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How To Make Tax Time Less Painful

Jul 25

Posted by admin in Taxes

There are a few things that you can do throughout the year that may help you get through tax time with less stress. First, organize your documents and keep them organized throughout the year. Search the internet for free websites that give you organization suggestions. Some of them even have templates to help you put your tax records in order. Consider a good software program like Microsoft Money which has a 90-day free trial.

If you itemize your deductions, and you certainly should itemize if you are self-employed, keep all your receipts in an expandable folder that can be organized by month, alphabetically, or any way that you want to organize it. If you are ever audited, you will lose the deductions you claimed that cannot be verified by a receipt. If you make cash donations, IRS has a formula that calculates how much you can deduct, but, as with any other deduction, you must have a receipt in order to claim the deduction. Be sure your receipts have the name, date, address, amount, purpose, type, value, and any other information pertinent to the validity of the deduction.

Unless you are really knowledgeable in accounting and tax law, a good CPA is well worth the money. The tax laws are constantly changing, and the average person cannot keep up with the changes let alone understand them. Remember that you should always make the best use of your resources, and that includes using your talents for those things that you do well and outsourcing those things that someone else can do better.

There is no absolutely certain way to avoid an audit, but people say that certain things increase the likelihood of an audit. For example, make sure there are no math errors in your tax return. If there are inaccurate calculations, the IRS will have to take a second, more careful look at your return. Once IRS is looking more closely at your return, there may be red flags that could lead to an audit. It is best to do the math correctly so that IRS never has to take a closer look at your return.

There are blogs and websites for almost any topic, and doing a little research will help you be better educated and less stressed. Don?t forget that your local library has many book about income taxes and tax returns. You may also want to look into Turbo-Tax, Microsoft TaxSaver, or one of the other good tax software. Even if you hire a CPA, you will save yourself time and money by being well-prepared and by understanding the process.

IRS also has telephone help lines that can be really helpful. The IRS website at www.irs.gov is also very helpful and easy to use. It is alright to contact IRS and ask questions. You are not any more or less likely to be audited if you contact IRS and ask your questions. As previously stated, you are more likely to be audited if you make errors on your tax return. These are just a few basic suggestions that can help make tax-time less stressful for you.

Jo Ann Joy, Esq., MBA, CEO
Copyright 2006 Indigo Business Solutions. All rights reserved.

About the Author

Jo Ann Joy is the CEO and owner of Indigo Business Solutions, a legal and business consulting firm. Indigo Business Solutions is a ?one stop shop? for small businesses. We differ from other business consulting firms, because we offer comprehensive legal and business counseling. We can offer most of the professional services that a business requires. We work with our clients to develop strategies that create value and competitive advantage.

Jo Ann has a law degree, an MBA, and a degree in Economics, but she is not a traditional attorney. Rather, she is a strategic business attorney who works closely with clients to create and implement strategies that will greatly improve their performance and chance of success. Her background includes commercial and real estate law, accounting, financial planning, mortgages, marketing, product development, banking, and business strategies. She ran a successful business for 10 years, and she has written and given presentations on many different legal and business subjects.

You may contact Jo Ann by phone at (602) 663-7007, by fax at (602) 324-7582, by email at joannjoy@Indigo Business Solutions.net, and by mail at 2313 East Ocotillo Rd., Phoenix, AZ 85016. You may request free copies of her other Ezines or purchase her E-books on the website.

For more information about these and other important business topics and for legal consultation, please visit our website at http://www.IndigoBusinessSolutions.net

The future of your business starts here.

Writen By : Jo Ann Joy

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Income Tax Tips To Possibly Save You Money

Jul 24

Posted by admin in Taxes

Do you prepare your own income tax return to save money on preparation? If you do, or you are planning on using this method on your next return, there are some things that you should know that will help you to avoid making costly income tax errors. Errors that can cost you some of your refund or that can cost you in time having to amend your return and send it in again. Here are some income tax tips to help you get started:

1. Make sure that you know which income tax form to use: 1040EZ (for single filers without itemized deductions), 1040A (for married filers without itemized deductions) or 1040 (for those who itemize deductions.)

