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Tax Issues For Self Employed Individuals

(category: Taxes, Word count: 893)
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The United States is a nation of entrepreneurs. There are literally tens of millions of self-employed individuals that enjoy pursuing their dream business. Of course, few of you enjoy the paperwork and confusing tax issues that arise from owning your own business.

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

Schedule C - Form 1040.

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

Home-Based Business

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

Self-Employment Taxes - The Bad News

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

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

Health Insurance Deduction

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

No Withholding Tax

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

Record Keeping

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

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

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Filing Taxes Online Now Stress Free Cost Free

(category: Taxes, Word count: 376)
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For many Americans, the 2005 tax season will tax the nerves, take a lot of time and maybe cost a bundle, too.

Happily, there are ways to make doing taxes a lot faster, stress free and, possibly, cost free.

This is all possible because a tax industry maverick has broken down the barrier to free tax preparation. Customers can now e-file their returns without charge through as well as prepare and print them for free.

A number of good reasons exist for filing your taxes online, including these:

1. It's faster. The software is designed in an easy-to-understand Q&A format. It asks intelligent questions in plain English and sorts out the tax code so that you don't have to.

2. It's easier than preparing your taxes by hand. There's no more erasing or whiting out. TaxACT asks smart questions based on previous answers. Users can also start their return and then save it to pick up again days or weeks later. How convenient.

3. You'll make fewer mistakes. Many programs flag mistakes and incomplete information (including TaxACT).

4. It's less costly. Filing returns online is less expensive than using an accountant. The software can be affordable and even free in the case of TaxACT Standard. Some taxpayers can file online for free at the IRS Web site, but ALL taxpayers can electronically file online for free at

5. Faster refunds. The average return time for e-filers is less than two weeks, whereas it can be months if you mail returns in.

Filing online this way not only eliminates costs associated with completing and filing your returns. The software also contains all of the forms, schedules and worksheets you'll need to prepare your federal tax return quickly and easily.

This year's edition of TaxACT Standard Federal features a simple seven-step process with reliable reference tools and automatic flags for inaccurate information to make the process convenient, speedy and reliable. TaxACT also automatically collects information for state returns, which makes preparing a state return just as fast and easy.

For those requiring extra advice or who have complex tax situations, a TaxACT Deluxe edition includes additional forms and gives more support.

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The Purpose Of Your Accountant

(category: Taxes, Word count: 420)
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Many people are confused about the purpose of accountants given tax software and so on. To get the biggest benefit for the fees you pay, you need to understand what your accountant can do.

The Purpose of Your Accountant

An accountant is a licensed profession who has gone to hell and back to gain their designation as a certified public accountant. The testing for the certification is beyond brutal. If an accountant is certified, it means they are extremely versed in the tax code, finances and tax issues.

Many people are under the mistaken belief that accountants simply provide tax return preparation services. The stereotypical view involves a person dropping off their receipts a month before tax returns are due and the accountant doing the best he or she can to prepare a tax return while limiting the amount of money you owe the government. This occurs, but people are wasting money if this is how they are using their accountant.

Accountants have expertise in the tax code. You should use this. Ideally, an accountant will aware of all aspects of your financial life. They should also be aware of significant events in your private life, such as the fact you are about to have a child. The reason this is important is it gives the accountant the ability to solve your tax mystery.

Solving a tax mystery simply refers to an accountant figuring out the best way to limit your taxes. As you know from police shows on television or mystery novels, finding as many clues as possible is the way to solve the mystery. The accountant needs to do the same with you and you need to help them. Each part of your finances represents a clue to solving the mystery of how to cut your tax bill.

Once an accountant has all the clues, he or she can do their job. They will give you specific direction on the steps to be taken to save money on your tax bill this year. Equally important, they will give you advice on how you are going to save taxes in future years. Depending on your situation, they may even recommend a long-term tax strategy for stuffing away money to pay for your kids' college tuition or your retirement.

The purpose of using an accountant is not just to put tax returns together. They put together tax strategies to save you money this year, the next and throughout your life.

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Top 7 Reasons To File Your Income Tax Returns On Time

(category: Taxes, Word count: 420)
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Here are seven reasons for not being late filing your income tax returns.

1. Avoid Late Filing Penalties

Late filing can result in substantial and continuing penalties. This is in addition to any interest that is due.

2. Receive Better Service from Your Accountant

The earlier you get your paperwork to your accountant, the sooner he can start preparing your tax returns. More importantly, there will be more opportunities to explore and implement tax saving strategies. On the other hand, if you file late, you tie your accountant's hands. For example, he may hesitate to retain profit in your corporation if such profit will be subject to substantial penalties.

3. Avoid Criminal Charges

Of course, if you don't file tax returns at all for a few years, you may also face charges of tax evasion.

4. Prevent Bankruptcy

Generally speaking, persons who don't file tax returns on a timely basis also lack adequate records for managing their business. Since they don't keep their bookkeeping and accounting up-to-date, they only think they know how they're doing and how they stand financially. This, of course, is a recipe for financial disaster.

5. Enjoy Better Relations with Tax Authorities

Late filers also receive the unwanted attention of the taxation departments. Non-compliance can result in audits, aggressive collection action and legal proceedings. In addition, if you ever do have extenuating circumstances that might call for some leniency or extraordinary consideration on the part of the tax department, you are more likely to receive it if you have a flawless history of co-operation and compliance.

