2008 was a tough year for many tax payers. It is important to know the tax ramifications of bankruptcy or insolvency.

Insolvency

There are two types of insolvency. The first type is cash flow insolvency, which means that you are unable to pay your debts when they become due. The second type of insolvency is balance sheet insolvency, which means that your liabilities exceed your assets. It is possible to be balance sheet solvent, yet be cash flow insolvent, if you have your assets tied up in investments that are generally not liquid. This has been the case for many taxpayers this year, as they face foreclosure because they are unable to pay their monthly mortgage payments.

A taxpayer reaches insolvency when their liabilities exceed their total assets. Generally, you must include forgiven debt as income on your tax return. If you are insolvent and you have debt forgiven by a lender, you can exclude that debt from income on your tax return through the insolvency exclusion. Many taxpayers fell into a situation in which the value of their home decreased to the point that they owed more on their mortgage than the current value of their home. These homeowners could qualify for the insolvency exclusion.

The amount eligible to be excluded is limited to the amount that your liabilities exceed your assets. In addition, if the debt cancelled is related to operating a farm and qualifies under the tax code, you may not have to report it as income.

Bankruptcy

Chapter 12 or 13

Individuals that file a petition for Chapter 12 or 13 of the Bankruptcy Code should continue to file the same federal income tax return. Include all income received during the year on your tax return. However, do not include any debt canceled in income on your return. You must reduce losses in property by the amount of cancelled debt.

Chapter 7 or 11

When you file for bankruptcy under chapter 7 or 11 of the Bankruptcy Code a separate estate is created that is made up of property that belonged to you prior to the filing date. The bankruptcy estate is a separate entity from you as a taxpayer. Under chapter 7, the estate is placed in the care of a trustee appointed by the court to liquidate your nonexempt assets. In a chapter 11 filing, the debtor stays in control of the estate as a debtor-in-possession. All wages and income following the bankruptcy filing are yours and not subject to the obligations of the bankruptcy estate. If your bankruptcy filing is rejected, you will have to amend your taxes with a 1040X as if you had never filed the claim.

You must file or efile an income tax return during the period of bankruptcy proceedings. However, you should not include income, deductions, or credits belonging to the separately created bankruptcy estate. You have the option of ending the tax year on the day prior to submitting your bankruptcy petition.
Keep in mind that if you are filing for bankruptcy after January 1 of a given year, any tax refund that you receive during that year, even if you haven't yet filed your taxes, should be declared as an asset in your bankruptcy.

Author: Angela Stringfellow

About the author:
For more information on individual bankruptcy, or the bankruptcy of corporations, refer to eFile's Bankruptcy Tax Guide

Article source: Free Taxes Articles.

The United States is a nation of entrepreneurs. There are literally tens of millions of self-employed individuals that enjoy pursuing their dream business. Of course, few of you enjoy the paperwork and confusing tax issues that arise from owning your own business.

Many self-employed individuals are considered 'sole proprietors' or 'independent contractors' for legal and tax purposes. This is true regardless of whether you are turning a hobby into a business, selling an indispensable widget or providing services to others. As a self-employed person, you report business revenue results on your personal income tax return. Following are a few guidelines and issues you should keep in mind if you are pursuing your entrepreneurial spirit.

Schedule C - Form 1040.

As a self-employed person, you are required to report your business profits or losses on Schedule C of Form 1040. The income earned through your business is taxable to you as an individual. This is true even if you do not withdraw any money from the business. While you are required to report your gross revenues, you are also allowed to deduct business expenses incurred in generating that revenue. If your business efforts result in a loss, the loss will generally be deductible against your total income from all sources, subject to special rules relating to whether your business is considered a hobby and whether you have anything 'at risk.'

Home-Based Business

Many self-employed individuals work out of their home and are entitled to deduct a percentage of certain home costs that are applicable to the portion of the home that is used as your office. This can include payments for utilities, telephone services, etc. You may also be eligible to claim these deductions if you perform administrative tasks from your home or store inventory there. If you work out of your home and have an additional office at another location, you also may be able to convert your commuting expenses between the two locations into deductible transportation expenses. Since most self-employed individuals find themselves working more than the traditional 40-hour week, there are a significant number of advantageous deductions that can be claimed. Unfortunately, we find that most self-employed individuals miss these deductions because they are unaware of them.

Self-Employment Taxes - The Bad News

A negative aspect to being self-employed is the self-employment tax. All salaried individuals are subject to automatic deductions from their paycheck including FICA, etc. In that many self-employed individuals often do not run a formal payroll for themselves, the government must recapture these taxes through the self-employment tax. Simply put, you are required to pay self-employment taxes at a rate of 15.3% on your net earnings up to $87,900 for 2004. For net income in excess of $87,900, you will pay further taxes at a rate of 2.9% on the excess.

In an interesting twist that reveals the confusing nature of the tax code, you are allowed a partial deduction for the self-employment tax. Simply put, you are allowed to deduct one-half of your self-employment taxes from your gross income. For example, if you pay $10,000 in self-employment taxes, you are allowed a deduction on your 1040 return of $5,000. Many self-employed individuals miss this deduction and pay more money to taxes than needed.

Health Insurance Deduction

This used to be a very messy area for self-employed individuals, to wit, you received little tax relief when it came to your health insurance bill. This was a particular burden for small business owners when considering the astronomical cost of health insurance. All of this has changed and you now may deduct 100% of your health insurance costs as a business expense.

No Withholding Tax

Unlike a salaried employee sitting in a cubicle, you are not subject to withholding tax on your paycheck. While this sounds great, you are required to make quarterly estimated tax payments. If you fail to make the payments, you are subject to a penalty, but the penalty is not the biggest concern. A potential and dangerous pitfall of being self-employed is failing to pay quarterly estimated taxes and then getting caught at the end of the year without sufficient funds to pay your taxes. The IRS is not going to be happy if you fail to pay your taxes and you will suffer the consequences in the form of penalties and interest. Making sure you pay quarterly estimated taxes helps avoid this situation and it is highly recommended that you follow this course of action.

Record Keeping

You must maintain complete records of all business income and expenses. Simply put, document everything.Create a filing system for each month and file every receipt, etc. All business travel expenses must be documented, including auto mileage you incur when performing business tasks. Office supply stores sell business mileage books that you can keep in your car and use whenever you travel. If you have any doubt about documenting something, just do it!

In Closing

As a self-employed individual, your focus and time is spent on making your business successful. Your focus is not on the complexities of the tax code and how to limit the amount of taxes you owe. If any of the information in this article is new to you, then it is highly likely you have paid far more in taxes than required.

Article source: Free Taxes Articles.

From an outsider's perspective, owning a home may look like it comes with all kinds of expenses. But when you look at all the tax incentives homeownership has to offer, you may see things differently.

Local Taxes
Every homeowner pays an annual real estate tax on his or her home based on its value. However, what every homeowner does not know is that this tax is fully deductible. The federal government allows you to deduct the amount you spent on local taxes--this includes local property taxes.

Casualty Losses
If a fire or storm damaged or destroyed your home, you may be able to deduct the associated expenses as casualty losses. However, there are a lot of rules and restrictions, and the actual amount you can deduct will vary upon your location and the amount of damage.

Home Office
If you work from home then you may be able to deduct your home office expenses. However, this deduction is a little tricky, and the office needs to have it's own room in your house.

Health-Related Improvements
Home renovations or other home expenses made for medical reasons can be deducted. This includes any expenses made specifically for an ill or disabled person living in the home. Some common examples of this deduction include handicap ramps, special air filters or air conditioners, and swimming pools to help treat illnesses.

