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.
Tax Credits Available For New Furnace Buyers
Not letting hot air get lost up the chimney has its rewards. Many homeowners who are replacing their furnaces are choosing high-efficiency models to help combat rising heating costs. High-efficiency furnaces, however, can be more expensive in the short term than their standard-efficiency counterparts. To make the purchase of this and other high-efficiency appliances easier on the average household, Congress passed the Energy Policy Act of 2005, which provides tax credits for the purchase of high-efficiency furnaces.
The new Energy Policy Act (EPACT) makes provisions for tax credits for qualified homeowners who install furnaces between Jan. 1, 2006 and Dec. 31, 2007. If the furnace installed has an energy-efficiency rating of 95% AFUE (Annual Fuel Utilization Efficiency) or higher, the homeowner may qualify for a tax credit of $150. And if the furnace uses a high-efficiency variable-speed blower motor, the purchaser may be eligible for an additional $50 tax credit!
According to Jim Miller, product manager for Goodman furnaces, 95% AFUE furnaces save homeowners money in the long run, even without the tax credit. "Simply put, with a 95% AFUE furnace, for every dollar you spend on heating energy, 95 cents of that dollar is used to warm your home," explained Miller. "Many furnaces older than 15 years operate at efficiencies of approximately 60% AFUE, meaning only 60 cents of the gas burned contributes to your home's heating." The remaining 40 cents is lost up the chimney-expensive and wasteful.
"Plus, 95% AFUE furnaces with a variable-speed blower are even more efficient," Miller added. "The variable-speed blowers we use in our Goodman GMV95 95% AFUE Variable-Speed Furnace typically require up to 75 percent less electricity than a standard motor. Because a furnace's blower also works with the home's cooling system to circulate air, consumers experience increased efficiency year-round."
Homeowners should work with a certified heating and air-conditioning contractor to choose the furnace that meets the needs of their home and should check with their tax professional regarding the requirements for the EPACT tax credits. Goodman is the second-largest unit manufacturer of residential heating and cooling equipment in the United States, and the first manufacturer to provide a complete line of 95% AFUE furnaces.
The new Energy Policy Act (EPACT) makes provisions for tax credits for qualified homeowners who install furnaces between Jan. 1, 2006 and Dec. 31, 2007. If the furnace installed has an energy-efficiency rating of 95% AFUE (Annual Fuel Utilization Efficiency) or higher, the homeowner may qualify for a tax credit of $150. And if the furnace uses a high-efficiency variable-speed blower motor, the purchaser may be eligible for an additional $50 tax credit!
According to Jim Miller, product manager for Goodman furnaces, 95% AFUE furnaces save homeowners money in the long run, even without the tax credit. "Simply put, with a 95% AFUE furnace, for every dollar you spend on heating energy, 95 cents of that dollar is used to warm your home," explained Miller. "Many furnaces older than 15 years operate at efficiencies of approximately 60% AFUE, meaning only 60 cents of the gas burned contributes to your home's heating." The remaining 40 cents is lost up the chimney-expensive and wasteful.
"Plus, 95% AFUE furnaces with a variable-speed blower are even more efficient," Miller added. "The variable-speed blowers we use in our Goodman GMV95 95% AFUE Variable-Speed Furnace typically require up to 75 percent less electricity than a standard motor. Because a furnace's blower also works with the home's cooling system to circulate air, consumers experience increased efficiency year-round."
Homeowners should work with a certified heating and air-conditioning contractor to choose the furnace that meets the needs of their home and should check with their tax professional regarding the requirements for the EPACT tax credits. Goodman is the second-largest unit manufacturer of residential heating and cooling equipment in the United States, and the first manufacturer to provide a complete line of 95% AFUE furnaces.
Tax Demand? A Tax Attorney Could Reduce It
Do you dread seeing those brown envelopes with the IRS or Inland Renenue address on them? Do you put them on one side until you have summoned the courage to read their latest demand for money? Does the thought of filing your tax return stress you out unbearably?
Tax laws in most countries are exceedingly complex and open to interpretation by the courts. Every taxpayer wants to legally reduce the taxes he or she pays to the minimum. Even in these days of more easily understood forms there is still lots of scope for interpretation of tax laws.
Government tax raising departments like the IRS employ highly paid attorneys to persuade the courts in favor of the government's interpretation of tax laws. The more persuasive an attorney has proved to be the more they can charge. The IRS attorneys are paid from the bottomless pocket of the taxpayer, so they only employ the best and most persuasive people.
The individual or company taxpayer has only one option – to employ a tax attorney themselves.
Your attorney will mediate between you and the IRS and help you to reach a negotiated settlement. Where disputed amounts are large, it is usual for the taxpayer to reach a negotiated settlement for a much smaller amount than the original claim. This is why people employ tax attorneys. If the case goes to court then you will be represented and have the best advice available, a much better position to be in than facing the might of government alone.
There are so many complexities to every tax system because of the cumulative effect of thousands of pressure groups over the past 200 years. Each group manages to persuade the government of the day that they will get more votes if they accede to the group's demands. The government acquiesces and another complexity is added to the tax regime.
Many of these pressure groups' demands could be reversed, but that would require immense political courage, which is not present in most democratically elected politicians.
Tax laws in most countries are exceedingly complex and open to interpretation by the courts. Every taxpayer wants to legally reduce the taxes he or she pays to the minimum. Even in these days of more easily understood forms there is still lots of scope for interpretation of tax laws.
Government tax raising departments like the IRS employ highly paid attorneys to persuade the courts in favor of the government's interpretation of tax laws. The more persuasive an attorney has proved to be the more they can charge. The IRS attorneys are paid from the bottomless pocket of the taxpayer, so they only employ the best and most persuasive people.
The individual or company taxpayer has only one option – to employ a tax attorney themselves.
Your attorney will mediate between you and the IRS and help you to reach a negotiated settlement. Where disputed amounts are large, it is usual for the taxpayer to reach a negotiated settlement for a much smaller amount than the original claim. This is why people employ tax attorneys. If the case goes to court then you will be represented and have the best advice available, a much better position to be in than facing the might of government alone.
There are so many complexities to every tax system because of the cumulative effect of thousands of pressure groups over the past 200 years. Each group manages to persuade the government of the day that they will get more votes if they accede to the group's demands. The government acquiesces and another complexity is added to the tax regime.
Many of these pressure groups' demands could be reversed, but that would require immense political courage, which is not present in most democratically elected politicians.
Tax Deductions for Home Businesses
For most home business owners, tax deductions may be the key that can help put a little extra cash back into their pocket. Tax deductions vary from business to business but it is worth your time to familiarize yourself with some of these common tax deductions.
First, determine if you qualify for a home business tax deduction. A home office is generally defined as a place where you meet with clients, patients, or customers. Or if this part of the house is used exclusively for business purposes. Most people have a general image that comes to mind when they hear the words “home office”. In reality, tax deductions can apply to a variety of places. Your home office can be a garage, basement, or a studio. If you do qualify as a home business, it is crucial to keep all records, receipts, and paperwork that you have accumulated throughout the year.
It will make tax time a much less stressful experience for the home business owner. Do not overlook the small things. This can be as simple as keeping the receipts when you purchase paper, staples, or toner. Any item that is purchased for your home business is usually considered a tax deduction. This may seem tedious and unimportant but nothing could be further from the truth. You might be amazed when all these little things add up at the end of the year.
Home business deductions can be separated into two categories. The first is for Direct Expenses. These are expenses that are needed for your actual home office. Direct expenses include office furniture, decorating costs, or equipment. Indirect Expenses are the expenses that must be paid the entire house. This includes heating, electricity, or mortgage interest payments. You can deduct the percentage of your business expenses from your utility costs.
Another tax deduction to consider is telephone expenses. If you have one telephone line, the IRS is usually not going to believe that you use this only for your home business. The second phone line installed in your home is purely one hundred percent deductible. Another common deduction that is often missed is the lost distance charges incurred because of business calls.
An overlooked tax deduction for some home business owners are the meal expenses when they entertain an employee, a customer, or a client. Save all your receipts from these business dinners. It is possible to deduct fifty percent of meal expenses. Education expenses can also be a tax deduction if it is required by law to update your skills or if you are trying to enhance your skills for your current position.
Most home business owners use a vehicle as a means of transportation for their business. This vehicle can be used for running to the post office, or meeting with a client. Keep a log book in the vehicle to keep track of the mileage on these errands. Vehicles can be vital to run your home business, and over time these kinds of charges can hurt your profits. There are many valuable tax deductions for vehicles, such as car repairs and car insurance. Airline fare can be another costly, but necessary aspect for home business owners. The IRS does allow your trip expense as another tax deduction.
As you can see, home business owners have a variety of options when it comes to tax deductions. Remember to keep records of all your home business activities and consult with a tax advisor to get the best deductions for your home business.
First, determine if you qualify for a home business tax deduction. A home office is generally defined as a place where you meet with clients, patients, or customers. Or if this part of the house is used exclusively for business purposes. Most people have a general image that comes to mind when they hear the words “home office”. In reality, tax deductions can apply to a variety of places. Your home office can be a garage, basement, or a studio. If you do qualify as a home business, it is crucial to keep all records, receipts, and paperwork that you have accumulated throughout the year.
It will make tax time a much less stressful experience for the home business owner. Do not overlook the small things. This can be as simple as keeping the receipts when you purchase paper, staples, or toner. Any item that is purchased for your home business is usually considered a tax deduction. This may seem tedious and unimportant but nothing could be further from the truth. You might be amazed when all these little things add up at the end of the year.
Home business deductions can be separated into two categories. The first is for Direct Expenses. These are expenses that are needed for your actual home office. Direct expenses include office furniture, decorating costs, or equipment. Indirect Expenses are the expenses that must be paid the entire house. This includes heating, electricity, or mortgage interest payments. You can deduct the percentage of your business expenses from your utility costs.
Another tax deduction to consider is telephone expenses. If you have one telephone line, the IRS is usually not going to believe that you use this only for your home business. The second phone line installed in your home is purely one hundred percent deductible. Another common deduction that is often missed is the lost distance charges incurred because of business calls.
An overlooked tax deduction for some home business owners are the meal expenses when they entertain an employee, a customer, or a client. Save all your receipts from these business dinners. It is possible to deduct fifty percent of meal expenses. Education expenses can also be a tax deduction if it is required by law to update your skills or if you are trying to enhance your skills for your current position.
Most home business owners use a vehicle as a means of transportation for their business. This vehicle can be used for running to the post office, or meeting with a client. Keep a log book in the vehicle to keep track of the mileage on these errands. Vehicles can be vital to run your home business, and over time these kinds of charges can hurt your profits. There are many valuable tax deductions for vehicles, such as car repairs and car insurance. Airline fare can be another costly, but necessary aspect for home business owners. The IRS does allow your trip expense as another tax deduction.
As you can see, home business owners have a variety of options when it comes to tax deductions. Remember to keep records of all your home business activities and consult with a tax advisor to get the best deductions for your home business.
Tax Deduction for Alimony Payments? - Yes!
Over 50% of marriages end in divorce in the United States. Many divorce decrees include provisions for the payment of alimony. The IRS takes the position that such payments constitute a form of income and create an alimony tax deduction for the person making payments.
According to the IRS, alimony payments are taxable to the recipient in the year received. In turn, the person paying the alimony can claim a deduction for the payments if the following tests are met:
1. You and your spouse or former spouse do not file a joint return with each other,
2. You pay in cash (including checks or money orders),
3. The divorce or separation instrument does not say that the payment is not alimony,
4. If legally separated under a decree of divorce or separate maintenance, you and your former spouse are not members of the same household when you make the payment,
5. You have no liability to make any payment (in cash or property) after the death of your spouse or former spouse; and
6. Your payment is not treated as child support.
If you are receiving or paying alimony, you must use Form 1040 for your personal taxes. Regardless of income levels, deductions or miscellaneous tax issues, you cannot use Form 104A or Form 1040EZ.
In preparing your tax return, the person receiving alimony will report the information on line 11 of Form 1040. That person must also provide their social security number to their former spouse or face a fine of $50. The person paying the alimony can claim the deduction on line 34a of Form 1040.
According to the IRS, alimony payments are taxable to the recipient in the year received. In turn, the person paying the alimony can claim a deduction for the payments if the following tests are met:
1. You and your spouse or former spouse do not file a joint return with each other,
2. You pay in cash (including checks or money orders),
3. The divorce or separation instrument does not say that the payment is not alimony,
4. If legally separated under a decree of divorce or separate maintenance, you and your former spouse are not members of the same household when you make the payment,
5. You have no liability to make any payment (in cash or property) after the death of your spouse or former spouse; and
6. Your payment is not treated as child support.
If you are receiving or paying alimony, you must use Form 1040 for your personal taxes. Regardless of income levels, deductions or miscellaneous tax issues, you cannot use Form 104A or Form 1040EZ.
