Do not let IRS make you Wait for the Wrong answer

by Coralee LaFresnaye

It's widely known that, if you hit a snag while doing your taxes you can call IRS for answers and you if you wait long enough you will get an answer, but is it the right answer?

Quote: “Two years ago it was impossible to get through on the phone to the IRS. Now it's just hard to get through. That's progress.” -Charles Rossotti, former IRS Commissioner

50 million people do find their way through the maze of IRS numbers every year.

IRS numbers are:

To ask personal tax questions call 800-829-1040. Don't call on Monday morning or you will wait forever. Write out your questions beforehand and have all relevant documentation in front of you, as well as a favorite book. Treat the IRS employee like a human being and do not use profanity or he/she will hang up on you..

To order forms & pubs: 800-829-3676 for a paper copy via snail-mail

To ask business tax questions: 800-829-4933

Need help with long-standing problems: 877-777-4778

Prerecorded messages on 140 tax topics: 800-829-4477

Each year, IRS has to recruit and train literally hundreds of new seasonal personnel to answer the phones. These new seasonally trained phone personnel sometimes give inaccurate answers. But do you know that if one of the new seasonal personnel gives you the wrong answer over the phone and you act on it. You are liable for the mistake, not IRS!!!!

Would it be comforting to know there was a source of tax information that is free, accurate, and can be accessed rapidly?

Now, there is! There is an Internet web site where numerous lip synced animated characters, called Talking Tax Moms, give fast, accurate, timely tax advice and answers. Behind every Talking Tax Mom there is a real Tax Mom. There are also Talking Mr. Tax Moms. Just choose a tax subject in which you have an interest, click on a question, sit back and let a Talking Tax Mom give you the answer.

“There are over 15,000 pages in the tax code and over 100,000 pages of regulations of interpretation. It is nearly impossible for a ANY new seasonal trainee to learn all that information in one tax season. says Coralee LaFresnaye, Vice President of Tax Net Inc. “But it is possible for a Tax Mom to become a specialist in a given tax subject. Coralee continues, “each Tax Mom is a specialist and stands behind her advice and answers. All of the Talking Tax Moms have a minimum of 7 years experience of tax preparation and some as many as 25 years. If the Talking Tax Mom does not completely answer your question, just submit your question by e-mail. The responsible Tax Mom will personally respond with an answer and give you her direct 800 number for follow up contact. There is no charge for any of this service.”

Although the company started in 1987 and has a large number of tax professionals, the volume from this new free service has already increased to a point that the existing organization will have to be expanded before the 2006 tax season. Coralee continues, “We are presently looking for A FEW, THE PROUD, THE GOOD, to join THE TAX MOMS.”

Tax Moms is a national network of experienced CPA’s, IRS approved Enrolled Agents and State Certified/Public Tax Preparers working from their homes. Coralee LaFresnaye has been the Vice President of the daily operations of Tax Net Inc since 1999. She has been a Entrepreneur and Tax Professional for 34 years specializing in small businesses.

Tax Moms is one of the divisions of Tax Net Inc, a proud member of the Better Business Bureau. Another division of Tax Net Inc. is Next Day Tax Cash. http://www.asktaxmoms.com http://nextdaytaxcash.com

Coralee LaFresnaye is the Vice President of Tax Net Inc. She handles the daily operations of a nationwide network of CPAs, IRS Enrolled Agents, and State Certified/Public Tax Preparers that work at home. She has been a Entrepreneur and Tax Professional for 34 years specializing in small businesses.

Coralee LaFresnaye may be contacted at http://asktaxmoms.com or coral@taxmoms.com

Income Tax Returns Your Accountant Should Not File

by J. Stephen Pope

You've been feeling uneasy (perhaps even guilty) because you've failed to report your under the table business income. Perhaps you've never filed a tax return, even though you know you owe money. Finally, you contact an accountant to resolve the situation.

Although it is commendable that you are trying to correct matters, hiring an accountant to do these delinquent returns could be a big mistake. The reason why is because tax evasion is a criminal offence or felony. You might also be subject to civil action.

Would you hire an accountant to defend you in a criminal proceeding? Not likely. You would be wise to hire a qualified attorney.

First of all, lawyers have something called solicitor-client privilege (also known as attorney-client privilege or legal advice privilege). This basically means that things you tell your lawyer when seeking legal advice are confidential and can't be used against you. Even written records can be covered by this privilege.

On the other hand, your accountant can be compelled to testify against you and all records in his possession can be demanded by the authorities.

Second, your lawyer can prepare a legally binding agreement that can protect you. In return for your coming clean, the tax authorities may agree not to charge you criminally and, in some cases, even reduce penalties or tax liability.

If your accountant tried to do the same thing, they could demand all information about you. Your accountant would not be protected by solicitor-client privilege.

If, say, your accountant filed your tax return from ten years ago on your behalf, the tax authorities could still charge you with tax evasion, despite the fact that you are obviously trying to rectify matters (albeit a bit late).

It is even possible that your accountant could get into trouble for failing to report your delinquency. On the other hand, your lawyer can't be compelled to testify against you, being protected by solicitor-client privilege. Your lawyer may also have his own in-house accountant in order to protect you.

Your lawyer (specializing in criminal and tax law) will likely negotiate an agreement with the tax authorities before filing any tax returns.

Therefore, if there is a good chance you could be charged criminally for your failure to file tax returns or properly report income or expenses, don't see your accountant. Instead, consult a lawyer specializing in such matters before you file or amend any returns.

RESOURCE BOX:

J. Stephen Pope, President of Pope Consulting Inc., has been helping clients to earn maximum business profits for over twenty-five years.

For profitable Work at Home Small Business Ideas, visit http://www.yenommarketinginc.com/

To learn more about income taxes, visit http://www.yenommarketinginc.com/income-taxes.html

J. Stephen Pope, President of Pope Consulting Inc., has been helping clients to earn maximum business profits for over twenty-five years.

For profitable Work at Home Small Business Ideas, visit: http://www.YenomMarketingInc.com/

J. Stephen Pope may be contacted at http://www.yenommarketinginc.com/

Top 7 Small Business Tax Tips

by J. Stephen Pope

Here are seven ways for owners of small businesses to save money on their taxes.

1. Incorporate Yourself: If you're still a proprietor or partner of a business, it's time to incorporate yourself. Not only will you limit your liability, but you may enjoy lower tax rates on small business income and other tax advantages as well.

2. Be Home Based: If possible, continue (or switch to) being a home based business. Not only will you keep your overhead down, but you will be able to write-off (or deduct) the business use of your home.

3. Income Split: Pay reasonable wages to your spouse and children. In this way, you can legally divert income taxed at your higher rate to your family members that are in a lower tax bracket.

4. Rearrange Your Affairs For Maximum Tax Savings: Can you make some changes to turn your hobby into a moneymaking business? Can you use that extra room in your house as a home office for your business? Can you arrange to use your car more for business purposes? Can you arrange for more of your entertainment expenses to be business related?

5. Document Your Expenses Well: Do you document your expenses well so that they would survive a tax audit? Have you kept a mileage log so that you can prove the percentage business use you claim for your vehicle? Have you kept receipts for all your entertainment expenses and listed the business purpose on the back of each receipt?

6. Be Punctual: File all returns and pay all taxes due (income, payroll, sales, et cetera) on time. This way, you avoid expensive late filing (and payment) penalties and interest.

7. Develop a Tax Planning Mindset: Some people only worry about their taxes during tax season. However, you will save a fortune in taxes, legally, if you make tax planning your year-round concern. Do you make business and personal purchases, investments, and other expenditures with tax savings in mind?

RESOURCE BOX:

J. Stephen Pope, President of Pope Consulting Inc., has been helping clients to earn maximum business profits for over twenty-five years.