Mortgage Interest
The IRS allows you can deduct all of the interest you pay on your mortgage for both your first and second home, up to $1.1 million. In fact, the mortgage interest deduction is the largest single tax break in the tax code.

Paid Refinanced Loan Points
Refinancing can be a pain, but it does come with its advantages. If you recently refinanced, then you can deduct points you paid for the new loan. However, you cannot deduct all points at one time. You must divide them evenly throughout your loan. For example, if your loan was for 20 years and you have 40 points, you can deduct 2 points a year.

Green Credit
There are dozens of credits available for 'green' renovations. These credits range from getting solar panels to purchasing more energy efficient kitchen appliances. These types of credits are great to take advantage of because they help you save both money and the planet at the same time!

Selling Costs
In addition to deductions and credits for owning a home, there are also benefits if you decide to sell your home. Legal fees, advertising expenses, real estate agent's commission, title insurance, and any other expenses associated with selling your home are deductible. The IRS will even let you include things like landscaping and painting in your selling costs if you complete them with the intention of making the home more valuable.

Author: Roni Deutch

About the author:
The Tax Lady Roni Deutch and her law firm Roni Lynn Deutch, A Professional Tax Corporation have been helping taxpayers across the nation find IRS tax relief for over seventeen years. The firm has experienced IRS tax attorney who will fight the IRS on your behalf.

Article source: Free Taxes Articles.

It's tax time again and you must be sure to receive all the necessary forms. What is a 1099 tax form and who gets one? A Tax Form 1099 is used to report income other than wages, salaries and tips. Here of late, this term is used more and more frequently as many employers are opting to use contract labor versus hiring employees, who can turn out to be quite expensive when you factor in the insurance, payroll taxes, and other possible liability. If you had an independent contractor perform $600 more of services to you or your business, you are required by law to complete and deliver a 1099 form to that person or business. This article will take a look at the different 1099 tax forms, their purpose, who can receive one, and why.

The 1099 tax forms, if you are the recipient, should be furnished to you by January 31, 2006, and must be furnished and filed by the company furnishing the form no later than February 28, 2006. But which 1099 form will you receive?

If you are classified as an independent contractor (i.e. attorney, guest speaker, performer, physician, rent, etc.), or you receive income that is classified as non-employee income, or miscellaneous income (you were paid $600 or more) you will receive what is known as a 1099-Misc.; these are the information returns most often received for contract for-hire work, leased workers, or general contractor payments for which there is not a direct sale as a merchant to a consumer.

The other most often used 1099 tax form would come as a 1099-Int; this is a 1099 received for interest income purposes; whether the income be from a bank or any lending institution, or from the sale of a seller financed mortgage, the recipient of any income from interest will receive a 1099-Int. You would receive a statement that summarizes your interest income for that year. This form is also used to report other tax items related to your interest income such as early withdrawal penalties, federal tax withheld and foreign tax paid. A close relative of the 1009-Int is the 1099-OID. This is an information return provided when you receive an original issue discount, usually from transactions related to mortgages served by the Federal Housing Authority.

The 1099-Div tax form is used often for investors. This tax form is sent to investors by brokers, mutual funds or the investment company. The form is a record of all taxable gains and dividends paid to an investor. The amounts that are stated on the form represent amounts the fund companies are attributing to each investor's investment return for the year. The amounts on the 1099-Div could contain ordinary dividends, total capital gains, qualified dividends, foreign tax paid, federal income tax withheld and foreign source income.

Another 1099 can come as a 1099-B for barter exchange transactions. What does this mean? It means that instead of monetary payment, you received a bartered form of payment, an exchange of something other than money, with value attached in order to pay for a service.

Other less used 1099's are 1099-A, 1099-C, 1099-CAP, 1099-LTC, 1099-Q, 1099-R, and 1099-SA; the R, Q and SA are for retirement and social security payments, and are received by many retired individuals. The payments from IRAs, MSAs, Coverdell ESAs, and HSAs are reported on these 1099s. The 1099-A is received is there has been an acquisition of secured property, or an abandonment of secured property.

1099-C is received if there is a cancellation of debt, as from a bankruptcy proceeding, credit card default, or other failure of a maker to make good on a debt that the lender or seller can use as a tax deduction. The 1099-CAP is a 1099 used to report significant changes in corporate control and capital structure. What does this mean in laymen's terms? If you and several other individuals are in business together, as an incorporated entity, and 3 of you buyout another individual, you will be required to furnish that individual with a 1099CAP so that the individual reports any income or gain from the capital sale of stock.

A 1099 tax form that we've not seen very much until recently, but one that I'm sure we'll see much more of in the not too distant future is the 1099-LTC. Long-term care and accelerated death benefits are filed on this 1099; with a larger segment of our population aging, this segment also known as the 'baby boomers' will make more use of long-term care insurance and payouts, and many of them will receive these types of 1099s.

Although these are most often forms of taxable income to the recipient, this is not always a steadfast rule. For many of the older citizens, for individuals receiving the tax returns as part of a discounted program through the government, and for certain other situations, these are only information tax returns that do not result in added income tax liability. For the rest of us, however, a 1099 tax form usually means we have increased our income tax liability.

Article source: Free Taxes Articles.

Even though they are being levied by all forms of government since many centuries, taxes have hardly been popular. The very idea of taking a portion of something you legitimately earn or own may make you rebellious. However, all of us know that we have to pay taxes in order to have the infrastructures built, which are so necessary for our livelihood. Also, governments need money for a lot of other investments into areas such as scientific researches, defense, old age pension and care for the poor and disabled.

However, while everybody ought to pay their taxes, it is foolish not to explore legitimate ways to save taxes, which the government itself offers to the all citizens. There are a number of ways you can save your taxes. The most important thing is to have a thorough knowledge of the tax laws of your country. Tax planning, tax filing, bookkeeping, auditing, payroll management are some aspects of tax preparation which you can do yourself of can get the service of a reliable and certified public accountant agency.

US tax laws can be quite complicated for under these laws, you may have to make payments to all four levels of the US government such as the local, regional, state and federal level. The federal tax system is widely criticized for being extremely complex and completely outdated. In order to file federal tax for an individual, a person has to submit a Form 1040 to the Internal Revenue Service (IRS) in the United States.

There is one major change to the tax laws that has been introduced in the year 2008, which will benefit the tax-payers in 2009 also. In 2008 a new tax law called the Economic Stimulus Act (ESA) has been introduced, which will give the qualified individuals who have completed tax filing for the year 2007, tax rebates in advance via rebate checks. The qualifying income is at least $3,000 for the year 2007. Other than this, it has provisions that will encourage businesses to invest into new machineries.

The tax changes that were announced for the year 2009 are going to benefit a large number of tax-payers, especially those within higher income brackets. From 1st January 2009 onwards, the basic amount of exemption on federal estate tax increased to $3.5 million. It is going to result in huge tax saving for large real estate owners. Another changes is the increase in the maximum amount, which a tax-saver can contribute to a 401(k) plan. Many tax-payers and non-residential US citizens now will be able to save more of their payments thanks to this change.

The gift-tax exclusion in 2009 has been increased to $13,000 per year. Therefore, you can donate up to $13,000 in a year without paying taxes for it and in the process, reduce your taxable income size to some extent. The maximum amount of earnings that is subjected to Social Security taxes rose to $106,800. Still, a lot of employees will have to pay more Social Security taxes because of the raises in their salaries.

Author: Elle Wood

About the author:
Elle Wood alerts you to businesses and organizations that offer exemplary services and value. Find out more about Illinois CPA and Naperville Accountants and all the services offered by visiting http://www.lewiscpa.us/.

