SDB Finance Information

Finance information for you

Posts Tagged income tax

Federal Tax Returns

Mar 20

Posted by admin in Taxes

Congress first imposed the first federal income tax in 1862 to raise money for the Union in the Civil War. A 3% tax was fixed on incomes above $600. Those with incomes above $10,000 had to pay 5% in taxes.

After many changes and appeals, the states ratified the Sixteenth Amendment to the United States Constitution, which made possible modern income taxes. For the first time, Form 1040 appeared. People earning above $3,000 had to pay 1% tax on net personal incomes, and those with incomes above $500,000 had to pay 6% surtax.

Today more than two-thirds of the nation pays taxes. People earning less than $20,000 pay no income tax as a group. Payroll taxes for Social Security, Medicare and Unemployment Insurance amount to 7-10% of every dollar. Personal and corporate income taxes are major earners for federal taxes.

Income tax can be calculated in two ways. First of all gross income minus any applicable deductions is calculated, and on this a marginal tax percentage is applied as per the taxpayer?s income bracket. Then, applicable tax credits are subtracted, which gives the income tax owed.

Refundable tax credits are given if these calculations are in the negative or if the federal withholding tax is greater than the income tax that is actually owed. The taxpayer then gets a tax refund. He could receive one even without paying any federal income tax.

The newer Alternative Minimum Tax (AMT) is based on gross income. This was introduced to prevent people from using loopholes in the tax laws. It is calculated without taking into account certain tax preference items. It also has exemptions and deductions. This higher income base is taxed in two rate brackets of 26% and 28%; this depends on the taxpayer?s income. Unfortunately the addition of unrealized gain on incentive stock options made it difficult for people who could not come up with cash to pay tax on gains that weren?t realized. The modified AMT takes into account this problem.

American salaried people usually pay progressive income tax. Non-resident Americans have to pay taxes as per the flat rate. They also have fewer allowed deductions.

If you have all the documents, it is easy to file taxes yourself. However if you are in the higher tax bracket, you may need a consultant to help you. The IRS also helps in filing your returns; call the IRS customer service representatives toll-free at 1-800-829-1040.

The IRS website (www.irs.gov) gives you extensive information. You could also go to websites like About Taxes (www.abouttaxes.org), Complete Tax (www.completetax.com), or World Wide Web Tax (www.wwwebtax.com). Do keep in mind that a little bit of care in documentation goes a long way to filing a tax return without any ensuing problems!

Tags: , , , , , , ,

No Comments

Making Sure Your Taxes Are in Order

Jan 1

Posted by admin in Taxes

Taxes are an unsavoury business but they are one of the two facts of life (the other, or so we are told, is death). Unfortunately however the unpleasant nature of filling out tax returns, book keeping and filing documents means that many tax payers overlook these jobs and rely on their employers to sort them out on their behalf. If you’re self employed it will be up to you to register with HM Revenue and Customs, to fill out Tax Returns and to keep all your documents safe. However just because you’re employed doesn’t mean you can rest on your laurels either, and relying on your employer and the government to sort out your finances and taxes for you can lead to you losing money through paying too much tax and overlooking important documents, or having difficulty securing a loan or mortgage.

The first consideration are the payslips you are likely to receive at the end of every month. These help tell you precisely how much you’ve been paid which is useful for book keeping and personal records and you are legally obligated to keep them for your records for at least 22 months if you’re employed or 6 years if you’re self employed. Of even more importance however is your P60 which you should also receive from your employer. You should receive these at the end of each tax year (in April) and they should contain information regarding your wages for that year as well as tax deductions, National Insurance Contributions, Income Tax, Student Loan repayments and statutory payments e.g. SMP, SAP and SPP. You should then inspect these forms to ensure that everything has been correctly accounted for – a copy also goes to HM Revenue and Customs (as a P14) and if they notice any inconsistencies you may have to fill out more forms. Furthermore if things such as Student Loan repayments are not included you may find yourself paying back more tax than necessary and you may be able to reclaim some of your tax for that year if you do spot anything incorrect. This should surely be reason enough to keep a close eye on your payslips and not presume your employer is handling it all adequately themselves.