In preparing your tax return, the person receiving alimony will report the information on line 11 of Form 1040. That person must also provide their social security number to their former spouse or face a fine of $50. The person paying the alimony can claim the deduction on line 34a of Form 1040.
Tax Deferral Power and Protection
What is a Tax-Deferred Annuity? A tax-deferred annuity is a contract between you and the insurance company with guaranteed interest and guaranteed annuity income options. There are no upfront sales charges or administrative fees during the life of your contract.
Advantages of Tax-Deferred Annuities include tax deferral, stability, may avoid probate, liquidity features, and guaranteed income.
One of the primary advantages of deferred annuities is the opportunity to accumulate a substantial sum of money by allowing your premium and interest to grow tax-deferred. Unlike taxable investments, you pay no taxes on your annuity interest until you begin to take withdrawals or receive income. This allows your money to grow faster than in a taxable account, because you earn interest on the money that would have otherwise been paid in taxes.
Your tax-deferred annuity is stable and safe. State insurance department laws require insurance companies establish and maintain reserves equal to the cash surrender value of your annuity contract at all times. In addition, state laws require insurance companies maintain minimum amounts of capital and surplus for further contract owner protection.
Insurance companies invest your premium dollars in a diversity of investments that are closely regulated by the insurance departments. These long-term investments ensure the stability of the company and help to provide you with a competitive yield.
In the case of premature death, your beneficiaries have the accumulated funds within your annuity available to them, with most companies and may avoid the expense, delay and publicity of probate.
Most annuities provide you with opportunities to withdraw funds at any time (subject to applicable surrender charges). Most contracts allow some form penalty-free withdrawals after the first contract anniversary. Some also have available certain riders which increase liquidity in the event of confinement to a nursing home or if diagnosed with a terminal illness.
Tax deferred annuities provide you with a guaranteed income with a tax-deferred annuity. You have the ability to choose from several different income options, including payments for a specified number of years or income for life, no matter how long you live. With non-qualified plans, a portion of each income payment represents return of premium which is not taxed, thereby reducing your tax liability from your income payments.
Advantages of Tax-Deferred Annuities include tax deferral, stability, may avoid probate, liquidity features, and guaranteed income.
One of the primary advantages of deferred annuities is the opportunity to accumulate a substantial sum of money by allowing your premium and interest to grow tax-deferred. Unlike taxable investments, you pay no taxes on your annuity interest until you begin to take withdrawals or receive income. This allows your money to grow faster than in a taxable account, because you earn interest on the money that would have otherwise been paid in taxes.
Your tax-deferred annuity is stable and safe. State insurance department laws require insurance companies establish and maintain reserves equal to the cash surrender value of your annuity contract at all times. In addition, state laws require insurance companies maintain minimum amounts of capital and surplus for further contract owner protection.
Insurance companies invest your premium dollars in a diversity of investments that are closely regulated by the insurance departments. These long-term investments ensure the stability of the company and help to provide you with a competitive yield.
In the case of premature death, your beneficiaries have the accumulated funds within your annuity available to them, with most companies and may avoid the expense, delay and publicity of probate.
Most annuities provide you with opportunities to withdraw funds at any time (subject to applicable surrender charges). Most contracts allow some form penalty-free withdrawals after the first contract anniversary. Some also have available certain riders which increase liquidity in the event of confinement to a nursing home or if diagnosed with a terminal illness.
Tax deferred annuities provide you with a guaranteed income with a tax-deferred annuity. You have the ability to choose from several different income options, including payments for a specified number of years or income for life, no matter how long you live. With non-qualified plans, a portion of each income payment represents return of premium which is not taxed, thereby reducing your tax liability from your income payments.
Tax Incentives for Saving for Education
Recent statistics show Americans are simply not saving money for the future. To encourage savings, the government has come up with tax incentives.
Tax Incentives for Saving for Education
Higher education in America is an expensive proposition. If you have a child in college, I hardly need to tell you this. While every parent is proud of a child pursuing education, the glorious event can make for some sleepless night when thinking about how to pay for it. If you have young children, the government has taken steps to make saving for college attractive from a tax perspective.
There are a number of different tax incentives to promote saving for education. One such program is known as the Coverdell.
A Coverdell account is designed to promote education savings by removing part of the tax penalty of doing so. The basic idea is that any money distributed from the account will not be taxed so long as distributions don’t exceed the expenses of pursuing education. Here is how it works.
An account is set up for a beneficiary – the child. You can open one account per child and contribute up to $2,000 a year. The beneficiary must be under 18. Obviously, this is a long-term strategy since contribution amounts are limited. Nonetheless, here are some key things to understand:
1. Distributions are not taxed, but must be used for education costs such as tuition, books and so on.
2. The school can be public, private or religious and the money can be used as early as elementary school, to wit, this particular platform is not just for college.
3. You can use this strategy in addition to the hope and lifetime learning strategies, i.e., they don’t cancel each other out.
4. If distributions do not go to education expenses or are more than said costs, the beneficiary is taxed like income tax and a ten percent penalty is added.
5. If the beneficiary completes school or does not go, the account may be rolled over to another family member.
All and all, the Coverdell plan is definitely a long-term strategy. Start one now for your young child, however, and you will be happy you did when the tuition bills start arriving.
Tax Incentives for Saving for Education
Higher education in America is an expensive proposition. If you have a child in college, I hardly need to tell you this. While every parent is proud of a child pursuing education, the glorious event can make for some sleepless night when thinking about how to pay for it. If you have young children, the government has taken steps to make saving for college attractive from a tax perspective.
There are a number of different tax incentives to promote saving for education. One such program is known as the Coverdell.
A Coverdell account is designed to promote education savings by removing part of the tax penalty of doing so. The basic idea is that any money distributed from the account will not be taxed so long as distributions don’t exceed the expenses of pursuing education. Here is how it works.
An account is set up for a beneficiary – the child. You can open one account per child and contribute up to $2,000 a year. The beneficiary must be under 18. Obviously, this is a long-term strategy since contribution amounts are limited. Nonetheless, here are some key things to understand:
1. Distributions are not taxed, but must be used for education costs such as tuition, books and so on.
2. The school can be public, private or religious and the money can be used as early as elementary school, to wit, this particular platform is not just for college.
3. You can use this strategy in addition to the hope and lifetime learning strategies, i.e., they don’t cancel each other out.
4. If distributions do not go to education expenses or are more than said costs, the beneficiary is taxed like income tax and a ten percent penalty is added.
5. If the beneficiary completes school or does not go, the account may be rolled over to another family member.
All and all, the Coverdell plan is definitely a long-term strategy. Start one now for your young child, however, and you will be happy you did when the tuition bills start arriving.
Tax Issues for Self-Employed Individuals
The United States is a nation of entrepreneurs. There are literally tens of millions of self-employed individuals that enjoy pursuing their dream business. Of course, few of you enjoy the paperwork and confusing tax issues that arise from owning your own business.
Many self-employed individuals are considered "sole proprietors" or "independent contractors" for legal and tax purposes. This is true regardless of whether you are turning a hobby into a business, selling an indispensable widget or providing services to others. As a self-employed person, you report business revenue results on your personal income tax return. Following are a few guidelines and issues you should keep in mind if you are pursuing your entrepreneurial spirit.
Schedule C - Form 1040.
As a self-employed person, you are required to report your business profits or losses on Schedule C of Form 1040. The income earned through your business is taxable to you as an individual. This is true even if you do not withdraw any money from the business. While you are required to report your gross revenues, you are also allowed to deduct business expenses incurred in generating that revenue. If your business efforts result in a loss, the loss will generally be deductible against your total income from all sources, subject to special rules relating to whether your business is considered a hobby and whether you have anything "at risk."
Home-Based Business
Many self-employed individuals work out of their home and are entitled to deduct a percentage of certain home costs that are applicable to the portion of the home that is used as your office. This can include payments for utilities, telephone services, etc. You may also be eligible to claim these deductions if you perform administrative tasks from your home or store inventory there. If you work out of your home and have an additional office at another location, you also may be able to convert your commuting expenses between the two locations into deductible transportation expenses. Since most self-employed individuals find themselves working more than the traditional 40-hour week, there are a significant number of advantageous deductions that can be claimed. Unfortunately, we find that most self-employed individuals miss these deductions because they are unaware of them.
Self-Employment Taxes - The Bad News
A negative aspect to being self-employed is the self-employment tax. All salaried individuals are subject to automatic deductions from their paycheck including FICA, etc. In that many self-employed individuals often do not run a formal payroll for themselves, the government must recapture these taxes through the self-employment tax. Simply put, you are required to pay self-employment taxes at a rate of 15.3% on your net earnings up to $87,900 for 2004. For net income in excess of $87,900, you will pay further taxes at a rate of 2.9% on the excess.
In an interesting twist that reveals the confusing nature of the tax code, you are allowed a partial deduction for the self-employment tax. Simply put, you are allowed to deduct one-half of your self-employment taxes from your gross income. For example, if you pay $10,000 in self-employment taxes, you are allowed a deduction on your 1040 return of $5,000. Many self-employed individuals miss this deduction and pay more money to taxes than needed.
Health Insurance Deduction
This used to be a very messy area for self-employed individuals, to wit, you received little tax relief when it came to your health insurance bill. This was a particular burden for small business owners when considering the astronomical cost of health insurance. All of this has changed and you now may deduct 100% of your health insurance costs as a business expense.
No Withholding Tax
Unlike a salaried employee sitting in a cubicle, you are not subject to withholding tax on your paycheck. While this sounds great, you are required to make quarterly estimated tax payments. If you fail to make the payments, you are subject to a penalty, but the penalty is not the biggest concern. A potential and dangerous pitfall of being self-employed is failing to pay quarterly estimated taxes and then getting caught at the end of the year without sufficient funds to pay your taxes. The IRS is not going to be happy if you fail to pay your taxes and you will suffer the consequences in the form of penalties and interest. Making sure you pay quarterly estimated taxes helps avoid this situation and it is highly recommended that you follow this course of action.
Record Keeping
You must maintain complete records of all business income and expenses. Simply put, document everything.Create a filing system for each month and file every receipt, etc. All business travel expenses must be documented, including auto mileage you incur when performing business tasks. Office supply stores sell business mileage books that you can keep in your car and use whenever you travel. If you have any doubt about documenting something, just do it!
In Closing
As a self-employed individual, your focus and time is spent on making your business successful. Your focus is not on the complexities of the tax code and how to limit the amount of taxes you owe. If any of the information in this article is new to you, then it is highly likely you have paid far more in taxes than required.
Many self-employed individuals are considered "sole proprietors" or "independent contractors" for legal and tax purposes. This is true regardless of whether you are turning a hobby into a business, selling an indispensable widget or providing services to others. As a self-employed person, you report business revenue results on your personal income tax return. Following are a few guidelines and issues you should keep in mind if you are pursuing your entrepreneurial spirit.
Schedule C - Form 1040.
As a self-employed person, you are required to report your business profits or losses on Schedule C of Form 1040. The income earned through your business is taxable to you as an individual. This is true even if you do not withdraw any money from the business. While you are required to report your gross revenues, you are also allowed to deduct business expenses incurred in generating that revenue. If your business efforts result in a loss, the loss will generally be deductible against your total income from all sources, subject to special rules relating to whether your business is considered a hobby and whether you have anything "at risk."
Home-Based Business
Many self-employed individuals work out of their home and are entitled to deduct a percentage of certain home costs that are applicable to the portion of the home that is used as your office. This can include payments for utilities, telephone services, etc. You may also be eligible to claim these deductions if you perform administrative tasks from your home or store inventory there. If you work out of your home and have an additional office at another location, you also may be able to convert your commuting expenses between the two locations into deductible transportation expenses. Since most self-employed individuals find themselves working more than the traditional 40-hour week, there are a significant number of advantageous deductions that can be claimed. Unfortunately, we find that most self-employed individuals miss these deductions because they are unaware of them.
Self-Employment Taxes - The Bad News
A negative aspect to being self-employed is the self-employment tax. All salaried individuals are subject to automatic deductions from their paycheck including FICA, etc. In that many self-employed individuals often do not run a formal payroll for themselves, the government must recapture these taxes through the self-employment tax. Simply put, you are required to pay self-employment taxes at a rate of 15.3% on your net earnings up to $87,900 for 2004. For net income in excess of $87,900, you will pay further taxes at a rate of 2.9% on the excess.
