How to Pay Zero Taxes

Below is a great article by Brett Arrends of the Wall Street Journal on how to "pull a GE". In other words, how not to pay any taxes. The example offered is just an illustration and different deductions may be taken depending on each case.

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There's been a firestorm this week over the news that General Electric (NYSE: GE - News) will pay no tax -- at least, no federal corporate income tax -- on last year's profits.

But if you're like a lot of people, your first reaction was probably: "Hmmm. How can I get that kind of deal?"
You'd be surprised. You might. And without being either a pauper or a major corporation.

I spoke to Gil Charney, principal tax researcher at H&R Block's Tax Institute, to see how a regular Joe could pull a GE. The verdict: It's more feasible than you think -- especially if you're self-employed.
Let's say you set up business as a consultant or a contractor, something a lot of people have been doing these days. And, to make this a challenge on the tax front, let's say you do well and take in about $150,000 in your first year.

First off, says Mr. Charney, for 2010 you can write off up to $10,000 in start-up expenses. (In subsequent years it's only $5,000.)

Okay, let's say you claim $7,000. That takes your income down to $143,000.
You can also write off all legitimate business expenses. Mr. Charney emphasizes that this only applies to legitimate expenses.

He didn't say, but everyone seems to understand, that this can be quite a flexible term. Even if you buy a computer, a cellphone and a car primarily for business use, you can use them for personal purposes as well. If you happen to take a business trip to Florida in, say, January, no one is going to stop you from enjoying the sunshine or taking a dip in the pool.

So let's say you manage to write off another $10,000 a year in business expenses.

That brings your income, for tax purposes, down to $133,000.
You'll have to pay Medicare and Social Security taxes (just like GE). Because you're self-employed, you have to pay both sides: the employee and the employer. That will come to about $19,000.
However, you can deduct half of that, or $9,500, from your taxable income. So that brings your total down to $123,500 so far.

Now comes the creative bit. The self-employed have access to terrific tax breaks on their investment and retirement accounts. The best deal for many is going to be a self-employed 401(k), sometimes known as a Solo 401(k).

This will let you save $43,100 and write it off against your taxes. That money goes straight into a sheltered investment account, as with a regular 401(k).

Why $43,100? That's because with a Solo 401(k), you're both the employer and the employee. As the employee you get to contribute a maximum of $16,500, as with any regular 401(k). But as the employer you also get to lavish yourself with an incredibly generous company match of up to 20% of net income.
Yes, being the boss has its privileges. (And if you're 50 or over, your limit as an employee is raised from $16,500 each to $22,000.)

You can save another $10,000 by also contributing to individual retirement accounts -- $5,000 for you, $5,000 for your spouse. If you use a traditional IRA, rather than a Roth, that reduces your taxable income as well. If you're 50 or over, the limit rises to $6,000 apiece.

If you contribute $43,100 to your Solo 401(k), and $10,000 to two IRAs, that brings your income for tax purposes down to just over $70,000. We haven't stopped there either, says Mr. Charney. Now come the usual itemized deductions. You can write off your state and local taxes. Let's say these come to $10,000. You can write off interest on your mortgage. Call that another $10,000. That's enough to pay 5% interest on a $200,000 home loan.

That gets us down to about $50,000 And we're not done. If you're self-employed, health insurance is probably a big headache. But the news isn't all bad. You can write off the premiums for yourself, your spouse, and your kids.

And if you use a qualifying high-deductible health insurance plan -- there are a variety of rules to make sure a plan qualifies -- you get another break. You can contribute $3,050 a year into a tax-sheltered Health Savings Account, or $6,150 for a family. You can write those contributions off against your taxable income. The investments grow sheltered from tax. And if you spend the money on qualifying health costs, the withdrawals are tax-free as well.

So call this $10,000 for the premiums and $6,150 for the HSA contributions. That gets your income, for tax purposes, all the way down to about $34,000.  If you have outstanding student loans, you can write off $2,500 in interest. And you can write off $4,000 of your kid's college tuition and fees.

Then there's a personal exemption: $3,650 per person. If you're married with one child, that's $10,950.
Taxable income: just under $17,000. That's on a gross take of $150,000. You'd owe less than $1,700 in federal income tax.

And it doesn't stop there. Because now you can bring in some of the tax credits. Unlike deductions, these come off your tax liability, dollar for dollar.

GE got big write-offs related to green energy. There are some for you too, although on a small scale. You can claim credits for things like installing solar panels, heat pumps or energy-efficient windows or boilers in your home. Let's say you use a home equity loan to pay for the improvements and take the maximum $1,500 write-off. That gets your tax liability down to $200. Can we get rid of that? Sure, says Mr. Charney.

If your spouse spends, say, $1,000 on qualifying adult-education courses or training programs, you can claim $200, or 20% of the cost, in Lifetime Learning Credits. (The maximum is $2,000.)
That wipes out the remaining liability.

Congratulations. You've pulled a GE. You owe no federal income taxes at all.

