There are a number of steps you might take by year-end to cut your 2008 tax bill, such as deferring income, accelerating deductions and capital gain planning.

Deferring Income

• If you are planning on selling an investment on which you have a gain, it may be best to wait until after the end of the year to defer payment of the taxes for another year (subject to estimated tax requirements).

• If you are due a bonus at year-end, you may be able to defer receipt of these funds until January. This can defer the payment of taxes (other than the portion withheld) for another year. Deferral of tax generally won't work where the bonus is contractually due in 2008.

• If your company grants stock options, it may be wise to wait until next year to exercise the option or sell stock acquired by exercise of an option. Exercise of the option is often but not always a taxable event; sale of the stock is almost always a taxable event.

• If you're self employed, and can afford the delay in cash inflow, defer sending invoices or bills to clients or customers until the end of December.

Caution: Keep an eye on the estimated tax requirements.

Accelerating Deductions

• Pay a state estimated tax installment in December instead of at the January due date. However, the payment should be based on a reasonable estimate of your state tax.

• Pay your entire property tax bill, including installments due in year 2009, by year-end (not applicable to mortgage escrow accounts).

• Try to bunch "threshold" expenses, such as medical expenses and miscellaneous itemized deductions. (Threshold expenses are deductible only to the extent they exceed a certain percentage of adjusted gross income.) By bunching these expenses into one year, rather than spreading them out over two years, you have a better chance of exceeding the thresholds, thereby maximizing your deduction. For example, you might pay medical bills and dues and subscriptions in whichever year they would do you the most tax good.

Caution: In most cases, credit cards charges are considered paid in the year of the charge regardless of when you pay on the card. This, however, does not apply to store revolving credit cards. If you charge expenses on a Wal-Mart store credit card, the deduction can not be claimed until the bill is paid.

In the case of tax benefits that are phased out if you have more than a certain level of adjusted gross income (AGI), a strategy of deferring income and accelerating deductions may also allow you to claim larger deductions, credits, and other tax breaks for 2008. The latter benefits include Roth IRA contributions, conversions of regular IRAs to Roth IRAs, child credits, higher education tax credits and deductions for student loan interest.

Tip: Deferring income into 2009 is an especially good idea for taxpayers who anticipate being in a lower tax bracket next year, generally because of much-reduced income or much-increased deductible expenses.

Tip: It may pay to accelerate income into 2008 if your marginal tax rate is much lower this year than it will be next year.

Tip: If you have a sum of income coming in that is not covered by withholding taxes, increasing your withholding before year-end can avoid or reduce any estimated tax penalty that might otherwise be due.

On the other hand, the penalty could be avoided by covering the extra tax in your final estimated tax payment and computing the penalty using the annualized income method. Call us for additional support regarding estimated taxes.

Caution: Alternative Minimum Tax no longer just impacting the wealthy! Do not overlook the effect of any year-end planning moves on the alternative minimum tax (AMT) for 2008.

Due to recent tax policy, the AMT will impact many more taxpayers than ever before due to the reduction in the exemption amounts. The problem is that the tax is not indexed to inflation, and, as a result, growing numbers of middle-income taxpayers have been finding themselves subject to this higher tax.

Items that may affect the AMT include the deductions for state property taxes and state income taxes, miscellaneous itemized deductions, and personal exemptions. Please call us for more information.

Note: AMT Exemption Amounts For 2008

• $46,200 for single and head of household fliers;

• $69,950 for married people filing jointly and for qualifying widows or widowers, and

• $34,975 for married people filing separately.

Tax Credit to Aid First Time Homebuyers

First-time homebuyers should begin planning now to take advantage of a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008.

Available for a limited time only, the credit:

• Applies to home purchases after April 8, 2008, and before July 1, 2009.

• Reduces a taxpayer's tax bill or increases his or her refund, dollar for dollar. Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.

• However, the credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return.

Eligible taxpayers will claim the credit on new IRS Form 5405. This form, along with further instructions on claiming the first-time homebuyer credit, will be included in 2008 tax forms and instructions and be available later this year on IRS.gov, the IRS Web site.