2. Check for errors in your personal information on the income tax return such as your social security number(s), address, etc.

3. Take the most beneficial deduction. Depending on your circumstances, either the standard or itemized deduction may keep more money in your pocket. You should do the worksheet in your income tax instruction booklet to see which one would be best.

4. If you have a home office you can deduct a percentage of your mortgage interest as well as your utilities and other things you may have not thought of as business expenses.

5. Don?t forget to take any medical expense deductions that you have available. If your employer takes out your health insurance after taxes and it is more than 7 percent of your total income, you can take this deduction. Include dental and prescription costs as well.

6. Make sure that you have all of your forms before you file your income tax return. Think about any extra jobs or pay you may have received as well as interest you have accumulated.

7. Take your state and local income tax deduction from the previous year?s returns.

8. Check the return at least twice for any math errors even if you are using a calculator. These can be very costly and are easy to miss.

9. Don?t forget to get all of the necessary signatures on the return. If you are married filing jointly, you will need both spouses to sign.

10. Consider using tax preparation software. It is more accurate than self-preparation and it can be easy to use and understand and it will check your return for errors for you. You can also get free or low cost tax preparation through the IRS if you have a low or moderate income.

Eriani Doyel writes articles about Finances. If you would like more information about tax refunds visit faqtaxes.com

Writen By : Eriani Doyel

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Minimizing The Income Tax On The Receipt Of Lump-Sum Social Security Benefits

Jul 17

Posted by admin in Taxes

Sometimes a taxpayer will receive Social Security benefits in one lump sum. A taxpayer might have to pay income taxes on up to 85 percent of these benefits. However, a taxpayer may make an election under Section 86(e) of the Internal Revenue Code to minimize the income tax on the receipt of the lump-sum Social Security benefits.

Why would a taxpayer receive lump-sum Social Security benefits? A taxpayer could have been receiving Supplemental Security Income (SSI), which is tax free. Then, the Social Security Administration determines that the taxpayer should have been receiving Social Security disability benefits for the last several years instead of SSI. Another reason that a taxpayer could receive Social Security benefits in one lump sum is that the Social Security Administration may have initially denied the individual\’s application for Social Security disability benefits, but the individual wins those benefits on appeal.

Social Security benefits are not taxable for taxpayers with relatively low amounts of adjusted gross income. At moderate levels of adjusted gross income, 50 percent of the Social Security benefits are taxable. At high levels of adjusted gross income, 85 percent of Social Security benefits are taxable.

This graduated system for including Social Security benefits in gross income and the progressive nature of income tax rates can have a very bad effect on individuals who receive lump-sum Social Security benefits. Such individuals might have to pay a much larger amount of income taxes than they would have if they had received the Social Security benefits when they should have received them. If the taxpayer does not take action to make an election allowed by Section 86(e) of the Internal Revenue Code, that is what will happen.

Sometimes the taxpayer does not receive any cash for the lump-sum payment. For example, if the taxpayer had been receiving SSI and the Social Security Administration determines that the taxpayer should have been receiving Social Security disability benefits, the Social Security Administration will reduce the disability benefits by the amount of the SSI paid to the taxpayer. The taxpayer will receive a Form 1099-SSA showing the amount of the lump-sum Social Security disability benefits and yet the taxpayer received little, if any, cash.

Section 86(e) of the Internal Revenue Code allows a taxpayer who receives lump-sum Social Security benefits to elect to include in gross income only the sum of the Social Security benefits that the taxpayer would have included in gross income in prior years if the taxpayer had received the benefits in the years to which the lump-sum payment is attributable. A taxpayer may also make the election if the taxpayer received Railroad Retirement benefits in one lump sum.

Section 86(e)(2)(B) states that the taxpayer should make the election in the manner prescribed by the Secretary of the Treasury in regulations. However, the Secretary of the Treasury has not issued any regulations under Section 86. Once a taxpayer makes the election, the taxpayer may not revoke it with the consent of the IRS.

