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FREE SPECIAL REPORTS FROM

AL AIELLO

The 5 Most Overlooked Strategies for

Real Estate Investors That Will Add

Thousands to Your Bottom-Line

The Buying Power of Unsecured

Zero-Interest Loans - How to Get Tax-

Free Cash at 0% Interest and Make

$1,000’s!

14 Costly Tax Traps Made by Business

Owners – How to Avoid Them

Special Report: The 5 Most

Overlooked Strategies for Real Estate

Investors That Will Add Thousands to

Your Bottom-Line

Published by: ISU\Information Services Unlimited

Phone: 1-215-271-1998; Fax: (215) 937-9205

Email: isu/janinepratt@aol.com.

Web site: www.REINFO.com

Real estate is one of the safest and quickest ways to

build wealth. It also yields the best tax-saving

opportunities to accelerate your wealth building even

further. Unfortunately most real estate investors (and

CPA’s) are not aware of these golden opportunities.

Here are five of them

_______________________________________

Albert Aiello, CPA, MS Taxation, RE Investor

1. Set up an LLC. Do this not only to protect you, but

also to support tax deductions that typically would be

more aggressive if taken as a sole proprietor. With an

entity, such as an LLC, you can use corporate-like

documents (such as an operating agreement, minutes or

resolutions) to authorize and thus support deductions.

Here, you have this statutory LLC entity (separate

from its members), via legal documents (such as an

operating agreement), authorizing tax saving

deductions and strategies. This is excellent

documentation, especially with IRS hot spots such as

active participation for avoiding passive loss

limitations; auto, travel, meals, entertainment; travel

to find property; educational tuitions for seminars and

boot camps; travel to such educational events;

avoiding dealer status and the like.

2. Substantially increase depreciation deductions

(and cash flow) with componentizing. Deprecation is

the most powerful deduction for the real estate investor

because you claim the deduction without expending

cash, yet it creates cash flow in your pocket via tax

savings. For example, a $20,000 depreciation deduction

in a 30% bracket, you save $6,000 in taxes with no

cash out. The $6,000 as a 10% down payment can

allow you to buy an additional $60,000 worth of real

estate, which, at a 20% yearly return, would be

$12,000 more income every year. So how can you

make this already valuable deduction save you even

more money? Componentize!

With componentizing (or Cost Segregation Analysis),

you break out components, from the property cost, that

allow you to use shorter recovery periods with the

result of much larger deductions and savings. For

example there are many items that can qualify for

personal property and be rapidly written off over 5

years (double-accelerated) instead of slower building

depreciation of 27-1/2 or 39 years straight-line (or 6

times faster than the building). There are land

components that too can be rapidly written off over 15

years (accelerated) instead of 27-1/2 or 39 years

straight-line (or 2 to 3 times faster than the building).

Furthermore, you can also fully deduct the remaining

basis of components that are replaced. For example, if

you replace existing property components with a

remaining componentized cost basis of $30,000, you

can claim the entire $30,000 as a full ordinary

deduction. In a 30% bracket this puts $9,000 of savings

in your pocket, yet you did not have to expend cash for

the deduction!

So how much extra did you pay in taxes not using

componentizing because your CPA did not know about

this incredible legal strategy?

3. Deduct unlimited property tax losses even if over

$25,000 or your income is over $150,000 by being a

real estate professional. With the above non-cash

componentizing deductions piling up, your properties

are going to be throwing off paper tax losses which you

want to fully deduct against your other income.

Except for $25,000 of losses, rental property losses are

subject to passive loss limitations. This means real

estate investors cannot deduct property tax losses

against non-passive income such as salaries, business

income, gains, IRA distributions, etc. If the investor’s

adjusted gross income (AGI) is above $150,000 they

will not even be allowed the $25,000 annual “active”

exception for deducting such losses. Moreover, even if

the investor is eligible for the above exception, but has

over $25,000 in property losses, the excess over the

$25,000 is still subject to the limitations. Being subject

to these limitations means the investor cannot currently

deduct the losses in the year incurred. The losses are

“suspended” and must be carried forward until the

property is sold. The savings from the losses are also

delayed as well as the investment use of such savings.

