Tax Planning

Click for Help

The Internet is filled with useful tax-planning tools -- as well as plenty of tax-shelter scams

By RIVA RICHMOND

Plotting how to pay less in taxes is an age-old pursuit. Today the modern pursuit of surfing the Internet can help -- to a point.

A number of Web sites out there can be invaluable tools for taxpayers looking to develop or fine-tune their strategies. But beware: An Internet education can be expensive if inferior or incomplete advice leaves opportunities missed or misapplied. Plus, the unwary can become marks for con artists with aggressive tax-cutting schemes that can amount to tax evasion.

"The Web has made it a lot easier to promote fraud of all types," says Robert L. Sommers, a San Francisco tax lawyer and anti-scam activist who runs a tax-information Web site called the Tax Prophet.

Still, there are plenty of legitimate offerings out there for those who want to goose their tax-planning strategies.

Starting Point

A reasonable place to start is with the largest and most-visited financial portal sites on the Internet, such as Yahoo Finance's Tax Center, run by Yahoo Inc., and CNBC on MSN Money, a partnership of Microsoft Corp. and the CNBC financial-news network. These sites offer simply explained and reliable tax-planning basics on permissible tax-saving tactics and long-term planning strategies, as well as tools such as calculators for crunching the numbers and links to other tax resources on the Web.

Yahoo's Tax Center includes a compilation of tax tips from professionals like H&R Block Inc., plus tools, forms, schedules and instructions. CNBC on MSN Money has a well-organized tax-planning section that includes year-end and year-round tax-planning tips. Much of its editorial content is written by author and former tax professor Jeff Schnepper, who also takes questions online at the site's Tax Corner message board.

The tax-planning advice on these portals is easy to find and digest, but somewhat superficial. For tax planning with a higher level of detail, try the Web sites of well-known tax preparers, such as Intuit Inc. and H&R Block, and the Big Five accounting firms, like Deloitte & Touche LLP and Ernst & Young LLP. Much of the information from these sources is still general, and is often free of charge in an effort to lure customers to pay for the firms' more-personalized planning and preparation services. But the sites are adding services, both free and paid, to make their online planning advice more comprehensive.

Visitors to the main tax page of Intuit's TurboTax site will easily find links to calculators, a "deduction finder," a calendar of important dates and articles on tax-saving strategies. The Investments and Retirement section includes seven different calculators, including one that will tell investors who have bought shares of the same stock at different times which shares to sell to minimize their tax tab.

In December, Intuit will launch a premium TurboTax Web product -- priced at $29.95 until April 1 and $34.94 after that -- with two new planning tools. One is a 10-Year Forecaster, which uses the information provided for a person's return to provide tax-saving opportunities, including those provided by recent tax-law changes. The other is a 401(k) Maximizer, which helps users choose the best withholding level.

'Do I Have to Pay?'

At H&R Block's tax site, a tax-question search engine, which generates automatic responses to typed queries, provides a nice shortcut for people looking for specific information. The question "Do I have to pay capital-gains tax?" instantly yielded a document explaining what capital gains and losses are, how to report them and exceptions to the maximum rate. The response also included links to the relevant IRS forms and publications.

H&R Block is introducing a new online service that will use answers to a few general questions about a taxpayer's profile to put together a customized tax-planning worksheet with savings strategies to consider. More-personal advisory services can also be had through H&R Block's online "ask a tax advisor" e-mail and chat service, for a fee of $19.95 a topic.

Among the accounting firms' sites, Deloitte & Touche's online Personal Tax Planning 2001 guide gets high marks from tax professionals. The firm also offers a guide to the 2001 tax cut called Seeds of Change, and by the end of the year will add two estate-planning guides -- one for average consumers and one for high-net-worth individuals.

Tax specialists say the content on accounting firms' sites is of good quality. But the firms don't tend to provide a lot of detailed information designed for the general public or do-it-yourself filers, says David Yeske, president of Yeske & Co., a San Francisco financial-planning firm, and president-elect for 2003 of the Financial Planning Association industry group.

Another category of online tax-planning advice is tax-specific sites like TaxPlanet.com (taxplanet.com) and the Internal Revenue Service's own site. These sites do nothing but taxes, and get more detailed than some others.

TaxPlanet is a consumer-oriented site, started in January 2000 by syndicated tax columnist and author Gary Klott. The site is packed with easy-to-digest tax information, from planning strategies to tax law, present and pending -- plus links to the primary government sources.

"It allows you to get as detailed as you want, and at the same time allows you to skim the surface and get the short answer," says Mr. Yeske.