For profitable Work at Home Small Business Ideas, visit: http://www.yenommarketinginc.com/

J. Stephen Pope, President of Pope Consulting Inc., has been helping clients to earn maximum business profits for over twenty-five years.

For profitable Work at Home Small Business Ideas, visit: http://www.YenomMarketingInc.com/

J. Stephen Pope may be contacted at http://www.yenommarketinginc.com/

With More Audits Coming, Watch Out for Tax Scams

by Joshua Kreitzer

With More Audits Coming, Watch Out for Tax Scams by Joshua S. Kreitzer, J.D.

With Federal income tax returns coming due soon, it's a good time to look at what the Internal Revenue Service (IRS) is doing to enforce the tax laws.

The number of audits that the IRS conducts varies from year to year. It's been reported that in the mid-1990s, 1.2 million audits were conducted each year. Under pressure from Congress to improve customer service, the IRS reduced the number of annual audits for a while. Now, however, enforcement activity is on the rise again. While just under 850,000 audits were conducted in 2003, that number represented a 14% increase from the previous year - and an even higher number of audits is likely this year.

The IRS's current practice combines both random and non-random audits. Approximately 50,000 taxpayers a year are selected for random audits. Some won't face any questioning from the IRS, as their returns will be reviewed based only upon information in the IRS's possession. Another group will have to respond to a letter or telephone call from the IRS demanding clarification of items on their returns. The majority of random auditees will have to meet with the IRS face to face, but only to discuss one particular area of their return. And an unlucky few - approximately 3,000 - will be subjected to a "calibration" audit, in which an IRS agent meets with a taxpayer and reviews every line on the return.

As tough as a calibration audit sounds, it's still not intended to be as burdensome on the random auditee as the former Taxpayer Compliance Management Program was. In that audit program, taxpayers not only had their returns scrutinized line by line but were expected to provide documentation for every line, even being required to submit marriage certificates and birth certificates to prove their filing status and dependents. Those audits ended in 1988 after earning the nickname "audits from hell."

Besides the random audits, a significantly larger number of taxpayers will face non-random audits. Many of these audits are aimed at owners of small businesses who file Schedule C. Schedule C filers are responsible for declaring their own business income to the IRS and claiming their own deductions, which increases the possibility of deceptive tax returns being filed, compared to wage earners whose employers report their income on Form W-2.

Not surprisingly, the IRS also places an emphasis on auditing high-income taxpayers. While the average taxpayer had an 0.65% chance of being audited in 2003, taxpayers earning over $100,000 had a 1.1% chance of being audited. Taxpayers earning over $250,000 face an even greater likelihood of an audit. Such taxpayers tend to have more complex returns including income from partnerships, trusts, and corporations, which the IRS believes may be used to conceal income from the government.

In addition, the IRS has published a list of twelve tax scams and schemes which it calls the "Dirty Dozen." These schemes include a variety of abuses, including the following:

Abusive trust arrangements. Some promoters of abusive tax transactions advise taxpayers to transfer their assets into trusts, claiming a variety of tax benefits not authorized by law. The IRS has obtained injunctions against several of these promoters, some of whom are being criminally prosecuted - as are some of their clients.

Offshore transactions. Using an offshore bank or brokerage account to hide or underreport income is illegal, and the IRS has been actively pursuing taxpayers and promoters in this area. Last year the IRS collected over $170 million in taxes, interest, and penalties from its enforcement activity against abusive offshore transactions.

Sharing dependents for the Earned Income Tax Credit. Low-income taxpayers with earned income are entitled to claim the Earned Income Tax Credit ("EITC"), which not only reduces their taxes but is refundable to the extent that the credit exceeds their tax liability. Taxpayers with a child receive greater EITC credits than those with no children, and taxpayers with two children receive even more, but no additional credits accrue to taxpayers with more than two children. Consequently, some tax preparers have come up with the idea of having their clients with one child or no children claim as dependents the "surplus" children of other clients with three or more children, to enable all the participating clients to claim the maximum EITC. As part of this scam, the tax preparer normally splits a fee with the actual parent who gives permission to have children listed on the other taxpayer's return, which means that not only will the tax preparer be prosecuted, but the participating taxpayers will all be subject to civil penalties.

Other scams are based on misinterpretations, often intentional at least on the part of their promoters, of the Constitution and Federal laws, including the following:

The "claim of right" doctrine. Some promoters encourage people to claim a deduction equal to their entire salary on the grounds that the amount represents "a necessary expense for the production of income." Not surprisingly, the IRS takes a dim view of such deductions, which have no legal basis.

Slavery reparations tax refund claims. While it remains to be seen whether the United States government will grant reparations to the descendants of African-American slaves, some promoters have encouraged descendants of slaves to claim a credit or refund for slavery reparations on their tax returns anyway. The IRS is now watching out for such claims and will impose a $500 penalty on any taxpayer who claims such a credit or refund and refuses to withdraw the claim. Furthermore, taxpayers should stay away from promoters who charge them to prepare returns containing such unauthorized credits and refunds - some of those promoters have already gone to prison for filing illegal claims.

And in yet other scams, the primary victims are taxpayers themselves:

Return preparer fraud. Some unscrupulous return preparers have ripped off their clients by diverting portions of clients' refunds for their own benefit, charging inflated fees for return preparation, or advertising guaranteed larger refunds.

Identity theft. Having access to their clients' social security numbers, bank account numbers, and other personal information, some return preparers have been reported to open bank accounts in their clients' names or even file false tax returns without the clients' knowledge.

To avoid becoming involved with these or any other tax scams, taxpayers should make sure that only reputable tax professionals become involved with preparing their tax returns.

IRS Commissioner Mark Everson has stated that every dollar spent on enforcement yields from five to ten dollars in revenue to the government. Thus, we can expect that the IRS will continue to expand its enforcement activities for the time being. So stay informed, keep the possibility of an audit in mind, and watch out for scammers - and you'll be better off when April 15 rolls around.

Joshua S. Kreitzer (B.A., Harvard University; M.A., University of South Florida; and J.D., Northwestern University) is an Associate Attorney with The Law Offices of Marc J. Lane, a Professional Corporation. He practices in the areas of taxation, estate planning, corporate law, business law, and tax exempt organizations. He is admitted to practice in Illinois, the U.S. District Court for the Northern District of Illinois, and the U.S. Tax Court. He has also served as a law clerk to Magistrate Judge Mary Scriven of the U.S. District Court, Middle District of Florida, and as a senior articles editor of The Journal of Criminal Law and Criminology.

Joshua Kreitzer may be contacted at http://www.marcjlane.com or success@marcjlane.com

Death And Taxes

by Willard Michlin

(5/4/05) Have you ever owned a stock, or piece of real estate that you wanted to sell? You felt the time was right to take your profit and run. Did you then not follow through with the sale because “the taxes would kill you?” This is what I call “making a decision based on taxes.” It is not “Good Horse Sense.” What is horse sense? This is where the horse knows that a certain spot is dangerous and it will not step there. The rider, not seeing the danger, sometimes pushes the horse to move forward, but the horse refuses. People quite often will not trust their “sense.” Women are known for their “instincts” about people. Men are not always as “sensitive” of their instincts as women are. Lets get back to business instincts. In the stock market the smart money always says, “Bulls make money. Bears make money. Pigs lose money.” What does this mean? It means, “Never be afraid to take a profit.” If it is time to sell, sell! Take your profit and wait until the time is right to get back in. Taxes sometimes make this very difficult. If you sell, the taxes may eat up 30-50% of the profit.

Then again, if you do not sell, when you think the timing is right, you may lose 100% of the profit and some of the principal. It is always smarter to make your business decision first. It is also very important to not consider the tax consequences while making this sound business decision. After you have decided what you want to do based on sound business strategies, then you see your tax accountant and figure out how to do the deal, so as to pay the lowest possible taxes. Do not do it the other way around. Which means, selling when you have a tax loss or a real loss because there would be no taxes to pay.