See article below, Tax Credit to Aid First Time Homebuyers, for further information.

Make Charitable Contributions

You can donate property as well as money to a charity. A deduction is usually available for the fair market value of the property. However, for certain property, the deduction is limited to your cost basis. While you can also donate your services to charity, you may not deduct the value of these services. You may also be able to deduct charity-related travel expenses and some out-of-pocket expenses.

Note: A written record of charitable contribution is required in 2008. A donor may not claim a deduction for any contribution of cash, a check or other monetary gift made on or after January 1, 2007, unless the donor maintains a record of the contribution in the form of either a bank record (such as a cancelled check) or a written communication from the charity (such as a receipt or a letter) showing the name of the charity, the date of the contribution, and the amount of the contribution.

Tip: Contributions of appreciated property (i.e. stock) provide an additional benefit in that you avoid paying capital gains on any profit.

Related Financial Guide: CHARITABLE CONTRIBUTIONS: How To Give Wisely

Investment Gains And Losses

Minimize taxes on investments by judicious matching of gains and losses. Where appropriate, try to avoid short-term gains, which are usually taxed at a much higher tax rate (up to 35%) than long-term gains (15%). You might consider, where feasible, trying to reduce all capital gains and generate short-term capital losses up to $3,000.

Tip: If you have a large capital gain this year, consider selling an investment on which you have an accumulated loss. Capital losses are deductible up to the amount of your capital gains plus $3,000.

Tip: After selling securities investment to generate a capital loss, you can repurchase it after 30 days. (If you buy it back within 30 days, the loss will be disallowed.) Or you can immediately repurchase a similar (but not the same) investment, e.g., another mutual fund with the same objectives as the one you sold.

Tip: If you have losses, you might consider selling securities at a gain and then immediately repurchasing them, since the 30-day rule does not apply to gains. That way, your gain will be tax-free, your original investment is restored and you have a higher cost basis for your new investment (i.e., any future gain will be lower).

Note: The maximum long term capital gains tax rate is currently 15%. This is set to rise to 20% in 2011. Many believe this increase could come about sooner with a change in administration in 2009. This potential change in rate in something to think about in your long term investment planning.

Mutual Fund Investors

Before investing in a mutual fund, determine whether there will be a dividend at the end of the year or a dividend that will occur early in the next year but be deemed paid this year. The year-end dividend could make a substantial difference in the tax you pay.

Example: You invest $20,000 in a mutual fund at the end of 2008. You opt for automatic reinvestment of dividends. In late December of 2008, the fund pays a $1,000 dividend on the shares you bought. The $1,000 is automatically reinvested.

Result: You must pay tax on the $1,000 dividend. You will have to take funds from another source to pay that tax because of the automatic reinvestment feature. The mutual fund's long-term capital gains pass through to you as capital gains dividends taxed at long-term rates, however long or short your holding period.

The mutual fund's distributions to you of dividends it receives generally qualify for the same tax relief as long-term capital gains. If the mutual fund passes through its short-term capital gains, these will be reported to you as "ordinary dividends" that don't qualify for relief.

Tip: Wait until after the dividend to buy the shares. (The share net asset value will drop after the dividend is paid.) Alternatively, buy the shares in 2008, but opt to take the dividend in cash instead of having it reinvested.

In spite of these tax consequences, it may be a good idea to buy shares right before the fund goes ex-dividend. For instance, the distribution could be relatively small, with only minor tax consequences. Or the market could be moving up, with share prices expected to be higher after the ex-dividend date.

Tip: To find out a fund's ex-dividend date, call the fund directly.

Related Financial Guide: MUTUAL FUND TAXATION: How to Cut the Tax Bite

Year-End Giving To Reduce Your Potential Estate Tax

For many, sound estate planning begins with lifetime gifts to family members, gifts which reduce the donor's assets subject to future estate tax. Such gifts are often made at year-end, in the holiday season, in ways that qualify for exemption from federal gift tax.

