TIPS AND TOOLS 2007
Although ABC has made every effort to insure the accuracy of Tips and Tools, misinformation, disinformation, changes, mistakes and typos happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in. Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein.

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In this issue:   New Arizona Minimum Wage Law, Tax Calendar, Federal Tax Law Changes For 2007, Federal Tax Changes for 2008, Federal Minimum Wage Change, Maricopa County & AZ State Sales Tax News, Do you have subcontractors?, Misc. Tax Rulings, AZ Law Requiring Employers to Verify Employment Eligibility of Workers, How to give references and keep yourself out of court, Adventures in Encryption, W-Fi Security at Hot Spots. 

Factoid:  A company can charge an employee a fee to replace a w2 (s)he lost. 

Arizona has changed its minimum wage to $6.75/hour for 2007. As a direct result of the passage of proposition 202 this minimum wage is to go into effect on January 1, 2007. An AZ Minimum Wage Poster is available at http://www.ica.state.az.us/docs/minimumWage/poster.pdf; EVERY ARIZONA EMPLOYER is required to post this poster.   The minimum wage will be subject to cost of living increases each year in succession.  More information on the emergency rule making and answers to frequently asked questions regarding the new Arizona Minimum Wage are at http://www.ica.state.az.us/minimumwage/.  Other Small Arizona Employer posting requirements are available at this link.  Please note links go to other websites; ABC LLC is not responsible for their content and you should refer to their privacy policies. 

Tax changes for 2007 (not to be used on 2006 tax returns): 

• Section 179 is $125,000 with dollar-for-dollar phase out above property placed in service above $500,000. 
• Employers can now verify employees Social Security Numbers on-line (up to 10 names at once or up to 250,000 names by next business day) at www.socialsecurity.gov/bso/bsowelcome.htm. Please note link goes to SSA website; ABC LLC is not responsible for their content and you should refer to their privacy policies.
• Tax tables and phase outs have changed again for 2007, make sure your payroll withholding calculations are current. 
• A new IRS ruling holds that a reimbursement program is abusive when it routinely pays allowances above the per diem ceiling, does not track reimbursements and does not include excess payments in employees' income; if a reimbursement program is deemed abusive by the IRS ALL payments made under it become subject to income and employment taxes.   Also remember that advances or reimbursements exceeding substantiated expenses must be returned to the employer within a reasonable time to avoid being considered compensation on which all employment taxes, including the employer's share, are due; the fixed method would allow advances only up to 30 days before the expense is incurred, or 60 days after it is incurred and require payback of excess payment within 120 days; alternatively the employer can issue a periodic statement of unsubstantiated expenses and unreturned payments, and require payback of excess payments within 120 days.
• The Tax Relief and Health Care Act of 2006 signed into law Dec. 20, 2006 extends certain provisions through 2007:
• It extends provision for the above-the-line higher education expense deductions up to $4000 (depending on income) in place of Hope and Lifetime Learning Tax Credits through 2007,
• State and Local sales taxes can be taken as an itemized deduction instead of state and local income taxes,
• Depreciation for leasehold improvements and restaurant improvements is set at 15 years instead of 39 years,
• The scientific and computer donation charitable donation deduction is enhanced,
• The IRS has the authority to share tax data with states for certain other purposes,
• Archer MSA with deductible contributions and tax free distributions,
• Enhanced HSAs no longer limited to the annual deductible of policy or plan; instead the contribution is $5650 for families and $2850 for individuals, will be increased annually for inflation adjustment, and is not prorated even if the taxpayer participates less than a year,
• Excess FSAs funds can be rolled into an HSA; ONE TIME ONLY-funds can be transferred from an IRA to an HSA (the lesser of the HRA or FSA balance on the date of transfer as of or after Sept. 21, 2006),
• Employers must file an information return if an employee exercises a stock option.
• Combat pay is treated as earned income for EITC purposes through Dec 31, 2007.
• As of August 17, 2006 the Pension Protection Act of 2006 says that charitable payroll deduction documented via stub, W2 or other employee documents showing amount withheld must include a pledge card or similar document prepared by the charity or at its direction showing the name of the charity and does not provide goods or services in whole or in part for any contributions made.  Taxpayers can rely on this ruling until new regulations are issued. 
• Invoices are not proof of deductions.  The IRS wants a receipt as a means of establishing 3rd party credibility of payment-insist on one.
• Business Mileage in 2007 is 48.5 cents/mile; Relocation and Medical Mileage is 20 cents/mile; Charitable mileage is 14 cents/mile.  Mileage can only be used for a taxpayer owned or leased passenger van, auto or truck that is NOT used for hire AND is NOT depreciated under MACRS, ACRS or 179 in earlier years. 
• Two recent rulings by the IRS clarify how a taxpayer who employs a spouse can deduct medical expenses and other benefits:  Compensation paid to the spouse including benefits, must be reasonable for the work done and the skills of the spouse. In addition there must be proper books and records documenting all payments and the reasons for them, the medical plan must meet IRS requirements and everything must be conducted in a business-like manner.  The burden of proof is on the taxpayer to show what work the spouse does, hours worked by the spouse, premiums paid by taxpayer, etc. to demonstrate the taxpayer is entitled to the medical deduction. 
• A new tax ruling implies an unincorporated business jointly owned by a husband and wife can now file as a sole proprietorship instead of as a partnership. However the ruling does not establish whether or not a previously existing husband and wife partnership will have to be dissolved (or not) in order to file as a sole proprietorship henceforth.
• The weekly amounts exempt from Federal Garnishment increase to $175.50 on July 24, 2007, then $195.50 on July 24, 2008, and $217.50 on July 24, 2009.
• The old $250 safe harbor for cash donations is gone; all contributions must be supported by documentation-Make all contributions by check or get a receipt. Property donations can only be deducted at FMV if the charity uses the item for 3 years-otherwise is deducted at its adjusted basis.  All household items and clothing donated must be in good used condition or better to qualify for a deduction-the best advice is to either get an appraisal or video the donated items and retain this documentation. 
• In 2007 the deductible is no longer used to determine the maximum contribution to an HSA.  In 2007 the limits under a high deductible health plan are $2850 for individual or $5650 for family coverage, in 2007 these limits are $2900 individual / $5800 family, but in 2008 the definition of a high deductible health plan is redefined as on having a deductible of $1100 individual / $2200 family which cannot include the cost of premiums. 
• Electronic filing requirements for information returns has been revised.  3.5-inch floppies are no longer accepted and 2007 is the last year magnetic tape will be accepted; magnetic tape for 2007 must be received by December 1, 2008.   The only accepted electronic filing method will be FIRE; details are at https://fire.irs.gov/firev1r/,  Please note link goes to IRS website; ABC LLC is not responsible for their content and you should refer to their privacy policies. Back to Top