Many an investor, because of the fear of taxes, held an investment all the way up and then all the way down. The economy runs in 7 to 10 year cycles of boom and bust. Sell in the booms and buy in the busts. If you do not sell at the top, there is no money to buy at the bottom. If your accountant is worth his fee, he will figure out how to shelter the sale. Do call him before making the sale, so he can tell you how to structure the deal. If he can’t help you, get a new accountant. An accountant’s job is not to do your tax return. It is to advise you how to pay the least taxes using all of the legal tax avoidance techniques, allowed by the IRS.

I have a friend who owned millions of shares of Microsoft. He was worth millions of dollars. Microsoft was the only thing he owned. He was an employee of the company and received stock options. He came to me worried about the company and asked me what to do. I suggested that he sell some of the stock and buy real estate. He was afraid to change horses and paying income taxes worried him. He decided to stick with Microsoft. Two months later Microsoft lost a court case and the stock price crashed. He now tells me “After it goes back up I might diversify.” How much do you want to bet on him doing anything? “After the horse is out of the barn, it is too late to close the gate.”

I met a man who owned an apartment building in the worst part of San Bernardino. In 1991 he was offered $600,000 for his building, but he refused it because of his concerns for capital gains taxes that he would have to pay. Over the next 8 years, the San Bernardino economy went down hill along with the real estate prices. His building became so vandalized that it was eventually boarded up. He sold the building to one person who thought he could repair the building. He couldn’t and our man foreclosed and took the building back. Again he sold the building, for $280,000 this time.

This second buyer also couldn’t make it work and today the second buyer stopped making the payments. He is also going to give the building back. Our man has had lower cash offers but he keeps trying to get as close as he can to that old $600,000 price. Therefore he keeps selling and financing that property so as to get a better price. He hasn’t learned that sometimes it is better to take the money and run.

Never bet the farm on a sure thing. The only sure thing is death and taxes. Also remember that the bank is not going to be nice if you get in trouble. Always have enough cash reserves, and keep your expenses down so you can always have money for food, insurance, gas, etc, and the low house payment. Accountants may give good tax advice but it may not be good business advice. So, NEVER MAKE A BUSINESS DECISION BASED ON TAXES.

Willard Michlin is an Investor, Business Broker, California Real Estate Broker, Accountant, Financial Distress Consultant, Well known Public speaker and Administrative/Business Consultant. He can be contacted at his Ventura, California office by calling 805-529-9854 or by e-mail at kismetrei@earthlink.net. See other article by Willard at http://www.kismetbusinessbrokers.com

Willard Michlin may be contacted at www.kismetbusinessbrokers.com or broker@kismetbusinessbrokers.com

1099-MISC Forms For Independent Contractors for 2005

by Richard Chapo

(1/4/06) As we begin 2005, you’re probably not thinking about taxes at all. This is a mistake as deadlines are approaching for issuing and filing 1099s to independent contractors.

What is a 1099 MISC?

Generally speaking, the IRS requires you to report certain payments you made during the year to independent contractors. The 1099-MISC form is a single page on which you report to total amount you paid to the independent contractor during 2005.

The 1099-MISC forms must be issued to any person you paid at least $600 in rents, services or other income payments. For example, if you hired a contractor to renovate a room in your home and paid them $5,000, a 1099-MISC filing would be required. As with practically any IRS filing, there are additional situations that require a 1099 filing. Any payments to attorneys must be reported regardless of the amount. Royalties totaling over $10 also must be reported. Generally, you are not required to report payments to a corporation.

When and What Must Be Filed?

The 1099-MISC form is a multi-layered carbon form, so make sure the information you provide appears clearly on all of the copies. Once you fill out the form, provide Copy B to the person you are reporting to the IRS by January 31, 2005.

Copy A of the 1099-MISC form is intended for the IRS. You must file it by February 28, 2005 if you are sending the form by mail. If you prefer to file electronically, you have until March 31, 2005.

The IRS has made a major effort to cut down on red tape, but you’ll still find it with 1099-MISC filings. In addition to filing the 1099 with the IRS, you must also file a 1096 form. The 1096 form is the “Annual Summary and Transmittal of U.S. Information Returns” form. It is one page and extremely easy to fill out.

Although the IRS has an excellent web site, you can’t download 1099 forms off of it. The official forms are still multi-layered carbon paper, which means you need to get a physical copy. The IRS should send you the forms in the mail. If they don’t, you can order them off the IRS site or call the IRS to have them sent to you. If all else fails, you can usually find the forms at major post office and public library locations. If you fail to file 1099s, the IRS will penalize you $50 per 1099.

More than a few people have grumbled about filling out 1099s so early in the year, but doing so has indirect benefits. You are forced to start organizing your records for 2005.

Richard A. Chapo is with BusinessTaxRecovery.com - providing information on tax and taxes. Visit us to read more tax articles and our new tax credits page.

Richard Chapo may be contacted at http://www.businesstaxrecovery.com

4 Simple Steps to Reduce Your Taxes In 2006

by Wayne Davies

(1/22/06) Does Tax Season get you down?

Here are 4 simple steps that any small business owner can take to lower your tax bill this year.

STEP #1: Understand How Serious Your Tax Problem Is

Are you aware of just how much in taxes you are paying?

Here's how much the average family spends on various consumer categories -- as a percentage of income.

You must realize that it's not how much you spend on taxes that is important, it's how much you spend on taxes as compared to all other major categories of spending.

Consumer Spending: How Do You Spend Your Hard-Earned Dollars?

Taxes ---------------------- 32.0% Housing -------------------- 16.7% Medical Care --------------- 11.5% Food ----------------------- 8.2% Transportation ------------- 7.9% Recreation ----------------- 5.7% Clothing ------------------- 4.1% Savings -------------------- 1.4% Other Miscellaneous -------- 12.5% TOTAL --------------------- 100.0%

So, if you think you are being "nailed" by the government, you are absolutely right. You spend more on taxes than any other category of consumer spending.

In fact, you spend more on taxes than on food, clothing, and housing combined.

And it's not just federal income taxes we're talking about here. There's also state and local income tax, payroll tax (Social Security and Medicare), sales tax, excise tax and property tax.

Maybe you already knew "intuitively" that your tax bill is outrageously high. If not, the picture I've just painted should thoroughly convince you that you pay too much tax, period.

STEP #2: Get The Right Attitude About Your Taxes

What do I mean by this? Well, you simply must have a certain "mental attitude" toward this whole idea of paying taxes. I'll get right to the point -- you must have an attitude about taxes that says, "Enough is enough. I'm paying way too much tax and I don't like it. And it's about time I did something about it -- TODAY!"

After reading those numbers above, how do you feel? Doesn't that just make you furious? If so, great, then you are on your way to solving this problem. The old cliche is true: "You can't solve a problem until you admit you have one.")

If you saw those numbers above and said, "Big deal. So I pay 32% in taxes. So what? So does everybody else in this country" -- well, I'm sorry, but you might as well just stop reading this article right now. You will continue to pay too much tax because you really don't care about it.

To reduce your taxes, you must be committed to the idea of paying less taxes.

Before today is over, go get last year's personal income tax return (Form 1040) and look at how much tax you paid.

When you have Form 1040 in front of you, do you realize where the most important number is on this form?

No, it's not Line 71 -- the refund amount.

No, it's not Line 74 -- the balance due amount.

The most important number on Form 1040 is Line 62.

It says: This is your TOTAL TAX. That is how much federal income tax you paid for all of last year. When it comes to reducing your taxes, it doesn't matter whether you got a refund or whether you had a balance due.

