Sorry to crash your party, but as we bring in the New Year, it's also time to bring in a New Tax Season. As a small business owner or self-employed person, one of the easiest ways to keep Uncle Sam off your back and out of your life is to file your forms, payments and other paperwork on time.
Over the next four months there are several key dates that you dare not forget! Here they are -- all in one place, along with links to the IRS website PDF file for that particular form, where appropriate.
NOTE: This article only addresses federal tax deadlines. Be sure to contact your state's tax department for their due dates.
Also, the calendar is adjusted for Saturdays, Sundays and federal holidays, because if a due date falls on a Saturday, Sunday, or federal holiday, then the due date is moved to the next business day.
JANUARY:
Tuesday, Jan. 17
Personal
If you pay quarterly estimated income tax payments,
it's time to make the fourth-quarter payment for 2005
via Form 1040-ES.
http://www.irs.gov/pub/irs-pdf/f1040es.pdf
Business
If you have employees, you must make the federal payroll
tax payment for December 2008 by today (assuming you are
on the monthly deposit schedule).
You use Form 8109 (found in the little yellow coupon
book) or the IRS Electronic Federal Tax Payment System
(EFTPS).
Jan. 31
Business
4th quarter and year-end 2005 payroll tax returns are due by January 31, 2006.
Here's an overview of the 4 most common federal payroll-related forms due today:
1. Form W-2 (for your employees) http://www.irs.gov/pub/irs-pdf/fw2.pdf
If you mail the W-2's, the postmark must be on or before January 31, 2008.
You may also be a recipient of a W-2 (if you work as an employee for someone else), so don't give your employer a hard time unless the W-2 is postmarked, or delivered in person, later than January 31.
2. Form 941 (for payroll tax) http://www.irs.gov/pub/irs-pdf/f941.pdf
3. Form 940 (for unemployment tax) http://www.irs.gov/pub/irs-pdf/f940.pdf
4. Form 1099-MISC
If you paid any independent contractors at least $600 in 2005, you must send each one a 1099 by January 31. http://www.irs.gov/pub/irs-pdf/f1099msc.pdf
Tip: if the independent contractor is a corporation, you usually don't have to issue a 1099. The main purpose of the 1099 is to track payments to Sole Proprietors, i.e. unincorporated self-employed people.
FEBRUARY:
Feb. 15
If you have employees, you must make the federal payroll tax payment for January 2006 by today (assuming you are on the monthly deposit schedule).
February 28
If you prepared any W-2's or 1099's (mentioned above), today is the deadline for sending a copy of those forms to the IRS.
Form W-3 is sent to the Social Security Administration, along with Copy A of any Forms W-2 you issued. http://www.irs.gov/pub/irs-pdf/fw3.pdf
Form 1096 is sent to the IRS, along with Copy A of any Forms 1099-MISC you issued. http://www.irs.gov/pub/irs-pdf/f1096_04.pdf
MARCH:
Business
March 15
Today is a big day if your business is a corporation.
Form 1120 -- the annual corporate income tax return for regular "C" corporations. http://www.irs.gov/pub/irs-pdf/f1120.pdf
Form 1120S -- the annual corporate income tax return for "S" corporations. http://www.irs.gov/pub/irs-pdf/f1120s.pdf
Form 7004 -- if you can't file Form 1120 or 1120S by today, here's a tip: just file Form 7004 by
March 15 and you are granted an automatic, no-questions-asked 6-month extension of time to file the return (i.e. until Sept. 15, 2008) http://www.irs.gov/pub/irs-pdf/f7004.pdf
Form 2553 -- if you want your corporation to be treated like an "S" corporation for the first time, today is the deadline for telling the IRS that you want to be an "S" corp beginning with calendar year 2006. http://www.irs.gov/pub/irs-pdf/f2553.pdf
Also, If you have employees, you must make the federal payroll tax payment for February 2006 by today (assuming you are on the monthly deposit schedule).
APRIL:
Wednesday, April 15
Ah, yes, the most famous tax deadline of all.
Form 1040
http://www.irs.gov/pub/irs-pdf/f1040.pdf
And if you are a Sole Proprietor, don't forget that you must file several business-related tax forms with your Form 1040. The most commonly used tax forms for the self-employed person include:
Schedule C (to report your business income and expenses) http://www.irs.gov/pub/irs-pdf/f1040sc.pdf
Schedule SE (for self-employment tax) http://www.irs.gov/pub/irs-pdf/f1040sse.pdf
Form 4562 (to deduct equipment and other depreciable property) http://www.irs.gov/pub/irs-pdf/f4562.pdf
Form 8829 (to deduct a home office) http://www.irs.gov/pub/irs-pdf/f8829.pdf
Need more time to prepare your personal tax return? Go no further than Form 4868, which grants an automatic no-questions-asked 4-month extension to file the return. http://www.irs.gov/pub/irs-pdf/f4868.pdf
NOTE: this is only an extension of time to file the return, not an extension to pay any tax due. So if you think you might owe, it may be wise to estimate what you owe and send in a payment with Form 4868; otherwise you may have to pay extra in late payment penalties and interest.
