Tips to a Successful Tax Return

Having the right team of advisors is critical to achieving your financial goals faster than you ever thought possible. For most people, taxes are the single biggest expense. This makes finding the right tax preparer for your team extremely important.

HOW DO YOU FIND A TAX PREPARER THAT IS RIGHT FOR YOU?

First, not all tax preparers are the same. I previously wrote an article about this last year titled: "Tax Returns - Are they really all created equal", and you may be as surprised as other readers about just how much tax return preparation can vary.

In fact, I calculated the average savings I typically find from annual tax savings, reducing professional fees and audit assessments. In total, the average savings are:

- $23,750 Annual tax savings

- $5,000 Audit defense savings

- $10,000 Reduced audit assessment savings

- $50,000 Reduced legal fees

- $3,000 Reduced tax return preparation fees

This is a total average potential savings of $91,750! Your tax preparer does make a difference! How much more could you do with these savings?

Second, the right tax preparer for you depends on what is important to you. Take a minute to answer this question:

WHAT MAKES YOUR TAX RETURN SUCCESSFUL?

How you answer this question will impact what type of tax preparer you need on your team. I've asked this questions to clients, prospects and colleagues. I have compiled the most popular answers and what it means to you as you find the tax preparer for your team.

ANSWER #1: Paying the least amount of tax legally

Your tax preparer needs to:

- Know the tax law very well and know how to be creative legally.

- Ask you a lot of questions about your situation in order to understand your situation and goals.

- Have a review process where at least one other person reviews your return solely for the purpose of how to reduce your taxes legally.

HERE ARE SEVEN (7) QUESTIONS YOU SHOULD ASK YOUR TAX PREPARER TO DETERMINE IF IT'S A GOOD FIT:

Q1: Can you tell me about the other ___________ (your industry) you service?

A: Your tax preparer needs to know how the tax law applies to your situation. Having other clients in your industry or with similar investments indicates that the tax preparer is likely to be familiar with the tax laws that impact you.

Q2: Who will be working on my tax return?

A: It's very common (and a good business practice) for tax preparers to have staff prepare your tax return. You want to make sure the other people working on your return have the same level of expertise.

Q3: What is your tax return review process?

A: Tax preparers who are focused on reducing your taxes will have this built into their review process. Usually it involves having another experienced tax preparer review the return solely for the purpose of finding ways to reduce your taxes.

Q4: What would you have done differently on my past tax return?

A: Show the tax preparer you are interviewing your prior year tax return. Creative tax preparers will be able to give you at least one idea of what you can do to reduce your taxes by looking at your tax return for just a few minutes. If it's creativity you are after, this is a great question to ask! But don't expect the tax preparer to give you all the details right then and there - that's why you pay them!

Q5: How much can you save me in taxes?

A: While it's difficult for any tax preparer to answer this in just a few minutes of looking at your past tax return, it is possible for them to know if they can save you taxes after spending 30 minutes with you.

Q6: What deadlines do you impose on clients?

A: This may seem like an odd question for minimizing your taxes but it has a direct impact. If your tax preparer allows you to provide your information a week before the tax return is due, it's very unlikely that the tax preparer will have the time to focus on your return to truly minimize your taxes. Tax preparers that want to reduce your taxes want your tax return information early and will communicate that to you.

Q7: What recent tax law changes should I be aware of?
A: To minimize your taxes, your tax preparer needs to know the tax law inside and out, which includes the latest changes. Your tax preparer needs to be able to answer this question without hesitation.

ANSWER #2: Minimizing tax return preparation fees Your tax preparer needs to:

- Focus on the tax work and recommend someone else for the non-tax work (such as bookkeeping).

- Request tax information in a certain format.

- Require you to input your information online.

HERE ARE TWO (2) QUESTIONS YOU SHOULD ASK YOUR TAX PREPARER REGARDING MINIMIZING RETURN PREPARATION FEES TO DETERMINE IF IT'S A GOOD FIT:

Q1: What can I do to reduce my tax return preparation fees?

A: To minimize your tax return preparation fees, your tax preparer always needs to have your fees in mind. Ask your tax preparer what you can do to reduce your fees. If you don't get at least 2 suggestions, your tax preparer probably isn't thinking about how to keep your fees low.

Common suggestions include:

- Have someone other than the tax preparer do your bookkeeping. I am always skeptical when a tax preparer does the bookkeeping. First, they either charge an arm and leg or if they reduce their rates to accommodate you, it means they don't spend their time entirely on tax issues, which could indicate their tax skills aren't up to par.

- Organize your information. Don't bring your tax preparer a shoebox! A tax preparer that is really focused on keeping your fees down will have forms, spreadsheets and other tools available for you to use to organize your tax return information.

- Enter your information online. Many tax preparers now require clients to input their information online. Accurately entered information can help reduce fees. Caution: Information that is entered inaccurately can increase your fees!

Q2: What is your fee structure?

A: Your tax preparer needs to be able to answer this question with confidence. Any wavering could indicate that the tax preparer knows the fees are too high for you but just doesn't want to tell you. Unfortunately in these situations, you find out too late!

ANSWER #3: Reducing audit risk Your tax preparer needs to:

- Know the tax law very well and how to properly report your activity.

- Understand the IRS's current "hot buttons" or "red flags."

- Offer an audit defense plan.

HERE ARE FOUR (4) QUESTIONS YOU SHOULD ASK YOUR TAX PREPARER IN REGARDS TO REDUCING AUDIT RISK TO DETERMINE IF IT'S A GOOD FIT:

Q1: How many audits have you been through and what triggered the audit?

A: The most important part of this question is what triggered the audit. If it was triggered by how something was reported, then that may be something the tax preparer had control over (and may be a bad sign for you).

Q2: What was the outcome of the audits you have been through?

A: A return can be randomly selected for audit or selected because of a certain activity (even though it was reported correctly). So it's important to understand the outcome of the audits. Was additional tax assessed or were there no changes? Additional tax may indicate that something was not reported properly.

Q3: Do you offer an audit defense plan?

A: Tax preparers that are confident in their work will offer an "insurance" program that covers their professional fees to handle your audit if your return is selected for audit.

Q4: What is your tax return review process?

A: Although tax returns can be selected randomly for audit, many are selected due to how items are reported on the tax return. Tax preparers who are focused on reducing audit risk will have a review process that includes another tax preparer reviewing your return solely for accuracy of reporting.

Be selective with the tax preparer you put on your team. The average savings I find for my clients is over $90,000! Your tax preparer makes a difference!

Tom Wheelwright is not only the founder and CEO of Provision, but he is the creative force behind Provision Wealth Strategists. In addition to his management responsibilities, Tom likes to coach clients on wealth, business, and tax strategies. Along with his frequent seminars on such strategies, Tom is an adjunct professor in the Masters of Tax program at Arizona State University. For more information, please visit http://www.provisionwealth.com

Understanding Tax Codes

Understanding Tax Codes - Areas Covered

-What is a tax code?

-Common tax code letters and what the mean

-How tax codes are worked out

-How the 'K code' works

-Where to find your tax code

-Changes that might affect your tax code

-What is a tax code?

A tax code is used by your employer or pension provider to calculate the amount of tax to deduct from your pay or pension. If you have the wrong tax code you could end up paying too much or too little tax.

A tax code is usually made up of one letter and several numbers, for example: 117L or K497.

If your tax code is a number followed by a letter, you can multiply the number in your tax code by 10, to get the total amount of income you can earn in a year before paying tax.

The letter shows how the number should be adjusted following any changes to allowances announced by the Chancellor - common tax code letters are explained below.

Common tax code letters and what they mean

L - is used if you are eligible for the basic personal allowance (under 65).

P - is used if you are aged 65 to 74 and eligible for the full personal allowance.

V - is used if you are aged 65 to 74, eligible for the full personal allowance and

the full age related married couple's allowance (for those born before 6 April

1935 and aged under 75) and estimated to be liable at the basic rate of tax.

Y - is used if you are aged 75 or over and eligible for the full personal allowance.

T - is used if there are any other items HM Revenue & Customs (HMRC) needs

to review in your tax code, or if you ask HMRC not to use any of the other tax

code letters listed above.

K - is used when your total allowances are less than your total 'deductions'.

If your tax code is a 'K' code - for example, K497 - the number indicates how much must be added to your taxable income. Read more under How the K code works.

Other tax codes

If your tax code has two letters but no number, or is the letter 'D' followed by a zero, it normally indicates that you have two or more sources of income and that all of your allowances have been applied to the tax code and income from your main job.

BR is used when all your income is taxed at the basic rate - currently 20 per cent

(most commonly used for a second job).

D0 is used when all your income is taxed at the higher rate of tax - currently 40

percent (most commonly used for a second job).

NT is used when no tax is to be taken from your income or pension. (If you have two jobs, it is likely that all of your second income will be taxed at the basic or higher rate

(depending on how much you earn) This is because all of your allowances will have been used against the income from your main job.)

How tax codes are worked out

Step one

Your tax allowances are added up (in most cases this will just be your personal allowance and any

blind person's allowance, in some cases it may include certain job expenses).

Step two

Income you've not paid tax on (for example untaxed interest or part-time earnings) and any taxable employment benefits are added up.

Step three

The total amount of income you've not paid any tax on (called 'deductions') is taken away from the total amount of tax allowances (worked out as above). The amount you are left with is the total of taxfree income you are allowed in a year.

Step four

To arrive at your tax code the amount of tax-free income you are left with is divided by 10 and added to the letter which fits your circumstances.

Example: The tax code 117L means that you are entitled to a personal allowance of £1,170 and therefore, any amounts earned above this threshold in the current tax year will be subject to income tax.

How the 'K code' works

If your deductions (untaxed income on which tax is still due) are more than your allowances you'll be given a K code, to ensure you pay tax on the excess.

