This is the first of a series of 2008 Tax reference sheets that I’ll be sharing with you over the next month or so. This one focuses on some of the major federal income tax key numbers. I’ll do future ones for estate planning, retirement planning and business planning in the not too distant future so stay tuned. Since federal income taxes are such a large part of most peoples life or expenditures, I thought that you might like a summary or reference sheet for some of the important figures for 2008. Many people believe that if someone is in the 28% tax bracket, they pay all taxes due at the rate of 28% of taxable income. This is not correct. A couple having a taxable income of $125,000 does not pay 25% federal income tax on ALL of the taxable income… but only on everything over $63,700. The first $15,650 is only taxed at 10%, the taxable income from $15,560-$63,700 would be taxed at 15% and so on. The figures below is taxable income (after deductions and exemptions). I’ll start out with the tax brackets for the 2008 tax year. The figures below show the various “steps” on how the marginal income brackets are progressively taxed higher. Married, Filing Jointly: $zero – $15,650 is taxed at 10% $15,650 – $63,700 is taxed at 15% $63,700 – $128,500 is taxed at 25% $128,500 – $195,850 is taxed at 28% $195,850 – $349,700 is taxed at 33% over $349,700 is taxed at 35% Married, Filing Separately: Note: Often times it make more sense for a married couple to file taxes separately for either tax reduction strategies or for non-tax reasons. Your tax advisor should help you decide if there are important reasons for YOU to take advantage of this filing status. Tax brackets for Married Filing Separately: Simply cut the above taxable figures in half for those six tax brackets Single: $zero – $7,825 is taxed at 10% $7,825 – $31,850 is taxed at 15% $31,850 – $77,100 is taxed at 25% $77,100 – $160,850 is taxed at 28% $160,850 – $349,700 is taxed at 33% over $349,700 is taxed at 35% Single, Head of Household: $zero – $11,200 is taxed at 10% $11,200 – $42,650 is taxed at 15% $42,650 – $110,100 is taxed at 25% $110,100 – $178,350 is taxed at 28% $178,350 – $349,700 is taxed at 33% over $349,700 is taxed at 35% Standard Deduction: Standard Deduction is ONLY for those who do NOT itemize expenses like mortgage interest, charitable contributions, etc. Married, Filing Jointly: $10,700 Married, Filing Separately: $ 5,350 Single: $ 5,350 Single, Head of Household: $ 7,850 Those who are blind or over age 65 can ADD $1,050 (if married) or $1,300 (if single or head of household) to the above Standard Deductions Personal Exemptions: Personal Exemptions are set at $3,400 per allowed person subject to Phaseouts (which are reductions in the Exemptions) based on taxable income. This is not an issue unless your taxable income is at least $117,300 (depending on filing status). Maximum taxable EARNED income subject to FICA tax: $97,500 The Social Security and Medicare combined tax rate is 15.3% on income up to that figure. W-2 employees pay half of the 15.3% and employers pay the other half. Self-employed pay the whole amount. Long-term Capital Gains and Qualified Dividend Rates: For those in the 10% and 15% Income tax brackets only: 5% For taxpayers in the higher tax backets: 15% Capital gains on collectibles (coins, stamps, etc.) 28% One of the important functions of a financial advisor is to help reduce taxes to your legal minimum due by using all appropriate deductions, methods and strategies. A good tax advisor is worth their weight in gold! So go find a pro-active tax advisor, not someone who just files tax returns. And now, hopefully you will have a better idea of what that person is talking about. By: Mark J. Orr, CFP About the Author:

How do you find a tax preparer that is right for you?

First, not all tax preparers are the same. I wrote an article about this last year titled: Tax Returns: Are They All Created Equal?

HOW DO YOU FIND A TAX PREPARER THAT IS RIGHT FOR YOU?

First, not all tax preparers are the same. I previously wrote an article about this last year titled: “Tax Returns – Are they really all created equal”, and you may be as surprised as other readers about just how much tax return preparation can vary.

In fact, I calculated the average savings I typically find from annual tax savings, reducing professional fees and audit assessments. In total, the average savings are:

- $23,750 Annual tax savings

- $5,000 Audit defense savings

- $10,000 Reduced audit assessment savings

- $50,000 Reduced legal fees

- $3,000 Reduced tax return preparation fees

This is a total average potential savings of $91,750! Your tax preparer does make a difference! How much more could you do with these savings?