Because no regulations exist that prescribe the manner of the election, a taxpayer should make the election according to the guidance the IRS provides in IRS Publication 915, \”Social Security and Equivalent Railroad Retirement Benefits.\” IRS Publication 915 has helpful worksheets and other information about making this election. Taxpayers who received Social Security benefits or Railroad Retirement benefits in one lump sum should consult IRS Publication 915 and determine whether the election will reduce their taxes.

Alan D. Campbell is a CPA in Arkansas and Florida and is self-employed primarily as an author of tax publications. He earned a Ph.D. in accounting with an emphasis in taxation from the University of North Texas. He is also admitted to practice before the United States Tax Court. He has published numerous articles on tax topics in professional journals. He is the co-author of the book Tax Strategies for the Self-Employed and the revision editor of CCH Financial and Estate Planning Guide, 15th edition. For more tax savings strategies, please see his blog: http://taxsavingsstrategies.blogspot.com

Writen By : Alan D Campbell

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An Investor\’s View Of The Fair Tax: A Resolution

Jul 17

Posted by admin in Taxes

The vast majority of Americans are investors, although many don\’t realize it. The vast majority of Americans are creative with their 1040 numbers, although most won\’t admit it. The majority of Americans would agree that investing, retirement planning, and estate preservation would be easier to manage if the Internal Revenue Code was comprehensible. A landslide of American voters would elect any candidate championing IRC replacement surgery.

All of us aspire to some degree of economic security and none of us would be so critical of the wealthy if we had a shot at joining their ranks. One side of the legislative mouth encourages savings and investment while the other treats it with totally \”unearned\” disrespect. One wealthy political party wants us to hate anyone with indoor plumbing while the other (wealthier) one spends most of its time trying to protect its diminishing turf and powerful cronies. All levels of government view businesses small and large as their all-purpose Reserve Accounts and, as a result, both prices and taxes suffer from a terminal case of \”downward stickiness\”. Not surprisingly, in a DC crowded with 10,000 combative fiefdoms, nowhere can a PhD in dot connecting be found. We can change this!

It is likely that most of you are more familiar with the controversial Fair Tax Legislation than I am, but what I have found most shocking is just how thoroughly The Act\’s refreshingly new ideas have been swept under the congressional carpet. Neither political party really wants to change the sacred IRC, and why are our media heroes keeping their heads in the sand on this one? Let\’s squeeze some meaningful change out of the next administration. From an Investor\’s point of view, implementation of just three elements of the Fair Tax would be an outstanding starting point, even without the more sweeping changes that the Bill addresses.

[The Fair Tax Act of 2003 was authored by Representative John Lindner and co-sponsored by 54 others. Its purpose is: To promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national sales tax to be administered primarily by the States.]

Now this is pretty heady stuff, for sure, but every bit as easy to implement as real Social Security reform would be. The three changes reviewed briefly below would be an excellent Phase One.

1) Eliminate the Corporate Income Tax, and all other nuisance fees and taxes that businesses must pay just for existing. Whatever any business is charged in fees, taxes, and mandatory assessments is translated into higher prices for goods and services? and at more than a 1/1 ratio. Governments need to look at businesses as employers and wealth generators, not as rateables. Lower expenses should result in lower prices and higher profits, and this would be comparatively easy to monitor for compliance.

Corporations would have more incentive to control their general expenses if such savings would actually make it to a bottom line that could be used to grow the business, compensate owners, and reward employees. More, higher paid, employees and more spendable (untaxed) corporate dividends are good for the economy. How many billions in lobbyist fees would be removed from corporate pricing formulae? With no income taxes or mandated charges to fork over, corporations could focus on growth and innovation. Investors would own more viable companies, selling more competitive products, to a more affluent population. Additionally, fewer jobs would be exported, more foreign companies would invest in the US of A, and GNP would rise at a faster pace. Rising profits would increase dividend payouts, stock repurchases, debt retirement, and employment opportunities.

