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 Ј97 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.

Should you pay taxes or not

The first attempt to impose an income tax on America occurred during the War of 1812. After more than two years of war, the federal government owed an unbelievable $100 million of debt. To pay for this, the government doubled the rates of its major source of revenue, customs duties on imports, which obstructed trade and ended up yielding less revenue than the previous lower rates.

And to think that the Revolution was started because of Tea Taxes in Boston?

Excise taxes were imposed on goods and commodities, and housing, slaves and land were taxed during the war. After the war ended in 1816, these taxes were repealed and instead high customs duties were passed to retire the accumulated war debt.

What is Taxable Income?

The amount of income used to arrive at your income tax. Taxable income is your gross income minus all your adjustments, deductions, and exemptions.

Some specific taxes:

Estate Taxes:

One of the oldest and most common forms of taxation is the taxation of property held by an individual at the time of death.

The US still has Estate Taxes, although there are proposals to do away with them.

Such a tax can take the form, among others, of estate tax (a tax levied on the estate before any transfers). An estate tax is a charge upon the deceased's entire estate, regardless of how it is disbursed. An alternative form of death tax is an inheritance tax (a tax levied on beneficiaries receiving property from the estate). Taxes imposed upon death provide incentive to transfer assets before death.

Canada no longer has Estate Taxes.

Most European countries have Estate Taxes, one prime example is Great Britain which has such high Estate Taxes that it has just about ruined the financial well-being of most of Britain's Nobility which has been forced to sell vast Real Estate holdings over time.

. Such a tax can take the form, among others, of estate tax (a tax levied on the estate before any transfers). An estate tax is a charge upon the decedent's entire estate, regardless of how it is disbursed. An alternative form of death tax is an inheritance tax (a tax levied on individuals receiving property from the estate). Taxes imposed upon death provide incentive to transfer assets before death.

Capital Gains Taxes

Capital Gains are the increases in value of anything (including investments or real estate) that makes it worth more than the purchase price. The gain may not be realized or taxed until the asset is sold.

Capital gains are normally taxed at a lower rate than regular income to promote business or entrepreneurship during good and bad economic times.

Andorra raises 2006 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.

Irs simplifies reporting requirements for corps and shareholders

The IRS is heavily promoting electronic filing options. This promotion has run into problems with corporations because of complex regulations. The IRS is now moving to correct this problem.

IRS Simplifies Reporting Requirements for Corps and Shareholders

Corporate tax filings are legendary for their complexity, number of forms that must be filed and general burden they create. Large, publicly traded corporations make every effort to file the proper forms, but the burden is such that when all is said and done, one corporation reported it had to file the equivalent of three tax forms for every working hour of the year. For small corporations and shareholders, the burden is not much less.

Given this massive tax burden, the idea of a corporation filing electronic tax returns is laughable. The IRS has finally realized as much. In response, it is making an effort to simplify or do away with regulations. In fact, the service has changed over 20 different regulatory groups to massively simplify a variety of tax situations.

One area of simplification has to do with the transfer of interest in certain types of corporate share transfers. Known as a section 351 transfer, the regulations previously required both the corporation and shareholder to file up to 18 different information items. Yes, 18! To simplify this mess, the IRS is now requiring the filings only for individuals that own more than five percent of a publicly traded company or one percent of a private company. Those still required to file will now only have to provide very basic information. This is a vast improvement on the old system.

One of the big red tape problems for corporate and shareholder filings is a simple one. The IRS has historically required everything to be physically signed by certain shareholders. This was essentially a method for forcing shareholders to come forward regardless of the corporate planning being done. The IRS is now de-emphasizing the signature requirements and allowing the same forms to simply be filed electronically. It sounds like a small thing until you go through the experience of sending a form to 15 different shareholders around the country.

The effort of the IRS to simply corporate and shareholder filings should be applauded. It is a small step in dealing with a large problem.

Fourth quarter machine tool depreciation

Accelerated depreciation in the fourth quarter of 2004 can provide significant tax shelter to many parts production job shops or tool and die shops, according to capitol equipment financing specialists at Makino, a global provider of advanced machining technology.

Operations that invest in new equipment technology and receive delivery before December 31, 2004, may see significant corporate and personal owner refunds in the spring of 2005. In some cases, the corporate tax savings/refund will offset the first year's expenses associated with operating the machine.

After the terrorist act of 9/11, Congress passed a tax relief act in 2002 allowing companies that purchase new machinery to immediately depreciate 30 percent of the value of those acquired assets. The remaining book value would be subject to MACRS depreciation as per Internal Revenue Service guidelines. Additionally, the act permits a company to reach back five years (as opposed to three years) for a tax refund.

In order to stimulate the economy in 2004, Congress has passed President Bush's jobs and economic growth tax relief bill. This bill contains a new 50 percent expensing allowance for machine tools and other equipment ordered between May 6, 2003, and Dec. 31, 2004, so long as it is placed in service by Dec. 31, 2004. This increases and/or replaces the temporary 30 percent expensing allowance enacted in 2002.

Additionally, small businesses (those whose equipment purchases of all kinds do not exceed $410,000) are permitted to depreciate the first $102,000 of an acquisition. Then, they can further depreciate 50 percent of the remaining basis of the machine and apply MACRS depreciation as per IRS guidelines to the remaining value. In other words, a qualifying small business that buys a $100,000 machine can expense it all in the first year.

A $200,000 machine could qualify for a $158,000 first year deduction, or 79 percent of the asset. A $300,000 machine could qualify for a $215,147 first year deduction, or 71.7 percent of the asset.

Small business 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.

Deciding when to file a tax return

April 15th – “The Day of Reckoning”! Every year, millions of Americans get ready to pay taxes to Uncle Sam, or get ready to collect a tax refund from Uncle Sam; when did this become the great day that it is for taxpayers, and when are we actually required to file a income tax return? Let’s take a look at the beginnings of the income tax date of April 15 and why it was chosen?

The first known income tax that Americans were legally required to pay was enacted during the early 1860s, and the Presidency of Abraham Lincoln. The Civil War was proving very costly to finance, and the President and Congress created the Commissioner of Internal Revenue and enacted a law requiring citizens to pay federal income tax. This could be considered the start of our modern day income tax. This income tax was based on principles of graduated or progressive taxation and of withholding income at the source. The commissioner was given authority to assess, levy and collect federal income taxes. The authority to enforce tax laws by seizure of property and income and by prosecution.

Originally, the deadline for completing and filing your individual income tax was not April 15th. In the beginning, it was first set for March 1st. Then, during 1918, Congress pushed the date out to March 15th. Then, in the great overhaul of 1954, the date was once again moved forward to April 15th, and this is where it remains today. Why April 15th? The main thought from most scholars say the reasoning is that the date gives the IRS more time to handle the work load and more time to hang on to your money before offering a tax refund. This date has only been set this way for a little over 50 years. That’s not very long, in historical terms, and it could possibly be changed again.

If you are an individual taxpayer, you are required to file either a return or an extension of time to file (Form 4868) by April 15th. Corporate and other legal entities are required to file their federal income tax return by March 15th, and if not, they also must file an extension of time to file. What this extension does not do, is to extend the amount of time you have to pay any taxes due the government. So, if you are unable to ready your personal or business financial information in a timely manner, and have no reasonable estimate as to the amount of tax you may owe, you can expect to pay some form of penalty.

In the years following WWII, the burden of tax responsibility was shared fairly equally by the corporate world and the individual taxpayer. Today, however, the shift has been toward more responsibility on the part of the individual, and less on the business backs. To demonstrate how special interests have begun to overtake American politics, during 1867, public opinion was so strong, and the outcry of the general public so loud, that the President and Congress abolished the income tax law in 1872, and from 1872 until 1913 almost all of the revenue for government operation came from the sale of liquor, beer, wine, and tobacco. Although the income tax did make a small come back in 1894, it was found unconstitutional in 1895 by the U. S. Supreme Court because it was not apportioned among the states in conformity with the Constitution.

An interesting time during the formation and eventual taxation of America occurred during 1918. Until that point in time, the vast majority of tax revenue for government funding came from alcoholic beverage sales and high tariffs. In 1919, Congress passed an amendment to the Constitution that made it illegal to manufacture or sell alcohol; what would replace the revenue? American federal income tax was the proposed solution, and we’ve been paying since. Although during the great years known as Prohibition, many “revenue agents” spent their days tracking down “moon shiners” not tax evaders, the American citizen, the individual taxpayer took on the heavy burden of supporting government revenue, and it has become heavier with each passing year. On a side note, although “moon shining” was illegal, the “moon shiners” still had to pay taxes on the moon shine so they were incarcerated for tax evasion and not “moon shining”. Taxes seem to always come into play when looking for a way to prosecute someone.