Furthermore in some cases you may not receive a P60 from your employer at all. This could be for a variety of reasons, but may be down to sheer absent mindedness or laziness if you work for a small business. Make sure you’re on the ball come April then and if you do not receive your P60 demand one from your employer. You must also ensure that the payslips looks professional; it should have been printed using HM Revenue and Customs approved software – not handwritten and that you keep it in a safe place. Alternatively, if you leave your job before the end of a tax year you probably won’t receive a P60 for this reason.

You may also want to check your P60s for National Insurance Contributions. This is the government’s own protection scheme and will pay for your wages should you fall victim to illness and will also pay for your pension upon retirement. This should be handled by your employer and should be about 10% of your annual salary. However should they leave it off, or should you wish to opt out of your employer’s pension scheme, then you should speak to your employer and could save yourself some money. As you can see then, there are myriad reasons for you to take an active interest in your payslips and general tax each year.

Tags: , , , , , ,

No Comments

What Are The Taxes On Earnings?

Jul 30

Posted by admin in Taxes

Almost all governments across the globe are funded? in some form ? by the taxation of its citizens. Certain of the taxes are collected at the time of sales or service whereas certain others in a 12 month period or at the end of what they call a fiscal year. Taxes on earnings or income tax is such a yearly beast.

Taxes on earnings are essentially a bill from the federal and state governments, declaring the rules of taxation on one?s personal earnings through salaries and investment profits. It has been designed as a progressive tax in which the financial obligations of an individual increase with the rise in his/her reportable income.

In United States, taxes on earnings came to effect officially or in a full swing after the passing of national income tax law in 1914. At that time, the law was mainly aimed at the rich and the greediest among the population who owned a lot of wealth in contradiction to the majority of the people. Eventually in another few years, the tax on earnings would trickle down to the middle and lower working classes. In reality, even though the tax on earnings is progressive, big corporate and wealthiest individuals enjoy a lot of legal exceptions as of now at least.

Taxes on earnings are levied only on a positive income and not on net loss. The taxes on earnings structure has been designed in such a way that individuals can earn a certain non-taxable income, the standard deduction amount being decided by the state and federal governments and subsequently listed on the respective tax forms. It follows that if a person is not earning an amount that is above the specified standard deduction amount, then he/she need not have to pay the taxes on earnings.

In the case of wage earners, the department of payroll is obliged to cut a set percentage of the money from the pay checks for taxation purposes. The amount to be deducted is decided on the basis of some specific calculations based on the individual?s dependency and marital status. The amount deducted in this regard is shown in an official tax form called a W-2. The untaxed income will be reported on a form called a 1099.

The income tax season is from January to April 14 and during this period every individual should report their total income from wages and profits from investments to the government without fail. The amount to be paid as tax will be in give a chart provided with the form 1040.

If the amount deducted by the payroll department is higher than the amount specified by the chart, then the excess amount deducted will be refunded. If it is the other way around, the individual must pay the IRS accordingly.

For a middle class person, the taxes on earnings can amount to 15% of their gross annual income. By sighting expenses related to their profession, one can claim legal deductions from the tax to be paid thus reducing the amount significantly. Also charity donations can serve to offset taxes on earnings.

There is more than one provision by which one could save on the taxes on earnings while still remaining within the contours as mandated by the tax laws. A tax preparing firm or an experienced accountant could help one in using the tax concessions to the fullest.

About The Author
Jakob Jelling is the founder of http://www.cashbazar.com. Visit his website for the latest on personal finance, debt elimination, budgeting, credit cards and real estate.

Writen By : Jakob Jelling

Tags: , ,

No Comments

Deciding When To File A Tax Return?

Jul 29

Posted by admin in Taxes

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.

About The Author
Keith Hoyng is the web master and operator of http://www.quickcash2u.com which is a good source of financial, travel, remodeling, and much more information. Visit us at http://www.quickcash2u.com/TaxHelp.html.

Writen By : Keith Hoyng

Tags: , ,

No Comments

Other Taxpayers Have It Worse

Jul 28

Posted by admin in Taxes

U.S. taxpayers aren\’t the only ones to feel a bit of a crunch at tax time. In fact, we don\’t have it that bad.

You may not believe it after paying that huge tax bill in April, but the U.S. isn\’t the top of the income-tax list when compared to the rest of the world. A recent study by the Organization for Economic Cooperation and Development compared the tax rates in 30 countries.