The excess tax due is divided by 10 and added to the letter K. So, whereas with other tax codes the number indicates the amount of income you can have tax-free, the number in a K code indicates how much must be added to your taxable income.

K code example

K497 means:

your untaxed income was £4,970 greater than your tax-free allowances as a result, £4,970 must be added to your total taxable income to ensure the right amount of tax

is collected.

If you're employed or between jobs

Your tax code is written on your P45 (given to you by your employer when you stop working for them). This is why it's very important to give this to your new employer when you change jobs. If you've lost your P45 and want to find out your tax code contact your tax office and give them your National Insurance number and tax reference number.

If you're starting your first job

If you're starting your first job and don't have a P45, your employer will give you a P46 to fill in and sign Your employer will allocate a tax (depending on your circumstances) code and work out the tax due.

HMRC will process your P46 and, where necessary, revise your tax code. If you've paid too much tax, your employer will make the necessary repayment. (If the tax year has ended before this is worked out, then HMRC will make the repayment.) If you haven't paid enough tax your tax code can be amended to collect the underpaid tax (K code).

If you get a company or personal pension

You'll find your tax code on your 'notice of coding' sent to you by your tax office after the start of each tax year (and at other times if your tax code changes). You'll also find your tax code on notices and payslips from your pension provider.

Changes that might affect your tax code

You must keep us informed of any change in your circumstances, for example if:

you get married, form a civil partnership or separate or either of you was born before 6 April 1935 you start to receive a second income the amount of untaxed income you get increases or reduces.

If you do not do this you could end up paying the wrong amount of tax. If your tax code is changed, you should receive a 'notice of coding' from your tax office. Keep all notice of coding letters for reference in case you have any questions or need to check you are paying the right level of tax.

Mark Milligan works for Crystal Umbrella, recognised as one of the leading specialists in the UK for taxation support and advice. Crystal Umbrella was specifically set up to provide a more tailored and bespoke PAYE payment solution for UK contractors. http://www.crystalumbrella.com

Finding Free Answers to Small Business Tax Questions

The income tax law is a product of all three branches of our federal government:

o The legislative branch, Congress, writes the Internal Revenue Code (IRC), or tax code, for short. Each part, called a Section, has its own number, like IRC § 179.

o The executive branch, specifically the Treasury Department, of which the Internal Revenue Service is a part, publishes interpretations of many tax code provisions. These writings show how the IRS applies the tax code in different situations.

o The judicial branch, the federal courts, interprets the tax code in light of the Constitution and what it divines as Congress's intent. When the IRS applies the tax code contrary to the Constitution or differently than Congress intended, it may be overruled by the federal courts. These court decisions are published ("reported") and serve to guide taxpayers on how to interpret the tax code.

This discusses where to find the pronouncements of the government, IRS publications, private tax guides, textbooks, websites, court decisions, and periodicals. Some are free, and most others are reasonably priced. Tax publications for professionals are expensive, but are often available at public or law libraries.

IRS Small Business Website

There is an IRS small business community website to assist the nation's 45 million business and self-employed taxpayers. This free site provides:

o answers to basic tax questions and a calendar of tax deadlines

o online access to most IRS forms

o industry-specific tax info for specific industries like construction and food service

o tips to avoid common tax problems

o links to court opinions and to rulings and regulations on specific industries

o links to non-IRS sites for general tax information, and

o links to helpful small business resources.

Go to the IRS home page. Click on "Business" and then "Small Business and Self-Employed." Don't expect the IRS to tell you how to reduce your tax bill at this site.

IRS Online Publications

The IRS publishes over 350 free booklets explaining the tax code. But where there is a gray area in the law, you can bet you'll get only the IRS's interpretation-even if federal courts have made contrary rulings.

These IRS Publications ("Pubs," for short), range from several pages to several ¬hundred pages in length. Get them at IRS offices, download them online, call 800-829-FORM (3676), or send in an order form. There is no charge, not even for postage.

Every small business person should order a package of IRS forms and publications called Your Business Tax Kit. The kit includes Forms SS-4, Application for Employer Identification Number, and 1040-ES, Estimated Tax for Individuals.

o Pub 334, Tax Guide for Small Business (at 325 pages, the largest booklet)

o Pub 583, Taxpayers Starting a Business

o Pub 910, Guide to Free Tax Services

o Pub 1057, Small Business Tax Education Program Brochure

o Pub 1544, Reporting Cash Payments of Over $10,000, and

o Pub 1779, Employee or Independent Contractor.

You can get all IRS publications, plus 600 forms, IRS Regulations, and back-year tax forms (to 1991) on CD-ROM Publication 1796. Call this toll-free number to order: 877-233-6767, or order online (search for Publication 1796). There is a charge.

All you may need, however, is a free online download called the Small Business Resource Guide, Publication 3207, which contains:

o information on small business topics from various regulatory agencies

o business tax forms, instructions, and publications

o valuable insight on a wide range of topics, from preparing a business plan to keeping records of financing and retirement plans

o informative tutorials, updates, and a multi-agency electronic newsletter.

Go to the IRS website (go to irs dot gov, "Business" and then "Small Business and Self-Employed") .

TIP

The IRS's free publications run the gamut from good to bad to plain ugly. While some are clearly written and useful, others are misleading, and a few are in an unknown language. I am always amused to see IRS publications with disclaimers warning you against relying on them. The IRS is not legally bound to follow its own writings that explain the tax law. Amazing, isn't it?

Free IRS and Social Security Telephone/Information

You may talk to a live IRS taxpayer service representative at 800-829-4933 (business tax line). It can be hard to get through from January to May. Avoid calling on Mondays or during lunchtime.

The Social Security Administration (SSA) also has an 800 number: 800-772-1213. It is staffed 7 a.m. to 7/p.m., and has prerecorded business-related topics available 24 hours a day. Among other info available from the SSA, you or an employee of your business can get a statement of earnings, Form W-2, and Form 1099 income information for past years, an estimate of benefits, and new or replacement Social Security cards.

CAUTION

Be alert for bad IRS telephone advice. The IRS is notorious for giving misleading or outright wrong -answers on the phone. IRS folks just aren't trained to answer more than very simple tax questions. In the IRS's defense, often taxpayers don't know how to ask the right questions, or really understand the answers given. Our overly complex tax code is as much to blame as the IRS. Unfortunately, the IRS does not stand behind incorrect oral advice. If you rely on what someone at the IRS tells you and it is wrong, you'll be liable for any resulting tax plus interest and penalties. If it's important, double check what the IRS tells you with a tax pro.

Free IRS Programs

In larger metropolitan areas, the IRS offers small business seminars on various topics, such as payroll tax reporting. You can ask questions at these programs, given at schools and federal buildings. Call the IRS at 800-829-1040 to see if programs are offered near you and to get on the IRS small business mailing list.

IRS Written Advice

The IRS is only bound by formal advice to tax¬payers called IRS Letter Rulings. If you want one, you'll have to pay a fee of $500 to $3,000 or more to the IRS; expect to wait many months for your answer.

For issues where the law isn't clear, a better (and far cheaper) bet is to look up letter rulings issued to other taxpayers with a similar question-if you can find one. Letter rulings are published in the Internal Revenue Cumulative Bulletin, and in private tax service publications found in larger public and law libraries.

Be warned: It is not easy to find letter rulings on point, even for a tax pro. If you want to try, you should know how these rulings are identified and indexed. For example, "Ltr. Rul. 892012" refers to a ruling issued in 1989, in the 20th week, and which was the 12th letter ruling issued that week. My suggestion is that you hire a tax pro to do this for you.

Internal Revenue Code

The Internal Revenue Code (IRC) is written by Congress and is nicknamed the code or the tax code. It's a thick book with tiny print and is found in the reference section of most libraries, the IRS website, IRS offices, tax pros' offices, and larger bookstores. The IRC is revised annually, mostly minor changes by Congress. More significant revisions to the tax code are made every three to four years.

The IRC is found in Title 26 of the United States Code (U.S.C. for short). The U.S.C. encompasses all of our federal laws. Title simply refers to the place within the massive U.S.C. where the IRC is found.

EXAMPLE: "IRC/179(b)(4)(A)" means that this particular tax law is found in Title 26 of the U.S.C., the Internal Revenue Code, Section 179, subsection b, paragraph 4, subparagraph/A.

The IRC is divided up into sections, which, in turn, are subdivided into more parts, ad infinitum. The tax code is a crazy quilt of laws that apply to everyone along with provisions just for left-handed sheep breeders in New Jersey.

The IRC is available online at the IRS website.

IRS Interpretations of the Tax Code

Congress, when enacting a broadly applicable tax law, can't foresee all possible situations. So the Treasury Department (the IRS is a part of it) is authorized to issue interpretations of broad tax code provisions. The primary IRS interpretations are called Regulations, Revenue Rulings, Letter Rulings, Revenue Procedures, Announcements, Notices, the Internal Revenue Manual, and IRS forms and instructions.

Regulations

The most authoritative IRS interpretations are called Treasury Regulations or just Regulations or Regs. Regulations provide the mechanics of how many (but not all) tax code provisions apply. Regulations often include examples, like the ones in this book. They are usually bound in a four- to six-volume set and are found in most larger libraries and some bookstores. Regulations are on the IRS website . Regulations are easier to read than the tax code on which they are based.

Start with the IRC section number. Then check to see if there is a corresponding regulation. It will bear the same number, usually preceded by the numeral "1." You can do this online at www.irs.gov

EXAMPLE: "Reg. 1.179" refers to a Treasury regulation interpreting IRC Section 179.

Other IRS pronouncements

The IRS publishes various statements of its position on various tax matters. These pronouncements guide IRS personnel and taxpayers as to how specific tax laws will be applied by the IRS.