OK, it's just an illustration. Few will be quite so fortunate. On the other hand, it's not comprehensive either. There are plenty of other deductions and credits we didn't mention. You could have written off up to $3,000 by selling loss-making investments. Your spouse may be able to use a 401(k) deduction as well. There are lots of ways to tweak the numbers.

In this case, you've paid no federal income tax, and meanwhile you've saved $19,000 toward your retirement through Social Security and Medicare, and $53,000 through your 401(k) and IRAs. You've paid most of your accommodation costs (that is, the interest and property taxes on your home), covered your health-care costs and quite a lot of personal expenses through your business account, paid $4,000 toward your child's college costs and had about $2,000 a month left over for cash costs.

Who says GE has all the fun?

Making Work Pay tax credit

There is a tax credit from last year called "Making Work Pay" that has been carrried over this year. Which means another form needs to be filled out, Schedule M.

The Making Work Pay tax credit put some extra cash into most workers' paychecks in 2010. A single taxpayer was eligible for up to $400 last year, while married couples brought home a maximum of $800. Most tax filers are eligible but not everyone.

To learn more about it, click here for an article by Bankrate Inc.

For a free consultation, contact me, Elizabeth (tambien hablo español) at 305-860-9903.

Let's simplify your life so you have time to enjoy it!

What Documents You Need to Complete Taxes

Being organized with your tax papers is important for a couple of reasons. Number one it will ensure you file your tax return correctly. Secondly, when you receive that dreaded  IRS letter, your CPA can readily handle it with minimal stress on your end.

This article by MainStreet offers a complete explanation and list of items, receipts and documents to bring.

For a free consultation, contact me, Elizabeth (tambien hablo español) at 305-860-9903.

Let's simplify your life so you have time to enjoy it!

"I Survived an IRS Tax Audit"

This recent new story from shares the personal story from a woman who received a letter from the IRS and was audited even though it regarded her EX husband's business. Notice the trigger points of who is listed first on the tax return and the amount of deductions.

This is where having a CPA can represent you, much like having a lawyer. 

Another helpful tip, with advanced techonology, consider scanning your tax returns and saving a pdf file, especially when you own a business.

Give me a call, let's simplify your life.
Elizabeth 305-860-9903

About Elizabeth

My name is Elizabeth Andrade and I am a Certified Public Accountant with over 30 years experience. Numbers and accounting are my passion.

After working with clients of all income levels, I have witnessed first hand the struggles of many individuals and families especially the middle class. While I work full-time as a Sr. Accountant for a major national company, I decided I wanted to do more and help the average person, the business owner, the divorced single parent, really anyone who needed help with tax returns. I decided to offer my services for below a CPA firm rate, below H&R Block and Jackson Hewitt rate. Yes my rates are very competitive. It's my way of giving back a little. 

The tax system is complicated in this country and that is why certified accountants are required to take intensive and extensive classes to keep up with changing tax laws.  A valuable lesson my clients will share with you is that if they had doubts about doing their taxes correctly, 99% of the time there was an error. Every tax payer will be audited by the IRS at least once in their life.  If you are not 110% confident in your tax preparation, more than likely you will have to correct it and refile. Responding to the IRS, digging through years of papers, files, receipts, documents is daunting.  A tax consultant is a big help, a huge relief to simplify the process and knows "tax lexicon". 

Feel free to contact me for a consultation. My clients are from around the country and even a few foreign residents who also have residency in the U.S. 

Keep in mind it is tax season and I work full-time, evenings, and weekends so please allow me 24-48 hours to answer your message. You may reach me by phone. Please leave a message on my home phone at 305-860-9903. Miami, Florida. Be sure to speak up, clearly, and slowly. Also, I am bilingual in English and Spanish.

Tax Changes for 2010

Hurray! Just what you have been waiting for--the official day to begin filing your tax return. Why Today? Well Congress took extra time in finalizing new tax laws. Thanks to the Tax Relief Act in December,  your 2010 may be less complicated, but there are still a number of changes that may get you in trouble if you're not up to date or understand its meaning.

Lawmakers’ agreement to extend the Bush-era tax cuts means many of the tax provisions you’ve come to know and love are still in place — and the Form 1040 is similar to last year.

But there’s bad news for some taxpayers. For instance, in 2009 unemployed workers could exclude up to $2,400 of unemployment benefits from income; that provision did not get extended for 2010. This will come as a surprise to most taxpayers.

Other tax breaks are gone, too, such as the three extra standard deductions — for real-estate taxes, taxes on a new-car purchase and disaster losses — that non-itemizers could use to lower their bill in 2009.

Still, other than the disappearance of Line 40b to claim those extra standard deductions, Form 1040 is essentially the same as last year.

The Tax Relief Act, among other perks, resuscitated the deduction for state and local sales taxes — a boon to taxpayers in income-tax-free states — and the above-the-line deductions both for student tuition and fees, up to $4,000, and for teachers’ classroom expenses up to $250.

