2009 Tax

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Archive for the ‘Tax Law’ category

5 Overlooked Tax Deductions from Turbo Tax

June 14th, 2010

5 Overlooked Tax Deductions from Turbo Tax

According to Turbo Tax, 51 million tax payers itemized their deductions in 2007 claiming over 1.33 trillion in tax deductions. While 91 million tax payers claimed the standard deduction and reduced their taxes by 654 trillion. Now the numbers do look very good for the standard deduction tax payers but if you don’t look at both deduction methods when preparing your taxes, you could be missing out on some very good deductions.

For five often overlooked federal tax deductions look at state sales taxes paid, reinvestment dividends, charitable contributions, student load interest, and moving expenses related to a job.

State Sales Taxes Paid

For those that live in states that do not have a state income tax, you can deduct state sales tax. And often those that do file for a state sales tax deduction overlook such things as automobile sales tax, sales tax on a boat or an airplane and sales tax on home building supplies. The deduction does phase out around $250,000 for a couple, but is well worth looking into for those lucky tax payers that pay no state income tax.

Reinvested Dividends

If you sold a mutual fund during the tax year and think you have decent capital gains to pay on the fund proceeds, make sure to calculate reinvested dividends properly. Your basis or the amount you paid for the investment increases every time dividends are reinvested. Therefore, you capital gain might not be as large as you first thought.

Charitable Contributions

Small items that you purchased in the process of doing volunteer work for a charity are deductible just like larger checks made directly to organizations. Keep track of mileage you drove and small purchases made for charity, they will add up when you file your taxes.

Student Loan Interest

Student Loan Interest paid by parents of a student are now deductible as if they loan payments were made by the student. The IRS considers the loan payment a gift to the child and the child as paying the loan payments. Quite a nice treat to reduce and often eliminate all tax liability for the student.

Moving Expenses

If you started your first job during the tax year and needed to travel more than 50 miles to get to the location of your new job, you can deduct the costs of moving and the cost of driving. You cannot deduct the expenses needed to secure your first job, but you can deduct the costs to get to the new city where you will begin your career.

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IRA Rollover Tips

April 1st, 2010

IRA rollover is defined as a process of transferring funds from an individual’s retirement account into a Traditional IRA or the Roth IRA. Employers make use of this to hold their possessions that have already been multiplied from their retirement plan. Want to know the good news about this? Well, read very carefully because you can already rollover your money on an unlimited basis. This only means that you will absolutely have a good time.

Now, what if you preferred your IRA rollover to be transferred by check? Before the certain custodian releases your check, a 20% maintenance penalty will be applied. Now, to evade from this 20% penalty, the rollover should directly take place from just a single custodian or guardian to another. But in terms of the IRS, the only potential penalty is the taxes incurred.

So how can you be able to avoid this penalty? Well, the answer is to transfer your fund. This is done between the contracts of two financial organizations. They will certainly not require for a check to be written to you and it will not be made known to the IRS. With this, you will not have the chance to acquire taxes.

There are several IRAs and they just permit one rollover every year. The one-year calendar starts from the time only when the distribution has already been made. Most of these rollovers occur only when people change jobs and prefer to move their 403 (b) or 401 (k) properties into an IRA. Here’s good news: Did you know that most of these IRAs provide more investment alternatives along with a prolongation of income and gains that are tax-free?

These rollovers can take place from an employer’s retirement account into an IRA or even from IRA to IRA shift. The only requirement for an IRA’s occurrence into a so-called Roth IRA is the person’s accustomed gross income not above a defined limit in the tax year upon the rollover’s occurrence.

This is certainly a great way for you and your family. So, what are you waiting for? Transfer your funds and hold your assets now!

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Oh No! I Am Missing My W2

February 23rd, 2010

Oh No! I Am Missing My W2

Employers have until the 1st of February every year to send you a W-2, wage and tax statement. When you start to prepare your tax return and you have all of your documents except for one W-2, there are some steps you can take to complete your tax filing for the year.