What matters most is: What was your total tax liability for the year. That's the "magic number" that should just make your blood boil and your heart beat so fast that you can hardly stand it.

Now that I've got you all "riled up" about paying so much tax, let's move on to Step #3.

STEP #3: Realize That Reducing Taxes Is The Easiest Path Possible To Creating Wealth Consider this simple fact: Reducing your taxes by just $4,000 per year is the easiest way possible to becoming a millionaire.

Let me elaborate.

Let's say you implement some new tax-saving strategies that reduce your taxes by $4,000 each year. Now, if you take that $4,000 per year in tax savings and invest it over the next 30 years, assuming you earn 11.5% on your investment, you end up with $1,048,745.98 at the end of the 30 years.

And here's the best part about this scenario: Where did you get the $4,000/year to invest? Well, you got it from money that would have gone to Uncle Sam. It's money that you used to spend on taxes, part of the 32% of your income that goes to taxes each year.

In effect, it's free money. It's money that was always there -- you just didn't realize it.

Is this a good deal or what? By simply reducing your taxes, the government will finance your million-dollar retirement. And let's say your tax situation is such that you save $2,000/year instead of $4,000/year. Same assumptions: you invest the $2,000 each year at 11.5% for 30 years. End result: $524,372.99. Not too shabby, eh?

So all you have to do is come up with the tax-saving strategies that will put $2,000 or $4,000 in your pocket each and every year. Which brings us to Step #4.

STEP #4: Get Hold Of The Tax-Saving Strategies That Will Make You A Millionaire

You know, it doesn't really take much information to save a bundle in taxes. It is true: just a little bit of tax knowledge goes a very long way.

Useful tax information is freely available. On the Internet, at your local library, and through your local tax professional.

The question is: Are you willing to spend some time this year learning about effective tax strategies that can save you literally thousands of dollars?

Here's a simple goal to set for yourself: Over the next 10 weeks, set aside just an hour a week to read up on tax- reduction strategies. That's all, just 10 hours.

Chances are you'll find 2 or 3 strategies that reduce your tax bill by $1,000 this year.

So you spend 10 hours and, in effect, pay yourself an extra $1,000 for your time. Not a bad hourly rate, eh?

Many times, that's all it takes to pay less tax.

Wayne M. Davies is author of 3 tax-slashing eBooks for the self-employed, available separately or as a 3-volume set, "The Ultimate Small Business Tax Reduction Guide". http://www.YouSaveOnTaxes.com/ultimate-guide

Wayne Davies may be contacted at http://www.YouSaveOnTaxes.com or Wayne@YouSaveOnTaxes.com

File Your Tax Returns On Time: Do Your Tax Planning Today!

by MT David

In order to keep your economic affairs in order its important that you file your tax returns on time every year without fail. Every UK citizen must fill a tax return form under the self assessment system. A self assessment is a system for working out and paying tax. All self employed, high-salaried, and company director individuals must complete a tax return every year. Additionally, you are even eligible to fill return if you had any capital gains in the current financial year, for e.g. gains from selling the shares of a company.

In order to pay the least tax by saving money in various schemes, you must do some intelligent tax planning. Every individual has a right to arrange his financial affairs in such a way so that he is eligible to pay the least tax possible or none at all. You can do tax saving by investing intelligently in avenues that have been declared to be exempted from tax and are counted as deductions from the total taxable income.

One of the most prominent tax is the self-employed tax. All individuals who are engaged in their own business or earn their livelihood by providing some services to the public at large, are eligible to pay taxes out of their business profits. Like companies, they can deduct their business expenses from business income to calculate how much taxable profit they have made.

To manage your accounts in a regular and up-to-date way helps in calculating taxes easily. If the books are not maintained regularly, it will be better to take help of an expert on tax planning to file your return in time.

Honey is an author, writes various articles on different themes to expand information, because articles is also a good way to send their voice to needy people easily. You can visit to know brief about Tax Saving. MT David may be contacted at or seekloaninfo@gmail.com

How To Make Sure 2004 Is Your Best (Tax) Year Ever
by Wayne Davies
Submitted: 13-Jan-04
article
Authorized - NO NEED TO ASK PERMISSION BEFORE USING. Already granted to Publisher's Toolbox Subscribers.
Category: Financial:Taxes

Sorry to crash your party, but as we bring in the New Year, it's also time to bring in a New Tax Season.

As a small business owner or self-employed person, one of the easiest ways to keep Uncle Sam off your back and out of your life is to file your forms, payments and other paperwork on time.

Over the next four months there are several key dates that you dare not forget! Here they are -- all in one place, along with links to the IRS website PDF file for that particular form, where appropriate.

NOTE: This article only addresses federal tax deadlines. Be sure to contact your state's tax department for their due dates.

JANUARY:

Thursday, Jan. 15

Personal If you're pay quarterly estimated income tax payments, it's time to make the fourth-quarter payment for 2003 via Form 1040-ES. http://www.irs.gov/pub/irs-fill/f1040e03.pdf

Business If you have employees, you must make the federal payroll tax payment for December 2003 by today (assuming you are on the monthly deposit schedule).

You use Form 8109 (found in the little yellow coupon book) or the IRS Electronic Federal Tax Payment System (EFTPS).

FEBRUARY:

Monday, Feb. 2

Business

Normally, 4th quarter and year-end payroll tax returns are due by January 31 of the following year. In 2004, since January 31 falls on a Saturday, the due date is extended until the next business day -- Feb. 2.

Here's an overview of the 4 most common federal payroll-related forms due today:

1. Form W-2 (for your employees) http://www.irs.gov/pub/irs-pdf/fw2_03.pdf

If you mail the W-2's, the postmark must be on or before Feb 2, 2004.

You may also be a recipient of a W-2 (if you work as an employee for someone else), so don't give your employer a hard time unless the W-2 is postmarked, or delivered in person, later than Feb. 2.

2. Form 941 (for payroll tax) http://www.irs.gov/pub/irs-fill/f941_a.pdf 3. Form 940 (for unemployment tax) http://www.irs.gov/pub/irs-fill/f940.pdf

4. Form 1099-MISC If you paid any independent contractors at least $600 in 2003, you must send each one a 1099 by Feb. 2. http://www.irs.gov/pub/irs-pdf/f1099m03.pdf

Tip: if the independent contractor is a corporation, you usually don't have to issue a 1099. The main purpose of the 1099 is to track payments to Sole Proprietors, i.e. unincorporated self-employed people.

Tuesday, Feb. 17 If you have employees, you must make the federal payroll tax payment for January 2004 by today (assuming you are on the monthly deposit schedule).

This is another example of the automatic due date extension rule: if a federal due date falls on a Saturday, Sunday, or holiday, the due date is extended to the next business day. (Feb. 15 is a Sunday and Feb. 16 is a holiday.)

MARCH:

Business

Monday, March 1 If you prepared any W-2's or 1099's (mentioned above), today is the deadline for sending a copy of those forms to the IRS.

Form W-3 is sent to the IRS, along with Copy A of any Forms W-2 you issued. http://www.irs.gov/pub/irs-pdf/fw3_03.pdf

Form 1096 is sent to the IRS, along with Copy A of any Forms 1099-MISC you issued. http://www.irs.gov/pub/irs-fill/f1096_03.pdf

Monday, March 15 Today is a big day if your business is a corporation.

