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The Proposed Income Trust Taxation – Impact to Canada and Investors Around the World

Oct 28

Posted by admin in Investing, Taxes

On October 31, 2006, the Canadian government gave a rather nasty surprise to the market by imposing a new tax on income trusts. Existing trust will be taxed starting from 2011, for new one the effective date is as early as 2007.

The Toronto stock exchange dropped 2.6% and the S&P/TSX Income Trust Index plunged 12%.

What is Income Trust?

It is an entity that is required by law to distribute almost all its income to shareholders as dividends. Because of this the entity pays almost no income tax to the government. This tax-efficient structure is becoming more and more popular in Canada, at the expense of the government (decreasing tax revenue).

REIT, a product popular to retail investors, is a major form of income trusts.

Immediate impact

  • Energy and Telecom among biggest hit: Many of the biggest income trusts are in the energy mining sector (e.g. Canada Oil Sand Trust. Penn West Energy Trust). For the telecommunications sector, stock price of two big trust-conversion candidates, Telus and BCE, had double digit drop leading to an overall 9% drop in the telecom subindex.
  • Foreign investors may be scared away: As income trusts are very popular among foreign investors, the surprise announcement may trigger an exodus of capital away from Canada. This will affect both the stock market and foreign exchange. (CAD/USD dropped >1% yesterday).
  • Bank/insurance sector benefits: Investors will likely reshuffle the capital towards banks and insurance companies, which give relatively high dividends and do not usually have trust structure.

Long-term impact

  • Only slightly negative to investors: Apparently the Canadian government is closing a loophole as the Australians have done in the 1980s. While losing the tax-free advantage, the income trust companies are not worse off than their non-trust counterparts.

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IRS Releases Mileage Rates for 2007

Oct 26

Posted by admin in Taxes

One of the advantages of working for yourself is you can write off a lot of different expenses to lower your taxable earnings. One deduction that is very popular is business mileage. Any mileage you undertake for business purposes can be converted into a very healthy tax deduction.

The IRS changes the rate at which you can deduct business mileage each and every year. The change has almost always been fairly small. The last few years, however, have seen some sizeable increases. The gas shortages associated with Hurricane Katrina [damaged refineries] and subsequent high oil prices have both had a big impact. In fact, the rates have increased more in the last two years than they did in the previous eight years combined.

Starting January 1, 2007, the rate for calculating your business mileage deduction goes up to a healthy 48.5 cents. To figure your deduction, you simply multiple this figure by the total business miles you drive in 2007. For example, if you drive 2,000 miles on business in 2007, your deduction would be 2,000 multiplied by 48.5 cents for a total write off of $970. Might it be time to start visiting your clients more often?!

It is important to understand that this deduction is for the 2007 tax year. When you site down to prepare your taxes on April 14, 2007 [lol], you will not use this figure. Instead, you will have to wait until April 14, 2008 when you prepare your taxes for the 2007 year. By the way, the mileage rate for 2006 is 44.5 cents per mile.

As you know by now, the key to limiting the pain of your tax bill is to maximize your deduction. With the business mileage deduction, you can get a very health write off. Just make sure to document your miles in case you get audited.

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Tax Problems : Procrastinate At Your Peril

Oct 26

Posted by admin in Taxes

If you are an American, you have to pay taxes. Sometimes it seems like you get it in the pants?err, bank account coming or going. If you get behind on your taxes, things can get a bit more stressed.

Tax Problems : Procrastinate At Your Peril

We can talk all day about whether we should have to pay taxes to the government. As recently as the late 1800s, there was no income tax. Ah, for the good old days! Unfortunately, the reality of modern life is the government has grown into a large child both on the state and federal level. As citizens of this great country, we are the parents of these beasts and responsible for feeding. Breakfast, lunch, dinner and snacks all come in the form of tax payments. If you fail to feed the children, they can get downright mean.

The number one thing individuals and couples worry and argue about is money. Simply put, few of us are millionaires and we have to stretch every dollar. The more you make, the more you spend. Inevitably, a certain percentage of us are going to get behind on our taxes. When this happens, a very strange thing happens ? nothing. If you fail to pay your taxes on April 15th, the IRS does not call you the next day. Months and years can go by, and still you will hear nothing. Are you in the clear? No.