In an interesting twist that reveals the confusing nature of the tax code, you are allowed a partial deduction for the self-employment tax. Simply put, you are allowed to deduct one-half of your self-employment taxes from your gross income. For example, if you pay $10,000 in self-employment taxes, you are allowed a deduction on your 1040 return of $5,000. Many self-employed individuals miss this deduction and pay more money to taxes than needed.
Health Insurance Deduction
This used to be a very messy area for self-employed individuals, to wit, you received little tax relief when it came to your health insurance bill. This was a particular burden for small business owners when considering the astronomical cost of health insurance. All of this has changed and you now may deduct 100% of your health insurance costs as a business expense.
No Withholding Tax
Unlike a salaried employee sitting in a cubicle, you are not subject to withholding tax on your paycheck. While this sounds great, you are required to make quarterly estimated tax payments. If you fail to make the payments, you are subject to a penalty, but the penalty is not the biggest concern. A potential and dangerous pitfall of being self-employed is failing to pay quarterly estimated taxes and then getting caught at the end of the year without sufficient funds to pay your taxes. The IRS is not going to be happy if you fail to pay your taxes and you will suffer the consequences in the form of penalties and interest. Making sure you pay quarterly estimated taxes helps avoid this situation and it is highly recommended that you follow this course of action.
Record Keeping
You must maintain complete records of all business income and expenses. Simply put, document everything.Create a filing system for each month and file every receipt, etc. All business travel expenses must be documented, including auto mileage you incur when performing business tasks. Office supply stores sell business mileage books that you can keep in your car and use whenever you travel. If you have any doubt about documenting something, just do it!
In Closing
As a self-employed individual, your focus and time is spent on making your business successful. Your focus is not on the complexities of the tax code and how to limit the amount of taxes you owe. If any of the information in this article is new to you, then it is highly likely you have paid far more in taxes than required.
Tax Return Forms
According to federal laws governing taxation, any person, receiving an income in one form or the other, need to pay income taxes to the government annually. But, the job of preparing tax returns, the calculations and the many tax forms involved, constitute one of the harrowing experiences being an honest tax payer. To make matters worse, the complexity of calculations increases with the income. That is, more the income, more complex will be associated tax calculations and also the number of tax forms involved. This article focuses on the last of the facts mentioned, the tax forms, especially 1040ez, 1040a, and 1040.
The first step in the run-up to tax return submission is selecting the right form. The basic of the tax forms is the 1040 – also 1040ez and 1040a – which has to be appropriately filled by every person filing tax returns in any case. It is meant for all kinds of income, over $100,000 annually, and also for itemizing deductions when not opting for standard deductions. 1040ez, again a basic tax form, on the other hand is meant for people who are single or when married, jointly. The conditions governing the 1040ez form are, the tax payees must not have any dependents, not blind, age less than 65, and have an annual earned income (taxable) less than $100,000 with an earned interest not more than $1,500, and have non-itemized deductions. Finally, the form 1040a is for those who have an income less than $100,000 annually, but with itemized deductions.
The stickiest part with tax preparation in fact is the right selection of the tax forms. Boy! It can be really confusing. To make matters worse, most of the people, they start thinking about tax returns only in the 13th hour, all warnings and ads by the tax department not withstanding. Some even end up paying the fine for delayed tax returns. But, none of these last minute heroic acts is ever going to give any respite to the person as far as the ordeal waiting for them is concerned, if not compounding it further. Here, one simply cannot afford to go wrong in the selection of tax forms and filling it. An error anywhere – in the type of form (1040ez or 1040a or 1040) or the data incorporated - could lead to other complexities such as an unprecedented delay in tax refunds or even a fresh request to pay the income taxes from the tax department to clear the confusion.
Hence, considering such possibilities, it is advisable that if anyone is confused regarding the tax forms to use or with tax calculations, don’t hesitate to consult a tax specialist. They could help you with the tax calculations and the selection of the right form and documents (of course, they’ll take a pay for the service). On a general perspective, however, it is only advantageous to remain educated about taxation’s various dimensions and requirements. A professional could extend the much needed assistance, but it is always on a safer side for the individual himself/herself to be aware of the basic rules regarding taxation. Let’s not take everything for granted!
Another plus with acquiring enough knowledge about the different dimensions of tax preparation and the tax forms - 1040ez, 1040a, or 1040 – is that then he/she could easily and safely shift to tax preparation software like TurboTax that are easily available in the internet to complete the formalities. TurboTax software is accurate, easy and simple to use, and what all you need to do is to first download the tax preparation software on your PC, and then provide the figures the computer asks of you. However, it is very important that the right figures be provided to the Turbo Tax software always so that there are no mistakes that may arise in the 1040a, 1040ez, or 1040 forms, when all the calculations are finished.
One could get the tax forms - 1040ez, 1040a, or 1040 – from IRS or public library.
Make sure that you fill it out properly and include all the required documents before submitting it to the authorities. Ensure your signature on it and also the social security number without any errors. A misquoted SSN could cause lots of difficulties, both for the tax payer and the tax authorities.
The first step in the run-up to tax return submission is selecting the right form. The basic of the tax forms is the 1040 – also 1040ez and 1040a – which has to be appropriately filled by every person filing tax returns in any case. It is meant for all kinds of income, over $100,000 annually, and also for itemizing deductions when not opting for standard deductions. 1040ez, again a basic tax form, on the other hand is meant for people who are single or when married, jointly. The conditions governing the 1040ez form are, the tax payees must not have any dependents, not blind, age less than 65, and have an annual earned income (taxable) less than $100,000 with an earned interest not more than $1,500, and have non-itemized deductions. Finally, the form 1040a is for those who have an income less than $100,000 annually, but with itemized deductions.
The stickiest part with tax preparation in fact is the right selection of the tax forms. Boy! It can be really confusing. To make matters worse, most of the people, they start thinking about tax returns only in the 13th hour, all warnings and ads by the tax department not withstanding. Some even end up paying the fine for delayed tax returns. But, none of these last minute heroic acts is ever going to give any respite to the person as far as the ordeal waiting for them is concerned, if not compounding it further. Here, one simply cannot afford to go wrong in the selection of tax forms and filling it. An error anywhere – in the type of form (1040ez or 1040a or 1040) or the data incorporated - could lead to other complexities such as an unprecedented delay in tax refunds or even a fresh request to pay the income taxes from the tax department to clear the confusion.
Hence, considering such possibilities, it is advisable that if anyone is confused regarding the tax forms to use or with tax calculations, don’t hesitate to consult a tax specialist. They could help you with the tax calculations and the selection of the right form and documents (of course, they’ll take a pay for the service). On a general perspective, however, it is only advantageous to remain educated about taxation’s various dimensions and requirements. A professional could extend the much needed assistance, but it is always on a safer side for the individual himself/herself to be aware of the basic rules regarding taxation. Let’s not take everything for granted!
Another plus with acquiring enough knowledge about the different dimensions of tax preparation and the tax forms - 1040ez, 1040a, or 1040 – is that then he/she could easily and safely shift to tax preparation software like TurboTax that are easily available in the internet to complete the formalities. TurboTax software is accurate, easy and simple to use, and what all you need to do is to first download the tax preparation software on your PC, and then provide the figures the computer asks of you. However, it is very important that the right figures be provided to the Turbo Tax software always so that there are no mistakes that may arise in the 1040a, 1040ez, or 1040 forms, when all the calculations are finished.
One could get the tax forms - 1040ez, 1040a, or 1040 – from IRS or public library.
Make sure that you fill it out properly and include all the required documents before submitting it to the authorities. Ensure your signature on it and also the social security number without any errors. A misquoted SSN could cause lots of difficulties, both for the tax payer and the tax authorities.
Tax Returns - 7 Steps To Reduce Your Stress
The end of year tax return must be the most stressful part of running your own business. It is even worse if you have earnings abroad and have to fill in tax returns from those countries as well.
How can you make life easier?
1. Start an accounts system. This can be in a hardbck ruled ledger that you can buy from any stationery store.
2. Keep receipts for everything. Enter these into your accounts once a week, or once a month
3. Enter any payments made to you in your accounts system as soon as you get them.
4. Look at the different software accounts packages. You will learn to use whatever package you buy, but try to avoid the over complex ones in the first instance. If you are comfortable with using spreadsheets and cell formulae you could keep your accounts in a spreadsheet program.
5. Open the tax return envelope as soon as it comes. Putting it off does not help. Check all the sheets you need are there. Download or send off for any missing sheets.
6. Aim to have your tax return filled in well ahead of the final deadline. That way the IRS or other government revenue department will check your figures and work out how much you owe them. This causes much less stress than having to do it yourself and worrying whether you have the calculation right.
7. As an alternative to steps 3-6, you can employ an accountant. You can pay the accountant to fill in your tax return and to do your accounts for you. The amount you will pay will depend on the amount of work involved. If you just take in a box of receipts and deposit slips you can only expect to pay a higher fee than the person who presents the accountant with neatly filed receipts and accounts.
How can you make life easier?
1. Start an accounts system. This can be in a hardbck ruled ledger that you can buy from any stationery store.
2. Keep receipts for everything. Enter these into your accounts once a week, or once a month
3. Enter any payments made to you in your accounts system as soon as you get them.
4. Look at the different software accounts packages. You will learn to use whatever package you buy, but try to avoid the over complex ones in the first instance. If you are comfortable with using spreadsheets and cell formulae you could keep your accounts in a spreadsheet program.
5. Open the tax return envelope as soon as it comes. Putting it off does not help. Check all the sheets you need are there. Download or send off for any missing sheets.
6. Aim to have your tax return filled in well ahead of the final deadline. That way the IRS or other government revenue department will check your figures and work out how much you owe them. This causes much less stress than having to do it yourself and worrying whether you have the calculation right.
7. As an alternative to steps 3-6, you can employ an accountant. You can pay the accountant to fill in your tax return and to do your accounts for you. The amount you will pay will depend on the amount of work involved. If you just take in a box of receipts and deposit slips you can only expect to pay a higher fee than the person who presents the accountant with neatly filed receipts and accounts.
Tax Returns for the Deceased
Two things in life are certain – death and taxes. Here’s what to do if the two are combined as far as filing a tax return.
Tax Returns for the Deceased
If a person dies, their finances are immediately converted into something called an estate. The estate is then responsible for filing a tax return covering the finances including income and distributions to heirs and beneficiaries. However, a final personal tax return must still be filed for the deceased.
The final personal tax return for the deceased is known as Form 1040. Yep, you file the same tax form as you would for any personal tax return. It is hard to believe the IRS passed up an opportunity to create another form, but there you go. Miracles do happen.
When determining the income and taxes due for a person who passes away, the date of death is the cutoff. All income earned before that date for the year goes on the personal tax return. All income earned after death is the responsibility of the estate and will be reported on the estate tax return.
As to deductions, there is good news. Regardless of the time of the year when the grim event occurs, you can claim the full deduction for the year and any other expenses that occur prior to death. Put another way, you don’t have to calculate any ratios based on the number of months that have passed. If someone passes away in February, you still get the full write-offs for the rest of the year.
When a person passes away, an executor or trustee will be in charge of their estate. The exact designation depends on what type of estate planning they did. Nonetheless, this person will sign the tax return and note the person is deceased. This should take care of everything with the IRS excluding the estate tax return.
What happens if the deceased is due a tax refund? In such a situation, the IRS will not just kick out a refund unless the deceased was married. If married, the refund is sent to the spouse. If not, you must file a Form 1310 to get the refund. This form basically says you are claiming the refund, have the right to do so and absolve the IRS of any involvement in subsequent disputes.
Tax Returns for the Deceased
If a person dies, their finances are immediately converted into something called an estate. The estate is then responsible for filing a tax return covering the finances including income and distributions to heirs and beneficiaries. However, a final personal tax return must still be filed for the deceased.
The final personal tax return for the deceased is known as Form 1040. Yep, you file the same tax form as you would for any personal tax return. It is hard to believe the IRS passed up an opportunity to create another form, but there you go. Miracles do happen.
When determining the income and taxes due for a person who passes away, the date of death is the cutoff. All income earned before that date for the year goes on the personal tax return. All income earned after death is the responsibility of the estate and will be reported on the estate tax return.
As to deductions, there is good news. Regardless of the time of the year when the grim event occurs, you can claim the full deduction for the year and any other expenses that occur prior to death. Put another way, you don’t have to calculate any ratios based on the number of months that have passed. If someone passes away in February, you still get the full write-offs for the rest of the year.
When a person passes away, an executor or trustee will be in charge of their estate. The exact designation depends on what type of estate planning they did. Nonetheless, this person will sign the tax return and note the person is deceased. This should take care of everything with the IRS excluding the estate tax return.