Form 1120 -- the annual corporate income tax return for regular "C" corporations. http://www.irs.gov/pub/irs-fill/f1120.pdf

Form 1120S -- the annual corporate income tax return for "S" corporations. http://www.irs.gov/pub/irs-fill/f1120s.pdf

Form 7004 -- if you can't file Form 1120 or 1120S by today, here's a tip: just file Form 7004 by March 15 and you are granted an automatic, no-questions-asked 6-month extension of time to file the return (i.e. until Sept. 15, 2004) http://www.irs.gov/pub/irs-fill/f7004.pdf

Form 2553 -- if you want your corporation to be treated like an "S" corporation for the first time, today is the deadline for telling the IRS that you want to be an "S" corp beginning with calendar year 2004. http://www.irs.gov/pub/irs-fill/f2553.pdf

Also, If you have employees, you must make the federal payroll tax payment for February 2004 by today (assuming you are on the monthly deposit schedule).

APRIL:

Thursday, April 15 Ah, yes, the most famous tax deadline of all.

Form 1040 http://www.irs.gov/pub/irs-fill/f1040.pdf

And if you are a Sole Proprietor, don't forget that you must file several business-related tax forms with your Form 1040. The most commonly used tax forms for the self-employed person include:

Schedule C (to report your business income and expenses) http://www.irs.gov/pub/irs-fill/f1040sc.pdf

Schedule SE (for self-employment tax) http://www.irs.gov/pub/irs-fill/f1040sse.pdf

Form 4562 (to deduct equipment and other depreciable property) http://www.irs.gov/pub/irs-fill/f4562.pdf

Form 8829 (to deduct a home office) http://www.irs.gov/pub/irs-fill/f8829.pdf

Need more time to prepare your personal tax return? Go no further than Form 4868, which grants an automatic no-questions-asked 4-month extension to file the return. http://www.irs.gov/pub/irs-fill/f4868.pdf

NOTE: this is only an extension of time to file the return, not an extension to pay any tax due. So if you think you might owe, it may be wise to estimate what you owe and send in a payment with Form 4868; otherwise you may have to pay extra in late payment penalties and interest.

Form 1065 If your business is a Partnership or Limited Liability Company (LLC), today is also your lucky day to file the annual business income tax return -- via Form 1065. http://www.irs.gov/pub/irs-fill/f1065.pdf

Form 8736 http://www.irs.gov/pub/irs-fill/f8736.pdf To get an automatic 3-month extension of time to file Form 1065, file Form 8736 on or before April 15.

As if April 15 wasn't already painful enough, it's also the deadline for the first quarter estimated tax payment for Year 2004:

Personal -- Form 1040-ES. http://www.irs.gov/pub/irs-pdf/f1040es.pdf

Corporate -- Form 1120-W http://www.irs.gov/pub/irs-fill/f1120w.pdf

And if you're an employer, yup, it's time for yet another monthly federal payroll tax deposit -- for March 2004.

Friday, April 30 Form 941 is due for the 1st quarter 2004. http://www.irs.gov/pub/irs-fill/f941_a.pdf

Form 940 federal unemployment tax deposit is due today, if your first quarter liability exceeds $100.

Had enough? OK, OK. I'll stop here.

That should get you through the first four months of the year.

For more tax resources, here's a few more links:

Looking for a federal tax form? http://www.irs.gov/formspubs/index.html

Looking for a state tax form? http://taxes.yahoo.com/stateforms.html

IRS Website for Small Business & the Self-Employed http://www.irs.gov/businesses/topic/index.html

Tax calendar for the entire Year 2004 http://www.taxmama.com/taxcalendar.html

========================================================== Wayne M. Davies is author of the best-selling ebook, "Tax Reduction Toolkit: 29 Little-Known Legal Loopholes That Will Reduce Your Taxes By Thousands" (For Small Business Owners and Self-Employed People Only!) Don't file another tax return until you visit: http://www.YouSaveOnTaxes.com/toolkit ==========================================================

Wayne Davies may be contacted at http://www.YouSaveOnTaxes.com Wayne@YouSaveOnTaxes.com. Click here to view more of their articles.
Wayne M. Davies is author of the new eBook, "Incorporation Tax Secrets Revealed: The Ultimate Small Business Tax Reduction Strategy" http://www.YouSaveOnTaxes.com/incorp

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“Anticipating” Your IRS Refund Can Cost You Plenty
by James Dimmitt
Submitted: 11-Jan-04
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While accountants are reaching for aspirin, millions of Americans are reaching for some fast cash this tax season. Unfortunately, those who reach for fast cash in the form of a “refund anticipation loan” are getting hit with interest rates and fees that are out of this world.

The tempting ads are plastered in newspapers and on television for “fast cash refunds”, “express refunds”, or “instant refunds.” The ads offer to get your refund in a day or two, or in some cases even instantly.

What is a “refund anticipation loan”? It’s a loan that borrows against your anticipated tax refund from the IRS. Refund anticipation loans, or RAL’s as they are known in the tax industry, carry annual percentage rates (APR’s) of about 60% to over 700%, a fact that many consumers either don’t realize or simply overlook.

RAL’s are marketed to people who need money the most such as low and moderate income workers. A report by the National Consumer Law Center notes that “about 40% of the 12 million refund loan customers in 2000, were families who received the Earned Income Tax Credit, the largest federal poverty assistance program.” And since the RAL’s often use the term “refund” in their ads, many of those who take the bait don’t realize that they’re receiving a loan and not their actual refund from the IRS.

The fees associated with RAL’s are expensive. For example, let’s say the IRS owes you a refund of $2,000. In order to get a RAL you pay the following: RAL loan fee = $75, Electronic filing fee = $40, tax preparer’s fee = $100. Total fees associated with your RAL = $215 which is more than 10 percent of your estimated refund. The APR on your refund loan equals a whopping 142 percent!

Many low and moderate income workers are without bank accounts and wind up paying an additional fee to set up a one-time-use account so that their IRS refund can be direct deposited.

Before giving in to the temptations of refund anticipation loans, ask yourself if you really need your money that quickly. If you can wait just a bit longer for your refund you’ll line your own pockets with extra cash rather than forking it over to a RAL lender.

A great way to save money at tax time is to go to a Volunteer Income Tax Assistance (VITA) site. VITA sites provide free tax preparation to low and moderate income taxpayers and are sponsored by the IRS. They can be found in libraries, community centers and other locations during the tax season. To find a VITA site call the IRS general help line at 1-800-TAX-1040 or visit www.tax-coalition.org.

James Dimmitt may be contacted at http://www.yourfreecreditreportnow.com jimdim815@aol.com. Click here to view more of their articles.
James Dimmitt is editor of "To Your Credit", a FREE weekly money-saving newsletter. He is also author of "Identity Theft - How To Avoid Becoming the Next Victim!" Click here for more information.

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James is editor of "TO YOUR CREDIT", a weekly free newsletter with personal finance news and tips. You can subscribe to the newsletter by visiting http://www.yourfreecreditreportnow.com. He is also author of “Identity Theft - How to Avoid Becoming the Next Victim!” available at http://tinyurl.com/bc45

Why the Estate Tax Might Never Die
by Lisa Lehman
Submitted: 01-Oct-03
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Category: Financial:Taxes
More Details at: http://www.marcjlane.com

The California budget debacle which precipitated the upcoming recall election of Governor Gray Davis accentuates the financial woes of other states without surf and sun. In 2001, the Federal government eliminated a large source of state revenue when it enacted the Economic Growth and Tax Relief Reconciliation Act ("EGTRRA"). Specifically, the Feds reduced the states' share of estate tax revenues. To the power of cash hungry states, add a large charitable lobby which believes philanthropic contributions will significantly drop if there is no estate tax, and you have a Schwarzenegger-like muscle machine to fight the Federal estate tax repeal.