Then, during 1942, the Revenue Act of 1942 was passed and the “New Deal” era was begun. Since that point in time, government control, power, and expenditures has continued to increase at a phenomenal rate, and today the American taxpayer supports a trillion dollar giant known as the United States government. This ravenous beast consumes more than 10% of our earned income each year, and if the Social Security Administration has their way, will continue to consume even more of our weekly earnings. We can foresee no other relief in sight.

Currently, all the tax regulations for this country are the responsibility of the Internal Revenue Service, and there are four major divisions of this government office: the Wage and Investment, Small/Business Self-Employed, the Large and Midsize Business and the Tax Exempt and Government Entities. Each division has responsibilities as they pertain to their individual specialty.

There continues to be talk on the hill to change the way taxes are calculated and collected. The most common themes are the flat tax and the national sales tax. Until Congress actually has the courage to step up to the plate and change it, taxes will remain as cumbersome as always.

Valuable tax deductions for your vehicle you can t afford to miss

Is your business missing out on valuable tax deductions you can take for the use of your personal vehicle for business purposes? If you haven't done so already, you should definitely beat a path to the door of your local office supply store and pick up a notebook for logging the mileage you drive to conduct business—and be sure to log the miles you drove to buy it!

Not taking the trouble to do this is like letting your pricey gasoline flow onto the pavement instead of into your tank.

Even if you work at home most of the time, miles you've driven to purchase office supplies, buy stamps or mail packages, and other errands for your business can translate into big tax deductions. With fuel costs soaring, you are literally throwing money down the drain if you are not keeping track of this mileage and taking the deductions for it to which you're entitled as a business owner. And the first entry you need to make is the beginning mileage on the odometer as of January. You'll also want to make sure that you keep track of all your automobile expenses associated with that personal vehicle that you're using for business.(See why in my article "Valuable Tax Deductions for your Vehicle You Can't Afford to Miss").

The dramatic surge in fuel costs has not been lost on the IRS. Of course, gasoline prices began to edge up shortly after the beginning of the war in Iraq; but the devastation wrought by Hurricane Katrina prompted the IRS to offer a valuable money-saving solution for business owners. (If you live outside the U. S.A. you should check your tax authority's website for similar provisions.)

Last year, for 2005, the IRS increased the standard mileage rate for the use of a vehicle (car, van, or truck) by 3 cents a mile, to 40.5 cents a mile for all business miles driven. However, in the wake of Katrina, that rate was increased further to 48.5 cents a mile for the business miles driven in the months of September, October, November, and December, 2005.

This increased mileage rate ended with the end of 2005. The new mileage rate for 2006, effective January 1, is now 44.5 cents per business mile driven. You can maximize this deduction if you're careful to consolidate business and personal errands. For example, I wait until I need to go to the post office to ship a package for my business to stop to at the drug store and supermarket right next door to pick up groceries. What would have been "dead" mileage becomes a deductible business trip, as long as you've logged your business purpose in your mileage logbook.

In addition, for both 2005 and 2006, the IRS also encouraged Katrina-related charitable relief activities by granting higher rates for miles deductible and miles reimbursable driven for such activities.

Of course, the use of these mileage allowances can be rather complicated. For example, you cannot take additional deductions for business use of an automobile to which you have already applied the Modified Accelerated Cost Recovery System (MACRS), after claiming a Section 179 deduction for that vehicle that your business purchased directly.

And if you're using a personal vehicle for your business, don't forget to calculate the percentage of total miles for the year that you travel for business purposes. At the end of 2006, you'll note the year-end odometer reading in your mileage logbook and subtract from it the odometer reading that you recorded this month. Then you'll add up all miles driven for your business that you have recorded and divide it by that total mileage to calculate the percentage of total miles you used for your business. If it turns out that 30% of your total mileage on that personal vehicle was for business purposes, you can deduct 30% of *all* your expenses for maintaining that vehicle: not only fuel, but all trips to the garage for routine maintenance or special repairs as part of your business expenses for the year.

The devil is in the details, as always, of course. You will want to consult your tax accountant on how best to apply the rules to your situation. If you prepare your tax returns yourself, you can get the details directly from the IRS website:

http://www. irs. gov/pub/irs-drop/rp-04-64.pdf. Examine the fine print closely: You'll find that there are limits on what percentage of business use can be claimed for a personal vehicle, no matter what your actual numbers might be; so if your actual business mileage is greater than 75 per cent of your total mileage, you might be better off purchasing a separate vehicle dedicated to business use. If you've taken the care to structure your business correctly--using a corporation, limited liability company, or other stand alone entity--you and your business will benefit from even greater deductions.

(C) Copyright 2006 Azur Pacific Associates. All formats and media, known and unknown. All Rights Reserved.

Inheritance taxes explained

Reduce inheritance taxes by giving gifts!

The inheritance tax is the same thing as the estate tax in the United States, but with a different name depending on the country that you are talking about. The inheritance tax is a tax that is supposed to be levied on the richest people after they die, especially if they have a considerably large estate at that point in time. However, this is not always the case, and in fact, a lot of people find that they are being forced to pay an inheritance tax even though they do not have a particularly large estate. The reason for this is that housing costs continue to increase - and since your house is considered to be one of your assets, it is included in your estate.

The inheritance tax is considered by some people to be a highly unfair tax due to the fact that the people who owned the estate had already paid their taxes before death. However, the inheritance tax is still in effect, and it can cost anywhere between forty and fifty percent of your estate over a certain maximum amount. Depending on where you are, that amount will change. Essentially, anybody who has more than that base amount in their estate will be charged 40-50% of any assets that they owned over that amount.

One thing that you can do in order to reduce the amount of inheritance tax you end up paying is to check and see if there are any loopholes in the tax law that you can use to your own advantage. One thing that you should consider, for instance, is that some countries will allow you to give a large amount of money to a family member or survivor tax free. If there is anybody who you would like to have inherit a large monetary gift, then you should definitely consider doing this before you die.

This might even reduce the total amount of your estate to the point where you will not have to pay any inheritance taxes at all. This also goes for gifts. It is possible to give gifts to as many people as you would like before you die, just so long as the total value of each gift does not exceed a certain amount.

By planning ahead and making gifts, you should be able to reduce the amount of inheritance taxes that your estate will owe after your death.

Understanding marketing tax deductions

Marketing is a necessary expense in running practically any business and the IRS acknowledges as much. You may run advertisements on or in the Internet, radio, television, magazines, newspapers and other media to sell your products or services. You should be deducting all of the associated costs on your tax returns.

Ordinary Marketing Expenses

Marketing costs must be "ordinary and necessary" business expenses in order to be deductible. Put in layman's terms, you marketing must be reasonably related to the promotion of your business and the expense amount must be a reasonable amount.

Deductible Marketing Expenses

Common deductible marketing expenses include the costs associated with the following items:

A. Yellow Page Advertisements,

B. Business Cards,

C. Advertisements in print media such as newspapers,

D. Telemarketing,

E. Business Cards,

F. Web site costs including creation and maintenance,

G. Costs for Advertisements on the Internet,

H. Billboards, and

I. Graphic design costs.

Goodwill Marketing For Your Business

Marketing that is intended to portray your business positively can be deducted. Such marketing creates a long-term potential for business and, thus, falls within the ordinary and normal requirements of the tax code. Examples of such marketing include:

A. Sponsoring local youth sports teams,

B. Distributing samples of your business product, and

C. Costs associated with prizes offered by your business in a contest.

As long as your marketing expenses can be reasonably related to the promotion of your business, you should be deducting said expenses from your gross revenues. If you failed to claim any such expenses on your tax returns, your probably overpaid your taxes.

Small business tax deduction - write-off bad debts

Practically every small business has receivables that it cannot obtain from clients. If your small business doesn't have any such receivables, consider yourself lucky. For those small businesses that suffer from uncollected receivables, solace can be taken from the fact you can claim a tax deduction.