Form 1065
If your business is a Partnership or Limited Liability Company (LLC), today is also your lucky day to file the annual business income tax return -- via Form 1065. http://www.irs.gov/pub/irs-pdf/f1065.pdf
Form 8736
To get an automatic 3-month extension of time to file Form 1065, file Form 8736 on or before April 15. http://www.irs.gov/pub/irs-pdf/f8736.pdf
As if April 15 wasn't already painful enough, it's also the deadline for the first quarter estimated tax payment for Year 2009:
Personal -- Form 1040-ES. http://www.irs.gov/pub/irs-pdf/f1040es.pdf
Corporate -- Form 1120-W
http://www.irs.gov/pub/irs-pdf/f1120w.pdf
And if you're an employer, yup, it's time for yet another monthly federal payroll tax deposit.
MAY:
May 1
Form 941 is due for the 1st quarter 2008. http://www.irs.gov/pub/irs-pdf/f941.pdf
Form 940 federal unemployment tax deposit is due today, if your first quarter liability exceeds $500.
Had enough? OK, OK. I'll stop here.
That should get you through the first four months of the year.
For more tax resources, here's a few more links:
Looking for a federal tax form?
http://www.irs.gov/formspubs/index.html
Looking for a state tax form?
http://taxes.yahoo.com/stateforms.html
http://www.taxadmin.org/fta/link/forms.html
IRS Website for Small Business & the Self-Employed http://www.irs.gov/smallbiz
Sunday, March 8, 2009
In America There Are Two Tax Systems
"In America there are two tax systems, one for the informed and one for the uninformed. Both systems are legal."
One of America's most famous jurists, Justice Learned Hand made this statement over forty years ago. When used today, one would certainly have to include the little understood world of Individual Retirement Accounts (IRA’s). The point I am making here is that we all need to keep ourselves informed about what IRA alternatives are available to us. Being uniformed about these IRA alternatives almost certainly means we are not taking full advantage of the opportunity to secure better returns on our retirement dollars.
The vast majority of Americans have since their (IRA's) introduction in 1974 allowed our IRAs and 401Ks to be directed by someone else, such as the friendly Broker and their Wall Street affiliates. This easygoing very passive approach "let someone else do the work for me" attitude may well have continued forever had it not been for the Wall Street crash of 2000. With more than a trillion dollars lost in IRA and 401K equity alone, it challenged the very way we viewed Wall Street.
The clear fact is if we Americans had known or understood back in 1974 that our IRAs and 401K's could be used to purchase real estate related items like Tax Lien Certificates, Tax Deeds and Mortgage Notes, millions of American baby boomers would today be retiring with vast sums of cash and assets inside of their IRAs and 401Ks.
NASDAQ reported on March 10, 2005 that it had risen to 59% of what it was five years earlier! This means $100,000.00 invested in NASDAQ listed companies in 1999 would be worth something like $59,000.00. That's very sad, but it’s where most Americans are today. Magazine, newspaper and television advertising campaigns have created the illusion to millions of Americans that those Wall Street products were the only financial products you could buy. This is not the fact and as outlined above Wall Street has not preformed too well over the last 30 years.
Real Estate on the other hand has out performed everything over the last 30 years by a very long way. IRAs and 401K's in general have over ninety percent of their funds in financial products. This may well lead you to ask "Why?” Are those Wall Street financial products superior in any way to real estate investments?" No! Here are some quotes taken from two very repected publications:
"... since the major housing organizations began keeping records in the 1960s, there has never been a year in which the average existing U.S. residence lost value. Not a one. "FORTUNE Magazine, August 12, 2002
"It is striking that after the longest, strongest bull market in history, the average American built more wealth owning a home than investing in the stock market ."DENVER Post, March 14, 2002
After reading these quotes, it really is hard to understand why our IRAs and 401K's are not 90% real estate versus 10% Wall Street products. Maybe it’s time for all of us to get just a little more informed about those hard earned dollars before it’s too late!
One of America's most famous jurists, Justice Learned Hand made this statement over forty years ago. When used today, one would certainly have to include the little understood world of Individual Retirement Accounts (IRA’s). The point I am making here is that we all need to keep ourselves informed about what IRA alternatives are available to us. Being uniformed about these IRA alternatives almost certainly means we are not taking full advantage of the opportunity to secure better returns on our retirement dollars.
