So, you were pleasantly surprised to learn that you are getting a refund on your taxes. Congratulations! The question for most taxpayers expecting a return is, 'Where is my refund?'

Check Your Refund Status Online

The easiest way to check on your refund is to ask the IRS through IRS.gov. On the home page of the site, you will see a 'Where's My Refund?' link. Using the service is fairly easy. You will need a copy of your tax return to provide the necessary information to get the status of your refund. Specifically, you need to provide your social security number, you tax filing status and the exact amount of your refund. The reason the IRS requires all of this information is purely for security purposes, to wit, the agency wants to make sure it is giving access only to the taxpayer. Again, all of this information should be on your return. If it is not, something is very wrong!

Once you submit the required information, the IRS will provide online results typically showing:

1. That the return was received and is in processing;

2. The expected mailing date or direct deposit date of your refund; or

3. Whether your refund could not be issued because of a delivery problem.

In some cases, the results may alert you to the fact that the IRS is reviewing your tax return because of errors or questionable entries. In such a case, it is highly advised that you review your return with a qualified tax professional and make absolutely sure that the return will stand up to scrutiny.

How Long Do You Have To Wait Before Checking?

If you filed your tax return electronically, you should be able to access the status of your refund within 48 to 72 hours. Since the return is coming into the database electronically, it should be assimilated into the system fairly quickly. If you do not file your return electronically, you are going to have to wait three weeks or more before the status of your return can be checked. As you can imagine, the IRS is receiving an enormous amount of paper tax returns and it takes time to organize and enter the returns into the system.

How Long Should It Take To Receive Your Tax Refund?

If you are expecting a refund, the time to issue the refund will depend upon how you filed your return. If you filed a paper return via regular mail, you refund should be issued in six to eight weeks from the date it was received by the IRS. Alternatively, if you filed your return electronically, you should expect to receive your refund in three to four weeks. If you elected to have your refund directly deposited in your banking account, you should take one week off of the above estimates.

Article source: Free Taxes Articles.

The Exchangor has a maximum of 180 days from the closing of the relinquished property or the due date of that year's tax return, whichever occurs first, to acquire the replacement property. This is called the Acquisition Period. The first 45 days of that period is called the Identification Period. During this 45 days, the Exchangor must identify the candidate or target property which will be used for replacement. The identification must:

- Be in writing,
- Signed by the Exchangor, and,
- Received by the facilitator or other qualified party (faxed, postmarked or otherwise identifiably transmitted through Federal Express or other dated courier service).

This must all occur within the 45-day period. Failure to accomplish this identification will cause the exchange to fail.

Identification

Three rules exist for the correct identification of replacement properties.

1) The Three Property Rule dictates that the Exchangor may identify three properties of any value, one or more of which must be acquired within the 180-Day Acquisition Period.

2) The Two Hundred Percent Rule dictates that if four or more properties are identified, the aggregate market value of all properties may not exceed 200% of the value of the relinquished property.

3) The Ninety-five Percent Exception dictates that in the event the other rules do not apply, if the replacement properties acquired represent at least 95% of the aggregate value of properties identified, the exchange will still qualify.

As a caveat it should be mentioned that these identification rules are absolutely critical to any exchange. No deviation is possible and the Internal Revenue Service will grant no extensions.

* Ironically, although only approximately 3-5% of exchanges are audited, the few exchanges which don't pass upon audit typically fail because of discrepancies in identification.

Mechanics of a Delayed Exchange

It is important that any exchange be carefully planned with the help of an experienced, competent and creative exchange professional. Preferably one who is completely familiar with the tax code in general, not just Section 1031, and who has extensive experience in doing many different kinds of exchanges. Thorough planning can help avoid many subtle exchanging pitfalls and also ensure that the Exchangor will accomplish the goals which the transaction is intended to facilitate.

Once the planning is complete, the exchange structure and timing are decided, and the relinquished property is sold and the transaction is closed, the facilitator becomes the repository for the proceeds of the sale. The money is kept in the facilitator's secured account until the replacement property is located and instructions are received to fund the replacement property purchase.

The funds are wired or sent to the closing entity in the most appropriate and expeditious manner, and the replacement property is purchased and deeded directly to the Exchangor. All the necessary documentation to clearly memorialize the transaction as an exchange is provided by the facilitator, such as exchange agreement, assignment agreement and appropriate closing instructions.

Partnership Exchanges and IRC �1.761-2(a) Elections

The Tax Reform Act of 1984 made it very clear that partnership interests cannot be exchanged and qualify for deferred gain treatment under IRC Section1031. The regulations also interpret no difference between general partnership interests or limited partnership interests. Although actual partnerships can exchange with other partnerships under Section1031, the exchange of an individual interest is prohibited.

However, the Omnibus Budget Reconciliation Act of 1990 did amend IRC Section1031 to incorporate the use of IRC Section1.761-2(a), Election of Partnerships to not be treated under Subchapter K of Chapter 1 of the Code, for the purposes of taxation. This means that Section1.761-2(a) can potentially provide an avenue to utilize Section1031 to those investors currently owning partnership interests.

So, how does an election under Section1.761-2(a) provide a benefit to the typical investor? Well, if every individual or entity within a partnership, elects to have his individual interest treated as his own real property interest, similar to a tenant in common interest, then that individual interest can qualify to be exchanged under Section1031. And since that partnership interest can qualify for deferred gain treatment, the amount realized from the sale of that interest can be used to acquire any qualifying replacement property.