Article source: Free Taxes Articles.

Recent statistics show Americans are simply not saving money for the future. To encourage savings, the government has come up with tax incentives.

Tax Incentives for Saving for Education

Higher education in America is an expensive proposition. If you have a child in college, I hardly need to tell you this. While every parent is proud of a child pursuing education, the glorious event can make for some sleepless night when thinking about how to pay for it. If you have young children, the government has taken steps to make saving for college attractive from a tax perspective.

There are a number of different tax incentives to promote saving for education. One such program is known as the Coverdell.

A Coverdell account is designed to promote education savings by removing part of the tax penalty of doing so. The basic idea is that any money distributed from the account will not be taxed so long as distributions don't exceed the expenses of pursuing education. Here is how it works.

An account is set up for a beneficiary - the child. You can open one account per child and contribute up to $2,000 a year. The beneficiary must be under 18. Obviously, this is a long-term strategy since contribution amounts are limited. Nonetheless, here are some key things to understand:

1. Distributions are not taxed, but must be used for education costs such as tuition, books and so on.

2. The school can be public, private or religious and the money can be used as early as elementary school, to wit, this particular platform is not just for college.

3. You can use this strategy in addition to the hope and lifetime learning strategies, i.e., they don't cancel each other out.

4. If distributions do not go to education expenses or are more than said costs, the beneficiary is taxed like income tax and a ten percent penalty is added.

5. If the beneficiary completes school or does not go, the account may be rolled over to another family member.

All and all, the Coverdell plan is definitely a long-term strategy. Start one now for your young child, however, and you will be happy you did when the tuition bills start arriving.

Article source: Free Taxes Articles.

Many taxpayers are confused about how long they should keep tax records. The term 'tax records' refers to your tax returns and the documents that support the information in the returns. These documents can include receipts, bank statements, 1099s, etc. If you are one of the unlucky few to be audited, these records will be vital to fending off the IRS.

Tax Returns

To protect yourself from a nasty audit, you should keep all of your tax returns indefinitely. The IRS has been known to lose or misplace tax returns. While conspiracy advocates argue that this is evidence of a nefarious scheme, the simple fact is that the IRS receives millions of returns over a three-month period and lost returns are inevitable. So how do you protect yourself? You keep copies of every single tax return.

A quick word on the IRS e-file program. If you file your returns electronically, make sure you get copies from the company that filed your return. All such entities are required by law to provide you with paper copies.

Records Supporting Tax Returns

You should keep supporting tax records for a period of six years from the date the returns were actually filed. In general the IRS only has three years to audit you from the filing date. For example, if you filed your 2000 tax return on April 15, 2001, the IRS would have to start an audit by April 15, 2004. Keep in mind that if you filed an extension, the IRS will have three years from the date you submitted the return. As is always case with taxes, there are exceptions to this general time period.

If your tax return looks like the great American novel, the running of the three-year audit period may not save you. Failure to report more than 25% of your gross income gives the IRS an additional three years to pursue you. Using the previous example, the IRS would have until April 15, 2007 to audit your 2000 tax return.

Property Records - Get A Filing Cabinet

You may need to get a filing cabinet if you hold property for an extended period of time. For example, assume that you purchased a home in 1980 for $100,000 and made $50,000 in improvements over the years. You need to keep the purchase records, mortgage statements and receipts that relate to the improvements. When you sell the home, you will need the records to determine the tax consequences of the sale, to wit, your basis (original cost plus improvements) and profit. If the IRS decides to take a closer look at the reported profit, you will need to provide your tax records to support your claims. Once you actually sell the property, it is recommended that you keep all of the tax records for an additional six years.

Divorce

Make sure you keep copies of all of your financial documents, tax returns and supporting documents if you get divorced. You should also keep copies of all divorce agreements and court orders that cover property and financial issues. When couples divorce, the tax and credit consequences can be nightmarish. If you don't keep records, you will have to ask your ex-spouse for them. Get the records now to avoid doubling your misery!

Hopefully, you will never need to show your tax records to the IRS. If you are one of the unlucky few that is audited, your tax records should keep your feet out of the fire.

Article source: Free Taxes Articles.

As you continue to follow the basic rules of investing by following a disciplined investment process and staying invested, you may find yourself very dizzy while riding the rollercoaster of life; life affected by Federal Reserve decisions made for your own good, CEO bonuses and golden parachutes, and corruption on Wall Street. You may be feeling disbelief as you scratch your head wondering 'what happened' and 'how did I not see this turmoil in the financial markets coming'. What is a person to do?

The answer is simple. Find a way to take advantage of times when most of the country is confused and in shock, when confidence is at its lowest point since the great depression, and the market has followed suit. Since it is near impossible to determine the day the market will hit bottom, I think we can agree that we have not seen the indices at such lows in a very long time.

Regardless of how your portfolio was diversified, you are very likely experiencing a 15% to 40% loss in your taxable assets. There has not been a better time in the last few years to evaluate your holdings to make sure you are properly positioned for the day the market turns around. One way to take advantage of a deeply discounted market is to sell those assets that are least likely to benefit from a turnaround, and buy deeply discounted securities that may benefit most when consumer confidence resumes and the economy flourishes. This strategy may have you realizing tax losses in the six- to seven-figure range this year as what used to be working well has been decimated.

Using those losses to offset capital gains this year, and/or future years as they can be carried forward, is the second way to take advantage of a tumultuous market. For those investors who have held large positions of certain stocks for the last 10 to 20 years and still show a decent profit may want to consider selling a percentage of the holding in lieu of the new trend of old, perceived solid companies such as Enron, WorldCom, and most recently Lehman Brothers and Washington Mutual's demise. This has taught us that anything can happen to any company and it is probably not wise to have a large interest in one company. Therefore, rebalancing your portfolio in chaotic markets allows you to get it properly allocated by repositioning the money the way you want without triggering taxes.

Other capital gains that would benefit from capital losses are the sale of a family business or the sale of real estate. If you are in the process of selling a business that will result in a profit in 2008 you will definitely want to assess your losses to offset the gain before December 31st. If you had planned to sell your business next year, or in later years, don't fret. As I mentioned earlier, you may carry forward any unused capital losses to use against future capital gains.

The same goes for the sale of real estate that results in a capital gain. The most common real estate gain is the sale of a primary residence. Although the current tax law allows a married couple to exclude $500,000 in gains from taxes, portfolio losses can be used to offset taxes on the gains greater than $500,000. Another scenario is a single person who sells a house at a gain as the IRS only allows that person to exclude $250,000 with any additional gains possibly pushing them into a new tax bracket if not for losses to counteract that risk.

You may be wondering what happens to capital losses if one spouse passes away before the residence is sold. For 2007, if the residence was not sold in the year of death, the surviving spouse lost the $500,000 exemption and paid taxes on gains over $250,000. A recent change in the tax code now allows a surviving spouse to sell the house within two years of the date of death and, if sold in 2008 or later, maintain the $500,000 exemption.

As you can see, there may be advantageous strategies you can use to benefit from a decimated market. As always, I recommend working with a competent and knowledgeable team of financial professionals and tax advisors who may be able to make recommendations on how to rebalance your assets for a more favorable increase in an upturn in the markets and at the same time generate capital losses you can use for years to come. Carry forward losses make it easier for your advisors to make recommendations, and for you to make decisions, in the future to divest yourself of assets you should sell in order to keep any gains.

Author: Robin S. Davis, CFP�

About the author:
Robin Davis is a CERTIFIED FINANCIAL PLANNER Professional� leveraging 24 years of experience. She is the owner and top advisor of Davis Wealth Enhancement Group in Stuart, FL. A member of the Financial Planning Association�, she has been advising clients since 1984.
Robin is the author of an award winning book titled, 'Who's Sitting on Your Nest Egg? Why You Need a Financial Advisor and Ten Easy Tests for Finding the Best One'.