The first step to take is to contact the employer to find out if they mailed a copy to you. If they did, you should request a new copy of the W-2 be sent to your correct mailing address. Allow some time for the new copy to arrive.

After the middle of February, you can contact the IRS directly for information if you are unable to reach your employer for some reason. The IRS will need your address and social security in addition to your employers address and phone number. Some more detailed information will also be required including the dates you worked for the employer, your earnings, and the taxes that were withheld. The best place to find this detailed information is on a pay stub from the end of your time working for the employer.

You must still file your tax return by the deadline of April 15th. If you are unable to obtain the information needed you will have to estimate the W-2 information on an IRS Form 4582. An extension is also a possibility to allow for the extra time to obtain the documents you need.

If you file without knowing the W-2 information and complete IRS Form 4582, when you do receive the accurate version of your W-2 you will need to amend the tax return with the form 1040X.

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Saving Next Year’s Taxes with the Help of This Year’s Taxes

February 16th, 2010

Saving Next Year’s Taxes with the Help of This Year’s Taxes

Are you getting angry after filing an extension or paying taxes? Be smart man; you can save some money on this for the coming year!

Many people consider filing taxes and their preparations as a painful activity. There is no fun in it. Ah, it’s not enjoyable either. One reason may be that you somehow find a part in the process which could possibly lead to more credits or deductions. What you realize is that you should look into your finances carefully to minimize some expense areas; mind you, there is a chance for you next year. But after about one month or so, you will see this hope starting too faded off. However, you should prevent it from happening.

Now is definitely the best time for you to plan for saving on your taxes next year. After getting done with your tax filing, you will come to see the areas that need more attention. Even if you couldn’t figure it out, you would definitely feel like paying more than what you should have paid. A little bit of tax planning is necessary for in order to avoid this.

Relax and stop moaning. It might feel boring, but tax planning is very exciting once you start taking it in the right manner. Will it be exciting for you to know that a trip to Vegas can actually bring in $ 2000 to your account? Definitely it would, right? Well, tax planning does exactly this. It helps you to focus on the money that you will be saving.

You need one proactive accountant to start your tax planning. Even though they are expensive, they will help you save a lot in the long run. It always creates a win-win situation for you and your business.

You always want a proactive CPA. Their job is to look at the tax return and suggest where you can save more money as per IRS guidelines. Then you want to know what your savings would have been last year, had you followed the same steps. This can definitely be very painful, but at the same time it is motivating once you start focusing their plans.

No doubt, paying taxes was not a good experience for you this year. By analyzing it carefully and finding out as much information as you can, next year will definitely be better.

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How To Save Taxes: Tips For Parents

February 14th, 2010

How To Save Taxes: Tips For Parents

It’s only a new parent that knows how much cost is associated with any new baby – you need to buy bottles, diapers, a crib, high chair, and stroller – all these are needed even before the child learns how to walk and speak and be able to ask you for a pair of designer jeans worth $ 500. Even though it is expensive, parenting is an important and very rewarding job for any person to do in life. There is good news for the parents however. The federal government has offered 2 tax breaks, one being the dependant exemption and the other is the child tax credit, so that they can prepare with proper financial planning for their family.

Around $ 3000 per year worth of deductions from your taxes can be obtained through the dependant exemption tax break till your child is 18 years old. This is an extra benefit the IRS provides over and above giving the standard exemption of tax covering basic expenses of livelihood. Single parents can take only one exemption and married couples can opt for both these exemptions every year.

Your savings through this exemption are determined in accordance with the tax bracket you are in; the higher this bracket, the more your savings will be as long as your income is not high enough that it does not qualify for any exemption. The dependant tax exemption is restricted for married couples who jointly file and have an adjustable total income higher than $300,000. Certain limits exist for single parents as well; so it’s important for you to take some time to consider these facts for both single parents and married couples in order to know that your income is within that limit. In case you qualify, you will then need to fill out the particular section of the form and supply the certification of adoption, or the children’s social security numbers.

