How to Pay Zero Taxes 2016: Your Guide to Every Tax Break the IRS Allows

ACKNOWLEDGMENTS xvii

CHAPTER 1: Tax Insanity 1

CHAPTER 2: Is It Legal? 35

CHAPTER 3: How Our Tax System Works 41

CHAPTER 4: Exclusions—Tax-Free Money 47
A Alternatives to “Earned Income” 49
1. Hospitalization Premiums 49
2. Group Life Insurance Premiums 50
3. Group Legal Services Plans 52
4. Accident and Health Plans 52
5. Employee Death Benefits 53
6. Merchandise Distributed to Employees on Holidays 53
7. “Expenses of Your Employer” 54
8. Meals and Lodgings 54
9. Employee Discounts 56
10. Workers’ Compensation 56
11. “Cafeteria” Plans and Flexible Spending Accounts 57
12. Dependent Care Assistance Program 57
13. Employer Educational Assistance 59
14. Employee Awards 60
15. Clergy Housing Allowance 62
16. Miscellaneous Fringe Benefits 62
B Donative Items 63
17. Gifts, Bequests, and Inheritances 63
18. Scholarships and Fellowships 64
19. Prizes and Awards 66
20. Qualified Charitable Distributions (QCDs) 68
C Investors 69
21. Interest on State and Municipal Obligations 69
D Benefits for the Elderly 70
22. Public Assistance Payments 70
23. Social Security and Other Retirement Benefits 70
24. Annuities 73
25. Sale of Your Home 76
E Miscellaneous Individual Exclusions 77
26. Carpool Receipts 77
27. Damages 78
28. Divorce and Separation Arrangements 86
29. Life Insurance 89
30. Qualified State Tuition (§529) Programs 91
31. Your Home—The Mother of All Tax Shelters! 100
32. Disabled Veteran Payments 104
33. Exclusion of Income for Volunteer Firefighters and Emergency Medical Responders 104
34. Unemployment Benefits 104
35. Homeowner Security 104
36. Reimbursed Costs to Parents of Children with Disabilities 105
37. Wrongful Conviction and Incarceration 105
38. Restitution Payments 105
39. Frequent Flier Miles 105
40. Hurricane Sandy 106
41. Cancellation of Indebtedness 106
42. Medicaid Payments for Foster Care of Related Individuals 106
F Schedule of Excludable Items 107

CHAPTER 5: Credits—Dollar-for-Dollar Tax Reductions 109
A Estimated Tax and Withholding Exemptions 110
B Credits 113
43. The Earned Income Credit 113
44. Excess Social Security Tax 116
45. The Child and Dependent Care Credit 117
46. Credit for the Elderly or Permanently and Totally Disabled 123
C Special Credits 125
47. Work Opportunity Credit (Formerly Targeted Jobs Tax Credit) 125
48. Welfare to Work Credit 126
49. Research Tax Credit 126
50. Orphan Drug Tax Credit 127
51. Adoption Assistance 127
52. Hope Scholarship Credit 129
53. American Opportunity Tax Credit 130
54. Lifetime Learning Credit 131
55. Child Tax Credit 131
56. Disability Credits 132
57. Health Insurance Credit 133
58. Saver’s Credit 133
59. Small Employer Credit 134
60. Electric Vehicle Credit 135
61. Credit for Residential Energy Efficient Property 135
62. Energy Saving Home Improvement Credit 136
63. Hybrid Vehicles Credit 137
64. Telephone Tax Refund 139
65. First-Time Home Buyer Credit 139
66. “Making Work Pay” Tax Credit 140
67. Plug-in Electric Drive Vehicle Credit 141
68. Plug-in Electric Vehicle Credit 143
69. Conversion Kits 143
70. Treatment of Alternative Motor Vehicle Credit as a Personal Credit Allowed against AMT 144
71. Small Business Health Insurance Credit 144
72. Foreign Tax Credit 144
73. The Premium Tax Credit 145

CHAPTER 6: “Above the Line” Deductions 147
A Deductions for Adjusted Gross Income 151
74. Trade and Business Deductions 151
75. Employee Business Expenses of Actors and Other Performing Artists 152
76. Employee Business Expenses 153
77. Alimony 153
78. Interest on Qualified Education Loans 162
79. Retirement Plan Payments 162
80. Self-Employment Tax 219
81. Health Insurance Deduction for Self-Employeds 219
82. Moving Expenses 220
83. Clean Fuel Vehicles 227
84. Deduction for Qualified Higher Education Expenses—Tuition and Fees 228
85. Legal Fees 229
86. Classroom Materials 229
87. Medical Savings Accounts (Archer Medical Savings Accounts) 230
88. Health Savings Accounts 232
89. Sales Tax Deduction on Motor Vehicles 234

