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Overview Of The Almighty Tax Deduction For Small Businesses

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Taxes are the great bane of most businesses. Alas, tax deductions act as a salve to cool the burning and itching of your bank account.

Overview of the Almighty Tax Deduction for Small Businesses

The tax system in the United States is an undeniable mess. With tens of thousands of pages of laws and regulations, the phrase cruel and unusual comes to mind when it is time to pay your taxes. President Jimmy Carter called the system a disgrace to the human race. Albert Einstein said the tax system was the hardest thing to understand in the world, much harder than physics. The system is such a mess, that some large corporations file one tax form every four minutes! The only way to fight the good fight against taxes is to understand and maximize deductions.

Business taxes can be summarized simply as calculating your total revenue, reducing this amount by as many deductions as you can and then paying tax on the remaining amount. Obviously, this represents a major simplification, but I offer it highlight the importance of deductions. They act as your lifesaver when you are floating in the ocean of tax codes and regulations.

Most people get caught up in the finite issues of tax deductions and miss out on deductions. To this end, it is important to understand the theme for deductions for small businesses. When considering whether an expense is a deduction, you should ask yourself the following:

1. Did it occur as part of my small business?

2. Was it an ordinary expense associated with my business?

3. Was it a necessary expense?

Many people ask for a more specific of an "ordinary" expense. Alas, the tax code is vague, but this typically means an expense that another business in your industry would also claim. Admittedly, it is a vague term, but you will just have to determine how comfortable you are with claiming the deduction.

The second area people get confused with is the "necessary" element of the test. Alas, the IRS has been kind enough to help us out here. A necessary expense is one integral to the development and maintenance of your business. Okay, the IRS hasn't helped much, but it is a guideline of sorts.

In many situations, small businesses can be fairly aggressive with their deduction claims. If audited, it important that you be able to state why a claimed deduction is an ordinary and necessary expense of your business. While obvious deduction such as business cards can be claimed, these vague definitions give you lots of wiggle room in other areas.

How aggressive should you be in claiming tax deductions? It really depends on your comfort level. The more aggressive you are, the more you should consider getting some professional CPA help to back up your claims.

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Irs Warning Taxpayers About New Email Scams

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If you have an email account, you know about all the scam emails you get. Scammers are getting braver and using the IRS name in their new tactics.

IRS Warning Taxpayers About New Email Scams

The IRS has begun warning taxpayers that it is seeing a surge in tax scam emails. Many of the emails even have the hubris to use the IRS name! Brave souls, indeed. Regardless, the scams seem to fall in the area of identity theft through phishing tactics.

First and foremost, you should understand that the IRS does NOT send emails to taxpayers. Never, never, never! If you get an email from the IRS, it is a fake. Unconditionally! Do not respond to it under any circumstances. Do not click links in the body of the email. Take one action and one action only - delete it!

Since the turn of the year, the IRS has identified 99 new email scams targeted at taxpayers. All of the scams are aimed at bilking you out of your private information. Most try to do this by claiming your must provide information or your will not receive your tax refund. In some cases, the fake emails threaten you with an audit. Again, this is all false information.

Many people fall victim to the IRS scam emails because they click through to the site linked in the email. There, they find a site that appears for all intensive purposes to be the one published by the IRS. Make no mistake - this means nothing. Anyone can copy and republish a site. Yes, even the site of the IRS. It is pretty scary when you think about it. Best Buy, in fact, had major problems with this for some time.

So, where are these scammers? It should come as no surprise that few in the boundaries of the United States would have the nerve to try this. Instead, the IRS has tracked most of the scamming emails to other countries, but not necessarily the usual suspects. The countries include England, Italy, Japan, Germany, Australia and Singapore. Usual suspects include China, Aruba, Mexico, Indonesia and Argentina. Surprisingly, only a few have originated from the scam mecca of Nigeria.

The best way to beat scammers is to know the facts. The IRS does not communicate in any way with taxpayers by email. If you get an email purportedly from the IRS, it is a fake. If you have a nagging doubt, call the agency to find out if anything is up. Otherwise, delete that email!

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Maximize Your After Tax Returns

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If you want to minimize receiving taxable distributions from mutual fund investments, tax-efficient funds should be considered for your investment portfolio.

In tax-efficient investing, the focus is not on what you earn but what you are able to keep. The objective is to produce the best after-tax returns. Such mutual funds apply to investments outside of IRAs, 401(k)s and other tax-deferred accounts.