What happens if the deceased is due a tax refund? In such a situation, the IRS will not just kick out a refund unless the deceased was married. If married, the refund is sent to the spouse. If not, you must file a Form 1310 to get the refund. This form basically says you are claiming the refund, have the right to do so and absolve the IRS of any involvement in subsequent disputes.
Tax Season - Time for Scams
As tax season draws irresistibly closer, the scam artists are polishing their latest techniques. This article should help you keep an eye out for these nasty individuals.
Tax Season – Time for Scams
In a particularly cheeky move, scam artists have started posing in on form or another as the IRS in an effort to get you to turn over social security numbers and such. Logically, this actually makes sense. Everyone is terrified by the IRS and dread be contacted by the Agency. Most of us would do anything to resolve any issue raised by an IRS Agent including sending them copies of credit card statements and providing crucial financial information over the phone. Put another way, this is the perfect scenario for a scam artists.
The goal of scam artists, of course, is to get private information they can use to open credit card accounts and so on. This is loosely known as phishing for the purpose of identity theft.
Phishing and identify theft can occur through practically any communication method. Here are some recent scams that were successful:
1. One group of scam artists started sending spam emails notifying taxpayers they were eligible for tax refunds. The scam worked because the emails were sent from IRS types of email accounts including the irs letters in the address. Taxpayers were then told to go to click through to a site where they could fill out a form and get their refund. Of course, the email address and web site were fakes. Nobody got a refund, but the scam artists received a bevy of social security numbers, credit card information and so on. In total, this scam occurred through 12 different web sites in 11 countries.
2. This one is a classic. Scam artists send bogus IRS letters and Form W-8BEN asking non-residents to provide personal information including bank account numbers, PINs, passport numbers and so on. Form W-8BEN is used by banks, not the IRS, to obtain information from non-residents who are opening bank accounts! Unfortunately, many non-residents fell for this scam and had their identities stolen.
There are a couple of guidelines you can use when dealing with IRS communications. First, the IRS never, ever sends email to taxpayers. NEVER! If you get an email communication, it is absolutely a scam. Delete it or send it to the IRS so they can take action.
If you receive mail communications from the IRS, call the agency to verify a letter was really sent to you. With phone call communications, get the persons name and call them back at the IRS. Both methods will stop scam artists in their tracks. Be skeptical of communications you receive from sources you are not expecting.
Finally, the IRS never asks a taxpayer for passwords or PIN numbers. If the agency desires to seize your bank account, they can just do it. They don’t need to take out $300 a day until your tax debt is collected!
Scam artists are highly creative people. If you have doubts about an communication of the IRS, pick up the phone and call the agency.
Tax Season – Time for Scams
In a particularly cheeky move, scam artists have started posing in on form or another as the IRS in an effort to get you to turn over social security numbers and such. Logically, this actually makes sense. Everyone is terrified by the IRS and dread be contacted by the Agency. Most of us would do anything to resolve any issue raised by an IRS Agent including sending them copies of credit card statements and providing crucial financial information over the phone. Put another way, this is the perfect scenario for a scam artists.
The goal of scam artists, of course, is to get private information they can use to open credit card accounts and so on. This is loosely known as phishing for the purpose of identity theft.
Phishing and identify theft can occur through practically any communication method. Here are some recent scams that were successful:
1. One group of scam artists started sending spam emails notifying taxpayers they were eligible for tax refunds. The scam worked because the emails were sent from IRS types of email accounts including the irs letters in the address. Taxpayers were then told to go to click through to a site where they could fill out a form and get their refund. Of course, the email address and web site were fakes. Nobody got a refund, but the scam artists received a bevy of social security numbers, credit card information and so on. In total, this scam occurred through 12 different web sites in 11 countries.
2. This one is a classic. Scam artists send bogus IRS letters and Form W-8BEN asking non-residents to provide personal information including bank account numbers, PINs, passport numbers and so on. Form W-8BEN is used by banks, not the IRS, to obtain information from non-residents who are opening bank accounts! Unfortunately, many non-residents fell for this scam and had their identities stolen.
There are a couple of guidelines you can use when dealing with IRS communications. First, the IRS never, ever sends email to taxpayers. NEVER! If you get an email communication, it is absolutely a scam. Delete it or send it to the IRS so they can take action.
If you receive mail communications from the IRS, call the agency to verify a letter was really sent to you. With phone call communications, get the persons name and call them back at the IRS. Both methods will stop scam artists in their tracks. Be skeptical of communications you receive from sources you are not expecting.
Finally, the IRS never asks a taxpayer for passwords or PIN numbers. If the agency desires to seize your bank account, they can just do it. They don’t need to take out $300 a day until your tax debt is collected!
Scam artists are highly creative people. If you have doubts about an communication of the IRS, pick up the phone and call the agency.
The Role Of A Tax Collector
The County Tax Collector is as independent government agency and is elected for a four-year term in the Presidential election year. It is essential that a County Tax Collector is independent to ensure that it can serve the taxpayers, local businesses and local and state agencies correctly.
The duties of a County Tax Collector are:
• Collecting property taxes for every local government agency with the power to levy taxes
• Serving the state as an agent for the Department of Highway Safety and Motor Vehicles, the Department of Environmental Protection, the Department of Revenue and others
• Managing local revenue programs, such as issuing occupational licenses and collecting tourist development taxes
The County Tax Collector is a vital link between the citizens and the diverse programs that affect them and they have the authority and resources to manage both state and local revenue programs.
A County Tax Collector can have collections and distributions of billions of dollars annually. Handling this requires conveniently located offices, skilled employees, and innovative data systems to ensure that the County Tax Collector functions efficiently and, most importantly, works accurately.
Even though the revenues collected by the County Tax Collector are mostly taxes, the County Tax Collector is not funded from tax dollars but is a fee office. The fees collected for the services provided by the County Tax Collector are used to fund the operating budget, which is approved by the State’s Department of Revenue. Unfortunately, the work volume of a County Tax Collector, along with cost-effective operations, normally results in fee revenues that are well in excess of the budget. The excess fees are returned to the local government agencies in proportion to the amount they pay by the County Tax Collector so that they receive tax collection services at the lowest possible cost.
Amongst other issues, the County Tax Collector bills and collects real and personal property taxes for the Department of Revenue. The actual amount of the tax is based on the assessed value of the property and the mileage rate, which is set by various taxing authorities. They also issue state motor vehicle licenses and processes applications for titles on automobiles, trucks, mobile homes, and boats on behalf of the Department of Highway Safety and Motor Vehicles.
Most tax personnel have some form of Municipal Tax Collector Qualification that is sponsored by local government services. This is because a tax collector has many legal obligations and financial responsibilities that must be met in a timely manner. Achieving the status of Qualified Tax Collector indicates that an individual has proven his or her competence, knowledge and professionalism in the field.
The duties of a County Tax Collector are:
• Collecting property taxes for every local government agency with the power to levy taxes
• Serving the state as an agent for the Department of Highway Safety and Motor Vehicles, the Department of Environmental Protection, the Department of Revenue and others
• Managing local revenue programs, such as issuing occupational licenses and collecting tourist development taxes
The County Tax Collector is a vital link between the citizens and the diverse programs that affect them and they have the authority and resources to manage both state and local revenue programs.
A County Tax Collector can have collections and distributions of billions of dollars annually. Handling this requires conveniently located offices, skilled employees, and innovative data systems to ensure that the County Tax Collector functions efficiently and, most importantly, works accurately.
Even though the revenues collected by the County Tax Collector are mostly taxes, the County Tax Collector is not funded from tax dollars but is a fee office. The fees collected for the services provided by the County Tax Collector are used to fund the operating budget, which is approved by the State’s Department of Revenue. Unfortunately, the work volume of a County Tax Collector, along with cost-effective operations, normally results in fee revenues that are well in excess of the budget. The excess fees are returned to the local government agencies in proportion to the amount they pay by the County Tax Collector so that they receive tax collection services at the lowest possible cost.
Amongst other issues, the County Tax Collector bills and collects real and personal property taxes for the Department of Revenue. The actual amount of the tax is based on the assessed value of the property and the mileage rate, which is set by various taxing authorities. They also issue state motor vehicle licenses and processes applications for titles on automobiles, trucks, mobile homes, and boats on behalf of the Department of Highway Safety and Motor Vehicles.
Most tax personnel have some form of Municipal Tax Collector Qualification that is sponsored by local government services. This is because a tax collector has many legal obligations and financial responsibilities that must be met in a timely manner. Achieving the status of Qualified Tax Collector indicates that an individual has proven his or her competence, knowledge and professionalism in the field.
The Legalities And Issues With An IRS Levy
An IRS levy is an order from the Internal Revenue Security directing TVA to withhold a specified amount of an employee’s pay to satisfy a tax debt. If the IRS determines that we owe back tax then it may issue an IRS levy requiring the deductions from the pay till the back taxes are paid. They may ask the person to sign an agreement of consent authorizing the amount to be deducted. The IRS levy can allow an amount to be exempt from withholding based on the employee’s tax filing and the number of exemptions claimed.
A legal step taken by Internal Revenue System to seize anyone’s property in order to satisfy his debt is IRS levy. They are different from liens. Lien is just a claim used as security for tax debt whereas in IRS levy they actually take the property to do so. If one cannot make arrangements to settle the debts then the IRS seizes or sells any type of personal or real property which one possesses. For example, the IRS can seize and sell property like boats, houses, cars, etc. Even they can levy property that is actually the debtors’ but is help by someone else like the wages wit the employee, balance at the bank account, license, rental income, etc.
An IRS levy is issued only when he requirements are met. The first condition is when IRS sends a notice or demand for the payment of the tax assessed by them. Secondly, when the person refuses or neglects to pay the tax and lastly when a final notice of Intent to Levy i.e. a legal notice of IRS levy is sent 30 days before the levy. A person receives one more notice with this notice known as Notice of Your Rights to Hearing. These notices can be given anywhere at our business place, at home or can be registered with the return receipt.
One may ask the IRS to review the case or can even request to Office of Appeals by filing a request to the IRS officer listed in our notice. This request filing should be done within 30 days of the receipt of the IRS levy notice.
When the IRS levy, levy our wages, salary or bank account, the levy ends when it is released or when on e pays the tax debt or at the expiry of the time of legal collection of tax. When the IRS levy, levies the bank account, the bank holds the funds in deposit for 21 days. This time is given as the relaxation period to solve the problem at hand. After 21 days, the bank sends the money to the IRS along with the interest, if applicable, to the IRS.
If IRS makes any mistake, like while levying bank account, the bank charges are borne by the debtor. In such a condition one is entitled to have the reimbursement for such charges. For this reimbursement one has to file a claim to the IRS within one year after the bank has claimed the charges.
There are two different types of IRS levy programs. One is FPLP i.e. Federal Payment Levy program and the other is SITLP, which is State Income Tax Levy Program. Under the FPLP, the IRS may levy money from the federal payments received like Social Security benefits, retirement from the Office of Personnel Management, federal employee’s salaries, etc. FPLP electronic levies the federal payments made through Department of Treasury, Financial Management services. When these agencies levy through FPLP, they take 15% from each of the payments till the account is resolved. One can call IRS employee for assistance if he is already working with them.
Under the SITLP, IR levies the state tax refund. This implies to individual state tax refunds only. Inclusion of business tax refunds in the future is under consideration. If the state tax refund is levied, the state issues a notice of advice about the levy. If one receives an advice, legally, for the Rights of Hearing then this IRS notice of advising is not issued.
A legal step taken by Internal Revenue System to seize anyone’s property in order to satisfy his debt is IRS levy. They are different from liens. Lien is just a claim used as security for tax debt whereas in IRS levy they actually take the property to do so. If one cannot make arrangements to settle the debts then the IRS seizes or sells any type of personal or real property which one possesses. For example, the IRS can seize and sell property like boats, houses, cars, etc. Even they can levy property that is actually the debtors’ but is help by someone else like the wages wit the employee, balance at the bank account, license, rental income, etc.
An IRS levy is issued only when he requirements are met. The first condition is when IRS sends a notice or demand for the payment of the tax assessed by them. Secondly, when the person refuses or neglects to pay the tax and lastly when a final notice of Intent to Levy i.e. a legal notice of IRS levy is sent 30 days before the levy. A person receives one more notice with this notice known as Notice of Your Rights to Hearing. These notices can be given anywhere at our business place, at home or can be registered with the return receipt.
One may ask the IRS to review the case or can even request to Office of Appeals by filing a request to the IRS officer listed in our notice. This request filing should be done within 30 days of the receipt of the IRS levy notice.