In Belgium, a single worker with the average income paid 42% of his income to the government in 2005. Twenty-eight percent went to income taxes and 14% went to Social Security, according to the study.

The German worker also paid a combination of income and Social Security that hit 42%. In Denmark, the average worker only pays 41%.

All tax rates were based on single workers with no children. They did not take into account what the employer pays in Social Security for the worker\’s behalf.

In the U.S., the average worker pays 24% to income tax and Social Security combined. The rate ranks the country 19th among the 30 listed.

Mexico came in at number 30, with 8% going to the combination of income taxes and Social Security taxes.

\”Countries differ in how much they decide to collect in taxes on people\’s income and how much tax they collect on when good are bought,\” explained Christopher Heady, head of OECD\’s tax policy and statistics division.

He points out that Mexico collects a very small amount of tax when compared to the other countries. But it collects most of its revenue on the sales of goods, not on labor. Belgium, on the other hand, doesn\’t charge much for sales tax, relying on labor income instead.

When all taxes were considered, including income, sales, business and others, Sweden was the top of the list. It tax revenues came in at about 50% of gross domestic product. Denmark and Belgium finished up the top three.

At the bottom of the list were Mexico, at number 30; Japan and Korea, tying for 29 and 28; and the U.S. at 27.

\”The U.S. is a comparatively low-tax country. I\’m sure the people filing tax returns recently wouldn\’t agree with that, but that\’s particularly because the U.S. collects a lot of its revenue from income tax and you don\’t have a value-added tax,\” Heady said.

Heady points out that high-tax countries do have benefits.

\”Most of those high-tax countries have universal health-care systems. That means you don\’t have to pay for your own health care or pay for insurance to cover your health,\” he explained. The countries \”usually have more generous state-provided retirement pensions than the U.S, so that people don\’t usually feel the need to buy a private pension. There\’s better provision of preschool education, and universities are cheaper. There are all sorts of public services that are provided at lower cost.\”

However, he points out in the U.S. \”the advantage is that you have more choice over how you spend your money, because you get more of it.\”

Martin Lukac (http://www.MartinLukac.com), represents http://www.RateEmpire.com and http://www.1AmericanFinancial.com, a finance web-company specializing in real estate/mortgage market. We specialize in daily updates, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies!

Writen By : Martin Lukac

Tags: , , , , , , , ,

No Comments

Tax Planning For Individuals Not Domiciled In The UK

Jul 28

Posted by admin in Taxes

Introduction

Individuals who reside in the UK, but were born elsewhere and have foreign parents, or who may be thinking of moving to the UK, may not be subject to the full range of UK taxes. Special rules apply to persons who are not domiciled in the UK. A UK domiciled and resident person is subject to tax on worldwide income and capital gains and his worldwide assets are charged to inheritance tax on death. A person who is not so domiciled may be subject to tax on income and gains only to the extent that they are remitted to the UK and his estate liable to inheritance tax only on assets located in the UK.

This paper is intended to provide a general overview of the rules that apply to non-domiciled persons. However, it should not be taken as tax advice and reference should be made to a competent professional before setting up any structure referred to.

Domicile

In English law everyone is born with a domicile. This is generally the domicile of the father and is known as the domicile of origin. The domicile of origin is retained until, by his actions, a person demonstrates that he has broken his ties to his domicile of origin and established a domicile elsewhere ? a domicile of choice. Moving from elsewhere to the UK and making that country the permanent home with the intention of staying can be such an event.

General principles that apply to UK taxation

Residence and Ordinary Residence

The general rule is that a person who resides in the UK for a period of 183 days in a tax year is regarded as resident for tax purposes. He can also be resident if UK visits over a four-year period average more than 90 days a year. The timing of residence status based on annual visits depends on whether or not he intends making such visits at the outset. If so, residence begins immediately; otherwise it starts from the fifth year.

A person who spends an average of 90 days a year in the UK is regarded as ordinarily resident. He is also ordinarily resident if on arrival he intends to stay in the UK for three or more years. Occupying a property for three years or more is evidence of such an intention.

