Finance Tax Time

When a single taxpayer sells his or her principal residence that he or she has owned and used as a principal residence for at least two of the previous five years, the taxpayer may exclude up to $250,000 of the gain from gross income. A married couple who meets the conditions may exclude up to $500,000 of gain.

This means that the gain is never taxed. The taxpayer does not have to purchase a new home for the exclusion to apply. However, if the taxpayer has ever used the home or any part of it for business purposes, the taxpayer must pay taxes on the gain due to depreciation recapture.

While many people are aware of this exclusion provision contained in Section 121 of the Internal Revenue Code, few people have thought about how to use it as a strategic wealth-building tool. The way to use it as a wealth building tool is to buy a home below market value, such as a foreclosure or probate property, sell the home a little over two years later, and then repeat the process.

Another way to use this provision to its maximum is to act as one’s general contractor and build a home. Individuals who act as their own general contractors can often build a home for 80 percent or less of its value. There are books available that explain how to do so.

The advantage of buying a home below market value or building a home is that the taxpayer has a gain from the beginning. If the property appreciates more from the date of purchase or completion of construction, that is even better. The exclusion applies not only to the appreciation from the date of purchase or completion of construction, but it also applies to the gain from buying or building below value.

While moving is a chore, by moving every two to three years, a taxpayer can realize substantial gains that are free from federal income tax and Social Security tax. “Keep moving” is not only a good slogan for physical fitness, it also can be good for fiscal fitness.

If a taxpayer has some extra cash left over after selling a home and buying another one, the taxpayer can place money into a Roth IRA up to the maximum amount allowed if the taxpayer is eligible to do so. Doing so allows the taxpayer to generate even more tax-free income.

For many taxpayers, tax deductions are becoming less valuable because of the alternative minimum tax (AMT). The gain on the sale of a principal residence that is excluded from gross income is not subject to the AMT. Taxpayers should use this generous tax provision to build wealth and minimize their tax obligations. The ability to exclude the gain on the sale of a principal residence is a great tax savings strategy.

Alan D. Campbell is a CPA in Arkansas and Florida and is self-employed primarily as an author of tax publications. He earned a Ph.D. in accounting with an emphasis in taxation from the University of North Texas. He is also admitted to practice before the United States Tax Court. He has published numerous articles on tax topics in professional journals. He is the co-author of the book Tax Strategies for the Self-Employed and the revision editor of CCH Financial and Estate Planning Guide, 15th edition. For more tax savings strategies, please see his blog: http://taxsavingsstrategies.blogspot.com

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Like most people you are filing a 1040 form at the end of each year. The question is, why? Now don’t get me wrong here. I am not saying it is time to stop paying your income taxes. If you tried to just stop sending in a 1040 form most likely the IRS would hunt you down and prosecute you to the full extent of the law.

So let’s begin by getting to how you came to be in this position. The fact is, at some point, you were lead to believe that when you started to earn an income in this country you needed to file a 1040 Form to declare taxable income. As soon as you submitted that form a file was opened with the IRS called your Individual Master File (IMF). At that point you became a legal taxpayer, a person who is required to submit a 1040 Form each year from that time on. Before you filed your first 1040 you were a legal non-taxpayer and didn’t even know it. How did this change take place?

Well, the fact is the United States Constitution states that the US Government could not tax an individual’s wages. The only way they were allowed to collect taxes was through excise taxes. These are the taxes we pay on fuel, telephone service and other utilities, motels, etc. These taxes are what support the backbone of this country and they are entirely legal. They provide the services and roads that we depend on every day. Well the government decided that they needed more money so the 16th Amendment to the constitution was created. What people do not know is that the laws created in that amendment apply only to these people…Federal Employees, residents of Washington DC and other federally controlled territories such as US Virgin Islands. That amendment does not apply to the majority of Americans! So what the IRS did was create a form, (aka the 1040 Form) that is a legal document of the US Virgin Islands. So guess what, when you filed your first 1040 form, you fraudulently stated that you are a resident of the US Virgin Islands. Of course you did not know that but now your Master File with the IRS says that you are legally bound to file income taxes for the rest of your life, because you are a resident of the US Virgin Islands. That is why you cannot just stop filing without serious consequences.