Bad Debt Tax Deduction

A small business can write-off bad debt losses if it meets nominal requirements. To claim such a tax deduction, the following must be shown:

A. The existence of a legal relationship between the small business and debtor;

B. The receivables are worthless; and

C. The small business suffered an actual loss.

Proving there is a legal relationship between the small business and debtor is fairly simple. You must simply show that the debtor has a legal obligation to make a payment. Most businesses issue invoices or sign contracts with debtors and these documents suffice to prove the legal relationship. If you are not putting your business relationships in writing, you should begin doing so immediately.

Proving receivables are worthless is slightly more complex. A small business is required to show that the debt has become both worthless and will remain so. You must also show that you took reasonable steps to collect the receivables, but you are not necessarily required to go to court to meet this requirement. A clear example where you would meet this requirement is if the debtor filed bankruptcy.

While proving that you suffered a loss may sound like the easiest requirement to meet, the issue is a bit more complicated. The Tax Code defines the loss as an amount that is included in your books as income, but is never collected. A classic example of such a situation would be a manufacturer that provides products to retailers on credit. The manufacturer can show a real loss if the retailer files bankruptcy. Unfortunately, there is almost no way to claim a loss if you provide hourly services and use a cash accounting method. The IRS does not consider the expenditure of time and effort to be a sustained economic loss.

Small businesses suffer all to often from uncollected receivables. If you failed to claim such losses as a tax deduction during your last three tax filing years, you should file amended tax returns to get a refund.

I used money from my home equity loan to pay off some of my personal debts. can i deduct interest

In some instances, it is possible for individuals to deduct the interest of such home equity loans on their state and federal taxes, which are, or at least should be, filed annually the Internal Revenue Service.

Despite the fact that the money can be used for reasons other than to buy, build or improve an individual's place of residency or home, the debt for which the home equity loan is used may still allow the loan's interest to qualify as home equity debt. No matter how the individual uses the money that they received as a home equity loan, the interest that is paid by the individual each year can be deducted on the individual's taxes in an itemized list. However, there are limitations that have been placed on the individuals who do so when it comes to the amount of money they can deduct on their taxes in relation to the interest that they have paid on their home equity loans.

These interest amount limitations are based on the individual and are put in place regarding the amount of money the individual pays in interest on their home equity loan each tax year. A couple may deduct up to $100,000 in interest from their home equity loan each year on their taxes. An individual who is married but filing jointly from their spouse may deduct half of this amount annually, provided the individual is able to meet the other criteria and regulations set forth by the Internal Revenue Service. These individuals may only deduct a total of up to $50,000 on their taxes.

A home equity loan is very different from a home equity line of credit and it is important to note this when filing taxes since there are separate requirements and paperwork that needs to be done for each. Despite the fact that they sound similar, the two loans have different things that affect them, including interest. When individuals use their home equity loan money in order to take care of certain aspects of their home or in order to pay off some of their personal loans or debts, the money can be deducted up to the $100,000 or $50,000 limits. These limits are put into place as a generalization. Some other limitations may be put on individuals if they meet certain other criteria.

These limitations can be determined by tax professionals on a case by case basis, but it is important to note that the cap for interest deductions for home equity loans are stopped at $100,000 for couples, or $50,000 for married individuals who are filing their taxes separately. Regardless of the amount that the individual can deduct from their taxes, the interest needs to be deducted on the 1040 form, Schedule A. The interest needs to be placed under the itemized deductions.

Honda natural gas cars issued massive tax credits by irs

Between global warming and massive increases in fuel prices, many people are reconsidering their transportation. Honda has two natural gas cars the IRS absolutely loves.

Honda Natural Gas Cars Issued Massive Tax Credits By IRS

In 2005, the federal government passed a new energy policy act that created tax benefits for the use of alternative fuel vehicles. Most people are generally aware of this given the fact they get a tax credit break when they purchase a hybrid vehicle. What fewer people know, however, is they get massive tax breaks if they purchase a natural gas powered vehicle such as a Honda Civic GX.

Buried within the language of the new energy policy act is the Alterative Motor Vehicle Credit. The AMVC goes well above and beyond the financial benefits granted to hybrid cars. The act defines four distinct areas where the IRS must issue significant tax credits. Those categories include fuel cell vehicles, advanced lean burn technologies, hybrid vehicles and alternative fuel vehicles. While most vehicles fall within the hybrid classification, new models are coming on the market that fall within the remaining three.

Indeed, the IRS has just issued the tax credit amounts that can be claimed by individuals that purchase the Honda natural gas models. Specifically, the tax credit amount is $4,000 if you purchase either the 2006 or 2007 Honda Civic GX. The car must be purchased new and directly form a dealer. Please note, these cars run only on natural gas, which is why they get such a big tax credit.

This $4,000 tax credit is a major financial incentive for most taxpayers. Unlike a tax deduction, a tax credit is applied directly to the amount of money you owe the IRS. If you prepare your tax returns and determine you owe $7,000 to the IRS, the tax credit would reduce this amount to $3,000. In short, we are talking about major savings.

There is little dispute that we are facing significant issues related to energy. From global warming to our reliance on foreign sources for fuel, things are pretty bleak. The transition to alternative fuel sources makes sense, and now the tax credit for natural gas powered vehicles makes financial sense as well.

Smart yearend planning - tax deductions

There are three main areas we need to keep in mind as the year ends:

1. Taxes

2. Corporate formalities

3. Planning for next year

Revisit the idea of converting your 10 largest expenses.

This is an ongoing process that should be done at least twice the first year. It’s not realistic to expect you will convert all of your biggest expenses the first time around because it’s too big of a task—this is a habit needing to be developed over time. Our largest expenses, habits, and businesses all change over time. As your life evolves, so should your deductions, so keep current.

Strategy: upstreaming income.

The goal of upstreaming income is to shift income from this tax year to the next tax year. Whatever your operating account balance is on December 31 will get added, as of January 1, to your last year’s income. If you have a $50,000 balance, for example, going into the next year, that’s taxable income. You therefore should upstream the money, making it no longer taxable for that year. This strategy is applicable if you have an S Corp, partnership, limited partnership or sole proprietorship.

How to upstream income

Upstreaming income is accomplished by setting up a new entity such as a management company with a different yearend than your business. A business’s income can then be shifted out of the 2006 tax year to 2007. You will want a contract and invoices to reflect this agreement between your business and management company. Move the $50,000 balance to your management company with a June 1 yearend, for example. The money should be moved ideally at least on a monthly basis, not just once at the end of the year. I recommend taking five to 10 checks out of your checkbook and put them in a file for the upcoming year. In January, if you find out you had some expenses you missed—it’d be a lot better to have a check in sequence that you can write from December.

Fcc s proposed change could raise phone taxes

Americans are speaking out against a proposal by the Federal Communications Commission (FCC) that could raise millions of people's phone bills. The proposal by FCC Chairman Kevin Martin has to do with a tax called the Universal Service Fund (USF).

The USF tax was established to help ensure that low-income and rural consumers have access to affordable phone services. Currently, USF money is collected on a "pay-for-what-you-use" system; a tax based on how much interstate long distance a person uses. The less a person uses long distance, the less he or she pays.

However, the FCC is proposing a monthly flat fee instead. The proposed monthly flat fee would apply to all phone numbers and other connections, regardless of how few interstate long-distance calls are made. That could raise taxes on 43 million U. S. households by more than $700 million.

Callers in California, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Ohio, Pennsylvania, Texas and Virginia stand to be the biggest losers. Taxpayers in 10 of those 12 states-all but Texas and Minnesota-already pay more in federal USF taxes than their states get back for schools, hospitals and rural connectivity. Under the proposed FCC plan, that disparity would grow even wider. The most conservative estimate of the proposed plan-where the USF fee would shift from the current structure to a flat $1 fee, per phone line, per month-indicates that 11 of the 12 states would end up paying more into the USF than they currently do.

According to the Keep USF Fair Coalition, a consumer advocacy group, this USF proposal has grave implications for the future of telephone service nationwide. The proposed USF change also affects anyone who has friends or relatives in any of those 12 states, or does business with a person or company located there.

With low-income and elderly consumers already hit with high gas prices, higher home energy costs and continued inflation in medical prescriptions, the wide range of diverse groups in the Keep USF Fair Coalition is opposing the FCC's proposed "number"-based plan. These groups caution against balancing USF finances on the backs of the very consumers whom they were intended to help.