Tax changes for 2008 and beyond

• 2008 e-filing has been simplified. Starting in the 2008 filing season practitioners may: Obtain a self-selected 5-digit PIN from the tax payer OR have the taxpayer authorize the ERO select the PIN for them by completing Form 8879, which must be retained by the ERO.  The IRS has eliminated the need for a paper signature document to be sent to the IRS. 
• From the Small Business and Work Opportunity Act of 2008
  • The Gulf Opportunity Zone 179 Expensing has been extended through 2007.
  • The Work Opportunity Tax Credit is extended through August 31, 2011 and qualified job hires have been expanded to include disabled veterans and individuals from damaged counties. 
  • The sale of stock or securities by an S-Corp is no longer classified as passive income.
  • An electing small business trust (ESBT) will be able to deduct interest borrowed on money to acquire S-Corp stock, currently the interest is allocated to the ESBT but is not deductible. 
  • Despite the increase in minimum wage over the next two years to $7.25/hr, the employer's tip credit will still be based on $5.15 per hour, therefore the tip credit will not be reduced (begins in 2007).
• The Kiddie Tax now kicks in at $1700 of unearned income for children under 19 or full-time students under age 24.  Note that the age of the children has been increased; consult your tax advisor.  Prior to 2006 the kiddie tax age was 14 and after the child's birthday the tax no longer applied therefore parents shifted investment income to their children to obtain the lower long-term capital gains treatment.  2006 raised the age to 18 and in 2008 the age is 19 (24 for full-time students) if their earned income not more than half of their support.  These decisions can not be made in a vacuum-e.g. having equity investments in a child's name can adversely affect their ability to obtain financial aid in college. 
• The IRS now has 36 months instead of 18 months to stop charging interest and filing penalties if it fails to notify you of a deficiency.
• The IRS no longer must hold a Collections Due Process Hearing before issuing a levy on a delinquent employment taxes.  Post levy hearings are still an option though. 
• For bad checks of less than $1250 the penalty is now $25.
• Tax preparer penalties now extend to all kinds of returns: estate-, gift-, employment-, excise-, and nonprofit tax returns.  The standard has been increase from the realistic probability standard to the more likely than not standard.  The first tier penalty is now the greater of $1000 or 50% of the income derived from the tax return preparation and the second tier penalty is the greater of $5000 or the income derived from the income tax return preparation.  Back to Top