CHAPTER 7: “Below the Line” Deductions 237
A The Importance of Filing Status 238
B Tax Planning with Itemized Deductions 243
90. Medical Expenses 243
91. Income Taxes 258
92. Real Property Taxes 260
93. Personal Property Taxes 261
94. Interest 261
95. Mortgage Insurance 281
96. Charitable Contributions 281
97. Casualty Losses 305
98. Theft Losses 309
99. Miscellaneous Trade and Business Deductions of Employees 317
100. Job Loss Insurance 317
101. Travel Expenses 318
102. Transportation Expenses 323
103. Meals and Entertainment Expenses 327
104. Gifts 329
105. Reimbursable Employee Business Expenses 331
106. Educational Expenses 331
107. Limit on Itemized Deductions 332
C Schedules of Deductions 334
108. Medical Deductions 334
109. Deductible Taxes 335
110. Charitable Deductions 336
111. Casualty and Theft Loss Deductions 337
112. Miscellaneous Deductions 338
113. Employee Miscellaneous Deductions 338
114. Investor Deductions 339

CHAPTER 8: Traditional Tax Shelters 341
A Deferral and Leverage 356
115. Real Estate 357
116. Fees in Public Real Estate Partnerships 369
117. Oil and Gas 370
118. Equipment Leasing 379
119. Single-Premium Life Insurance 383
120. Cattle Feeding Programs 387
121. Cattle Breeding Programs 389
122. Tax Straddles 391
123. Art Reproduction 393
124. Noncash Gift Shelters 394
125. Municipal Bond Swaps 395
B How to Analyze a Tax Shelter 396
126. Getting Out of the Tax Shelter 398
127. Master Limited Partnerships 400
128. Abusive Shelters 402

CHAPTER 9: Super Tax Shelters 405
A Family Shifts 406
129. Unearned Income of Minor Children 409
130. Outright Gifts 413
131. Clifford Trusts 418
132. Interest-Free Loans 418
133. The Schnepper Shelter: Gift Leasebacks 418
134. The Schnepper Deep Shelter 424
135. Family Partnerships 424
136. Family Trusts 425
137. The Schnepper Malagoli Super Shelter 426
138. Employing Members of the Family 428
139. Author’s Delight 431
B Running Your Own Business 432
140. Your Home 435
141. Your Car 448
142. Meals and Entertainment 450
143. Travel and Vacation 454
144. Gifts 460
145. Advertising 461
146. Deductible Clothes 461
147. Creative Deductions—Busting the IRS 461
148. Medical Premiums 462
149. Borrowing from Your Company 462
150. Miscellaneous Corporate Advantages 465

CHAPTER 10: Investment Planning to Save Taxes 469
151. Short Sales 475
152. Broad-Based Index Options and Regulated Futures Contracts (RFCs) 476
153. Wash Sales 476
154. Premiums on Taxable and Tax-Exempt Bonds 477
155. Original Issue Discount (OID)—Taxable Bonds 477
156. Original Issue Discount (OID)—Tax-Exempt Bonds 477
157. Market Discount 478
158. Municipal Bond Swaps 478
159. Employee Options—Nonqualified 479
160. Incentive Stock Options 480
161. Year-End Stock Sales 484
162. Fund Strategies 485
163. Dividends 485
164. Tax-Exempt Income 490
165. Old Prices 492
166. Alternative Minimum Tax for Individuals 492
167. U.S. Savings Bond Exclusion 506
168. Madoff Losses 509
169. Collars—Tax Free Lock in Your Gain 509

CHAPTER 11: Last-Minute Tax Planning 511
170. Defer Taxes 512
171. Accelerate Expenses 514
172. Accelerate Special Deductions 515
173. Dependents and Personal Exemptions 515
174. Phase-out of Exemptions 520
175. Timing Strategies 521
176. Retirement Plans 521
177. Individual Retirement Plans (IRAs) 522
178. H.R. 10 or Keogh Plans 522
179. Marital Status 523
180. The Goldinger Deferral 524