Therefore, an interest from a partnership in which all partners have made individual elections under Section1.761-2(a) can be exchanged for any other property. And, there is no requirement that the investor exchange into replacement properties with his or her previous partners, only that the exchange be used for investment purposes only and not for the active conduct of a business.

Also, the converse of the above Section1.761-2(a) situation is possible. It is permissible for a partnership to acquire a property and elect to have the partnership interests treated as individual real property interests for taxation purposes, at the time of purchase. Therefore, as seen in some sophisticated transactions, particular partnerships which have already elected under Section1.761-2(a) may be established for the sole purpose to solicit investments from other partners exchanging out of one partnership (with the benefit of Section1.761-2(a)) into the new entity. This process enables the Exchangor to exchange out of one previously non-qualifying exchange investment into one which provides little or no management and superior cash flow or other benefits.

This strategy can also be used for business assets. In both cases, however, it is important to outline the goals and objectives of all parties involved in the exchange.

It should be noted that in every case involving an election under Section1.761-2(a), it is critical to evaluate the status of your election and exchange with the advice of a qualified tax professional. They will relate your situation to specific Internal Revenue Letter Rulings and other interpretations, which could assist in the strategic structuring of your transaction.

Article source: Free Taxes Articles.

Understanding the tax implications of replacing or selling existing life insurance coverage will help shed some light on the options available to financial advisors and policy holders looking to capitalize on the hidden value in their life insurance plans. Policy holders need to know what the tax implications are for coverage payments in advance of death. They need to know whether viatical agreements will be taxed, and they need options when it comes to replacing expensive or undesirable life insurance policies with more favorable policies. Following are some ideas to help consider taxation of life insurance proceeds both as pre-payment advances for viatical purposes and in the case of life insurance settlements.

Viatical or Advance Payment Coverage

Viatical payments and accelerated payment of coverage in advance of death remain tax-exempt. Congress continues to favor the tax-exempt status of these policies and therefore, will probably remain tax free. To be sure, viatical and advanced payment plans cover medical bills and allow terminally or chronically ill policy holders with a life expectancy of two years or less to use insurance coverage now instead of later. Some states also exempt viatical settlements from taxation.

IRS 1035 Exchange Rule

Under the 1035 Exchange rule, the IRS allows policy holders a way to defer taxes. David Friedman explains in a Street Talk article that the 1035 rule allows 'the cash value in an existing life insurance contract [to be transferred] into another life insurance contract without creating a taxable event at the time of the transfer. Any taxable gain in the existing life insurance contract is deferred as the new contract assumes the basis that had been established in the original contract.' While replacing expensive or unneeded life insurance policies with new ones is a financially savvy idea, there is an after-tax alternative that can meet and significantly exceed the advantages of a 1035 Exchange.

An LIS could sell in a tremendously robust secondary marketplace for proceeds as high as 200 or 300 percent of its cash surrender value (CSV). It's not uncommon for investors to purchase policies from policy owners who are 65 years old, have a life expectancy between three and 12 years, and whose policy is cost-effective to enforce. The concept is simple. Individual policy holders sell their life insurance coverage to the highest bidder. When this happens, the investor is named as the beneficiary and the seller receives a cash payment. The buyer assumes the yearly premium payments and collects the coverage proceeds when the policy is executed upon the demise of the seller.

The life insurance settlement can trigger ordinary taxable income and a capital gains tax. If the cash surrender value equals less than the premium contributions to date, the difference between the premium contributions and the settlement amount is a taxable capital gains. If however, the cash surrender value equals more than the premium contributions to date, two things happen: The difference between the premiums paid to date and the cash surrender value are taxed as ordinary income; and the difference between the cash surrender value and the settlement amount is taxed as capital gains.

Policy holders wishing to replace their existing coverage with less expensive coverage can do so more profitably in many cases than using the tax deferred portion of the IRS 1035 Exchange rule. Of course the after-tax proceeds of a life insurance settlement could be gifted to a charitable non-profit organization or a charitable trust. These basic tax implications regarding life insurance proceeds should prove useful in opening up further dialogue with financial professionals and advisors.

Article source: Free Taxes Articles.

Tax season creeps up on all of us. With it comes all the stress and anxiety that tax day brings. However, by simply taking the time to adjust your daily routine you can prepare yourself for the tax deadline in advance. To help you get--and stay--prepared for tax season, please enjoy this list of 10 ways to prepare for the upcoming tax season.

Organized Filing System
Having a well-organized and thorough filing system makes all the difference. Using an accounting program like Quicken will help out a lot, but as long as you can keep a small filing box or cabinet for important documents you can avoid having to search for them in April.

Keep Only Important Documents
As opposed to saving every single bank statement and receipt, go through them and only keep those that are really prudent. The less you have to sort through come tax season the better, so only keep essential and tax-related documents.

Write Down Everything
Whenever you make a tax-deductible purchase or any other tax-related move, write it down. This way you will have a quick and easy reference when you need it, saving you time and making sure you don't miss a thing when tax season arrives.

Figure Out Your Income
Be prepared to know this number by heart during tax season. If you have had multiple jobs throughout the year, make sure to keep accurate records of your earning from each. The easiest way to do this is to make sure and keep all of your pay stubs.

Reduce Bank Accounts
Consolidate your bank accounts and credit cards as much as possible. If you have a separate business card, savings account, or two, that is fine. However, having three personal checking accounts is more likely to confuse you when it's time to track your financial history.