6. Obtain Financing

You'll have difficulty obtaining financing if you can't provide your financial institution with current income information. Assessment Notices from taxation authorities give banks more assurance that the income claims you make are true. As well, if you haven't filed your current income tax returns, what hidden tax liabilities exist? What is the state of your record-keeping? How do you run your business without adequate financial information? Your bank may hesitate to loan you money or refinance under these circumstances.

7. Reduce Stress and Worry

Many people who are late filing their tax returns feel guilty about it. At the back of their minds, they worry about taxation authorities contacting them, audits, asset seizures, criminal prosecution, penalties and interest, and so on. Some of these worries can become magnified beyond what the actual situation warrants. Save yourself unnecessary stress by filing your income tax returns on time.

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Income Tax Returns Your Accountant Should Not File

(category: Taxes, Word count: 409)
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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.

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Tax Tips For Real Estate Investors Using Ira Funds

(category: Taxes, Word count: 127)
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You've seen the advertisements and news articles. IRA funds can be used to make real estate investments. But before you jump on this bandwagon, make sure you understand some of the tax planning angles related to this opportunity.

Passive Loss Deductions

Almost always, an important component of your real estate profits comes from the tax savings associated with depreciation. These paper losses, referred to as passive losses by the Internal Revenue Code, can save both small and professional real estate investors thousands of dollars a year in income taxes. Unfortunately, passive losses from depreciation and related, similar tax deductions won't benefit real estate investors investing through IRAs.

Capital Gains Preferences

If you sell an investment for a profit

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Finding Assistance With Your Taxes

(category: Taxes, Word count: 259)
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Organizing your taxes can get quite nerve-racking. This is the main reason why many people would find some assistance in preparing their taxes.

When you file your taxes, you can find someone who can do the job for you. Look for a person who is knowledgeable, an experienced expert with tax specialization. There are actually various available types of assistance from people such as:

1.Tax Preparer

They have good knowledge when it comes to filing taxes. Tax preparers are persons that are highly trained and educated in preparing your tax returns and preparations.

2.Enrolled Agents

Compared to tax preparers, an enrolled agent can show you your taxes with an assessment. They are the "advanced" tax preparers, however the superiority or work and skills differs from agent to agent.

3.Certified Public Accountants

You cannot only use your CPA to prepare taxes for you; they can also help you to keep yourself from paying too much taxes. Their services are very expensive. You have to pay them in an hourly basis ranging from 200 to 300 dollars. However, they are worth the charges because a lot of them are very good. CPA's can give you the ins and outs about taxes. They can provide you ways on how to save on your taxes legally.

In choosing among the three, consider first your finances. If you have reasonably small earnings every year, you do not have to hire someone whose service charge is bigger than your income. Hire someone who is within your budget.

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What You Really Need To Know About Nanny Tax

(category: Taxes, Word count: 170)
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If you are considering hiring a nanny to care for your children then there are a few important considerations about nanny tax which you need to take into account. Read on to find out more.

When it comes to hiring a nanny one of the most important considerations will be the expense. Whilst having a nanny may seem like the best solution to your childcare needs, if you cannot meet the monthly expense it is an option which quickly becomes invalid. You would be forgiven for initially thinking that the weekly expense quoted in most of the articles and advice you find about nanny hire represents the amount of money you need to budget for. In fact, most of the information out there discusses net wage and fails to mention that as the parent of the child you also have to pay tax on top of the usual quoted figure. So what do you need to know about this nanny tax?

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Honda Natural Gas Cars Issued Massive Tax Credits By Irs

(category: Taxes, Word count: 382)
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Between global warming and massive increases in fuel prices, many people are reconsidering their transportation. Honda has two natural gas cars the IRS absolutely loves.

Honda Natural Gas Cars Issued Massive Tax Credits By IRS

In 2005, the federal government passed a new energy policy act that created tax benefits for the use of alternative fuel vehicles. Most people are generally aware of this given the fact they get a tax credit break when they purchase a hybrid vehicle. What fewer people know, however, is they get massive tax breaks if they purchase a natural gas powered vehicle such as a Honda Civic GX.

Buried within the language of the new energy policy act is the Alterative Motor Vehicle Credit. The AMVC goes well above and beyond the financial benefits granted to hybrid cars. The act defines four distinct areas where the IRS must issue significant tax credits. Those categories include fuel cell vehicles, advanced lean burn technologies, hybrid vehicles and alternative fuel vehicles. While most vehicles fall within the hybrid classification, new models are coming on the market that fall within the remaining three.

Indeed, the IRS has just issued the tax credit amounts that can be claimed by individuals that purchase the Honda natural gas models. Specifically, the tax credit amount is $4,000 if you purchase either the 2006 or 2007 Honda Civic GX. The car must be purchased new and directly form a dealer. Please note, these cars run only on natural gas, which is why they get such a big tax credit.

This $4,000 tax credit is a major financial incentive for most taxpayers. Unlike a tax deduction, a tax credit is applied directly to the amount of money you owe the IRS. If you prepare your tax returns and determine you owe $7,000 to the IRS, the tax credit would reduce this amount to $3,000. In short, we are talking about major savings.

There is little dispute that we are facing significant issues related to energy. From global warming to our reliance on foreign sources for fuel, things are pretty bleak. The transition to alternative fuel sources makes sense, and now the tax credit for natural gas powered vehicles makes financial sense as well.

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