2) Eliminate the Capital Gains Tax: I\’ve often referred to taxes (or tax avoidance decisions) as one of two \”Tails\” that \”Wag the Investment Dog\”. Every year, millions of people go out of their way (with professional encouragement) to lose money on perfectly good securities. Those who take profits too soon are punished severely and those whose behavior is tax-wise may severely damage their investment portfolios\’ future. Although it is clear that the Capital Gains Tax was originally designed to pick the pockets of those terrible folk wealthy enough to play the stock market for profit, it now inflicts considerable pain on all of us? particularly those who foolishly subscribe to the archaic Buy \’n Hold investment (mismanagement) strategy. Times have changed, and the average investor is now a pretty average guy indeed, willing to build a future if Uncle will let him.

A Government that bemoans the population\’s low savings and investment rates has only itself to blame, and Wall Street Institutions are happy to exacerbate the problem with their own financial pandemic of products, strategies, and tax deferral/avoidance schemes. Fair Tax advocates estimate that Billions of Dollars, Hours, and Antacids could be allocated more productively every year, just from eliminating this portion of the tax form preparation process? not to mention the trees.

3) Eliminate taxation on all forms of investment and Retirement income: Dividends, Interest, Rents, Royalties, Social Security, Pension, IRA, 401(k), etc. It just makes abundant sense, doesn\’t it? Without taxation, interest rates, rents, and professional\’s fees, just to name a few, could fall. Personal disposable income would rise and a much larger number of retirees would be able to live comfortably. Isn\’t this what periodic IRC tinkering is all about? Wouldn\’t it be cool if all of those different IRAs and self directed plans could be combined and relabeled: \”My Untouchable Retirement Plan\”? We would all save more and spend more if we had more to deal with.

No one expects a hundred million taxpayers to agree 100% on the final plan. I have problems with taxing education and health care spending, for example, and there is no doubt that displaced IRS bureaucrats will populate new compliance entities that monitor corporate operations. And most would agree that three separate sales taxes would be unacceptable. But real win/win/win change is in sight. We just need a positive leader with some?

Here\’s my proposed 2006 (and beyond) Voting Resolution for anyone with even the smallest start-up IRA account: \”I promise to never, ever, cast my vote for any incumbent, at any level of government and from any political party, that has not clearly demonstrated that the repeal and replacement of the existing IRC is at the very top of his or her political agenda.\” It\’s time to reinvent this wheel!

Steve Selengut
http://www.sancoservices.com
http://www.valuestockbuylistprogram.com
Professional Portfolio Management since 1979
Author of: \”The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read\”, and \”A Millionaire\’s Secret Investment Strategy\”

Writen By : Steve Selengut

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Save Taxes Using The Section 179 Deduction

Jul 16

Posted by admin in Taxes

A taxpayer who conducts an active trade or business can save income tax with the Section 179 deduction. Section 179 of the Internal Revenue Code allows a business to deduct immediately the cost of tangible, personal property that the business purchased and placed in service in a trade or business. Therefore, a taxpayer may claim the Section 179 deduction on business equipment, office furniture, and machinery used in the business. In addition, off-the-shelf computer software qualifies through 2007. However, if the taxpayer uses such assets in connection with rental real estate, they do not qualify for the Section 179 deduction.

A taxpayer must use the asset for more than 50-percent business use to claim any Section 179 deduction. If the usage is greater than 50 percent but less than 100 percent, the taxpayer may claim the Section 179 deduction on the percentage of the cost of the asset that is used for business. A taxpayer claims the Section 179 deduction by making the election on Form 4562.

This deduction reduces taxable income and therefore saves income tax. If the taxpayer is a self-employed individual, the Section 179 deduction also reduces self-employment income and therefore saves self-employment tax.

Vehicles purchased and placed in service in a business are eligible for the Section 179 deduction. However, the total deduction for depreciation and the Section 179 deduction on most vehicles is severely limited. Therefore, claiming the Section 179 deduction on car used in a business is usually not the best use of the Section 179 deduction.

However, if the taxpayer purchases and places in service a sport utility vehicle (SUV) that has a gross vehicle weight of more than 6,000 pounds, the taxpayer may claim a Section 179 deduction up to $25,000. In addition, the taxpayer may claim a depreciation deduction on the remaining cost. If a taxpayer purchases and places in service a pickup truck with a gross vehicle weight of more than 6,000 pounds, the taxpayer may claim all of the cost of the pickup as a Section 179 deduction, subject only to the annual limit and the taxable income limit as explained below.