Keep Records Together
Any and every tax-related document should be kept in the same place, or at least in close proximity. This will assure nothing gets lost or misplaced, giving you peace of mind when anticipating the upcoming tax season.

Sort Your Receipts
If you save every single receipt you get, you are going to have A LOT to go through when the time comes. Instead, only save tax-deductible purchase receipts. By adding up your receipts monthly or bi-monthly, you can also save time and stress later on.

Get Professional Help
When tax season is approaching, check out tax professionals in advance. Once the season gets rolling, it will be more difficult to get all of your questions answered thoroughly. An early start will ease tax stress and keep you ahead of the game!

Author: roni deutch

About the author:
The Tax Lady the Roni Deutch opened the Roni Deutch Tax Center to fill the need in this country for competent income tax return preparation. For more tax articles, check out the Roni Dutch Tax Center Tax Help Blog.

Article source: Free Taxes Articles.

The Internal Revenue Service wants you to pay taxes on time. That being said, it understands this is not always possible and has created a program for such situations.

The IRS Solution If You Cannot Pay Your Taxes

The Internal Revenue Service is very upfront about its goal in dealing with taxpayers. While it obviously wants to collect all taxes due, it is also focused on keeping you in the system. This attitude is a relatively recent change undertaken in the 1990s. The IRS essentially determined it made better financial sense to have you in the system versus spending hundreds of man hours hunting you down. In practical terms, this means you need not have a panic attack if you do not have sufficient funds to meet your tax obligation. If you panicked this past tax deadline, there was no need.

The IRS will put you on a payment plan if you cannot pay your taxes on time. The plan calls for monthly payments like a car loan, to wit, they are an equal amount each month so you know what you are obligated to pay.

You are only eligible for a payment plan if you file a tax return. Once you file, you want to use form 9465 to request the payment plan. It costs $43 to file the application. The IRS will then get back to you on what it is willing to do. The payment plan process is not an audit. Millions of people apply each year and the IRS considers it standard operating procedure. No red flags are raised when you file the application. To the contrary, the IRS tends to view you as an honest tax payer since you are acknowledging the full amount due and trying to find a way to pay.

Importantly, the payment plan should be viewed as a means to buy time. Making the monthly payments will eventually pay off the debt, but it will take years. Interest on the amount you owe will also continue to accrue. The best strategy for using the plan is to make the monthly payments while saving up money to make a lump sum payment to satisfy the debt.

If you cannot pay the taxes you owe, do not panic. The payment plan option will keep you out of trouble with Uncle Sam.

Article source: Free Taxes Articles.

If you own a business and have employees, you have an inherent feel for the joy of filing employee related tax documents. Alas, the IRS is cutting back on the burden.

IRS Helps Employers By Reducing Filings Required For Employees

Employees are critical to any business other than the smallest ones. That being said, the tax requirements for dealing with employees can be a pain in the derriere. The problems are many, but one particular situation puts employers in a very bad spot.

Withholdings on employee paychecks is a subject that can cause tension in a business. Inevitably, some employees will want to reduce the withholdings from their check beyond the norm. The employer, in turn, is faced with the prospect of the IRS focusing unwanted attention on the business because of such actions. In a worst case scenario, the IRS will send a lock letter setting the amount of the withholdings. This puts the employer in the bad position of telling the employee more money must be withheld - a situation sure to cause tension. Making matters worse, the employer was supposed to be able to determine when the employee was abusing the withholding process.

The IRS has issued regulations that at least relieve the employer of the burden of determining if an employee is stepping over the line on the reduction of withholdings. Whereas the employer was previously required to send a W-4 Withhold Allowance Certificate to the IRS if an employee was claiming a total exemption from withholdings or more than 10 allowances, it no longer does. As of April 14, 2006, the IRS will simply make its own determination using salary filings for the business in general.

This regulation modification by the IRS should be applauded as a significant boost to employers. No longer does an employer have to act as a detective in determining whether an employee is not paying in enough tax on paychecks. Instead, the employer can now sit back and wait for the IRS to act. If the IRS feels an employee is out of line, the agency will send a lock-in letter to the employer. The employer than has no choice but to comply. Employees are much more likely to understand this and focus their anger on the IRS instead of the employer.

The new withholding regulations represent a positive step by the IRS. They might just keep employers out of the tax problems of employees.

Article source: Free Taxes Articles.

Prior to January 1, 2006, you were restricted to claiming a $2,000 tax deduction if you purchased a hybrid car. Now you can claim a tax credit, which is much more valuable.

Tax Credit Amount for Lexus GS 450 Hybrid Issued By IRS

Conspiracy theorists often offer rather exotic arguments about how the government tries to control us. When it comes to taxes, they are absolutely correct. Both federal and state governments try to influence our behavior by levying or reducing taxes. If the government wants to promote something, it gives you tax breaks if you do it. If the government wants to discourage something, it loads the product or service up with taxes.

If you have filled up your car at the pump in the last week, you know gas prices are out of control. Despite our wailing, they politicians really cannot do that much since we are dependent on foreign oil sources. They have, however, taken one long-term approach by promoting the purchase of hybrid vehicles.

Prior to 2006, the government provided all taxpayers that purchased a new hybrid with a healthy $2,000 tax deduction. With the recent passage of the Bush Energy Act, the government has made it foolish NOT to purchase a hybrid. It did this by changing the tax deduction into a tax credit.