The vast majority of Americans have since their (IRA's) introduction in 1974 allowed our IRAs and 401Ks to be directed by someone else, such as the friendly Broker and their Wall Street affiliates. This easygoing very passive approach "let someone else do the work for me" attitude may well have continued forever had it not been for the Wall Street crash of 2000. With more than a trillion dollars lost in IRA and 401K equity alone, it challenged the very way we viewed Wall Street.
The clear fact is if we Americans had known or understood back in 1974 that our IRAs and 401K's could be used to purchase real estate related items like Tax Lien Certificates, Tax Deeds and Mortgage Notes, millions of American baby boomers would today be retiring with vast sums of cash and assets inside of their IRAs and 401Ks.
NASDAQ reported on March 10, 2005 that it had risen to 59% of what it was five years earlier! This means $100,000.00 invested in NASDAQ listed companies in 1999 would be worth something like $59,000.00. That's very sad, but it’s where most Americans are today. Magazine, newspaper and television advertising campaigns have created the illusion to millions of Americans that those Wall Street products were the only financial products you could buy. This is not the fact and as outlined above Wall Street has not preformed too well over the last 30 years.
Real Estate on the other hand has out performed everything over the last 30 years by a very long way. IRAs and 401K's in general have over ninety percent of their funds in financial products. This may well lead you to ask "Why?” Are those Wall Street financial products superior in any way to real estate investments?" No! Here are some quotes taken from two very repected publications:
"... since the major housing organizations began keeping records in the 1960s, there has never been a year in which the average existing U.S. residence lost value. Not a one. "FORTUNE Magazine, August 12, 2002
"It is striking that after the longest, strongest bull market in history, the average American built more wealth owning a home than investing in the stock market ."DENVER Post, March 14, 2002
After reading these quotes, it really is hard to understand why our IRAs and 401K's are not 90% real estate versus 10% Wall Street products. Maybe it’s time for all of us to get just a little more informed about those hard earned dollars before it’s too late!
Innocent Spouses And The IRS
Historically, tax issues arising from bad marriages fell into the category of “better or worse” for marriages. The IRS granted no innocent spouse tax relief, but has changed its views.
Innocent Spouses And The IRS
When a marriage has problems, finances are almost always one of the elements that contribute to the strife. This can be particularly true where spouses file a joint tax return, which the both sign as tax payers. If the information provided on the tax return is false or inaccurate, the IRS has historically viewed both spouses as liable for the resulting assessments. If the relevant taxes were not paid, the IRS would also look to both spouses to pay the delinquent amount. In worse case scenarios, this can include criminal charges for tax evasion.
Fortunately, the IRS has modified its view of the liability of joint filers. The IRS now recognizes that innocent spouses can’t control their deadbeat former spouses. It allows such innocent spouses to claim three types of tax relief:
1. Innocent Spouse Relief
2. Relief by Separation of Liability
3. Equitable Relief
If the IRS comes after you for the tax liability of a former spouse, you can seek tax relief under these three theories if you meet all the following requirements. First, you filed a joint return with inaccurate information. Second, you didn’t know of the inaccuracies and didn’t have any reason to. Finally, taking into consideration the situation, holding you liable for the tax would be unfair.
The IRS will evaluate your application and render a ruling on your application. The IRS may agree to simply waive any tax claim against you and go after the deadbeat spouse as the sole debtor. Alternatively, the IRS may split the tax into a his and her account, only requiring you to pay one half of the amount due. While this may not sound great, it will immediately cut your tax bill in half.
In rare cases, you can seek equitable relief from the IRS. Equitable relief simply is another way of saying making you pay the tax would be manifestly unfair. You must show you and the spouse did not transfer assets as part of an fraudulent scheme, didn’t transfer assets with the intention of evading taxes, didn’t intend to commit fraud, didn’t pay the taxes due and you didn’t know what your spouse was up to. Equitable relief claims need to be handled very carefully as the IRS views them with a very cynical eye. Nonetheless, they are a last step that can be taken when all else has failed.
Innocent Spouses And The IRS
When a marriage has problems, finances are almost always one of the elements that contribute to the strife. This can be particularly true where spouses file a joint tax return, which the both sign as tax payers. If the information provided on the tax return is false or inaccurate, the IRS has historically viewed both spouses as liable for the resulting assessments. If the relevant taxes were not paid, the IRS would also look to both spouses to pay the delinquent amount. In worse case scenarios, this can include criminal charges for tax evasion.
Fortunately, the IRS has modified its view of the liability of joint filers. The IRS now recognizes that innocent spouses can’t control their deadbeat former spouses. It allows such innocent spouses to claim three types of tax relief:
1. Innocent Spouse Relief
2. Relief by Separation of Liability
3. Equitable Relief
If the IRS comes after you for the tax liability of a former spouse, you can seek tax relief under these three theories if you meet all the following requirements. First, you filed a joint return with inaccurate information. Second, you didn’t know of the inaccuracies and didn’t have any reason to. Finally, taking into consideration the situation, holding you liable for the tax would be unfair.