What to do: To avoid being subject to these limitations,

the investor must document at least 751 hours (or an

average of about 14-1/2 hours a week) with the

majority of their time in the real property business. A

“real property trade or business” is defined as any real

property development, redevelopment, construction,

reconstruction, acquisition, conversion, rental,

operation, management, leasing or brokerage trade or

business. This includes real estate investors who do

rentals, management, rehabbing, wholesaling, retailing,

foreclosures, short sales, self-storage and other types

real estate activities. With the right planning and

documentation even those with full time jobs can meet

these requirements.

Do this and fully deduct your rental loses without limit,

save a ton of taxes, and increase your cash flow every

year!

4. Avoid being a dealer. When you start to get into

“selling” scenarios (such as wholesaling, retailing,

options, lease-options), the IRS (or your CPA) very

may try to classify you as a dealer. Being tagged as a

dealer could be a financial disaster because, unlike an

“investor”, you are subject to the highest ordinary

income tax rates, plus Social Security taxes, and

possibly alternative minimum taxes. Thus, 50% or more

of your hard earned profits could be drained by taxes.

Moreover, dealer profits (cash or paper) are

immediately taxed in full and cannot be tax-deferred in

any way including not being able to use a 1031

exchange, installment sale reporting, a self-directed

IRA, etc. Being tagged as a dealer could wipe you out!

On the other hand, if you demonstrate status as an

“investor” you can avoid these expensive pitfalls of

being a dealer.

First off, just because you start to flip\sell properties

does not mean you are a dealer. Based on numerous

tax courts cases (including a Supreme Court Case);

actual IRS audits; and my extensive research; with

planning, even a very large number of sales (in one

year) could avoid dealer status. Altogether, there are

over 30 strategies to avoid the costly consequences of a

dealer. My experience indicates that one of the best

ones is to demonstrate that the primary purpose of the

resale profits is for investment purposes and not sales

speculation. For example, the primary purpose (or

purposes) of the profits can be for a number of

“investment necessities”, such as down payment funds

to acquire long-term investment keepers, or working

capital for property investment operations including

preventive maintenance.

Accordingly, as employed here, these flips are non-

dealer, investment transactions with solid economic

foundation. This is a very powerful defense against any

IRS attacks. Consequently, there are numerous cases

and scenarios, some of which I have had firsthand

experience with, where even a huge number of sales in

one year did not cause costly dealer status.

Real estate entrepreneurs can bypass being a dealer by

planning in advance with dealer-avoidance strategies

(especially investment intent); avoid inept advisors;

and go for it!

5. Sell your properties tax-free, pay no capital gains.

First off, there is the 15% myth. In most cases the

“total” capital gain rate is not just 15% (as if that’s not

enough!). The 15% is just the federal capital gain rate,

but there is also federal depreciation recapture which is

at higher rates, there is also federal AMT at higher rates

and other hidden federal tax liabilities along with state

or local taxes. Thus, your total rate on gains could be

25%, 30% or even higher. Once you avoid being a

dealer there are numerous legal strategies to sidestep

paying taxes on the sale of investment property.

For instance, a 1031 exchange can totally avoid all of

the above tax liabilities (including recapture) so you

can keep all of your equity. Understand, 1031’s do not

just defer taxes, but by having the interest-free and

payment-free use of the tax savings, you have more

buying power for the replacement property. For

example, if you save $20,000 in taxes by doing a 1031,

as a 10% down payment, $20,000 empowers you to

buy another $200,000 worth of real estate. In fact,

many times, the 1031 savings, combined with leverage,

is the difference that makes the difference in doing the

deal. My students like to use the higher untaxed equity

from a 1031 exchange to roll over into property they

intend to keep so they can reap the cash flow, equity

buildup and tax deductions (esp. depreciation) you get

with keepers.

Another vehicle I like is the self-directed IRA (SDIRA)

, especially for quick flips. Understand, you want to use

the SDIRA for real estate transactions that generate

immediate (or almost immediate) taxable income (such

as flips or options) and generally not keepers that

already shelter other income.

You will never build up a huge portfolio when you pay too much taxes as it will take you an extra 10 to 15 years. Saving taxes is foundational to wealth building.

The above are excerpts from The Real Estate

Investor’s Goldmine of Brilliant Tax Strategies, A

Tax Reduction System And Special Forms Software

Package, by Albert Aiello. Visit Al’s web site at

REINFO.COM or call 215-271-1998

________________________________

New Report:

The Buying Power

Unsecured

Zero-Interest Loans

How to Get Tax-Free

Cash at 0% Interest

and

Make $1,000’s!

