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Tax Preparation Software: The Good, the Bad and the Ugly

Jan 24

Posted by admin in Taxes

The medium is the message, it’s sometimes said. Think of Franklin D Roosevelt and his “fireside chats” to the nation. In a pre-TV era, the radio was the perfect medium to ?have a conversation with the American people?. He could get his reassuring message right into folks’ homes, and become a part of the family. A different medium, for example a grandstanding speech, wouldn’t have got the message across as effectively as an intimate radio chat. The medium most surely was the message.

But let’s come back to the 21st.century and something close to all our hearts: tax preparation, or, to be exact, tax preparation software. Unfortunately, this particular medium seems to be giving out mixed messages, although software programmers and vendors would reassure us that we can complete tax programs quickly and accurately, click ?print? and produce a tax return destined to meet the IRS’s requirements.

Seems clear enough, so why the mixed messages? One of the main criticisms levelled at tax preparation software is its ?one-size-fits-all? approach. Its critics, businessmen in the main, ask how it’s possible to condense an extraordinary number of codes and regulations into a half-hour interview process. Irrespective of the claims made by software programmers, critics point out that only the most general set of credits and deductions can be incorporated into tax software, which means that you’ll be the loser. It’s these sins of omission, or the questions they don’t ask, which work to your detriment and the advantage of the IRS.

Imagine this scene for a moment. A medium is holding a s?ance. She’s trying to put you in touch with the other side who also want to get in touch with you. She’ll ask leading questions and, reading between the lines, make statements general enough to apply to anyone, but those present will interpret them as applying to themselves as unique individuals. A ?plant? in the audience will bolster her authenticity further and convince you that the entire process will bring you good news from the other side.

How a charlatan operates in a s?ance is exactly how critics see the operation of tax preparation software. These programs are designed for all businesses but with the same basic tax deduction questions being asked, albeit modified slightly, in every case. You might think you’re being treated as a unique individual as you’re asked to state the nature of your business before beginning the interview process. This isn’t the case, however, even though software vendors try and plant in your mind that, by purchasing their top-notch programs, you will be able to check all credits and deductions.

Believe that, say the critics, and you’ll get what you think is good news in terms of credits and deductions. But, as with the self-fulfilling prophecy of the charlatan medium, you’re only getting what you’re looking for. You need to think ?out of the box?, and hire the services of a professional who really can read between the lines to ensure you don’t overpay your taxes. So, the critics’ verdict on tax preparation software as a medium? – ?I’ll be getting in touch… with my accountant?.

For some folks, then, all tax preparation software is bad. If you think they’re good then you’re thinking yourself out of thousands of dollars. An active investor, running his own business and having a substantial portfolio of stocks, might disagree. There are very good programs available, either web- or PC-based, which can handle multiple entries very effectively. Only in exceptional circumstances, that is in unique tax situations, would it be necessary to get a tax accountant to do the job for you. For investors, the software or medium is essentially good, it’s more a question of ‘means well but not quite all there?.

If you’re filing straightforward tax returns, and perhaps you’re in receipt of dividends from mutual funds and W-2s from your job, tax preparation software is readily available to calculate your returns quickly and accurately. Your returns are calculated, and you’re informed of any possible problems. Good tax software will enable you to e-file a federal and state return for less than $16. You can happily tick the boxes as a unique individual who’s not in a unique tax situation.

Things can turn very ugly, though, when the tax preparation software you’re using doesn’t provide easy-to-follow, in-depth help for the new or relatively inexperienced tax filer. The help needs to be as jargon-free as possible, and a good program will provide the necessary tools and capabilities enabling you to complete the return accurately. This means the program should have helpful drop-down menus and icons, together with a quick and easily-accessible online service. The best-documented programs should offer a combination of helpful customer service and useful financial tax tips and advice.

Unfortunately, using some of the free tax preparation software available, suitable mainly for folks filing simpler tax returns with adjusted gross income of $34,000 or less, can be a self-defeating exercise. While some are fast and easy to use, with both interview-style and forms-based input, others are not. When you buy tax software the vendor often provides technical support to the purchaser, but this key element is missing in the free software. Users of free software tend to be less computer-literate and are, therefore, more likely to find things turning ugly. Their verdict on this indifferent medium? – ‘means well but has lost the plot?.

So, good, bad and ugly: the messages are mixed for tax preparation software. Take out the ugly, and most would agree that this method of filing your tax return is fast, accurate and practically error-free. For some die-hards, though, this software will never be the medium of choice for communicating with the IRS.