New Arizona law targeting employers who hire illegal immigrants.  July 2, 2007 AZ Gov. Janet Napolitano on Monday signed sweeping legislation against employers of undocumented workers, targeting the state's market for illegal labor with what she called “the most aggressive action in the country." The penalty for violators: The suspension of a business license on the first violation and permanent revocation on a second, amounting to a death sentence for repeat offenders. The law takes effect Jan. 1, 2008 significantly raising the stakes for more than a quarter-million undocumented workers believed to reside in Arizona and the businesses that employ them. Beginning Jan. 1, 2008 all Arizona employers will be required to check the legal status of their employees through a federal database known as the Basic Pilot Program (actually now called the Employment Eligibility Verification Program). Between now and then, Napolitano hinted at calling legislators back to the Capitol for a special session this fall to amend flaws in the bill, including a provision that could force the closure of hospitals, power plants and other critical facilities if they're cited for making illegal hires. A legal challenge regarding the constitutionality of the new law is already in the works.  The Employment Eligibility Verification Program (EEV), formerly known as the Basic Pilot Program, which involves verification checks of the SSA and DHS databases, using an automated system to verify the employment authorization of all newly hired employees can be found by following this link (please note the link goes to a website that is not related to ABC LLC and you will be operating under their terms and conditions). 

UPDATE: August 4, 2007 - The Department of Homeland Security is expected to make public soon new rules for employers notified when a worker's name or Social Security number is flagged by the Social Security Administration. The rule as drafted requires employers to fire people who can't be verified as a legal worker and can't resolve within 60 days why the name or Social Security number on their W-2 doesn't match the government's database. Employers who don't comply could face fines of $250 to $10,000 per illegal worker and incident. Back to Top

Federal Minimum Wage Increases July 24, 2007.  On May 25, 2007 President Bush signed legislation (H.R. 2206) that included increasing the federal minimum wage for the first time since 1997. The Act, referred to as the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007 contains the Fair Minimum Wage Act of 2007 (Title VIII, Subtitle A) and the Small Business and Work Opportunity Tax Act of 2007 (Title VIII, Subtitle B). Numerous States Will Be Affected.  Many states also have minimum wage laws. In cases where an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher of the two minimum wages. The minimum wage rate in several states is tied to the federal rate in various ways so it is important to check how this federal minimum wage increase may affect the state(s) you do business in. Currently, there are five states that have no minimum wage law (Alabama, Louisiana, Mississippi, South Carolina, and Tennessee). The Fair Minimum Wage Act of 2007 increases the federal minimum wage rate to:

• $5.85, effective 60 days after the date of enactment (i.e., July 24, 2007)-in Arizona the higher local minimum wage law prevails. 
• $6.55, effective 12 months after the 60th day (i.e., July 24, 2008)
• $7.25, effective 24 months after that 60th day (i.e., July 24, 2009)

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Maricopa County and Arizona State Sales Tax News: Electronic filers now have same due date as paper filer; payment is due by the 2nd to last business day of the month.  Effective July 1 the 911 & Wireless rate will reduce to 20 cents per activated wireless and wireline service.   Make your withholding payments on time during the quarter and you may qualify for an automatic 10-day extension to file you A1-QRT return.   Effective July 1, 2007 the city of Apache Junction will no longer be a city in the Cities Program of the Arizona Department of Revenue; the AZ DOR will administer all taxes unpaid for months prior to July 1, 2007-contact the City of Apache Junction at 480-982-8002 for information about their new TPT.    Back to Top