When the IRS levy, levy our wages, salary or bank account, the levy ends when it is released or when on e pays the tax debt or at the expiry of the time of legal collection of tax. When the IRS levy, levies the bank account, the bank holds the funds in deposit for 21 days. This time is given as the relaxation period to solve the problem at hand. After 21 days, the bank sends the money to the IRS along with the interest, if applicable, to the IRS.
If IRS makes any mistake, like while levying bank account, the bank charges are borne by the debtor. In such a condition one is entitled to have the reimbursement for such charges. For this reimbursement one has to file a claim to the IRS within one year after the bank has claimed the charges.
There are two different types of IRS levy programs. One is FPLP i.e. Federal Payment Levy program and the other is SITLP, which is State Income Tax Levy Program. Under the FPLP, the IRS may levy money from the federal payments received like Social Security benefits, retirement from the Office of Personnel Management, federal employee’s salaries, etc. FPLP electronic levies the federal payments made through Department of Treasury, Financial Management services. When these agencies levy through FPLP, they take 15% from each of the payments till the account is resolved. One can call IRS employee for assistance if he is already working with them.
Under the SITLP, IR levies the state tax refund. This implies to individual state tax refunds only. Inclusion of business tax refunds in the future is under consideration. If the state tax refund is levied, the state issues a notice of advice about the levy. If one receives an advice, legally, for the Rights of Hearing then this IRS notice of advising is not issued.
Three Dumbest LLC Formation Mistakes
I see a lot of dumb llc formation mistakes. Maybe more than most people because I occasionally teach a graduate tax class on LLC formation.
Some of the mistakes are made by entrepreneurs and investors trying to save money on accountants and attorney fees. And I guess that’s okay--albeit penny-wise and pound-foolish.
But you know what really irks me? Some of these mistakes—in fact, most of them—are made by attorneys and paralegal services… Professionals who should know better.
But enough whining. Without further fanfare, here are the three dumbest mistakes that I see people make again, and again, and again.
Mistake #1: Forgetting about Foreign LLC Registration Rules
Read those tempting advertisements for Delaware or Nevada limited liability companies? The advertisements sound pretty good, but most small businesses shouldn’t use out-of-state llcs or for that matter out-of-state corporations.
Here’s why: If you’re doing in business in, say, New York, you’re not going to be able to avoid state taxes by forming your llc in, say, Nevada. The tax and corporation laws in your state will require you to register your out-of-state, or foreign, llc in the states where your business operates. Those same laws will require you to pay state income taxes in the states where you earn your income.
A couple more quick points: Large businesses do like Delaware for a variety of reasons—mostly having to with how sophisticated the Delaware chancellery courts are. But this applies to really big businesses that will litigate in Delaware—not small businesses. And Nevada does offer corporations a no-income-tax haven—but you need to set up a real business presence there, with an office, employees, property—the whole enchilada.
Mistake #2: Electing to be Treated as a C Corporation
An llc is a chameleon for tax purposes. Which is great. An llc with a single owner can be treated as a sole proprietorship, a C corporation or an S corporation (assuming eligibility requirements are met.) An llc with multiple owners can be treated as a partnership, a C corporation or an S corporation (again, assuming eligibility requirements are met.)
But just because you can do something doesn’t mean you should. And unless you’ve got expert tax advice from an attorney or certified public accountant, you shouldn’t make the election to be treated as a C corporation.
A C corporation is taxed on its profits. When those profits are distributed to shareholders, the profits are taxed again to the shareholders. By electing to be taxed as a C corporation, then, the llc owners create an extra level of taxation. Bummer.
Mistake #3: Electing to be Treated as an S Corporation Too Early
Llcs can also elect to be treated as S corporations—as noted in the preceding paragraphs. And once a business generates profits well in excess of the amounts paid to owners for salaries, an S corporation election saves the owners big money--sometimes tens of thousands of dollars per owner per year.
But you don’t want to elect S corporation status too early--especially if the llc is owned and operated by a single owner.
By electing S corporation status, the llc needs to file an expensive corporate return, needs to begin doing payroll--even if the only employee is the owner, and may need to pay additional payroll taxes like the 6.2% federal unemployment tax. (This tax is levied on the first $7,000 of wages paid to each employee.)
Wait until your business is profitable to elect S status for your llc. You patience will pay off in two ways: simpler accounting and less expensive tax returns.
Some of the mistakes are made by entrepreneurs and investors trying to save money on accountants and attorney fees. And I guess that’s okay--albeit penny-wise and pound-foolish.
But you know what really irks me? Some of these mistakes—in fact, most of them—are made by attorneys and paralegal services… Professionals who should know better.
But enough whining. Without further fanfare, here are the three dumbest mistakes that I see people make again, and again, and again.
Mistake #1: Forgetting about Foreign LLC Registration Rules
Read those tempting advertisements for Delaware or Nevada limited liability companies? The advertisements sound pretty good, but most small businesses shouldn’t use out-of-state llcs or for that matter out-of-state corporations.
Here’s why: If you’re doing in business in, say, New York, you’re not going to be able to avoid state taxes by forming your llc in, say, Nevada. The tax and corporation laws in your state will require you to register your out-of-state, or foreign, llc in the states where your business operates. Those same laws will require you to pay state income taxes in the states where you earn your income.
A couple more quick points: Large businesses do like Delaware for a variety of reasons—mostly having to with how sophisticated the Delaware chancellery courts are. But this applies to really big businesses that will litigate in Delaware—not small businesses. And Nevada does offer corporations a no-income-tax haven—but you need to set up a real business presence there, with an office, employees, property—the whole enchilada.
Mistake #2: Electing to be Treated as a C Corporation
An llc is a chameleon for tax purposes. Which is great. An llc with a single owner can be treated as a sole proprietorship, a C corporation or an S corporation (assuming eligibility requirements are met.) An llc with multiple owners can be treated as a partnership, a C corporation or an S corporation (again, assuming eligibility requirements are met.)
But just because you can do something doesn’t mean you should. And unless you’ve got expert tax advice from an attorney or certified public accountant, you shouldn’t make the election to be treated as a C corporation.
A C corporation is taxed on its profits. When those profits are distributed to shareholders, the profits are taxed again to the shareholders. By electing to be taxed as a C corporation, then, the llc owners create an extra level of taxation. Bummer.
Mistake #3: Electing to be Treated as an S Corporation Too Early
Llcs can also elect to be treated as S corporations—as noted in the preceding paragraphs. And once a business generates profits well in excess of the amounts paid to owners for salaries, an S corporation election saves the owners big money--sometimes tens of thousands of dollars per owner per year.
But you don’t want to elect S corporation status too early--especially if the llc is owned and operated by a single owner.
By electing S corporation status, the llc needs to file an expensive corporate return, needs to begin doing payroll--even if the only employee is the owner, and may need to pay additional payroll taxes like the 6.2% federal unemployment tax. (This tax is levied on the first $7,000 of wages paid to each employee.)
Wait until your business is profitable to elect S status for your llc. You patience will pay off in two ways: simpler accounting and less expensive tax returns.
The Tax Payer as Gilligan
Let’s all sing a new version to the tune of the 60’s sitcom “Gilligan’s Island” …
“Just sit right back and you'll hear a tale, a tale of mishandled use; that started with our nation’s past to form a fiscal noose. The tax was a mighty hurtin’ vice, our wallets paid the price; working hard to pay our share, it’s not always fair, it’s not always fair. The economy started heating up, so the Fed put on the breaks; if not for the courage of the consumer’s purse, things could’ve been ‘lot worse. The yields hit bottom as we turned our focus to the source of political fate; with deficits, the Speaker too, the President and his wife, those movie stars, the terrorists and Al Greenspan; here and in every state.”
(The opening credits fade and the scene is one we have all experienced) …
The relationship between the tax payer and our government is a source of constant and sometimes entertaining debate. Like Gilligan, the tax payer may feel “slapped around” and unappreciated by a larger, yet necessary, entity. In this analogy, the Skipper represents our government. The decisions made by our elected officials and others of higher political rank may contradict our own opinions. What is the consequence of slapstick government spending and how does it affect you?
When it comes to the nation’s monetary policy, the Federal Reserve Bank (a.k.a. the Fed) manipulates the supply of money. It adopts a tight monetary policy when the goal is to restrict the supply of money and an easy monetary policy when the goal is to circulate more money. A tight policy may occur during times of inflationary concerns whereas an easy policy may occur to encourage business expansion.
Here’s where the laughter dies and we conclude there is no escape from the island.
The government has several methods to increase money supply and many reasons to do so. Keep in mind, the reasons are generally non-partisan and no one political party is to blame. One such reason, however, is to patch problems caused by government overspending.
When the government is unwilling to act prudently with its expenditures, their bills must still be paid. And when raising taxes is an unpopular alternative (as if anyone is ever happy to accept higher tax rates), printing money may become the default action. Now, if you, a simple citizen of the United States, cannot pay your bills, printing money is not an option. Such acts will land you on a metal bed in a shared cage we all call incarceration. Polite conversations with your spouse and friends will be substituted with arguments from your cellmate named “T-Bone” regarding the use of one shared toilet. But, the government will print money to compensate for its overspending. It then spends the new money and supply increases.
The joke is now on the hard working citizens of the United States and its set-up is familiar: “The government and a U.S. citizen walk into a tavern. The government points to the citizen and proclaims to all the patrons ‘the drinks are on this guy!’ Afterwards, the government finds a new citizen or tax payer and continues the trend.”
In reality, the joke is on us all in the form of inflation. Simply described, with a greater supply of money, the dollar will be worth less than before. Once the purchasing power of the dollar declines, fewer goods and services can be purchased. Inevitably, consumers experience higher prices. The economy seemingly has more dollars but loses its purchasing power. A new character named “Inflation” finds its way onto our island. And when this occurs, we hope it will only be around for a couple of episodes.
It is important to note, not all prices and wages correlate with periods of inflation. Inflation may result in higher or lower levels of output and employment depending on the sector and type of goods or services. Some may benefit from higher inflation. The effects of inflation often include redistribution of wealth and income, changes in relative prices, and some saving restrictions for important goals such as retirement.
The inflation rate is measured by the Bureau of Labor Statistics (BLS) using the Consumer Price Index (CPI). Today, the inflation rate is about 3.5%. So how long should we expect to live on this low inflation island? This is a difficult question to answer considering it is impossible to calculate inflation going out several years from today. During the past decade, however, we have experienced low to moderate inflation. Still, according to the BLS inflation calculator, $1000 in 1995 has the same buying power as $1258.53 in 2005. Remember early 1979 through late 1981 when inflation rates hovered around 10 percent to almost 15 percent. According to the same BLS inflation calculator, $1000 in 1979 now has the same buying power as $2641.87 in 2005.
It is arguably the uncertainty of inflation that causes the most damage. Preparing for increases in the cost of living is an important aspect to financial planning. Your financial planner can assist you in reviewing inflation trends, introducing inflation adjusted estimates for future income needs, managing tax efficient portfolios, and keeping an eye on government actions. While you cannot control the weather of our economy, preparing your S.S. Minnow for potential rough sailing is important.
(As this episode ends and the closing credits roll, we rejoin the final verse of our amended Gilligan’s Island tune) …
“So this is the tale of our inflation rates, they're here for a long, long time. You’ll have to make the best of things, it's an uphill climb. Our law makers and bureaucrats will try their very best, to make the nation comfortable, with a fiscal mess. No rights, no wrongs, no benefits, not a single guaranty, like generations before yours now, it's challenging as can be. So join us here each year my friend, you're sure to pay your share; with every worker and our government, we make a solid pair.”
“Just sit right back and you'll hear a tale, a tale of mishandled use; that started with our nation’s past to form a fiscal noose. The tax was a mighty hurtin’ vice, our wallets paid the price; working hard to pay our share, it’s not always fair, it’s not always fair. The economy started heating up, so the Fed put on the breaks; if not for the courage of the consumer’s purse, things could’ve been ‘lot worse. The yields hit bottom as we turned our focus to the source of political fate; with deficits, the Speaker too, the President and his wife, those movie stars, the terrorists and Al Greenspan; here and in every state.”
(The opening credits fade and the scene is one we have all experienced) …
The relationship between the tax payer and our government is a source of constant and sometimes entertaining debate. Like Gilligan, the tax payer may feel “slapped around” and unappreciated by a larger, yet necessary, entity. In this analogy, the Skipper represents our government. The decisions made by our elected officials and others of higher political rank may contradict our own opinions. What is the consequence of slapstick government spending and how does it affect you?