According to the global investment management firm T. Rowe Price, tax-efficient mutual funds are becoming more and more popular despite recent cuts in tax rates.

Nobody likes to think about taxes, after all. And investors who want to minimize taxes are forced to think about them constantly: They have to monitor their portfolio holdings, distributions and potentially extensive transaction records.

However, Don Peters, who manages several tax-efficient portfolios at T. Rowe Price, says tax-efficient investing means more than just avoiding taxes.

"Successful tax-efficient investing is building and managing a portfolio of securities that you can hold for the long term and that can generate good long-term after-tax performance," he said.

There are some misconceptions about tax-efficient investing, however. For one, some believe that you should avoid buying the stocks of companies that pay dividends, which will then be taxed. It's not that simple, Peters says.

Another misconception is that investors should never sell their holdings, thereby avoiding paying a sizable capital gains tax. Peters says investors should not let "tax phobia" interfere with smart investment decisions.

"The selling decision can be very difficult, particularly if you have a sizable unrealized capital gain," Peters said. For a realistic tax-efficient investment strategy to make sense, he said, gains should be minimal but not zero.

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Will The Estate Tax Ever Go Away

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The "Estate Tax" is the tax that the government puts on the assets that are transferred to your beneficiaries when you die. Taxable assets can include real estate, stocks, money in a bank account, and other valuable belongings. It does not look like the estate tax will permanently go away. However, with careful planning, you can reduce taxes substantially.

Americans have been planning their estates in accordance with the Economic Growth and Tax Relief Act since 2001. This Act is important because it changed 441 tax laws and was the biggest estate tax reduction in 20 years. Here is an overview of what the Act covers:

Lower Tax Rate

The Act lowers the tax rate on the following taxes:

1) The marginal estate tax; the tax levied on your estate when you die. Note: This tax can be a burden on heirs if you die and leave behind assets for them, but no monetary funds to cover the tax on that asset. For example, if you leave behind a home, the government might tax up to 55% of its value. Your heirs will have to find a way to pay those taxes if he or she wants to keep it. The Act's lower tax rate helps to decrease the amount of taxes on assets such as your home so that your heirs are not overburdened, or forced to quickly sell the asset at a low price so funds to pay taxes are available.

2) The generation skipping transfer tax (GST); the tax break given to you if you are transferring assets to a grandchild or great-grandchild.

3) The gift tax; the tax levied on assets that are given away as gifts before you die.

Increased Asset Transfers

The Act increases the amount of assets that can be transferred at death without the estate or generation-skipping tax.

Temporary Tax Repeal

In the year 2010, the generation skipping tax will be repealed. This repeal means that grandparents can gift portions of their assets directly to their grandchildren and great grandchildren without having to lose a portion of those assets to taxes.

For the year 2010, the estate tax also will be repealed for one year. If you die in the year 2010, you can give your entire estate to your heirs without having to worry about paying any taxes. However, if you die in 2011, only $1 million is eligible to be passed on to your heirs without being taxed.

Because the estate tax will not be permanently repealed within the foreseeable future, it is important that you plan your estate so that your desires can be carried out in the most efficient manner, regardless of the year of your death.

Understanding the complicated tax system can be a challenge for someone not versed in tax law. If you are planning your estate protection and distribution, we recommend meeting with an attorney. Your attorney can walk you through the steps needed to ensure that your heirs receive as much of your assets as possible.

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Uneducated Tax System V Educated Tax System

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The line under your income on your pay stub is where these two systems differ. With the uneducated tax system, you deduct the three lines under your income and the remainder is what you receive. With the educated tax system, the first line is your reported income as with the uneducated tax system. However, the second line is the money you spent on the business, and you pay taxes on what is left. This is because when a business spends money it is called a business expense or tax deduction. Therefore, having your own business and being in the educated tax system, you can reduce your taxes by 40-70%. To break this down even further: If you are making $35,000 a year this could save you up to $10,000. That means it does not matter if you are making millions of dollars or a few thousand dollars. These strategies apply to you! A marginally profitable business can become a thriving business by applying these strategies.

A case study: One of my students, Stephanie, was making $50,000 a year. She took these strategies to her CPA who had been working with her families for years and always had her best interest in mind. He replied that although this program sounded interesting, he was already utilizing every deduction available able to her. Stephanie's CPA agreed to participate in a conference call with me at Stephanie's request. Stephanie's CPA explained that she was paying $12,000 in taxes. While this was much less than the average person, she could have been paying even less. I introduced three strategies: helping her to reduce her FICA, deducting her healthcare, deducting education (both her and her daughter's). We were able to reduce her total taxes paid to $800. In 15 minutes and with only three strategies, we were able to save her over $11,200!