Income Tax

Income from UK sources is chargeable to income tax, generally without regard to residence status. The worldwide income of residents is generally taxable. An individual who is resident but not domiciled in the UK will not be liable to UK tax on investment income unless that income is remitted to the UK. The tax rules on remittances apply from the date residence commences whether or not the taxpayer is regarded as ordinarily resident.

Capital Gains Tax

Profits on sales of UK assets are chargeable to capital gains tax if the taxpayer is either resident or ordinarily resident in the UK at any time in the tax year in which a disposal is made.

Individuals who are not domiciled in the UK are only liable to capital gains tax on profits from the disposal of assets located outside the UK. Where the asset is denominated in a foreign currency the gain must be calculated in sterling using the rates of exchange on the dates of purchase and sale respectively.

Inheritance Tax

Individuals who are not domiciled in the UK are liable to inheritance tax in respect of assets located in the UK. Indeed such assets are within the charge to inheritance tax by whomsoever they are owned and wherever resident. Persons who are not domiciled in the UK are not liable to inheritance tax in respect of assets located outside the UK.

A person domiciled outside the UK is treated as being domiciled, for inheritance tax purposes only, if he has been resident in the UK in 17 out of 20 tax years.

Tax Planning Opportunities

An individual who is not domiciled in the UK is able to take advantage of the special rules described above to limit his liability to taxation, even if he is resident in the UK. If he does not need to remit foreign income or capital gains he can completely eliminate liability to UK taxation. Such protection from tax can be achieved by using the following two-step procedure:

  1. Form an offshore company in a jurisdiction, which does not impose taxes. There are many such territories and those we recommend are described elsewhere on our website.

Transfer the UK assets to the company in exchange for shares. For UK tax purposes the asset owned by the non-domiciled person is now the shareholding and not the underlying assets. Being an investment in a foreign company the shareholding is outside the charge to inheritance tax. Assets located outside the UK should also be transferred to the company. This will protect them in the event that the individual acquires a UK domicile or deemed domicile and from similar taxes in the countries in which they are situated.

  • Donate the shares in the company to the trustees of a family trust established in the tax- free territory outside the UK. The assets of a trust settled by a person who was at the time domiciled outside the UK are, if they are not UK assets, outside the charge to inheritance tax in the death of the settlor or on the death of any other beneficiary, wherever resident at that time. The trust accordingly continues to provide shelter from inheritance tax even if the person who set it up becomes domiciled in the UK. It may provide similar benefits if he later decides to return to his country of origin, or elsewhere. Visit http://www.chesterfield-offshore.com/offshore-trusts.htm for more information on the types of trust in common use.

    • Taxation of the trust and company

    Whilst neither the trust nor the company can be taxed directly there are circumstances in which an individual resident in the UK can be charged to tax on the income and capital gains arising to the structure. This generally depends on where the settlor is resident.

    UK Resident but not domiciled

    Capital Gains Tax

    Gains made by the trust or the company will not be subject to capital gains tax. This applies to UK assets as well as non-UK assets.

    Capital gains remitted to beneficiaries who are resident in the UK but not domiciled there will not be charged to capital gains tax. Any UK resident and domiciled beneficiaries are taxed on any gains that they receive.

    Income Tax

    Foreign income within the trust is not subject to income tax, unless remitted to the UK.

    UK source income received by the trust or company is taxable. This liability can sometimes be reduced particularly for UK rental income. If the settlor or his spouse is UK resident and can benefit from the trust he will be taxable on the UK income as it arises, whether remitted or not.

    Inheritance Tax

    An offshore trust established by a non-UK domiciled individual is only subject to inheritance tax if it has UK assets. As described above, inheritance tax on UK assets is avoided by holding them within an offshore company owned by the trust.

    Not resident or domiciled in the UK

    Capital Gains Tax

    Gains made by the trust or company will not be subject to UK capital gains tax.

    Income Tax

    UK source income receivable by the trust or company is taxable. The liability can sometimes be reduced, particularly in respect of UK source rental income.

    Inheritance Tax

    An offshore trust established by a non-UK domiciled individual is only subject to inheritance tax if it has UK assets. As described above, inheritance tax on UK assets is avoided by holding them within an offshore company owned by the trust.