When it comes to the nation’s monetary policy, the Federal Reserve Bank (a.k.a. the Fed) manipulates the supply of money. It adopts a tight monetary policy when the goal is to restrict the supply of money and an easy monetary policy when the goal is to circulate more money. A tight policy may occur during times of inflationary concerns whereas an easy policy may occur to encourage business expansion.
Here’s where the laughter dies and we conclude there is no escape from the island.
The government has several methods to increase money supply and many reasons to do so. Keep in mind, the reasons are generally non-partisan and no one political party is to blame. One such reason, however, is to patch problems caused by government overspending.
When the government is unwilling to act prudently with its expenditures, their bills must still be paid. And when raising taxes is an unpopular alternative (as if anyone is ever happy to accept higher tax rates), printing money may become the default action. Now, if you, a simple citizen of the United States, cannot pay your bills, printing money is not an option. Such acts will land you on a metal bed in a shared cage we all call incarceration. Polite conversations with your spouse and friends will be substituted with arguments from your cellmate named “T-Bone” regarding the use of one shared toilet. But, the government will print money to compensate for its overspending. It then spends the new money and supply increases.
The joke is now on the hard working citizens of the United States and its set-up is familiar: “The government and a U.S. citizen walk into a tavern. The government points to the citizen and proclaims to all the patrons ‘the drinks are on this guy!’ Afterwards, the government finds a new citizen or tax payer and continues the trend.”
In reality, the joke is on us all in the form of inflation. Simply described, with a greater supply of money, the dollar will be worth less than before. Once the purchasing power of the dollar declines, fewer goods and services can be purchased. Inevitably, consumers experience higher prices. The economy seemingly has more dollars but loses its purchasing power. A new character named “Inflation” finds its way onto our island. And when this occurs, we hope it will only be around for a couple of episodes.
It is important to note, not all prices and wages correlate with periods of inflation. Inflation may result in higher or lower levels of output and employment depending on the sector and type of goods or services. Some may benefit from higher inflation. The effects of inflation often include redistribution of wealth and income, changes in relative prices, and some saving restrictions for important goals such as retirement.
The inflation rate is measured by the Bureau of Labor Statistics (BLS) using the Consumer Price Index (CPI). Today, the inflation rate is about 3.5%. So how long should we expect to live on this low inflation island? This is a difficult question to answer considering it is impossible to calculate inflation going out several years from today. During the past decade, however, we have experienced low to moderate inflation. Still, according to the BLS inflation calculator, $1000 in 1995 has the same buying power as $1258.53 in 2005. Remember early 1979 through late 1981 when inflation rates hovered around 10 percent to almost 15 percent. According to the same BLS inflation calculator, $1000 in 1979 now has the same buying power as $2641.87 in 2005.
It is arguably the uncertainty of inflation that causes the most damage. Preparing for increases in the cost of living is an important aspect to financial planning. Your financial planner can assist you in reviewing inflation trends, introducing inflation adjusted estimates for future income needs, managing tax efficient portfolios, and keeping an eye on government actions. While you cannot control the weather of our economy, preparing your S.S. Minnow for potential rough sailing is important.
(As this episode ends and the closing credits roll, we rejoin the final verse of our amended Gilligan’s Island tune) …
“So this is the tale of our inflation rates, they're here for a long, long time. You’ll have to make the best of things, it's an uphill climb. Our law makers and bureaucrats will try their very best, to make the nation comfortable, with a fiscal mess. No rights, no wrongs, no benefits, not a single guaranty, like generations before yours now, it's challenging as can be. So join us here each year my friend, you're sure to pay your share; with every worker and our government, we make a solid pair.”
The Ultimate Tax Planning Strategy
The taxes that are withheld from paychecks amount to about 25% of your gross pay (including federal tax, state tax, social security tax and medicare tax). But these taxes that are withheld could be working for you as investments if you employ what I call the ultimate tax strategy. This tax strategy consists of how you plan to pay no taxes just like all of the large corporations. Large businesses have teams of accountants and lawyers going over the tax code to make maximum use of legitimate deductions.
In my opinion, there is a distinct difference between an individual and a business in the U.S. tax code (others have called it the difference between the rich and the poor). Such as businesses are rewarded with tax deductions because they create jobs and engage in entrepreneurial activities that support individuals and government. But individuals are awarded few tax breaks because they don’t create jobs and don’t take risks that add substantial value to the economy. This is simply the fact and we just need to find a way to make the most of the few tax deductions that are available to wage earners as well.
When tax time comes around, the only substantial tax break most individuals have is a deduction for their home mortgage. This deduction is a social policy benefit to many people, but instead of helping people, it can motivate them to buy a larger home or higher mortgage than they would ordinarily afford. And unless you live in a neighborhood that continually appreciates, this is not a great strategy for you to target.
First, I need to make some big disclaimers about minimizing your taxes. There are many people in jail that have written books, tapes, websites and held seminars on how to never pay taxes. You can spot these people due to their focus on concepts that the IRS says are invalid; strained interpretations that haven’t held up in court, constitutional nonsense and a lot of straight fraud. Once the IRS audits these “patriotic educators”, the result is an invoice for back taxes, interest, penalties, and a jail or prison sentence. And illegal tax avoidance isn’t limited to wage earners. Nearly every month there is someone who tried to avoid taxes from a giant windfall (sold a company for millions, exercised stock options, received a large bonus) and paid some small shady offshore consulting company to create a fictitious tax loss to offset the big gain. The same thing happens; IRS files suit for back taxes, interest, penalties and possibly jail depending on the circumstances.
The ultimate tax planning strategy works when you buy investments that have a positive cash flow (before any tax consequences), and give you a legitimate tax deduction as an added bonus. Now it is just a matter of buying enough of these investments to reduce your tax liabilities close to zero. If you have too much of these investments, the IRS limits tax loss carry-forwards, and you may end up losing them.
The two legitimate deductions that I want to mention are real estate depreciation and oil well depletion. You are buying something that is going to put money in your pocket (or a very high probability of success), and because it is in alignment with government policy, they give you a tax deduction to take this risk.
To figure out how much of a deduction that you need, start with your 1040 federal tax form. Add together the Standard Deduction (which is around $3,000) and your itemized deductions from Schedule A. The difference between the number that you just calculated and your actual Adjusted Gross Income is the amount of depreciation you need to acquire for the ultimate tax strategy.
Investment real estate depreciation is calculated over 29.5 years right now, so take the amount of depreciation that you need and multiply it by 29.5 to calculate the purchase price you need to buy. (Note that depreciation is limited to $25,000 per year unless you meet the IRS qualifications as a real estate professional. The taxing authorities don’t like wage earners taking these types of deductions so there are many limits on them, including the Alternative Minimum Tax, to block you from taking excessive deductions).
Now even if you aren’t able to buy enough tax deductible investments to get your taxable income all the way down to zero, any investment that meets the IRS rules for a deduction, and is a positive cash flow investment, will increase your net worth, reduce your taxes and thus create more money available to you to spend or invest.
In my opinion, there is a distinct difference between an individual and a business in the U.S. tax code (others have called it the difference between the rich and the poor). Such as businesses are rewarded with tax deductions because they create jobs and engage in entrepreneurial activities that support individuals and government. But individuals are awarded few tax breaks because they don’t create jobs and don’t take risks that add substantial value to the economy. This is simply the fact and we just need to find a way to make the most of the few tax deductions that are available to wage earners as well.
When tax time comes around, the only substantial tax break most individuals have is a deduction for their home mortgage. This deduction is a social policy benefit to many people, but instead of helping people, it can motivate them to buy a larger home or higher mortgage than they would ordinarily afford. And unless you live in a neighborhood that continually appreciates, this is not a great strategy for you to target.
First, I need to make some big disclaimers about minimizing your taxes. There are many people in jail that have written books, tapes, websites and held seminars on how to never pay taxes. You can spot these people due to their focus on concepts that the IRS says are invalid; strained interpretations that haven’t held up in court, constitutional nonsense and a lot of straight fraud. Once the IRS audits these “patriotic educators”, the result is an invoice for back taxes, interest, penalties, and a jail or prison sentence. And illegal tax avoidance isn’t limited to wage earners. Nearly every month there is someone who tried to avoid taxes from a giant windfall (sold a company for millions, exercised stock options, received a large bonus) and paid some small shady offshore consulting company to create a fictitious tax loss to offset the big gain. The same thing happens; IRS files suit for back taxes, interest, penalties and possibly jail depending on the circumstances.
The ultimate tax planning strategy works when you buy investments that have a positive cash flow (before any tax consequences), and give you a legitimate tax deduction as an added bonus. Now it is just a matter of buying enough of these investments to reduce your tax liabilities close to zero. If you have too much of these investments, the IRS limits tax loss carry-forwards, and you may end up losing them.
The two legitimate deductions that I want to mention are real estate depreciation and oil well depletion. You are buying something that is going to put money in your pocket (or a very high probability of success), and because it is in alignment with government policy, they give you a tax deduction to take this risk.
To figure out how much of a deduction that you need, start with your 1040 federal tax form. Add together the Standard Deduction (which is around $3,000) and your itemized deductions from Schedule A. The difference between the number that you just calculated and your actual Adjusted Gross Income is the amount of depreciation you need to acquire for the ultimate tax strategy.
Investment real estate depreciation is calculated over 29.5 years right now, so take the amount of depreciation that you need and multiply it by 29.5 to calculate the purchase price you need to buy. (Note that depreciation is limited to $25,000 per year unless you meet the IRS qualifications as a real estate professional. The taxing authorities don’t like wage earners taking these types of deductions so there are many limits on them, including the Alternative Minimum Tax, to block you from taking excessive deductions).
Now even if you aren’t able to buy enough tax deductible investments to get your taxable income all the way down to zero, any investment that meets the IRS rules for a deduction, and is a positive cash flow investment, will increase your net worth, reduce your taxes and thus create more money available to you to spend or invest.
The Skinny on 1031 Exchange: Maximizing Profits by Minimizing your Tax Liability
A 1031 exchange refers to Section 1.1031 of the Internal Revenue Code which was passed in 1990. Normally, when you sell all real and personal property, the tax code requires the payment of the Capital Gains Tax. That is to say, when you sell your office for $100,000 more than you bought it for, you must pay the gains upon those earnings. However, after the passing of a 1031 Exchange that is no longer necessarily the case.
What types of Property Qualify?
A 1031 Exchange allows sellers of some real and personal property the opportunity to avoid paying capital gains taxes (which are 15% plus state taxes) by “exchanging” their sold property for newly purchased property. However, certain restrictions apply. The most important restriction is that only business property and investment property applies. So, an exchange under a purely residential home does not qualify, whereas exchanging a property that your business has used for its office, or even one used simply for investment diversification does.
But simply selling your office isn’t enough to qualify you for a 1031 exchange. Rather, the code also requires that that you simultaneously buy a property of “like-kind.” This does not mean that if you are selling a 2000 sq. ft. office you must buy a 2000 sq. ft office. Rather, the term is interpreted very loosely to mean virtually any real estate held for productive use in a business or for investment, whether improved or unimproved can be exchanged for any other property to be used for productive business or investment purposes. So, if you sell and unimproved lot of land and purchase an improved one or visa versa, this still qualifies, just as selling industrial property and buying rental resort property does. The point here is that while “like-kind” is an important restriction, it has been interpreted so broadly as to give individuals a lot of free reign.
The Exchange
When most owners envision a 1031 exchange they envision a provision whereby they must buy and sell the two properties on the same week or even the same day. But that is not the case. A tax-deferred 1031 exchange allows up to 180 calendar days between the sale of the first property and the purchase of the second. But no matter the time between sale and purchase, a 1031 exchange is required by the Internal Revenue code to have a “qualified intermediary” to manage the exchange.
A Qualified Intermediary
The requirement of a qualified intermediary is intended primarily to prevent individuals engaged in the exchange from using the time in between the sale and purchase of property to their financial gain. Although the seller has up to 45 days to set up the intermediary, the exchange is designed so that the seller should not profit from the use of the money before the purchase of the new property is made. An intermediary serves the judicial purpose of ensuring this. But it is important to remember that the qualified intermediary charges fee for this. While these services can vary in cost depending on the additional advisory services provided by the Intermediary, individuals interested in a 1031 exchange should expect to pay somewhere in the vicinity of $500 to $700 for the first exchange and $200 to $400 for each additional property.
What types of Property Qualify?
A 1031 Exchange allows sellers of some real and personal property the opportunity to avoid paying capital gains taxes (which are 15% plus state taxes) by “exchanging” their sold property for newly purchased property. However, certain restrictions apply. The most important restriction is that only business property and investment property applies. So, an exchange under a purely residential home does not qualify, whereas exchanging a property that your business has used for its office, or even one used simply for investment diversification does.