The Section 179 deduction reduces the adjusted basis of the property. However, if the taxpayer has any cost remaining after subtracting the Section 179 deduction, the taxpayer may take depreciation deductions on the remaining cost, including in the year of purchase.

The maximum Section 179 deduction allowed in 2006 is $108,000 (Rev. Proc. 2005-70). This limit is the aggregate limit on the cost of all eligible property and not the limit on each item of eligible property. If a taxpayer purchases more than $430,000 of eligible property during 2006 (Rev. Proc 2005-70), the maximum Section 179 deduction is reduced by $1 for each $1 of the cost of eligible property over the $430,000 limit.

In addition, the Section 179 deduction is limited to the taxable income derived for any business before considering the Section 179 deduction. For this purpose, wages and salaries count as income from a business. Therefore, someone who is employed may start a part-time business and claim the Section 179 deduction even if the business makes little money or suffers a loss in the first year or two. The taxpayer may carry forward to the next tax year any Section 179 deduction that exceeds the taxable income limit. There are also special rules for certain kinds of property called listed property.

If a taxpayer disposes of property on which the taxpayer has claimed the Section 179 deduction, the Section 179 deduction is subject to recapture in the same manner as depreciation. A taxpayer reports the sale of such property on Form 4797. The recapture of depreciation and the recapture of the Section 179 deduction on a sale of the property are not subject to the self-employment tax (Section 1402(a)(3)(C)).

If the taxpayer converts the asset to 50-percent or less business use before the end of its depreciable life, however, the taxpayer must recapture part of the Section 179 deduction for income tax purposes and self-employment tax purposes. A taxpayer reports such recapture on the same form on which the taxpayer claimed the deduction. For a self-employed individual the form would be Schedule C of Form 1040 because the Section 179 deduction claimed on Form 4562 flows to Schedule C.

The Section 179 deduction is one of the best deductions allowed to a taxpayer who operates a business. Claiming the Section 179 deduction accelerates the deduction for depreciation that the taxpayer would have to claim over several years. Money does have a time value. In addition, a self-employed individual usually saves self-employment tax with the Section 179 deduction, but the recapture of the Section 179 deduction increases only income tax, not self-employment tax.

While claiming the Section 179 deduction is usually a good decision, in some cases it may not be wise. Therefore, a business owner would be wise to consult a competent tax professional before claiming the Section 179 deduction.

Alan D. Campbell is a CPA in Arkansas and Florida and is self-employed primarily as an author of tax publications. He earned a Ph.D. in accounting with an emphasis in taxation from the University of North Texas. He is also admitted to practice before the United States Tax Court. He has published numerous articles on tax topics in professional journals. He is the co-author of the book Tax Strategies for the Self-Employed and the revision editor of CCH Financial and Estate Planning Guide, 15th edition. For more tax savings strategies, please see his blog: http://taxsavingsstrategies.blogspot.com

Writen By : Alan D Campbell

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10 Thoughts On Tax Offer In Compromise

Jul 7

Posted by admin in Taxes

Beware of advertisements that claim to settle tax debts for \”pennies on the dollar\”. Check the Offer In Compromise requirements to see if it is right for you.

1. If you are unable to pay a tax debt in full, if the taxpayer establishes to the satisfaction of the IRS that he either: has
no means of paying the tax, or does not actually owe the tax–and an installment agreement cannot be worked out–the IRS
strives to resolve the taxpayer\’s tax debt.

2. Under certain circumstances, you may be able to take advantage of the offer in compromise (OIC), but there are
hurdles to overcome before the Internal Revenue Service accepts less than full payment. To date, taxpayers who have gone
through the Offer in Compromise program to settle their tax bill have saved millions of dollars.

3. An OIC delinquent tax settlement is an agreement taxes owed for less than the full amount of taxes due. It\’s a complex
decision and a tax attorney is needed for his extensive expertise in planning, preparing, negotiating and even appealing
rejections.

