Our School of Tax Strategy member, Debbie, has an overload of real estate papers and she would like to know what exact documents she will need to keep on hand and which ones she could discard or scan and save to a disc.

For tax purposes, the IRS allows records to be kept electronically, so there is no real reason to keep hard copies. There may be other laws that require you to keep hard copies of certain materials.

I suggest you keep a hard copy of your settlement statements, your mortgage note, and your deeds. And I suggest you keep them in a fireproof safe. These are the three documents on any real estate transaction that you are likely to need and to easily retrieve.

Warmest regards,

Tom

President Obama's new budget includes several changes to the tax laws. As promised, most of the benefits are for families earning under $250,000. These include the continuation of the 10% tax bracket, the child tax credit and education incentives. There is also a provision to increase the Alternative Minimum Tax (AMT) exemptions for 3 years.

The most notable change relates to the Estate Tax. As you may know, the estate tax is scheduled to go away next year and then the following year revert back to pre-Bush law (meaning that the standard exemption goes back to pre-Bush increases).

The proposal in the budget is to permanently allow a $3.5m exemption for individuals and a $7m exemption for couples. This is a relief to many of us, who were concerned that this Administration might severely reduce the exemption. This gives us some level of certainty for estate and gift planning.

If you have not done your estate plan, or would like a review of it, please contact our office at cs@provisionwealth.com or call us at 866.467.5809. We are happy to review your situation and help you determine what you can do to reduce or eliminate your estate taxes while protecting your family from probate.

Warmest regards,

Tom

Studies show that most of us live our entire adult life based upon the things we learned and especially experienced while we were young. Whether it is our eating habits, exercise or how we relate to others, most of how we behave as adults stems from our experience and teachings as a child. That's what keeps psychologists in business. We go to them hoping they can reprogram us from the experiences of our youth.

This is especially true when it comes to money. People who grow up poor tend to be poor as adults. The same is true with people growing up wealthy, even if their parents don't pass on any of the wealth to them. If we grow up in a middle-class family, chances are we will live middle-class lives as adults. It makes sense - this is what we know.

Of course, this is not always the case. Many athletes and others grow up poor and become rich as adults. I have several clients like this. A perfect example is my friend, Marshall Sylver. Marshall grew up very poor. Now he is very wealthy. Why? Like many who grow up poor, Marshall is driven to succeed so he will never be poor again. And, of course, we hear of wealthy kids who are lazy and lose all their money. Middle class, though, is the most dangerous of these positions. It is the most difficult to rise from.

Why? Middle class is comfortable. You aren't starving or feeling a lack of basic necessities. You aren't living on grits or oatmeal. So where does the drive come from to change so you can become wealthy? Here is where you have to change your mindset. You have to begin thinking differently about what is comfortable and what is important.

The same is true about anything we want to change. We have to start by changing our mindset. Even when it comes to taxes. Most people think taxes are scary and something they have to deal with once a year and something that is a necessary evil. One of my goals in life to to teach a new mindset about taxes. They don't have to be scary. We need to deal with them throughout the year and, with proper planning, we can reduce or avoid a lot of them.

The wealthy understand this about taxes. It's one of the things that differentiates their mindset from that of the middle class. And it's an essential change of mindset for anyone who wants to move up the ladder from middle class to wealthy.

Warmest regards,

Tom

Many of you have spent thousands of dollars on seminars in the past few years. One of the more common questions I get when I am speaking at a seminar or later when I am doing a tax evaluation is whether the cost of these seminars is deductible.

Like most tax questions, the answer depends on your circumstances. Some of you own a business and the seminars are likely to improve your business skills. You are the lucky ones, as your seminar expenses should be fully deductible against your business income.

Others of you are looking to start a business. Your seminar expenses probably are not currently deductible, especially given a recent decision by the Tax Court. The Tax Court held that expenses for a real estate seminar were not deductible. Instead, they were considered start up costs of the Taxpayer's real estate business. Why? Because the Taxpayer had not begun his real estate business prior to incurring the seminar expenses.

Still others of you are trying to decide whether to start a business. If you incur seminar expenses that don't relate to your employment and you never start a business, you probably cannot deduct the cost of the seminar at all under this new Tax Court case. Certainly, this is the position the IRS is taking.

If you have questions about how to handle start up expenses, join us in our School of Tax Strategy or check out our course specifically on start up expenses at http://www.provisionwealth.com/products.

Warmest regards,

Tom

The Issue: The states are all short on funds with the current condition of the economy. As a result, they are aggressively going after any business that makes sales in their state and has not been collecting sales tax. One of my friends recently found this out the hard way when state revenue agents showed up at his office and began collecting data from his computers without any warning. The end result? Writing a very big check to the Department of Revenue for unpaid sales taxes.

The Rule: A business is required to collect sales tax on sales of “tangible personal property” in any state in which they have a “physical presence.” A physical presence normally means employees or an office in the state. However, many states take the position that if you visit the state to do business, especially at a trade show or speaking event, then you have physical presence and they can require you to collect and remit sales tax on all of your sales.

Tangible personal property means, for speakers, any books, cd’s, or other information products whether there is a physical product (e.g., cd) or whether it’s merely a download. This means most information products other than seminars and coaching. Even seminars can be subject to tax if they come with a manual or other materials. Some states go so far as to say that even if there is no more than a handout at the seminar, the entire course is subject to sales tax. Our member who got hit with the recent audit puts on multi-speaker events and ended up paying the tax on all of the products sold at his events over the past three years by all of his speakers.

The Solution: The best solution is simply to collect and remit tax on all sales at seminars. If this is going to cause a closing ratio challenge for you, then you can separate out the charge for the materials from the charge for the seminar or coaching services and only charge tax (or pay it yourself) on the price you charge for the materials. Just be sure the price you list on your sales form for materials is reasonable.

The Rest of the Story: This is only the tip of the iceberg. Once you have a physical presence in a state (say you speak at a seminar in that state), all of your sales to customers in that state, even through the Internet, are subject to sales tax in that state. In addition, you will be subject to income tax in that state as well. The income tax rules are much broader even than sales tax and in most states don’t require a physical presence.

So beware of this major issue as a speaker and/or promoter. 7-8% of all sales straight to your bottom line literally could put you out of business. To be safe, contact a CPA who specializes in multi-state taxes and have them do a state tax review for you. A few thousand dollars of professional fees now could save you hundreds of thousands of dollars later. For more information, feel free to contact my office at 866.467.5809 or email me at cs@provisionwealth.com