Your gifts to any donee are excludable (exempt) from gift tax up to $12,000 a year per donee.

Caution: An unused annual exemption doesn't carry over to later years. To make use of the exemption for 2008, you must make your gift by December 31.

Husband-wife joint gifts to any third person are exempt from gift tax up to $24,000 ($12,000 each). Though what's given may come from either you or your spouse or from both of you, both of you must consent to such "split gifts".

Gifts of "future interests" assets which the donee can only enjoy at some future time (certain gifts in trust, for example) generally don't qualify for exemption. But gifts for the benefit of a minor child can be made to qualify.

Tip: Consider adopting a plan of lifetime giving to reduce future estate tax.

Cash or publicly traded securities raise the fewest problems. You may choose to give property you expect to increase substantially in value later. Shifting future appreciation to your heirs keeps that value out of your estate. But this can trigger IRS questions about the gift's true value when given.

You may choose to give property that has already appreciated. The idea here is that the donee, not you, will realize and pay income tax on future earnings, and built-in gain on sale.

Gift tax returns for 2008 are due the same date, April 15, 2009, as your income tax return. Returns are required for gifts over $12,000 (including husband-wife split gifts totaling more than $12,000) and gifts of future interests. Though you are not required to file if your gifts do not exceed $12,000, you might consider filing anyway as a tactical move to block a future IRS challenge about gifts not "adequately disclosed".

Tip: Call us if you're considering making a gift of property whose value isn't unquestionably less than $12,000.

Related Financial Guide: ESTATE PLANNING: How To Get Started

Income earned on investments you give to children or other family members is generally taxed to them, not to you. In the case of dividends paid on stock given to your children, they may qualify for the reduced 5% dividend rate.

Caution: In 2008, investment income of a child under age 19 (or full-time students through age 23) is taxed at the parent's top rate, where in excess of $1,800.

Other Year-End Moves

Retirement Plan Contributions. Maximize your retirement plan contributions. If you own an incorporated or unincorporated business, consider setting up a retirement plan if you don't already have one. (It need not be actually funded until you pay your taxes, but allowable contributions will be deductible on this year's return.)

If you are an employee and your employer has a 401(k), contribute the maximum amount ($15,500 for 2008, plus an additional $5,000 if age 50 or over, assuming the plan allows this much and income restrictions don't apply).

If you are employed or self-employed with no retirement plan, you can make a deductible contribution of up to $4,000 a year to a traditional IRA (deduction is sometimes allowed even if you have a plan). Further, there is also an additional catch up contribution of $1,000 if age 50 or over.

Health Savings Accounts. Consider setting up a health savings account (HSA). You can deduct contributions to the account, investment earnings are tax-deferred until withdrawn, and amounts you withdraw are tax-free when used to pay medical bills.

In effect, medical expenses paid from the account are deductible from the first dollar (unlike the usual rule limiting such deductions to the excess over 7.5% of AGI). For amounts withdrawn at age 65 or later, and not used for medical bills, the HSA functions much like an IRA.

To be eligible, you must have a high-deductible health plan (HDHP), and only such insurance, subject to numerous exceptions, and must not be enrolled in Medicare. For 2008, to qualify for the HSA, your minimum deductible in your HDHP must be at least $1,100 (single coverage) or $2,200 (family). These minimum deductibles increase to $1,150 (single) and $2,300 (family) for 2009.

Summary

These are just a few of the steps you might take. Please contact us for help in implementing these or other year-end planning strategies that might be suitable to your particular situation.

Here are some suggested tax moves to be taken no later than Dec. 31, 2008 for businesses on the calendar year that may save businesses income tax:

Purchase New Business Equipment

Expensing: Under the 2008 Stimulus Package, businesses can elect to expense (deduct immediately) the cost of most new equipment up to $250,000 (subject to a dollar-for-dollar reduction in that $250,000 for such purchases over $800,000). This is a one time increase in the expense level for 2008. The level will revert back to the $128,000 level (plus any cost of living adjustment) in 2009. To get the benefit for a tax year beginning in 2008, the equipment should be put into use before the end of that tax year.