IRS Revenue Rulings (Rev. Rul.) are IRS announcements of how the tax law applies to a hypothetical set of facts.

Tax book publishers Prentice-Hall, Commerce Clearing House, and Research Institute of America reprint all IRS Revenue Rulings. Some, but not all, of the IRS Revenue Rulings are on the IRS website. They are indexed by IRC section and subject matter. A Revenue Ruling usually contains a factual example, followed by an explanation of how the tax code applies to those facts. While looking for a Revenue Ruling might pay off, it is not always easy to find one that precisely covers your situation.

EXAMPLE: "Rev. Rul. 92-41" refers to IRS ¬Revenue Ruling number 41, issued in 1992.

IRS Letter Rulings are IRS answers to specific written questions about more complex tax situations posed by taxpayers. See "IRS Written Advice," above.

IRS Revenue Procedures (Rev. Procs.) are another way the IRS tells taxpayers exactly how to comply with certain tax code provisions. Rev. Procs. are primarily relied on by tax return preparers. They often explain when and how to report tax items, such as claiming a net operating loss on a tax return. They are contained in the weekly Internal Revenue Cumulative Bulletin, found in larger public and law libraries, and also are reprinted by the tax book publishers mentioned above and on the IRS website

EXAMPLE: "Rev. Proc. 91-15" refers to a published Revenue Procedure number 15, issued in 1991.IRS announcements and notices. Periodically, the IRS gives general guidance and statements of policy in official announcements and notices similar to press releases. They appear in the weekly Internal Revenue Cumulative Bulletin, which is published at the IRS website. Seldom does it pay to search IRS announcements or notices, as they weren't intended to answer specific questions.

The Internal Revenue Manual (IRM) is a series of handbooks for IRS employees on tax law. This is one of my favorite free resources. The IRM tells its auditors and collectors how specific tax code provisions should be enforced. The manual is for IRS internal use, but most of it is public and ¬reprinted by private tax book publishers. It is available to the public in larger IRS offices and in law libraries and some tax pros' offices. Portions of the IRM are also on the IRS website.

The IRM is revealing of IRS positions-for example, the criteria the IRS uses to determine whether reasonable cause exists for cancelling a tax penalty.

IRS forms and instructions are well known to us all, starting with Form 1040, the annual personal income tax return. More than 650 other forms are listed in Publication 676, Catalog of Federal Tax Forms. They are free at IRS offices or by calling 800-829-FORM or 800-829-1040 or at the IRS website . Many IRS forms come with instructions and explanations of the tax law. Always read the instructions before attempting to fill in an IRS form.

Court Cases

Federal courts have interpreted the tax law in thousands of court cases. Tax court decisions are found in the Tax Court Reports. Also, U.S. District Courts, U.S. Courts of Appeal, Court of Federal Claims, U.S. Bankruptcy Courts, and the Supreme Court all rule on tax issues. These court decisions explain tax code sections. Chances are that at least one of these courts has adjudged the point you are interested in; the trick is finding it.

TIP

Advice on research. The key to tax research, whether on the Internet or in a law library, is to start with the number of an IRC section, or a court case name, or a general topic, such as depreciation.

The Small Business Administration (SBA) puts out some good publications.

Personal counseling from the SBA is offered by the Service Corps of Retired Executives (SCORE) program. These folks are not necessarily tax experts, but if they were in business, they know the tax game. Call the SBA at 800-827-5722 or visit the SBA office nearest you. The SBA also has a very helpful website. Or write to the SBA at 1441 L Street, NW, Washington, DC 20461.

Small Business Development Centers (SBDCs) are cosponsored by the SBA and state governments. They are usually affiliated with state universities and provide free or low-cost seminars and counseling to small business owners. To locate an SBDC near you, call the SBA at 800-827-5722.

Other federal agencies offer publications-either free or at reasonable prices-to assist small businesses. PA 15250-7954.

Trade Association Publications

Every business or trade has specialized publications and newsletters that track tax issues in your industry that your tax pro might not know of-perhaps a new case or IRS ruling. Also, speakers on tax topics are often found at conventions and trade shows.

Tax Info Online

There has been an explosion of tax information on the Internet. Surprisingly, the IRS itself has a good website, but it is definitely not the "last word" in tax research.

Start your Internet search with the IRS home page. You can download over 600 IRS forms and publications and peruse summaries of 150 tax topics. Email simple tax questions to the IRS (but remember what I have said about taking tax advice from the IRS with a block of salt).

Internet service providers give you access to search engines like Yahoo! and Google to find tax information from sources, including the National Association of Enrolled Agents and TurboTax. Some sites allow you to post tax questions to experts and receive answers, either for free or a relatively small charge.

Keep in mind the person giving the answer doesn't really know you and your tax needs. The right tax answer is usually the one tailored to your individual situation-and for that you need the personal touch of meeting with a tax pro.

To go still deeper into cyberspace, use one of the popular search engines such as Google or Yahoo! Be prepared for thousands of listings to pop up. There is a lot of tax nonsense on the chaotic World Wide Web. People can express their views or promote harebrained "untax yourself" schemes. So, watch out. In the tax universe, as elsewhere, if it sounds too good to be true ... you know the rest.

Frederick W Daily is a tax attorney, author and former tax law professor. He has over 35 years experience in helping folks and businesses deal with the IRS disputes. He has appeared on hundreds of radio and TV programs including Good Morning America. He is regularly quoted as a tax expert in the publications such as New York Times, Wall Street Journal and Money magazine. He is the author of best selling books such as "Tax Savvy for Small Business" and "Stand Up to the IRS." For more information see www.taxattorneydaily.com

Abolishing Car Taxes

The car tax is the last vestige of an abusive and long ago discarded tax system. It's the old personal property tax - when the tax assessor pawed through your belongings and told you how much you had to pay to keep them. The USA and European Commission are currently calling for significant changes in the way passenger cars are taxed. The intention is to gradually apply the user pays principle to motorized transport. According to DG TAXUD, the envisioned taxation system will ensure a more appropriate internalization of the external costs of private cars - an important principle for which T&E has long been arguing. Taxing the actual use of private cars is an important step towards sustainable transport. But charges on car user ship ought to complement the already existing taxation of car ownership, and not just replace it. A full internalization of all environmental costs of cars must recognize the problems that result from the still growing sum total of cars on national and international roads. Road capacity in many regions has reached its limits - a fact that is most illustratively expressed by the continuous congestions on national highways and trunk roads. Capacity limits are reached as well in almost all urban areas, where evermore space is consumed by car-infrastructure such as parking spaces, car-dealers or car repair-, maintenance- and washing-facilities - not to mention streets themselves. Therefore a taxation system is needed that restricts both private user- and ownership by making sure that road passenger transport pays for its external costs. The positive response with which carmakers have welcomed (and had lobbied for) the abolition of registration taxes illustrates how auto-friendly the proposed legislation eventually may be. This, however, means that transport in general will not become more expensive - but that the sector will just pay differently and still not properly.

Thus to create harmonization it will make the economy more efficient, but does not automatically entail environmental improvement. As they stand now, the plans of the Commission to replace Registration Taxes by Annual Circulation Taxes may partially reduce private car use and thus lower the annual emissions of a single car. However, they will not provide any incentive at all to refrain from owning a car. In fact, the opposite is the case, because abandoning registration taxes will further stimulate the production and consumption of cars. This will be most tangible in countries like Denmark that were able to limit the growth of motorization rates and maintain a "greener" modal split by ways of higher registration rates.

It is to be noted that The Government has announced that with effect from 6 April 2002, the basis of taxation on cars provided by employers for employees' business and private use, will be changed to an emissions based system. Pool cars, provided for business use only, and which are returned to site at the end of the working day are currently not liable to benefit in kind taxation, and this will continue to be so. Carbon Dioxide (CO2) emissions will be used as the measure to calculate benefit in kind taxation on company cars from that date. A tax discourages economic activity, such as work or investment. The tax is cut, leading to increased economic activity. Liberals then assume that previous rates of tax would still be collected at the higher rate of activity -- which, of course, only came about because of the lower tax rate -- thus depriving the government of vast revenues it is justly entitled to. It makes no difference to them that economic activity often expands by more than tax rates are cut, thus increasing total revenues. Liberals always still believe that even more would have been collected if only tax rates had not been cut. In the case of the car tax, liberals assume that additional cars would have been purchased anyway, without any change in the tax. And by multiplying the old car tax rate times the larger number of cars registered, they come up with mythical revenues that could pay for more teachers, police, and roads.

Thus, in this paper, we discuss the abolition of car taxes rule in context of California - one of the major and highly populated city of United States of America.

History: In 1935, the Motor Vehicle License Fee Act established a state car tax of 1.75 percent of the value of an automobile in lieu of the personal property tax then assessed on all personal property. The taxes collected under this act were limited to state purposes, including highways. The personal property tax was subsequently abolished, but the car tax remained. In 1948, the fee was raised to two percent. In 1957, the law was clarified to limit the use of these funds for law enforcement, regulation and control of highway traffic, and other state purposes.

In 1988, the law was amended to allow the use of car taxes for any purpose, and in 1993, 25 percent of the funds were earmarked for realignment of health and social services programs. Thus, any linkage between the car tax and roads was obliterated. Worse for taxpayers, in 1991 California's car tax was radically restructured to provide additional tax resources to balance the state budget as part of an $8.2 billion increase in taxes and fees that year. Prior to 1991, automobile owners were charged on a ten-year depreciation schedule, based on the original purchase price of the automobile. The 1991 legislation made three dramatic changes. First, the depreciation schedule was stretched from ten to eleven years. Second, the act provided for a permanent tax on fully depreciated automobiles amounting to 0.3 percent of the price in perpetuity beginning in the 11th year. Third, the new law triggered a restarting of the depreciation schedule, virtually assuring that very few cars would ever reach the bottom of the schedule. The net effect was a $60 per year increase in the VLF paid for an average car.