The IRS is now allowed to set tax credit amounts applicable to hybrid purchases so long as the amount does not exceed $3,400. In regard to the 2007 Lexus GS 450 hybrid, it has just done so. If you purchase a new 2007 Lexus GS 450 hybrid after January 1, 2006, you can claim a tax credit of $1,550.

You may think $1,550 is nice, but not overly impressive. How wrong you are! Unlike a tax deduction, a tax credit is applied directly to the amount of taxes you owe. Assume you determine you owe $6,500 when you prepare your 2006 taxes next year. Instead of writing a check to the IRS, you will first deduct your tax credit from the amount you owe giving you a bill of 4,950. This dollar for dollar reduction in your tax liability is what makes tax credits so great.

As with all hybrid tax credits, they scale down as more cars are sold. Make sure to ask your accountant or dealer the current tax credit amount when you make your purchase.

Article source: Free Taxes Articles.

For more than 10 million Americans, tax day comes up to four times a year. Many small business owners, as well as people earning income from investments, rental property or alimony, are often required to pay quarterly estimated taxes every April, June, September and January.

Many filers struggle to determine how much they owe, or worse, forget to make payments altogether-a costly mistake when underpayment typically results in additional penalties and fines.

'Paying estimated taxes is a real hassle,' says Matt Hammond, a Tustin, California-based commercial real estate broker. 'Having to account for things like safe-harbor computations, percentages and special rules that apply can be complicated. In addition, just remembering to send my payment on time is difficult and then I worry if it got there.' Last year, Hammond was one of the taxpayers whose payment to the IRS ended up at the bottom of San Francisco Bay when a truck carrying 30,000 tax documents and payments tipped over.

Fortunately, there are ways to make filing 'quarterlies' easier. For instance, a new online service from the makers of TurboTax fully automates estimated tax calculations and payment.

TurboTax Estimated Taxes can help eliminate the headaches and hassle associated with making estimated tax payments. The online service features a calculator to determine how much to pay, quarterly e-mail reminders and online record keeping, so tax-time surprises are a thing of the past.

In addition, the service electronically files payments and provides confirmation from the IRS-meaning filers like Hammond may get some peace of mind.

Article source: Free Taxes Articles.

'You're getting an income tax refund'! Those are the words that every taxpayer would love to hear. A federal income tax refund occurs if the tax you owe is less than the sum of the total amount of refundable tax credits claimed and the total amount of withholding paid. For many individual taxpayers those federal tax refunds can be obtained through Earned Income credit, a real refund of overpayment of tax, or through an overpayment from previous years. Some people really believe that getting a large income tax refund is not the greatest thing. Instead they feel that the tax refund represents a loan paid back by the government interest free. Others use their IRS tax refund as a 'simple savings plan' where they are surprised to get money back each year. Always remember that it is still better to get an IRS tax refund than to owe money to the government.

Once you determine you're receiving a tax refund, there are several options for actually putting that money in the taxpayer's hands. Standard paper filing, electronic filing with direct deposit, rapid refunds, and refund anticipation loans are the options we have the choice of exercising, and for many refund anticipating individuals, the rapid refund or the refund anticipation loan is the refund of choice.

Since the advent of the computer age, and the great invention of the internet, the Internal Revenue Service (IRS) has been fairly quick to react to the benefit of electronic filing. The income tax returns are filed much faster, tax refunds are made faster, and money due the IRS can be obtained faster. Let's take a minute to look at the different IRS refund options, and what each offers the individual taxpayer.

The standard paper filing, although many are more familiar with this method of filing, is slowing reaching obsolescence. There will soon come a time that the old system of paper tax filing will be entirely eliminated and replaced by the electronic tax filing methods. If you are still one of the dying numbers of Americans who files a paper tax return, you should anticipate receiving a tax refund in about six weeks; today, thanks to the great use of the internet, six weeks to receive a tax refund, seems like an extremely long time.

The rapid tax refund, that is rapidly replacing the standard paper filing, is an electronic method used for filing your federal income tax return, and allowing you to receive your refund in about 10-14 days. Much faster than the six weeks it used to take. There are usually no excess fees attached to this type of filing, and returns may be filed for free through many local, public access facilities.

The refund anticipation loan, however, is a little different. These must be administered by a tax professional through an established alliance with a financial and lending institution. There are several excellent choices available, and many qualified tax professionals to complete your tax return, you will however be required to pay a loan fee or a small interest fee for the opportunity to obtain an refund anticipation loan. There are several restrictions placed on receiving a refund anticipation loan, and some of the restrictions may affect many people. For example, if you owe back taxes, back child support, or liens and judgments, you can't qualify for the refund anticipation loan. Most often, the individuals who apply for and use the refund anticipation loan are recipients of earned income credit, and their tax refunds are usually well into the thousands of dollars. The refund anticipation loan can be processed in as little as three hours, and back in the hand of the taxpayer by late afternoon; this is provided everything works exactly as planned. The higher interest rates charged by the bank product providers, and the higher processing fees charged by the tax preparers, equate to less money for the taxpayer, but many of these individuals don't even blink when told how much it will be to process their federal tax return, they just want the refund immediately. This is just one more example of the instant gratification upon which our society chooses to operate. Even for individuals filing with the electronic returns, and choosing to have their funds direct deposited, the turn around time is usually no more than 10 to 15 days. You would think that a turn around of less than two weeks would be quick enough for many taxpayers, but typically, the bigger the federal income tax refund, the faster the necessary return.