Some Background

Before EGTTRA was enacted, the federal government "shared" a portion of the federal estate tax with the states by allowing a federal estate tax credit for state death taxes paid by an estate. Most states, in turn, only imposed an estate tax equal to the state death tax credit, or a "pick-up" tax. Consequently, although the states imposed an estate tax, a state's estate tax did not increase the total amount of taxes paid by a deceased taxpayer's estate. This changed with the enactment of EGTRRA. (To see "Gift, Estate and Generation-Skipping Tax Ramifications of the Economic Growth and Tax Relief Reconciliation Act of 2001" please visit http://www.marcjlane.com/LaneReport/0107LR.html. Congress, with the subtlety of a fine Napa Valley Cabernet, lowered the Federal estate tax rate …but also reduced the state death tax credit. EGTRRA goes further and eliminates the estate tax, but only for the year 2010, unless Congress acts to make the repeal permanent. This temporary repeal has fueled speculation that the estate tax is in a downward spiral to inevitable extinction. Since, in the majority of states, the state estate tax only equals the amount of the Federal credit, repeal of the Federal estate tax would also repeal the state estate tax!

The States' Budget Crises

The National Governors Association, in "The State Fiscal Crisis" 2003, stated,

"States are facing a perfect storm: deteriorating tax bases, an explosion in health care costs, and a virtual collapse of capital gains and corporate profit tax revenues."

Storm may be the wrong analogy - an earthquake seems a more fitting metaphor. Illinois has an anticipated $5 billion accumulated deficit for 2004 fiscal year. Estimates put the combined budget deficits of all states at $82 billion for fiscal year 2004. The Center on Budget and Policy Priorities ("CBPP"), citing IRS statistics, reports that California received approximately $590 million per year from 1995 through 1997 in estate tax revenue from the federal state death tax credit. Here are the other states which stand to lose great sums of money if the estate tax is repealed.

Florida $429,300,000 Average Federal Credit, Calendar Years 1995-1997 (for states with pick-up tax only)

Texas $201,300,000 Average Federal Credit, Calendar Years 1995-1997 (for states with pick-up tax only)

Illinois $181,900,000 Average Federal Credit, Calendar Years 1995-1997 (for states with pick-up tax only)

Massachusetts $88,300,000 Average Federal Credit, Calendar Years 1995-1997 (for states with pick-up tax only)

CBPP estimates total revenue loss to all states if the estate tax is repealed in 2010 would be $9 billion per year. Those tax dollars will need to be replaced, and putting a state inheritance tax into place would be politically challenging. The Joint Committee on Taxation projects that only 2% of estates owe estate tax. The repeal of estate tax would plump up the coffers of the wealthiest Americans, such as, say, Hollywood celebrities, while reducing the state revenues available to provide benefits and services for all state citizens. As the year 2010 draws closer, the states will ratchet up their efforts to fight the repeal of the federal estate tax.

The Charitable Angle

One way to reduce the estate tax burden is by making contributions to charity. The tax law allows an unlimited estate tax deduction for gifts made to most charities. Charity is widely defined in the tax law to include publicly supported organizations, schools, medical, scientific, churches and animal welfare organizations. (To learn more about charitable gifting and read "Charitable Deductions: Tax Planning for 2001" please visit http://www.marcjlane.com/LaneReport/0112LR.html.)

The Urban-Brookings Institute estimates charitable giving would drop by between 22 and 37 percent, or between $3.6 billion and $6 billion per year, if the estate tax was repealed. Large institutional charities such as the Red Cross, United Way and Salvation Army can be expected to mount lobbying efforts to tide this potential loss of revenue.

What's a Taxpayer To Do?

Everyone knows it's prudent to buy insurance to cover foreseeable and significant risks. The Federal estate tax, in some shape and form, is likely here to stay. Estate planning, like insurance, provides peace of mind. Wills and trusts should be used to take advantage of the $1,000,000 estate tax exemption or "applicable exclusion amount." Annual gifts of $11,000 can be made to any number of individuals, without "eating into" the applicable exclusion amount. For more significant estates, consideration should be given to reducing estate taxes by shifting appreciation through the use of leveraged transfer vehicles. These vehicles are especially useful for interests in closely-held businesses. (For additional information on leveraged transfers, see "More Blessed - And Profitable - To Give …" available at http://www.marcjlane.com/LaneReport/0004LR.html and to see "How Family Limited Partnerships Build Wealth" available at http://www.marcjlane.com/LaneReport/9904LR.html.)

Lisa Lehman may be contacted at http://www.marcjlane.com llehman@marcjlane.com. Click here to view more of their articles.
Elizabeth A. Lehman is an Associate Attorney with The Law Offices of Marc J. Lane, a Professional Corporation. Ms. Lehman is a graduate of the University of San Diego (J.D. and an LLM in Taxation) and the University of Wisconsin (B.A.).

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It Can Happen To You: Why Any Sole Proprietorship Is A Risky Business
by Wayne Davies
Submitted: 15-Sep-03
article
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Category: Financial:Taxes
More Details at: http://www.YouSaveOnTaxes.com/happen-to-you.txt

Are you still operating your business as a Sole Proprietorship?

Have you considered incorporating your small business or self-employment activity?

The tax advantages can put thousands of dollars in your pocket every year.

But the Number One reason to consider incorporating has nothing to do with tax reduction and everything to do with asset protection.

Here's a story to help you decide whether forming a corporation is worth it.

A few years ago, one of my clients, let's call him Jim, decided it was time to stop working for someone else and start working for himself.

Jim was a plumber, and a darn good one. He's fixed my toilet on several occasions.

It took a couple years of hard work, but Jim's reputation spread fast and he soon had all the work he could handle.

Jim finally had to hire an assistant, a young fellow named Tom.

One rainy Saturday afternoon, Jim got a service call and asked Tom to handle it. This job turned into several hours of lucrative labor, so by the time Tom was done it was dark. The roads were slick and Tom was tired.

As luck would happen, another service call came in as Tom was heading home. Jim offered Tom yet another chance to make some good overtime pay. Tom reluctantly accepted.

Tom thought about stopping for a cup of coffee, but he was eager to get done. As he drove through the torrential downpour, Tom noticed the brakes in the company truck weren't working like they used to. He remembered the mechanic saying something about it the last time he took the truck in for a tune-up, but he and Jim were so busy lately they just forgot to get them fixed.

As he came to the next stoplight, Tom knew he was in trouble. The brakes failed and the truck collided with another vehicle.

Tom's injuries were not nearly as serious as those of the other driver, who eventually died.

Jim's insurance policy covered all the medical costs, but the liability coverage wasn't enough to take care of the amount that the other driver's family sought via the negligence lawsuit.

End result: Jim suffered serious financial loss. Because Jim's business was a Sole Proprietorship, he had to use all of his personal savings to satisfy the claims of the lawsuit.

So it can happen. And it can happen to you.

Need I remind you just how prevalent lawsuits have become in our society?

So if you are a Sole Proprietor, like Jim, why run the risk of losing your personal assets from a business-related lawsuit.

If you have employees, you can be held responsible for their actions.

"But I don't have any employees", you say.

It could just as easily have been Jim rather than Tom who was driving in the rain that night. Likewise, it could be you who is the cause of unintentional damage or some other business-related accident.

Bottom Line:

If your business is a Sole Proprietorship you need to incorporate because all your personal assets are at risk.

Make the move from the world of Unlimited Liability to Limited Liability.

Wayne Davies may be contacted at http://www.YouSaveOnTaxes.com Wayne@YouSaveOnTaxes.com. Click here to view more of their articles.
Wayne M. Davies is author of the new eBook, "Incorporation Tax Secrets Revealed: The Ultimate Small Business Tax Reduction Strategy" http://www.YouSaveOnTaxes.com/incorp

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Reprint Guidelines: ** Attention Ezine editors / Site owners ** Feel free to reprint this article in its entirety in your ezine or on your site so long as you leave all links in place, do not modify the content and include my resource box as listed below.