Another historical note about the 1991 tax increase is also relevant to this discussion. The overall tax increase that year was the largest by any state in the history of the nation. According to revenue estimates made at the time, the entire package amounted to $8.2 billion in additional taxes and fees, or roughly $1,100 per family. The tax increase, enacted in the midst of a recession, broke the back of California's economy. Although some of those taxes were repealed or expired, many are still on the books. Thus, California's Vehicle License Fee began as a substitute for the personal property tax. When the personal property tax was abolished, the tax was maintained under a new name. It was originally limited to state purposes, principally for highways and highway-related services. Today, it is devoted to purposes entirely unrelated to highways. It now consumes $3.3 billion of California family earnings, at a time when they are paying $3.6 billion more than they would have paid without the 1991 tax increases.

Meanwhile, the onerous and outdated automobile tax has proven to be highly unpopular across the country. In the 1997 Virginia gubernatorial campaign, Republican James Gilmore's campaign was stalled until he unveiled a proposal to abolish Virginia's car tax. Gilmore won a dramatic victory for Governor and swept a majority of Republicans into the Virginia state Senate. He has now set about to fulfill his signature campaign promise, backed by an overwhelming mandate from Virginia voters. Meanwhile, in Texas, Democrat Gary Mauro is campaigning against Republican Gov. George Bush, Jr., on a platform to abolish the state's sales tax on motor vehicles. Bush opposes the plan. In Georgia, Republican Guy Millner has proposed ending that state's car tax for a saving to taxpayers of $475 million. In South Carolina, Gov. David Beasley proposed in his State of the State address last month to phase out the car tax over a period of six years.

Abolishing the Car Tax: AB 1776

A car represents security of transport. Even if public transport is adequate for most journeys, people still want a car for the odd occasion or emergency. There will always be places and times when public transport doesn't run. The Government could make a contribution immediately by abolishing car tax and increasing fuel taxes to offset the loss of revenue. This would have the added benefit of doing away with an absolutely pointless and tedious administration system. The point is that public transport will never be able to emulate the flexibility of private transport and that at present the car has so many advantages.

The Virginia experience makes a strong case for California to abolish its car tax. By doing so, California could reduce the overall level of taxation to what it would have been without the tax increases imposed during the 1990's, while still providing for some $14 billion in additional general fund revenues in the last eight years. It would abolish a tax that long ago ceased to bear any resemblance to its original purpose and intention. It would remove a strong disincentive in current law that keeps motorists from shedding older, higher polluting automobiles. It would provide a significant spur to economic activity by reducing the cost of new vehicles in California. It would reduce costs to California families of what is a practical necessity in the Golden State: the family car. The problem in doing so is the built-in special interests that depend on the tax. A $4 billion saving to taxpayers is also a $4 billion cut in the governor's proposed budget. In this case, the beneficiaries are local government budgets, which are still recovering from a multi-billion dollar raid by the state government in 1992 and 1993. In order to back-fill this amount, reductions in the proposed state budget would have to be taken from non-education funds under constitutional provisions enacted by Proposition 98. The "non-98" side of the budget also funds the Department of Corrections, a sacred legislative cow.

In abolishing California's car tax, it would be a desirable policy and a practical necessity:

 To hold local governments harmless by back-filling their losses with state funds

 To work within the revenue projections of the Department of Finance

 Not to affect Proposition 98 funds for schools

 Not to affect the administration's proposed funding for state prisons

 Not to affect the administration's proposed budget reserve.

The next question is how the funds should be preserved, protected and restored to local governments to replace the VLF taxes they will be losing. This is a particularly important question, since Proposition 47 of 1986 constitutionally earmarked VLF subventions for local governments, providing a relatively tamper-proof and expanding source of local revenues. Even though VLF subventions could be redirected away from local governments in future budgets simply by using them to supplant other sources of local funding, a suitable replacement to the VLF is an understandably important objective of local government.

AB 1776 establishes a strong protection against state government raids by phasing in a dedicated portion of future sales tax revenues to replace the lost VLF subventions. To protect against anomalies occurring between high-sales tax and low sales tax communities, the replacement revenues are placed into a dedicated state sales and use tax account that will replace lost VLF subventions on a dollar-for-dollar basis. When fully phased in, the sales tax rate required to replace the lost revenues will lock, and the subventions from the fund will naturally expand as the economy expands. Indeed, this reform greatly enhances the flexibility of local governments to use these funds by eliminating the straightjacket effect of the 1991 re-alignment legislation. Furthermore, to provide additional protection for local governments, the sales tax provisions of AB 1776 will be placed in a "Local Government Independence Act," a constitutional amendment to be introduced in the Assembly later this month.

Californians pay the third highest combination of automobile taxes in the nation, and they pay $3.6 billion more in overall taxes than they would have without the net tax increases of the 1990's. The largest portion of the automobile taxes is the Vehicle License Fee, also called the "car tax," accounting for an average of $185 per automobile annually. None of this money is used for highways or highway-related services. It goes instead to local government general funds and local health and social services programs. Abolishing California's car tax would make California families whole for the massive tax increases they suffered in 1991. In this period of economic growth, abolition of the car tax could be done while protecting local government from any revenue loss, preserving state funding for schools and prisons, and maintaining the proposed budget reserve. It would require an overall reduction in the 1998-99 proposed general fund budget of just 9/10ths of one percent, or no budget reductions at all if additional revenues materialize in the May Revise.

The state's booming economy makes it possible to abolish the tax without touching the state's school budgets or even the growth rate in the schools' funding guarantee. The bill to abolish the tax even protects local governments from any revenue loss; it replaces every dollar lost through the car tax with an equal amount from the state's share of existing sales tax revenues. To answer local government concerns that the replacement fund might be reduced in future years, a constitutional amendment has been proposed to protect against raids by future legislatures. In response, on 1997 Virginia voters just delivered a resounding mandate for abolishing the car tax in that state by electing James Gilmore, who made that objective the signature theme of his campaign. The support for abolishing the car tax from an impressive coalition of taxpayer groups suggests that strong organizational structure exists for taxpayers to channel their outrage at California's abusive car tax.

Putting the real cost of using a car before the commuter might change a lot of minds and, incidentally, is a lot more democratic than road pricing where a flat rate will have to be paid to get into the city center. The good news is that California is enjoying a period of economic expansion. A combination of projected revenue growth and a one-year postponement of new social spending while meeting all of the above criteria can accommodate a five-year phase-out on the car-taxation. It is now established that even a much reduced rate of economic growth than California is currently experiencing would be more than enough to cover the phase-out of the car tax, without affecting Proposition 98 funding guarantees.

Holly Odom is a freelance writer working for essaymart.com - on line Custom Writing/Research company. She specializes in Social sciences, Arts, History and English literature. During 2005, earned became one of 10 best writers at essaymart.com.

Questions to Ask Before Hiring a Tax Attorney, CPA Or Tax Resolution Specialist

Finding a tax professional to solve your tax problems is like the end of Indiana Jones and the Last Crusade. Make the right choice and all your wounds will be healed. Make the wrong choice and you'll be turned into a screaming shriveled skeleton. Whether it's a tax attorney, certified public account or certified tax resolution specialist (CTRS), it's important to choose your tax representative wisely.

If you've got tax problems, like delinquent tax returns, back taxes, payroll taxes or other tax collection or audit issues, your first instinct may be to open up the yellow page or Google or ask around for recommendations. Great, now you've got some names, but how can you find the right expert to give you the IRS help you need?

To avoid paying a high hourly rate unnecessarily, go through this tax attorney/CPA/tax resolution specialist interview checklist first. This checklist will help you weed out the tax relief scammers, as well as the merely inept attorneys and CPAs out there who will leave you with their high fees, your original tax debt, plus additional penalties and charges.

Print out this article and ask the following questions.

Before you face a tax attorney or tax resolution professional, first look in the mirror to get a handle on your tax problem.

Are you looking at personal income tax issues (you are an innocent spouse or a victim of tax fraud), business tax problems (such as unpaid payroll taxes, sales taxes), estate taxes, foundation or charity tax issues?
Are you dealing with just federal or state taxes too?
Do you have tax problems in multiple states or jurisdictions?
Does the IRS know about the issue yet or have you just discovered it?
Did the IRS contact you but you've buried your head in the sand hoping it would go away?
Are your records a shambles?
Can you attempt a true reckoning of what happened?
Has the IRS come to your home or place of business?
Has the IRS demanded an in-person audit?
Has the IRS garnished your wages, put in tax liens or seized any property?

Answering these questions will help you decide what kind of tax help you need.

When you get tax problem resolution professional recommendations from friends, you need to compare apples to apples. While a CPA will have a cheaper hourly rate than a great tax lawyer, they can't do what a good tax lawyer can. A great CPA can put your tax records in order so you can get a true accounting of the "historical" road just travelled, but they probably shouldn't take you into battle with the IRS because they don't spend all their time negotiating tax resolutions the way specialized tax professionals do. You need someone who battles the IRS for a living, who has learned the latest laws and knows all the secrets to helping resolve your tax problem.

That's why some tax resolution firms offer a team of expert tax professionals to help you get the best possible outcome for your tax settlement.  So before you rack up those high hourly charges, you need to make sure you are talking to the right tax professional who can do the job for you. You will be hiring this tax attorney, so treat your initial consultation as what it should be, a job interview.

Questions to ask a tax attorney, CPA or certified tax resolution specialist:

About the firm:

1. How long has they been in business solving IRS problems? The longer they have been handling negotiations with the IRS the better.  A lawyer or CPA firm may just do tax law on the side and not be dedicated to knowing the ins and outs of IRS negotiations.