It would seem to me that this is just another way for the system to profit from the poor; as it is usually the poor that qualify for the earned income credit tax refunds, and these can be extremely large, especially for families with two or three dependents. In all reality, avoid refund loans if possible. They are highly expensive. Wait patiently for your federal income tax refund and keep every penny for yourself.

Article source: Free Taxes Articles.

The first known income tax that Americans were legally required to pay was enacted during the 1860s, and the Presidency of Abraham Lincoln. The Civil War was proving very costly to fund, and the President and Congress created the Commissioner of Revenue and enacted a law requiring citizens to pay income tax.

Originally, the deadline for completing and filing your individual income tax was not April 15th. In the beginning, it was first set for March 1st. Then, during 1918, Congress pushed the date out to March 15th. Then, in the great overhaul of 1954, the date was once again moved forward to April 15th, and this is where it remains today. But, it has only been set this way for a little over 50 years. That's not very long, in historical terms, and it could possibly be changed again.

If you are an individual tax payer, you are required to file either a return or an extension of time to file (Form 4868) by April 15th. Corporate and other legal entities are required to file their tax return by March 15th, and if not, they also must file an extension of time to file. What this extension does not do, is to extend the amount of time you have to pay any taxes due the government. So, if you are unable to ready your personal or business financial information in a timely manner, and have no reasonable estimate as to the amount of tax you may owe, you can expect to pay some form of penalty.

In the years following WWII, the burden of tax responsibility was shared fairly equally by the corporate world and the individual tax payer. Today, however, the shift has been toward more responsibility on the part of the individual, and less on the business backs. To demonstrate how special interests have begun to overtake American politics, during 1867, public opinion was so strong, and the outcry of the general public so loud, that the President and Congress repealed the income tax law, and from 1868 until 1913 almost all of the revenue for government operation came from the sale of liquor, beer, wine, and tobacco.

An interesting time during the formation and eventual taxation of America occurred during 1918. Until that point in time, the vast majority of revenue for government funding came from alcoholic beverage sales. In 1919, Congress passed an amendment to the Constitution that made it illegal to manufacture or sell alcohol; what would replace the revenue? American income tax was the proposed solution, and we've been paying since. Although during the great years known as Prohibition, many 'revenue agents' spent their days tracking down 'moon shiners' not tax evaders, the American citizen, the individual taxpayer took on the heavy burden of supporting government revenue, and it has become heavier with each passing year.

Then, during 1942, the Revenue Act of 1942 was passed and the 'New Deal' era was begun. Since that point in time, government control, power, and expenditures has continued to increase at a phenomenal rate, and today the American taxpayer supports a trillion dollar giant known as the United States government. This ravenous beast consumes more than 10% of our earned income each year, and if the Social Security Administration has their way, will continue to consumer even more of our weekly earnings. We can foresee no other relief in sight.

Currently, all the tax regulations for this country are the responsibility of the Internal Revenue Service, and there are four major divisions of this government office: the Wage and Investment, Small/Business Self-Employed, the Large and Midsize Business and the Tax Exempt and Government Entities. Each division has responsibilities as they pertain to their individual specialty.

Article source: Free Taxes Articles.

Are you in the middle of a disagreement with the IRS? One of the guaranteed rights for all taxpayers is the right to appeal. If you disagree with the IRS about the amount of your tax liability or about proposed collection actions, you have the right to ask the IRS Appeals Office to review your case.

During their contact with taxpayers, IRS employees are required to explain and protect these taxpayer rights, including the right to appeal. The IRS appeals system is for people who do not agree with the results of an examination of their tax returns or other adjustments to their tax liability. In addition to examinations, you can appeal many other things, including:

1. Collection actions such as liens, levies, seizures, installment agreement terminations and rejected offers-in-compromise,

2. Penalties and interest, and

3. Employment tax adjustments and the trust fund recovery penalty.

Internal IRS Appeal conferences are informal meetings. The local Appeals Office, which is independent of the IRS office, can sometimes resolve an appeal by telephone or through correspondence.

The IRS also offers an option called Fast Track Mediation, during which an appeals or settlement officer attempts to help you and the IRS reach a mutually satisfactory solution. Most cases not docketed in court qualify for Fast Track Mediation. You may request Fast Track Mediation at the conclusion of an audit or collection determination, but prior to your request for a normal appeals hearing. Fast Track Mediation is meant to promote the early resolution of a dispute. It doesn't eliminate or replace existing dispute resolution options, including your opportunity to request a conference with a manager or a hearing before Appeals. You may withdraw from the mediation process at any time.

When attending an informal meeting or pursuing mediation, you may represent yourself or you can be represented by an attorney, certified public accountant or individual enrolled to practice before the IRS.

If you and the IRS appeals officer cannot reach agreement, or if you prefer not to appeal within the IRS, in most cases you may take your disagreement to federal court. Usually, it is worth having a go at mediation before committing to an expensive and time-consuming court process.

Article source: Free Taxes Articles.

Own residential rental properties? This article discusses how income from those properties impacts your taxes.

What Constitutes Revenue?

Generally, rental income is defined as any revenue you receive from the occupancy or use of residential property. Rent, obviously, is included in that revenue. Many owners are surprised to learn revenue also includes rent advancements, expenses paid by a tenant and any security deposits not returned to the tenant. In fact, revenue can also include amounts paid to cancel a lease, even if you had to sue the defendant to get it.