Second, the right tax preparer for you depends on what is important to you. Take a minute to answer this question:

WHAT MAKES YOUR TAX RETURN SUCCESSFUL?

How you answer this question will impact what type of tax preparer you need on your team. I’ve asked this questions to clients, prospects and colleagues. I have compiled the most popular answers and what it means to you as you find the tax preparer for your team.

ANSWER #1: Paying the least amount of tax legally

Your tax preparer needs to:

- Know the tax law very well and know how to be creative legally.

- Ask you a lot of questions about your situation in order to understand your situation and goals.

- Have a review process where at least one other person reviews your return solely for the purpose of how to reduce your taxes legally.

HERE ARE SEVEN (7) QUESTIONS YOU SHOULD ASK YOUR TAX PREPARER TO DETERMINE IF IT’S A GOOD FIT:

Q1: Can you tell me about the other ___________ (your industry) you service?

A: Your tax preparer needs to know how the tax law applies to your situation. Having other clients in your industry or with similar investments indicates that the tax preparer is likely to be familiar with the tax laws that impact you.

Q2: Who will be working on my tax return?

A: It’s very common (and a good business practice) for tax preparers to have staff prepare your tax return. You want to make sure the other people working on your return have the same level of expertise.

Q3: What is your tax return review process?

A: Tax preparers who are focused on reducing your taxes will have this built into their review process. Usually it involves having another experienced tax preparer review the return solely for the purpose of finding ways to reduce your taxes.

Q4: What would you have done differently on my past tax return?

A: Show the tax preparer you are interviewing your prior year tax return. Creative tax preparers will be able to give you at least one idea of what you can do to reduce your taxes by looking at your tax return for just a few minutes. If it’s creativity you are after, this is a great question to ask! But don’t expect the tax preparer to give you all the details right then and there – that’s why you pay them!

Q5: How much can you save me in taxes?

A: While it’s difficult for any tax preparer to answer this in just a few minutes of looking at your past tax return, it is possible for them to know if they can save you taxes after spending 30 minutes with you.

Q6: What deadlines do you impose on clients?

A: This may seem like an odd question for minimizing your taxes but it has a direct impact. If your tax preparer allows you to provide your information a week before the tax return is due, it’s very unlikely that the tax preparer will have the time to focus on your return to truly minimize your taxes. Tax preparers that want to reduce your taxes want your tax return information early and will communicate that to you.

Q7: What recent tax law changes should I be aware of? A: To minimize your taxes, your tax preparer needs to know the tax law inside and out, which includes the latest changes. Your tax preparer needs to be able to answer this question without hesitation.

ANSWER #2: Minimizing tax return preparation fees Your tax preparer needs to:

- Focus on the tax work and recommend someone else for the non-tax work (such as bookkeeping).

- Request tax information in a certain format.

- Require you to input your information online.

HERE ARE TWO (2) QUESTIONS YOU SHOULD ASK YOUR TAX PREPARER REGARDING MINIMIZING RETURN PREPARATION FEES TO DETERMINE IF IT’S A GOOD FIT:

Q1: What can I do to reduce my tax return preparation fees?

A: To minimize your tax return preparation fees, your tax preparer always needs to have your fees in mind. Ask your tax preparer what you can do to reduce your fees. If you don’t get at least 2 suggestions, your tax preparer probably isn’t thinking about how to keep your fees low.

Common suggestions include:

- Have someone other than the tax preparer do your bookkeeping. I am always skeptical when a tax preparer does the bookkeeping. First, they either charge an arm and leg or if they reduce their rates to accommodate you, it means they don’t spend their time entirely on tax issues, which could indicate their tax skills aren’t up to par.

- Organize your information. Don’t bring your tax preparer a shoebox! A tax preparer that is really focused on keeping your fees down will have forms, spreadsheets and other tools available for you to use to organize your tax return information.

- Enter your information online. Many tax preparers now require clients to input their information online. Accurately entered information can help reduce fees. Caution: Information that is entered inaccurately can increase your fees!