2. How many tax attorneys do they have on staff? (Some firms are only CPAs, some are nothing but former IRS agents, some are straight law firms with only one or two tax attorneys). If you don't do tax resolution day in and day out, you don't know all the loopholes, tricks and tools. Look for someone who is a certified tax resolution specialist, they have to take a special exam and have a number of years of experience and continuing education in this field. There are only about 200 in the entire country who actually do this as a living.

3. What is their success rate with tax cases? Don't take a generic number here. Ask about the success rate for cases like yours. Don't expect a perfect score. For example in most cases the Offer in Compromise is a starting offer. Only about 2% are immediately accepted by the IRS. The more important number is comparing cases like yours. What is the total dollar amount negotiated in settlements divided by total dollars in tax, interest and penalties owed? In short, how much did these tax attorneys save their clients?

4. Do they offer a guarantee? Run away if they do. No one can guarantee anything. 

5. Does the law firm or tax resolution company want all the money up front? If they do, run. Once tax professionals have your money, they have no incentive to go the extra mile for you. If your tax attorney, tax resolution specialist or CPA wants some "good faith money" that's fine.

6. Do they give you a high pressure sales pitch? If they are pushing that hard, that's a warning sign to stay away. In many cases when you get a sales pitch you are talking with a salesperson, not a tax attorney or tax resolution specialist who can help you.

7. Check out your potential tax attorney or tax resolution firm with the Better Business Bureau, but keep in mind the volume of people the company serves. If the company has 20 complaints over three years but has served 5,000 clients in that time, that's a 0.4% failure rate, or said differently a 99.6% satisfaction rate. Even that can be misleading because the BBB only tracks complaints, not resolutions. Even if the client got a full refund and 100% satisfaction, the client can't withdraw their complaint once it is filed with the BBB. You could also Google their name with the words "complaint," "rip-off" and "scam." And if they are a tax attorney, check with your state's bar to see if they have any complaints against them.

8. Ask for the names of the people who own the law firm or tax resolution company. If your contact is elusive on this, run. Bottom line, you need to know who runs the show. You need the name of the owner, NOT the senior tax attorney. If your IRS case goes south or the tax attorney handling your case is a problem, you need to know exactly who you can complain to or who to seek redress from.

9. Find out the name of the tax attorney or tax resolution specialist who will be taking your case. Find out how quickly they respond to your inquiries. Do they answer their phone or email promptly? Ask for references of satisfied customers for that specific tax attorney or tax resolution professional. (Given the confidentiality of tax resolution work, a personal reference for a tax attorney might be hard to come by.)

10. Does the tax attorney or tax resolution firm have experience in multi-jurisdictional issues? Because the IRS is a federal agency, there are three people permitted to practice before the IRS. You have to be an active licensed member of the state bar, a certified public accountant actively licensed or an enrolled agent. No matter where they live, they can represent the taxpayer before the IRS is all 50 states.

11. Will this tax attorney or tax resolution specialist go with you to an in-person audit? Although 90% of tax resolution work is done over the phone, electronically or via FedEx, sometimes you need a tax attorney to literally hold your hand in an audit. But don't choose a tax attorney just because they have an office near your home. An accident of geography doesn't mean they are the right tax attorney for the job. In many cases a national firm such as ours can make sure you never have to darken the door of an IRS audit.

12. How can they help you if the IRS wants to come to your home or business?

13. Is the firm just a tax form filler? Just because they prepare a lot tax returns doesn't mean they are ready to battle the IRS. There are a number of tax resolution and "tax attorney" scams that do nothing but type up an Offer in Compromise and just mail it to the IRS. That's all the service these "tax attorneys" provide. These companies are at best, a waste of time and money and at worst, a one-way ticket to big trouble.

14. What are their prices? Don't be penny-wise but pound-foolish. Don't just lock onto a tax attorney or tax resolution firm's low price. Look for value and the number of services you get. Will this tax attorney or tax resolution professional give you preparation of all IRS forms, all backup documentation, and all negotiation with the IRS?

When you meet or interview your tax resolution specialist or tax attorney ask them:

1. Where did this tax attorney or CPA go to school for tax resolution? How current are they (how much continuing education is this tax attorney taking)?

2. How long has this tax attorney or tax professional practiced tax resolution, not straight tax law but real battle with the IRS for tax resolution?

3. What percentage of their jobs are tax problems like yours?

4. Who is their direct supervisor? What is their contact information?

5. Does the individual tax attorney, CPA or tax resolution specialist have references?

6. What is his/her personal success rate? (How many Offers in Compromise settlements have been accepted and what was the negotiated amount owed versus the initial amount of taxes owed and penalties? In short, how much has this individual tax attorney or tax resolution professional saved clients? How does this tax attorney or tax resolution specialist compare to the rest of the firm: above average or below?)

7. What sorts of releases for tax liens, levies, etc. have they achieved? How fast?

8. What sorts of penalties (like mine) have this tax attorney/ tax resolution specialist gotten waived?

9. What sorts of installment agreements in situations like mine has this tax attorney or tax resolution professional negotiated and what was the payment schedule?

Once you are convinced you have found the tax attorney or tax resolution specialist that can help you, you'll feel like you've found the Holy Grail. Choose wisely.

For more information on achieving a tax resolution for your IRS problems or back taxes, visit www.taxresolution.com for a free tax relief consultation or call 866-IRS-PROBLEMS.

Michael Rozbruch, one of the nation's leading tax experts, is a Certified Tax Resolution Specialist (CTRS), licensed CPA in the state of Maryland and the founder of Tax Resolution Services. He teams up with an expert staff of tax attorneys, CPAs, and tax relief professionals to help individuals and small businesses solve their IRS problems with tax liens, unfiled back taxes, offers in compromise, wage levies, tax relief, delinquent returns, tax debt installment plans, bankruptcy and protecting an innocent spouse from unfair tax burdens. Michael also shares valuable tax advice and information in his blog - Tax Resolution University

Tax Deferred Investments - Discover the Misconceptions

The discussion of Tax Deferred Plans vs. Tax Advantaged Plans has been an on going battle. If you listen to the media and popular financial experts, you've probably sided with them in putting your money in tax deferred investments, like a 401K, Traditional IRA, or a SEP.

Could they be wrong? Well, let's take a macro view of this strategy and you may change your mind after reading this article.

Have you ever felt like this when deciding when it's better to be taxed?

So I was in the drug store the other day, trying to get a cold medication. You ever try and pick one of these out? It's not easy. It's a wall. It's an entire wall of cold medication, you stand there, you're going, "Alright, alright, alright, okay, what the hell? This is quick acting, but this is long lasting. When do I need to feel good, now or later?" It's a tough question. - Comedian Jerry Seinfeld

"When do I need to feel good, now or later?" That's the real question isn't it? When do you want to feel good about paying taxes, now or later? Many choose later. So, let's look at some of the misconceptions behind tax deferred investments.

Tax Savings What a lot of people misunderstand with tax deferred investments is that they believe they are saving taxes. This is absolutely false. There are no tax savings.

Let's take the 401k. You are putting money into the plan before you pay taxes. When you start accessing the cash, that's when you pay the taxes that you had postponed. So, with these investments, you are not saving taxes, you are just postponing the inevitable. When was the last time procrastination was considered a good thing?

Let's look at some figures to get a better picture. Let's say that you invest $1000 pre-tax over 10 years earning 6%. At the end of 10 years, your investment would have grown to $1790.85. Now, you want to access the money and you are in a 35% tax bracket. So that's $1790.85 - $626.80 = $1164.05.

On the other hand, you have another investment where you invest under the same exact conditions except that you pay taxes (35%) on the $1000 prior to investing. Your invested amount is now $650 and it will for 10 years earning 6%. At the end, you will have $1164.05. It's exactly the same!.

As you can see the, the results are the same. Tax Deferral is not a powerful weapon against taxes; it just delays them.

Lower Tax Bracket

Typically, people like the idea of deferring taxes because they believe they will be in a lower tax bracket in the future.

What many don't realize is that they're working to have the same or higher effective tax rate when they retire.

If you are in a typical household, what are your two biggest tax deductions? They are your mortgage interest and children. On one hand, they may be deferring taxes by putting their money in a tax deferred retirement plan. On the other hand, they may be getting rid of their biggest tax deductions by paying off their home and letting their kids move out. (I'm sure some parents would rather have the kids out of the house than the tax deduction.)

Mortgage interest is tax deductible and as you pay off your home, that tax deduction gets smaller and smaller. When your child leaves the house for good, he or she takes that tax deduction along.

The tax strategies are conflicting here. It's like driving down the highway with one foot on the gas and the other on the brake. Don't catch yourself splitting strategies.

Besides, why would you want to be in a lower tax bracket? The goal here is to make you more money, right? Well, if you are in a lower tax bracket in the future, then didn't the plan fail?

Predictability

Coming into the workforce, I didn't know the history of taxes. When I was younger it never dawned on me that it would ever be important. Today, the understanding of the unpredictability of tax laws is very important.

Tax laws constantly change. So, the future of our tax code is uncertain. According to Robert Castiglione in his book LEAP, the tax code established in 1913 was supposed to be temporary. It was put in place to help pay off accumulated government debt. Could this happen again in the future?

When I put my money in a tax advantaged account, I'm done paying taxes on the money that was contributed. I can predict what I will pay on that money when I take out the contributed funds in the future - $0.

Even with the uncertainty of future tax laws, my predictability with taxes stays firm.

Better to save now and get taxed later

Let's look at an example derived from Missed Fortune 101 by Douglas R. Andrews.