But simply selling your office isn’t enough to qualify you for a 1031 exchange. Rather, the code also requires that that you simultaneously buy a property of “like-kind.” This does not mean that if you are selling a 2000 sq. ft. office you must buy a 2000 sq. ft office. Rather, the term is interpreted very loosely to mean virtually any real estate held for productive use in a business or for investment, whether improved or unimproved can be exchanged for any other property to be used for productive business or investment purposes. So, if you sell and unimproved lot of land and purchase an improved one or visa versa, this still qualifies, just as selling industrial property and buying rental resort property does. The point here is that while “like-kind” is an important restriction, it has been interpreted so broadly as to give individuals a lot of free reign.
The Exchange
When most owners envision a 1031 exchange they envision a provision whereby they must buy and sell the two properties on the same week or even the same day. But that is not the case. A tax-deferred 1031 exchange allows up to 180 calendar days between the sale of the first property and the purchase of the second. But no matter the time between sale and purchase, a 1031 exchange is required by the Internal Revenue code to have a “qualified intermediary” to manage the exchange.
A Qualified Intermediary
The requirement of a qualified intermediary is intended primarily to prevent individuals engaged in the exchange from using the time in between the sale and purchase of property to their financial gain. Although the seller has up to 45 days to set up the intermediary, the exchange is designed so that the seller should not profit from the use of the money before the purchase of the new property is made. An intermediary serves the judicial purpose of ensuring this. But it is important to remember that the qualified intermediary charges fee for this. While these services can vary in cost depending on the additional advisory services provided by the Intermediary, individuals interested in a 1031 exchange should expect to pay somewhere in the vicinity of $500 to $700 for the first exchange and $200 to $400 for each additional property.
What Does It Take To Pay Zero Taxes?
How many times have you heard someone say, "I don't pay any taxes. My accountant takes real good care of me . . . I haven't paid a dime in taxes in years."
Does that outrageous statement sound familiar?
Maybe it's your brother-in-law, or a fellow Soccer Mom, or a co-worker at the office.
And so you think to yourself, "What am I doing wrong? How come I'm paying taxes and so-and-so says he/she pays nothing? How do they do it!"
Is it really possible to pay "zero taxes"?
For purposes of this article, let's give your "no-tax" friend or relative a name. Let's call him "Charlie" (or if he is a she, just think "Charlene").
OK, what is Charlie up to? What's his secret?
Charlie has no secret. He's not doing anything that you should be doing. Do not be envious of Charlie, and here's why . . .
I can think of at least five reasons you should ignore whatever Charlie says about his "no-tax" situation.
REASON #1: Charlie is a liar. Every family has one, so don't feel bad. Let's face it, some people just like to indulge in fabrications to make themselves feel good. Charlie is telling you a big fat lie because Charlie has "issues." 'Nuff said?
REASON #2: Charlie is pond scum. OK, hear me out on this one. I don't mean to offend you if Charlie is a close and dear relative, or your best friend, but I'm going to give it to you straight: Charlie cheats on his tax return, and he cheats big time. There are plenty of folks out there like Charlie. He's one of the reasons that you and I pay so much in taxes -- he doesn't report all his income, and he deducts bogus expenses by the thousands.
He and his accountant may even be in cahoots on this. Charlie brings in his records and his accountant crunches the numbers, then calls Charlie and says, "You owe $5,000." So Charlie rummages around in his files and somehow manages to come up with another batch of expenses that miraculously
reduce his balance due to zero. It's like magic!
End result: Charlie's tax return is a big lie.
Charlie is a thief. Charlie should be put in jail for the tens of thousands in taxes he has illegally withheld from the government over the years.
REASON #3: Charlie is stupid. Again, I'm sorry if I'm being too hard on Charlie. But some people are so clueless about taxes that if they have no balance due on their return, or if they are getting a refund, they mistakenly believe they didn't pay any tax that year.
And believe it or not, this is actually a very common misconception that thousands of people cling to. Ah, to be so blissfully ignorant!
I hope you are not so naive to think that the "bottom line" on your tax return tells the whole story about your tax liability. It doesn't.
REASON #4: Charlie is broke. Charlie may actually pay zero taxes because --are you ready for this one? -- Charlie doesn't make any money!
Charlie owns a small business or works full-time at his self-employment activity, and Charlie may rake in hundreds of thousands in income from sales of his product or service -- but Charlie's business spends more than it brings in, and Charlie's business has a loss every year.
So Charlie doesn't really have a tax problem. Instead Charlie has any number of other problems. He has a marketing problem, or a management problem, or a personnel problem. Charlie's business is failing, and paying zero taxes is just a symptom of a business that will eventually close.
REASON #5: Charlie is just scraping by. Charlie's business may not be losing money every year, but it's not really making much either. He has a small profit -- enough to keep him busy. His business may even "look" profitable, but it's really the classic shoestring operation.
So now, I ask you, do you really want to pay zero taxes? People who don't pay taxes are usually in one of these five categories: Chronic Liars, Pond Scum, Stupid, Broke, or Just Scraping By.
The purpose of business is to be profitable.
The unavoidable result of a profitable business is taxes. And yes, you should do everything legally possible to reduce those taxes. But if you are going to be successful, you are going to pay some taxes.
When it comes to taxes, stay away from Charlie.
Does that outrageous statement sound familiar?
Maybe it's your brother-in-law, or a fellow Soccer Mom, or a co-worker at the office.
And so you think to yourself, "What am I doing wrong? How come I'm paying taxes and so-and-so says he/she pays nothing? How do they do it!"
Is it really possible to pay "zero taxes"?
For purposes of this article, let's give your "no-tax" friend or relative a name. Let's call him "Charlie" (or if he is a she, just think "Charlene").
OK, what is Charlie up to? What's his secret?
Charlie has no secret. He's not doing anything that you should be doing. Do not be envious of Charlie, and here's why . . .
I can think of at least five reasons you should ignore whatever Charlie says about his "no-tax" situation.
REASON #1: Charlie is a liar. Every family has one, so don't feel bad. Let's face it, some people just like to indulge in fabrications to make themselves feel good. Charlie is telling you a big fat lie because Charlie has "issues." 'Nuff said?
REASON #2: Charlie is pond scum. OK, hear me out on this one. I don't mean to offend you if Charlie is a close and dear relative, or your best friend, but I'm going to give it to you straight: Charlie cheats on his tax return, and he cheats big time. There are plenty of folks out there like Charlie. He's one of the reasons that you and I pay so much in taxes -- he doesn't report all his income, and he deducts bogus expenses by the thousands.
He and his accountant may even be in cahoots on this. Charlie brings in his records and his accountant crunches the numbers, then calls Charlie and says, "You owe $5,000." So Charlie rummages around in his files and somehow manages to come up with another batch of expenses that miraculously
reduce his balance due to zero. It's like magic!
End result: Charlie's tax return is a big lie.
Charlie is a thief. Charlie should be put in jail for the tens of thousands in taxes he has illegally withheld from the government over the years.
REASON #3: Charlie is stupid. Again, I'm sorry if I'm being too hard on Charlie. But some people are so clueless about taxes that if they have no balance due on their return, or if they are getting a refund, they mistakenly believe they didn't pay any tax that year.
And believe it or not, this is actually a very common misconception that thousands of people cling to. Ah, to be so blissfully ignorant!
I hope you are not so naive to think that the "bottom line" on your tax return tells the whole story about your tax liability. It doesn't.
REASON #4: Charlie is broke. Charlie may actually pay zero taxes because --are you ready for this one? -- Charlie doesn't make any money!
Charlie owns a small business or works full-time at his self-employment activity, and Charlie may rake in hundreds of thousands in income from sales of his product or service -- but Charlie's business spends more than it brings in, and Charlie's business has a loss every year.
So Charlie doesn't really have a tax problem. Instead Charlie has any number of other problems. He has a marketing problem, or a management problem, or a personnel problem. Charlie's business is failing, and paying zero taxes is just a symptom of a business that will eventually close.
REASON #5: Charlie is just scraping by. Charlie's business may not be losing money every year, but it's not really making much either. He has a small profit -- enough to keep him busy. His business may even "look" profitable, but it's really the classic shoestring operation.
So now, I ask you, do you really want to pay zero taxes? People who don't pay taxes are usually in one of these five categories: Chronic Liars, Pond Scum, Stupid, Broke, or Just Scraping By.
The purpose of business is to be profitable.
The unavoidable result of a profitable business is taxes. And yes, you should do everything legally possible to reduce those taxes. But if you are going to be successful, you are going to pay some taxes.
When it comes to taxes, stay away from Charlie.
What You Really Need To Know About Nanny Tax
If you are considering hiring a nanny to care for your children then there are a few important considerations about nanny tax which you need to take into account. Read on to find out more.
When it comes to hiring a nanny one of the most important considerations will be the expense. Whilst having a nanny may seem like the best solution to your childcare needs, if you cannot meet the monthly expense it is an option which quickly becomes invalid. You would be forgiven for initially thinking that the weekly expense quoted in most of the articles and advice you find about nanny hire represents the amount of money you need to budget for. In fact, most of the information out there discusses net wage and fails to mention that as the parent of the child you also have to pay tax on top of the usual quoted figure. So what do you need to know about this nanny tax?
• What you need to pay – When you hire a full-time nanny you will need to pay the following:
1. National Insurance Contributions
2. Income tax
3. An Employer's National Insurance Contribution
• When to pay - If your nanny is earning over £97 per week you have a legal obligation to pay national insurance contributions, income tax and an employer’s national insurance contribution. You must set up and operate a PAYE scheme, keep a payroll, produce yearly accounts of all payments and declare your nanny’s wage to the Inland Revenue.
• What happens if you don’t pay – As paying nanny tax and national insurance contributions is a legal requirement, you are breaking the law if you fail to do so. The consequence of not paying nanny tax may be a hefty fine.
• How to go about paying – The first step to sorting out your nanny tax is to register as an employer at the tax office. Then many people choose to hire the services of a specialist payroll service to sort out the PAYE scheme, national insurance contributions and also provide them with invaluable employment advice. These specialist companies make the whole process less painful for the employer.
When it comes to hiring a nanny one of the most important considerations will be the expense. Whilst having a nanny may seem like the best solution to your childcare needs, if you cannot meet the monthly expense it is an option which quickly becomes invalid. You would be forgiven for initially thinking that the weekly expense quoted in most of the articles and advice you find about nanny hire represents the amount of money you need to budget for. In fact, most of the information out there discusses net wage and fails to mention that as the parent of the child you also have to pay tax on top of the usual quoted figure. So what do you need to know about this nanny tax?
• What you need to pay – When you hire a full-time nanny you will need to pay the following:
1. National Insurance Contributions
2. Income tax
3. An Employer's National Insurance Contribution
• When to pay - If your nanny is earning over £97 per week you have a legal obligation to pay national insurance contributions, income tax and an employer’s national insurance contribution. You must set up and operate a PAYE scheme, keep a payroll, produce yearly accounts of all payments and declare your nanny’s wage to the Inland Revenue.
• What happens if you don’t pay – As paying nanny tax and national insurance contributions is a legal requirement, you are breaking the law if you fail to do so. The consequence of not paying nanny tax may be a hefty fine.
• How to go about paying – The first step to sorting out your nanny tax is to register as an employer at the tax office. Then many people choose to hire the services of a specialist payroll service to sort out the PAYE scheme, national insurance contributions and also provide them with invaluable employment advice. These specialist companies make the whole process less painful for the employer.
When Tax Day Comes Four Times A Year
For more than 10 million Americans, tax day comes up to four times a year. Many small business owners, as well as people earning income from investments, rental property or alimony, are often required to pay quarterly estimated taxes every April, June, September and January.
Many filers struggle to determine how much they owe, or worse, forget to make payments altogether-a costly mistake when underpayment typically results in additional penalties and fines.
"Paying estimated taxes is a real hassle," says Matt Hammond, a Tustin, California-based commercial real estate broker. "Having to account for things like safe-harbor computations, percentages and special rules that apply can be complicated. In addition, just remembering to send my payment on time is difficult and then I worry if it got there." Last year, Hammond was one of the taxpayers whose payment to the IRS ended up at the bottom of San Francisco Bay when a truck carrying 30,000 tax documents and payments tipped over.
Fortunately, there are ways to make filing "quarterlies" easier. For instance, a new online service from the makers of TurboTax fully automates estimated tax calculations and payment.
TurboTax Estimated Taxes can help eliminate the headaches and hassle associated with making estimated tax payments. The online service features a calculator to determine how much to pay, quarterly e-mail reminders and online record keeping, so tax-time surprises are a thing of the past.