And, for high-income filers, the new law extends through 2012 the Bush-era provision repealing the income limits on itemized deductions and personal exemptions. Before, taxpayers above certain income levels lost part or all of their exemptions and itemized deductions. Those limits were slowly phased out; 2010 is the first year they’re gone completely (separate income limits still apply on some deductions).

Plus, Congress extended the alternative-minimum-tax patch, preventing millions of taxpayers from losing access to a number of tax breaks under that parallel system. The AMT exemption amount in 2010 for single filers is $47,450 and for married-filing-jointly filers it’s $72,450.

A big perk, for eligible families: The adoption credit is now refundable, and worth up to $13,170 in 2010 and 2011. In 2012, it drops down to $12,170 and won’t be refundable, according to CCH.

Confused? Another change this year is that you get an extra weekend to sort it all out. The tax deadline is April 18, thanks to a holiday in Washington on April 15.

Your IRA
Also thanks to the new law, people 70 1/2 or older can donate up to $100,000 to an eligible charity directly from their IRA, count it as a required minimum distribution, yet still avoid an income-tax hit on that money (but they can’t deduct it as a charitable donation). And they get until Jan. 31 this year to make such a contribution for 2010. The tax break is also available in 2011. See this IRS page for more on what qualifies as an eligible charity.

Meanwhile, if in 2010 you took advantage of the ability to roll money from a traditional IRA to a Roth IRA — income limits on such transfers no longer exist — you can choose to pay the income tax on that conversion over two years, half in 2011 and half in 2012.

Or, you can include that income on your 2010 return. If you want to pay the tax now — maybe you’re in a lower tax bracket in 2010 than you expect to be this year — be sure to check the appropriate box on Form 8606.

If you were unemployed in 2010, had low income and anticipate you might be in a higher tax bracket in 2011 and 2012, it might make sense for you to pay the tax in 2010.

Homeowner Tax Breaks
Are you eligible to claim the home-buyer tax credit on your 2010 return? You won’t be able to e-file. The IRS wants you to snail-mail information with your return.

The credit is worth up to $8,000 for first-time home buyers and $6,500 for long-time homeowners who lived in their home for more than five years. Read the rules for the first-time home buyer tax credit on
If you claimed the credit in 2008, you are among the unfortunate group that must pay the credit back over the next 15 years — and 2010 is the year your first bill comes due.

Also, if you claimed the home-buyer credit in 2008 or 2009 and then moved out of the house, you may have to pay back the credit. Check out Form 5405 for the details. (Did you know that doing a Google search of “Form 5405” — plug in any IRS form number — will get you the IRS page you need?)
If you’ve had a problem with so-called “corrosive drywall” in your home, the IRS may let you treat that as a casualty loss. See this IRS page for more.

But, bad news for homeowners who didn’t jump on the tax credit for energy-efficient home improvements, such as new doors and windows: That tax break got trimmed for 2011. Still you can take it for 2010 if you made the eligible energy-efficient upgrades by the end of the year.

You probably have many questions swirling in your head. Call me, let's discuss and simplify your life.


" Elizabeth has been my tax preparer for 20+ years and I feel extremely fortunate. She is knowledgeable in tax laws inside and out.  No matter how complex my return from starting a business, investing in stocks, or buying my first home, she knows her trade and I am lucky to have my own accountant. It's like owning a brand new Mercedes and paying less than half the retail price. It's like getting access to best healthcare system without insurance, and being able to afford it. She is a CPA who charges less than CPA firm, less than tax offices. I made the horrible mistake of going to mom-and-pop outfit. While I support small businesses, a valuable lesson I learned is to get an accountant WITH EXPERIENCE.

My entire family uses her services. If only healthcare professionals took a slight paycut across the country, millions of Americans would have affordable access. You never want to take shortcuts with the IRS. I was audited by IRS and had no idea what to do. Elizabeth resolved everything and I continued my routine without any worry. She is the best!"

Christine Michaels, Miami, FL

" Accountants like attorneys are not cheap. But Elizabeth offers her tax accounting services for a fraction of a CPA firm, the most expensive way to complete your tax return. She's like a family member where every year we catch up on life's events since we met the previous year.  It's like my New Year review and helps put my financial situation and goals in perspective for the year. "
Yvonne Michalczyk
Columbia, MD

"Every year I fly to Miami from South America to meet with Elizabeth. Naturally I combine vacation with business affairs but having Elizabeth as my personal accountant for so many years, is like having a family doctor. She knows my business, my family, my affairs. This way I do not have to explain everything from the beginning. We simply review what's different and that way I have more time to talk to her about my children and fun topics.  Elizabeth is bilingual in English and Spanish. I strongly encourage Spanish-speaking only residents to hire her instead of going to nonexperienced tax preparers. Unless you have nothing to itemize and have straight 1040 return, do not take chances. If they make mistakes, and IRS comes sends you a notification, they will not help you! Elizabeth will represent you! It's a tremendous relief and doesn't break the bank".
A. Alguilar
Buenos Aires, ARGENTINA