Q2: What is your fee structure?

A: Your tax preparer needs to be able to answer this question with confidence. Any wavering could indicate that the tax preparer knows the fees are too high for you but just doesn’t want to tell you. Unfortunately in these situations, you find out too late!

ANSWER #3: Reducing audit risk Your tax preparer needs to:

- Know the tax law very well and how to properly report your activity.

- Understand the IRS’s current “hot buttons” or “red flags.”

- Offer an audit defense plan.

HERE ARE FOUR (4) QUESTIONS YOU SHOULD ASK YOUR TAX PREPARER IN REGARDS TO REDUCING AUDIT RISK TO DETERMINE IF IT’S A GOOD FIT:

Q1: How many audits have you been through and what triggered the audit?

A: The most important part of this question is what triggered the audit. If it was triggered by how something was reported, then that may be something the tax preparer had control over (and may be a bad sign for you).

Q2: What was the outcome of the audits you have been through?

A: A return can be randomly selected for audit or selected because of a certain activity (even though it was reported correctly). So it’s important to understand the outcome of the audits. Was additional tax assessed or were there no changes? Additional tax may indicate that something was not reported properly.

Q3: Do you offer an audit defense plan?

A: Tax preparers that are confident in their work will offer an “insurance” program that covers their professional fees to handle your audit if your return is selected for audit.

Q4: What is your tax return review process?

A: Although tax returns can be selected randomly for audit, many are selected due to how items are reported on the tax return. Tax preparers who are focused on reducing audit risk will have a review process that includes another tax preparer reviewing your return solely for accuracy of reporting.

Be selective with the tax preparer you put on your team. The average savings I find for my clients is over $90,000! Your tax preparer makes a difference!

By: Tom Wheelwright

About the Author:

All wealth redistribution comes in the form of the equivalent of tax and welfare. However, you need to be careful. Incorrect taxation schemes can result in less wealth for you. You see, by reading this website I would suppose that you’re poor or middle class wanting to skyrocket your income, right. Rich means owning a lot of money. If you’re poor and would want to get rich, you need to have a lot of income. So will income tax help? No! Abolish income tax.

The Peril of Income Tax

Income tax can exaggerate wealth difference and can cause great deviation from meritocracy. Income tax can be very unfair and bad for workers.

Think of it this way. Imagine a country where you live. Say your friend Bob has an employee Ann. Bob is a rich man because he owns a lot of farm land that he uses as his recreational facility. Ann works for Bob as a farm labor. You work by productively serving the market through various means.

Bob earns his land through inheritance from his ancestors. His ancestors earn the land by massacring Indians and seizing their land. Not exactly productive means of acquiring wealth, however for all legal purposes, Bob’s land is his.

The market tends to reduce the effects of injustice. A stupid lazy person owning great wealth will lose it in gambling table while the smart and diligent worker will have plenty of capital owners willing to lend money to him. So I am not going to argue much over 300 years old injustice.

It’s simply a natural order that the more capable gets more money and it does take skill to commit genocide I must admit. Moreover, people often earn large amount of money unproductively due to society’s failure to embrace meritocracy. If the rule says you got to bribe or be a dictator to get rich, can we blame people to do just that? So in a certain very twisted sense, it’s fair.

Nevertheless, I look much more kindly on capitalistic wealth earned recently through merit within ones’ own lifetime rather than wealth earned through inheritance. The latter is rather dubious.

Now, what would income tax do with this injustice? Income tax will exaggerate it. You, as workers who serve the will of the market will have to pay income tax. The money goes to pay subsidy for farm products. Politicians will say that it benefits Ann. Will it? No. Ann is a farm laborer. The market value of any labor is constant across industry. If Ann gets paid with less money as farm labor, Ann will move job to a service industry.

So the subsidy does not profit Ann. Then who profits? Bob… You see how a combination of income tax and governments’ controlled subsidy take money from you, the still poor workers, and give the money away to rich land owning people?

The perils of income tax go on and on. You make money honestly. Your friend is lazy. Say you’re both poor. Who pays more tax? You. That’s because you have more income. The pretext is to take money from the rich and give it to the poor. Yet, even though you’re both poor and start of with the same amount of money, you pay more tax. That punishes diligence and productivity.