In addition, the service electronically files payments and provides confirmation from the IRS-meaning filers like Hammond may get some peace of mind.
Many filers struggle to determine how much they owe, or worse, forget to make payments altogether-a costly mistake when underpayment typically results in additional penalties and fines.
"Paying estimated taxes is a real hassle," says Matt Hammond, a Tustin, California-based commercial real estate broker. "Having to account for things like safe-harbor computations, percentages and special rules that apply can be complicated. In addition, just remembering to send my payment on time is difficult and then I worry if it got there." Last year, Hammond was one of the taxpayers whose payment to the IRS ended up at the bottom of San Francisco Bay when a truck carrying 30,000 tax documents and payments tipped over.
Fortunately, there are ways to make filing "quarterlies" easier. For instance, a new online service from the makers of TurboTax fully automates estimated tax calculations and payment.
TurboTax Estimated Taxes can help eliminate the headaches and hassle associated with making estimated tax payments. The online service features a calculator to determine how much to pay, quarterly e-mail reminders and online record keeping, so tax-time surprises are a thing of the past.
In addition, the service electronically files payments and provides confirmation from the IRS-meaning filers like Hammond may get some peace of mind.
Monday, February 16, 2009
2,000,000 more FairTaxers?
If you get the feeling that our national figures are panicked and just guessing about what will work—you are not alone.
Many experts say that the combination of flooding the economy with newly-printed money and borrowing trillions of dollars may do more harm than good.
In stark contrast, the FairTax is not guesswork but based on solid economic research. This "big solution" will jump-start our economy, create jobs and get investment moving again—all without massive, destructive borrowing against our children's future earnings.
As a FairTax supporter, you already understand this and probably agree that we have much more to do.
Full-page newspaper ads in our largest cities will help.
Our challenge is not the merits of the FairTax plan but the politics—politics driven by public opinion. Help us change the politics by bringing the FairTax message to our fellow citizens. The more funds we raise, the more ads we'll run, and the more citizens and officials we'll reach. That's exactly how this "bandwagon" gets rolling.
Can you help us get the word out to over 2,000,000 fellow citizens, policy makers, and elected officials?
You see, newspapers, even the biggest papers, are struggling and full-page ads are on sale. This is the moment for the FairTax to be seen by millions—just when our idea is most needed. Can you help run our full-page "Jumper Cables" ad (shown to the right here) in the Los Angeles Times, Chicago Tribune and New York Times? By placing these, we'll reach more than 2,000,000 people with our FairTax message during this pivotal moment in history.
The time to make our mark for the FairTax is now. Americans must hear that there is a better way to unshackle our economy. Our ad is simple and straightforward. We don't list every virtue of the FairTax—just enough to make citizens, lawmakers and business leaders follow up with interest. That's the step we need right now.
This is a dangerous time for our nation. Things could get much worse for all of us. Leadership must come from us in hometown America.
We're working hard to save our future. Could our efforts be more important or more needed than right now?
Please help us as generously as you can now when America needs the FairTax so much. Thank you for all that you do to make the FairTax come true.
Sincerely,
Ken Hoagland
National Communications Director
If you would prefer sending a check or credit card contribution by mail, please download and print our contribution form here.
Many experts say that the combination of flooding the economy with newly-printed money and borrowing trillions of dollars may do more harm than good.
In stark contrast, the FairTax is not guesswork but based on solid economic research. This "big solution" will jump-start our economy, create jobs and get investment moving again—all without massive, destructive borrowing against our children's future earnings.
As a FairTax supporter, you already understand this and probably agree that we have much more to do.
Full-page newspaper ads in our largest cities will help.
Our challenge is not the merits of the FairTax plan but the politics—politics driven by public opinion. Help us change the politics by bringing the FairTax message to our fellow citizens. The more funds we raise, the more ads we'll run, and the more citizens and officials we'll reach. That's exactly how this "bandwagon" gets rolling.
Can you help us get the word out to over 2,000,000 fellow citizens, policy makers, and elected officials?
You see, newspapers, even the biggest papers, are struggling and full-page ads are on sale. This is the moment for the FairTax to be seen by millions—just when our idea is most needed. Can you help run our full-page "Jumper Cables" ad (shown to the right here) in the Los Angeles Times, Chicago Tribune and New York Times? By placing these, we'll reach more than 2,000,000 people with our FairTax message during this pivotal moment in history.
The time to make our mark for the FairTax is now. Americans must hear that there is a better way to unshackle our economy. Our ad is simple and straightforward. We don't list every virtue of the FairTax—just enough to make citizens, lawmakers and business leaders follow up with interest. That's the step we need right now.
This is a dangerous time for our nation. Things could get much worse for all of us. Leadership must come from us in hometown America.
We're working hard to save our future. Could our efforts be more important or more needed than right now?
Please help us as generously as you can now when America needs the FairTax so much. Thank you for all that you do to make the FairTax come true.
Sincerely,
Ken Hoagland
National Communications Director
If you would prefer sending a check or credit card contribution by mail, please download and print our contribution form here.
Sunday, February 8, 2009
Early Distributions From Retirement Plans
An early distribution from an Individual Retirement Arrangement (IRA) or a qualified retirement plan need not be a “taxing” experience. Fortunately, there are exceptions to early distributions.
Any payment that you receive from your IRA or qualified retirement plan before you reach age 59½ is normally called an “early” or “premature” distribution. As such, these funds are subject to an additional 10 percent tax. But there are a number of exceptions to the age 59½ rule that you should investigate if you make such a withdrawal. Some of these exceptions apply only to IRAs, some only to qualified retirement plans, and some to both. IRS Publications 575, Pensions and Annuities, and 590, Individual Retirement Arrangements (IRAs), have details.
In addition to the 10 percent tax on early distributions, you will add to your regular taxable income any distributions attributable to “elective deferrals” that you contributed from your pay, your employer’s contribution and any income earned on all contributions to the account. If you made any nondeductible contributions, their portion of the distribution is not taxed, since you’ve already paid tax on this amount.
There is a way to avoid paying any tax on early distributions, however. It is called a “rollover.” Generally, a rollover is a tax-free transfer of cash or other assets from an IRA or qualified retirement plan to an eligible retirement plan. An eligible retirement plan is a traditional IRA, a qualified retirement plan, or a qualified annuity plan. You must complete the rollover within 60 days of when you received the distribution. The amount you roll over is generally taxed when the new plan pays you or your beneficiary.
If the early distribution from an employer’s plan is paid directly to you, your plan administrator will normally withhold income tax at a 20 percent rate. If you roll over the distribution to a new plan, you must replace that 20 percent of the funds that were withheld and deposit that amount in the new plan or you will owe taxes on that amount. To avoid the inconvenience of this withholding, you can have your old plan’s administrator transfer the rollover amount directly to the new plan or a traditional IRA.
All early distributions must be reported to the IRS. You will report tax-free rollovers on lines 15a and 16a of Form 1040 along with any taxable distributions, but you will enter on line 15b or 16b only the taxable amounts you don’t roll over.
Early distributions from retirement plans can involve complex tax issues. Make sure you understand the issues or get competent tax advice.
Any payment that you receive from your IRA or qualified retirement plan before you reach age 59½ is normally called an “early” or “premature” distribution. As such, these funds are subject to an additional 10 percent tax. But there are a number of exceptions to the age 59½ rule that you should investigate if you make such a withdrawal. Some of these exceptions apply only to IRAs, some only to qualified retirement plans, and some to both. IRS Publications 575, Pensions and Annuities, and 590, Individual Retirement Arrangements (IRAs), have details.
In addition to the 10 percent tax on early distributions, you will add to your regular taxable income any distributions attributable to “elective deferrals” that you contributed from your pay, your employer’s contribution and any income earned on all contributions to the account. If you made any nondeductible contributions, their portion of the distribution is not taxed, since you’ve already paid tax on this amount.
There is a way to avoid paying any tax on early distributions, however. It is called a “rollover.” Generally, a rollover is a tax-free transfer of cash or other assets from an IRA or qualified retirement plan to an eligible retirement plan. An eligible retirement plan is a traditional IRA, a qualified retirement plan, or a qualified annuity plan. You must complete the rollover within 60 days of when you received the distribution. The amount you roll over is generally taxed when the new plan pays you or your beneficiary.
If the early distribution from an employer’s plan is paid directly to you, your plan administrator will normally withhold income tax at a 20 percent rate. If you roll over the distribution to a new plan, you must replace that 20 percent of the funds that were withheld and deposit that amount in the new plan or you will owe taxes on that amount. To avoid the inconvenience of this withholding, you can have your old plan’s administrator transfer the rollover amount directly to the new plan or a traditional IRA.
All early distributions must be reported to the IRS. You will report tax-free rollovers on lines 15a and 16a of Form 1040 along with any taxable distributions, but you will enter on line 15b or 16b only the taxable amounts you don’t roll over.
Early distributions from retirement plans can involve complex tax issues. Make sure you understand the issues or get competent tax advice.
Helping Working Families with the Earned Income Tax Credit
In the past, clients of NORWESCAP's Family Self-Sufficiency program in Morris County, NJ have used the tax return they received through the Earned Income Tax Credit (EITC) for a down payment on a car, a security deposit on an apartment or to pay debts, said Penny Olson, the program's director.
For clients of Homeless Solutions, which provides affordable and transitional housing, the prospect of a large tax return can make a significant difference, executive director Elizabeth Hall said.
Those agencies are part of an effort to encourage low-income working residents to ask about the EITC when they file their taxes. The earned income tax credit is supposed to help low-income working families, but over the years it has been clear many eligible workers don't apply for it.
The Earned Income Tax Credit is for working families with incomes less than $37,263. If eligible, they may receive money back from the Internal Revenue Service (IRS) even if they don't owe taxes - but they must file a tax return. The EITC is above and beyond any amount the families get from the child tax credit, which is a maximum of $1,000 per child and is aimed mainly at middle income households.
Across the nation, about 21 million people claimed the credit last year, pulling in $39 billion, according to the IRS. Although only about 75 percent of eligible filers claimed their due, the federal program - which was created in 1975 under President Ford and later expanded under Presidents Reagan and Clinton - has eclipsed welfare as the main source of cash assistance for low-income families.
To help out, the IRS has set up something called the EITC Assistant on its Web site to provide information, eligibility worksheets and explanations of the credit.
A variety of organizations sponsor Volunteer Income Tax Assistance (VITA) sites in their communities to prepare tax returns for those who cannot prepare their own yet cannot afford professional help.
In concert with the IRS e-file program, whose goal it is to receive 80% of all tax returns electronically, www.Taxhead.com is encouraging low-income and first-time tax filers to try eFile in 2009 (filing 2008 tax returns).
An executive from Taxhead.com said, "We are trying to reach those persons that qualify for the earned income tax credit. Our tax software has always been free to use. In other words you can prepare your taxes for free and mail them to the IRS. But if you want to gain the benefits of eFile, or electronic filing, we charge a small fee of less than ten dollars."
For clients of Homeless Solutions, which provides affordable and transitional housing, the prospect of a large tax return can make a significant difference, executive director Elizabeth Hall said.
Those agencies are part of an effort to encourage low-income working residents to ask about the EITC when they file their taxes. The earned income tax credit is supposed to help low-income working families, but over the years it has been clear many eligible workers don't apply for it.
The Earned Income Tax Credit is for working families with incomes less than $37,263. If eligible, they may receive money back from the Internal Revenue Service (IRS) even if they don't owe taxes - but they must file a tax return. The EITC is above and beyond any amount the families get from the child tax credit, which is a maximum of $1,000 per child and is aimed mainly at middle income households.
Across the nation, about 21 million people claimed the credit last year, pulling in $39 billion, according to the IRS. Although only about 75 percent of eligible filers claimed their due, the federal program - which was created in 1975 under President Ford and later expanded under Presidents Reagan and Clinton - has eclipsed welfare as the main source of cash assistance for low-income families.
To help out, the IRS has set up something called the EITC Assistant on its Web site to provide information, eligibility worksheets and explanations of the credit.
A variety of organizations sponsor Volunteer Income Tax Assistance (VITA) sites in their communities to prepare tax returns for those who cannot prepare their own yet cannot afford professional help.
In concert with the IRS e-file program, whose goal it is to receive 80% of all tax returns electronically, www.Taxhead.com is encouraging low-income and first-time tax filers to try eFile in 2009 (filing 2008 tax returns).
An executive from Taxhead.com said, "We are trying to reach those persons that qualify for the earned income tax credit. Our tax software has always been free to use. In other words you can prepare your taxes for free and mail them to the IRS. But if you want to gain the benefits of eFile, or electronic filing, we charge a small fee of less than ten dollars."
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