Tax planning to infinity and beyond

: Another year has come and gone and what’s really changed? Are you sitting in roughly the same place you were last year at this time with respect to your taxes–wondering what you could have done differently in your business to positively affect your year - end tax bill? All too often, when individuals and closely-held business owners begin discussing tax planning, what they really end up referring to is the process of tax compliance. Tax compliance is the process of reporting your income to the Internal Revenue Service and, hopefully, accurately ensuring that your tax preparer takes advantage of all the deductions and credits you are entitled to. Often by this time, however, it’s really too late to do any real tax planning. Having stated that, the accurate and timely preparation of your tax returns are obviously a crucial step in realizing the effect of this year’s tax planning (or lack thereof ), and there are still things you can do, even at this late stage, to help reduce your current and future income tax bite. Avoiding Common Pitfalls Because the effects of good tax planning can obviously be forgone without proper reporting and compliance, it is extremely important to make sure that you are working with a competent tax professional on your tax preparation. Because this is what tax preparers live for, and it is their specialty to make sure that you take advantage of all that the tax code affords you as a taxpayer, it is often well worth the additional investment in time and money to work with a competent tax preparer that has a good grasp of your business. Very often, a good tax preparer will earn their fee by recognizing additional tax savings through credits or deductions the taxpayer may have overlooked, or through the timely and accurate preparation of your tax return, which, at a minimum, can avoid the costly penalties and interest that come with late or inaccurate filings. Additionally, it is important to keep in mind that the cost of tax preparation is fully tax deductible for your business. For individuals, the fees are also deductible, although this a miscellaneous itemized deduction and in this case, the total of all miscellaneous itemized deductions must exceed 2 percent of your adjusted gross income before you can begin realizing any benefit. Whichever way you decide to go, with or without a professional tax preparer, it is important to not overlook some of the common tax preparation mistakes that befall many taxpayers. Here are a few of the most common pitfalls to avoid, as well as a few of the most commonly missed deductions: Forgetting to sign your return or attach all required documentation and schedules. Carryover items - Don’t forget about charitable contributions, capital losses or net operating losses that are being carried forward from a prior year. It can be easy to overlook these items so be sure to refresh your memory by reviewing last year’s return. This type of review may also help ensure you don’t overlook other items of income or deduction that appeared on your previous returns. Disallowed Roth IRA contributions - If you are planning to contribute to a Roth IRA, make sure you are below the income limitations for such contributions. If you are a single taxpayer who’s modified adjusted gross income is in excess of $110,000 (or in excess of $160,000 for married couples filing a joint return), you are not permitted to contribute to a Roth IRA and doing so will subject you to a 6 percent penalty on the contribution amount. If you have made this mistake, however, there is still time to correct the problem, provided you withdraw the excess contribution prior to April 17, 2006, for 2005 contributions. Recent changes in marital status - If you are recently married or divorced, you should make sure that the name on your tax return matches the name registered with the Social Security Administration (SSA). Any mismatch can cause significant delays in processing your return and can inadvertently affect the size of your tax bill or refund amount. Name changes can be easily reported to the SSA by filing a form SS-5 at your local SSA office. Keep in mind, your marital status as of December 31st will also control whether you may file as single, married or head of household. Education tax credits and student loan interest - Interest paid on student loans can be deducted on your personal tax return, even if you do not itemize your deductions. If you or your dependent is attending college with the intent of earning a degree or certificate, you may qualify for the Hope or Lifetime Learning Credits, which can reduce your tax by as much as $2,000 for 2005. Business start-up expenses - The expenses a business owner incurs before he opens his doors for business can be capitalized and written-off by the owner over a 5-year period. Due to a change in the tax law in 2004, up to $5,000 of start-up expenditures can now be currently deducted. Professional fees - The expenses paid for attorneys, tax professionals and consultants are generally deductible in the year they are incurred. In certain circumstances, however, the costs can be capitalized and deducted in future years. In other words, the cost of your tax preparation or legal advice is considered an ordinary and necessary business expense and you may offset this cost against your income. Therefore, this deduction has the effect of reducing the effective cost of these services, thereby making those professional services a little more affordable. Auto expenses - If you use your car for business, or your business owns the vehicle, you can deduct a portion of the expenses related to driving and maintaining it. Essentially you may either deduct the actual amount of business-related expenses, or you can deduct 40.5 cents per mile driven for business for 2005. This rate was then increased to 48.5 cents per mile after September 1, 2005, due to the spike in gas prices. As noted below, the rate for 2006 has been modified again to 44.5 cents per mile. You must document the business use of your vehicle regardless if you use actual expenses or the mileage rate. Education expenses - As long as the education is related to your current business, trade or occupation, and the expense is incurred to maintain or improve your skills in your present employment; or is required by your employer; or is a legal requirement of your job, the expense is deductible. The cost of education to qualify you for a new job, however, is not deductible. Business gifts - Deductions for business gifts may be taken, provided they do not exceed $25 per recipient, per year. Business entertainment expenses - If you pick up the tab for entertaining current or prospective customers, 50 percent of the expense is deductible against your business income provided the expense is either "directly related" to the business and business is discussed at the entertainment event, or the expense is "associated with" the business, meaning the entertainment takes place immediately before or after the business discussion. New equipment depreciation - The normal tax treatment associated with the cost of new assets is that the cost should be capitalized and written-off over the life of the asset. For new asset purchases, however, Section 179 of the Internal Revenue Code allows taxpayers the option in the year of purchase to write-off up to $105,000 of the asset cost in 2005 ($108,000 in 2006).The limits on these deductions begin to phase out, however, if more than $430,000 of assets have been placed in service during the year. Moving expenses - If you move because of your business or job, you may be able to deduct certain moving expenses that would otherwise be non-deductible as personal living expenses. In order to qualify for a moving expense deduction, you must have moved in connection with the business (or your job if you’re an employee of someone else), and the new workplace must be at least 50 miles further from your old residence than your old workplace was. Advertising costs - The cost of advertising for your goods and/or services is deductible as a current expense. Examples may include business cards, promotional materials that create business goodwill, or even the sponsoring of a local Little League baseball team, provided there is a clear connection between the sponsorship and your business (such as the business name being part of the team name or appearing on the uniforms). Software - Generally speaking, software purchased in connection with your business must be amortized over a 36-month period. If the software has a useful life of less than one year, however, it may be fully deducted in the year of purchase. Also, under Section 179 (as noted above), computer software may now be fully deducted in the year of purchase. Previously, computer software did not qualify for Section 179 treatment. Taxes - In general, taxes incurred in the operation of your business are tax deductible. How and where these taxes are deductible depends on the type of tax. For example:
  • Federal income tax paid on business income is not deductible although state income taxes are deductible on your federal return.
  • The employer’s portion of Social Security is deductible as a business expense.
  • Sales taxes paid on items you buy for your business’s day to day operations are deductible as part of the cost of those items. Sales tax on asset purchases that are capitalized will have the sales tax capitalized and deducted over the life of the asset.
  • Real estate taxes paid on property used in your business is also deductible along with any local special assessments for repairs and maintenance. Assessments paid for improve ments (e. g., adding a sidewalk) is not immediately deductible, but is rather capitalized and deducted over a period of years. Other expenses to keep in mind may include the cost of audio tapes (videotapes) related to training or business skills; bank charges; business association dues (chamber of commerce); business related periodicals or books; coffee or beverage services; office supplies; postage; seminars; and trade shows, to name a few. 2005 Tax Planning Items As noted above, the real planning for 2005 should have begun with the beginning of the tax year. Nonetheless, although we are already into 2006, there is still time to take advantage of a few tax rules that could have a significant effect on your current 2005 tax bill, and on future tax bills. IRA Contributions You have until April 17, 2006, to make contributions to your Individual Retirement Account (IRA) for 2005. In fact, you can contribute up to $4,000 and take a deduction from your 2005 income for all of it, provided you did not participate in a company-sponsored retirement plan and provided your income falls below certain statutory levels ($50,000 for single filers and $70,000 for married couples). If you were over the age of 50 by the end of 2005, the limit increases to $4,500. Even when you did participate in a company-sponsored retirement plan, your spouse can generally contribute (and fully deduct) $4,000 to an IRA as long as your combined adjusted income is $150,000 or lower, and your spouse is not a participant in a company sponsored plan. In other words, assuming a 25 percent tax bracket, a married couple could contribute $4,000 each to their own IRAs and reduce their current tax bill by $2,000. Education Savings There are two primary tax-advantaged ways to save for education. One is a 529 Plan and the other is an Education Savings Account. Although contributions to a 529 Plan had to be made before the year-end, contributions to an Education Savings Account can be made any time until April 17, 2006. An Education Savings Account allows you to invest up to $2,000 per year in a savings account, mutual fund or brokerage account (through which you can invest in individual stocks and bonds). Although this contribution is not tax-deductible for 2005, the money invested will grow tax-free and all withdrawals from the account will be tax-free as well provided the funds are used for qualified education expenses (e. g., tuition, books, etc.). Much like many of the tax benefits available to taxpayers, there is an income limitation that must be met in order to invest tax-free in an Education Savings Account. For joint return filers, this opportunity begins to phase out when their modified adjusted gross income exceeds $190,000. For single filers the phase-out begins at $95,000 of modified adjusted gross income. What’s new for 2006 With a new year comes new tax laws. Being an educated taxpayer and staying abreast of these changes will help you plan for 2006 and allow you to take advantage of these opportunities. The following items are new to the tax code within the last year. The Katrina Emergency Relief Act of 2005 and The 2005 Gulf Zone Opportunity Act; The 2005 Katrina Relief Act was signed into law on September 23, 2005, and provides a package of income tax relief provisions to help victims of Hurricane Katrina. The Gulf Zone Opportunity Act of 2005 essentially extended the relief provisions of the Katrina Relief Act to victims of Hurricanes Rita and Wilma as well. Just a few of the opportunities available under these acts include:
  • Penalty free withdrawals from qualified plans of up to $100,000 provided the individual making the withdrawal suffered an economic loss because of one of the three hurricanes (Katrina, Rita or Wilma).
  • Individuals that were eligible for tax relief for hurricane-related distributions may pay the income tax on such distributions ratably over a three year period.
  • Loan limitations from qualified plans were also increased for hurricane victims by doubling the thresholds to the lesser of $100,000 or 100 percent of the individual’s account balance. Additionally, loans due from hurricane victims to qualified plans can be deferred for an additional 12 months on top of the maximum repayment period.
  • Non-business casualty losses are generally deductible by taxpayers who itemize their deductions and then only to the extent the casualty loss exceeds 10 percent of adjusted gross income and a $100 floor. These rules were eased by the Act by eliminating the 10 percent rule and the $100 floor for hurricane victims.
  • Corporate charitable contributions were eased allowing corporations to claim a charitable deduction for cash contributions related to these hurricanes without regard to the 10 percent of taxable income cap.
  • Additionally, these Acts contain a number of tax incentives to encourage rebuilding of the areas ravaged by these three hurricanes. If you have been affected by one of the hurricanes noted above, live in one of the hurricane zones or have contributed to relief efforts, you should consult with a professional tax advisor to discuss the full extent of these new provisions. Other changes for 2006 include:
  • Adjustment of the standard mileage rate to 44.5 cents per mile.
  • Increase in the 401(k) contribution limit to $15,000 per year (up from $14,000), as well as an increase in the catch up contribution permitted for taxpayers that are 50 or older to an additional $5,000 (up from $4,000).
  • The Social Security wage limit has increased from $90,000 in 2005 to $94,200 for 2006. Remember, this wage limitation applies only to the 6.2 percent OASDI component (old age survivors and disability insurance) of social security. The 1.45 percent Medicare component of payroll taxes applies to all wages.
  • In the estate tax arena, the lifetime estate tax exclusion amount has increased from $1.5 million to $2 million for 2006 through 2008 and the annual gifting limit has increased from $11,000 annually to $12,000 annually. Under current law, the lifetime estate tax exclusion amount is slated for increase again in 2009 to $3.5 million before the repeal of the estate tax for one year in 2010. In 2011, the estate tax system returns with the exemption amount returning to $1 million. This is an important planning consideration; however, most experts in this field believe that more estate tax changes are on the way. As a result, it is likely these rules will all be modified again before the next set of changes come into effect in 2009 and beyond.
  • The top estate tax rate has also dropped from 47 percent to 46 percent for 2006. This rate is again scheduled to drop one percent to 45 percent in 2007 and that rate will stay in effect until the 2010 repeal. As noted above, however, it is likely the estate tax laws will change by that time.
  • The gift tax credit remains at $1 million. If you plan on making significant gifts during your lifetime, the difference between the estate tax exclusion and the gift tax exclusion must be noted to ensure that you don’t get a surprise from the IRS. Tax Planning - Let’s look ahead As previously discussed, the process of tax planning is often confused with tax compliance. Individuals and closely-held business owners that are armed with a good understanding of the tax code can have a tremendous effect on their ultimate year - end tax liability with some good, forward-thinking tax planning. Unfortunately, however, by the time most people usually consider tax planning, they are past the point that they can positively effect a transaction. Before you enter into any significant business transaction, it would be wise to consult with a competent tax professional to determine whether the transaction is structured properly from a tax perspective. There are often very tax efficient ways to accomplish your business goals; however, without proper planning, the tax opportunities that may otherwise be available in a transaction could vanish forever. For example, if you are considering selling investment real estate or business property and replacing that real estate with another piece of property, you should be considering handling the transaction as a "like-kind exchange." The "like-kind exchange" rules under Section 1031 of the Internal Revenue Code allow any gain realized on the sale of the property to be deferred until the subsequent sale of the replacement property. Like-kind exchanges are also appropriate with property other than real estate, provided of course the property is of "like-kind," the determination of which requires an understanding of the tax rules and the various tax classifications for personal and real property. Like-kind exchanges are also a perfect example of a planning opportunity that will be unavailable if not properly addressed in advance of the transaction. There are very strict rules regarding the timing of the transaction, when property is identified and purchased, and even very strict rules about how the proceeds from the sale need to be handled in order to preserve the "like-kind" treatment. If these rules are not met, you can not have a "like-kind exchange." The "like-kind exchange" example was simply meant to illustrate how important it is to address the tax ramifications in advance of an impending transaction. Always keep your professional advisors in the loop when considering any significant business transaction or your opportunity may be lost, which can have significant costs that perhaps could have been avoided. Remember, good tax planning is not about making sure your tax returns are properly prepared and that you have availed yourself of all the appropriate tax deductions and credits available to you and your business. It is really about structuring your business and your transactions in a way that not only meet your business needs, but do so in the most tax advantaged manner.
  • Sustainable architecture helps texas instruments save money