Yeah, Yeah, But What Can I Deduct?

Tax deductions associated with rental properties are strikingly similar to those found in any business. Technically, you can deduct any expense reasonably necessary to 'manage, conserve or maintain' the property. Obvious deductions include mortgage payments, cleaning expenses, insurance premiums, service payments such as landscape maintenance, repairs, maintenance, etc. Overlooked rental property deductions include:

1. Expenses incurred in finding tenants,

2. Commissions paid to third parties that arrange for tenants,

3. Paying your accountant and/or lawyer,

4. Mileage for driving to and from the property [I said, 'No more parties!']

5. Depreciation of the property,

6. Depreciation of items in the property such as washing machines, furniture, etc.

Imaginary Rent Deduction

A few creative property owners have suggested that they should be able to deduct their customary and standard monthly rent if the property is empty. The argument goes, 'If the property is empty, I am not making revenue and should be able to deduct the $1,500 that I am missing out on.' At first glance, this almost makes sense. Sadly, it doesn't fly from the perspective of the IRS. Since you are not receiving revenues, your total revenues for the year will be reduced by the loss rent. You can't double dip by deducting the $1,500 from the already reduced yearly revenues. The only things you can deduct are the expenses you incur during this period, and only for so long as you are actively trying to rent the place.

Rental properties are a great investment. Even more so if you stay on top of your taxes.

Article source: Free Taxes Articles.

Another year has come and gone and what's really changed? Are you sitting in roughly the same place you were last year at this time with respect to your taxes-wondering what you could have done differently in your business to positively affect your year- end tax bill?

All too often, when individuals and closely-held business owners begin discussing tax planning, what they really end up referring to is the process of tax compliance. Tax compliance is the process of reporting your income to the Internal Revenue Service and, hopefully, accurately ensuring that your tax preparer takes advantage of all the deductions and credits you are entitled to. Often by this time, however, it's really too late to do any real tax planning. Having stated that, the accurate and timely preparation of your tax returns are obviously a crucial step in realizing the effect of this year's tax planning (or lack thereof ), and there are still things you can do, even at this late stage, to help reduce your current and future income tax bite.

Avoiding Common Pitfalls Because the effects of good tax planning can obviously be forgone without proper reporting and compliance, it is extremely important to make sure that you are working with a competent tax professional on your tax preparation. Because this is what tax preparers live for, and it is their specialty to make sure that you take advantage of all that the tax code affords you as a taxpayer, it is often well worth the additional investment in time and money to work with a competent tax preparer that has a good grasp of your business. Very often, a good tax preparer will earn their fee by recognizing additional tax savings through credits or deductions the taxpayer may have overlooked, or through the timely and accurate preparation of your tax return, which, at a minimum, can avoid the costly penalties and interest that come with late or inaccurate filings. Additionally, it is important to keep in mind that the cost of tax preparation is fully tax deductible for your business. For individuals, the fees are also deductible, although this a miscellaneous itemized deduction and in this case, the total of all miscellaneous itemized deductions must exceed 2 percent of your adjusted gross income before you can begin realizing any benefit.

Whichever way you decide to go, with or without a professional tax preparer, it is important to not overlook some of the common tax preparation mistakes that befall many taxpayers. Here are a few of the most common pitfalls to avoid, as well as a few of the most commonly missed deductions:

Forgetting to sign your return or attach all required documentation and schedules.

Carryover items - Don't forget about charitable contributions, capital losses or net operating losses that are being carried forward from a prior year. It can be easy to overlook these items so be sure to refresh your memory by reviewing last year's return. This type of review may also help ensure you don't overlook other items of income or deduction that appeared on your previous returns.

Disallowed Roth IRA contributions - If you are planning to contribute to a Roth IRA, make sure you are below the income limitations for such contributions. If you are a single taxpayer who's modified adjusted gross income is in excess of $110,000 (or in excess of $160,000 for married couples filing a joint return), you are not permitted to contribute to a Roth IRA and doing so will subject you to a 6 percent penalty on the contribution amount. If you have made this mistake, however, there is still time to correct the problem, provided you withdraw the excess contribution prior to April 17, 2006, for 2005 contributions.

Recent changes in marital status - If you are recently married or divorced, you should make sure that the name on your tax return matches the name registered with the Social Security Administration (SSA). Any mismatch can cause significant delays in processing your return and can inadvertently affect the size of your tax bill or refund amount. Name changes can be easily reported to the SSA by filing a form SS-5 at your local SSA office. Keep in mind, your marital status as of December 31st will also control whether you may file as single, married or head of household.

Education tax credits and student loan interest - Interest paid on student loans can be deducted on your personal tax return, even if you do not itemize your deductions. If you or your dependent is attending college with the intent of earning a degree or certificate, you may qualify for the Hope or Lifetime Learning Credits, which can reduce your tax by as much as $2,000 for 2005.

Business start-up expenses - The expenses a business owner incurs before he opens his doors for business can be capitalized and written-off by the owner over a 5-year period. Due to a change in the tax law in 2004, up to $5,000 of start-up expenditures can now be currently deducted.

Professional fees - The expenses paid for attorneys, tax professionals and consultants are generally deductible in the year they are incurred. In certain circumstances, however, the costs can be capitalized and deducted in future years. In other words, the cost of your tax preparation or legal advice is considered an ordinary and necessary business expense and you may offset this cost against your income. Therefore, this deduction has the effect of reducing the effective cost of these services, thereby making those professional services a little more affordable.