I have had students save well over $100,000. Just think what you could do with that money!

We can start by converting your largest expenses into business expenses. We can teach you lesser known deductions (e.g. travel and entertainment, medical, seminars, books, etc.) and shift them over to business expenses. You pay them with pre-tax dollars and not after-tax dollars, reducing your taxable income.

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Tax Debt Help Where To Find It

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Are you in debt? Is the Internal Revenue Service breathing down your neck and threatening your livelihood? Do not be overwhelmed by tax debt as there are ways for you to solve your tax debt problems and keep the tax collector far away. Read on for some helpful advice.

A Little Bit of Equity. If you own your home, you could have a significant amount of equity in it, especially if you have lived in it for more than five years. Through your bank or similar lending institution you can apply for an equity line of credit or equity loan. Just with this amount of borrowed money, you may be able to obtain enough funds to cover your tax debt and penalties. Current rates are still low - shop the internet for the plan that is right for you.

Sell Some Valuables. Your antique desk or chair, stamp collection, jewelry, or even an extra car may have considerable cash value to it. Turn what you own into cash; get on eBay to post your item[s] and to obtain multiple bids on what you are attempting to sell.

Friends and Family Plan. Swallow your pride and ask trusted family members and friends for help. To keep everyone happy, only accept money if a contract outlining explicit repayments terms is used. Check the internet for sample forms.

Get in Touch with the I.R.S. Talk about making a deal with the devil! Seriously, if you owe the Internal Revenue Service money and you cannot pay them back, contact them directly to arrange a repayment plan that works for you. No, they won't forgive your tax debt, but they can spread out repayment over an acceptable timeframe. Just remember this: any unpaid balance will incur interest charges and further late payments by you will likely involve additional penalties. Read all the "legalese" before signing anything!

Finding tax debt help is the first step in tackling your problem. Ignoring the problem won't make it go away and may worsen an already bad situation.

Once you have a plan in place, contact your county's consumer affairs division for free debt counseling. Chances are your tax debt problem is only the tip of the iceberg and further help will be necessary to educated you on how to avoid future mistakes.

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Don T Delay In Managing Irs Tax Debt

(category: Taxes, Word count: 613)
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Debt Resolution, IRS Settlements Offer Help for Serious Tax Problems

San Mateo, Calif., - With tax day behind us, consumers and business owners who owe the IRS are not out of the woods. But while death and taxes are the big two inevitabilities, those with serious tax problems should know that it is possible to negotiate with the IRS to reduce past-due tax penalties and payments, according to Bradford G. Stroh, co-founder and CEO of Freedom Financial Network, LLC.

Americans, carrying more debt than ever, are also more likely to have tax problems than in the past. In 2004, the total of uncollected IRS taxes reached upwards of $250 billion. The number of levies (a key enforcement tool in which the IRS takes possession of assets to collect on unpaid taxes) topped 2 million during fiscal year 2004 - a 21 percent increase from 2003 and triple the 2001 number.

According to Stroh, taxpayers with tax debts under $10,000 usually can manage the payment on their own or via an installment plan arranged with the IRS. "Tax problems merit professional help when individuals cannot pay tax liabilities of $10,000 or more," Stroh says. "At that point, specialists can negotiate directly with the IRS on behalf of these consumers, helping them obtain settlements."

Tax relief specialists usually are attorneys or certified public accountants with special training and experience. Stroh explains that these experts can navigate the intricacies of IRS forms and calculations, help consumers understand the criteria the IRS imposes, and then help them get back into good standing with the IRS.

Depending on the severity of an individual's situation, two types of IRS settlement are available:

An offer in compromise reduces the principal amount owed to the IRS.

An installment agreement is a payment plan for the amount due and often includes reduced penalties.

"Remember that you cannot let overdue taxes languish," Stroh warns. "The IRS is serious - and increasingly aggressive - about tax collection and evasion. Tax debt can result in a lien on a house or garnished wages."

Advisors can help consumers with the following steps:

Evaluate the situation and determine the amount of taxes owed to the IRS.