Do you have subcontractors?  If they are independent and operating as a sole proprietor, partner, LLC or S-corporation etc. and you pay more than $600 per year to them, you should track those payments and report them on a 1099-MISC and Form 1096 at year's end.  Get your subs to complete an IRS Form W9 (you will need Adobe Acrobat Reader to download and open this form to print it, but it is free). You will need their Tax Payer Identification Number (TIN), name and current address to report their income to the IRS.  If a subcontractor refuses to give you a TIN you are obligated by the IRS to back-up withhold 28% of all payments and pay it directly to the IRS; furthermore the IRS may subject the subcontractor to a $50 penalty for failure to supply the information. If you fail to acquire the required information the IRS may penalize you, therefore for the well being of your business get those W9s filled out by your subs.   Backup withholding is reported on Form 945 annually to the IRS; the deposits schedule depends on whether you report more than $50,000 in backup withholding in a year or not; if you have $50000 or less backup withholding per year, backup withholding payments are made monthly on the 15th of the month following the withholding from payment.  Please see IRS.gov for Frequently Asked Questions about Backup Withholding, Form W9, Form 945, Instructions for Form 945 and Circular E Employers Tax Guide. Please note links go to other websites; ABC LLC is not responsible for their content and you should refer to their privacy policies.  

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Misc. Tax Rulings:

• If start up expenses are incurred in connection with an existing trade or business for a profit-making activity such as when converting from non-business income producing activity to an LLC, those expenses can be deducted under S212 rather than capitalized under S195.
• Under the Cohan Rule, no matter what happens to destroy business records, an effort must be made either orally or in writing to reconstruct those business records in order to sustain deductions. 
• An employee can be held as a responsible party, even if the taxpayer might have been fired for properly following the rules with regard to payments of taxes.
• Partial payments to the IRS: if the payment is voluntary and accompanied by written instructions, then the IRS will apply it as you direct, but if there are no instructions then the IRS will apply it as it sees fit-generally (but not always) to the liability with the shortest statute. 
• The IRS/State information sharing initiative is going national.  The trial of the program of sharing information with states on those who underpay or fail to file has been so effective that the IRS expects it to be in all states by 2009.  Finding employment tax under payers is a significant use of the program. 
• Certain people have no tax home and therefore can not take deductions for travel... your tax home is your principal place of business or if you have none, your permanent residence where you incur substantial continuing living expenses.  Generally a travel expense occurs when you travel and duplicate living expenses.  A trucker who delivers nationwide and lives with his family between jobs, but pays no living/maintenance expenses has no tax home.   Freelance professionals who live in a travel trailer moving it from job to job also have no tax home.  In these cases the tax home is where ever they happen to be.  A person's principal place of employment can wipe out travel deductions as in the case of an airline worker who was laid off from Minneapolis terminal and traveled around from Flushing NY, Chicago IL and Anchorage AK in order to keep his job; once he was laid off from the job in the Minneapolis where he lived and moved to a different city, his principal place of employment became the new city and his new tax home even though he duplicated living expenses in both cities. 
• Deducting liability losses: You can not deduct a liability loss if there appears to be right to reimbursement, even if that right is uncertain or subject to contingency-a loss must be deferred until there is no reasonable prospect of recovery. 
• The IRS is proposing to have credit / debit card processors report each business's annual total income to them.  Businesses need to be able to defend against unreported charge backs, cash back received, the IRS using an average of cash receipts as a percentage of income for a type of business to estimate a business's income, and apparent understatement of income due to the difference between cash and accrual accounting. 
• Congress is like to revisit the employee verses independent contractor worker classification issue, and the IRS plans more audits of worker classification.  Criminal investigations of potential employment tax abuse are up 40% over last year.   