Albert Aiello, CPA, MS Taxation, RE Investor

Are you getting your share of the 55

Billion TARP (Troubled Assets Relief

Funds) being distributed thru business

credit cards this year?

You should be, it is your money!

Business credit expert, Dave Candle, says this...”Don’t

believe me. Look here at Page 23 section B of

Citibank’s own internal report to the government. And

I am quoting. “In 2009 Citi Cards plans to extend a

significant amount of new credit to US consumers,

within Citi’s customary sound lending standards”.

This is your government’s bailout for Main Street. You

need this information now. You need to take action

now before the funds dry up. Citi is also allowing

forbearance for some accounts. (See above report).

Don’t you see this is the lender revolving door all over

again? You can either complain about it or take action.

No company is in a better position to help you take

advantage of this then Credit Card Builders (CCB).

They are the only company in America that has

extensive relationships with many of the banks

participating in the TARP program. These include Bank

of America, National City, PNC Bank, American

Express, Wells Fargo, and many more. In fact for

certain clients CCB can put you right into the VIP and

private banking doors of many of these banks that offer

special business lines of credit in addition to business

credit cards. No non-USA (foreign) call-centers here!

More than ever the rules of the game are changing

rapidly and you need to know them. There is a

goldmine here if you know how to take advantage. The

banks ARE lending but you need to know how to

qualify. And remember all this money is at 0%! For

more of this great info...read this special report.

The Buying Power of Unsecured Zero Interest Loans

Albert Aiello, CPA, MS Taxation, Real Estate Investor

Published by: ISU\Information Services Unlimited

Phone: 1-215-271-1998; Fax: (215) 937-9205; Email: isu/janinepratt@aol.com.

Web site: www.REINFO.com

Copyright 2009 - All Rights Reserved. Printed in the United States of America. First edition. Copyright - Information Services Unlimited (ISU). Please respect the many hours invested to research and create this intellectual work and our rights to this material. No part of this program may be transferred, reproduced by any means, stored in any information retrieval system or transmitted in any form or by any means without the specific written permission of ISU. Legal action will be brought against you and/or your company if you are found to have made any unauthorized copies of these materials, in part or in whole. Unauthorized copying is against the law, regardless of intent: No matter if you make a profit or not, you are committing a serious copyright infringement crime, punishable by severe fines and imprisonment, and you may be held liable under both civil and criminal law.

DISCLAIMER

These materials are designed to provide informative and useful information. Financing regulations are subject to change and vary according to individual circumstances. ISU is not in the business of rendering tax, legal, or other financial advice. Where the situation dictates, a more thorough research of the applicable tax law (or other data) may be necessary as well as the advice of a competent professional.

ABOUT AL AIELLO, CPA, MS TAXATION, RE INVESTOR

Al is a national speaker specializing in Wealth Protection teaching

dynamic strategies on tax reduction, IRS audit-proofing, entity structuring

and asset protection targeted for real estate investors and business owners.

He has been a real estate investor for over 25 years. He first got his real

estate license and went on to broker millions of dollars of real estate. He

then got his CPA by passing the first time, not an easy accomplishment.

Subsequently he got his Masters in Taxation graduating with the highest

honors in this rigorous program. He was immediately hired as professor

where he taught partnerships, corporations, asset protection and real

estate taxation (a course that he created and developed). He has been a

business owner since 1980 including having had his own tax practice that

specialized in real estate and IRS representation. He has since sold his

practice and today he is still an investor and a researcher constantly

looking for ways to protect the wealth of real estate and business

entrepreneurs. As a national speaker, with his home study courses, he has

thousands of students across the country who use his strategies to pay

little or taxes, to audit-proof their returns against the IRS and to protect

their wealth.

The Buying Power of Unsecured Zero Interest Loans

That’s no typo... ZERO interest! This is a proven loan

program with 0% interest unsecured business credit

cards that have all kinds of great uses for your credit.

Learn how to turn high business credit card limits into

Cash. You can access the tax-free cash which you can

use to...

Get out of high interest debt > Pay off those

18% or more credit cards and save a ton of interest

Buy real estate all cash at low prices - Great

deals...but where is the credit?? > Well it’s here

with zero interest loans, even in this very tight

credit market. When you buy real estate all cash (or

with a substantial down payment), you have the

POWER to get great deals in any market; but in a

buyer’s market you can “steal” property for pennies

on the dollar.