    A trap to avoid

    Non-UK Domiciled Spouses

    Where an estate passes on death to a surviving spouse it is exempt from inheritance tax, but only when both spouses are UK domiciled. Where the survivor has a foreign domicile this exemption is limited and without planning, can result in a liability. Couples in this position should consider transferring assets from the UK domiciled spouse to the foreign domiciled spouse. If the recipient survives for seven years the gift will be free of inheritance tax on the death of the donor. The non-domiciled spouse will however be able to establish an offshore trust and company structure with all the benefits described above.

    Ref: CO070606

    Author Michael Yates is Chesterfield\’s Marketing Manager. He has the responsibility for promoting Chesterfield offshore trust and company financial products and developing and maintaining relationships with clients and professional intermediaries. Michael is based in the Isle of Man.

    Chesterfield provide offshore trust consultancy, management and administrative services covering offshore company and trust formation and offshore partnerships and management for trading, investment holding, asset management and estate and tax planning. For more information on these services and buying a property in the UK visit http://www.chesterfield-offshore.com

    Writen By : M. Yates

    Tags: , ,

    No Comments

    Reconstruct Your IRS Records Without Fear!

    Jul 27

    Posted by admin in Finance, Taxes

    Taxpayers are required to keep tax records for a minimum of three years. However, the law allows for exceptions to this rule, especially in the case of a natural disaster, or other loss. A fire, flood, theft, or other casualty qualifies as a legitimate reason for record reconstruction and the use of estimates. Reasonable estimates may be used for tax purposes, insurance reimbursement, and FEMA aid.

    Here are some helpful tips to help you reconstruct your records.

    1. Take photographs as soon as possible. Disposable or digital cameras are best, and keep the photos in a safe place, or, better yet, upload them into your e-mail account.

    2. If you own your home, contact your title company, bank, or escrow company and request copies of your records. In the case of a damaged vehicle, use Kelly Blue Book or NADA value. You can also look up this information online.

    3. Use your property tax settlement for value estimates. You can get copies from your tax assessor?s office. You may even be able to access your records online. Your mortgage company (bank) may also have a recent appraisal on file.

    4. Check online and with local appraisal companies in order to get ?comps? for your property. ?Comps? are comparable sales in your area, and may be used to accurately assess value.

    5. Contact the IRS and request copies of previous year?s tax returns. You may request transcripts of previous tax returns by filing form 4506-T. Transcripts are free, easier and faster than requesting copies of original returns, and transcripts may be requested by phone.

    6. If a home improvement was made, such as a deck or a garage addition, contact your independent contractor for copies of the contract. You may also use written accounts of relatives or friends as proof that the improvement was made.

    7. For personal property, use old photographs that show furniture, electronics, or other items. You can also reconstruct records by drawing a simple floorplan of each room, and documenting the items that were there. Include all rooms, garages, attics, and basement, if any. If you purchased items with a credit card, get copies of your credit card statement, and use that as a basis for the items.

    8. If you need to reconstruct your W-2 forms, use an earnings statement, or W-2 forms from a prior year, then reasonably estimate your income. All of the information that you need should be listed on your earnings statements. Use form 4852 to submit an estimated W-2 form to the IRS, and estimate your wages.

    Reconstructing records may seem like a daunting task, but remember that the IRS allows taxpayers to make thousands of reasonable estimates every year. Every year, businesses experience thefts, fire, floods, and other disasters that destroy property and records. As long as the estimates are reasonable, and you demonstrate an honest attempt to obtain proof of those records, the IRS will allow the estimates in lieu of actual records.

    When in doubt, seek the advice of a tax professional, or call the IRS directly. You may be on hold for a while, but at least the call is free. Keep a record of your conversation with the IRS operator. Write down his identification number, and an outline of your conversation. Search the internet first?the information is free, public, and may save you a lot of time and money. Many taxpayers that experience casualty losses can figure out the estimates for themselves with just a little effort and elbow grease. Be truthful, and don?t be afraid to trust your judgment. You?re smarter than you think!

    Christine P Silva, BA, CRTP, lives in California with her husband, two children, and three spoiled cats. She earned her undergraduate degree from San Jose State University, and her advanced accounting certificate and tax license from Cosumnes River College. She is the founder of the Sacramento Volunteer Tax Preparation Clinic, a free service offering tax assistance to low income and Spanish-speaking taxpayers.

    Writen By : Christine Silva

    Tags: , , , ,

    No Comments