The other tax break, child tax credit, can be availed by married couples having a total income not more than $ 13,000 and who file jointly; again, remember that the income limits frequently get revised. With this tax credit, up to $ 1000 can be received per child.

For claiming the credit amount, one needs to first complete the worksheet for child tax credit available in the IRS web site. A social security number or an identification number for adoption will be required for qualification. It is advisable to consult a professional for your tax plan and tax information as the taxation laws get revised from time to time.

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Jokes and Quotes on Tax

February 11th, 2010

Jokes and Quotes on Tax

Following are some tax jokes, wisecracks, one liners and humor related to tax.

Some tax forms actually ask if the taxpayer is blind.

IRS Joke: According to Charles Rossotti, former IRS Commissioner, there has been good progress in IRS: while earlier it used to be difficult to get through to them on the telephone, these days it is just difficult.

In case you are not pleased that you never got around to writing the popular American novel, cheer up, and browse through your previous tax returns.

Quote: "The Eiffel Tower grows to become the Empire State Building when payment of taxes is complete."

Exercising the Freedom of Information Act, the owner of a relatively small business forwarded a communication to the IRS wanting to know if they had a file for his case. The IRS replied, “There is now.”

Quote: “Wouldn’t it be great if we could pay taxes with smiles? Unfortunately, paying by cash is compulsory.”

Q: Have you ever wondered who the auditor is for IRS representatives?

Quote: “Receiving an income tax refund is the most satisfying thing on earth, second only to being targeted with a gunshot and missed.”

Q: In what way can you make a CPA mad?

A: By filling out Form 1040EZ.

Quote: “Government deficit is defined as the expenditure of the government minus the amount it can manage to collect”.

What does it happen that when the IRS ends up losing a tax return, it is usually considered to be a mistake, but when one ends up losing a receipt, it is considered tantamount to tax evasion?

Quote: We all know that death is the wages for sin. However, once you are done with paying taxes, it doesn’t really matter. "

Q: In what way can you make a person humble who is typically proud of his/her wealth?

A: Make them file a tax return.

Quote: The funniest thing about making a tax form out on the level is that even after it’s done you can’t be sure if you are an offender or a sufferer for a cause.

Q: What is the similarity between tax audit and a hurricane?

A: Both give rise to loads of shouting and at the end, you lose your home.

Quote: “Isn’t it time that the government be sanctioned to be listed as a dependent person?”

You would often hear that death and taxes mean the same more or less, but this is not true. Death might be a taxable event, but the matter of taxes can never die down.

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Hire a Lawyer, not an Accountant, to file Income Tax Returns

February 9th, 2010

Hire a Lawyer, not an Accountant, to file Income Tax Returns

Failing to report under the table business income is likely to make one feel uneasy, or even guilty. It is also possible that you skipped filling your income tax returns even though you are aware of the legal responsibilities in respect to this. To rectify the situation, you might be considering hiring an accountant.

While it is appreciable that you are on your way to set things straight, stop and think whether or not you are making a big error by getting an accountant to help you deal with the issues of delinquent taxes. The reason for this is that tax evasion is considered a criminal offence or felony. Defaulters might find themselves faced with civil action as well.

Would you consider getting an accountant to defend you if you got caught robbing a bank? I’d venture to say you most definitely would not. A much wiser decision would be to invest in the services of a capable attorney.

One advantage of hiring an attorney in this context is that they have solicitor-client privilege (alternatively referred to as attorney-client privilege or legal advice privilege). This implies that the information with regards to income tax returns or delinquent taxes that the client divulges to his lawyer remains strictly between the lawyer and the client and cannot be used against the client. Written records are also included in the gamut of solicitor-client privilege.