The IRS will evaluate your application and render a ruling on your application. The IRS may agree to simply waive any tax claim against you and go after the deadbeat spouse as the sole debtor. Alternatively, the IRS may split the tax into a his and her account, only requiring you to pay one half of the amount due. While this may not sound great, it will immediately cut your tax bill in half.
In rare cases, you can seek equitable relief from the IRS. Equitable relief simply is another way of saying making you pay the tax would be manifestly unfair. You must show you and the spouse did not transfer assets as part of an fraudulent scheme, didn’t transfer assets with the intention of evading taxes, didn’t intend to commit fraud, didn’t pay the taxes due and you didn’t know what your spouse was up to. Equitable relief claims need to be handled very carefully as the IRS views them with a very cynical eye. Nonetheless, they are a last step that can be taken when all else has failed.
Monaco and Andorra Tax Havens Raise Entry Price
While Monaco is a well known European tax haven, Andorra has remained little known outside of the financial community - despite enjoying the same tax advantages and arguably more private banking than her better known rival.
In contrast to the similar financial benefits both Monaco and Andorra residents enjoy, the two small countries have quite different climates.
Monaco has good all year round weather and is located next to the French Riveria, while Andorra is in the Pyrenees and between early December and late April attracts nearly ten million tourists for ski holidays. Monaco has year round tourists, peaking twice a year in May for the Grand Prix, and September for the Yacht Show.
Neither Andorra or Monaco have their own airports – Nice airport has a helicopter link, a ten minute ride direct to Monaco, Andorra is not so fortunate and the nearest airport is Barcelona, a three hour drive away from the principality.
Both countries have opted to stay out of the EU, preserving their ability to maintain a no income tax policy.
The biggest difference is the entry price for becoming a resident – which entails buying or renting a house or apartment.
One bedroom apartments in Monaco start at 800,000 Euros, but in Andorra the same size apartment starts at less than a third of the price at 250,000 Euros. And while a house in Monaco is a rarity, there is a good choice of houses for sale in Andorra, with prices starting at under a million Euros.
Rising Prices
Given Andorra’s property price advantage for would-be residents choosing between Europe’s primary tax havens, it has come as a surprise to many that the closing costs for buying a property in Andorra has not only been less than half that of Monaco, but also less than buying a property in many other mainland European countries at around four and a half per cent.
But Andorra has just raised property closing costs by introducing a three and a half per cent sale of goods and services tax on property purchases from January 1, 2006 - bringing the tax haven more in line with neighbouring France and Spain.
Demand for property in Andorra and Monaco is unlikely to be affected by the recent increases though, according to European tax haven specialists Tribune Properties.
‘Andorra and Monaco have historically seen an increase in property activity and residency applications when taxes are increasing elsewhere. The new German government has recently increased the top rate of income tax and the United Kingdom has seen an increase in the number of indirect taxes, making the zero per cent personal income tax both Andorra and Monaco offer an attractive preposition to high income earners.
Andorra’s property inflation has been over ten per cent annually for the last three years, and when the 2005 figures are released we would expect it to be four years in a row, with no sign of a levelling off of demand for the year ahead.
With Andorra and Monaco’s high speed cable and broadband internet access more and more company owners are moving their residence to low and no tax countries and running their companies from a distance geographically, while being able to share information with their head office in real time’.
As well as buying a property in Andorra or Monaco, both countries require residency applicants to establish a local bank account and deposit around 50,000 Euros (Andorra) or 100,000 Euros (Monaco), take out private health insurance, and to live there for six months of the year.
In contrast to the similar financial benefits both Monaco and Andorra residents enjoy, the two small countries have quite different climates.
Monaco has good all year round weather and is located next to the French Riveria, while Andorra is in the Pyrenees and between early December and late April attracts nearly ten million tourists for ski holidays. Monaco has year round tourists, peaking twice a year in May for the Grand Prix, and September for the Yacht Show.
Neither Andorra or Monaco have their own airports – Nice airport has a helicopter link, a ten minute ride direct to Monaco, Andorra is not so fortunate and the nearest airport is Barcelona, a three hour drive away from the principality.
Both countries have opted to stay out of the EU, preserving their ability to maintain a no income tax policy.
The biggest difference is the entry price for becoming a resident – which entails buying or renting a house or apartment.
One bedroom apartments in Monaco start at 800,000 Euros, but in Andorra the same size apartment starts at less than a third of the price at 250,000 Euros. And while a house in Monaco is a rarity, there is a good choice of houses for sale in Andorra, with prices starting at under a million Euros.