Todd and Kelly Saver contributed $6000 for 35 years to a grand total of $210,000. Since they were in a 33.3% tax bracket for those working years, they deferred paying $70,000 in total taxes. ($210,000 X 33.3% = $70,000).

Remember the figure they deferred in taxes: $70,000.

In 35 years and one month with 7.5% interest, their nest egg grows to the $1 million mark. Assuming the Savers made interest-only withdrawals to keep their $1 million nest egg in tact and still earned 7.5% interest, their yearly income would be $75,000.

They find themselves still in the 33.3% tax bracket (recall our discussion about the Lower Tax Bracket above). Thus, their net annual income after taxes is $50,000 ($75,000 - $25,000). $25,000 is 33.3% of $75,000.

Conclusion:

The Savers spend more than 35 years postponing paying taxes via their tax deferred investment in the amount of $70,000. In just 3 years, the Savers would pay more in taxes than the amount that that they spent so long delaying ($25,000 in taxes X 3 years = $75,000). Imagine if they continue to live in retirement for 20 years and how much more in taxes they would pay to Uncle Sam. Ask yourself, "Are you planning your retirement along with Uncle Sam's?"

One thing is for certain, whenever you make money, Uncle Sam will want a cut in the form of taxes. I'd say that the probability is as high as anyone ever catching a cold.

However, there are strategies that people can put into place to decrease the affects of taxes. First, understand...

Tax the Seed

Have you heard this analogy?

If you were a farmer, would you rather tax the seed or the harvest?

Farmers would rather tax the seed. As time progresses, taxes on the harvest will dramatically erode the fruits of their labor. Remember the example above. The longer someone lives and has their tax deferred plan in force, the more he/she will be paying in taxes.

Use tax-on-the-seed (tax advantaged) plans to keep the harvest for yourself. Roth IRAs and cash value life insurance fit this mold.

I would never advise someone to base their money decisions solely on taxes. However, its impacts should not be overlooked. It's should be part of your financial plan.

Whether you pay taxes now or later is up to you. The question remains, when do you want to feel good, now or later?

Action Steps

1. Get educated. Learn what tax laws surround your tax deferred retirement plans and other investments.

2. Get advice. Seek expert advice. There are many professionals who can assist you with tax planning. If the subject of taxes bore you, seek someone that has a passion for it.

3. Seek alternatives. There may be other plans out there that provide more flexibility, benefits, and wealth. Our favorite, of course, is whole life insurance.

Learn to invest money.

Isn't it time you chose financial freedom?

8 Essential Tips for Personal Taxes and Accounting

A very important part of personal financial planning is tax planning. This article will help you take the mystery out of personal tax Planning by providing a financial planning perspective for your overall tax situation.

1. Be aware of the different types of taxes

Many people are not aware of the different types of tax systems that we have. Income: Federal, State and Local. Real estate tax. Tax on Investments: Dividends, interest, capital gain, and passive income on stocks, bonds, mutual funds, and investment real estate. Estate or Inheritance Tax: Federal and state tax due on the estate or the inheritor. Gift tax: tax on giver of large gifts. Entitlement Tax: Social Security and Medicare (FICA), Federal Unemployment (FUTA). Sales, self employment, and corporate taxation.

2. Consider working with a Qualified Tax Professional

Tax planning can be complex for many people, therefore it may be wide to work with a trusted professional tax advisor.

Tax advisors not only prepare your taxes but can help make decisions that will affect your future. They can serve as advisors for a whole host of matters and they can represent you if you face the dreaded audit. Consider the following when selecting a tax professional:

- Local: Someone that you can easily meet with face to face

- Personable: Someone that you can interact with and who cares about you

- Proactive: Some tax preparers simply look at your previous year's return and plug your current numbers into last year's format. This of course assumes that last year's preparer knew what he/she was doing. Try to find a preparer who knows your situation. A proactive professional will ask questions that will help you anticipate changes in your tax situation to help you properly plan in advance

- Reputable: Find a professional with a good reputation. Ask people you admire for a referral.

- Skilled: Look for an accountant that is very competent. You have to be smart to obtain a degree in accounting or law.

Fees: Find out up front what they estimate their fees to be, what they charge to file electronically and whether they will represent you in an IRS audit. Avoid any 'early refund' ploys. Some well known tax preparation companies 'provide' this service which charges a hefty fee (with a lot of small print) and a lot of advertised hype for you to get your refund 'early'. It is basically a high-interest loan. Just waiting for your actual refund will save you a lot of money.

3. Remember, tax preparation entails both art and science

The science involves the mathematical calculations that in most instances can be figured using calculators and software, and the infinite number of complex tax laws.

The art of tax planning comes into play with interpretation of any special circumstances. There are some areas of tax law that leave the government's intentions unclear. No law can completely anticipate each person's situation. You could call a dozen different IRS agents with the same question and get as many different answers. A proactive planner will research any unusual circumstances you may have and help you plan a course of action.

4. Doing Your Taxes Yourself?

I firmly believe in getting professional tax assistance. However, I realize that many people prefer to do their own taxes perhaps to save money, or perhaps you have cleaned up the mess a 'store front' preparer made of your taxes and vow to do your own. It has been my experience that often the professional tax preparer has saved us the amount of their fee in our taxes. The peace of mind that the taxes are done right has a value all its own.

However, people who have prepared their own taxes at least once with paper and pencil or software usually understand taxes much better. If you self-prepare your taxes, consider having a qualified accountant review them before you send them in. They may find things you or the software might have missed.

If you made less than $54,000 in 2007, you can file your taxes electronically for free through the irs.gov website http://www.irs.gov/efile/. If you use tax software and wish to e-file be aware of the fees so that you can budget and compare prices properly. For example, a download of Turbo Tax Home and Business Federal and State for 2006 cost just under $100 and the filing fees cost around $30. Some States allow you to 'phone in' your State return for free.

If you choose to mail your return, go to your local post office and send it 'Certified Return Receipt' mail to insure that you have a record that the IRS received your paperwork. This will cost around $10 or less and will be worth every penny should the IRS contest the receipt of your return.

5. Keep great records

If you are already very organized you may read this section just to feel great about your organization skills or skip to the next section. If, however you have heard 'get organized' many times before and if you are the type of person who balks at the idea of organizing that mess of receipts just remember how you felt last year as tax time approached. You could become organized in only one evening of television viewing with the right tools. Arm yourself with an accordion file with at least 16 sections. Label them according to your situation or use the following sections: Auto, Bank, Business, Credit Cards, Dental, Medical, General Receipts, Grocery, Income, Insurance, Mortgage, Utilities, School, and Taxes. Now sort your receipts into these sections. Organizing your receipts will help you "Take the mystery out of..." your financial situation. Use a new accordion file every year. Not only will this help you find needed information, it will also help you find a receipt in case you need to return an item you purchased. . Your tax professional will be sending you a tax organizer the end of December or the first of January. In this organizer will be a list of information that you will need to gather. Becoming organized will help you easily gather the information you need to fill out your tax organizer.

6. Start early

Do not procrastinate on your taxes. Tax professionals are unbelievably busy January through April. Firms who prepare business returns also have a crazy March 15 business deadline. We are providing this information because we want you to get the most attention from your preparer during their craziest season. As soon as you get your organizer, begin gathering the needed papers. If you are only missing one or two pieces of information return the organizer to your accountant with a note that says what is missing. They will begin entering the information in their software. Try to get a January or February meeting with your accountant. These months are the best to meet because they will have more time to spend with you and they will be able to think proactively. If you are looking for a professional, start looking now.

Another reason to start early is allowing yourself time to look for records, ask financial institutions for copies of lost information, or calling investment companies for statements.

7. Judicious Paycheck Tax Withholding

Many people like to overpay their taxes, so that they get a nice refund in time for vacations or other wants and needs - Kind of like a forced savings. Overpaying taxes is like a giving the government an interest free loan of your money.

Good financial management involves developing savings habits so that you set aside money in an interest bearing account from each paycheck for future needs, wants and emergencies. This helps you to avoid using credit cards for those things and not having to wait until refund time. Secondly it then allows you to manage how much you can afford or are able to put into 401(k) plans at work. This accomplishes two things, first you are managing your money better and you are saving for retirement. Saving for retirement in tax deductible retirement plans like 401(k)s will also lower your taxes, enabling you to save more for retirement and everyday needs and wants.

If you want to lower the taxes that are being withheld from your paycheck, file a new W-4 form with your employer to claim an additional withholding. Make adjustment for getting married, divorced, having children and for increasing contributions to tax deductible retirement plans. Your accountant will help you estimate this.

8. Tax planning is not the tail that wags the dog

Taxes consume a large if not the largest single percentage of your income, therefore good financial planning should strive to lessen them, by whatever means possible as allowed by law.

However, tax planning is not the only core issue of good financial planning. Tax planning works in concert with your overall goals and your individual situation.

Kent E. Irwin, ChFC, CLU, CAP, co-founder and CEO of eFinplan.com. eFinPLAN is the first and only web-based comprehensive consumer financial planning software designed for people who are trying to do a lot of their own financial planning. Find out more about how do-your-self financial planning and how to reach your goals at: => http://www.efinplan.com/

Tax Lien Investing FAQs

Recently I sent an e-mail out to my subscribers asking them some questions. I wanted to find out what it is that most people want to know about tax lien investing. I got a lot of good questions and I won't be able to answer them all in this article, but I want to try to answer those that were asked most often and that weren't answered in my new free video course.

I especially like to answer questions that start out with the words "How do I..." or "How can I..." This type of question shows me that someone is really interested and is ready to take action. So let's answer some of these types of questions that are not answered in my video series. So here are some frequently asked questions about tax lien investing.

Q1: How can I buy tax liens or tax deeds without going to the auction?