Comparatively, if you hire an accountant to help you deal with matters of delinquent taxes, he might, at some stage, be compelled to testify against you and is obliged to hand over a complete of the records he possesses pertaining to the case upon request.

Your lawyer also has the ability to create a legal document that would protect you. Since you are coming clean, the tax authorities may refrain from slapping criminal charges on you and might even waive or decrease penalties or tax liability.

If your accountant, on the other hand, attempted to achieve the same end, every bit of information about you might need to be divulged. Your accountant would not come under the protection of the solicitor-client privilege.

If you hire the help of an accountant, the tax authorities might charge you with tax evasion even if you are trying to set things straight by filing your tax returns from, say, ten years back.

In fact, concealing your delinquent taxes might place the accountant in a precarious situation. The reverse is true when you choose to let an attorney handle this for you. Your lawyer cannot be legally forced to give testimony against you, thanks to the solicitor-client privilege protection. It is highly possible that your lawyer would have his personal accountant to help deal with the concerned issues.

Since you would hire a lawyer specializing in criminal and tax law, he would be cognizant with the process of negotiations with the tax authorities before filing your tax returns.

If you feel that there is a good chance of you being charged for a criminal offence owing to delinquent taxes, it is better to steer clear of accountants. Alternatively, hire a lawyer who is highly knowledgeable in these matters when you set out to file or amend tax returns.

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How To Maximize After-tax Returns

February 6th, 2010

How To Maximize After-tax Returns

In order to keep taxable distributions from mutual fund distributions to a minimum, you must take into consideration tax-efficient funds for your investment portfolio.

In the context of tax-efficient investment, what is more significant than what you earn is what you can keep. The goal is to maximize your after-tax returns. The tax efficient mutual funds make applications to investments outside of IRAs, 401(k)s and other tax-deferred accounts.

T. Rowe Price, a renowned global investment management firm, opines that tax-efficient mutual funds are gaining fast popularity even in the face of deductions in tax rates.

Taxes do not feature among pleasant thoughts. However, investors aiming at reducing taxes and maximizing after-tax returns don’t really have a choice but to think about taxes. It is their job to keep track of their portfolio holdings, distributions and their huge volume of transaction data.

However, tax-efficient investment is not just about avoiding taxes, it is much more than that, as explained by Don Peters, who is in charge of a number of tax-efficient portfolios at the global investment management firm, T. Rowe Price.

He adds that correct tax-efficient investing means the ability to build and manage a portfolio of securities so as to enable you to hold on to it for a long period and ensure that you maximize your after-tax returns.

However, tax-efficient investments are not free from some misconceptions. A very common misconception is that it is not wise to buy stocks of companies that pay dividends, as the latter is believed to be taxable. Don Peters clarifies that the system is far from being so simple.

The second misconception in the context of tax-efficient investing is that investors can end up coughing up a considerable capital gains tax if they sell off their holdings. Peters warns investors against allowing tax phobia to stand in the way of smart and wise investment decisions.

He explains that investors might find it very difficult to arrive at a decision to sell, especially where a considerable unrealized capital gain is involved. Don Peters also mentions that to have a tax-efficient investment strategy to be successful and give good returns, profit should be maintained at a minimum but greater than zero.

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7 Steps To Reduce Your Tax Related Stress

February 5th, 2010

7 Steps To Reduce Your Tax Related Stress

If you have your own business what may haunt you most is the stressful task of filing your tax returns at the end of the year. Every year brings you the harrowing experience of piling up your financial documents and preparing your tax return. It adds to your worries if you have earnings in other countries as well, as you need to file your tax return from those countries as well.

Here are seven gradual steps that will certainly minimize your tax returns related hassles.

1. Maintain your accounts accurately. Buy a ruled ledger from the nearby stationery store and keep a record of your accounts.

2. Keep your receipts/bills in a safe place. Enter the finer details of the receipts into your accounts book once a week.