Auto expenses - If you use your car for business, or your business owns the vehicle, you can deduct a portion of the expenses related to driving and maintaining it. Essentially you may either deduct the actual amount of business-related expenses, or you can deduct 40.5 cents per mile driven for business for 2005. This rate was then increased to 48.5 cents per mile after September 1, 2005, due to the spike in gas prices. As noted below, the rate for 2006 has been modified again to 44.5 cents per mile. You must document the business use of your vehicle regardless if you use actual expenses or the mileage rate.

Education expenses - As long as the education is related to your current business, trade or occupation, and the expense is incurred to maintain or improve your skills in your present employment; or is required by your employer; or is a legal requirement of your job, the expense is deductible. The cost of education to qualify you for a new job, however, is not deductible.

Business gifts - Deductions for business gifts may be taken, provided they do not exceed $25 per recipient, per year.

Business entertainment expenses - If you pick up the tab for entertaining current or prospective customers, 50 percent of the expense is deductible against your business income provided the expense is either 'directly related' to the business and business is discussed at the entertainment event, or the expense is 'associated with' the business, meaning the entertainment takes place immediately before or after the business discussion.

New equipment depreciation - The normal tax treatment associated with the cost of new assets is that the cost should be capitalized and written-off over the life of the asset. For new asset purchases, however, Section 179 of the Internal Revenue Code allows taxpayers the option in the year of purchase to write-off up to $105,000 of the asset cost in 2005 ($108,000 in 2006).The limits on these deductions begin to phase out, however, if more than $430,000 of assets have been placed in service during the year.

Moving expenses - If you move because of your business or job, you may be able to deduct certain moving expenses that would otherwise be non-deductible as personal living expenses. In order to qualify for a moving expense deduction, you must have moved in connection with the business (or your job if you're an employee of someone else), and the new workplace must be at least 50 miles further from your old residence than your old workplace was.

Advertising costs - The cost of advertising for your goods and/or services is deductible as a current expense. Examples may include business cards, promotional materials that create business goodwill, or even the sponsoring of a local Little League baseball team, provided there is a clear connection between the sponsorship and your business (such as the business name being part of the team name or appearing on the uniforms).

Software - Generally speaking, software purchased in connection with your business must be amortized over a 36-month period. If the software has a useful life of less than one year, however, it may be fully deducted in the year of purchase. Also, under Section 179 (as noted above), computer software may now be fully deducted in the year of purchase. Previously, computer software did not qualify for Section 179 treatment.

Taxes - In general, taxes incurred in the operation of your business are tax deductible. How and where these taxes are deductible depends on the type of tax. For example:

Federal income tax paid on business income is not deductible although state income taxes are deductible on your federal return.

The employer's portion of Social Security is deductible as a business expense.

Sales taxes paid on items you buy for your business's day to day operations are deductible as part of the cost of those items. Sales tax on asset purchases that are capitalized will have the sales tax capitalized and deducted over the life of the asset.

Real estate taxes paid on property used in your business is also deductible along with any local special assessments for repairs and maintenance. Assessments paid for improve ments (e.g., adding a sidewalk) is not immediately deductible, but is rather capitalized and deducted over a period of years.

Other expenses to keep in mind may include the cost of audio tapes (videotapes) related to training or business skills; bank charges; business association dues (chamber of commerce); business related periodicals or books; coffee or beverage services; office supplies; postage; seminars; and trade shows, to name a few.

2005 Tax Planning Items As noted above, the real planning for 2005 should have begun with the beginning of the tax year. Nonetheless, although we are already into 2006, there is still time to take advantage of a few tax rules that could have a significant effect on your current 2005 tax bill, and on future tax bills.

IRA Contributions You have until April 17, 2006, to make contributions to your Individual Retirement Account (IRA) for 2005. In fact, you can contribute up to $4,000 and take a deduction from your 2005 income for all of it, provided you did not participate in a company-sponsored retirement plan and provided your income falls below certain statutory levels ($50,000 for single filers and $70,000 for married couples). If you were over the age of 50 by the end of 2005, the limit increases to $4,500. Even when you did participate in a company-sponsored retirement plan, your spouse can generally contribute (and fully deduct) $4,000 to an IRA as long as your combined adjusted income is $150,000 or lower, and your spouse is not a participant in a company sponsored plan. In other words, assuming a 25 percent tax bracket, a married couple could contribute $4,000 each to their own IRAs and reduce their current tax bill by $2,000.

Education Savings There are two primary tax-advantaged ways to save for education. One is a 529 Plan and the other is an Education Savings Account. Although contributions to a 529 Plan had to be made before the year-end, contributions to an Education Savings Account can be made any time until April 17, 2006. An Education Savings Account allows you to invest up to $2,000 per year in a savings account, mutual fund or brokerage account (through which you can invest in individual stocks and bonds). Although this contribution is not tax-deductible for 2005, the money invested will grow tax-free and all withdrawals from the account will be tax-free as well provided the funds are used for qualified education expenses (e.g., tuition, books, etc.). Much like many of the tax benefits available to taxpayers, there is an income limitation that must be met in order to invest tax-free in an Education Savings Account. For joint return filers, this opportunity begins to phase out when their modified adjusted gross income exceeds $190,000. For single filers the phase-out begins at $95,000 of modified adjusted gross income.

What's new for 2006 With a new year comes new tax laws. Being an educated taxpayer and staying abreast of these changes will help you plan for 2006 and allow you to take advantage of these opportunities. The following items are new to the tax code within the last year.