Much like the overall government, federal and state tax agencies are bureaucracies. They don’t react particularly quickly. Once they get moving in a particular direction, however, they are hell on wheels. This is particularly true of the beloved Internal Revenue Service.

If you fail to pay taxes, the IRS will take its time getting around to collecting from you. So, can you just wait for them to catch up to you? You should not. The first time you realize they are after you may be when they suck all the money out of your bank account. Even if they are polite enough to contact you first, they are going to come swinging big hammers. While it may have taken them a few years to catch up with you, they are going to charge you penalties, late charges and interest for the back taxes. It is not a defense that it took them a couple years to contact you.

If you are behind on your taxes, you should voluntarily contact the IRS to resolve the issue. Ironically, the best time to do this is when you are dead broke. If the IRS discovers that you have no assets and nominal income, it will often write-off the past taxes. If you have assets and income, voluntarily contacting them will result in a payment plan instead of something potentially nastier.

While you may get away with back taxes for a bit of time, they will always catch up to you. Tax agencies view voluntary efforts to resolve problems with a much friendlier attitude than if they have to hunt you down. Don’t sit on your tax problems and hope they just go away.

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How To Choose The Right Bank

Apr 16

Posted by admin in Personal Finance

Financial institutions are located all around the world. If you are looking to open a bank account, whether that bank account is a checking account or a savings account, you have a number of banking options. In fact, you have so many options that choosing the right bank may seem like an overwhelming process. To make that process easier, you will need to know what to look for in a bank.

Location is the key to many. If you are interested in having easy access to a bank, you may want to consider doing business with a local bank or a national bank that has a local office in your area. These banks are ideal for those with checking accounts or debit cards. You may find that using an ATM machine, other than the one provided at your bank, results in extra fees. This is one of the many reasons why banking with a local institution is popular, because you will have easy access to your money.

When finding the perfect bank for you to do business with, it is also important to determine what you want and need from a bank. Whether you are interested in opening a savings account or a checking account, it is important to examine the fees that each bank will charge. If you are interested in opening a savings account for someone under the age of eighteen, you may find that you are able to receive a free account. Adults, on the other hand, are often required to pay a monthly fee or maintain a certain balance in their account.

If you are interested in opening a checking account, there are also a number of fees that you should be on the lookout for. It is possible to obtain a free checking account, but many of these accounts come with specific requirements. You are likely to come across a number of financial institutions that require you to have a set amount of money in your account at all times. It is also possible to find banks that grant you free checking as long as you have your paychecks directly deposited into your account.

There are a large number of banks that will allow you to carry a debit card. These debit cards can often be linked directly to a savings account or a checking account. It is important to determine if you will be charged for obtaining a debit card. Many banks charge an upfront fee, typically less than five dollars, for requesting a debit card. A number of banks also change monthly fees for using a debit card. The same can be said for checks. In addition to paying for new checks, there are many financial institutions that charge their clients a set amount of money each time they want to write a check.

It is important to keep all of the above mentioned points in mind when searching for a bank. In addition to determining the cost of banking with a specific institution, you are also encouraged to examine the level of service that you will receive. You will want to do business with a bank that has a friendly and knowledgeable staff. By visiting the bank or calling to speak with an employee, you can easily determine the level of service that you should expect to receive.

Choosing a bank is not a decision that should be made on a whim. A bank is supposed to save you money, but without the proper amount of research it is possible to end up with one that costs you money.

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Dealing With Scam Artist Pretending To Be IRS Debt Collectors

Mar 28

Posted by admin in Taxes

In 2004, the IRS was given the authority to use third party debt collectors to hunt down taxes owed by delinquent taxpayers. Scam artists knew an opportunity when they saw one.