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How to give references and keep yourself out of court

• If your company has a policy follow it closely.
• Provide the same kind of information for all employees to avoid a discrimination lawsuit.
• In a telephone reference check limit responses to confirmation of employment, dates of employment and the most recent job title-do not describe the job responsibilities without a release from the employee.  Immediately hang up and write memo summarizing what you were asked, and what you said.  A written record is a strong defense if the employee sues BUT ONLY IF the record is written at the time that the conversation took place. 
• Give other information such as salary and duties only if you have a written release-make sure the release has been run by the company lawyer, before using it.  Do not supply information you can not substantiate with numbers, facts or provable data.  Do NOT offer up subjective opinions such as "Joe is great with words," as Joe may be applying for a technical job, where such a flowery opinion might be construed in a negative light.  Similar subjective areas include honesty, integrity, attitude or initiative. 
• DO NOT RESPOND to callers unless you know them personally-the caller could be an attorney trying to find out what kind of references you are giving. Your safest course is to verify employment, dates and job TITLE only.
• DO NOT volunteer negative information ever. 
• DO NOT divulge information about disciplinary actions ever.
• DO NOT get drawn into off-the-record chats; they NEVER are off-the-record.  Back to Top

Adventures in Encryption:  As business reliance on the collection and use of personal information becomes increasingly prevalent, widely publicized security and data breaches and growing concerns about identity theft threaten to erode public confidence. Businesses increasingly face legal, regulatory, and market risks for failing to manage and protect their customers’ and employees' personal information. One such location where small businesses face problems with securing personal information is on laptop and desktop computers, which can be stolen with all kinds of personal information easily available to even unsophisticated attacks.  This section relates to Jake Beckman's adventures in encrypting Art and Business Consulting notebooks and PCs. 

"First off: I am not taking any responsibility for what happens if you attempt this procedure, I am merely relating my experience of it. As they say "Your mileage may vary."  Your system is not my system, your data not my data, your software not my software and your experience not my experience.  If you decide to encrypt your computer you are on your own.  That said...

Upon searching around for what kinds of whole disk encryption exists out there for the small user, I discover the field is pretty small at the moment.  Were I using Windows XP for an operating system I would seriously look at DiskCrypt Plus Pack 3.9 and I will when I get around to encrypting some of my older PCs.  However right now I want to talk about how much work was involved in setting up BitLocker, a technology only available for users of Windows Vista Ultimate and Enterprise editions.  My new HP Presario laptop came with Windows Vista Home Edition therefore I needed to upgrade to either Enterprise or Ultimate-in general Ultimate is easier to locate and therefore you are more likely to find a bargain on it.  NOTE: to use BitLocker your computer will need either a TPM (Trusted Platform Module-it probably doesn't have one as this gizmo is a device that seems only be routinely made available to large enterprise) or a USB port the computer can read from the pre-Operating System environment (many older computers can't do this either-so BitLocker would not be an option).  To run Bitlocker without a TPM you will need at least one flash drive; I recommend you get several just in case you lose one-it becomes the key to your computer after you encrypt-the key file is only 16 KB so you don't need very big USB flash drives.  If everything I am saying sounds like gobblygook then perhaps you should find technical assistance before proceeding.  This entire exercise is not for the the technically faint of heart or un-informed.  Even if you feel up to the challenge read this whole section before you start-you may decide otherwise and it would be best to know if you can do this operation to completion before you start dinking around with your computer.

Before I proceeded I backed all my data on more than one external hard drive.  Note: a clean install of Vista will obliterate all data stored on your Windows partition that is why having back ups is so important-data will cease to exist in your Windows partition once you start the clean install. I strongly recommend the use of a backup system that does not compress the data in some proprietary fashion as it make it really difficult to extract the data later on without using this same technology.  If you can't browse in the folder on the hard drive where the backup data is stored, and see it as it normally appears on your computer, your back up software is storing your data in a proprietary fashion, but if you can read and open individual backed up files you browse to it probably isn't.

I backed up data in C:\Users\[your name]\Documents, and also data stored in other locations by programs such as email (e.g. Outlook), bookkeeping (e.g. Quicken, QuickBooks), etc; finding data located elsewhere on the computer is really important unless such programs give you the option of a backing up of your data when the program is open that you can restore you data if you need to reinstall your programs and recover at some later point. Of course if the program-based backup is an option you still must create these backups and store them off the hard drive you are planning to encrypt as well.  

In the case of BitLocker, I was unable to get it to recognize the encryption partition I created on anything other than a clean install of the BitLocker-enabled version of Vista, which meant I have had to manually reinstall all my hardware drivers, reinstall all my programs, and recover the associated data.