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Something About Capital Gains

Dec 7

Posted by admin in Taxes

The Capital Gains Tax which is usually AKA CGT is largely charged on the profits that you make over the yearly allowance. This implies that any gain that you make over the allowance must be paid for in the shape of Capital Gains Tax. The total of CGT is changed for different folks, and in addition differs in the event of the state that applies. Principally , the sum that you pay for the tax is dependent on the asset from which you acquired the capital gain as well as the period of time for which you’ve been holding the asset before you got the gain.

The tax systems that can affect the capital gains tax alter for the business assets and non-business assets.

A law that was applied in 1998 was concerning the holding period of the asset and the tax on the capital gain. According to the regulation, the longer an asset is held for, the smaller is the tax that needs to be paid over the gains as of that asset. Many eventualities that are counted as you having capital gain or loss are the giving away of the asset to somebody, your owned asset being demolished or lost, and many other people. In general circumstances, the most widespread state which needs you to give the Capital Gains Tax is when you retail something and you get more sum for it than what you had paid. Giving something away or getting payment cash also entitles you to paying the CGT. There also are a number of exceptions that apply to the Capital Gains tax, additionally if any of those scenarios happen, you wouldn’t be allowed to pay CGT. One of these eventualities is when you’re selling or just passing away possessions, the value of which is less than 6000 pounds. Giving away the things to a registered charity is also exclusion and in this situation you do not have to recompense the tax.

Another exception to the payment of the CGT is that, if you’re selling your privately held vehicle or selling your principal house, you aren’t needed to pay the Capital Gains Tax. The tax likewise does not apply to the expenses received from premium bonds, non-public damage compensation, and lottery loot. There are dissimilar rates of the Capital Gains Tax that make an application for changed revenue levels. Whichever asset which is your personal standard asset does not require you to pay GCT on it. On the other hand, all the investment properties are subject to tax. When paying the Capital Gains Tax, it’s important to bear in mind that whatever quantity of capital gain you receive gets added to your taxable revenue before the questionable tax rate can be applied on it.

When you’re figuring out the total of the Capital Gains Tax, it’s important to bear in mind the time of sale or purchase of the asset that is considered is the one discussed on the acquisition / sale accord. The assets on which a price cut can be received are those that are in the name of an entity, and there’s an explicit period of time for which it is ought to be owned.

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IVA’s for the Self Employed

Dec 5

Posted by admin in Debt Consolidation, Personal Finance

NancollasGreer, IVA specialists, are often asked if self-employed people do an Individual Voluntary Arrangement? The short answer is yes.
When IVA legislation was written in the mid 1980s it was intended that an IVA would be used as a rescue tool to preserve businesses, both sole traders and partnerships, who up until then only had bankruptcy as a method for dealing with debt. Back then no one anticipated that it would be used for dealing with consumer debt to the extent that it is today.

An IVA can be a suitable for the self-employed however it does often require a greater amount of preparatory work than a straightforward consumer IVA and many of the larger IVA “factories” will not be geared up to deal with anything other than a straightforward IVA. This is where a boutique firm like nancollasgreer come into their own. The legislation demands that an IVA must be administered by a licenced Insolvency Practitioner (there are about 1,300 who take insolvency appointments in the UK today). NancollasGreer Insolvency Practitioner, Sarah Nancollas, has over 22 years insolvency experience and has been undertaking IVAs since the legislation was first introduced and has a vast knowledge of IVA solutions for the self employed.
Sarah Nancollas said “IVAs can be a really useful rescue tool for the self employed who, for whatever reason find themselves with debt problems, whilst running a viable business that has a future.”

As HM Revenue and Customs are likely to be a creditors one of the first steps is to ensure that any late accounts or tax returns are brought up to date and filed with HM Revenue and Customs as soon as possible. As a creditor they will almost certainly vote on the acceptance or otherwise of an IVA proposal. H M Revenue and Customs have issued guidance notes which state that they will vote in favour of IVA proposals where :
An optimised and achievable offer is made to the creditors.
Provision is made for payment of all future debts on time.
All creditors within the same class are treated equally.
There are no exceptional reasons for rejection.
You make full and honest financial disclosure
The above are no different to the requirements of many lending institutes and most of the above are required by the legislation to form part of an IVA.
Being self-employed you will need to demonstrate to your creditors, your ability to earn a living, with the use of up to date accounts.
H M Revenue and Customs will take a dim view, probably opting to reject an IVA in the event of any of the following:
You have deliberately defaulted or had a past association with a continuing insolvency.
You have operated a policy of withholding payment of Crown money.
You have failed to meet obligations under a prior IVA.
You have sought to exclude creditors.
Any purchaser of the business who assumes responsibility for payment of some of your debts rather than paying that money to the general body of creditors.