If you do use the material, please send me an email so I can take a look: mailto:Wayne@YouSaveOnTaxes.com

The Jobs and Growth Tax Relief Reconciliation Act of 2003 - - What Does It Mean
by Ted Koester
Submitted: 02-Jun-03
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On Wednesday, May 28, 2003, President George W. Bush signed the Jobs and Growth Tax Relief Reconciliation Act of 2003 (the "Act") into law. It has been reported that this Act is the third largest tax reduction in our country's history. Since it is such a large tax cut, it will affect most Americans. The purpose of this article is to summarize the Act and examine its effects.

Summary Of The Act

All of the tax cuts created by the Act involve income taxes. Transfer taxes, such as gift, estate and generation-skipping taxes, are not affected by the Act.

The Act changes the income tax system in several ways. First, the maximum child tax credit for 2003 and 2004 is increased from $600 to $1,000 per child. The amount of the increase ($400) for 2003 will be advanced to eligible taxpayers this year in the form of checks. However, in 2005 the child tax credit falls to $700 per child, as specified under the law prior to the Act.

Secondly, the Act lessens the effect of the so-called "marriage penalty." This is accomplished by making the standard deduction for jointly filing, married taxpayers twice the amount of the standard deduction for single taxpayers and by increasing the 15% tax bracket for jointly filing, married taxpayers so that it is double the 15% tax bracket for single filers.

A significant change made by the Act is the lowering of the four highest income tax rates. The 10% and 15% rates are not altered, but the 27% rate is lowered to 25%; the 30% rate reduced to 28%; the 35% rate goes down to 33%; and the 38.6% rate drops to 35%. The Act also provides some minimum tax relief to individual taxpayers.

All these amendments to the Internal Revenue Code, as they are significant, are only effective until December 31, 2010. After that date, the law in effect prior to the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001 goes back into effect.

The Act also reduces the tax rate on capital gains and dividends received by individuals. The 10% capital gains rate is lowered to 5% and the 20% rate reduced to 15%. Dividends are no longer taxed at ordinary income tax rates, but will be taxed at the 5% and 15% capital gains rates. However, these changes aren't permanent, either; they will expire after December 31, 2008.

The Act also contains income tax benefits for businesses. Specifically, the so-called "Section 179" expense amount is increased from $25,000 to $100,000 for tax years 2003 through 2005. Further, certain computer software will now qualify for the Section 179 expense. In addition, the 30% "bonus depreciation" deduction is increased to 50% for qualifying property acquired after May 5, 2003 (but not under contract to be acquired prior to May 6, 2003) and before January 1, 2005.

Finally, the Act contains some provisions granting fiscal relief to states for Medicaid and other government services and pushes the due date for the 25% required installment of corporate estimated tax back from September 15, 2003 to October 1, 2003.

What Do The Changes Mean To You?

Obviously, the child tax credit advance checks many Americans will receive will be a welcomed change. The recipients will be able to use this money for any purpose. However, this author suggests that parents consider depositing this money into education savings accounts for their children, such as Section 529 Plans. These Plans offer many tax benefits to the contributors and the beneficiaries. Plus, Illinois' Bright Start® Plan gives all Illinois contributors a tax deduction on their Illinois income tax return.

Another benefit the Act will provide is more take-home pay to working taxpayers. This will result from the decrease in the ordinary income tax rates, the increased standard deduction, and the larger 15% bracket for jointly filing, married taxpayers. The lawmakers believe that this will create more jobs by infusing more money into the economy. But as with most things, only time will tell if that is true. However, this author believes that if people have more money they will, as a whole, be more likely to invest that money - - especially given that the tax on investment returns (capital gains and dividends) has been lowered and the deductions allowed (50% bonus depreciation and Section 179 expense) for such investments have been increased. Of course, the investments made should be sound ones. Thorough analysis is important before making any decisions. Further, this author strongly recommends that the appropriate professionals be employed before making any investment decisions.

Remember that many of the tax cuts in the Act are only temporary and will expire in a few years. All taxpayers are encouraged to take advantage of them now, because the future is uncertain.

Ted Koester may be contacted at http://www.marcjlane.com success@marcjlane.com. Click here to view more of their articles.
Ted Koester is an Associate Attorney with The Law Offices of Marc J. Lane, a Professional Corporation. He received a Bachelor of Science from Eastern Illinois Univerity and his Juris Doctorate from Seton Hall University. Mr. Koester was admitted to the Illinois Bar in 1998. He practices in the areas of estate planning, tax law, and business law. Ted is a member of the Chicago Bar Association where he serves on the Trust Law Committee, the Corporation and Business Law Committee, the YLS Corporation Practice Committee, and the YLS Estate Planning Committee. In addition, Ted is a member of the Illinois State Bar Association and its Business Advice and Financial Planning Section and Trusts and Estates Section. He is also a member of the American Bar Association.

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The 37 Cent Mistake
by Wayne Davies
Submitted: 10-Feb-03
article
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Category: Financial:Taxes
More Details at: http://www.YouSaveOnTaxes.com

When it comes to filing your tax return, spending 37 cents could be the biggest mistake you ever make.

Millions of taxpayers make the mistake of putting their income tax return in a regular letter-sized envelope, sticking on a 37 cent stamp, and placing the envelope in their mailbox.

And millions of taxpayers "get away" with this mistake year after year.

Why do I say that putting your tax return in the mailbox is a mistake?

Let me explain.

Every year, a small percentage of mail doesn't get delivered. The U.S. Postal Service doesn't like to admit this, but it's true.

Furthermore, even if your tax return gets delivered to the IRS, every year a small percentage of tax returns get lost by the IRS.

Don't believe me? I'll never forget the day one of my clients showed me a letter he received from the IRS:

"We regret to inform you that we received your return.... but have lost it."

Honest to goodness, this actually happened!

So my question to you is this: What are you doing to do if this happens to you!

If your tax return doesn't get delivered, or if it gets delivered but is subsequently lost inside the mammoth IRS, what are you going to do to prove that you actually mailed the return?

Just calling the IRS and saying, "Well, I mailed it on time. I know I did!" isn't going to prove anything. And the burden to prove you mailed the return on time will rest on your shoulders.

You have two ways to solve this potentially dangerous problem:

OPTION #1: File your return electronically.

There are many benefits to e-filing. The one I want you to focus on now is this: When you e-file your return, you receive an electronic acknowledgement within 48 hours that the IRS has accepted your return.

Bingo! Now you have proof positive that the return was filed. 'Nuff said?

E-filing is rapidly becoming the filing method of choice. But the majority of returns are still filed on paper, so here's a second way to avoid the "missing return" dilemma. OPTION #2: If you're a "paper filer", go to the post office and spend a measly $4.05 to send the letter via Certified Mail, Return Receipt Requested.

Doing this will accomplish two very important things:

1. Certified Mail (which costs $2.30) provides the proof that the return was mailed, and that it was mailed on time, on or before the due date. According to the IRS, a paper return is filed on time if it is mailed in an envelope that is properly addressed and postmarked by the due date. When you use Certified Mail, you will get a receipt postmarked by the postal employee, and that date on the receipt is the postmark date.

So, should the return get lost by the IRS, or if the IRS questions whether you mailed it on time, you will have written proof.

Plus, every piece of Certified Mail is assigned a tracking number which can then be traced by the U.S. Postal Service should a problem arise.

2. Return Receipt provides another level of insurance. For an extra $1.75, when the letter is delivered, the IRS must sign or stamp a receipt that documents the date of delivery. This receipt then gets mailed back to you, so that you now have the written proof that the IRS received it.

Technically, you only need to send the return via Certified Mail to prove that it was indeed mailed on time. But I really like the Return Receipt as well -- it gives you that extra "peace of mind" to know that the IRS received it. And you'll know exactly what day it was received. This is the proof of delivery.

So don't run the risk of having your tax return get lost in the mail.

