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Haiti Donations in Early 2010 OK For Claiming On 2009 Returns

Posted by Administrator on Feb-1-2010

The IRS announced a new tax relief for people who contributed to providing earthquake relief in Haiti. It allows contributors to get the tax advantage of the donation for their 2009 claim rather than waiting a year for the benefit.

According to the irs.gov website, only cash contributions made after January 11, 2010 and before March 1, 2010 will qualify. All cash donations made after March 1, 2010 will only be eligible to be claimed for the 2010 tax year.

To gain the benefit, you must itemize your tax deductions using Schedule A. For more information, please visit the IRS website at irs.gov.

Jan
13

Big Tax Savings for Business Owners!

Posted by Administrator under Tax Law Changes

One of the lesser known tax law changes for 2011 has to deal with writing-off personal property in a business.  Most business expensing or write-offs are handled via section 179, but for the tax year of 2011 only, some fairly big changes have occurred that are handled outside of section 179, and don’t have the same eligibility requirements.

Essentially, any business owner is eligible to write off the entire value of personal property purchased for the business after September 8th, 2010.  The new law changes allow 100% bonus depreciation in the first year of purchase (rather than graduated depreciation over a period of five years).  For example, if you purchase a $2,000 computer for your business in Sept-Dec of 2010 or in 2011, you can deduct the entire $2,000 from your total taxable income. Depending on your tax bracket, this will result  savings of $200-700, just on that one computer. (See What Does it Mean to “Write Something Off”)

This fabulous windfall continues throughout 2011, so if you haven’t purchased property already, there is never going to be a better time than now to do so! If you are thinking about investing in property plant equipment and furniture and fixtures for your business, this news is for you!

Jan
13

Do you Have to Pay Taxes on Gifts?

Posted by mir under General

Is ths taxable?

Many of us received Christmas gifts from friends or family members this year.  Chances are, we also gave gifts to lots of people as well.  Hopefully everyone got what they wanted and were maybe even pleasantly surprised with some of them.  Is that the end of the story?  Unfortunately, it may not be.  Did you know you’re supposed to pay taxes on gifts?  How crazy is that?  When I heard this I realized I am certainly not the only one not abiding by this relatively unknown tax law.  For any of you, like me, who had no idea this law existed, let me fill you in on some of the details.

The first question to answer is who is responsible for paying the gift tax.  In general, the giver of the gift is responsible for paying the gift tax.  However, in rare circumstances, the receiver may pay the tax.  A decision like this would require consultation from a tax professional.

The second question to answer is what items qualify as a gift.  To put it in simple terms, any direct or indirect transfer to an individual where nothing is received in return.  This can be measured in monetary terms or by how much the money is worth.

The third question is whether or not certain gifts can be excluded from being charged a gift tax.  Generally, any gift can be taxable, but there are some exceptions.  Any gift that is less than the yearly exclusion for the calendar year may be considered exempt. Medical expenses or tuition you pay on behalf of someone else, or gifts you give to your spouse can also be excluded from taxation.  Last but not least, some gifts given to a political campaign or certain charities are also gifts you can avoid paying taxes on.  These are of course general guidelines, but make sure you speak with a tax professional to ensure you file correctly.

Jan
04

Don’t Miss These Tax Deductions

Posted by mir under Tax Deductions

I don’t know a whole lot about doing taxes but I do know that deductions are good things that help you get more money back.  You hear about rich people writing off their trips or new laptops for business purposes, but what about us regular people?  I found a few deductions regular people like me can take advantage of.  The first is out-of-pocket charitable contributions.  Many of us keep track of big things we donate, but what about the little things like ingredients you buy for a nonprofit bake sale?  Maybe you purchased stamps for a school fundraiser.  Both things are totally tax deductible.  You can also deduct $.14 a mile for any driving you did for a charity or nonprofit organization. If your total contributions are more than $250, you will need the charity to acknowledge the validity of the expenses.

I you are one of the many looking for a job right now, you can deduct some miscellaneous expenses you incur while job hunting.  You can’t get these deductions if you are looking for your first job, and you can’t go over 2% of your adjusted gross income.  That being said, you can deduct things like lodging, food and transportation if you are required to be away from home overnight.  You can also deduct cab or taxi fares and fees you pay at employment agencies.  Last but not least, you can deduct what you pay for printing resumes or any other paper product you need in applying for jobs.

If you are just at the beginning of your career, you can deduct the expenses of moving to take your first job.  This job needs to be a minimum of 50 miles away from your current residence.  If this is true, you can deduct the cost moving you and all your possessions to the new location and even get 16 1/2 cents for each mile you drove your own car for the move in 2010.