    Conserving energy is on the minds of most Americans today. With gas prices skyrocketing, everybody is looking for ways to save energy, which translates into saving money.

    If it takes $500 to heat your home in the winter, imagine how much it costs to heat a huge factory. Obviously any company building a factory needs to be as frugal as possible. Now, you can learn from their innovations.

    In a heartening move against resource guzzling habits of big industry, Texas Instruments recently built a "green" factory in a town near Dallas, Texas. The company had been tempted to build the plant overseas to cut costs, but instead got creative and redesigned the factory's blueprints to save money. It was a huge challenge and seemingly impossible feat for the design team, but it got done.

    "We have to [approach energy consumption differently]...I think you do first have to set an impossible goal. Amazing things happen when people claim responsibility for the impossible," said Shaunna Sowell, the company's vice-president who oversees facilities world-wide.

    Many changes were instrumented in building the new factory. Whereas the old factories were three stories, the new factory was redesigned to fit into two stories. More attention was paid to how the factory consumes its resources and short-cuts were adopted. Attention was also paid to the waste coming out of the factory, and now most of it is recycled. Passive solar construction techniques were used so the factory could become more self-sufficient.

    "Green building is not necessarily about producing your own power with windmills and solar panels. It's about addressing the consumption side with really creative design and engineering to eliminate waste and reduce energy usage--it's the next industrial revolution," said Paul Westbrook, who aided Texas Instruments in building their new factory and has a solar-powered home himself.

    Texas Instruments expects to save big on energy costs for the life of their new building. Month in and month out, their bills will be low because they designed their building with energy conservation in mind.

    Various ford and mercury hybrids get tax credit certification from irs

    Starting in 2006, individuals buying hybrid cars will get a tax credit instead of a tax deduction. The IRS has just started to kick out the exact amounts you can claim for your new hybrid.

    Various Ford and Mercury Hybrids Get Tax Credit Certification From IRS

    Under the Energy Policy Act of 2005, the tax benefits of owning a hybrid vehicle underwent significant changes. Whereas you could previously claim a tax deduction, the new law converted the deduction into a tax credit. Tax credits are FAR more valuable than deductions, because they reduce the amount of tax you owe on a dollar for dollar basis. Tax Deductions, on the other hand, merely reduce your adjusted gross income prior to determining the amount of tax you owe pursuant to the tax tables. In laymen’s terms, this conversion is a very good thing.