A: In most states you have to attend the auction in order to bid, or have a representative there to bid on your behalf. But there are 2 ways that you can purchase a tax lien or deed without physically going to the sale. A few states do have online auctions, but not all counties in these states conduct their auctions online. Usually just the larger counties do. Many counties in Florida, California, and Arizona have online tax sales. And I know that some counties in Colorado and Illinois have online tax sales as well. Another way that investors have bought tax lien and tax deeds without going to the sale is to bid on left-over liens, this can usually be done through the mail. The only problem is that as tax lien and tax deed investing become more popular, there are less and less good properties left-over after the tax sale.

Q2: I don't live in the US; can I still invest in Tax Liens or Tax Deeds?

A: Yes, in most states you can invest in tax liens and tax deeds even if you are not a US citizen and do not live in the US. There are a couple of states that you have to be a resident of the state to invest, but these are not the most popular tax lien states and they don't have online sales. All you have to do in order to purchase a tax lien is to fill out a tax form called a W-8BEN form. In order to complete this form you will also need to apply for an Individual Tax Identification Number (ITIN) if you are bidding in your own name. If you are bidding using a business name, you must apply for an Employer Identification Number (EIN). This is only for tax liens. You do not have to do this to participate in a tax deed sale.

Q3: So how much money do you need to get started with tax lien investing?

A: The beauty of tax lien investing as opposed to tax deed investing and other types of real estate investing, you can start with a very small investment. The first very profitable tax lien that I purchased started with an initial investment of only a couple of hundred dollars, on a small sewer lien. Then I was able to pay the subsequent sewer taxes the next couple of years and instead of trying to foreclose I just kept paying the subsequent taxes. After a couple of years, the homeowner moved out of state and stopped paying the taxes on the property, so then I got to pay even bigger payments $5000 over the next couple of years. The lien finally redeemed and I collected 18% per annum on most of my investment plus penalties.

Q4: How often do you acquire the property with tax liens?

A: In the state of NJ where I invest, very, very seldom do you get to foreclose on the property. If you are interested in owning property than tax deed investing or redeemable tax deed investing is the way to go. Only about 1% of tax liens will not redeem and of those properties, once you start the foreclosure process about 80% will redeem sometime during the foreclosure process. I've been investing for about 6 or seven years and I haven't foreclosed on a property yet. I do have a couple of liens that I could start foreclosure on right now, but I know that when I do, they will redeem, so I just let them go.

I know some investors who have foreclosed on a couple of properties, but either it is not recent - we're talking a few years ago when property values were not what they are today and it was much harder to get a loan, or they have a really huge portfolio with thousands of liens.

Q6: Are there risks involved in this type of investing? What are they?

A: Yes, there are risks involved and that's what the gurus leave out, they make it sound so easy. They like to use the term "Government Guaranteed" to make people think that they can't go wrong with tax lien investing, that the government guarantees that they'll get paid on a tax lien. That's really not true, what they mean by "government Guaranteed" is that there are laws that protect the investor but you not guaranteed to get paid. The guarantee is the property. Tax Liens are guaranteed by the property that you have a lien on, so if you buy a tax lien on a worthless piece of property, then you made a poor investment and it is possible that you could lose your money. Yes, there is risk involved, but that risk is minimized by doing your due diligence on the property before you purchase the lien, just like you would do due diligence on property before giving someone a loan against it. If you do your due diligence properly than tax lien investing is a very safe investment because it's secured by something tangible, not just a piece of paper.

One of the things that I do in my courses, John, is teach people how to do due diligence for tax sale properties so that they can totally reduce the risk involved with tax lien investing.

Q7: Can you invest in tax liens and tax deeds in your IRA?

A: We all want to keep more of those profits for ourselves and not give half of it away to Uncle Sam. The good news is that you can use money in your IRA or Roth IRA to invest in tax lien certificates or tax deeds, but only if it's a true self-directed IRA. With a self-directed IRA, your profits can grow tax-differed, and with a Roth IRA, your profits can be totally tax-free.

In my courses I have 2 audios from different experts from 2 different self-directed IRA companies that explain how to do this.

Joanne Musa works with people who want to build an extremely profitable portfolio of tax lien certificates or tax deeds FAST. She is the author of the Tax Lien Investing Basics system for learning how to invest in tax lien certificates and tax deeds for maximum profit, available at http://www.TaxLienInvestingBasics.com and founder of Tax Lien Consulting LLC, a consulting company specializing in tax lien investing coaching and education. For a free video course and special report on the 7 Steps to Building Your Profitable Tax Lien Portfolio go to http://www.taxlienlady.com/freevideos

Albanian Tax Administration - Growing With A Good VAT

VAT is the only tax that involves the government not only in collecting substantial money from the private sector but also in paying a good deal of it back to them in the form of input tax credits. 136 countries now have a VAT of some sort and remain at least 63 countries that do not have VAT's, 41 of which now have some other form of general consumption tax and 23 of which appear to have thus far been able to avoid facing the problem.

Over the last decade, VAT has arrived in Albania. The principal reasons for arrival of this form of taxation were, first, the early adoption of this form of taxation in the European Union (EU) and, second, the key role played in spreading the word to economic transition countries by the International Monetary Fund (IMF) in particular and by international agencies and advisors more generally. The success of VAT in the EU showed that VAT worked. The consistent support and advocacy of this form of taxation by the IMF and others in a variety of countries, encouraged and facilitated the adoption of VAT by countries with much less developed economic and administrative structures than those in the original EU member states, like Albania.

The VAT, it's invariably among the most important sources of government revenue. Not all is so good for VAT, however. Some of problems have always been inherent in the structure and operation of VATs but are exacerbated by the increased fiscal weight being placed under pressure for new fiscal revenues for example to offset revenue losses from tariff reductions needed to accord with WTO requirements. It is thus perhaps time for a new look at the role of VAT in Albania.

I want to make some question that can be a referent point for this discussion.

Can VATs be adapted to cope with the rising demands for more access to revenues by local and regional governments?

Can tax administration deal with such new problems as those arising from changes in business practices with financial innovations and e- commerce?

Does VAT provide a way to tap the informal sector or does it instead tend to expand that sector?

The answers to such questions are not only critical to the fiscal stability of Albania, but also to her economic growth and development. Not only do we as yet have surprisingly little solid empirical knowledge of some critical factors but the relevant economic theory also remains rather sketchy and we know even less about the relevant political economy context.

VAT in real life

As we said, VAT works. Despite some doubts by various analysts, for the most part it remains true that, if a country needs or wants a simpler tax, it is well to have a VAT. Nonetheless VAT does not always work well, principally because we yet are so tax educated society ready for "self-assessment". VAT is by no means necessarily the 'money machine' for every government.. Indeed, the equally conventional conclusion that a VAT is the most economically desirable and administratively effective way in which to collect a given share of national income through a general consumption tax also holds -- provided, again, that the capacity exists to administer VAT adequately. Similarly, as with any tax, although increasing the rate of an existing VAT rates will neither necessarily increase revenues proportionately nor be costless, it may nonetheless be the economically most sensible way to expand revenue shares in economy, if that is the policy goal.

Recently, however, some have begun to explore in more detail the theoretical framework linking VAT, tariff reform, trade and welfare, turning up some interesting and to some extent disquieting results. Analysts have also recently begun to discuss the implications for VAT of the considerably larger underground or shadow economies found in Albania as compared to developed countries. Some analysis suggests that in the presence of a substantial 'informal' sector, a tax like VAT that falls on the formal sector acts to deter the growth and development of the economy as a whole. Increasing consumption taxes definitely fosters the expansion of the hidden economy if the labour-intensity of production in that sector is greater than in the formal sector. The present government need for revenues suggest that even government aware of such problems may have nonetheless choose to impose higher taxes, including VAT, on the formal sector of the economy because with their relatively weak tax administrations the best way for them to raise revenue may be to increase barriers to entry to the formal sector, thus creating 'rents' that may then be taxed.

Does VAT Work Well for Albania?

How far Albania still seems to be from being able to run their tax systems on this basis?

While there are many different reasons for this conclusion in different countries, only two points will be mentioned here. First, the policy process appears, almost inevitably, always to leave some problems in VAT design, and such problems are more likely to be exacerbated over time in the circumstances of Albania than those of developed countries. Secondly, the right way to implement a VAT is through "self-assessment".

Potential taxpayers have many ways to escape the fiscal system. They (or at least their tax base) may, for instance, flee abroad. They may remain but hide in the shadow economy. They may secure some form of favourable treatment by exerting influence in various ways to have changes made in the law or its interpretation. If somehow trapped within the taxation system, they may finally seek relief by forgiveness of arrears through partially amnesty laws. Indeed, in some cases they may combine all of these methods of avoiding taxation.

In some routine work of our tax administration the record over the years suggests that such processes have been at work, given the discouraging picture of repeated erosion of the base of the VAT through concessions at many levels as well as general administrative weaknesses.

The initial VAT legislation, usually close to standard international models, as time goes on tends to become both more complex and to some extent ad hoc in how it is actually applied. The structure of VAT becomes littered with privileges and exemptions that minimize its revenue impact and make it difficult to manage. Sometimes, once concessions enter the system, they have been subsequently enlarged surreptitiously without quick response from the tax administration, becoming in effect almost a "self- assessment" system without the necessary administrative systems and safeguards to support such a system. Concessions thus feed on themselves, encouraging taxpayers to lobby for still more concessions, just as tax amnesties create an incentive to defer payment in anticipation of future amnesties. Little assistance in coping with these complexities is offered in the way of taxpayer services. Nor is much done to guard against abuse, with most so-called VAT "audits" amounting to little more than simple numerical checks. Widespread base erosion facilitates both evasion and also, when taxpayers are subject to audit, corruption.