Dealing with Scam Artist Pretending To Be IRS Debt Collectors

In an effort to track down delinquent taxpayers, the federal government gave the IRS the right to hire private debt collectors in 2004. You know, those annoying people that call during dinner. The reason for this change in policy actually made some sense. With as much information as the IRS is forced to deal with, it simply took forever for the IRS to start collection actions. By using the third parties, the IRS would be able to get the process moving without taking up employee time.

As you might imagine, the private tax debt collector program sounded like a good idea, but proved to be problematic. There were two primary problems. First, the legitimate debt collectors were threatening taxpayers. Second, scam artists started posing as debt collectors to collect money from na’ve tax collectors or perform identify theft on them. It is this second problem that we focus on here.

The central problem with the new debt collector program is how does a taxpayer know if they are dealing with a legitimate company or a scam artist trying to rip them off? Well, the IRS has instituted a new program in an effort to clarify matters. Here are the highlights:

1. If the IRS is going to use a private debt collector to come after you, the agency will first send you a letter indicating as much. The name of the company handling the debt collection will be included in the letter. If you do not receive this letter, ignore or report any parties claiming to be debt collectors to the IRS immediately. Play along and get their contact information so the IRS can hammer them.

2. When dealing with the debt collector, you will eventually reach a point where you write a check. The check should be written to the United States Treasury. If the debt collector instructs you to write it to any other name, they are scam artists and you should report them immediately. There is no exception to this rule. All payments are made to the United States Treasury, just like if you had actually paid your taxes on time!

Scam artists are very creative when it comes to thinking up schemes for ripping people off. Understand and stick to the following guidelines and you can foil them.

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What Is A Trust And What Are The Benefits?

Aug 6

Posted by admin in Structured Settlements

Trusts are becoming a popular way to structure business and personal affairs. If you are considering using a trust in any way, you should be clear on the legal obligations and the relationships involved. Always make sure you obtain proper advice before setting up a trust. Most lawyers are proficient in this area, but it is still advisable to talk to a legal advisor specialising in this area.

What is a Trust?
A trust is a type of legal entity that can own and hold title to property held for the benefit of one or more persons. It is a legal relationship, which is created when a person (known as a settlor) places assets in the control of another person (trustee) and these assets are intended to benefit other people (beneficiaries) or they are for a specified purpose. The person who creates a trust is known as the trust creator, grantor or settlor.

  • The person who administers the trust and holds its properties is called a trustee.
  • The people who are intended to benefit from the trust are known as beneficiaries.

Even though the assets, which are transferred to the trust through the trustees, become the property of the trustees, the fact is they only hold those assets on trust for the benefit of others (the beneficiaries). The trustees are the temporary owners of the property and they have to deal with it as set out in the trust.

Definition of a Trust
The most commonly used definition of a trust is;

\’A trust is an equitable obligation that binds a person called a trustee to deal with property over which he/she has control (called a trust property) for the benefit of other people (beneficiaries) and of whom he himself may be one and may also benefit anyone else who may enforce the obligation\’.

It is not an accepted as a legal entity like a company so action can be brought against it for liabilities which have no limitation under law.

Not only a Tax Saving Device
A trust is a flexible structure, which has been used for hundreds of years for various purposes. Many find it better to run business and non-business activities through a trust, rather than a company. Many people see a trust as a tax dodge, or as something used by the wealthy to retain ownership of property so it is kept away from people they owe money to (creditors).

Most people\’s knowledge of trusts is vague. While a properly constructed trust provides advantage to beneficiaries and others involved in the structure, trusts continue to be a legal means of protecting assets belonging to the family. They also benefit members of the family. It is more than a tax saving device, although it is acknowledged that tax saving can be achieved through proper management and allocation of profits made by the trust.

Main Reasons for Forming a Trust
Some of the reasons for forming a trust include the following:

  • Estate Planning.
    Although there is no longer estate duty or wealth tax, it is still sensible to arrange proper estate planning using a trust.

  • Protection from Creditors.
    By having assets (that you or your business owns) safely secured in a trust, any potential loss of those assets to creditors (if the business runs into trouble) is averted. A trust is used to protect assets against claims resulting from business debts or other liabilities. This protection or exposure to potential liabilities is a big advantage with trusts.