Rising Prices
Given Andorra’s property price advantage for would-be residents choosing between Europe’s primary tax havens, it has come as a surprise to many that the closing costs for buying a property in Andorra has not only been less than half that of Monaco, but also less than buying a property in many other mainland European countries at around four and a half per cent.
But Andorra has just raised property closing costs by introducing a three and a half per cent sale of goods and services tax on property purchases from January 1, 2006 - bringing the tax haven more in line with neighbouring France and Spain.
Demand for property in Andorra and Monaco is unlikely to be affected by the recent increases though, according to European tax haven specialists Tribune Properties.
‘Andorra and Monaco have historically seen an increase in property activity and residency applications when taxes are increasing elsewhere. The new German government has recently increased the top rate of income tax and the United Kingdom has seen an increase in the number of indirect taxes, making the zero per cent personal income tax both Andorra and Monaco offer an attractive preposition to high income earners.
Andorra’s property inflation has been over ten per cent annually for the last three years, and when the 2005 figures are released we would expect it to be four years in a row, with no sign of a levelling off of demand for the year ahead.
With Andorra and Monaco’s high speed cable and broadband internet access more and more company owners are moving their residence to low and no tax countries and running their companies from a distance geographically, while being able to share information with their head office in real time’.
As well as buying a property in Andorra or Monaco, both countries require residency applicants to establish a local bank account and deposit around 50,000 Euros (Andorra) or 100,000 Euros (Monaco), take out private health insurance, and to live there for six months of the year.
New Procedure for Settling Tax Debts with the IRS
The Tax Increase Prevention and Reconciliation Act has ushered in new rules for settling tax debts with the IRS. Here is the scoop on the compromise procedures.
New Procedure for Settling Tax Debts with the IRS
If you owe the federal government back taxes, there are two approaches you can take to resolve the issue. The first is to file an installment agreement wherein you agree to pay off the debt by making monthly payments. The second is to try to settle the bill with a one time payment, which is often relatively low given your position you will not reasonably have the money to pay back the total bill. This rules and procedures related to this second approach have changed dramatically.
The settlement process, often called an offer in compromise, underwent a massive change with the passage of the Tax Increase Prevention and Reconciliation Act of 2005. Starting July 16, 2006, the new rules go into affect and they are a bear. The biggest issue is you now must pay 20 percent of your offer amount to even have the settlement offer considered!
The procedure now works as follows. To file an offer in compromise, you must prepare and file Form 656. This form essentially lays out your assets, income, debt amount and the offer you are making given these figures. You must pay $150 when submitting the bill. You must also now pay 20 percent of your offer amount. Neither of these amounts is refundable.
It may take the IRS up to two years to get around to making a decision. If the agency accepts your offer, it will send you acknowledgment and the terms thereof. If the agency does not accept the offer, it keeps your deposit and comes after you. Welcome to the wonderful world of taxes!
There are two exceptions to the 20 percent deposit rule. If you are a low income taxpayer under IRS rules, you need not make the deposit. Further, if you are contesting the taxes due because you believe there has been an error and you are not reasonably responsible for them, you need not file the deposit. Keep in mind the reason must be reasonable, not one of the arguments that nobody has to ever pay taxes.
The new procedures for filing for tax debt settlement are odd given the new 20 percent deposit amount. However, this still represents the best way for dealing with tax debts.
New Procedure for Settling Tax Debts with the IRS
If you owe the federal government back taxes, there are two approaches you can take to resolve the issue. The first is to file an installment agreement wherein you agree to pay off the debt by making monthly payments. The second is to try to settle the bill with a one time payment, which is often relatively low given your position you will not reasonably have the money to pay back the total bill. This rules and procedures related to this second approach have changed dramatically.
The settlement process, often called an offer in compromise, underwent a massive change with the passage of the Tax Increase Prevention and Reconciliation Act of 2005. Starting July 16, 2006, the new rules go into affect and they are a bear. The biggest issue is you now must pay 20 percent of your offer amount to even have the settlement offer considered!
The procedure now works as follows. To file an offer in compromise, you must prepare and file Form 656. This form essentially lays out your assets, income, debt amount and the offer you are making given these figures. You must pay $150 when submitting the bill. You must also now pay 20 percent of your offer amount. Neither of these amounts is refundable.
It may take the IRS up to two years to get around to making a decision. If the agency accepts your offer, it will send you acknowledgment and the terms thereof. If the agency does not accept the offer, it keeps your deposit and comes after you. Welcome to the wonderful world of taxes!