Sell real estate all cash at higher prices > Also

as important is to learn how to sell your property in

a tight market with buyers using credit cards to

purchase, or but the down payment on your

property for sale.

Invest in a business > Same idea as real estate.

You can end up buying expensive business

equipment, customer lists and other valuable assets

for dirt cheap.

Invest in training programs > Such as high

quality mentor or coaching programs that can

greatly accelerate your path to success and wealth.

Even here, cash gets you discounts.

Other Great Advantages...

Loans can be made to your LLC and where you can
replace equity line loans with the 0%-interest
unsecured loan and still have all kinds of great uses
for your credit.

The loans never show up on your personal credit
report. This is in turn can free you up to get more
credit.

There is a 60-Day Unconditional Money Back
Guarantee.

The Creative Individual behind the Program: The

Company that provides this has an excellent reputation.

It was founded by an experienced loan expert, Dave

Candle, who developed an alternative to high priced

lenders. Dave is the most knowledgeable and

experienced person in the county on this subject.

His Company also provides excellent+ customer

service & support; gives you other valuable lending

advice; and offers a 60-Day Unconditional Money

Back Guarantee.

Here is what Dave Candle promises and

delivers...

We will help you educate

yourself so that you can literally

have a free way to make money

once you know the skills. Simply

place the money in the bank and

earn the difference between 0% and

whatever you may be getting. We

will also show you how to get

instant approval. That's right, instant

approval, where a human being

right here in the US says you're

approved. No waiting 7-10 days for

an answer in the mail. If you like,

you can get approved today and use

the credit card today - no waiting!

Great low price. We normally

charge a $1,500 per hour consulting

fee for this information. Now we

are offering this information at a

special flat fee of $2,500 (which, if

you charge it, is only a $25 per

month charge on your credit card).

We have mortgage clients who have

paid much more for documentation,

processing, appraisal, title and

escrow fees - never mind points.

There is never a percentage charge

by us for any amounts you receive

on your credit cards.

We are a big believer in business credit and

we believe this information is worth many

times what you pay. We only accept credit

card payment. If you are not happy for any

reason within the first 60 days request a

refund. No problem with our 60 day guarantee.

Everyone is blown away because we teach you

not only how to get the money, but how to use

it wisely.

We don’t just tell you what to do, we hold

your hand through the process every step of

the way. We will run a credit analyzer and

"what if" scenario to maximize your credit

scores. We know the way the credit card

companies work, we know the special

promotions, we know how to maximize results.

We can help you meet the criteria for credit

cards of $50,000, $250,000, even $500,000

with 0% interest. The typical introductory

loan period is 12-18 months. In the old days,

the rates went to double digits; today the rates

are 7.99% - and even less. That’s cheaper than

many home loans. As previously mentioned,

there are typically very small, if any, balance

transfer fees. Even if you don't have any

balances to transfer, we can show you how to

turn the credit lines into cash.

Here's What Happens When You

Become a CCB Client

First we will guide you in understanding

your current credit situation.

You will go over the steps needed with

your counselor, first to naturally raise the

credit score and balance the credit report

so that when you go to apply for a credit

card you will have the best chance to get

the most amount approved with the highest

limit.

You will get a private one-on-one

consultation with a Credit Card Builder

consultant to determine your individual

optimal strategy. Are you looking for low

interest money, the quickest or the most

money long term? Are you looking for

cards that won't show up on your credit

report? You tell us; we will tell you the

plan. You will then work with your

consultant to take the steps necessary to

maximize your credit profile. Then, with

your authorization, we will help apply for

you.

Our monthly newsletters, available only

to clients, are packed with the latest

news and offers in the credit card

industry, along with valuable

information on current local and global

investment opportunities. We will send

you one free issue of our newsletter. After

the first month, we will bill your credit

card $50 per month. You may cancel at

anytime. One of our business members is

up to $450,000 in available credit.

In addition to credit cards, we will

teach you how to obtain credit lines

for your LLC or corporation. Want

to know what my rate is? I had to

remove a lot of the info so everyone

doesn’t just call the bank. It's actually

prime minus 2% on my business line of

credit and prime minus 2.5% on my

own personal line of credit. No that is

not a misprint. Prime minus 2.5 or

2.75%. That's cheaper than my

secured HELOC on my own home!