Note: Many states have not matched these amounts and therefore, state tax may not allow for the maximum federal deduction. In this case, two sets of depreciation records will be needed to track the federal and state tax impact.

Timing: If you intend to purchase business equipment this year, the proper timing of purchases might, in some cases, actually increase the tax benefit you gain from depreciation of that equipment. Here's a simplified explanation:

Conventions: The tax rules for depreciation include "conventions" (rules) for determining how many months' worth of depreciation you can claim in the year you first place property in service. The conventions that come into play with equipment are...

1. The half-year convention: When the half-year convention applies, all property that you begin using during the year is treated as placed in service at the midpoint of the year. This means that no matter when you begin using the property, you treat it as if you began its use in the middle of the year.

   Example: You buy a $40,000 piece of machinery on December 15. If the half-year convention applies, you get one-half year's worth of depreciation on that machine.

2. The mid-quarter convention: The mid-quarter convention must be used if the cost of equipment placed in service during the last three months of the tax year is more than 40% of the total cost of all property placed in service for the entire year. If the mid-quarter convention applies, the half-year rule is out the window, and you treat all equipment placed in service during the year as if it were placed in service at the midpoint of the quarter in which you began using it.

   Example: You buy a $40,000 piece of machinery on December 15. If the half-year convention applies, you get one-half year's worth of depreciation on that machine.

Tip: Don't neglect to bring any planned equipment purchases to our attention. A careful examination of the timing of planned equipment purchases will allow you to take full advantage of these tax rules.

Other Year-End Moves

Income Delay or Acceleration. Depending on whether it's better for you, tax-wise, to delay or accelerate income, you can decide to bill clients or customers sooner (before year-end) or later (after the year-end) to accomplish your tax planning goals.

Partnership or S Corporation Basis. Partners or S corporation shareholders in entities that have a loss for 2008 can deduct that loss only up to their basis in the entity. However, they can take steps to increase their basis to allow a larger deduction. Basis in the entity can be increased by lending the entity money or making a capital contribution by the end of the entity's tax year.

Caution: Remember that by increasing basis you're putting more of your funds at risk. Consider whether the loss signals further troubles ahead.

Retirement Plans. Self-employeds who have not yet done so should set up self-employed retirement plans before the end of their individual tax year 2008.

Dividend Planning. Dividends you cause your corporation to pay qualify for the reduced 15% (or 5%) rate in the hands of stockholders, including you as a stockholder. Such a dividend may reduce the risk of a tax on accumulated corporate earnings or an IRS claim that compensation to company executives was excessive and so partly nondeductible.

Budgets. Although the need for a business budget may seem obvious, many companies overlook this critical business planning tool. Therefore, a brief reminder may be in order at year-end. A budget is extremely effective in making sure a business has adequate cash flow and, thus, in ensuring a business's financial success.

That's why every business, from the smallest to the largest, should have a budget. Once the budget has been made up, then monthly actual revenue amounts can be compared to monthly budgeted amounts. If actual revenues fall short of budgeted revenues, expenses must generally be cut.

Tip: Each year-end, business owners should get together with their accountants and budget (project) revenues and expenses for the coming year. Amounts can be broken down to cover monthly or even weekly periods, depending on the business's needs.

Related Financial Guide: RECORDKEEPING AND CASH FLOW: Effective Techniques

These are just a few of the year-end planning tax moves that could make a substantial difference in your tax bill for 2008. As stated above in regard to individual tax planning, do not act on these suggestions without consulting us first. They are general in nature, and your specific tax or financial situation may require special planning.

First-time homebuyers should begin planning now to take advantage of a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008.

Available for a limited time only, the credit:

• Applies to home purchases after April 8, 2008, and before July 1, 2009.

• Reduces a taxpayer's tax bill or increases his or her refund, dollar for dollar. Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.

• However, the credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return.

Eligible taxpayers will claim the credit on new IRS Form 5405. This form, along with further instructions on claiming the first-time homebuyer credit, will be included in 2008 tax forms and instructions and be available later this year on IRS.gov, the IRS Web site.