Ascertain whether the situation meets IRS standards for "doubt as to collectability" (i.e., unable to pay the full tax burden), "doubt as to liability" (i.e., consumer might not owe the tax), or "economic hardship."

Establish the full amount owed, including taxes, penalties and accumulated interest, and understand whether collection limitations or penalty cancellations are possible.

Determine the best method for managing and eliminating the tax debt.

Negotiate with the IRS to settle on an agreed course of action and resolve the debt.

While facing and handling tax debt can be painful, last year's bankruptcy reform legislation made it even more crucial for consumers to act. Historically, consumers in severe IRS debt might file for Chapter 7 bankruptcy protection or wait for the 10-year statute of limitations on tax liability to expire. Now, people are much more limited in the ability to obtain Chapter 7 filings. The bill's new "means test" leads many consumers instead to file Chapter 13 bankruptcy, which establishes a repayment plan, rather than wiping out all debt. Consumers with tax debt may find it much less costly and simpler to work with a debt resolution firm's tax relief service, which allows individuals to set up tax payment plans while avoiding court fees, attorney fees and bankruptcy judgments on their records.

"Whatever means you choose, tax season means it's time to face the inevitable and manage your tax burdens," Stroh says. "Fortunately, experts are available to help you along the way."

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Finding Energy Tax Credits For Homeowners

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Homeowners who purchase high-efficiency heating and cooling equipment may benefit from legislation recently signed into law.

Last August, President Bush signed the Energy Policy Act of 2005. The act includes the home- energy efficiency tax credit, which offers homeowners as much as $300 in tax credits with the purchase of qualified high-efficiency heating, cooling and water-heating equipment. The legislation defines the type of equipment and the amount of the credit in this way:

(*) High-efficiency gas, oil and propane furnaces and boilers: $150

(*) High-efficiency central air- conditioning units, including air-source and ground-source heat pumps: $300

(*) High-efficiency fans for heating and cooling systems: $50

(*) High-efficiency water heaters, including heat-pump water heaters: $300.

Manufacturers and retailers should be able to tell homeowners whether a specific product qualifies for a tax credit. Qualifying efficiencies identified in the bill include:

(*) Furnaces and boilers: Annual Fuel Use Efficiency (AFUE) of 95 or higher;

(*) Central air-conditioning units: Seasonal Energy Efficiency Ratio (SEER) of 15 and an Energy Efficiency Ratio (EER) of 12.5;

(*) Air-source heat pumps: Heating Seasonal Performance Factor (HSPF) of 9 or greater, SEER of 15 or higher and EER of 13 or higher.

In addition to providing tax savings, these high-efficiency products will make it easier for homeowners to reduce energy consumption and lower their energy bills. To qualify for the tax credits, homeowners will need to verify the efficiency of the equipment and the date when it was placed in service. The equipment must be installed between January 1, 2006 and December 31, 2007.

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Identity Theft Impacting Your Taxes

(category: Taxes, Word count: 358)
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If your identity is stolen, your finances can quickly become a nightmare. A less obvious problem is the effect identity theft can have on your taxes.

Identity Theft

Generally, thieves steal your personal data for the purpose of running up credit card charges or opening and abusing new accounts. A developing trend in the identity theft field concerns schemes impacting your taxes.

Selling Social Security Numbers

Identity thieves have created a new line of business - selling your social security number. Who would want to buy it? The list is surprising long, but undocumented workers, individuals with bad credit and people trying to obtain a new identity lead the list. This can create a huge problem for you since any income paid to those individuals is reported to the IRS as being paid to you. This results in the IRS having inflated income numbers and, often, audits when you "under report" your income.

With the creation of the Real ID Act, better known as the National ID Card, things will only get worse. Under the Act, all workers will be required to submit social security numbers to obtain jobs. With our leaky borders, there will be a high demand for your social security number.

False Tax Filings

It doesn't take much to file a tax return. What's to stop an identity thief from filing one under your name to generate a refund? Nothing. To generate the maximum refund, you can be all kinds of frivolous deductions will be claimed. After all, it will be you that has to attend the audit.

What Can I Do?

If you receive a notice from the IRS that leads you to believe someone may have used your Social Security Number fraudulently, you should notify the IRS immediately. Indicators can be found in notices from the IRS that state:

1. More than one tax return for you was filed, or

2. IRS records indicate you received wages from an employer unknown to you.

Don't hesitate or be nervous about contacting the IRS. The agency knows this is a growing problem and not an "opportunity" to pound on taxpayers.

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