DOCUMENTED TESTIMONIALS

"I am a professional importer/Exporter of yellow

metals from all over the world. I found Credit card

builders about a year ago and have used about

$190,000 to float my receivables. Most overseas mills

need 100% payment prior to the product leaving the

docks and by the time they are shipped to the USA

and milled it could already have taken 90 days then

they end user needs at least 30 days to pay me!

CreditCardBuilders has helped my business in a big

way"

...Erik G. from Cleveland, Ohio

My wife and I are small time Real Estate Investors,

we have 5 single family homes. We have accumulated

over $215,000 in credit cards at 0% so far after only a

few months from CreditCardBuilders. We are

negotiating on a duplex. It is amazing how much

more seriously we, and our offers, are taken when we

are negotiating with cash. Our Plan is after we take

possession, rehab the units and lease them, we will

then go to the bank and take out a standard mortgage.

This program is helping us take our business to the

next level.

...Jim R. from Indianapolis, IN

My brother and I specialize in fix and flips. We try to

turn at least one house a month and sometimes more.

The CreditCardBuilders program has been great! It

has helped greatly and allowed us to turn more

houses faster with a greater ROI.

...John M. from Dallas, TX

Initially I was skeptical about the benefits that Credit

Card Builders could provide. I’d heard that I could

build my company credit by myself, and I educated

myself through various sources. I discovered that,

other than my bank, most institutions offered my

business less than $10,000 in credit.

CreditCardBuilders helped my company obtain

higher credit limits in a shorter period of time. In

fact, I received over $45,000 with Bank of America

alone! The best part is that it is at 0% interest and

does not show up on my personal credit report. Dave

and his team gave their full attention in working on

my case, and they continue to get me additional

credit.

...Elly Wijaya, Managing Member, The Flexible

REI, LLC, Torrance, CA. (Al Aiello student)

While I didn't have an immediate need for additional

liquid reserves, I was intrigued by the offer from

CreditCardBuilder. I never have a problem with

putting extra cash to work for me, so I'll always take

it when it's offered. I know the CEO personally, and

as he guarantees results or provides a full refund, I

knew I had nothing to lose. Now, while I always

trusted this would work, frankly I have to admit I was

impressed as an additional $50,000 somewhat

unexpectedly just appeared on my bank balance! At

0% interest for 12 months - and it doesn’t even show

on my personal credit report, so my personal credit

scores stay high! I've already gotten more than my

money's worth, and I'm sure more great offers will be

rolling in at no additional cost to me. I highly

recommend the services of CreditCardBuilers.com.

...Scott Farah, President, Financial Resources National

For another testimonial, Call James Gallagher 412-

217-7162 ask him what he did with this excellent

program.

“When I first found this source I thought it was too

good to be true. But after meeting with them and

personally referring my students and after seeing the

success I am so excited I want to share this with all of

my students. I seldom promote specific financial

products but this is terrific!!...Al Aiello, Number 1

Speaker in the country on Real Estate Tax

Strategies

More Info. Go to – www.goldminevipaccess.com

click on to the green color banner that says “0% credit

cards...”, this takes you to their web site (Credit Card

Builders). Or you can directly call Dave Candle toll

free at 888-330-3239.

Mention “Al Aiello” so he knows what’s going on.

Happy ZERO-Interest Cash!

AL Aiello

PS: One more great idea with the interest-free, tax-

free cash.

When you buy property how would you like to do so

with these great money-saving advantages?

Avoid certain closing costs including local transfer
taxes, title fees, recording fees, etc. (Large savings)

Avoid an increase in property taxes. (More savings,
c/b huge)

Total privacy from disgruntled X spouses, creditors,
sue-happy lawyers, lenders, taxing authorities, and
government agencies, such as HUD, who does not
allow assignments of contracts and does like double-
closings (which are ways to save on transfer fees).

Seller also benefits – save on transfer fees, privacy,
avoid depreciation recapture.

How do you do it? You buy the entity (such as an

LLC) that the property is in, instead of the property

itself. There is nothing new about this technique –

smart entrepreneurs have done it for years. Yet, it is

still little-known and used.

One potential drawback is a legal one with hidden

liabilities; but this can easily be resolved such as using

a new LLC. There may be an income tax issue with a

lower tax basis for the property in the entity; and this

too can be resolved with a special IRS election (754) to

get the higher purchase-price basis.