If you bought a home recently, or are considering buying one, the following questions and answers may help you determine whether you qualify for the credit.

Q. Which home purchases qualify for the first-time homebuyer credit?

A. Only the purchase of a main home located in the United States qualifies and only for a limited time. Vacation homes and rental property are not eligible. You must buy the home after April 8, 2008, and before July 1, 2009. For a home that you construct, the purchase date is the first date you occupy the home.

Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.

If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. For an eligible purchase in 2009, you can choose to claim the credit on either your 2008 (or amended 2008 return) or 2009 return.

Q. How much is the credit?

A. The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. The limit is $3,750 for a married person filing a separate return. In most cases, the full credit will be available for homes costing $75,000 or more. Whatever the size of the credit a taxpayer receives, the credit must be repaid over a 15-year period.

Q. Are there income limits?

A. Yes. The credit is reduced or eliminated for higher-income taxpayers.

The credit is phased out based on your modified adjusted gross income (MAGI). MAGI is your adjusted gross income plus various amounts excluded from income - for example, certain foreign income. For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000.

This means the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less.

Q. Who cannot take the credit?

A. If any of the following describe you, you cannot take the credit, even if you buy a main home:

• Your income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.

• You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.

• You stop using your home as your main home.

• You sell your home before the end of the year.

• You are a nonresident alien.

• You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year.

• Your home financing comes from tax-exempt mortgage revenue bonds.

• You owned another main home at any time during the three years prior to the date of purchase. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another main home at any time from July 2, 2005, through July 1, 2008.

Q. How and when is the credit repaid?

A. The first-time homebuyer credit is similar to a 15-year interest-free loan. Normally, it is repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed. The repayment amount is included as an additional tax on the taxpayer's income tax return for that year. For example, if you properly claim a $7,500 first-time homebuyer credit on your 2008 return, you will begin paying it back on your 2010 tax return. Normally, $500 will be due each year from 2010 to 2024.

You may need to adjust your withholding or make quarterly estimated tax payments to ensure you are not under-withheld.

However, some exceptions apply to the repayment rule. They include:

• If you die, any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.

• If you stop using the home as your main home, all remaining annual installments become due on the return for the year that happens. This includes situations where the main home becomes a vacation home or is converted to business or rental property. There are special rules for involuntary conversions. Taxpayers are urged to consult a professional to determine the tax consequences of an involuntary conversion.

• If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated. Taxpayers are urged to consult a professional to determine the tax consequences of a sale.

• If you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse, that person is responsible for making all subsequent installment payments.

When it comes to budgeting "a vital part of any business's growth and cash flow" - it's important to estimate your spending as realistically as possible. Here are three budget-related errors commonly made by small businesses, and some tips for avoiding them. These errors tend to throw budget estimates out of line with reality, thereby taking away from a budget's usefulness.

1. Not Setting Goals. It's almost impossible to set spending priorities without clear goals for the coming year. It's important to know, in detail, what you want or need to achieve in your business.

2. Cost Underestimation. Every business has ancillary or incidental costs that often don't get budgeted. For example, each time you buy a new piece of equipment or software, you must budget for staff training and for maintenance of the equipment, as well as the actual cost of the equipment.

3. Lack of Flexibility. Don't be afraid to update your forecasted expenditures either several times per year or whenever new circumstances affect your business. Compare estimates to what you actually pay out, and then adjust your budget figures.

Tip: Consider reviewing your budget with us to help ensure accuracy and completeness. Your business growth and cash flow could benefit greatly.

If possible, delay energy efficient home improvement projects into 2009 and receive a tax credit. In October 2008, President Bush signed the "Emergency Economic Stabilization Act of 2008". This law extends the tax credit for energy-efficient existing home improvements for 2009. Home improvements, including energy efficient windows, doors, HVAC, insulation, roofs, and water heaters, installed between January 1, 2009 and December 31, 2009 are eligible for the tax credit.

