of $2,805 each. That’s a huge, interest-free loan to the IRS.

The source of this nightmare—the Internal Revenue Code—is a quagmire so complicated that former Treasury Secretary Paul O’Neill disdains it as ... not worthy of an advanced society.

Back on June 7, 2001, President Bush signed The Economic Growth and Tax Relief Reconciliation Act of 2001, the biggest tax act since 1986. It changed 441 code sections.

That Tax Act expanded benefits for education savings, increased limits for retirement savings, reduced individual income tax rates, promised relief from the marriage tax, and phased out and repealed the estate tax over the next decade. Changes will be implemented over 10 years and then, in 2011, the rules magically revert to pre–Tax Act law!

I call it the Dallas Tax Act, named for the television program that, after a full season of shows, decided never mind and concluded that the last 52 weeks were nothing but a dream. For those of you who remember the Bob Newhart shows, I look forward to waking up with Suzanne Pleshette. In 2010, Congress renewed most of the provisions, but only for 2 years.

Chapter 12 of this year’s How to Pay Zero Taxes will detail the provisions of that law, and how you can best plan to minimize your tax and maximize your wealth under the new rules. The rules change every year, and if you don’t know the current law, you can’t successfully play the game.

Did you blink? Then maybe you missed the Job Creation and Worker Assistance Act of 2002, signed into law by President Bush on March 9, 2002. Chapter 13 of this year’s How to Pay Zero Taxes will detail the opportunities presented by this law.

Then we had the Jobs and Growth Tax Relief Reconciliation Act of 2003. We then had two 2004 Tax Acts—the Working Family Relief Act of 2004 and the American Jobs Creation Act of 2004—which alone included 580 amendments to the code. Hurricane Katrina blew in several changes in 2005. Then in May 2006, we had the Tax Increase Prevention and Reconcilation Act of 2005 (duh!) followed by the Pension Protection Act of 2006. At least they got the year right! In December 2006, Congress snuck in the Tax Relief and Health Care Act of 2006. The details and opportunities of these law changes and those made in 2007 through 2012 are found throughout the book.

Even former IRS officials find the tax code confusing. No, I don’t do my own return, says Randolph Thrower, a former IRS commissioner. It’s much too complicated for me. In 1954, our tax code and related material fit into 14,000 pages in 9 volumes. By 1984, it was 26,300 pages in 14 volumes. By 2002, it grew to 52,310 pages in 25 volumes. As of 2009, it had grown to 70,320 pages and more than 3.7 million words! By 2010, it was even worse. Congress passed several tax law changes detailed in Chapter 19. So much for tax simplification... .

This 2013 edition of How to Pay Zero Taxes will detail the new tax law changes, the hidden secrets of our tax code, and how you can take advantage of them to keep more of your hard-earned dollars.

According to the Tax Foundation, the United States passed a depressing milestone back in fiscal 1995. Total tax collections exceeded $2 trillion for the first time. That’s a two and 12 zeros.

It is April 15, 2013, and the IRS is after your money again. To protect your hard-earned dollars, first turn to the new 2013 edition of How to Pay Zero Taxes. It contains all of the new laws, rules, regulations, and court cases to legally minimize your tax outlay. Remember, your objective should be to pay all of the taxes that are due, but not one penny more than the law requires. The law, however, is complicated, convoluted, and constantly changing. The new edition of How to Pay Zero Taxes is your guide through the minefield of these changes.

Almost three decades ago, on October 22, 1986, former President Reagan signed a sweeping revision of the tax code that touched the lives of all American taxpayers. The text of the Tax Reform Act of 1986 bulked 10 inches and weighed more than 33 pounds; it detailed changes in 2,704,000 subsections of the tax code, which cost the Internal Revenue Service an estimated $106,485,000 in fiscal year 1988 to implement. The act dramatically cut tax rates and paid for this decline by eliminating or reducing a vast array of tax breaks. The American tax structure for 2012 is vastly different from that in the past and will be different again in 2013.

Taxes have been likened to a plague of locusts on a field of wheat. Yet there are several individuals earning millions of dollars who pay little or no taxes and many more who earn hundreds of thousands of dollars each year whose tax bill is just as small. For the year 1998, filed in 1999, 2,085,211 individual tax returns were filed showing income of $200,000 or more. Of those, 0.07 percent, or about 1,467 returns, showed no U.S. tax liability. For 1999, filed in 2000, 1,605 returns with incomes of $200,000 or more showed no U.S. tax liability. For 2000, filed in 2001, 2,328 returns with income of $200,000 or more showed no U.S. tax, and 2001 returns, filed in 2002, without a tax liability increased to 2,959. The number for 2002 was 2,551 and for 2003, 2,416 returns showed no tax liability. In 2004, 2,833 filers had no tax liability. For 2005 the number jumped to 7,389 increasing to 8,252 in 2006. For 2007, the number was 13,412, jumping to 22,257 in 2008. In 2009, 1,470 people earned over $1 million and paid zero taxes and 20,752 taxpayers with incomes of $200,000 or more paid zero taxes. These people are able to avoid paying taxes by the use of sophisticated tax strategies devised by high-priced and very professional tax planners, who guide their clients along the cracks in the federal tax code.

Many of those cracks have been put there intentionally by Congress as economic and social incentives. For example, to encourage capital spending and to support the U.S. auto industry, a combination of provisions in the tax code allows a knowledgeable average taxpayer to buy a $12,000 car at a net cash cost of only $6,641 (see page 316). If that car is run only 60,000 miles in its first 5 years, the net cash outlay for the car can be reduced to below zero! In effect, the taxpayer gets a free car; more important, his costless acquisition is completely legal. Exactly how to do this will be explained later in the book.

As the examples indicate, Congress has created a financial mechanism whereby certain actions substitute for tax payments. Rather than taking the taxpayers’ money in taxes and then paying it out in direct support for certain activities, Congress has indirectly accomplished the same goal by granting taxpayers some credits and deductions if they make expenditures in certain defined areas. How to Pay Zero Taxes will expose these areas and detail how you, a now enlightened reader, can structure your transactions to benefit optimally from these completely legal strategies and techniques.

You first will learn how our tax system works and how the structure of the system provides opportunities to save money on your income tax. The crucial difference between tax deductions and tax credits will be explained, and the internal IRS chart detailing the average amount deducted for each tax bracket for each category of itemized deductions will be revealed.

You then will be transported into the netherworld of tax shelters and shown what to look for and what to avoid. The section on tax shelter strategies is followed by the fun part of the book—how to take tax deductions for your personal expenses and hobbies. Here you will be shown how to turn your normal living expenses into tax deductions. We all must pay housing and food costs, but How to Pay Zero Taxes will show you how to structure these costs to reduce your taxes. We all enjoy vacations—How to Pay Zero Taxes will show you how the federal government could pay part of their costs. If you have a hobby—stamp collecting, auto racing, etc.—How to Pay Zero Taxes will demonstrate how you can get the Internal Revenue Service to help finance it by converting it into a legitimate business.

Finally, How to Pay Zero Taxes will detail and explain those more sophisticated legal 2012 and 2013 tax techniques and instruments that have been developed for shifting income, deferring taxes, and avoiding payment completely. These techniques all have been court tested and approved. Most important, How to Pay Zero Taxes will not simply explain and document these tax savings