Article source: Free Taxes Articles.

I see a lot of dumb llc formation mistakes. Maybe more than most people because I occasionally teach a graduate tax class on LLC formation.

Some of the mistakes are made by entrepreneurs and investors trying to save money on accountants and attorney fees. And I guess that's okay--albeit penny-wise and pound-foolish.

But you know what really irks me? Some of these mistakes-in fact, most of them-are made by attorneys and paralegal services� Professionals who should know better.

But enough whining. Without further fanfare, here are the three dumbest mistakes that I see people make again, and again, and again.

Mistake #1: Forgetting about Foreign LLC Registration Rules

Read those tempting advertisements for Delaware or Nevada limited liability companies? The advertisements sound pretty good, but most small businesses shouldn't use out-of-state llcs or for that matter out-of-state corporations.

Here's why: If you're doing in business in, say, New York, you're not going to be able to avoid state taxes by forming your llc in, say, Nevada. The tax and corporation laws in your state will require you to register your out-of-state, or foreign, llc in the states where your business operates. Those same laws will require you to pay state income taxes in the states where you earn your income.

A couple more quick points: Large businesses do like Delaware for a variety of reasons-mostly having to with how sophisticated the Delaware chancellery courts are. But this applies to really big businesses that will litigate in Delaware-not small businesses. And Nevada does offer corporations a no-income-tax haven-but you need to set up a real business presence there, with an office, employees, property-the whole enchilada.

Mistake #2: Electing to be Treated as a C Corporation

An llc is a chameleon for tax purposes. Which is great. An llc with a single owner can be treated as a sole proprietorship, a C corporation or an S corporation (assuming eligibility requirements are met.) An llc with multiple owners can be treated as a partnership, a C corporation or an S corporation (again, assuming eligibility requirements are met.)

But just because you can do something doesn't mean you should. And unless you've got expert tax advice from an attorney or certified public accountant, you shouldn't make the election to be treated as a C corporation.

A C corporation is taxed on its profits. When those profits are distributed to shareholders, the profits are taxed again to the shareholders. By electing to be taxed as a C corporation, then, the llc owners create an extra level of taxation. Bummer.

Mistake #3: Electing to be Treated as an S Corporation Too Early

Llcs can also elect to be treated as S corporations-as noted in the preceding paragraphs. And once a business generates profits well in excess of the amounts paid to owners for salaries, an S corporation election saves the owners big money--sometimes tens of thousands of dollars per owner per year.

But you don't want to elect S corporation status too early--especially if the llc is owned and operated by a single owner.

By electing S corporation status, the llc needs to file an expensive corporate return, needs to begin doing payroll--even if the only employee is the owner, and may need to pay additional payroll taxes like the 6.2% federal unemployment tax. (This tax is levied on the first $7,000 of wages paid to each employee.)

Wait until your business is profitable to elect S status for your llc. You patience will pay off in two ways: simpler accounting and less expensive tax returns.

Article source: Free Taxes Articles.

What is a Tax-Deferred Annuity? A tax-deferred annuity is a contract between you and the insurance company with guaranteed interest and guaranteed annuity income options. There are no upfront sales charges or administrative fees during the life of your contract.

Advantages of Tax-Deferred Annuities include tax deferral, stability, may avoid probate, liquidity features, and guaranteed income.

One of the primary advantages of deferred annuities is the opportunity to accumulate a substantial sum of money by allowing your premium and interest to grow tax-deferred. Unlike taxable investments, you pay no taxes on your annuity interest until you begin to take withdrawals or receive income. This allows your money to grow faster than in a taxable account, because you earn interest on the money that would have otherwise been paid in taxes.

Your tax-deferred annuity is stable and safe. State insurance department laws require insurance companies establish and maintain reserves equal to the cash surrender value of your annuity contract at all times. In addition, state laws require insurance companies maintain minimum amounts of capital and surplus for further contract owner protection.

Insurance companies invest your premium dollars in a diversity of investments that are closely regulated by the insurance departments. These long-term investments ensure the stability of the company and help to provide you with a competitive yield.
In the case of premature death, your beneficiaries have the accumulated funds within your annuity available to them, with most companies and may avoid the expense, delay and publicity of probate.

Most annuities provide you with opportunities to withdraw funds at any time (subject to applicable surrender charges). Most contracts allow some form penalty-free withdrawals after the first contract anniversary. Some also have available certain riders which increase liquidity in the event of confinement to a nursing home or if diagnosed with a terminal illness.

Tax deferred annuities provide you with a guaranteed income with a tax-deferred annuity. You have the ability to choose from several different income options, including payments for a specified number of years or income for life, no matter how long you live. With non-qualified plans, a portion of each income payment represents return of premium which is not taxed, thereby reducing your tax liability from your income payments.


You can freely reprint this article as long as the
author, bio, and live links are left intact.

Article source: Free Taxes Articles.

Is higher education costing you a fortune? There may be a way to help pay for those costs with the help of education tax credits. What are education credits, who is eligible, and why should we take them? Well, let's start with the first part of the question, and work our way to the end. Education credits are tax credits available for qualified education expenses paid by the taxpayer in the furthering of their education. Qualified education expenses are defined as an expense paid during the tax year for tuition and fees required by an eligible educational institution for student enrollment and attendance. It really doesn't matter how you pay these expenses, only that the expenses are valid. Now, let's give some examples of expenses that are not qualified so that you can determine those that are qualified, and how you account for these expenses. Room and board, medical expenses, student health fees, transportation, personal living expense, insurance, course-related books, supplies, equipment, or any non-academic activity or non-credit course are not qualified expenses. What does this leave? Basically: tuition and fees required for enrollment or attendance at an accredited college, university, vocational or post secondary educational institution.

If you take a tax deduction for education expenses in any other area of the personal tax return, you cannot use that expense when figuring a Hope or Lifetime Learning credit. If you received tax-free assistance, such as a Pell Grant or scholarship, you must deduct that amount from your qualified expenses; however, most scholarships and Pell grant monies are taxable, so you may be taxed, but you can also get the tax credit. If you make any prepayments of tuition, you can use the prepaid amounts on your current year's federal income tax return, provided you have followed all other guidelines.

Now, there are two different tax credits: the Hope credit and the Lifetime Learning credit. What are their differences? Well, first you cannot take them jointly; you must choose one or the other. The Hope credit can only be taken during the first two years of college, as defined by the educational institution, enrolled at least half time and cannot exceed $1500. The Lifetime Learning Credit maximum for 2005 is $2000. This credit can be used for undergraduate, graduate and professional degrees courses. It is not based on a student's school workload which means it is allowed for one or more courses at an eligible school. It cannot be taken in conjunction with the Hope Credit, even if your expense exceeds the Hope limitations. If your expenses exceed the Hope limitation the first two years, simply include the excess on your Schedule A.

Your tax credits are also limited by your level of income, and your adjusted gross income totals. The higher the income the less tax credit the taxpayer receives. Credits could be reduced depending on your level of income and how you file, i.e. single, married, etc. So, when figuring these tax credits, you need to consider your current student status, your income levels, and your expense levels as Hope will expire after your second year of higher education. You can take any excess expense deductions under your itemized deduction expenses on Schedule A, when Hope or Lifetime Learning is at their maximums. On a side note, you can not claim either credit for a student named as a dependent on your tax return if you used the Tuition and Fees Adjustment for that same student so it is always advisable to seek professional tax help.