    Not every hybrid car qualifies for a tax credit. The Internal Revenue Service must first evaluate it and then issue guidance on which cars qualify and the size of the credit you can claim for each. The maximum the IRS can designate per car is $3,400. Here are the numbers it recently kicked out for various Ford and Mercury hybrid models.

    2006 Ford Escape Hybrid Front WD: $2,600

    2006 Ford Escape Hybrid 4 WD: $1,950

    2006 Mercury Mariner Hybrid 4 WD: $1,950

    If you purchased your hybrid car prior to 2006, you are restricted to claiming a tax deduction in the amount previously designated by the IRS, usually $2,000. If you waited until 2006, you can claim the above amounts with a few hitches. First, the amount only applies to the first 60,000 cars sold for each model. If you purchase a hybrid in the 60,0001 to 120,000 sales range, you can claim only half of the tax credit. Sales 120,001 through 180,000 can claim on a quarter of the amount designated above. Exactly how you are supposed to know the sales figures is a bit murky, but Ford and Mercury will undoubtedly take steps to make it clear.

    Hybrid vehicles make sense from an environmental aspect. Throw in significant savings on gas costs and a large tax credit, and they should fly off the lots.

    Debunking common myths about iras

    According to a recent "Retirement Trends" survey by Fidelity Investments, 96 percent of Americans saving for retirement don't know the current contribution limit for an individual retirement account, with some guessing as low as $1,000. The reality is that for tax year 2005, IRA contribution limits increase to $4,000 -- up from $3,000 in 2004.

    When it comes to knowing the facts about retirement, misperceptions can lead to missed opportunities. Today's workers will face rising health care costs when they retire, as well as declining pension benefits and a higher cost of living. That's why it's important to save as much as possible, and as early as possible, in tax-advantaged accounts like IRAs.

    Knowing the facts can help dispel common myths that may keep some investors from making the smart move of saving in an IRA.

    * Myth No. 1: My 401(k) savings should be enough.

    Nearly one-third of Americans in their prime savings years who have not yet opened an IRA account think their 401(k) savings will be sufficient for retirement, according to the Retirement Trends survey. However, Fidelity estimates that retirees will need approximately 80 percent to 100 percent of their pre-retirement income to live comfortably. Using an IRA now to supplement workplace programs can help investors make sure their savings will continue to grow and last throughout retirement.

    * Myth No. 2: I have to come up with thousands of dollars all at once to open an IRA.

    For the one in four non-IRA owners surveyed who say they can't afford the initial investment required to open an IRA, opportunities to save even more for retirement may be daunting. But getting started without an initial lump sum is as easy as setting up automatic monthly payments through a Fidelity SimpleStart IRA.

    * Myth No. 3: IRAs are for older people with lots of money to save.

    The truth is that younger investors could benefit the most by starting to save early because they have time on their side. Nearly two-thirds of young adults have started to save for retirement before age 30, according to the Retirement Trends survey. That's good news; starting to save as early as possible is one of the best ways to prepare for the future.

    Payroll tax penalties when the irs sends a letter

    : “Payroll Taxes are Due, with Penalties and Interest” At least that is what the letter from the IRS says. First thing, don’t panic. Quoting Daniel J. Pilla’s study for the Cato Institute “About 40 percent of the revenues the IRS collects through penalty assessments are abated when citizens challenge the penalties.” So we now know the odds are good that the IRS is wrong or will blink first. What do we do? The normal problems with payroll taxes are. Failure to File. Taxes under reported. Taxes under deposited. Taxes deposited late. Any of these can create a situation where the services charges penalties and interest against a business and then sucks up subsequent tax deposits creating additional late and short payments simply exacerbating the situation. We will get to that later. Read the notice from the IRS. It should tell you why they are charging a penalty and interest and how it is calculated. If the notice does not lay out that information, you have missed the first notice from the IRS. That is not at all unusual. If you don’t have the first notice call the IRS and get all the information from them. Also ask them to fax you a “Statement of Account” for the period and type of tax in effect. This will show you what they have on the IRS file, without regard to whether it is correct or not. Failure to file. The IRS says you never filed a return and they have created a return for you. They will estimate taxes due in an amount they know exceeds what would be reasonably due based on your account. They do this to get your attention. Many people, if the estimated amount were too low, would just pay it. The IRS does not want that to happen so they always over estimate if they create a “Substitute Return” and file it for you. The answer to that is to send a copy of the return. If you filed it certified mail send a copy of the receipt when it was sent proving the date and a copy of the return receipt showing it was received. One tip is never sending more than one return in an envelope. The clerk opening the envelope may staple them together and only the top return will ever be reported as being received. If you didn’t send it certified in your accompanying letter talk about your history of filing on time and this one was surely just misrouted. If you have collateral proof of the filing date like a cancelled check that was sent with the return quote that information or even include copies. If the return was due on the 15th and the check attached cleared your bank on the 18th that is pretty convincing that the report was actually there by the 15th. Taxes under reported. Find out why they say that. Have they transposed a number when they hand entered the return? That happens with regularity. Have they just pulled a number out of their hat? That happens periodically. Once we received two notices for two different customers on the same day saying they had overpaid their 940 taxes and offering them each a refund of over $36,000.00 each. The total 940 tax deposits for the two clients combined were less than $2000.00. And no, I did not let them apply for and receive the checks. Again send the IRS a copy of the return that you filed. If the return is wrong then send the IRS a corrected form such as a 941-C to correct the original filing. For instance, if you put second quarter figures on the third quarter report. There won’t be a penalty for late filing if in fact you filed an original return on time even if it was incorrect. A tip is if you cannot prepare the actual return on time, estimate it and file it. Then file a corrected return when you can, this avoids a late filing fee. Taxes under deposited. They say you made fewer or smaller deposits than you reported. Check their list and dates of deposits against yours. Don’t accept their word for when it was made. You have the proof in your files. We have noticed a real problem recently. EFTPS payments are not being shown with the date in the electronic file the same as on the "IRS Statement of Account." How some programmer messed that up is beyond me. So prepare the data showing your proof that the payments were made on time, bank deposit slips, EFTPS confirmations or whatever proof you have. Package up copies and send them to the IRS with a letter of explanation, and a request for them to update their records. If in fact you missed a deposit, it happens, make it immediately and ask for abatement anyway. Site valid reasons why the deposit could have been inadvertently missed. Discuss steps you have taken to make sure it won’t happen again. Taxes deposited late. See taxes under deposited and do the same thing with dates. Document and send letters. Don’t give up. Just because the first person at the IRS turns you down literally means nothing. They almost always turn down the first request for abatement of a penalty. Dealing with the IRS is a long series of no’s followed by a single yes. When you do get the yes, shut up and walk away. One of the favorite tricks of the IRS involves a string of deposits. Let’s say you were suppose to make 12 deposits of $1000.00 each the 15th of each month starting Feb 15 and ending Jan 15th for January through December. The second deposit is missing, and the check never got cashed. You don’t know what happened. The IRS will take the third payment and apply it to the second month’s taxes but it is late so they charge a penalty. Now the fourth month’s deposit gets applied to the third month’s taxes but it is also a month late so there is another late paying penalty. You will quickly have 10 late payment penalties and the 12th month penalized as not being paid at all. The penalties exceed the taxes missing. The service cannot due this though they will try. If you designate the third deposit for the third month taxes they must apply the payment there regardless. If they don’t record them that way you can force them to do so, it is their regulations that say they must follow it. Accept the penalty only on the one month and then ask for abatement anyway. If you have never had a late payment the IRS is suppose to give you a free one anyway. If you have a valid business reason that a penalty has occurred in spite of good due diligence on your part the IRS is suppose to abate the penalty. Understand that IRS employees may be gauged by how much revenue they bring in (the IRS vehemently denies this but ex IRS employees don’t always). When that is true they don’t want to abate penalties regardless. Another trick they have is to offer a reduced penalty as a favor, when in fact they should have zeroed it out. Or they will offer to abate penalties on two quarters if you pay the third. It is normally not a good idea to accept these offers. You can do better. Keep writing letters and filing documents at the higher and higher levels until one person gets reasonable and says yes. Then take that yes and run. Can an ordinary citizen do this? Sure! Is it easier for a payroll tax professional? Sure! The IRS is far more likely to listen to a CPA than a citizen. The CPA knows what buttons to push and how to go to the next level. An ordinary citizen may not. The CPA is far less likely to get emotionally involved than the citizen whose pocket is being emptied. Your payroll service provider should have CPAs on staff to handle these situations for you. If not, seriously consider a payroll service provider that does. Because when, not if, the IRS crews up your regular CPA will charge you full rate to solve problems that should be solved by your payroll provider for free.