Other considerations before installing Vista of any kind...

• Verify you have a computer that is Vista compatible (use the Microsoft Windows Vista Upgrade Advisor tool to check on it), Please note link goes to Microsoft website; ABC LLC is not responsible for their content and you should refer to their privacy policies.
• Back up all your data, Note: a clean install will obliterate all data stored on your Windows partition that is why having back ups is so important-data will cease to exist on your hard drive once you start the clean install.
• Find all your software keys and download links for any downloaded packages and store them safely off the hard drive of the computer.
• Find all your hardware drivers, either download them or save the links to where they are located on the web, and store them safely off the hard drive of the computer.
• Check to make sure any software you think is really important is Vista compatible (Office Pro 2003 isn't, nor is Adobe Creative Suite 1, nor older versions of QuickBooks and Norton (this note is the voice of experience-if you don't want to invest in new software consider an alternate form of encryption...)
• Have login-in information for your email etc stored safely off the hard drive of the computer.
• Installing Vista in a Windows partition should not corrupt any other partitions on your hard drive, but you should make sure you have enough room to install Vista, your programs, and have at least 1.5 MB for the encryption partition in your Windows partition otherwise it could conceivably corrupt an adjacent partition on your hard drive.   Be sure any other partitions are backed up elsewhere as well.
• To use BitLocker your computer will need either a TPM (Trusted Platform Module-it probably doesn't) or a USB port the computer can read from boot (many older computers can't do this either-so using BitLocker would not be an option). 

Note: a clean install will obliterate all data stored on your Windows partition that is why having back ups is so important-data will cease to exist on your hard drive once you start the clean install.  (Yes I am being repetitive-the point is very important!)

The remaining instructions refer to a clean install of Vista Ultimate on a laptop which does NOT have a TPM.  Load your Vista Ultimate DVD and when prompted have it do a clean install; why a clean install you ask?  Because there doesn't seem to be any other way of getting the new Windows Vista Ultimate partition to recognize the encryption partition you create on an upgrade-I am sure it is possible, but I tried several different methods (using the MS Tool, using the Windows Partition Manager and then using Xcopy at boot to manually copy the boot files etc, and finally creating everything from a command line prompt using Diskpart and Xcopy at boot) and never succeeded.  If you are upgrading from a less expensive version of Vista, the installation disk will give you an option to either upgrade or do the clean install, be sure to pick the clean install.  If you want to attempt to get BitLocker running from an upgrade then maybe you should contact Microsoft Support-they were pretty much useless to me, but maybe you will have better luck...But even then I would still back up everything before proceeding. 

Once you start the clean install, the Installation disk will give you prompts and you should just follow them.  Be sure your computer is hooked up to the internet before starting that Vista can start getting all its updates right away. 

Once Vista Ultimate has installed and been updated and you have reinstalled all your updated hardware drivers, now it is time to set up the encryption partition and other things to enable BitLocker.  Do not install any antivirus or do anything else that could complicate this process, do all that after you get BitLocker working.  One update you will need from Microsoft is the BitLocker and EFS Enhancements update-it is the one that downloads the Bitlocker Drive Preparation Tool.  Windows Update can be run from the Control Panel in Vista.

To configure BitLocker to run on a machine lacking a TPM, go to the Start Search area and type in Run (and enter).  The top of the Start menu should now show the Run prompt.  In the Run prompt, type in gpedit.msc (and enter).  This should open up the Group Policy Object Editor.  In the Left Hand pane you will see Computer Configuration, and as one of its subfolder's Administrative Templates, click Administrative Templates under Computer Configuration.  In the Right Hand pane a series of folders should appear, click the one labeled Windows Components.  In the Right Hand pane a new list of folders will appear, click the one called BitLocker Drive Encryption.  Do NOT enable the BitLocker Backup to Active Directory Domain Service-you probably are not connected to a domain.  Do NOT configure the TPM-you don't have one.  You can configure (enable) the Control Panel Setup items: Recovery Folder, Recovery Options and Enable Advanced Startup Options, as well as select your Encryption Method and disable Prevent Memory Overwrite on Restart.  To configure each one of these items click on them in the Right Hand panel of the Group Policy Object Editor. Under the Setting Tab of the pop up click on the enable radio button. I left most of these items in there default settings mode as I enabled them.  You can use the Next Setting button on the bottom of the popup to move to the next folder.  When you get to the Advanced Startup Options, enable it, but also make sure the box with Enable Bitlocker without a TPM is checked.  The default encryption method is AES 128 With Diffuser, I chose the stronger AES 256 Bit With Diffuser option, but be aware it may make your computer a little bit slower.  I DISABLED the Prevent Memory Overwrite on Restart.  I did nothing to the TPM Platform Validation Profile nor the BitLocker Backup to Active Directory Domain Service-I left these settings NOT CONFIGURED.  Then click OK in the popup which closes those settings and saves them as you configured them.  Then close the Group Policy Object Editor Window, by clicking on the X in the upper right hand corner of that window. 