Who is eligible to take these tax credits? You are eligible as a taxpayer or eligible dependent of a taxpayer that was enrolled as a student in an eligible educational institution. If you can be claimed as someone's dependent, they will be able to claim the education credit, not the dependent. Generally, dependent students' expenses will be claimed by their parents or legal guardians. Now, here is an interesting note: if you are a student, and you cannot be claimed as someone's dependent, only you can take the education credit; even if you are not the person paying the expense.

Why would you take the credit? I think a better question would be why would you not take the credit? In case you haven't noticed, it can be very expensive to attend higher education classes. For anyone seeking to further their education, receive a degree, and pursue their dream, any federal income tax credit that can be taken, is a helping hand toward achievement of that dream. Today, without furthering your education, you're almost positively sentenced to a lifetime of minimum wage earnings, and struggling to make ends meet. A college education is the fastest route still, to a better life, better wages, and the achievement of the American Dream.

Article source: Free Taxes Articles.

The County Tax Collector is as independent government agency and is elected for a four-year term in the Presidential election year. It is essential that a County Tax Collector is independent to ensure that it can serve the taxpayers, local businesses and local and state agencies correctly.

The duties of a County Tax Collector are:

- Collecting property taxes for every local government agency with the power to levy taxes

- Serving the state as an agent for the Department of Highway Safety and Motor Vehicles, the Department of Environmental Protection, the Department of Revenue and others

- Managing local revenue programs, such as issuing occupational licenses and collecting tourist development taxes

The County Tax Collector is a vital link between the citizens and the diverse programs that affect them and they have the authority and resources to manage both state and local revenue programs.
A County Tax Collector can have collections and distributions of billions of dollars annually. Handling this requires conveniently located offices, skilled employees, and innovative data systems to ensure that the County Tax Collector functions efficiently and, most importantly, works accurately.

Even though the revenues collected by the County Tax Collector are mostly taxes, the County Tax Collector is not funded from tax dollars but is a fee office. The fees collected for the services provided by the County Tax Collector are used to fund the operating budget, which is approved by the State's Department of Revenue. Unfortunately, the work volume of a County Tax Collector, along with cost-effective operations, normally results in fee revenues that are well in excess of the budget. The excess fees are returned to the local government agencies in proportion to the amount they pay by the County Tax Collector so that they receive tax collection services at the lowest possible cost.

Amongst other issues, the County Tax Collector bills and collects real and personal property taxes for the Department of Revenue. The actual amount of the tax is based on the assessed value of the property and the mileage rate, which is set by various taxing authorities. They also issue state motor vehicle licenses and processes applications for titles on automobiles, trucks, mobile homes, and boats on behalf of the Department of Highway Safety and Motor Vehicles.

Most tax personnel have some form of Municipal Tax Collector Qualification that is sponsored by local government services. This is because a tax collector has many legal obligations and financial responsibilities that must be met in a timely manner. Achieving the status of Qualified Tax Collector indicates that an individual has proven his or her competence, knowledge and professionalism in the field.

Article source: Free Taxes Articles.

Here Are four reasons why the US is on the verge of full collapse.

1. The Bait Effect

Terrorists, and al Qaeda in particular, are fascinated with the idea of destroying the U.S. economy. An economic meltdown in the United States could serve as bait of sorts for a terrorist attack, as plotters calculate that a strike now could have a 'force multiplier' effect because of the already skittish U.S. stock market.

2. The Chinese own more than $500 billion worth of U.S. Treasury bonds, and billons more in the debt of other U.S. entities such as those held by Freddie Mac and Fannie Mae.

And in the meantime, their holdings give the Chinese incredible power over American decision making.

It gives the Chinese de facto veto power over certain U.S. interest rate and exchange rate decisions, For example, there's a limit to how much dollar depreciation the Chinese would tolerate.

That potentially closes off one American economic strategy: allowing the dollar to decline in value in order to help boost U.S. exporters. And China's leverage is only growing as each federal bailout adds to the U.S. deficit.

3. The Existential Crash. He sees an epic disaster scenario in which the U.S. gross domestic product declines by a staggering 35 percent over the next six to seven years. Crippling deflation could take hold. Unemployment, he says, could approach 15 percent. In this scenario, the possibilities for global unrest increase dramatically as a staggering United States retreats from foreign aid and global diplomacy and the list of dangerous failed states grows sharply.

4. The Alternate-Dollar Nightmare

The Number One vulnerability is the dollar itself. We're printing them and shoving them out the door, and the Fed is basically out of bullets. So why hasn't the dollar collapsed? The short answer is, global investors don't have any other choice. That is, there simply aren't enough Euro- or Yen-backed securities for investors to shift their money out of dollars and into some other currency.

But what if some kind of global coalition - say a trillion-dollar sovereign wealth fund allied with several countries around the world - banded together to create a gold-backed alternative to the dollar?

Author: John S

About the author:
For More Important Updates & Predictions Regarding The Economy Please Visit Our YOUTUBE Channel ==> http://www.youtube.com/myspacesecrets

Article source: Free Taxes Articles.

Between piles of paper work lists of numbers to crunch, it is not hard to miss a thing or two when you are preparing your federal and state tax returns. However, some mistakes could lead to the loss of a valuable deduction, or even worse, an IRS penalty.

Simple Math Errors
Before sending in those forms, go over your math a few times to make sure your return is 100% accurate. You could get fired, or even audited if you add an additional zero somewhere, or put a decimal point in the wrong spot. Crunching the numbers one last time is more than worth taking such a risk.

All Source of Employment
If you worked in more than one job this year, you need to make sure that you list them all on your tax return. If you do forget to list any income, you could be accused of tax evasion. Rather than go through all the hoops that tax evasion will put you through, make sure to list any and all sources of employment, no matter how long or short they were.

Charity Misinformation
Making a charitable donation is more than good for your karma; it is good for reducing your tax liability. However, the IRS is becoming stricter with contributions, and if you forget to list the charity correctly on your tax forms then you will receive no deductions.

Marital Status
Even if you were divorced fairly recently, it is still necessary to list your current marital status. The IRS is going to get suspicious when your ex-spouse lists themselves as single and you do not. Although it is not technically tax evasion, there could be financial penalties involved if the IRS chooses to audit you.

Childcare Costs
Children and students of all ages require large amounts of funding for everything from childcare to education costs. Fortunately, the IRS allows you to deduct expenses spent on childcare. However, these credits have many qualifications, so make sure you are fully qualified before you submit your forms.

Unearned Income
Believe it nor not, the IRS already knows how much unearned income you have made this year. In addition to forms like 1099, the IRS also has the ability to monitor your bank account activity. To avoid penalties and fines, keep good track of your unearned income throughout the year and list it all on your tax return.

Deadline
Missing the April 15th deadline is not the worst mistake you could make... unless you also forget to file for an extension. An extension gives you an additional 6 months to file your return forms, at no additional costs.

Signature
It is surprising this mistake even makes the list, but sadly it is true. For some reason when people are flustered over crunching numbers and attaching receipts, they forget important details like signing the documents--possibly because the signature and date is often the last are often the last things to do.

Author: Roni Deutch

About the author:
The Tax Lady Roni Deutch and her law firm Roni Lynn Deutch, A Professional Tax Corporation have been helping taxpayers across the nation find IRS tax relief for over seventeen years. The firm has experienced IRS tax attorneys who will fight the IRS on your behalf.

Article source: Free Taxes Articles.

Self-employed individuals always cringe at the amount of taxes the pay to the IRS and state. Here are tax strategies for self-employed individuals that reduce those tax amounts.