The only real drawback - The greater difficulty in

obtaining financing for the purchase of an entity

instead of the direct purchase of the property.

The SOLUTION - This one-of-a-kind business credit

program! Now you can purchase the entity (with all of

the above advantages) with all cash or a substantial

down payment which would greatly facilitate you

getting the financing.

What a winner!

More Info. Go to – www.goldminevipaccess.com

click on to the green color banner that says “0% credit

cards...”, this takes you to their web site (Credit Card

Builders). Or you can directly call Dave Candle toll

free at 888-330-3239. Mention “Al Aiello” so he

knows what’s going on.

PPS: MORE! Financing for Your Self-Directed

IRA!

Through North American Savings Bank (NASB) , this

program can offer Non-Recourse financing for the

purchase of investment real estate within your self-

directed IRA in all 50 states, with no geographic

limitations.

Rates and fees are very competitive and can close

within 30-45 days of loan application. This is the only

nationwide Non-Recourse lender for IRA real estate investments.

North American Saving Bank is a $1.5 Billion Savings

Bank and is a nationwide real estate lender, specializing

in residential, multi-family,and commercial real estate

lending. You can find additional information

on this Non-Recourse Loan Program at

www.iralending.com.

More Info. Go to – www.goldminevipaccess.com

click on to the green color banner that says “0% credit

cards...”, this takes you to their web site (Credit Card

Builders). Or you can directly call Dave Candle toll

free at 888-330-3239. Mention “Al Aiello” so he

knows what’s going on.

Special Report...

14 Costly Tax Traps Made by Business

Owners - How to Avoid Them

________________________________________

Albert Aiello, CPA, MS Taxation, RE Investor

Avoid These Traps and Save

Thousands!

Published by: ISU\Information Services Unlimited

Phone: 1-215-271-1998; Fax: (215) 937-9205

Email: isu/janinepratt@aol.com.

Web site: www.REINFO.com

United States of America. First edition.

14 Costly Tax Traps Made by Business

Owners

By: Albert Aiello, CPA, MS Taxation, RE Investor

Falling into the following tax traps can lead to the loss

of valuable tax savings, IRS problems or both -- all

of which are costly. (Note: Internal Revenue Code

Section is abbreviated as “IRC”)

TRAP 1: CLAIMING A 100% BUSINESS-USE

FOR YOUR AUTOMOBILE. Either on page 2 of

Schedule C or Form 4562, you will be asked the

amount of deductible business miles and the amount of

non-deductible commuting and personal mileage. Do

NOT claim a 100% for business mileage...even if

you have other cars for personal use! IRS agents

know it is almost impossible to have a 100% business

use because of non-deductible commuting mileage and

personal mileage (such as picking up a loaf of bread).

Generally, you should claim no more than 90 or 95%

and that’s if you have the required records as per

Section 3 of the “Bible”. Claiming a 100% has

caused IRS audits.

TRAP 2: NOT ANSWERING ALL QUESTIONS

ON IRS FORMS. The IRS will ask questions on your

tax return. These questions must be answered

truthfully. For example, on page 2 of Schedule C or

IRS Form 4562, you must answer the following

pertaining to your purchased or leased automobile:

Do you have evidence to support the business use

claimed ? ___Yes No____

If "Yes," is the evidence written ? ___Yes No____

CAUTION: If you answer “no” to any of these

questions, you are inviting an IRS audit. “Yes” is

the better answer, but you must be truthful. Other IRS

forms will also have questions that must be answered.

TRAP 3: DEDUCTING AUTO MILES ALONG

WITH AUTO DEPRECIATION & EXPENSES.

There are two methods for deducting your auto

expenses: (1) The mileage method and (2) the actual

expense method. Naturally, you should choose the

method that gives you the highest deduction (usually

the actual expense method). However, taking the

mileage method covers taking deprecation, gas, oil,

repairs, insurance, auto supplies, etc. That is, you

cannot take the mileage method and also claim

depreciation, gas, repairs, insurance, etc. To do so has

caused IRS audits. You can only claim these items

under the actual expense method. Again, work the

numbers and pick the method that gives you the highest

deduction.

TAX TIP: Under either method (mileage or actual),

you are also entitled to claim parking, tolls and the

business portion of auto interest.

TRAP 4: CLAIMING HOME-OFFICE EXPENSES

WITHOUT ADEQUATE SUPPORT.

Home-office deductions have been liberalized since

1999.