Go to the Start Search area and type in BitLocker.  One of the items that appears in the start window is the BitLocker Drive Preparation Tool.   Click that and run it.  Eventually it will complete and when it reboots, you should be taken to your Windows Ultimate partition.  (see update below if Tool doesn't work)

Go to Start then click on the Control Panel.  When the Control Panel opens, click on BitLocker.  If all has gone well you should see, Turn on BitLocker and Manage BitLocker Keys.  So you turn on BitLocker, start making keys (USB flash drives) by following the prompts.  You can also print out the key and save that else where too.

Once you have made enough keys to keep you happy (I made three and two printouts as well), leave one key in the computer USB port and restart.  If all goes well your computer will reboot into Windows.  If you leave the USB flash drive key out the computer should not boot and should require you to put a USB flash driver key in and reboot to start the computer again.  When you are in the Windows environment you can make other keys later on if need be.  Having a printout of the key can aid in the event you need to recover your data because the OS has been corrupted, but that is beyond the scope of this discussion.

Do not leave the USB flash driver key with the laptop ever, the key should be separate from the protected computer except when you are rebooting/turning it on. Leaving the USB Flash Driver Key with the protected computer is basically like leaving the keys in your car.  The only way to prevent the theft of data is to deny a would be thief access to the key.  According to a Microsoft white paper on the subject of their encryption it should prevent a software attack from gaining access to your computer.  By comparison an ordinary password protected Windows Operating System (OS) can easily be defeated by booting using another OS such as Linux to boot the computer and access the files from outside the Windows OS." Jake Beckman 

Update: my 3-month old laptop died (again), I shipped it off to HP (again), they replace the MB (again) and then found myself having to reinstall all of this stuff (again.)A new wrinkle appeared: Disk Paging is a fixed file on the Hard Drive.  No matter how hard I tried I could not access it to move it or delete it.  It made the Bit Locker Drive Preparation Tool inoperable, because the Disk Paging file parked itself far enough into where the Tool wanted to make the new partition on my HD, that there was not enough space to make the new partition.  Fortunately for me I had a now inoperable Disk Recovery Partition, so I obliterated it and used that space to create the encryption partition.  As near as I can tell from the Microsoft Knowledge Base (MS KB), the Disk Paging parks itself where-ever and you can run into this issue even on a brand new install of Vista Ultimate-the only solution suggested by the MS KB that might work is a brand new re-install of the OS (remember its not a bug its a feature...).  Back to Top

Wi-Fi Secutrity at Hot Spots:  Connecting a laptop at a public Hot Spot such as those supplied at Kinkos, Borders, and most airports poses the risk of theft of stored data as many connections do not encrypt the data & offer hackers access to sensitive information such as passwords, credit card numbers etc.  Before hooking up to a public Wi-Fi,

• Turn off the file and printer sharing on the W-Fi settings,
• Make sure the latest Wi-Fi software and patches are installed,
• Be picky about the network you connect to,
• Verify the network name with the business offering the service by talking to an employee,
• Limit the type of information you share-i.e. avoid internet shopping and banking,
• Avoid sending sensitive information-i.e. Social Security Numbers, passwords etc. 
• If possible only connect to sites offering Wi-Fi Protected Access (WPA), which guarantees messages are being sent to the intended hotspot and are not being stolen by hackers. Starbucks and hotels usually offer this service.  Back to Top

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