Year-End Strategies

Worth checking out as the year winds down is TaxPlanet's Year-End Tax Strategies guide. The 2001 version includes a number of entries on recent tax-law changes, including tips for parents about education IRAs and college-savings plans. The site's primary drawback is a parade of annoying pop-up ads: TaxPlanet's revenue is generated from advertising and content-licensing agreements.

As for the IRS site, Patrick Thomas, an analyst at the New York office of Web measurement and research firm Neilsen//NetRatings, says it's the place for taxpayers "really looking to go to the source."

The IRS won't ask for and isn't legally permitted to collect any information that might reveal the identity of a user. So it doesn't give personalized service. And it doesn't provide bill-trimming tips. But it will spell out the rules in plain English. The agency's publications are all available online, and several tax professionals say the IRS's Publication 17 is the best tax guide available on the Internet.

"Everything you ever wanted to know about taxes is in the IRS Web site," says Gregory Carson, the IRS's director of electronic commerce. Nevertheless, Mr. Carson says the agency is wrapping up a major overhaul, and an improved site is scheduled for launch on Jan. 1.

To get visitors the information they want more quickly, the new IRS site will be organized based on taxpayer type. As such, the front page will prompt visitors to identify their filing category, such as individual, small business or nonprofit. The site also will provide smarter search technology and deliver swifter page downloads.

Niche Sites

Then there are the niche sites. These are specialized tax-information sites that offer fairly detailed information on specific tax-related subjects for people with particular interests. Several such sites stand out.

IRAplanning.com (iraplanning.com) features information on optimizing the benefits of individual retirement accounts. The site, produced by George Coughlin, an Alamo, Calif., financial planner and regular on the profession's speaker circuit, provides explanations of new and old distribution rules and offers planning pointers.

Several tax professionals say the single best site for investors is Fairmark Press Inc.'s Tax Guide for Investors. This site offers online tax guides on such subjects as capital gains, the alternative minimum tax, and compensation in stock and options. Bankrate Inc.'s Bankrate.com (bankrate.com) is particularly good for tax information related to bonds, CDs and mortgages, Mr. Yeske says.

People who own small businesses are encouraged to visit the Small Business Administration's tax-information site, A/N Group Inc.'s Small Business Taxes & Management and publisher CCH Inc.'s Business Owner's Toolkit.

There are, of course, some caveats when exploring the Web for tax-planning information. Be sure to check the dates on everything you read. Tax law changes constantly. If an article is dated 1999, it may as well be dated 1899, says Alan E. Weiner, former president of the New York Society of Certified Public Accountants.

And as you venture away from sites whose names you know and trust, "buyer beware" should become a guiding principle. There are a number of tax scams proliferating on the Internet, and claims that sound too good to be true should put you on particularly high alert. Many of these scams are far older than the Internet, but through the Web, they are reaching out to more people than ever.

Watch Out

Illegal tax-shelter pitches often include the promise that you will never pay taxes again or say you may deduct the cost of your personal residence or your child's education. Some Web sites, typically tied to tax-protester or so-called "patriot" groups, claim paying taxes is really voluntary and that, for a fee, they can show you how to "untax" yourself.

The most prevalent scam, online and off, is the decades-old "pure trust" offer, according to IRS officials. Promoters claim to offer legal escape from income taxes using layers of trusts, set up either in the U.S. or tropical tax-haven countries. The trust preparer then distributes participants' income and assets among the trusts to make it look like they don't control their assets. The idea is to then make various bogus deductions, like gardeners and swimming-pool upkeep, and report virtually no income to the IRS.

Don't let the large number of sites that are promoting these schemes -- or their sometimes reasonable-sounding pitches -- fool you. They aren't legal. The IRS considers these trusts abusive because they're created to hide assets, disguise income and evade taxes, as opposed to legal trusts, which have real beneficiaries, file legitimate returns and pay taxes. The IRS's main legal argument against pure trusts is that the owner hasn't really relinquished control of his or her assets.

False-claims scams also circulate on the Internet. Among those that the IRS warns taxpayers against is one that charges a fee to pursue refunds of Social Security taxes paid during a person's lifetime. Another targets African-Americans, offering to prepare claims for tax credits or refunds related to a nonexistent law providing slavery reparations.

Being duped into one of these tax schemes can cost you more than just money, IRS officials warn. The government sees promoters and participants in all these schemes as tax evaders, and those they catch usually lose. The IRS had a 73% conviction rate with all tax-evasion cases -- online and off -- for the year as of August. It won average prison sentences of 42 months. Back taxes, plus fines of as much as 75% of the owed taxes, are also typically sought from offenders.

-- Ms. Richmond is a reporter for Dow Jones Newswires in New York.

Write to Riva Richmond at riva.richmond@dowjones.com