    Irs helps employers by reducing filings required for employees

    If you own a business and have employees, you have an inherent feel for the joy of filing employee related tax documents. Alas, the IRS is cutting back on the burden.

    IRS Helps Employers By Reducing Filings Required For Employees

    Employees are critical to any business other than the smallest ones. That being said, the tax requirements for dealing with employees can be a pain in the derriere. The problems are many, but one particular situation puts employers in a very bad spot.

    Withholdings on employee paychecks is a subject that can cause tension in a business. Inevitably, some employees will want to reduce the withholdings from their check beyond the norm. The employer, in turn, is faced with the prospect of the IRS focusing unwanted attention on the business because of such actions. In a worst case scenario, the IRS will send a lock letter setting the amount of the withholdings. This puts the employer in the bad position of telling the employee more money must be withheld – a situation sure to cause tension. Making matters worse, the employer was supposed to be able to determine when the employee was abusing the withholding process.

    The IRS has issued regulations that at least relieve the employer of the burden of determining if an employee is stepping over the line on the reduction of withholdings. Whereas the employer was previously required to send a W-4 Withhold Allowance Certificate to the IRS if an employee was claiming a total exemption from withholdings or more than 10 allowances, it no longer does. As of April 14, 2006, the IRS will simply make its own determination using salary filings for the business in general.

    This regulation modification by the IRS should be applauded as a significant boost to employers. No longer does an employer have to act as a detective in determining whether an employee is not paying in enough tax on paychecks. Instead, the employer can now sit back and wait for the IRS to act. If the IRS feels an employee is out of line, the agency will send a lock-in letter to the employer. The employer than has no choice but to comply. Employees are much more likely to understand this and focus their anger on the IRS instead of the employer.

    The new withholding regulations represent a positive step by the IRS. They might just keep employers out of the tax problems of employees.

    Death and taxes

    “In this world nothing can be said to be certain, except death and taxes”

    Benjamin Franklin

    I, like many other good citizens from this great country of ours, left it to the very last moment to mail off this year’s tax return. As I entered the local post office and saw the long line, I once again promised myself that next year would be different. I really would make the effort to get them off before the last minute rush.

    As I moved slowly towards the front of the line, I began wondering, in this day and age is this really the best system our great and wonderful leaders can come up with. After all, we now live in a world that allows a satellite miles above us to read a number plate. We can get the worldwide web on our cell phone, download TV programs that we may have missed or just want to save onto our iPods.

    The original tax laws introduced in 1913 were a very simple affair. They began with tax brackets ranging from 1 to 7 percent - a far cry from today’s levels. The IRS tax codes, regulations and guidelines now have well over 9 million words. No wonder there's so much confusion. Is there truly anyone who really understands this monster. Let’s put this into some form of prospective. The Declaration of Independence has a little more than 1300 words. The Constitution which has served us well for more than 200 years comes in around 5000 words and the Holy Bible makes do with less than 800,000 words.

    The Office of Management & Budget estimated in 2004 that we as a nation spent over $200 billion on compliance cost. At a time when the nations manufacturing industries, the foundation of any good economy, are all struggling against cheaper imports, shouldn’t our leaders be using that money to create “Jobs” for their citizens. Most experts agree that $200 billion would create well over 3 million jobs, which of course creates sales of consumable goods which creates more jobs and sales taxes.

    From the moment we wake up in the morning we are being hit by taxes. Everyone is at it -- turn on the light (electricity taxes), run the shower (utility taxes) and my personal favorite the telephone taxes, all 6 million of them, or that's what it seems to me every time I receive a telephone bill.

    Has the time come for a simple Flat Rate Tax, something we can ALL understand. There are many countries all over the world who have used this simple to understand and cost effective way of collecting taxes to revitalize their economies. Let's just imagine for a moment what it would be like if we could complete our tax returns on one simple piece of paper. A Flat Rate Tax for individuals and a Flat Rate Tax for businesses. The same rules apply to all regardless of size of income. We all pay the same rate. Most of the successful countries have levied Flat Rate Taxes of less than 17%, with a stating level that protects the lower income groups. Could life ever be that simple again? Would our Leaders really want us to understand what they were up to? And then there's those lobbyist. Oh well, it was nice while it lasted.

    Have an opinon or a question you would like me to answer, then write me! http://www. carlhampton. com

    How to keep the irs off your back and out of your life in 2006

    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.


    Tuesday, Jan. 17


    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


    If you have employees, you must make the federal payroll

    tax payment for December 2005 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


    Tuesday, Jan. 31


    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, 2006.

    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.


    Wednesday, 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).

    Tuesday, 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



    Wednesday, 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, 2006) 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).


    Monday, April 17

    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 17. http://www. irs. gov/pub/irs-pdf/f8736.pdf

    As if April 17 wasn't already painful enough, it's also the deadline for the first quarter estimated tax payment for Year 2006:

    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 -- for March 2006.


    Monday, May 1

    Form 941 is due for the 1st quarter 2006. 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

    New procedure for settling tax debts with the irs

    The Tax Increase Prevention and Reconciliation Act of 2005 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 acknowledgement 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.

    Top 7 small business tax tips

    Here are seven ways for owners of small businesses to save money on their taxes.

    1. Incorporate Yourself: If you`re still a proprietor or partner of a business, it`s time to incorporate yourself. Not only will you limit your liability, but you may enjoy lower tax rates on small business income and other tax advantages as well.

    2. Be Home Based: If possible, continue (or switch to) being a home based business. Not only will you keep your overhead down, but you will be able to write-off (or deduct) the business use of your home.

    3. Income Split: Pay reasonable wages to your spouse and children. In this way, you can legally divert income taxed at your higher rate to your family members that are in a lower tax bracket.

    4. Rearrange Your Affairs For Maximum Tax Savings: Can you make some changes to turn your hobby into a moneymaking business? Can you use that extra room in your house as a home office for your business? Can you arrange to use your car more for business purposes? Can you arrange for more of your entertainment expenses to be business related?

    5. Document Your Expenses Well: Do you document your expenses well so that they would survive a tax audit? Have you kept a mileage log so that you can prove the percentage business use you claim for your vehicle? Have you kept receipts for all your entertainment expenses and listed the business purpose on the back of each receipt?

    6. Be Punctual: File all returns and pay all taxes due (income, payroll, sales, et cetera) on time. This way, you avoid expensive late filing (and payment) penalties and interest.

    7. Develop a Tax Planning Mindset: Some people only worry about their taxes during tax season. However, you will save a fortune in taxes, legally, if you make tax planning your year-round concern. Do you make business and personal purchases, investments, and other expenditures with tax savings in mind?

    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.

    Obtaining a federal income tax refund

    “You’re getting an income tax refund”! Those are the words that every taxpayer would love to hear. A federal income tax refund occurs if the tax you owe is less than the sum of the total amount of refundable tax credits claimed and the total amount of withholding paid. For many individual taxpayers those federal tax refunds can be obtained through Earned Income credit, a real refund of overpayment of tax, or through an overpayment from previous years. Some people really believe that getting a large income tax refund is not the greatest thing. Instead they feel that the tax refund represents a loan paid back by the government interest free. Others use their IRS tax refund as a “simple savings plan” where they are surprised to get money back each year. Always remember that it is still better to get an IRS tax refund than to owe money to the government.

    Once you determine you’re receiving a tax refund, there are several options for actually putting that money in the taxpayer’s hands. Standard paper filing, electronic filing with direct deposit, rapid refunds, and refund anticipation loans are the options we have the choice of exercising, and for many refund anticipating individuals, the rapid refund or the refund anticipation loan is the refund of choice.

    Since the advent of the computer age, and the great invention of the internet, the Internal Revenue Service (IRS) has been fairly quick to react to the benefit of electronic filing. The income tax returns are filed much faster, tax refunds are made faster, and money due the IRS can be obtained faster. Let’s take a minute to look at the different IRS refund options, and what each offers the individual taxpayer.

    The standard paper filing, although many are more familiar with this method of filing, is slowing reaching obsolescence. There will soon come a time that the old system of paper tax filing will be entirely eliminated and replaced by the electronic tax filing methods. If you are still one of the dying numbers of Americans who files a paper tax return, you should anticipate receiving a tax refund in about six weeks; today, thanks to the great use of the internet, six weeks to receive a tax refund, seems like an extremely long time.