There are two exceptions to the 20 percent deposit rule. If you are a low income taxpayer under IRS rules, you need not make the deposit. Further, if you are contesting the taxes due because you believe there has been an error and you are not reasonably responsible for them, you need not file the deposit. Keep in mind the reason must be reasonable, not one of the arguments that nobody has to ever pay taxes.
The new procedures for filing for tax debt settlement are odd given the new 20 percent deposit amount. However, this still represents the best way for dealing with tax debts.
Stupidest Tax Mistakes To Avoid This Time Around
As the season to fill tax returns and forms approaches people get confused and nervous. The IRS dons the role of a huge brooding monster that is all set to devour you. Unfortunately most of us keep postponing filing of papers and putting our affairs in order until the very last minute and then confusion and stress reign supreme.
The last minute dash and the lack of knowledge of tax laws, depreciation formulas, and deductibility guidelines can land you in a soup. And, this means coughing up precious dollars that you could find better use for.
Errors however small can result in payment of higher taxes and can mean a delayed or no refunds. As in everything, the way to smooth things is to be systematic and file papers pertaining to tax returns carefully throughout the year. Do not throw away bills, vouchers, or receipts that support your tax forms. Next discipline your self to read the IRS rules and regulations. Do not depend on what others tell you or hearsay. Check out facts for yourself.
Everyone makes “tax” return mistakes even professors, CEOs, and VPs. Some common mistakes which are just plain idiocy or stupid are:
1. Benefits claimed pertaining to dependent children. Often if you fail to know the allowed exemptions you may fail to make a correct claim or make an incorrect one. To help clear confusion the IRS created a uniform definition of a child and the broad outlines are at: http://www.bankrate.com/brm/itax/tips/20010208a.asp . However if you have any doubts or questions clear them before filing your return.
2. Most errors are calculation mistakes and wrongly filled in figures. Always check and recheck where the full stop or comma is applied. Go through the numbers patiently and do your totaling on two separate days. Better still ask a family member or friend to check the figures for you. Consider using “tax software programs” these ease many problems in filing your return. When filling details keep in mind the fact that the IRS will check entries against W-2, 1099 and other statements that pertain to your tax. If a discrepancy is found it just means trouble as well as delays.
3. Forgetting to sign and date the forms is a mistake that leads to the IRS just not processing your return. Be sure to check all the pages carefully and ensure you have not missed anything however small and insignificant. Another common error is forgetting to write your social security numbers or tax ID numbers.
4. Often tax payers forget to submit all relevant forms like W-2, 1040, or 07, or 16. Check the relevant schedule for each claim and ensure that all relevant and supporting forms are attached to the return.
5. Failing to keep track of investments, allowed deductions, interests paid or earned and so on. You need to maintain details of when you invested, what dividends were paid, whether any taxes were deducted on maturity, any capital gains, taxes paid on sums earlier. If you clearly keep track of taxes paid you could avoid paying tax on amounts already taxed. The calculations must be done carefully and systematically to avoid faux pas.
6. Choosing the EZ form 1040Ez rather than the long form. If your earnings, expenditure and other things are simple then just take the trouble of filling the longer form. You will be surprised at the amount you can save in taxes. The longer form allows subtractions from taxable income like student loan interest, alimony paid, donations of charities and so on.
7. Missing the deadline and asking for an extension. This means paying late penalties as well as interest. In case a personal problem prevents filing in April you need to submit form 4868 by the April deadline to get an extension.
8. Using a wrong table to make calculations. Two things need care filing status and the right tax tables. Using wrong ones or filing under a wrong status will put you in more trouble than you need. And, the mistake could mean paying taxes on taxes or on investment earnings. Be astute and compute your tax using the work sheet at the back of the booklet.
9. Three laughable mistakes tax payers make is to fill out the check wrong and forgetting to sign it. Posting the forms without the proper postage on the return package. And, worst of all not using the pre-printed label and envelope provided by the IRS.
The IRS has modernized its systems and some of the silly mistakes can be avoided if you opt for electronic filing. Last year almost over 50% of the taxes were filed using e-filing. The advantages are many. All the forms you will need are on tab, the software takes you step by step through the filling process, the electronic calculators rarely make errors, and most of all e-filing forms get processes quicker the turnaround is 14 days. See: http://www.irs.com/. If in doubt, you can e-file using the services of an authorized tax professional.
File on time and correctly. Avoid heart burn and hypertension.
The last minute dash and the lack of knowledge of tax laws, depreciation formulas, and deductibility guidelines can land you in a soup. And, this means coughing up precious dollars that you could find better use for.
Errors however small can result in payment of higher taxes and can mean a delayed or no refunds. As in everything, the way to smooth things is to be systematic and file papers pertaining to tax returns carefully throughout the year. Do not throw away bills, vouchers, or receipts that support your tax forms. Next discipline your self to read the IRS rules and regulations. Do not depend on what others tell you or hearsay. Check out facts for yourself.