Caution: Improvements made in 2008 are not eligible for tax credits. Under the energy efficient tax credit law of 2005, all tax credits expired at the end of 2007. New 2008 law applies only to improvements in 2009.

Almost everything you own and use for personal purposes, pleasure or investment is a capital asset. When you sell a capital asset, the difference between the amounts you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss.

While you must report all capital gains, you may deduct only capital losses on investment property, not personal property.

Here are a few tax facts about capital gains and losses:

• Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040.

• Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.

• Net capital gain is the amount by which your net long-term capital gain is more than your net short-term capital loss.

• The tax rates that apply to net capital gains are generally lower than the tax rates that apply to other income and are called the maximum capital gains rates. For 2008, the maximum capital gains rates are 5, 15, 25 or 28 percent.

• As noted earlier, the long term capital gains rate is expected to increase to 20% in 2011.

• If your capital losses exceed your capital gains, the excess is subtracted from other income on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately).

Call us for more information about reporting capital gains and losses, or get IRS Publication 550, Investment Income and Expenses.

Many United States citizens earn money from foreign sources. These taxpayers must remember that they must report all such income on their tax return, unless it is exempt under federal law.

U.S. citizens are taxed on their worldwide income. This applies whether a person lives inside or outside the United States. The foreign income rule also applies regardless of whether or not the person receives a Form W-2, Wage and Tax Statement, or a Form 1099 (information return).

Foreign source income includes earned and unearned income, such as:

• Wages and tips
• Interest
• Dividends
• Capital Gains
• Pensions
• Rents
• Royalties

An important point to remember is that citizens living outside the U.S. may be able to exclude up to $87,600 of their 2008 foreign source income if they meet certain requirements. If married and both individuals work abroad and both meet either the bona fide residence test or the physical presence test, each one can choose the foreign earned income exclusion. Together, they can exclude as much as $175,200 for the 2008 tax year. However, the exclusion does not apply to payments made by the U.S. government to its civilian or military employees living outside the U.S.

Call us for more information, or check out IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Payments that you receive from your IRA or qualified retirement plan before you reach age 59 1/2 are normally called "early" or "premature" distributions. These funds are subject to an additional 10 percent tax and must be reported to the IRS.

There are a number of exceptions to the age 59 1/2 rule if you make an early withdrawal. Some exceptions apply only to IRAs, some only to qualified retirement plans, and some to both.

In addition to the 10 percent tax on early distributions, you generally must include the distribution in your income. If you received a distribution from an IRA, other than a Roth IRA, to which you made any nondeductible contributions, the portion of the distribution attributable to those contributions is not taxed. If you received a qualified distribution from a Roth IRA, none of the distribution is taxed. If you received a distribution from any other qualified retirement plan, the portion of the distribution attributable to your cost, not including pre-tax contributions, is not taxed.

A "rollover" is a way to avoid paying tax on early distributions. Generally, a rollover is a tax-free transfer of cash or other assets from an IRA or qualified retirement plan to another eligible retirement plan. An eligible retirement plan is a traditional IRA, a qualified retirement plan, or a qualified annuity plan. You must complete the rollover within 60 days after the day you received the distribution. The amount you roll over is generally taxed when the new plan pays you or your beneficiary.

For more information, call us or see IRS Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans).

The IRS cautions taxpayers to avoid getting caught up in a new tax fraud disguised as a debt payment option for credit cards or mortgage debt. The fraud is also marketed as a way to reduce taxes or pay outstanding tax liabilities. It involves the filing of Form 1099-OID, Original Issue Discount, and/or bogus financial instruments such as bonded promissory notes or sight drafts.

This fraud has evolved from an earlier frivolous argument that a "strawman"(artifical person) bank account has been created at the Treasury Department for each U.S. citizen, and that individuals could use such "strawman" accounts to pay debts and claim withholding credits.

The IRS addresses the "strawman" argument in Revenue Ruling 2005-21 and Revenue Ruling 2004-31, and discredits the use of this position for income tax purposes. Moreover, the courts that have reviewed the "strawman" argument and other similar arguments have found them frivolous.

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