Tax Strategies

The good news is being self-employed is one of the best tax strategies out there. Unlike a salaried employee, the full scope of tax credits and deductions available in the tax code are now available to you. The key, of course, is understanding the available deductions and organizing your business in a manner that allows you to maximize the write-offs.

The number one tax strategy for self-employed individuals is to keep receipts for every business expense and write them off. Practically anything can be deducted, so do it. Acceptable expenses include cell phone usage, business mileage, office supplies, home office deductions including part of mortgage or rent and so on. If you've filed a tax return while self-employed, you are probably already aware of this so lets move on to more specific tax strategies for self-employed individuals.

Maximizing you non-capital losses can result in major tax savings. If your expenses exceed your income for a year, you obviously will not have to pay taxes for that year. What most people don't realize, however, is that such losses can be carried forward for seven years and deducted against future income. Alternatively, the same losses can be carried backward three years to recover past taxes paid. The end result of this situation is you can turn a bad business year into an income generator by applying the losses to taxes in other years which effectively wipes out your tax bill for those years.

Another tax strategy is to look at your side businesses. If you have one business, you'll often have a second one that is tailored to making some money off a personal interest. While you are in it mostly because you like it, you may not realize it qualifies as a business and can help you reduce your taxes. Let's assume you are primarily a self-employed consultant, but also write travel articles on the side. You may view the travel articles as a hobby, but it is in fact a business. If you've sold or even tried to sell any of your articles to a publication, all of your expenses related to travel writing can be deducted from your taxable income. This includes trips and so on. These, deductions can significantly reduce your taxable income from the consulting business. Make sure to get a grasp of your overall business efforts, even if you don't really consider them to be a business.

Consider employing your children to save on taxes. A child under 18 that works for you does not have to pay FICA and so on. If the total wages for the year are under $4,250, they will pay no taxes and you can write off this amount as a legitimate business expense. Of course, the child needs to actually be doing a legitimate business task, but filing and similar manual tasks certainly will qualify.

Tax strategies for the self-employed are plentiful. If you are self-employed, consider getting professional help. A good professional will save you thousands upon thousands of dollars in taxes, more than making up for their fees. Oh, you can also deduct their fees!

Article source: Free Taxes Articles.

Property Rental Income for Individuals

UK Rents and licence's are regarded as UK land and property. Land and property income is all income deriving from such property as if it were a trade. Therefore this is calculated as all income being assessed in the tax year on an 'accruals' basis. This means that income is taxed on an 'arising' basis in the year of assessment, i.e. income that is due in the year, and not necessary income that is actually paid by the tenant.

For example if a tenant per the tenancy agreement is obliged to pay ?495 a month, the taxable income is ?5,940 a year, irrespective of the fact the tenant might say pay late for their rent.

Since rental income is an assessment like trade, all income from the different rental properties are pooled together, creating one income stream. Hence profits and losses of the same UK properties are amalgamated together to create the net profit or loss. In essence losses from one property is netted off against profits of the other.

If they are losses overall after pooling all the properties together, then these losses can be carried forward against future profits of property income. These losses cannot be set off against other income, e.g. employment income or self employed income. However, if losses arise due to 'capital allowances' this may then be relieved against other general income.

Capital allowances is the allowable decrease in value of the assets each year that are used in the properties. For e.g. fridges and ovens. Capital allowance rates will be 20% or 25% a year depending on current capital allowance rates.

Expenses are allowed to be deducted if they are incurred 'wholly and exclusively' for the purposes of the property.

The treatment for limited companies broadly follows the same rules as for UK individuals.

Income from Overseas Property for UK Residents and Domicile

A UK resident or domiciled person will be taxed on income arising on overseas property and hence must be declared on the UK self assessment return. A tax credit may be given dependant on double taxation treaties for tax suffered in the overseas country on that rental income.

On the other hand, non-resident individuals will not be taxed on overseas property income in the UK. Non domiciled individuals will also not be assessed on this income, but only assessed on a 'remittance basis', whereby the income is only taxed if it is brought in the UK.

Recent rules affecting non-domicile individuals that have been resident in the UK for 7 years or more may have to pay tax on there overseas income, unless they choose to pay an annual tax charge of ?30,000, if they wish to adopt the remittance basis in the future.

Income from properties overseas is treated like a separate business to that of income arising from UK properties. Hence losses for overseas properties can only be offset against profits from overseas properties arising in the future and cannot be offset against UK property income.

Rent a Room Relief

This is a relief is given for renting a room in one's main residence. This relief is not available for a property that is not occupied by the owner as their main residence, and hence fully let properties are not eligible for this relief. However, lease holders whose name is on the lease, can claim this allowance for their lodgers, providing of course the lease allows them to take on lodgers.

The relief is not available for commercial lets of the property i.e. home as office, or letting part of the property to a company.

Relief is given up to ?4,250 per tax year. Rents from lodgers at or below this amount is not taxable. This is a total allowance for the property is not apportioned per room. If income is received over and above the rent a room relief, then the amount above is taxable, and is declarable in the self assessment return.

The advantage of the rent a room relief is that it does not affect the principal private residence relief when coming to sell the property. If the property was let outside this allowance, and actual rental income and costs were declared in the normal way, then that element of the property being rented would not be exempt for capital gains tax, and hence capital gains tax would be chargeable on that apportionment of the property. Letting relief however may be available up to a maximum of ?40,000.

Article source: Free Taxes Articles.

It's that time of year again when numbers such as 1040, W-2 and INT-1099 become all too familiar to millions of people. One of the benefits of holding a mortgage on your house is the ability to claim certain deductions that can assist you in offsetting some of your tax burden. As you prepare to file your yearly taxes let's look at a few areas where you can take advantage of tax deductions and keep a little more green in your pocket this tax season.

The most obvious deduction that many tax filers take advantage of is the interest paid on the mortgage for their primary residence. For those of us with a mortgage balance of less than $1 million dollars (and hopefully that is the majority of us!) you can fill out Schedule A, also known as 'itemized deductions', and claim all the interest paid in the previous year on your mortgage. Keep in mind this is for your primary residence (where you live) only and does not include other properties and houses you may own for rental purposes, etc. If you paid off your mortgage this year and were slapped with a pre-payment penalty you can also use Schedule A to take a deduction on those fees as well.

Taxes paid to local governments, known as real estate or property taxes, are also tax deductible. If your mortgage company pays your taxes for you through an escrow account you can find the deductible amount listed there - else check your assessment notice sent to you by your local taxing authority.

If you decided to spruce up your home and took out a home equity loan you may also be eligible to take a deduction for the interest of the home equity loan. One thing to keep in mind though is if the home equity loan plus your mortgage amount puts you over the real value of your home in total amount owed there are limits to what you may deduct.

Points of all types are usually tax deductible as well. If you refinanced in the past year any points you paid to buy down the mortgage rate can be written off proportionately over the life of the loan. This means that if you have a 20 year mortgage, you get to deduct 1/20th of the points each year. An added bonus comes if you refinanced in a prior year and then refinanced against in the past year and ended up paying off the first refinance. Any points you had not deducted from that first loan now become eligible for write off in their entirety.
If you took out your mortgage in the past year, any points that you paid on the purchase are fully deductible if the mortgage was for your primary residence and you paid an amount down at least equal to the points you were charged. This one can be tricky, so be sure to consult your tax prepared for more information.

This tax season make sure you are taking advantage of every deduction you can; part of owning a home and having a mortgage means that you get to reap some of the benefits of that ownership through the tax system. Don't let the IRS keep the money that you can use to help pay off that mortgage faster!

Article source: Free Taxes Articles.