The Katrina Emergency Relief Act of 2005 and The 2005 Gulf Zone Opportunity Act; The 2005 Katrina Relief Act was signed into law on September 23, 2005, and provides a package of income tax relief provisions to help victims of Hurricane Katrina. The Gulf Zone Opportunity Act of 2005 essentially extended the relief provisions of the Katrina Relief Act to victims of Hurricanes Rita and Wilma as well.

Just a few of the opportunities available under these acts include:

Penalty free withdrawals from qualified plans of up to $100,000 provided the individual making the withdrawal suffered an economic loss because of one of the three hurricanes (Katrina, Rita or Wilma).

Individuals that were eligible for tax relief for hurricane-related distributions may pay the income tax on such distributions ratably over a three year period.

Loan limitations from qualified plans were also increased for hurricane victims by doubling the thresholds to the lesser of $100,000 or 100 percent of the individual's account balance. Additionally, loans due from hurricane victims to qualified plans can be deferred for an additional 12 months on top of the maximum repayment period.

Non-business casualty losses are generally deductible by taxpayers who itemize their deductions and then only to the extent the casualty loss exceeds 10 percent of adjusted gross income and a $100 floor. These rules were eased by the Act by eliminating the 10 percent rule and the $100 floor for hurricane victims.

Corporate charitable contributions were eased allowing corporations to claim a charitable deduction for cash contributions related to these hurricanes without regard to the 10 percent of taxable income cap.

Additionally, these Acts contain a number of tax incentives to encourage rebuilding of the areas ravaged by these three hurricanes.

If you have been affected by one of the hurricanes noted above, live in one of the hurricane zones or have contributed to relief efforts, you should consult with a professional tax advisor to discuss the full extent of these new provisions.

Other changes for 2006 include:

Adjustment of the standard mileage rate to 44.5 cents per mile.

Increase in the 401(k) contribution limit to $15,000 per year (up from $14,000), as well as an increase in the catch up contribution permitted for taxpayers that are 50 or older to an additional $5,000 (up from $4,000).

The Social Security wage limit has increased from $90,000 in 2005 to $94,200 for 2006. Remember, this wage limitation applies only to the 6.2 percent OASDI component (old age survivors and disability insurance) of social security. The 1.45 percent Medicare component of payroll taxes applies to all wages.

In the estate tax arena, the lifetime estate tax exclusion amount has increased from $1.5 million to $2 million for 2006 through 2008 and the annual gifting limit has increased from $11,000 annually to $12,000 annually. Under current law, the lifetime estate tax exclusion amount is slated for increase again in 2009 to $3.5 million before the repeal of the estate tax for one year in 2010. In 2011, the estate tax system returns with the exemption amount returning to $1 million. This is an important planning consideration; however, most experts in this field believe that more estate tax changes are on the way. As a result, it is likely these rules will all be modified again before the next set of changes come into effect in 2009 and beyond.

The top estate tax rate has also dropped from 47 percent to 46 percent for 2006. This rate is again scheduled to drop one percent to 45 percent in 2007 and that rate will stay in effect until the 2010 repeal. As noted above, however, it is likely the estate tax laws will change by that time.

The gift tax credit remains at $1 million. If you plan on making significant gifts during your lifetime, the difference between the estate tax exclusion and the gift tax exclusion must be noted to ensure that you don't get a surprise from the IRS.

Tax Planning - Let's look ahead As previously discussed, the process of tax planning is often confused with tax compliance. Individuals and closely-held business owners that are armed with a good understanding of the tax code can have a tremendous effect on their ultimate year- end tax liability with some good, forward-thinking tax planning. Unfortunately, however, by the time most people usually consider tax planning, they are past the point that they can positively effect a transaction.

Before you enter into any significant business transaction, it would be wise to consult with a competent tax professional to determine whether the transaction is structured properly from a tax perspective. There are often very tax efficient ways to accomplish your business goals; however, without proper planning, the tax opportunities that may otherwise be available in a transaction could vanish forever.

For example, if you are considering selling investment real estate or business property and replacing that real estate with another piece of property, you should be considering handling the transaction as a 'like-kind exchange.' The 'like-kind exchange' rules under Section 1031 of the Internal Revenue Code allow any gain realized on the sale of the property to be deferred until the subsequent sale of the replacement property. Like-kind exchanges are also appropriate with property other than real estate, provided of course the property is of 'like-kind,' the determination of which requires an understanding of the tax rules and the various tax classifications for personal and real property.

Like-kind exchanges are also a perfect example of a planning opportunity that will be unavailable if not properly addressed in advance of the transaction. There are very strict rules regarding the timing of the transaction, when property is identified and purchased, and even very strict rules about how the proceeds from the sale need to be handled in order to preserve the 'like-kind' treatment. If these rules are not met, you can not have a 'like-kind exchange.'

The 'like-kind exchange' example was simply meant to illustrate how important it is to address the tax ramifications in advance of an impending transaction. Always keep your professional advisors in the loop when considering any significant business transaction or your opportunity may be lost, which can have significant costs that perhaps could have been avoided. Remember, good tax planning is not about making sure your tax returns are properly prepared and that you have availed yourself of all the appropriate tax deductions and credits available to you and your business. It is really about structuring your business and your transactions in a way that not only meet your business needs, but do so in the most tax advantaged manner.

Article source: Free Taxes Articles.