4. IRS Code Sec. 7122 gives the IRS power authority to settle–compromise–federal tax liabilities. Exceptional circumstances
sometimes exist that allow the IRS to consider an OIC program for the taxpayer. For example, a taxpayer must demonstrate that
collection of the tax would create an economic hardship or would be unfair and inequitable.

5. Very few offers were accepted in the past, because the standards were almost impossible to meet before a tax debt was
legally compromised. Recent tax legislation has given new hope to taxpayers who were previously disqualified.

6. In the past the IRS really did not want to encourage OIC\’s. Prior to 1992 the IRS has been reluctant to settle tax
liabilities, but with mounting uncollected taxes, the IRS has decided to go easy on the growing number of cases it sees.

7. Today, the OIC program is one of the best tax resolution tools available to taxpayers. The IRS will accept an OIC when
it looks unlikely that the taxes will be collected; but before that happens a good tax person must know and carefully navigate
virtually every key regulation involved.

8. After all taxpayer avenues are explored and different available payment options are reviewed, the IRS makes a
\”business\” decision: they want to collect a partial payment rather than nothing at all. The IRS is thinking, \”Is there is
doubt that the taxpayer will ever pay the full amount of tax owed?\”

9. An OIC amount \”offered\” by the IRS is the amount that they feel that they can reasonably expect to collect after reviewing–
and exhausting–the taxpayer\’s ability to pay. The IRS weighs the doubt as to liability and doubt as to whether the tax
assessed is correct.

10. Beware of advertisements they claim to settle tax debts for \”pennies on the dollar\”, allowing taxpayers to settle their
taxes for less, or often much less than you owe (or what the government claims you owe). The IRS resolves less than one
percent of all balance due accounts through an OIC agreement.

Kirt Durst
Dedicated to offering news, articles, and instruction on tax. You have a definite choice in organizing your financial affairs. Visit http://www.aidtax.com for more information.

Writen By : Kirt Durst

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Seven Key Tax Deductions For The Self Employed

Jul 3

Posted by admin in Taxes

As a sole proprietor, it?s wise to familiarize yourself with the some key deductions that may reduce your tax bill for 2004.

Small-business consultants generally recommend that you hire an accountant to prepare your tax returns, payroll and financial statements. But you should also meet with your accountant well before the year-end rush to discuss such matters as tax planning, and record keeping for tax deductions.

Seven common small business tax deductions:

1. Employee Benefit Plans – You may deduct contributions to employee benefit plans (such as health insurance plans and retirement plans). Depending on your circumstances the maximum contribution that you may deduct per employee in a qualified retirement plan can go up to:

$100,000 or more For a Defined Benefit Plan
$44,000 For a 401(k) plan
$41,000 For a SEP-IRA or Keogh

2. Automobile Expenses? You can elect to deduct the actual expenses incurred (including gas, oil, tires, repairs, insurance, depreciation, and rent or lease payments) for the business-related portion of your car or truck expenses, or simply take the 2004 standard mileage rate of 37.5 cents per business mile.

3. Taxes – You may deduct Social Security and Medicaid taxes paid to match required withholdings on employee wages, federal unemployment taxes, sales taxes and real estate or personal property taxes paid on business assets.

4. Home Office – Depending on whether you use your home or other real estate for business purposes, you may deduct some or all of any mortgage interest paid, as well as some or all of the maintenance and repair expenses associated with the property. The cost of utilities and business supplies associated with business use are also deductible.

5. Depreciation ? Depreciation may be taken on passenger cars, equipment used for entertainment or recreational purposes (i.e., photographic equipment, cell phones and computers), as long as these items are used solely for the business.

6. Professional Fees – You may deduct professional fees, such as those paid to a lawyer or accountant.

7. Meals and Entertainment – You may deduct 50 percent of meal and entertainment expenses directly associated with the conduct of your business Remember to keep on file the records and documentation necessary to substantiate all of your deductions.

Daniel Lamaute, of Lamaute Capital, Inc. specializes in setting up retirement plans for small business owners. http://www.InvestSafe.com

Writen By : Daniel Lamaute

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