And don't run the risk of having your tax return get lost in the piles and piles of paper that flood the IRS each year.

Think about it. Well over 100 million personal income tax returns are filed with the IRS every year, and the majority of them are still prepared on paper and mailed by the U.S. Postal Service.

The U.S. Postal Service and the IRS are staffed by hard- working people who are only human. People make mistakes. To greatly reduce the chance of a mistake being made with your return, don't you make the mistake of just putting your tax return in the mailbox.

Instead, e-file it, or take it to the post office and send it Certified Mail, Return Receipt Requested. It could be the best $4.05 you ever spent!

Wayne Davies may be contacted at http://www.YouSaveOnTaxes.com Wayne@YouSaveOnTaxes.com. Click here to view more of their articles.
Wayne M. Davies is author of the new eBook, "Incorporation Tax Secrets Revealed: The Ultimate Small Business Tax Reduction Strategy" http://www.YouSaveOnTaxes.com/incorp

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Reprint Guidelines: ** Attention Ezine editors / Site owners ** Feel free to reprint this article in its entirety in your ezine or on your site so long as you leave all links in place, do not modify the content and include my resource box as listed above.

If you do use the material, please send me an email so I can take a look: mailto:Wayne@YouSaveOnTaxes.com

How To Audit-Proof Your Tax Return Forever!
by Wayne Davies
Submitted: 05-Feb-03
article
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Category: Financial:Taxes
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============================================================ How To Audit-Proof Your Tax Return Forever! (My Recent Close Encounter Of The IRS-Kind)

-- by Wayne M. Davies

Copyright 2003 Wayne M. Davies Inc. ============================================================

Congress recently passed legislation that is supposed to result in a more "sensitive" Internal Revenue Service. You know, not such a lean, mean, tax-collecting machine. I DON'T THINK SO! Here's why.

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 (not a good sign!) 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.

[By the way, most IRS audits are done these days by mail. Humans are rarely involved in these so-called "correspondence audits."

Those big IRS computers can check and cross-check all kinds of information that should be reported on your tax return. And if something doesn't show up on the return that is easily tracked by the IRS computers, then the computer just spits out a not-so-friendly "discrepancy notice", which you can respond to via mail.]

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". Do you know what I mean by a "cash guy"? 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 would just 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!"

Think about that for a minute! At first, many clients 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!

And here's the second 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 -- a big No-No!

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.

Well, that's what happened to Mr. Jones. He made a couple classic mistakes and paid the consequences.

I hope you benefited by learning what can happen in a real audit. If you ever get a letter from the IRS that demands 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!

Wayne Davies may be contacted at http://www.YouSaveOnTaxes.com Wayne@YouSaveOnTaxes.com. Click here to view more of their articles.
Wayne M. Davies is author of the new eBook, "Incorporation Tax Secrets Revealed: The Ultimate Small Business Tax Reduction Strategy" http://www.YouSaveOnTaxes.com/incorp

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5 Common Tax Myths That Are Costing You A Bundle
by Wayne Davies
Submitted: 11-Jan-03
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Category: Financial:Taxes
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This article is based on the following 2 assumptions:

1) You are a small business owner or self-employed person (including home-based businesses and part-time entrepreneurial activities).

2) You don't like to pay taxes. In fact, whenever you think about paying taxes, you get so mad you end up "all lathered up and nowhere to go."

Now, if paying taxes makes you so upset, what have you done about it lately?

Why was your tax bill so high last year?

You paid too much tax last year (and the year before that, and the year before that . . .) because you have probably been an innocent victim of many popular myths about taxes.

Here they are. Get rid of them or you'll be stuck paying too much tax forever!

Tax Myth #1: "I don't make enough money to worry about reducing my taxes."

Nothing could be further from the truth. People at all levels of income can pay less tax.

Tax reduction strategies are not just for the rich and famous. No matter how much money you make, you can pay less tax than you currently pay.

In fact, even if your business (or part-time entrepreneurial venture) has a loss, you can use that loss to offset other sources of income, such as wages from a "regular" job, your spouse's wages, investment income, rental income, other business income.

And if your business loss is so great that it more than offsets all your other income, you can take advantage of a special rule that lets you: a) Carry back that excess loss to the 2 prior years, thereby entitling you to a refund of taxes you already paid for either (or both) of those 2 prior years; and/or b) Carry forward that excess loss to the next 20 future years, so that any income you earn in the future will be reduced by that excess loss.

Tax Myth #2: "Tax reduction strategies are too complicated for me to use."

Again, total and complete hogwash. There are plenty of ways for you, the average American, to lower your taxes.

Tax reduction is not just for the wealthy who pay high- priced attorneys to finagle their way out of paying taxes with sophisticated tax-avoidance schemes, like off-shore trusts and foreign bank accounts.

The average Small Business Owner has plenty of tax reduction strategies at his/her disposal. You just have to know what they are and how to use them.

Tax Myth #3: "I had my return prepared by an Accountant, so I know I paid the right amount of taxes."

There are thousands of excellent, hard-working accountants doing a great job. And if you use a tax professional, maybe he/she has done everything possible to reduce your taxes to the legal minimum. Based on my own experience, however, I'm convinced that many taxpayers who use professional tax preparers are overpaying their taxes, sometimes by thousands of dollars each year!

Why is that? Well, there are many reasons. The most obvious one is this: Many professional tax preparers are just that: tax preparers and tax preparers only.

A good tax accountant may know how to prepare a tax return in his/her sleep. He knows the forms backwards and forwards. He knows what numbers go on which form perfectly.

But that's it. That's all he/she knows.

A good tax preparer is not necessarily knowledgeable in tax reduction strategies. There's a big difference between a good tax preparer and a savvy tax reduction specialist.

When you look for a good accountant, make sure you find one who doesn't just "do the returns", send out a bill and say "Next, please."

Tax Myth #4: "My tax situation is OK because my BLANK (fill in the blank with a family member or other "good friend") takes care of my taxes."

There are various versions of this myth. Do any of these sound familiar? "My brother-in-law takes care of my taxes." "My uncle takes care of my taxes." "My college buddy takes care of my taxes."

And of course, the same problem exists with Myth #4 as Myth #3. Even when someone you know and trust does your returns, how do you know that this person is a good tax reduction specialist? And often, many of these family members or "buddies" are not even professional tax preparers. This person just happens to be "The Family Accountant. Just like every family has one person who knows a lot about cars (or mutual funds, or carpet cleaning, or whatever), many families have someone who "knows enough to be dangerous" with regard to taxes.

And even if your "Family Accountant" is a professional tax preparer, he's probably not charging you for the return. He's doing you a favor. He prepares your return; you change his oil.

My first reaction to this kind of situation (when someone is getting his/her return prepared for free) is this: You get what you pay for! When a family member does your return "for free", how much attention can he give to your need for tax reduction strategies? Probably very little.

Tax Myth #5: "My tax situation is OK because I prepare my own returns."

If this statement applies to you, then perhaps you are a "do-it-yourself-er". Money is tight and you are used to doing things yourself anyway, so why not save a few bucks each year and do your own returns?

So you've spend countless hours over the years pouring over the forms and instructions, trying to figure out how to do the returns. And you've done OK. No letters from the IRS, no audits. Hey, pat yourself on the back!

And now that tax preparation software is so readily available and affordable, doing your own return is a breeze! Just key in a few numbers here and there, push the print button, and presto, you've got your return done in record time! And now you can even e-file your return with your own computer.

Have you ever heard of the book, "The Millionaire Next Door" (by Thomas J. Stanley and William D. Danko)?

This book describes the common characteristics of millionaires in our country. My favorite millionaire characteristic is this:

Millionaires become millionaires by minimizing their taxes and getting their tax & other financial affairs in order.

Now comes the "Milli

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