Thompson & McCarty, P.C. CPA

Income tax simplification is a subject that comes up every year. People are always asking me what I think about a flat tax, fair tax, one tax, etc., etc. Well, I will go on record right now as being a proponent of fair tax. This is Not in addition to our current wealth redistribution system. NO, not hardly, never. Repeal the income tax as we know it and replace it with fair tax. Now I do not believe that this or any other form of real tax reform will happen. My partner is in total disagreement with me on this if that makes you feel better.

My opinion is based on a couple of different things. First of all, I have been working in the tax preparation business since 1989. During that time I have seen the tax system become more and more complex. The people that are making this more complex (Congress) are the same people that would have to decide to make it more simple. There are many reason that the tax code keeps getting more complex. Most all of them are political. Taxes are designed to raise revenue for the government and the less the people most affected by the tax know, the better.

Mileage rates for 2006 are much less complex than for 2005 issue. Beginning Jan. 1, 2006, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:

• 44.5 cents per mile for business miles driven;

• 18 cents per mile driven for medical or moving purposes; and

• 14 cents per mile driven in service of charitable organizations, other than activities related to Hurricane Katrina relief.

For 2006, these Katrina-related charitable rates will be 32 cents per mile for deduction purposes and 44.5 cents per mile for reimbursement purposes.

This message was sent out by Ann Mullins, Regional Vice President, of the Better Business Burea - Cullman

Secret Shoppers Scam Targeting Americans

Your Better Business Bureau is alerting members to a Canadian company that
is targeting residents in Alabama and other states.

Alabama residents have been seeking information on a company named Secret
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204-952-8272 and website www.secretshoppers.ca
<http://www.secretshoppers.ca>.    Consumers report  

Most people undertand the importance of keeping their valuables in a safe place in case of an emergency. But what happens if the accident happens to your "safe place"? Hurricanes Katrina and Rita just emphasized the point.

Many people keep their valuables in a safe deposit box. Of course, the safe deposit box is uaually waterproof and fireproof. However, if the bank is destroyed by fire, flood, or some other disaster chances are pretty good that you will never see the contents of your safe depsoit box again.

The time to plan for how to recover from such a disaster is before it happens. By taking some steps now, you may be able to get your life and finances back in order quickly if disaster strikes.

A well kept mileage log is essential for maximizing your deductions and preparing your return to withstand the scrutiny of the IRS. Don't fool yourself and think that the Federal or State taxing authorities are never going to ask you for a mileage log. If they audit your return, and you do not have a mileage log, you will lose your deductions. If you think it will be easier to put a log together "IF NECESSARY" you are just kidding yourself. I have personally witnessed the horror from people faced with the need for a mileage log when they don't have one. It is usually a long time removed from the filing when the need arises (read audit occurs). By then people have no idea when and where they drove to accumulate the miles that are on their return. I constantly remind folks to keep up with this information because it is a good practice to do so and it is REQUIRED by the IRS.

Mileage rates for 2005 are a complex issue. We have two standard mileage rates that we have to deal with for 2005. Before September 1, 2005 the mileage rates are:

• Business Mileage Rate is 40.5 cents per mile
• Medical and Moving mileage is 15 cents a mile
• Charitable miles are at 14 cents a mile

On September 1, 2005 the following rates apply:

• Business Mileage rate is 48.5 cents per mile
• Medical and Moving mileage is 22 cents per mile
• Charitable mile are the same 14 cents a mile

This means that when you submit your information to your tax professional you should segregate miles before August 31, 2005 from mileage September 1, 2005 through December 31, 2005. Another option would be to submit your well kept mileage log. A well kept mileage log will makes this a less stressful issue.

We could tell you all day how great we are and it would just be us talking. What you are about to read is what our customers say about us. Our customers are happy. You will be too!

"I used to to H&R Block for years and the last time I went they told me I was going to owe the IRS money (a lot of money) and I got up and left.  I came directly to Thompson & McCarty and have never failed to get great service and the most money back ever.  They are very friendly and I would never go any where else for all my tax service needs.  Thanks Thompson & McCarty, you are doing a VERY GOOD job.  Keep up the good work."

A lawyer has to claim as income any settlements that he recieves. If he is not incorporated, or working for someone else, he even has to pay self employment on these settlements. A law passed last year allowed some taxpayers to take legal fees as an above the line tax deduction for attorney fees associated with a settlement. This is positively the correct way for the U.S. Income Tax code to be administered. One person has to report income so the person that paid the income receives a deduction for the expense. However, defamation, false imprisonment and emotional distress settlements are not covered by the new law. This means that an individual is having to pay taxes on money that he never receives. The attorney fees are often paid directly to an attorney. But the 1099 reports the settlement as though the "Winner" of the legal action receives the money. Even if the winner of a settlement has the opportunity to itemize the deduction, it is subject to a 2% of AGI limitation and the itemized deductions will probably trigger alternative minimum tax (AMT). This is unacceptable. It will not change unless we the citizens raise our voice and let the politicians hear that we are not going to stand for this type of double taxation.

It appears that a compromise is in the works on the inheritance tax issue. The current estate tax exemption is $1.5 million but will rise to $2 million in 2006 and will be $3.5 million in 2009 with an unlimited exemption in 2010. It will revert to $1 million in 2011 if legislation is not hammered out and passed. President Bush had hoped to make the unlimited exemption permanent but he can not get the votes to get it done. It is rumored that at $5 million a deal could be brokered. I think it is a crime to tax assets that have already been taxed. What business is it of government what an individual does with his assets when he passes away? I don't care if the assets are $100 billion dollars or more. Unless the government proves that a crime has been committed to obtain the assets, it simply should not be the governments concern.

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