Say Bob and you are equally rich. Bob builds mansions. You build factories. Who pays more tax? You… Why? That’s because factories produce income. Factories also create jobs. So, income tax reduces incentives to use wealth for productive means.

Increase of Fearsome Governments Power

Income taxes give governments far more power than what’s originally intended. In US, for example, governments do not have power to know your financial transaction. Yet governments can take your money through tax and then demand that you voluntarily report your financial transactions to get tax returns.

Federal governments do not have the power to regulate some aspects of the states. Yet federal governments can tax everyone and deny funding for states that do not observe federal speed limit. Federal governments do not have direct power to indoctrinate your kids, however, the governments can tax everyone and subsidies public school. The list can go on and on. With income tax, everyone is a slave.

If income tax is such a bad idea, how should we replace that then?

Non Productive Means to Acquire Wealth

There are two types of wealthy people. Self made millionaires, and the rest. Self made millionaires are highly capable, diligent, and ambitious individuals. That is you or what you’ll become. To be rich, such self made millionaires need to have a lot of income. Taxing income hurts self made millionaires. Not only that, we’re talking about highly diligent and capable people here. Those people don’t go down easily. When income is taxed, they’ll resort to other ways to create wealth. That ranges from hiring lawyers to avoid tax, fighting governments, corruptions, or becoming a dictator.

Just look at Saddam. Why do you think he chose to be a dictator? Why Kim Yong Il became a dictator? Are those people too stupid to earn wealth productively? No. They’re smart. But they chose to be a dictator because productive means of creating wealth are harassed by various regulations like income tax.

Supporting income tax or any consensual means of making money will not only hurt you, but also hurt all poor and middle class. Just look at the median wealth of capitalistic countries and socialistic countries and you’ll see my point easily.

If you really want wealth redistribution, don’t tax income, tax wealth.

By: Jim Thio

About the Author:

When the month of April rolls around most of America is preparing their income tax returns. Each year all individuals who made an income are required to report that income to federal and state governments by filing an income tax return.

Taxpayers must file two separate income tax returns. One income tax return goes to the federal government and the other goes to the state government that a particular taxpayer resides in. The majority of taxpaying Americans are able to fill out a Form 1040A: U.S. Individual Income Tax Return. Individuals that do not have any children or other qualifying dependents are able to file a federal 1040EZ form. This form is also referred to as the Income Tax Return for Single and Joint Filers With No Dependents. The 1040EZ is basically a shorter version of the 1040A form; however, taxpayers must meet certain requirements before filing a 1040EZ form.

The majority of taxpayers will have the federal income tax forms they need mailed to their home. The option to have federal income tax forms mailed to a taxpayer is given on the previous year’s tax forms. Taxpayers who do not wish to receive federal income tax forms but do need them can get the forms from a number of sources. Many paper forms are available for pickup at many local post offices, banks, and libraries. Taxpayers can also visit the website of the Internal Revenue Service (IRS) which is found at http://www.irs.gov. The Internal Revenue Service has a collection of federal income tax forms that can be downloaded and printed. http://www.taxhelpdirectory.com/federalincometax/

When a taxpayer reports their income earned to their state government they will also have to fill out a state tax return form. Each state has their own income tax return forms. The form numbers will all be different because they vary from state to state; however, some forms will have the same heading. It is not uncommon for a state income tax form to be known as the Resident Income Tax Return. As with federal income tax returns, the majority of states have a long income tax return form and a short one. Taxpayers who are able to fill out and file a short state income tax return are encouraged to do so because it saves many taxpayers a large amount of tax preparation time. As with most federal income tax forms, state tax return individuals are likely to have a packet of state income tax forms mailed directly to their home. It is also possible for taxpayers to find their state tax forms at their local post office, financial institution, or library.

In addition to the traditional taxpaying individual, there are others who have to report and possibly pay an income tax. All businesses and estate properties of an individual who has passed on are subject to an income tax. A small business owner or the executor of an estate property will have to file different federal and state income tax forms than the traditional taxpayer. These forms can be obtained at the same places where standard federal and state forms are available.

By: Gray Rollins

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