    The rapid tax refund, that is rapidly replacing the standard paper filing, is an electronic method used for filing your federal income tax return, and allowing you to receive your refund in about 10-14 days. Much faster than the six weeks it used to take. There are usually no excess fees attached to this type of filing, and returns may be filed for free through many local, public access facilities.

    The refund anticipation loan, however, is a little different. These must be administered by a tax professional through an established alliance with a financial and lending institution. There are several excellent choices available, and many qualified tax professionals to complete your tax return, you will however be required to pay a loan fee or a small interest fee for the opportunity to obtain an refund anticipation loan. There are several restrictions placed on receiving a refund anticipation loan, and some of the restrictions may affect many people. For example, if you owe back taxes, back child support, or liens and judgments, you can’t qualify for the refund anticipation loan. Most often, the individuals who apply for and use the refund anticipation loan are recipients of earned income credit, and their tax refunds are usually well into the thousands of dollars. The refund anticipation loan can be processed in as little as three hours, and back in the hand of the taxpayer by late afternoon; this is provided everything works exactly as planned. The higher interest rates charged by the bank product providers, and the higher processing fees charged by the tax preparers, equate to less money for the taxpayer, but many of these individuals don’t even blink when told how much it will be to process their federal tax return, they just want the refund immediately. This is just one more example of the instant gratification upon which our society chooses to operate. Even for individuals filing with the electronic returns, and choosing to have their funds direct deposited, the turn around time is usually no more than 10 to 15 days. You would think that a turn around of less than two weeks would be quick enough for many taxpayers, but typically, the bigger the federal income tax refund, the faster the necessary return.

    It would seem to me that this is just another way for the system to profit from the poor; as it is usually the poor that qualify for the earned income credit tax refunds, and these can be extremely large, especially for families with two or three dependents. In all reality, avoid refund loans if possible. They are highly expensive. Wait patiently for your federal income tax refund and keep every penny for yourself.

    When do you file a tax return

    The first known income tax that Americans were legally required to pay was enacted during the 1860s, and the Presidency of Abraham Lincoln. The Civil War was proving very costly to fund, and the President and Congress created the Commissioner of Revenue and enacted a law requiring citizens to pay income tax.

    Originally, the deadline for completing and filing your individual income tax was not April 15th. In the beginning, it was first set for March 1st. Then, during 1918, Congress pushed the date out to March 15th. Then, in the great overhaul of 1954, the date was once again moved forward to April 15th, and this is where it remains today. But, it has only been set this way for a little over 50 years. That’s not very long, in historical terms, and it could possibly be changed again.

    If you are an individual tax payer, you are required to file either a return or an extension of time to file (Form 4868) by April 15th. Corporate and other legal entities are required to file their tax return by March 15th, and if not, they also must file an extension of time to file. What this extension does not do, is to extend the amount of time you have to pay any taxes due the government. So, if you are unable to ready your personal or business financial information in a timely manner, and have no reasonable estimate as to the amount of tax you may owe, you can expect to pay some form of penalty.

    In the years following WWII, the burden of tax responsibility was shared fairly equally by the corporate world and the individual tax payer. Today, however, the shift has been toward more responsibility on the part of the individual, and less on the business backs. To demonstrate how special interests have begun to overtake American politics, during 1867, public opinion was so strong, and the outcry of the general public so loud, that the President and Congress repealed the income tax law, and from 1868 until 1913 almost all of the revenue for government operation came from the sale of liquor, beer, wine, and tobacco.

    An interesting time during the formation and eventual taxation of America occurred during 1918. Until that point in time, the vast majority of revenue for government funding came from alcoholic beverage sales. In 1919, Congress passed an amendment to the Constitution that made it illegal to manufacture or sell alcohol; what would replace the revenue? American income tax was the proposed solution, and we’ve been paying since. Although during the great years known as Prohibition, many “revenue agents” spent their days tracking down “moon shiners” not tax evaders, the American citizen, the individual taxpayer took on the heavy burden of supporting government revenue, and it has become heavier with each passing year.

    Then, during 1942, the Revenue Act of 1942 was passed and the “New Deal” era was begun. Since that point in time, government control, power, and expenditures has continued to increase at a phenomenal rate, and today the American taxpayer supports a trillion dollar giant known as the United States government. This ravenous beast consumes more than 10% of our earned income each year, and if the Social Security Administration has their way, will continue to consumer even more of our weekly earnings. We can foresee no other relief in sight.

    Currently, all the tax regulations for this country are the responsibility of the Internal Revenue Service, and there are four major divisions of this government office: the Wage and Investment, Small/Business Self-Employed, the Large and Midsize Business and the Tax Exempt and Government Entities. Each division has responsibilities as they pertain to their individual specialty.

    Tax advantages of a limited liability company

    There are several advantages to establishing a limited liability company and many of these compensations revolve around the tax advantages. A limited liability company if often sought as a third alternative to forming a corporation or a partnership. Many corporations are formed because they offer attractive limits on the personal liability that the business may suffer due to debts or liabilities. Partnerships don’t offer the same kind of protection, but do provide better tax advantages.

    A limited liability company works to combine both these features, providing protection against personal liability while also establishing solid tax advantages. In addition to these selling points, a limited liability company is also often preferable to either incorporation or the formation of a partnership because they provide more flexibility than corporations and also because the legalities involved in running tend to be less formal. It is this lack of formality that leads to the tax advantages inherent in a limited liability company.

    When it comes to federal taxation laws, a limited liability company has much more flexibility for choosing particular tax advantages. The default choice when there is more than one owner is for the LLC to be treated like a partnership and file the same form, Form 1065. But a multiple-owner LLC can also choose to be treated as either a C corporation or an S corporation. A single-owner limited liability company can choose to be treated for tax purposes as either a sole proprietorship—which is the default choice made by the IRS—or as either a C corporation or an S corporation.

    The primary tax advantages in organizing a business entity as a limited liability company is the avoidance of double taxation. In traditional corporate structure, a company’s income is initially taxed and after the profits are divided in the form of dividends, they are subject to taxes again. But a limited liability company’s income bypasses the initial taxation and instead each member of the LLC is taxed based on individual allocations. One of the other tax advantages of a limited liability company is that dividends are not subject to taxation.

    Of course, along with tax advantages come disadvantages. After all, if limited liability companies were perfect, there wouldn’t be any other kind of companies. Some states have chosen to impose franchise taxes on LLCs. Of they may require certain annual fees in order to allow you to operate within that state.

    The legal ramifications of choosing to become a C corporation or S corporation or simply a sole proprietorship are dense and complex and certainly shouldn’t be made after reading an article on the internet, even articles that provide much more information that this article. Tax advantages of limited liability companies are certainly a selling point—along with the protection they offer from liability—but before making any decision; it is advisable to consult an experienced attorney. One thing to keep in mind about a limited liability company beyond the tax advantages is that they are a fairly recent innovation and therefore legal precedent is in the process of being set right now. In fact, should you face legal action, your case may be the one that sets the precedent.

    Adult add and taxes

    I know you still have about three months until you have to file your U. S. tax forms, but now is a good time to think about taxes. Many adults with ADD would rather scrub the floor with a toothbrush then work on preparing their taxes. Here are some tips to help make taxes less taxing: (pardon the pun)

    1. Set up a folder ( green, black, or red are good colors) or a box where you will put all of the tax forms that you are receiving now and put it with all of your other important documents.

    2. Get Help - Hiring an accountant to help you prepare you taxes can save you from unnecessary financial anxiety, plus you don't have to worry about missing potential tax breaks. There are also many computer programs (both on-line and on CD-Rom) that will help you step by step to prepare you own taxes. With these programs you should be able to file your taxes on-line, saving you a couple of steps of having to put the tax forms in a envelope, put a stamp on the envelope, and dropping it in the mailbox.

    3. Get a tax buddy - I am not saying that you want to share all of your tax information with your friends, but if you view preparing your taxes as a social event you will be more likely to start and finish the task.

    4. Many tax preparers are willing to offer you tax refund loans, where you can get most of your rebate immediately. Basically these refund loans are a rip-off that takes advantage of the impulsive nature of adults with ADD. With fees ranging from around $ 70 to $ 130 you are paying a steep price to get your money a week or two faster. If you need the money that quickly you probably need financial counseling to get your finances back on track.

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