Finance Tax Time

Reservists called to active duty and enlistees in the armed forces may qualify for a deferral of taxes owed if they can show that their ability to pay taxes was affected by their military service.

The deferral covers active duty members of the military services Army, Navy, Air Force, Marine Corps and Coast Guard and commissioned officers of the uniformed services Public Health Service and the National Oceanic and Atmospheric Administration. Reservists must be placed on active duty to qualify. National Guard personnel not serving in a “federalized” status that is, called to active duty specifically by the president of the United States are not covered.

The deferral applies to taxes that fall due before or during military service, and extends the payment deadline to six months (180 days) after the military service ends. No interest or penalty accrues during the deferral period.

The deferral is not automatic. A taxpayer must apply for it. When applying, the taxpayer must show how the military service affected the taxpayer’s ability to pay. A taxpayer must also have received a notice of tax due, or have an installment agreement with the IRS, before applying for the deferral.

The deferral does not extend the deadline for filing any tax returns. However, taxpayers in the armed forces may get extra time to file under other provisions, such as being stationed overseas, in a combat zone or in a qualified hazardous duty area, or if they are serving in direct support of a combat zone.

Combat Areas

The following areas of have been designated as combat areas.

1. Afghanistan and the airspace above was designated a combat zone effective Sept. 19, 2001.

2. The Federal Republic of Yugoslavia (Serbia/Montenegro)

3. Albania

4. Bosnia and Herzegovina

5. Croatia

6. Macedonia

7. The Adriatic Sea

8. The Ionian Sea north of the 39th parallel

9. The Persian Gulf

10. The Red Sea

11. The Gulf of Oman

12. The part of the Arabian Sea that is north of 10 degrees north latitude and west of 68 degrees east longitude

13. The Gulf of Aden

14. The total land areas of Bahrain, Iraq, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates

15. Incerlik Air Base in Turkey

16. Pakistan, Tajikistan and Jordan

17. Uzbekistan and Kyrgyzstan

18. The Philippines

19. Yemen

20. Djibouti

While deferring back taxes is a helpful notion, a better method would be simply to waive all taxes on military personnel.

Richard Chapo is CEO of http://www.businesstaxrecovery.com - Obtaining tax refunds for small businesses by finding overlooked tax deductions and credits through a free tax return review.

Tags: air force, army, enlisted, marines, navy, personnel, reservist, tax deferral, taxesair force, army, enlisted, marines, navy, personnel, reservist, tax deferral, taxes

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How, you might ask, can I avoid paying capital gains taxes until the ripe old age of 70? Well, this tool, which has been around since the 1950’s, is shockingly unknown to the vast majority of Americans. Sadly, who knows how many millions of dollars have been paid in capital gains taxes that could have been used toward retirement, college education, medical expenses, or even a trip around the world.

The Private Annuity Trust, (or PAT for short) is an IRS-authorized program outlined under Section 72 of the Internal Revenue Code, which allows a seller of property to defer capital gains taxes at the time of the sale. There is no maximum to the size of the transaction and the PAT can be used on any kind of real estate transaction, whether it is your primary residence, a vacation home, or a commercial and retail developments.

Here’s a brief outline of how it works:

Let’s say you sell your home for $500,000. The property owner (known as the “Annuitant”) transfers ownership of the property to the PAT. Then, the Trust “pays” the Annuitant for the property with a special payment contract call a “private annuity.” The form of payment is a life annuity. Then, the trust sells the property to the buyer, getting cash for the property.

A private annuity is similar to an installment sale. However, in this case, the private annuity promises to make payments to the Annuitant for the rest of his life. For example, if the value of the property is $500,000, then the face value of the annuity is also $500,000.

The Annuitant is not taxed on the sale since he has not yet received any cash for the sale. In fact, if the Annuitant has other income or doesn’t need the annuity payments, he or she can choose to defer the payments until the age of 70. Of course, he or she can also choose to start the payments immediately. However, the payments must begin by the age of 70. As each payment is made to the Annuitant, the calculated installment of the capital gains is paid.

This tax-deferral strategy has many investment and financial options, so it is important to have a very knowledgeable and experienced financial and estate planner who can explain the process thoroughly and will make sure you don’t miss any crucial steps. It is also important that you have a real estate agent who is knowledgeable in this area and who can also help make sure the transactions goes as smooth as possible. It is also important for you to have an understanding of this strategy and you must know the Pros and Cons before getting involved. But remember, it’s just another option.

Lawrence D. Elliott has been a Realtor

Tags: capital gains, private annuity trust, real estate, tax defer, tax deferralcapital gains, private annuity trust, real estate, tax defer, tax deferral

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