CHAPTER 12: The Economic Growth and Tax Relief Reconciliation Act of 2001 525
181. Marginal Rate Reductions 526
A Individual Income Tax Rate Structure 526
B Phase-out of Restrictions on Personal Exemptions 528
C Phase-out of Itemized Deductions 529
182. Tax Benefits Relating to Children 531
A Increase and Expand the Child Tax Credit 531
B Extension and Expansion of Adoption Tax Benefits 532
C Child Care Credit 532
183. Marriage Penalty Relief Provisions 532
A Standard Deduction Marriage Penalty Relief 532
B Expansion of the 15 Percent Rate Bracket for Married Couples Filing Joint Returns 533
C Marriage Penalty Relief and Simplification Relating to the Earned Income Credit 535
184. Education Incentives 535
A Modifications to Education IRAs 535
B Private Prepaid Tuition Programs; Exclusion from Gross Income of Education Distributions from Qualified Tuition Programs 536
C Exclusion for Employer-Provided Educational Assistance 537
D Modifications to Student Loan Interest Deduction 537
E Eliminate Tax on Awards Under the National Health Service Corps Scholarship Program and the F. Edward Hebert Armed Forces Health Professions Scholarship and Financial Assistance Program 538
F Deduction for Qualified Higher Education Expenses 538
185. Pension and Individual Retirement Arrangement Provisions 539
186. AMT Relief 547
187. Health Insurance for Self-Employed 547
188. Income Tax Treatment of Certain Restitution Payments to Holocaust Victims 547
189. Estate, Gift, and Generation-Skipping Transfer Tax Provisions 548
A Phase-out and Repeal of Estate and Generation-Skipping Transfer Taxes; Increase in Gift Tax Unified Credit Effective Exemption 548
B Expand Estate Tax Rule for Conservation Easements 551
C Modify Generation-Skipping Transfer Tax Rules 551
D Availability of Installment Payment Relief 551
190. Sunset 553

CHAPTER 13: The Job Creation and Worker Assistance Act of 2002 557
191. Bonus Depreciation 558
192. Net Operating Losses 558
193. Classroom Materials 558
194. Electric Vehicle Credit 558
195. Work Opportunity Tax Credit 559
196. Welfare to Work Tax Credit 559
197. Archer Medical Savings Account 559
198. Liberty Zone Benefits 559

CHAPTER 14: The Tax Relief Reconciliation Act of 2003 561
A Rate Reductions 562
B The Marriage Penalty 563
C The Alternative Minimum Tax 563
D Child Tax Credit 564
E Dividends/Capital Gains 564
F Deduct Your SUV—Election to Expense 566

CHAPTER 15: Income Averaging and Hurricane Tax Breaks 571

CHAPTER 16: 2006 Tax Reform 577
A The Tax Increase Prevention and Reconciliation Act of 2005 578
B The Pension Protection Act of 2006 580
C Tax Relief and Health Care Act of 2006 583

CHAPTER 17: Tax Reform, 2007–2008 587
A The Mortgage Forgiveness Debt Relief Act of 2007 588
B The New Debt Relief Act 588
C The Economic Stimulus Act of 2008 590
D The Heroes Earnings Assistance and Relief Act of 2008 594
E The Housing and Economic Recovery Act of 2008 595

CHAPTER 18: 2009 Tax Changes 599
199. “Making Work Pay” Tax Credit 600
200. Reducing the COBRA Bite 601
201. First-Time Home Buyer Credit Expanded 602
202. American Opportunity Tax Credit 603
203. Energy Credits 604
204. Plug-in Electric Drive Vehicle Credit 604
205. Plug-in Electric Vehicle Credit 605
206. Conversion Kits 605
207. Treatment of Alternative Motor Vehicle Credit as a Personal Credit Allowed against AMT 605
208. AMT Patch 606
209. Earned Income Credit 606
210. Child Tax Credit 606
211. Section 529 Plans 606
212. Unemployment Benefits 607
213. Qualified Transportation Benefits 607
214. Estimated Taxes 607
215. Motor Vehicle Sales Tax 607
216. Business Depreciation 608
217. NOL Carrybacks 608

CHAPTER 19: More Tax Changes 609
A The Hiring Incentives to Restore Employment (HIRE) Act of 2010 610
B The Patient Protection and Affordable Care Act 611
C Small Business Jobs Act of 2010 614
D The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 616
E American Tax Relief Act of 2012 622
F Tax Increase Prevention Act of 2014 625
G The Able Act 627
H More Changes 628

CHAPTER 20: How to Avoid/Survive an IRS Audit 629

APPENDIX A
Cost Recovery/Depreciation 747
APPENDIX B
Business Use of “Listed Property” 761
APPENDIX C
Auto Leases 775
INDEX 845

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