Congress has passed legislation that is supposed to result in a more 'sensitive' Internal Revenue Service. You know, not such a lean, mean, tax-collecting machine.

Hmmm . . . . What do you think?

A few months ago, one of my clients (let's call him Mr. Jones) got one of those IRS 'love letters' requesting more information about his return, and the IRS wanted to meet with Mr. Jones in person to discuss the situation.

Mr. Jones (a local small business owner) was required to show up at the local IRS office with all his records. The IRS was questioning the legitimacy of several business deductions -- and so the IRS was doing what it is allowed by law to do -- demand that the taxpayer prove that those deductions were valid.

Turns out that Mr. Jones lost the audit and ended up owing the IRS a significant amount of money -- the additional tax, plus penalty and interest for late payment of that tax. Why did Mr. Jones' lose the audit? Mr. Jones made two 'classic' taxpayer mistakes:

MISTAKE #1: 'NO RECEIPT, NO DEDUCTION'

Mr. Jones lost several deductions simply because he didn't have the proper documentation to prove the deductions.

What do I mean by 'documentation'?

Well, if the IRS requires you to substantiate a deduction on your tax return, you must be able to provide written proof that the deduction really happened. The easiest way to prove a deduction is to hang on to:

a) The receipt or invoice, and

b) Proof of payment, which can be a canceled check, cash receipt, or credit card statement.

Mr. Jones reported numerous deductions for which he simply didn't have the documentation. No receipts, no canceled checks, no nothing. Turns out that Mr. Jones was one of those 'cash guys'. Maybe you know what kind of guy I'm talking about -- he never wrote a check in his life, just carried a wad of cash around in his pocket. He paid for everything with cash, and never kept any of his receipts.

Every year he'd sit down with his wife and 'remember' how much he spent on different things. No way to prove any of this, of course. He just had a 'feel' for how much cash he had spent, and he had run his business for so many years that he just 'knew' how much it cost to purchase certain things.

Well, this is the kind of taxpayer that the IRS loves! It really is true -- if you can't prove that you paid for something (with receipts, invoices, canceled checks, etc.), then you run the risk of losing that deduction in the event of an audit.

One of the most common questions I am asked by clients is this: 'I know I paid for something, but I don't have a receipt. Should I still report the deduction.'

My response is usually this: 'You only need a receipt if you get audited.'

At first, people don't know if I am joking or not. Well, I do make that comment with my tongue planted firmly in cheek, but there really is a lot of truth to it. If you don't have the documentation to prove a deduction, you can still report the deduction (if you want), because you only have to prove the deduction if you get audited.

But if you do get audited, knowing that there are undocumented deductions on the return, be prepared to lose the deduction. Fair enough?

And here's the other major mistake that Mr. Jones made:

MISTAKE #2: BOGUS DEDUCTIONS

It turns out that Mr. Jones wasn't completely honest with me about some of his deductions. He reported deductions that simply were not real deductions. Here's one example: Mr. Jones owned several rental houses. These rental houses, of course, required maintenance and repair work. Many times Mr. Jones would do the work himself rather than pay someone else to do the work.

Well, Mr. Jones would estimate what he would have had to pay someone else to do the work that he did himself, and then he would report that amount as a deduction, even though he didn't actually pay anybody to do the work.

In other words, Mr. Jones deducted the value of his time -- which is non-deductible.

This is an important point -- you can never legitimately deduct the value of your time for work you did. You have to actually pay someone else to do the labor.

If you ever get a letter from the IRS demanding additional information, you'll have nothing to worry about if you do exactly the opposite of what Mr. Jones did. If you can properly document your deductions and assuming you have no bogus information, you'll pass the audit with flying colors.

Article source: Free Taxes Articles.

Most commercial building owners are grossly overpaying federal income taxes because they are not depreciating their property as quickly as they should. A cost segregation study allows property owners to both defer and reduce federal income taxes. When properly performed by an appraiser with expertise in cost segregation, this is a conservative tax planning tool which reduces federal income taxes by properly allocating the cost basis between land, 5-year, 7-year, 15-year, 27.5-year and 39-year property.

Cost Segregation Study Benefits
Benefits of a cost segregation study are substantial, immediate and enduring. Year 1 federal income tax savings are typically at least two times the cost of a cost segregation study. In many cases they are five to fifty times the cost of the study. The present value of federal income tax savings for a property held for ten years are typically at least ten times the cost of the study. In many cases, the present value of tax savings as much as 30 to 50 times the cost of the report. The cost segregation study is only required once. Its cost is not recurring, but the benefits are recurring during the term of property ownership. A cost segregation study can also materially reduce local property taxes by separating real and personal property for newly constructed properties.

Detailed Example
Preparing a cost segregation study requires only a limited time commitment from the owner, perhaps 10 to 15 minutes. This limited commitment of time results in substantial tax savings, which are both conservative in approach and well documented. Some owners believe their accountant is properly segregating components into the proper classifications. Many accountants cannot thoroughly research this highly specialized field to understand the myriad of items which can be segregated and are inadvertently overstating their client's income tax liability. Furthermore, not obtaining a cost segregation study increases exposure in case of an audit since there is no clear audit trail. A cost segregation study prepared by an appraiser with expertise in land valuation, construction costs and market value clearly documents each of these items. Further, a cost segregation expert can almost certainly sharply increase allowable depreciation.

Who Benefits from a Cost Segregation Study
If you own real estate and pay federal income taxes or expect to during the ownership period for the property, you will benefit from the results of a cost segregation study. This is true whether the ownership to the real estate is titled in a corporation, limited partnership or limited liability corporation. For syndicators, a cost segregation study is appropriate if limited partners will receive material net taxable income during the holding period even if the general partner does not currently pay federal income taxes. The cost segregation study will increase depreciation shield, thereby decreasing and deferring federal income taxes for the investors.

Decreasing and Deferring Federal Taxes
Since a cost segregation study decreases and defers federal income taxes, let's review the long-term impact of this deferral. When the property is sold, capital gains tax will be due if the owner does not enter into a 1031 exchange. However, capital gains tax rates are typically 20% - 25% for high net worth individuals, while the ordinary income tax rate is 35%. In addition, the deferral during the ownership period has material benefits because of the time value of money. All investors would much rather pay a 20% - 25% tax rate when an asset is sold as opposed to paying a 35% tax rate today.

When Should You Obtain A Cost Segregation Study
The best time to obtain a cost segregation study is when you build or purchase a property. Documentation is most readily available for performing a study and a contemporaneous property inspection can be performed to best document results. However, there are options to perform a cost segregation study for property which has been developed or purchased previously.

Elements of Preparing a Cost Segregation Study
The appraiser starts by gathering documents from the property owner and performing a site visit. As necessary, depending on the special-use property found during the site visit, the appraiser would confer with tax counsel and review relevant tax court decisions. For newly constructed properties, most of the costs detail can be obtained from construction draws or invoices from contractors. For existing properties, the appraiser performs a quantity take-off for 5-year, 7-year, and 15-year property and estimates replacement cost using recognized sources. The appraiser then values land, 5-year, 7- year, 15-year, 27.5-year and 39-year property based upon inspection, analysis and IRS regulations and court rulings.

Does this only apply to large owners?
Both large and small owners of income property or owner-occupied commercial property can benefit from a cost segregation study. Commercial properties with a cost basis of at least $200,000 will likely see a material benefit in excess of the cost from a cost segregation study. In fact, owners of single-family rental homes can probably achieve worthwhile benefits by obtaining a cost segregation study.