Well how can you fix this issue? You need to get your IRS Master File corrected. Any information held within that file can be used against you, even if it is wrong, should the IRS ever decide to take court action against you. The information in that file is considered fact unless rebutted. So if it is taken before a court of law, whatever your file says is what the court is going to accept as truth.

Now the Freedom of Information Act states that any agency that maintains a file on you must provide you a copy if you request one, much like your credit report. However unlike your credit history, your IRS Master File is written entirely in numerical code. You could not read it if you wanted to. Therefore you must hire an agency to do that for you. They have the IRS codebooks to clearly understand what is in your file. Interestingly must peoples Master Files are as much as 30 pages long. They often list you as not only a Virgin Islands resident, but also as an arms dealer, drug trafficker, etc. That way they have a strong case pre-built against you in the event that they aver have to start court proceedings. However once you have your Master File decoded and all erroneous entries deleted, your file will fit on one page. You also can get a letter from the IRS that states that you have no 1040 form requirement. So do yourself a favor and get that file cleaned. I am not the person to do that for you but I can direct you to those who can.

Wishing you the best, Adron Wood
www.realfinancialeducation.com

As a financial education consultant I am here to help individuals locate little know strategies to assist with real long term wealth creation and preservation. That includes legal tax reduction or elimination.
http://www.realfinancialeducation.com

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It’s important to keep in mind that offshore financial centers were originally established by onshore banks and corporations. Why? Because felt hemmed-in by archaic laws, regulations and statutes. For example, Citicorp (the largest American-owned bank in the United States) was one of the first to set-up offshore operations. It wasn’t too long before 64 percent of its net income was being generated by offshore sources.

Some of the pioneering centers have evolved into world-class financial and economic headquarters. Since the early 1970s, these centers have initiated policies deliberately designed to attract international trade by minimizing tax obligations and reducing (or entirely eliminating) other restrictions on business operations. The result is that economic activity within these centers is specifically geared to the special global needs of outside businesses and investors.

Typically, these centers are small states with tiny populations. To date more than 75 of these tax havens exist throughout the world. Each one of them is a unique offshore haven of sorts deliberately intended to attract very particular investors with very specific needs.

For example, a center like Aruba was set up primarily for economic development. Formerly dependent on oil refineries for its revenue, it has now implemented an investment policy that gives it entree to the global economic system. Becoming an offshore money haven was the answer. By “renting” its laws regarding taxation, incorporation and other related legal matters, Aruba has begun a much needed process of economic development and diversification.

Singapore, on the other hand, was designed to serve the Asian dollar market. Today it’s one of the most prosperous money havens in the world on a per capita basis. And Bahrain was developed to process the Middle East’s offshore financial needs, especially Saudi Arabia’s.

All these offshore havens were made possible by the electronic revolution in fund transfer mechanisms which occurred early on in the 1970s. That single technological development made it suddenly possible and affordable to establish banks, corporations and holding companies in relatively remote locations. It also made inter and intra time-zone business a viable alternative to home-based operations. In turn, this gave rise to the creation of international wholesale banking where large deposits could be maintained in a variety of currencies, transferred via a worldwide network of corporations, banks, governments and individuals, and lent to interested borrowers. This, in turn, led to new transnational business practices and the development of the international subcontracting of loans and other financial transactions.

Basically, international havens have become an established part of the international intermediate economy. They stand as “brokers” of a sort for global business and finance. It’s important to keep in mind that all of this was initiated by large banks, corporations and even government agencies from around the world. Keep in mind that every government from the Soviet Union to Japan, China and the United States needs to obtain money on the international market. They, too, use money havens as convenient transaction points. The Bahamas became one of the biggest offshore havens because it serves the purposes of various government entities from finance ministries to intelligence agencies.

Offshore havens are, today, an accepted financial fact. Even more important, they are seen as legitimate vehicles through which individual investors can take advantage of the offshore option. If is simply a matter of applying the basic financial principles of profit, tax protection and privacy. They were developed over the centuries by Florentine merchants, royal treasurers and brilliant bankers. The mechanisms and strategies change continuously, but the goals always remain the same.

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