  • Tax Savings.
    If the trust is properly administered, then the correct allocation of income belonging to the trust, beneficiaries and others will result in taxation savings. This tax advantage is another reason why trusts are used.

  • Claims by Family Members etc.
    If you transfer your assets into a family trust while you are alive then those assets will not be subject to any claims after your death from family members or others that you don\’t wish to benefit with your assets.

  • Matrimonial or Relationship Property.
    You can use a trust to prevent your assets being classified as relationship property (used to be called matrimonial). This means your spouse would be prevented from claiming a share of your assets if it became necessary to divide this relationship property up. It can also be used to secure assets from other relationships such as defacto or similar. It can help you prevent your assets going to parties that you do not want to benefit.

  • Asset Testing in Retirement.
    Another important advantage of a trust is when your assets are asset tested for various benefits and subsidies. If the assets are held in your name they will not be exempt from inclusion in the assessment for rest home subsidies etc. If they are held by the trust they are excluded – because they do not belong to you personally. The trust has to be set up correctly, of course, because it can be challenged if its sole purpose is to deprive you of income and assets, simply to allow you to qualify for a subsidy or other benefit.

    • Copyright 2005 StartRunGrow
    http://www.startrungrow.com

    StartRunGrow (http://www.startrungrow.com) is a global online information organization that specializes in creating, developing and marketing business help information specifically with the aim of \”making business easier\” for entrepreneurs around the world. The StartRunGrow objective is to become a dominant player in the business help arena providing end to end solutions for the millions of small and medium businesses worldwide who continue to struggle daily with the difficulties of starting, running and growing a successful business.

    Writen By : Peter Viliamu

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    Donating A Car ? What IRS Want You To Know

    Aug 5

    Posted by admin in Taxes

    When donating your car to your favorite charity, the Internal Revenue Service (IRS) wants you to be aware of certain pitfalls. After December 31, 2004, taxpayers planning their charitable giving, donors should understand the way that the American Jobs Creation Act of 2004 will alter the rules for the contribution of used motor vehicles, boats and planes.

    When the claimed value of the donated motor vehicle exceeds $500 and the item is sold by the charitable organization, the taxpayer is limited to the gross proceeds from the sale. Under the rules in effect for 2004, taxpayers will be able to deduct the fair market value of the contributed property.

    Here is what IRS officials recommend to people donating their cars:

    Check the qualification of the Charity. Taxpayers should make sure that they contribute their car to an eligible organization, else their donation will not be tax deductible. They can use the IRS Website to check that an organization is qualified by searching Publication 78. Publication 78 contains a list of most organizations that are qualified to receive deductible contributions. Publication 78 is also available in many public libraries. If in doubt, you can call IRS Tax Exempt/Government Entities Customer Service at 1-877-829-5500.

    You should take into the many factors into consideration to establish the fair market value of the car. Many used car buying guides contain step-by-step instructions so that readers can make adjustments to the value of a car for accessories, mileage and other indicators of its general condition. Publications like Publication 526, Charitable Deductions, and Publication 561 provided such details.

    Taxpayers cannot take a deduction for car donations if they do not itemize deductions on their personal tax return. The decision to itemize is determined by whether their total itemized deductions are greater than the standard deduction.

    Taxpayers must document the automobile donation and its fair market value. IRS Publication 526 details requirements for the types of receipts taxpayers must obtain and the forms they must file.

    Some used car donation programs mistaken that donors can deduct the highest value listed in a used-car buyer\’s guide regardless of the donated vehicle condition. The IRS only allows a deduction for the fair market value of the car. Fair market value takes into account many factors, including the vehicle\’s condition.

    Contact state charity and IRS officials when in doubt. You can call the IRS at 1-800-829-1040 or for TTY/TDD help, call 1-800-829-4059. IRS forms and publications can be found at IRS website www.irs.gov. A list of state charity official offices can also be found online.

    Joshua Poyoh is the creator of http://www.2donatemycar.com where you can find out more information on how to donate your car for cash

    Writen By : Joshua Poyoh

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