Everyone makes “tax” return mistakes even professors, CEOs, and VPs. Some common mistakes which are just plain idiocy or stupid are:
1. Benefits claimed pertaining to dependent children. Often if you fail to know the allowed exemptions you may fail to make a correct claim or make an incorrect one. To help clear confusion the IRS created a uniform definition of a child and the broad outlines are at: http://www.bankrate.com/brm/itax/tips/20010208a.asp . However if you have any doubts or questions clear them before filing your return.
2. Most errors are calculation mistakes and wrongly filled in figures. Always check and recheck where the full stop or comma is applied. Go through the numbers patiently and do your totaling on two separate days. Better still ask a family member or friend to check the figures for you. Consider using “tax software programs” these ease many problems in filing your return. When filling details keep in mind the fact that the IRS will check entries against W-2, 1099 and other statements that pertain to your tax. If a discrepancy is found it just means trouble as well as delays.
3. Forgetting to sign and date the forms is a mistake that leads to the IRS just not processing your return. Be sure to check all the pages carefully and ensure you have not missed anything however small and insignificant. Another common error is forgetting to write your social security numbers or tax ID numbers.
4. Often tax payers forget to submit all relevant forms like W-2, 1040, or 07, or 16. Check the relevant schedule for each claim and ensure that all relevant and supporting forms are attached to the return.
5. Failing to keep track of investments, allowed deductions, interests paid or earned and so on. You need to maintain details of when you invested, what dividends were paid, whether any taxes were deducted on maturity, any capital gains, taxes paid on sums earlier. If you clearly keep track of taxes paid you could avoid paying tax on amounts already taxed. The calculations must be done carefully and systematically to avoid faux pas.
6. Choosing the EZ form 1040Ez rather than the long form. If your earnings, expenditure and other things are simple then just take the trouble of filling the longer form. You will be surprised at the amount you can save in taxes. The longer form allows subtractions from taxable income like student loan interest, alimony paid, donations of charities and so on.
7. Missing the deadline and asking for an extension. This means paying late penalties as well as interest. In case a personal problem prevents filing in April you need to submit form 4868 by the April deadline to get an extension.
8. Using a wrong table to make calculations. Two things need care filing status and the right tax tables. Using wrong ones or filing under a wrong status will put you in more trouble than you need. And, the mistake could mean paying taxes on taxes or on investment earnings. Be astute and compute your tax using the work sheet at the back of the booklet.
9. Three laughable mistakes tax payers make is to fill out the check wrong and forgetting to sign it. Posting the forms without the proper postage on the return package. And, worst of all not using the pre-printed label and envelope provided by the IRS.
The IRS has modernized its systems and some of the silly mistakes can be avoided if you opt for electronic filing. Last year almost over 50% of the taxes were filed using e-filing. The advantages are many. All the forms you will need are on tab, the software takes you step by step through the filling process, the electronic calculators rarely make errors, and most of all e-filing forms get processes quicker the turnaround is 14 days. See: http://www.irs.com/. If in doubt, you can e-file using the services of an authorized tax professional.
File on time and correctly. Avoid heart burn and hypertension.
Tax Advice: Middle Class Tax Shelters Everyone Can Use, Many Don’t
Many people lose money for years to landlords because they mistakenly believe they cannot afford to buy a home. However, in most cases, these renters are where they are only because they are unaware of all their other options. Most people know that it's better to put your money into a house that you own than into a rent check you never see again. Some are aware that mortgage payments could actually be fairly close to what they currently pay in rent.
What few people realize are the tax benefits stemming from owning a home can actually save them hundreds of dollars each month. After taking into account these additional savings, which would you choose: giving up a large chunk of your paycheck each month to a landlord for a small apartment, or, for significantly less money, having not just your own home, but also the freedom to take your money out again in the future?
How Tax Benefits Work
Tax benefits from home ownership come in the form of deductions. Come tax time, the amount of money you spent on tax-deductible expenses related to your home financing (many of which are outlined below) is subtracted from the total amount of taxes you owe. Depending on how much you owe and how much you put into your home over the course of a year, home financing could actually result in zero tax liability. That means that your new home may actually bring you a refund check!
For example, assume you owe $12,000 in taxes for the past year, and your mortgage payment is $1,000 per month. In the early years of a mortgage, payments are usually almost entirely for the interest you owe on your home loan. Mortgage interest payments are tax-deductible, so from this one deduction alone, you now owe $12,000 less in taxes—which brings the total amount you owe the government to zero. If your employer withholds taxes from your paycheck, you will receive a refund check for the tax you overpaid.
Tax Benefits for All Mortgages
- If you own property, then you pay property taxes. These are always fully tax-deductible.