In an effort to save money, some of us have started to make changes to our homes to make them run more efficiently.  You can get a tax credit for 30% of the cost of the improvements you do up to $1,500.  If you already claimed the full $1,500 in 2009, you can’t claim it again in 2010.  This credit works for windows and outside doors, high efficiency furnaces, air conditioners, water heaters, and stoves that use biomass fuel.  If you installed alternative energy equipment at your residence, there is no dollar limit you can apply the 30% to, and you can even include the cost of labor.  Just one more way going green can help you save green as well!

Jan
03

Military Tax Perks

Posted by mir under General

For those people who are serving in the U.S. military, there are some tax perks that you should be taking advantage of.  Here is a list of some of these well deserved perks:

Military personnel, as well as some other federal employees serving outside the country, have an extra year to qualify for a home buyer credit. U.S. taxpayers that are eligible for this credit need to sign a binding contract to buy a personal residence no later than April 30, 2011.

If you are out of the country on the deadline to file taxes, you are allowed an extra two months to file your return and pay what you owe without having to request an extension.  You qualify for this if you live outside the U.S. or Puerto Rico, and if your workplace is also outside of the U.S. or Puerto Rico.  You are also eligible if you are in the navy or military outside the U.S. or Puerto Rico.

If you belong to the U.S. Armed Forces and serve in a combat zone, you can exclude portions of pay from your income. Enlisted personnel, warrant officers, and commissioned warrant officers can exclude active duty pay earned in any month served in a combat zone, or hostile fire/imminent danger pay.

Members of the National Guard and Reserve can deduct travel expenses for overnight service trips 100 miles or more away from their home.


Jan
01

A Year-long Gift from the U.S. Government

Posted by bry under Tips

As part of the tax bill signed by the President last month, quite a large number of American taxpayers will see a discount on their payroll taxes.  Social Security taxes are usually 6.2 percent of an employee’s wages, up to $106,800.  Thanks to President Obama and the bill, in 2011, employees are only liable for a 4.2 percent contribution toward Social Security, rather than the 6.2 percent.  This should be a relief on most taxpayers, at least for the short term.

For the self-employed this break will not affect the employer contribution to Social Security.  This means you will still be liable for a 6.2 percent employer contribution.  You would still qualify for the employee discount of 4.2 percent.  Your combined contribution would drop from 12.4 percent to 10.4 percent.

Turning this short-term relief into a long-term benefit is up to the taxpayer.  Think about putting that money into your mortgage principal, retirement, or to pay-down those student loans that have been haunting you.

Dec
22

U.S. Taxes Compared to Other Countries

Posted by mir under General

Taxes Around the World

Many of us Americans complain about the high taxes we have to pay to the government.  But how bad off are we really compared to the rest of the world?  I did some research and found out things are not too bad here in the U.S.  People in Belgium pay between 25-50% to income taxes.  Japan imposes income taxes up to 50%, Netherlands charges up to 52%, but that’s still not the worst.  The highest personal income tax charged comes to 59% in the great country of Denmark. Wow, that is just crazy!

One thing that is found in common among most developed countries is the percentage of taxes paid by the wealthy.  In a recent study, it was found that the top 10% of income earners in the U.S. pay over 70% of the taxes.  At the same time, the bottom 50% of taxpayers pay only 2.89% of all income taxes.  This being said, many of the wealthy get around paying taxes.  Many people call this the Robin Hood routine where the government “steals” from the rich to feed the poor.

Although this may seem disproportionate for the high income earners, there doesn’t seem to be a better way to do thing, especially in times like the current recession.  There is simply no other place to get money from.  So, what is the moral of the story?  As a whole, U.S. taxes are not too bad, be prepared to pay more taxes if you make more money and make sure you’re informed on the best way to handle your income taxes no matter what tax bracket you’re in.

Dec
12

Filing Taxes for Dummies

Posted by mir under General

For many of us, the task of filing your taxes is a daunting and scary one.  I for one really dislike everything that goes into filing taxes and do whatever I can to make the process go as smoothly as possible.  For other people out there like me, there are two different routes you could take.  One is to hire someone to do all the work and hope they do it right, or find an easy to use program that will help you file taxes on your own.

If you choose to hire someone, make sure they will pay all penalties and interest to the IRS for any mistakes they make.  I would recommend you use a referral from a friend or colleague.  At least that way you’d have some personal reference regarding their quality and integrity.

If you are brave and want to do it on your own, find reliable tax software that will take you step by step through the process.  Make sure to use all the free online resources available, including the IRS website, free tax calculators, retirement calculators and 401(k) calculators.  If you take your time and do your homework, tax season will be a breeze.

Dec
10

What does it mean to “Write Something Off?”

Posted by Administrator under Tax Deductions

This is probably one of the most common tax terms that the average Joe will fling about casually with out really knowing what they’re talking about.  How often have you heard someone say “oh, I’ll just write this off” and nodded knowingly pretending you actually understand what that means? Perhaps you have even used the term yourself, or smiled and pretended to ‘get it’ when someone informs you that being able to “write it off” makes a decision more financially favorable.