The governments hard-pressed for revenues are driven sometimes to discretionary and unpredictable enforcement efforts. Those unnecessary ways are used in form of collecting money where they can and (as the common problem with refunds suggests) keeping it when they get it. On the other hand, they have sometimes resorted to introducing still more legislative changes to close gaps arising from previous political and administrative decisions. The result has been almost a continuous cycle of changes in the effective tax structure, subsequent erosion of the tax base, and unrelenting pressure on the tax administration to meet revenue targets. Those taxpayers who remain subject to the full rigor of the formal tax system face uncertain (and often increasing) tax burdens. Savings and investment are deterred and misallocated. Trade may be discouraged as VAT refunds to exporters are not paid out but are instead kept in the treasury and used to meet budgetary needs. The shadow economy expands. Revenues fall, with the result that tax pressure is again increased on those who cannot escape, and the cycle continues.

I think that the trouble lie in poor tax design. The existence of a fundamental gap between the institutional requirements for good VAT administration and the real fiscal institutions in place in a country is yet not solved by governments. The extent to which the VAT is in effect being used to reward political supporters or perhaps, as an instrument of industrial or regional policy. As tax fiscalists have long argued, even the best-designed tax concession or incentive is likely to prove a useful tool of public policy only when a country has both a stable macroeconomic environment and a stable political and administrative system. Even if VAT is collected effectively at the border, the uneven and halting horizontal flow of information between border agencies and the VAT officials responsible for ensuring the validity of claims for input credits and refunds often puts the integrity of the tax at risk.

Tax Administration: Growing into a Good VAT

Much IMF experience suggests that first years are not nearly long enough to have a good VAT system up and running well. Ten years is perhaps closer to reality. As with respect to tax design, more thought seems needed with respect to what one really has to know about a country in order to devise the "right" implementation schedule for its particular circumstances.

What matters most and in what ways?

Is it the size distribution of the potential tax base or:

- the relative importance of 'key' base components (such as imports and excise goods) and the degree of administrative control that can realistically be expect with respect to those components. - the level of accounting skills in the potential taxpayer population?

- the detailed industry-by-industry flow of 'VATable' items between different sectors and different sized firms?

- the capacity of tax officials to administer an accounts-based tax and in particular attention to audit such a tax?

- perhaps most fundamentally, the degree of existing 'trust' between officials and taxpayers and how quickly (and in what ways) that trust can be built up sufficiently to support a self-assessment system?

- is it all of the forgoing and more?

Whatever one's answers to such questions, what seems clear is that one cannot expect success simply by transferring experience from very different developed country settings to economic transition countries, like Albania with fragmented economy, large informal sectors, low tax morale, rampant evasion, and total distrust between tax administrators and taxpayers. Perhaps the most basic lesson that may be drawn from experience to date with implementing VAT in Albania is simply that doing it right is in most respects a matter more of art than of science. But even the most careful consideration of the experiences of other countries is of little use in the absence of close knowledge of how one's own economy really functions. If, for example, the extent and behaviour of the informal sector depends, as some recent literature suggests (Gërxhani, 2004), largely on the interaction between formal institutions such as the tax administration and the prevalent norms and customs in a country, the "best" VAT design and implementation will undoubtedly be rather different from that suggested by experience to date in the EU and other developed countries.

The critical political expression of the policy process must simply be accepted as given by those directly concerned with tax design and implementation. Nonetheless, it is obviously desirable that they are as fully aware as possible of the manner in which such factors may impact on, and are in turn affected by, such central elements of VAT design and implementation as exemptions. To be forewarned that a particular sector is politically 'untouchable' may, for instance, enable policy designers to be able to work around the problem in a way that does less damage to the tax as a whole than might otherwise be the case.

A good tax administration keeps a close watch on trends and changes

Many questions have already been raised about VAT in Albania, and some possible directions in which to search for answers have been tentatively suggested. A more systematic approach to assembling and analyzing data would help greatly in facilitating major improvements in VAT policy and administration. It is, obviously important for good tax administration to keep a close watch on trends and changes in taxpayer behaviour, in order for instance to allocate administrative resources effectively and to develop appropriate audit strategies. Any good revenue administration surely needs at least some data gathering and analysis capacity. Yet not only do units devoted to such purposes seldom exist, but even those most concerned with improving VAT administration seem seldom to put much emphasis on the need to improve matters in this respect, perhaps because they give higher priority to other, more pressing needs or, perhaps, less understandably, because of the almost certainly mistaken belief that the presumed 'best administrative practices' observed elsewhere can and should simply be copied.

Since any VAT invoice constitutes a potential claim on the treasury, and falsifying such claims is perhaps the most common form of VAT fraud, it is critical from an administrative perspective to have a detailed knowledge of the "normal" or "expected" pattern of credits and liabilities for firms in all the different lines of business subject to VAT. Again, however, although the normal operation of an invoice-credit VAT generates such information, it is striking how seldom such data are either collected in usable form or used. Perhaps even more surprising is that this whole question has apparently not as yet received much attention from the international community of VAT experts.

An astoundingly small number of VAT registrants, less than 4% of total in number, account for 80 percent of VAT collections. What has proved much more troublesome in VATs around the world is the question of how best to deal with the "rebels" of the system small taxpayers.

At least three distinct questions may be distinguished in this respect. The first is the issue of where to set the threshold. The second, is what if anything, should be done to "simplify" VAT procedures for small registrants, with different countries reaching answers that range from providing some form of simplified accounting to subjecting them, in effect, to a tax other than VAT. The third is how to make sure that those who are treated as "small" by the VAT really are small.

Since good tax administration rests on information and for no tax is this truer than VAT it is obviously advantageous in principle to include as large a share of economic activity in the tax base as possible in order to be sure to capture the necessary information. Such an explanation would be more convincing, however, if there were more evidence that Albania put such information to good use and the very countries that set unduly low thresholds did not so often provide many of those thus caught in the VAT net with escape routes through various simplified systems or, in some cases, simple neglect.

Wherever the threshold is set, however, and for whatever reason, it is of course well recognized that compliance costs are relatively more burdensome for smaller firms. Let make an example: one country, has three alternatives "simplified" accounting systems that may be used by small firms. Perhaps the most usual approach, however, is in effect to take out of VAT most of the very firms that the unduly low threshold has brought in, by applying some form of turnover or presumptive levy to firms below a (usually self-reported) threshold. The extreme version of this approach is the "simplified" or "unique" tax that has become popular in some economic transition countries in recent years. Moreover, not nearly enough attention seems to have been paid either to the details of the design and implementation of how they relate to the various forms of local business taxes. Again, there seems much useful research that can and should be done on such matters.

A quite different approach to the perceived and real problems of dealing with small taxpayers is the so-called "VAT withholding" found in some countries. In effect, this practice assumes that VAT will not be reported properly by small firms and hence requires those selling to such firms to "withhold" an additional VAT on such sales to make up for the VAT those firms are supposed to collect on their own sales. Such "dual price" systems are usually imposed at arbitrary rates and make no logical or administrative sense; nonetheless, they are sufficiently common, and are suggested sufficiently often in countries in which they do not now exist, to call for closer examination than they seem so far to have received. Most discussion of the appropriate treatment of small firms appears to assume that there is no difficulty in telling which firms are small.

VAT through the time

As a conclusion idea that I suppose about this topic is no VAT, however well designed and well administered it may be, will forever remain the same. Times change, and so do taxes. Life is more difficult for those concerned with tax matters in Albania. Keeping up in taxation requires an ability to read the fiscal winds to detect important emerging tax issues, to work out in detail how best they may be dealt with, and to devote time and energy to changing tax design and administration to cope with changing circumstances.

For example: consider the "digital revolution" and its implications for VAT around the world. Few subjects have given rise to more discussion among those concerned with tax matters in recent years than electronic commerce. Governments, international organizations, and pundits have poured forth reams of material on this subject. The general OECD line that taxation should be neutral and equitable between all forms of commerce, electronic or otherwise, while simultaneously minimizing both compliance and administrative costs and the potential for tax evasion and avoidance, seems both reasonable and persuasive.

But what, if anything, does e-commerce imply for VAT in Albania?

Some tax specialists can argue, that real success in taxing e-commerce can be achieved satisfactorily only by increased co-operation between governments, and perhaps even by the adoption of explicit "base-sharing" arrangements. Fortunately, at least for the near and perhaps medium future this issue seems unlikely to be critical. In principle no special problem arises under any VAT with respect to the B2B (business-to-business) services that continue to constitute the bulk of all e-commerce transactions, since in effect the most difficult cross-border issues are handled simply by taxing buyers indirectly (since they receive no input credit to offset against output tax). To work well, however, this system, like all VAT administration, ultimately depends on the efficacy of tax audit, notoriously the weakest point of tax administration, so most will indeed face some problems in practice when it comes to taxing even B2B e-commerce. Moreover, Albania, like all countries, will face further problems in dealing with sales of digitized services to non-registered taxpayers - B2C (business-to-consumer) transactions. For the actual time it is difficult to compel non-resident sellers of such items to register or buyers to report their purchases. For the next few years, probably the main advice one should give to Albanian tax administration with respect to VAT and e-commerce, as with respect to such other "frontier" issues as the treatment of the financial sector and the public sector, is simply to concentrate on the difficult task of first getting an appropriate VAT into place and then running it effectively.

The basic question is not how to deal with new issues but rather how one can make a tax like VAT, which essentially depends on self-assessment, function adequately that in many instances do not appear to have satisfied the necessary preconditions for a self-assessment system.

The answer, as suggested earlier, may be to spend more time and effort trying to determine what kind of less than perfect VAT will function best in such countries and then working out in more detail the best way in which they can move over time from such unsatisfactory initial positions to a good VAT.