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PENDING LEGISLATION - Rolling IRA Moneys to Charity | HOUSE APPROVES REPEAL OF 102 YEAR-OLD TAX | HOW LONG SHOULD YOU KEEP YOUR TAX RECORDS | DECIMAL PRICING | PREPARING A WILL ... MAKE IT EASIER FOR FAMILY AND FRIENDS

When one door closes, another opens; but we often look so long and so regretfully upon the closed door that we do not see the one which has opened for us. -- Alexander Graham Bell

Pending Legislation - Rolling IRA Moneys to Charity

This pending legislation (H.R. 1311 and S.B. 1086) would allow distributions from IRA accounts to a charitable organization without causing income taxes on that part (or whole) of the distribution that goes to a charity. The distribution to the charity could be either direct (outright) or through a program providing life income, such as a Charitable Gift Annuity or Charitable Remainder Trust.

Currently, making a donation to charity from an IRA requires the taxpayer to take a distribution from the IRA account. This distribution would then be reported on the taxpayer's tax return. The charitable donation would be reported as a charitable deduction for the gift amount. Should this bill pass as currently written, the reporting of the distribution would not be required, except for any income interest retained (the present value).

While receiving strong support from charities who believe this law, should it pass, would lead to larger lifetime charitable donations, fiscal impact may prove to too significant a factor for passage. In terms of lost federal revenue, the House and the Senate versions would be very expensive.

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After 102 Years, Maybe It's Paid For!

102 years ago Congress passed what was then certainly viewed to be a temporary tax. The telephone tax was first enacted by Congress in order to help pay for the Spanish-American War in 1898. The House of Representatives recently voted 420-2 to repeal the 3-percent telephone excise tax. The bill is pending before the Senate as is not yet law but there appears to be fairly broad-based support.

"One thing about Washington is that once a tax is on the books, it's hard to get rid of it," said House Ways and Means Chairman Bill Archer (R-Texas). "It's time to hang up the 102-year-old telephone tax once and for all. Just about every American has a phone, so this tax cut will go to everyone equally across the board."

Senate Finance Committee Chairman William V. Roth, Jr. (R-DE) said this "puts us one step closer to eliminating a tax that is outdated, unfair, and complex for both consumers to understand and for collectors to administer. The Federal government has kept America on 'hold' for over a century with this antiquated, complicated, and regressive tax. I look forward to working this legislation through the Senate as quickly as possible."

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How Long Should You Keep Your Tax Records?

Now that the tax season is over, you may want to look at what you no longer need to keep so that you have room for next years records and returns. The question is what can you keep and what can you toss?

The general rule is - and there are always exceptions - keep copies of your completed tax forms (with supporting records and receipts) for three years after your return is filed or due, whichever is later. Generally that's the length of time the IRS has to audit your filing.

Some advisors suggest retaining your records for at least six years as the statute of limitations extends to six years if you understate your income by more than 25 percent.

There is no statute of limitations if you intentionally omit some income. This means the IRS can come after you anytime if you fail to file a return or file a fraudulent one. The suggestion is to keep records for your lifetime for any year in which you did not file a return because you did not have sufficient income to file. It might also be prudent to retain records for any year in which you had inordinately large deductions

There are also other records that need to be kept longer than the normal three-year statute of limitations.

INVESTMENTS: Brokerage statements and investment records need to be retained as long as you own the investments. Once sold, keep the records you normally would keep other tax records. For capital gain calculations, you will need the date purchased, the cost, dividends that were reinvested and costs related to the investment.
HOME: Expenses that could reduce the taxable gain on your principal residence when you eventually sell it should be kept until after the sale of the property. Receipts for home improvements, special tax assessments due to improvements, and closing costs on the home's purchase are some to keep. While the Taxpayer Relief Act of 1997 (home-sale exemption of up to $500,000 - $250,000 for singles) will shield most sales from tax, circumstances could develop in which at least part of your home-sale profits end up subject to capital gains tax, such as if you ever decide to rent out your home or convert a room to a deductible home office.
SIDELINE BUSINESSES: Records relating to sideline businesses should be kept longer than in case the IRS challenges your deductions on grounds the sideline is a hobby instead of a business (. deductions for hobbies are limited to the amount of income generated) The test of a sideline as a real business is if it's profitable in at least three of five consecutive years (two of seven years for raising horses). You may still be able to claim deductions in excess of income if you don't pass the profitability test if you can convince the IRS that your sideline is a profit-motivated business.
OTHER PROPERTY: Records pertaining to anything that might generate a capital gain (or loss) at its sale should be retained until after the sale. For example, the sale of a vacation home or significant collection of valuables (such as coins or art) could create the need for records of cost and improvement expenses to reduce the tax impact.
PASSIVE LOSSES: Records should be kept until after disposal of the investment. Passive losses can be carried forward to future years and fully deducted when the investment is sold.
MULTI-YEAR DEDUCTIONS: While an expense may have occurred over six years ago, if it is carried forward to subsequent tax years it's critical to keep records of such expenses until all your "carryovers" are used, plus the statute-of-limitations period for those returns. IRAs: Keep records until all your funds are withdrawn from your IRAs. The IRS requires you to keep copies of Forms 8606, 5498 and 1099-R, along with copies of your tax returns.
COMPLETED TAX FORMS: Keeping just the tax forms, which does not require a lot of space, may prove to be a handy reference.

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Pricing Stocks in Decimals

In a letter to the SEC, the Securities Industry Association (SIA) recommended delaying the implementation of decimal pricing until March 2001, rather than implement earlier decimal pricing for exchange-listed stocks, with Nasdaq stocks continuing to be priced in fractions. Concerns center around investor confusion, as well as the expense of maintaining dual systems.

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Making a Will ... Make it Easier for Family and Friends

Who gets the house and the money? And if you have small children, who will care for them? And if you don't have a will… your family could be left with a legal mess.

The family of Derrick Thomas knows this problem all too well. Thomas, a popular Chiefs player, left behind a $2.75 million estate when he died. But with seven children, no will and no wife, a probate judge now has to decide where the money will go.

In addition to protecting your children by appointing a guardian, wills can also protect your property. Without one, you can't donate your estate to charity or to a church. And you can't give property to a friend. And if you think by writing your will yourself can save you money, think again. That can cost you twice as much as if you had hired a lawyer to do it correctly in the first place.

Other tips to make getting a will as painless as possible.

• Get an accurate description of the property you own, for instance any stocks, bonds, home or other property first.
• Have a clear idea of who you want to give your property to.
• Keep your original will in a safe deposit box. Keep an unsigned copy at home in a desk or drawer.

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