3. When you receive a payment, don’t forget to record that payment in your accounts system.

4. Browse through various accounting software packages available with your software retailer. Don’t go for a complex accounting software that may make your accounting more complicated instead of simplifying it. Choose a simple application. If spreadsheets and cell formula work better for you, keep your accounts in a spreadsheet program.

5. Now, open your tax return envelope without any delay. Check if all the sheets are there that you may need. If you find that any sheet is missing, you can download it.

6. Don’t leave your tax return job for the eleventh hour. Try to file your tax return well ahead of time. This will give IRS or the revenue department time to check your forms to ascertain how much you owe them. This is rather less stressful than calculating it yourself and continuing to doubt your calculations skills.

7. Analyze steps 3-6 again. If you feel they are not your cup of tea, you can hire an accountant. Of course, you will have to pay the accountant for keeping your accounts and for preparing your tax return. How much you will pay will depend on the complexity of the work the accountant will have to complete. If you have a habit of keeping a neat and clean accounts book and keeping a safe copy of each of your receipts, you may not have to pay a higher fee to your accountant.

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How to Get Tax Help?

February 4th, 2010

How to Get Tax Help?

It’s a highly stressful activity to prepare your taxes. In many occasions, it’s found to be beneficial to look for some tax help. O’ My God, Save My Soul!

At the time you file your taxes; you might look into finding someone or possibly find a computer -software. Here, let’s focus on a living person and try to understand a tax professional. In fact, you will find many people who will be able to help you with different levels of expertise.

Tax Preparer

A tax preparer normally has the least expertise for filing taxes. These are trained professionals who can conveniently do a return filing. For example, the people who work at H&R Block represent a big collection of preparers. One main advantage to them is that tax preparers charge a cheaper rate. Remember that most of the time the service will match the payment.

Enrolled Agents

Enrolled agents are the individuals who undergo licensing through the IRS. Compared to a tax preparer, the enrolled agent can also assist you with your auditing. They are an advanced type of tax preparers; however, knowledge and quality of work will vary from one agent to the next. Because of their own interests, some agents excel and remain on top. Others may not be as impressive with their performance.

Certified Public Accountant (CPA)

The CPAs obtain their licenses through lot of toil. It requires tremendous study to get a CPA license and moreover passing the licensing test is not easy. In cases where your financial situation is really complicated or unique, you should approach a CPA for your taxes. As a matter of fact, you should use a CPA all year round to help you plan your finances so that you can save money on tax payments.

CPAs are very costly as they normally charge around USD 200 to USD 300 per hour of service. In fact, most of them are worth paying the money for their services. If you need a CPA, then go for one who is proactive. The proactive CPA will tell you all about your finances and life planning. They will come up with suggestions for significantly lowering your tax payments. Normally, the savings are going to “more than justify” their high fees, and in the long run you will be happy.

So, out of the three, which one will you pick? It completely depends upon the complicacies of your finance. Suppose you are a salaried person with a gross annual income of USD 50,000; then a simple tax preparer can do the job for you. In case you have a small business, then finding an efficient CPA is advisable for you.

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2009 Tax

Archive for the ‘Tax Law’ category

5 Overlooked Tax Deductions from Turbo Tax

Related Posts:

IRA Rollover Tips

Related Posts:

Oh No! I Am Missing My W2

Oh No! I Am Missing My W2

Related Posts:

Saving Next Year’s Taxes with the Help of This Year’s Taxes

Saving Next Year’s Taxes with the Help of This Year’s Taxes

Related Posts:

Jokes and Quotes on Tax

Jokes and Quotes on Tax

Related Posts:

Hire a Lawyer, not an Accountant, to file Income Tax Returns

Hire a Lawyer, not an Accountant, to file Income Tax Returns

Related Posts:

How To Maximize After-tax Returns

How To Maximize After-tax Returns

Related Posts:

How to Get Tax Help?

How to Get Tax Help?

Tax Preparer

Enrolled Agents

Certified Public Accountant (CPA)

Related Posts: