REAP DEDUCTIONS WITHOUT LOSING ANY PROPERTY

If you own a large property that you want to keep undeveloped, there's a unique little known way to get a current charitable deduction for preserving the land in its pristine state.

Strategy: Donate a "Conservation easement" on the property to a qualified local government agency or land trust. This technique, which enables others to enjoy the land's natural beauty, has become increasingly popular in the last five years.

One incentive is the tax advantage. As long as certain requirements are met, you can deduct the value of the benefit you've donated, calculated under special IRS approved tables.

The reason for the deduction is that the property's fair market value is lowered because it can't be sold and subdivided by a developer.

Here's the best part: The deduction is yours to keep without giving away one square foot of your property. You still own the land in its entirety.

To qualify for this special tax break, the IRS says the conservation easement must fall into one of these four categories:

1. Public recreation. The land is preserved for outdoor recreation or for the education of the general public. This included property preserved for fishing and boating, or land set aside for nature or hiking trails. The public use must be "substantial and regular".

2. Wildlife habitat. The undeveloped land protects a relatively natural habitat of fish, wildlife, plants or a similar ecosystem. The donation can include land that has been altered by human activities if the fish, wildlife or plants exist in a relatively natural state. Public access may be limited for environmental reasons.

3. Open spaces. Your property preserves open space (including farms and forests). In this case, the land must be visually enjoyed by the public or fall under a government conservation policy that yields a significant benefit. Physical access to the property isn't required.

4. Historic significance. The land preserves a historically important or a certified historic structure. For this contribution to be deductible, some public access is required.

Depending upon your situation, you probably don't have to put up with visitors trampling across your land. In fact, one of the factors used in determining public access is "the extent to which intrusions of privacy would be unreasonable" the IRS states.

You do have to provide "visual access" to the property, which means the general public can view the landscape from afar. Meanwhile, you enjoy the tax benefits along with the serenity of the countryside.

There is, however, one catch: The charitable donation must be made "in perpetuity". This means that your heirs or any future owners are bound by the easement's restrictions and can't alter the land.

Q & A CORNER

Q. We run a biweekly payroll in which employees regularly work 41 hours the first week and 34 the second. Since they average 37.5 hours/week for the two-week period, are we okay not paying any overtime for the first week or should we adjust the workweeks to make sure employees never work more than 40 hours in any seven consecutive days?
A. No, to both questions. First, for Fair Labor Standards Act purposes, each workweek is a self-contained unit. Hours worked in excess of 40 during any workweek (workweek being defined as a fixed and regularly recurring period of 168 hours, i.e, seven consecutive 24 hour periods) require premium pay. Balancing between workweeks, is not allowed. With regard to your proposed solution to this problem, even though the employer is free to establish any start time for a workweek it chooses, changing a workweek once established for the express purpose of avoiding the overtime requirements of the FLSA is in itself a violation of the Act.

Q. Our employee moved his own household goods to a new residence following his transfer to another office. The employee provided us with an estimate from a moving company stating that they would have charged $7,000 to transport the employee's household goods. The employee wants to be reimbursed for that amount, which he claims is the value of the move. Can we do this?
A. Only if you tax the reimbursement. The "value" of a move is irrelevant for tax purposes. What matters are actual expenses incurred, and these must be substantiated for their reimbursement to be excludable from income and therefore taxes. Without such specific substantiation, any payments you make to the employee qualify as income and are fully taxable.

Q. A friend deducts the cost of nursing uniforms she wears at the hospital. Does that mean I can write off the cost of the suits I wear to the office?
A. No. You can deduct cost of special uniforms or other clothing you are required to wear on the job, as well as upkeep expenses. However, the courts have consistently ruled that clothing that is adaptable for everyday wear, such as a business suit or dress, is not deductible.

Q. I bought stock at the end of 1999. Can I take advantage of the capital gains tax reduction? Won't the long term gain be taxed at only 18% if the stock is held until 2001?
A. You're confused about the rules that were included in 1997 tax act. The 18% rate is available for assets held at least five years beginning on January 1, 2001, but then you must treat the asset as if it had been sold for its fair market value on the date. So you owe current tax on stock that you still must hold at least five more years to get the lower capital gain rate.

Q. What does the IRS really look for in an audit?
A. Anything is fair game, but with limited time and resources the Service looks particularly closely into those areas where it is likely to get the highest return. Two areas that the IRS pays particular attention to are worker classification and business expense reimbursement. One reason for this interest is that the Service knows, based upon previous audit experience that the incidence of noncompliance with these rules is high. A second reason is that discovering this noncompliance can result in a high revenue return, for example, if all contractors in a particular job category are proven to be employees and therefore subject to FITW, FICA, and FUTA or if an expense reimbursement plan is proven to be nonqualified and therefore all reimbursements provided under it become taxable income to all employees. This is also a good reason for an employer to ensure that it is in compliance with these rules, since noncompliance can be very expensive if discovered.

Q. We made some payments in 1999 to employees who had expenses due to flooding in our area. We didn't withhold FIT or FICA at the time, because the payments weren't wages, and we intend to report them on a 1099-MISC. I just wanted to make sure that we're doing this right.
A. You're not. Remember wages include a lot more than just salary. Any payment made to an individual because of an employment relationship, whatever the nature of the payment, is considered compensation and therefore taxable income, unless there is a specific exclusion for it in the Internal Revenue Code (such as that for working condition fringe benefits). Since you would not have made these payments if the recipients were not employees and since there's no exclusion in the IRC for disaster relief, the amounts provided are wages subject to withholding and are reportable on Form W-2, not 1099.