You have not brought all your tax and VAT returns up to date.
NancollasGreer feel that is it so important that people with debt problems get high quality professional advice before choosing a method to resolve their debts that they offer a free initial consultation. As part of the consultation NancollasGreer will review your financial position and discuss all options that are suitable for you. Their debt advice is tailored to the individual.

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Still Waiting For Your Tax Refund?

Nov 1

Posted by admin in Taxes

I am constantly amazed when I speak with people and they tell me they are still waiting for tax refund checks after six or twelve months. If you are in this position, you may be in for a surprise.

Still Waiting For Your Tax Refund?

Preparing and filing taxes is one of those things almost nobody likes to do. Much like spring cleaning, it is something to be done and then forgotten about. If you are due a tax refund, however, this can result in some problems. This is particularly true with the IRS.

Every year, the Internal Revenue Service reports that it cannot get refund checks to a large number of taxpayers. No, it does not try to hide this fact. It actually will publish news releases and contact media outlets to get the world out. This year, the IRS is trying to find almost 100,000 people that it has refund checks for. The total dollar figure for outstanding refunds is over $92 million dollars. That is almost a grand per person the IRS cannot find.

Why can’t the IRS find you? Well, there can be a variety of reasons. The most common is you have moved since filing your tax return, but did not tell the IRS. As a result, the IRS sent the refund check to your old address. Another situation that can arise occurs when a marriage happens and the IRS is not notified of any new address or name change. Contrary to what you may have heard, the IRS does not keep tabs on you every day. If you move, you have to let the agency know.

If you are still waiting for a tax refund check, you should get proactive. You can go to the IRS web site and use the ?Where is my Refund?? link on the home page to find out the status of your refund. You can also pick up the phone and call the agency at 800-829-1954.

Listen, we all hate preparing and filing our taxes. If you have suffered through the process and generated a refund, don’t lose it. Take action and contact the IRS to get your money today.

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Take Expenses Now To Limit Your 2006 Business Taxes

Nov 1

Posted by admin in Taxes

As we roll towards the end of 2006, you are probably thinking about the holidays and gifts you need to buy. Well, it is also time to give yourself a tax gift.

Take Expenses Now To Limit Your 2006 Business Taxes

Take a moment to think back to last April. Do you remember the anguish of writing a check to the Internal Revenue Service? Did it seem a bit more than it should have been? Did you have to scramble to put together the funds? If you do not recall, go check the ledger in your check book or your accounting system. Bring back bad memories? If you want to avoid this situation again, you need to start following the simplest of tax strategies.

A time-tested and incredibly effective tax strategy is expensing everything you possible can before the end of the year. Now, the expenses need to be legitimate, but you can do some serious positive damage to your tax bill next year if you take this step. Remember, legitimate business expenses reduce your gross profit, which results in a reduction of your tax bill.

Most small businesses have a very interesting balance sheet around the end of December each year. If you took a look at it, you would think the company was nearly bankrupt. Why? A business that plans ahead will use all available cash to pay for expenses in an effort to ?buy down? their profit. A company that otherwise might show a $100,000 profit for the year suddenly shows a $10,000 profit. Of course, it may also have a bevy of new equipment, office supplies and so on.

So, what areas should you focus on? Well, every business is different, so you need to consider the nature of yours. Try to focus on expenses you know will come up in January and February of next year. This can be the most basic of things such as office supplies to more complex expenditures like new office equipment. Make a list of these items and determine what you can buy now instead of next year. Importantly, make sure you understand how much cash you will need in January so you don’t have cash flow problems if you over expense.

If you want to limit the damage of your tax bill in April, the time to act is now. Taking such action is like giving yourself a nice gift, but you have to wait till April to open it.

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Get Your Taxes In Order As The Year Comes To A Close

Nov 1

Posted by admin in Taxes

If you complain about paying taxes, and who doesn’t, then you need to take steps to limit the pain next April. Yep, you should always make adjustments to your finances at the end of each year.

People are unique and so are their financial situations. Whipping your finances together at the end of the year is really a matter of deducing what type of year you had. If you are a salaried employee of a business, you taxes are going to be fairly simple as are the financial moves you need to make. A business owner, on the other hand, is going to be dealing with a much more complex situation. Let’s take a closer look.