Despite this, home-office deductions can still be an

audit target. You can substantially reduce your chances

of an IRS notification by attaching attached IRS form

8829 for home-office deductions and attach a written

statement behind your business tax reporting schedules

and form 8829 such as the one below.

HOME-OFFICE DEDUCTION: I use a separate room

in my home strictly as an office solely and exclusively

to transact business with customers, clients,

associates. Also, as per the change in tax law which

became effective January 1, 1999, I do administrative

tasks such as scheduling appointments, keeping

records, doing budgets, forecasts, ordering supplies,

etc. I do not have adequate space anywhere else. This

office is not used for personal purposes and contains

all business furniture & equipment including desk,

chair, files, book case, business computer, fax, and a

separate telephone line.

TRAP 5: NOT DOCUMENTING AUTO, TRAVEL

AND ENTERTAINMENT. For most self-employed

entrepreneurs these are high-deduction items that also

combine well with fun & profit. However, failure to

keep the proper records will result in three adverse

consequences: (1) Lost tax savings by missing these

valuable deductions on your tax return (2) The

disallowance of these deductions in the event of an

audit and (3) The increased likelihood that IRS will

audit more items on your return as well as audit more

years, because of your inadequate recordkeeping. So

keep good records.

TRAP 6: FAILURE TO MAKE A PROPER

ELECTION FOR FIRST-YEAR EXPENSING OF

BUSINESS ASSETS UNDER IRC 179. Capital

assets such as computers, faxes, copy machines,

furniture, etc. must be depreciated over a period of

time of either 5 or 7 years. However, self employed

entrepreneurs in a profit situation may need quicker

write-offs all in one year. Under IRC 179, the cost of

such capital assets may be fully deducted in the year

purchased, up to a cost of $250,000 (subject to change)

. However, you must make a proper election on IRS

Form 4562, Part I, Section A. You also must make a

timely election by April 15th plus proper extensions to

file. Past this period, you cannot make the election

even with an amended return. One business man

deducted a $2,000 asset as an “office expense” on

Schedule C. The asset is not entitled to a full write-off

in one year but must be depreciated over 5 or 7 years

(depending on the type of asset). {Fors, TC Memo.

1998-158}.

NOTE: At the present time the Section 179 election

can be made (or revoked) on amended returns without

IRS consent. But this can change so make the proper

election per the above.

TIP: You should also claim ALL capital items even

if the cost is low as $20 or $40, such as for an

attaché’ case, calculator, trash cans, chair, software

and even sales signs. Reason: It will avoid any IRS

disputes as to whether these items are “capital” and

should be depreciated over 5 or 7 years instead of a full

write-off, all in the first year. Even with a small ticket

item, such as a calculator, the IRS can successfully

argue it should be depreciated over 5 or 7 years and not

fully expensed in the year of purchase. With 179 first-

year expensing there is no argument.

TRAP 7: TREATING AN ASSISTANT AS AN

INDEPENDENT CONTRACTOR WITHOUT

PROPER SUPPORT OR DOCUMENTATION. It is

more advantageous to treat assistants as an

independent contractor because you save on payroll

taxes, the hassles of many forms, tax deposits and

penalties for being late with forms and deposits.

However, the issue of independent contractor vs.

employee can be quite controversial and has received

notable attention in recent years.

Improperly classifying assistants as independent

contractors instead of employees (without proper

support), could involve the risk of back assessments in

the way of payroll taxes, interest and penalties. Over a

number of years such assessments could be substantial.

What-to-do: There are several things you should do –

most important is to have written “Independent

Contractor Agreement” with the assistant and send

them a 1099 which you also timely file with the IRS.

On the other hand, if the assistant is full time and you

have substantial control over them, you should treat

them as an employee, not an independent contractor.

TRAP 8: NOT KEEPING REQUIRED RECORDS

FOR FAMILY MEMBERS ON PAYROLL: Hiring

family members as employees has many advantages

and is permitted by the IRS. However, you need to

keep records such as duties, hours of work, amount of

compensation, time of payment, etc. Compensation

comparable to what is paid to unrelated assistants

should also be paid to your family members. In

addition, required payroll reports should be filed. Thus,

the treatment of family employees should be the same

as that of an outside unrelated assistant.