Clearly I am not saying that everyone who uses this term doesn’t know what they are talking about.  But obviously you yourself have some questions because you are reading this blog, the title of which clearly indicates its content.  So here’s the 4-1-1. (A term meaning an informational breakdown of the facts).

A write-off is the same thing as a deduction. A deduction is a certain dollar amount that you are subtracting (or ‘deducting’) from your total taxable income. By doing this you decrease the amount of your taxable income (without affecting your actual income in any way) you have to pay less taxes.  For example, if you make 50K gross a year, and so fall into the 25% bracket, you will owe $12,500 in income taxes, which your employer will withhold from your paycheck.  A $500 deduction means that you will only be taxed on 49,500 of what you made, for a total of $12,375.  A $500 deduction will save you $125 in taxes. ($500 multiplied by whatever your tax bracket tax rate is).

Now that you know exactly what a write-off is, make sure you look into the list below.  All of these are things that you are eligible to write-off, or deduct, so make sure that you, or whoever is doing your taxes, is saving you as much money as possible.

Business expenses

Depreciation Expense on capital equipment (furniture, fixtures etc)

Personal Property Taxes

Interest on your Home Mortgage

Charitable Contributions

Medical Expenses

Tax Preparation Fees

Nov
23

Basic Tax Terms to Know

Posted by mir under General

As we prepare our taxes, we come across several terms that may or may not be familiar to us.  In lieu of this, I thought it might be helpful to provide definitions of these terms to hopefully decrease some confusion.  Listed below are some of the most common terms and their accompanying definitions:

Adjusted Gross Income (AGI): Gross income that is reduced by certain amounts, such as a student loan interest, or deductible IRA contribution.

Dependent: A person, other than the taxpayer or husband/wife, who allows the taxpayer to claim a dependency exemption.

Earned Income: This includes salaries, wages, tips, included in gross income, and net earnings that come from self-employment earnings.

Gross Income: Goods, services, money and property a person receives that is required to be reported on a tax return. This includes unemployment compensation and some scholarships, but not welfare benefits and nontaxable Social Security benefits.

Tax Credit: A reduction in tax that is paid out dollar for dollar. This can be directly deducted from taxes owed.

Tax Deduction: An amount that reduces the taxable income. This is usually a personal or business expense.

Tax Exemption: A portion of a person’s income that is not taxed.

Nov
18

When Do You Need Your Taxes Done Professionally?

Posted by Administrator under Tips

The majority of people who file taxes each year can probably figure them out without too much difficulty. It takes some organization, basic math skills and patience, but it can be done. If you have the help of some tax preparation software, it can be made even simpler. However, if you are the nervous type of person, you might be asking yourself if you need to have a tax professional (usually a CPA) take a look at what you’ve done, just to ‘make sure.’  Unless you are related to an accountant, that’s going to cost you some cash.  In order to help you determine this question, the following is a list of situations in which you should ALWAYS have a qualified tax professional either do your taxes for you, or, at the very least, go over your final return before you file.

  • If your income exceeds 60-70,000 dollars a year, it’s a good idea to have a tax professional look at it to see if they can save you some money.  If you are making less than this, your taxes are already comparatively low, and the margin of additional savings you might get is fairly low.
  • If you run your own business, you should always, always, have your taxes done professionally.  Even if your not making money in your business yet, or currently. Even if you fall below the 60-70K guideline, business owners fall into a whole bunch of additional laws and loopholes. To make matters even more complicated, every state has tons of different rules and regulations that have to be followed and authorizations that have to be gained. You want to make sure you are doing this correctly from the get go, not only can it save you money, it can save you from jail-time.
  • If you are self-employed, there are lots of tax laws and tax breaks that could apply to your individual situation.  If you are self-employed and making most of your living that way, having a professional tax preparer on board can really save you money.
  • If you are in a divorce or anticipate divorce proceedings, it is essential to have your finances and taxes spic and span.  You need to have everything documented, ESPECIALLY if the divorce is not amicable.  Even if it is a ‘friendly’ divorce, having things documented and done correctly will simplify the proceedings. Every divorce is going to cost you money, and the more money you have, the more it’s likely to cost you. Having a tax professional on board is a good idea when dealing with all of the various legalities attendant upon a divorce.
  • If a spouse or parent dies and you are dealing with legal issues of their passing, especially when substantial amounts of inherited money (usually anything in excess of $25,000) are involved.
  • If you have an expensive hobby that takes a lot of time and money, (yachting, scuba diving, mountain climbing etc) a certified tax professional can advise you in ways to make that hobby as tax-friendly as possible, ultimately saving you dollars off of your bottom line tax amount