As a salaried tax payer, you are both fortunate and unfortunate when it comes to taxes. On the fortunate side, you really do not have to do much to address your tax situation. On the unfortunate side, this is because you are really restricted in regard to the steps you can take to limit your tax bill. Foremost among these steps is to maximize your contributions to pre-tax retirement vehicles such as a 401(k) account. If you have yearly bonuses coming up, try to jam them into your 401(k) so you don’t end up owing in April. In addition to this step, you should go through all your finances and deduce whether you can create any tax deductible expenses to offset your income.

If you own a small business, you already know things are a bit more complicated. In this case, you want to try to limit the profit of the business to minimize both your income tax and your self-employment tax. If you are on a cash basis accounting, are there any expenses you can take now instead of January. For instance, can you buy new computers or whatever you are going to need? So long as the expenses are legitimate, you can use this tactic to minimize your taxable income.

If your small business is complex or you own a larger business, you should really take a common sense step. That step is to sit down with a certified public account and discuss your situation. He or she can give look at your finances and offer specific steps that can be taken to reduce your tax bill for the year. The key to this approach, however, is to make the time to sit down with the accountant NOW! If you try to show up on December 30th or in January, you are limiting your options and hurting yourself.

I have a general rule when it comes to taxes. If you want to complain about the amount you pay in April, you can only do so if you take every step to limit them. If you do no planning, you can only blame yourself for the huge tax bill you end up with in April.

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Using a Home Reversion Plan to Reduce Inheritance Tax

Oct 29

Posted by admin in Taxes

Introduction

With the formal regulation of sales advice and general regulation of the Home Reversion Market set to be introduced in April 2007, this article discusses what they are and how using one can potentially reduce Inheritance Tax (IHT) liabilities.

Home Reversion Plans in Detail

Because big name providers favour lifetime mortgage products, Home Reversion Plans have been overlooked for a number of years, but comforted by new regulation and a tougher sales and advice regime many experts are expecting the market to grow in the next few years.

Lifetime mortgages, where homeowners release cash by taking out a loan on their home make up the lion’s share of the growing ?1billion equity release market and Reversion Plans only currently account for only ?54million of this total, but from mid next year this trend is predicted to change.

In simple terms Home Reversion Plans (HRPs) are where you sell all or part of your home in return for a lump sum or a series of payments. The person taking out the HRP then effectively becomes a tenant in their own home with the right to reside there until they die or move out. How much you get for selling your home depends on your life expectancy, which will be influenced by a number of factors including your age, gender and health. In short the longer you are expected to live the lower the amount of money you will receive as settlement of a HRP.

An example of a HRP is a couple aged 72 with a ?500,000 home could get 40-45% of the value of the proportion they sell. If they sold 50 per cent of the house and received 40% of that sum, this would equate to a lump sum of ?100,000 (i.e. 40% of ?250,000). The homeowners retain the right to live in the property rent-free until they die, but would be responsible for maintenance and upkeep of the property. On death of the owners the property would be sold by the HRP holder and after deducting costs they would receive the sale proceeds from their proportion of the property.

With more and more households being dragged into the inheritance tax net (IHT), some people believe HRPs could become more of a mainstream IHT planning tool. Homeowners can effectively cut their IHT bills left to their heirs by taking some of the value of their property and then making cash gifts to relatives. As long as they survive the time the gifts are given by seven years the donors avoid paying IHT on this amount under potentially exempt transfer (PET) rules.

In the example above, were the 72-year-old couple to sell a 50% share in their home, they would live rent-free rent free in the property until death. On death their inheritors would get the remaining half share of the property. If the value of the half share remained the same at ?250,000 this would fall below the current IHT level of ?285,000. However, if the inherited the house without the HRP in place they would have to pay IHT of ?86,000 on the full value of the home.

The big risk to anyone looking to take out a HRP is that nobody can predict what will happen to house prices, IHT policy or indeed HRP legislation in the future. There are a lot of variables to consider a future government might get rid of IHT or if property prices continued their march to even headier heights the inheritors might lose out. In another example, if you were to die shortly after taking out a HRP the heirs would be much worse off.

Potential customers should think about the costs of setting up a HRP. At the time of writing set up fees and generally between ?1,000 and ?1,500 and are then followed by a property valuation and solicitors’ fees. This means the total could rise to around ?2,500 depending on the circumstances and complexities of the case. All the companies who offer HRPs have different requirements for application, generally starting with a minimum property value and also a minimum age requirement.

One thing to bear in mind is that for low-income families the injection of cash from the HRP provider can affect state benefits. Another thing to consider is that once you commit to a HRP there is no way out of it. It is strongly advised that anyone considering a HRP discusses all the different options with their families. Some people argue that a house is security and security should always take priority over tax planning.

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