NO RECORDS = NO DEDUCTION! A couple

operated a profitable sewing business out of their home

and employed three of their children who attached

buttons to the clothes. Over a 2-year period they

deducted $42,500 in compensation. The children filed

tax returns and reported the income. However, the IRS

and the Tax Court denied the deductions because they

had NO RECORDS of the children’s hours and work

production. [Pham and Bui, TC Memo 1995-459.]

NOT KEEPING RECORDS IS COSTLY! In a 40%

tax bracket, the loss of the $42,500 deduction amounts

to $17,000 in lost tax savings (plus penalties &

interest).

TIP: You also need to keep the proper documents

for family fringe benefits such as the medical

reimbursement plan under IRC 105(b). Under this plan

you can fully deduct all unreimbursed medical costs as

a business expense.

TRAP 9: NOT REPORTING OR EXPLAINING

INCOME REPORTED ON ALL 1099’S. Report all

income on all 1099’s received. Make sure that the

income reported is correct. If it is not, have the payor

issue a “corrected 1099” to you and the IRS. If a

corrected 1099 cannot be filed, attach explanations for

any 1099 discrepancies. For example, a company pays

you a fee in December 20XX of the current tax year for

which year the company deducts the fee and issues you

a 1099. However, you do not receive it until January of

the following year, 20YY and this will be the year you

report it. Attach a note to your Schedule C explaining

that you “did not actually or constructively receive

the income included in this 1099 until 20YY and will

properly report it in the subsequent year of 20YY.”

Not doing the above could cause IRS audits.

TRAP 10: NOT ATTACHING WRITTEN

EXPLANATIONS FOR UNUSUAL ITEMS ON

YOUR TAX RETURN. Before making a final

selection, any returns initially selected for audit are first

reviewed by an experienced IRS agent known as a

"manual screener". This person manually reviews every

page of the return for "audit potential". If they see clear

written explanations as to anything unusual, they very

well may reject the return for audit and select the next

one in the pile, that does not have an explanation. You

should attach written explanations for such items as

home-office expenses, auto, travel, entertainment as

well as a large amount of business expenses in

comparison to a low amount of business income.

TRAP 11: FAILURE TO MAKE TIMELY

QUARTERLY TAX ESTIMATES. You have got to

discipline yourself to budget and set aside funds for

your quarterly estimates. Otherwise you may be

borrowing to pay your taxes and this is poor money-

management. In fact it could end up as a financial

disaster. I know quite a few self-employed

professionals who overextend themselves with huge credit card and auto lease payments. As a consequence

they cannot pay their IRS (and state) quarterlies. They

end up losing their car, their good credit along with IRS

penalties & interest, wasted time and a lot of stress.

DON’T LET IT BE YOU!

TRAP 12: FAILURE TO TIMELY FILE ALL OF

YOUR FORMS. If you will be late, then timely file

an extension. If you will owe taxes pay it with the

extension. Not to do so will cause costly IRS

penalties, inquirers and even a full blown audit.

TRAP 13: FAILURE TO QUICKLY RESPOND TO

IRS NOTICES. In the event you do receive one,

quickly respond to it. The quicker the better!

Certainly do it before the due date on the notice. If you

need more time to figure out the nature of the notice or

to hire a professional, then call or write the IRS and tell

them you need more time. Again, the idea is to respond

as quickly as possible.

TIP - DON’T BE SO QUICK TO PAY ON SUCH

IRS NOTICES: Many times such notices demand the

payment of additional taxes, interest and even

penalties. However, many times such notices are

incorrect. Before paying anything (you may not have

to), you, or a competent tax advisor, should carefully

check the accuracy of the notice. Also, many penalties

can be abated for “reasonable cause”.

TRAP 14: USING AN OVERLY-AGGRESSIVE,

INCOMPETENT OR “BLACK-LISTED” TAX

PREPARER. There are many horror stories of how

such tax preparers have gotten their tax return clients

in BIG IRS trouble. Before engaging a tax preparer,

you need to carefully check them out as per the

second article of this section.

Happy NO Tax Traps – Al Aiello

The above are excerpts from The Ultimate Tax Bible

for Self Employed Entrepreneurs, a home-study

course for business owners, by Albert Aiello. Visit

Al’s web site at REINFO.COM or call 215-271-

1998

COPYRIGHT LAW

United States of America. First edition. Copyright -

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the thousands of hours invested to research and create

this intellectual work and our rights to this material. No

part of this program may be transferred, reproduced by

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