Qualifications to Consider when ordering a Cost Segregation Report
The ability to value land and real property are critical elements when engaging a tax reduction expert to perform a cost segregation study. In addition, it is essential they have a detailed understanding of rules for classifying 5-year, 7-year, 15-year, 27.5-year and 39-year property. The ability to justifiably increase short-life depreciation materially increases the benefits of a cost segregation study. While most accounting professionals have a rudimentary understanding of the 5-year, 7-year and 15-year property classifications, few have a detailed understanding of this highly specialized niche. Be certain the report provider has scrutinized both the federal income tax code and the meaningful tax court cases to allow you to maximize your depreciation and minimize your federal income tax liability.

Article source: Free Taxes Articles.

Every year, you have to file tax returns and every year there are changes to the tax code. Here are some key changes for 2005 to keep in mind when you prepare returns.

Tax Changes You Should Know for 2005 Returns

2005 was a fairly quite year when it came to changes to the tax code. Most changes were in the form of tweaks, instead of major overhauls. This break seems to have given the IRS a change to clean up some of its procedures as it has started simplifying forms. Nonetheless, here are changes to keep in mind when preparing your tax returns.

1. Donations of automobiles to charities are being treated differently from 2005 forward. If you donated a car to charity in 2005, you may be in for a minor shock. Instead of claiming fair market value, the deduction for the donation is now limited to the actual gross payment received by the charity when auctioning off the automobile. The charity you donated to should have sent you correspondence indicating the amount in question. If they did not, contact them to get one so you know what you can deduct.

2. The business mileage allowance is a two-tier system for the 2005 tax year. For business miles incurred during the first eight months of the year, the deduction is 40.5 cents a mile. For the last four months of 2005, the deduction is a whopping 48.5 cents a mile. This odd use of two calculations is due to the explosion in gass prices in 2005.

3. In a positive development, the exemption amount on your tax returns has gone up. For each exemption, you can now deduct a hefty $3,200 per exemption. Keep in mind, however, that exemptions are graduated per your adjusted gross earnings. The more you make, the less of an exemption you can claim. The specific graduated percentages depend on your filing status, so you'll have to take a look at the tax tables to ascertain the impact on your tax filings.

4. The standard deduction that can be claimed by those who do not itemize has gone up. Again, it depends on your filing status, so make sure you take a close look at the numbers on whatever version of form 1040 you are using this year.

5. The earned income tax credit assists low income taxpayers by cutting the amount of taxes that have to be paid. To claim the tax credit, you have to be earning under a certain amount. This amount has increased for the 2005 tax year. You'll have to look at your tax form to get the specific amount as it varies pursuant to your filing status and the number of children you are claiming.

6. If you lived in any area devastated by Hurricane Katrina, the IRS is giving out major concessions to help alleviate any tax problems. Go to the IRS web site to learn more.

As you can see, the tax changes for 2005 aren't particularly significant. Still, you need to know them when you file.

Article source: Free Taxes Articles.

Self-employed individuals always cringe at the amount of taxes the pay to the IRS and state. Here are tax strategies for self-employed individuals that reduce those tax amounts.

Strategies For Limiting Taxes If You Are Your Own Boss

The good news is being self-employed is one of the best tax strategies out there. Unlike a salaried employee, the full scope of tax credits and deductions available in the tax code are now available to you. The key, of course, is understanding the available deductions and organizing your business in a manner that allows you to maximize the write-offs.

The number one tax strategy for self-employed individuals is to keep receipts for every business expense and write them off. Practically anything can be deducted, so do it. Acceptable expenses include cell phone usage, business mileage, office supplies, home office deductions including part of mortgage or rent and so on. If you've filed a tax return while self-employed, you are probably already aware of this so lets move on to more specific tax strategies for self-employed individuals.

Maximizing you non-capital losses can result in major tax savings. If your expenses exceed your income for a year, you obviously will not have to pay taxes for that year. What most people don't realize, however, is that such losses can be carried forward for seven years and deducted against future income. Alternatively, the same losses can be carried backward three years to recover past taxes paid. The end result of this situation is you can turn a bad business year into an income generator by applying the losses to taxes in other years which effectively wipes out your tax bill for those years.

Another tax strategy is to look at your side businesses. If you have one business, you'll often have a second one that is tailored to making some money off a personal interest. While you are in it mostly because you like it, you may not realize it qualifies as a business and can help you reduce your taxes. Let's assume you are primarily a self-employed consultant, but also write travel articles on the side. You may view the travel articles as a hobby, but it is in fact a business. If you've sold or even tried to sell any of your articles to a publication, all of your expenses related to travel writing can be deducted from your taxable income. This includes trips and so on. These, deductions can significantly reduce your taxable income from the consulting business. Make sure to get a grasp of your overall business efforts, even if you don't really consider them to be a business.

Consider employing your children to save on taxes. A child under 18 that works for you does not have to pay FICA and so on. If the total wages for the year are under $4,250, they will pay no taxes and you can write off this amount as a legitimate business expense. Of course, the child needs to actually be doing a legitimate business task, but filing and similar manual tasks certainly will qualify.

Tax strategies for the self-employed are plentiful. If you are self-employed, consider getting professional help. A good professional will save you thousands upon thousands of dollars in taxes, more than making up for their fees. Oh, you can also deduct their fees!

Article source: Free Taxes Articles.

Did you know that you could make money by paying someone else's property taxes? Thirty-one states provide a little-known investment opportunity that might be perfect for you.

You could even see an annual interest return from 18% to 50%.

The returns are available through tax lien and tax deed certificates sold by the county. Tax liens are placed on a property when the real estate taxes are late. Many local governments auction the liens off to investors once or twice a year as a way to get their owed money. These are called tax sales.

For example, if Mr. Jones owes $2,000 in real estate taxes and hasn't paid it, the county will place a lien on his property. Eventually the lien will be auctioned to an investor. The investor may get the lien for $2,000. The county gets the money it needs right then. The treasury or finance department will start going after the money from the delinquent tax payer. They send nasty little notes, warning them of future actions. They charge penalties and interest rates of up to 50%. The local government can then turn around and pay the investor a large return.

You can find these investment opportunities through your local treasury or finance department. There are also many websites that keep the information in an up-to-date compilation. You may have to pay for the information. The best way is to contact your local department instead of paying for a national service.

These are short-term investment opportunities. After the lien has been auctioned off, the county lets the owner know that they might lose their property to the lien certificate holder if they don't pay the taxes, interest and penalties. This gives the owner another chance to pay the bill and keep the property. If they don't pay, the lien certificate holder can foreclose on the property.

In some areas, the government will forego the investment opportunity and outright sell the tax deed to the property. This means if they don't pay the taxes, you are the owner of the property straight out.

There are many stories about making a lot of money buying tax deeds. A man in Oklahoma is rumored to have bought land for $17 at a tax sale only to sell it for $4,400.

Some people have been lucky, but there are risks and hazards with tax certificates. The property could be trashed, you could lose your money if you don't follow the proper procedures, the title could be clouded, and the former owners might be irate and armed with ammunition.

Due to the auction property, a nice property might only be available with some not-so-nice terms attached. You might 'win' the property only to then be responsible for all the unpaid taxes and mortgages. If you have to foreclose, you may have a lot of costs come up. The owner might be able to invoke the 'equity of redemption' right that allows him or her to re-acquire the property after a foreclosure.

Make sure that you know all of the risks before you jump into tax sales. Research the properties, which are usually listed in the local newspaper a few weeks before the sale. Have a thorough understanding of your potential obligations, know what the rules are, speak with your attorney and realize that your best plans may not work out.

Ninety-eight percent of impacted property owners will pay their taxes. Most of the investors into these certificates make money on the interest paid on the tax bill.

Article source: Free Taxes Articles.