- Points on a home mortgage are fully deductible.
Tax Benefits for New Mortgages
- As mentioned earlier, the payments you make in the early years of a home financing loan generally go straight to interest. The principal, or actual amount of the original loan does not start to go down until later in the loan period. This means that early on, you can deduct most, if not all, of an entire year of mortgage payments.
- Both late and early payment fees charged by your lender are considered interest and can be deducted.
- Many tax benefits available in the first year of your mortgage are not available later on. It is always a good idea to go over your situation with an accountant to be sure you do not miss any opportunities for savings. These first-year tax benefits include moving expenses and capital gains.
Tax Benefits for Refinancing a Current Mortgage
- If you are refinancing in order to make improvements to your property, then the interest is deductible. Anything that could reasonably improve your property value—from fixing the driveway to adding on an entire new story—counts.
- Interest on refinanced mortgages that are taken out for expenses not related to home improvement can also be taken as a deduction, but only within certain guidelines. Currently, the maximum deduction for the life of the loan is $100,000. (Married couples filing separately each have a maximum of $50,000.)
- Points on a refinanced home mortgage are still tax-deductible in most cases.
Benefits Beyond Tax Savings
No one would complain over having a few extra dollars in their pocket. Not only can financing your home save money on your next tax return, but it can also save money on purchases made using money received from refinancing a mortgage (or simply money not lost to rent). In fact, paying off credit cards after financing can be one of the smartest financial moves you can ever make—especially if you keep those cards paid off.
Consider that even the worst mortgage interest rates can be at least ten or twenty percentage points lower than those for the average credit card. People with poor credit are often better off with a higher mortgage interest rate if it means their other debt can be reduced, thereby bringing their credit score up. After re-establishing their credit, they can then refinance their home at a better interest rate.
What few people realize are the tax benefits stemming from owning a home can actually save them hundreds of dollars each month. After taking into account these additional savings, which would you choose: giving up a large chunk of your paycheck each month to a landlord for a small apartment, or, for significantly less money, having not just your own home, but also the freedom to take your money out again in the future?
How Tax Benefits Work
Tax benefits from home ownership come in the form of deductions. Come tax time, the amount of money you spent on tax-deductible expenses related to your home financing (many of which are outlined below) is subtracted from the total amount of taxes you owe. Depending on how much you owe and how much you put into your home over the course of a year, home financing could actually result in zero tax liability. That means that your new home may actually bring you a refund check!
For example, assume you owe $12,000 in taxes for the past year, and your mortgage payment is $1,000 per month. In the early years of a mortgage, payments are usually almost entirely for the interest you owe on your home loan. Mortgage interest payments are tax-deductible, so from this one deduction alone, you now owe $12,000 less in taxes—which brings the total amount you owe the government to zero. If your employer withholds taxes from your paycheck, you will receive a refund check for the tax you overpaid.
Tax Benefits for All Mortgages
- If you own property, then you pay property taxes. These are always fully tax-deductible.
- Points on a home mortgage are fully deductible.
Tax Benefits for New Mortgages
- As mentioned earlier, the payments you make in the early years of a home financing loan generally go straight to interest. The principal, or actual amount of the original loan does not start to go down until later in the loan period. This means that early on, you can deduct most, if not all, of an entire year of mortgage payments.
- Both late and early payment fees charged by your lender are considered interest and can be deducted.
- Many tax benefits available in the first year of your mortgage are not available later on. It is always a good idea to go over your situation with an accountant to be sure you do not miss any opportunities for savings. These first-year tax benefits include moving expenses and capital gains.
Tax Benefits for Refinancing a Current Mortgage
- If you are refinancing in order to make improvements to your property, then the interest is deductible. Anything that could reasonably improve your property value—from fixing the driveway to adding on an entire new story—counts.
- Interest on refinanced mortgages that are taken out for expenses not related to home improvement can also be taken as a deduction, but only within certain guidelines. Currently, the maximum deduction for the life of the loan is $100,000. (Married couples filing separately each have a maximum of $50,000.)
- Points on a refinanced home mortgage are still tax-deductible in most cases.
Benefits Beyond Tax Savings
No one would complain over having a few extra dollars in their pocket. Not only can financing your home save money on your next tax return, but it can also save money on purchases made using money received from refinancing a mortgage (or simply money not lost to rent). In fact, paying off credit cards after financing can be one of the smartest financial moves you can ever make—especially if you keep those cards paid off.
Consider that even the worst mortgage interest rates can be at least ten or twenty percentage points lower than those for the average credit card. People with poor credit are often better off with a higher mortgage interest rate if it means their other debt can be reduced, thereby bringing their credit score up. After re-establishing their credit, they can then refinance their home at a better interest rate.
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