How can I file an electronic tax return for free?

I am a small business and produced a book for a New York community. It had paid advertising in it (to help with the production cost), but the book was to be sold and is on Amazon and other book retailers. I still have a very large quantity left and would like to donate them and get a tax write off. Please advise.  
Sally, Babylon, N.Y.

You’re going to have to come up with a way of determining the “fair market value” of these books, which is a bit dicey. The IRS could argue that if the books didn’t sell, they have no market value. In that case, the paid advertising is income and the cost of producing the unsold books is a business expense against a loss.

If you sold a few of them, you may be able to use that sales price as the value of each unsold book. You’ll also need to get the recipient of the donation to provide a receipt indicating the value of the gift, but that receipt is not proof of the books' market value.

If I won the lottery and wanted to give money to family and friends, who pays the taxes? Can you gift money pre-tax so they can pay at a lower tax amount (assuming that the person receiving the gift is a lower tax bracket)?
Thomas, Saint Paul, Minn.

Since you’re already fantasizing about winning the lottery, there’s no harm in fantasizing about making taxes go away.

But, alas, in the real land of lottery winnings, the tax first hits you the minute you win. There’s no way around that: lottery winnings are income, reported to the IRS. Even if you gave it away immediately, it was still your money -- if only for a moment. That makes it your income. And the IRS will want its share. 

Your tax bracket would be based on your total income for the calendar year. So if you collect a million in a lump sum, you’ll in the same bracket with all the other millionaires. For 2005, that would put you in the 35 percent bracket (meaning you’ll owe 35 cents of every dollar over $326,450.)

If, after you collect your winnings, you then decide to give the money away, you’re subject to gift taxes for any amount you give over $11,000 a year to any one individual. (You pay the tax, the person getting the money owes nothing.) The gift tax rate for 2005 starts at 18 percent and goes to 47 percent depending on how much you give. (Gifts to recognized charitable organizations aren’t taxed.)

You might try to lower your taxes by asking to have your lottery winnings spread out over, say, 20 years. But you’d probably lose in the long run. Taking $50,000 a year for 20 years is not the same as $1 million right now. That’s because the value of those $50,000 payments gradually melts away, year by year, as inflation wears away your spending power. If inflation continues at, say, 3 percent a year for the next 20 years, a $50,000 check paid in 2026 only would only have $27,190 worth of spending power in today’s dollars.

So when your ticket finally pays off, check with an accountant. If you win big, you may be better off paying taxes all at once.

I am an IT professional and I connect to my systems from home almost daily, can I deduct the cost of my internet?
Jerry S., Florence, Ala.

This one is pretty close to a “home office” deduction – which the IRS has made very difficult to claim. Some of the questions the IRS will want answers for include: 1) Does your employer require you to have this access from home as part of your job? 2) Do you use this exclusively for work?

If you claim this as an unreimbursed business expense, the bar is a bit lower, but those two questions will still need answers. (If you’re self-employed, this becomes a little easier, but question can still trip you up.)

If you don’t have solid “yes” answers, the IRS will likely argue that this is no different than the other forms of telecom you have hooked up to. You probably use to use your telephone for work related calls, but you’d have a hard time calling your monthly phone bill a business expense. Ditto trying to write off your cable hook-up - even if you watch a lot of shows about computers.

    

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