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Irs Simplifies Reporting Requirements For Corps And Shareholders

(category: Taxes, Word count: 393)
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The IRS is heavily promoting electronic filing options. This promotion has run into problems with corporations because of complex regulations. The IRS is now moving to correct this problem.

IRS Simplifies Reporting Requirements for Corps and Shareholders

Corporate tax filings are legendary for their complexity, number of forms that must be filed and general burden they create. Large, publicly traded corporations make every effort to file the proper forms, but the burden is such that when all is said and done, one corporation reported it had to file the equivalent of three tax forms for every working hour of the year. For small corporations and shareholders, the burden is not much less.

Given this massive tax burden, the idea of a corporation filing electronic tax returns is laughable. The IRS has finally realized as much. In response, it is making an effort to simplify or do away with regulations. In fact, the service has changed over 20 different regulatory groups to massively simplify a variety of tax situations.

One area of simplification has to do with the transfer of interest in certain types of corporate share transfers. Known as a section 351 transfer, the regulations previously required both the corporation and shareholder to file up to 18 different information items. Yes, 18! To simplify this mess, the IRS is now requiring the filings only for individuals that own more than five percent of a publicly traded company or one percent of a private company. Those still required to file will now only have to provide very basic information. This is a vast improvement on the old system.

One of the big red tape problems for corporate and shareholder filings is a simple one. The IRS has historically required everything to be physically signed by certain shareholders. This was essentially a method for forcing shareholders to come forward regardless of the corporate planning being done. The IRS is now de-emphasizing the signature requirements and allowing the same forms to simply be filed electronically. It sounds like a small thing until you go through the experience of sending a form to 15 different shareholders around the country.

The effort of the IRS to simply corporate and shareholder filings should be applauded. It is a small step in dealing with a large problem.

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Depreciate Property Improvements Correctly With Cost Segregation

(category: Taxes, Word count: 956)
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Most commercial building owners are grossly overpaying federal income taxes because they are not depreciating their property as quickly as they should. A cost segregation study allows property owners to both defer and reduce federal income taxes. When properly performed by an appraiser with expertise in cost segregation, this is a conservative tax planning tool which reduces federal income taxes by properly allocating the cost basis between land, 5-year, 7-year, 15-year, 27.5-year and 39-year property.

Cost Segregation Study Benefits

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

Detailed Example

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

Who Benefits from a Cost Segregation Study

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

Decreasing and Deferring Federal Taxes

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

When Should You Obtain A Cost Segregation Study

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

Elements of Preparing a Cost Segregation Study

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

Does this only apply to large owners?

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

Qualifications to Consider when ordering a Cost Segregation Report

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

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Giving Your Car To Charity The New Tax Rules

(category: Taxes, Word count: 375)
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The IRS has changed the regulations on donating vehicles to charities. If you donated a car last year, you need to read the following to understand the new rules.

Giving Your Car to Charity - The New Tax Rules

Millions of people donate cars, boats, RVs, motorcycles and many other forms of transportation to charities each year. While doing a good thing is one motivation, reaping a sizeable tax deduction is also a motivating factor. Unfortunately, the IRS has concluded that more than a few people were deduction very optimistic values for their cars. Instead of auditing everyone, the IRS simply changed the deduction rules for vehicle contributions to charity.

If you donated a vehicle of any sort to a qualified charity, but claimed less than $500 as a deduction, you can stop reading. The rule changes don't apply to such situations. If you are claiming a deduction in excess of this amount, read on.

The new IRS regulations are pretty simple to understand. If you donated a vehicle to a qualified charitable organization, the amount you can deduct is the exact dollar value the charity receives when it resells the vehicle. Put another way, you can no longer claim the blue book value of the car. The IRS wants to know what it was really worth, not what it would be worth if you hypothetically repainted it, got new tires, rebuilt the engine and so on.

Charitable organizations are more than aware of the new regulations and they will more or less take care of everything for you. To donate a car, you simply arrange for delivery to the charity. The charity will then resell the car at some point in time. The organization will then will send you correspondence detailing the gross proceeds from the sale of the vehicle.

This correspondence should, but is not required to, come to you as Form 1098-C. Yes, another form. Simply take the deduction for the gross proceeds on Schedule A and attach the Form 1098-C to your tax return. If the charity sends you a written letter, attach that to your tax return.

While the above may sound overly burdensome, it really isn't.

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Irs Simplifies Reporting Requirements For Corps

(category: Taxes, Word count: 389)
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The IRS is heavily promoting electronic filing options. This promotion has run into problems with corporations because of complex regulations. The IRS is now moving to correct this problem.

IRS Simplifies Reporting Requirements for Corps

Corporate tax filings are legendary for their complexity, number of forms that must be filed and general burden they create. Large, publicly traded corporations make every effort to file the proper forms, but the burden is such that when all is said and done, one corporation reported it had to file the equivalent of three tax forms for every working hour of the year. For small corporations and shareholders, the burden is not much less.

Given this massive tax burden, the idea of a corporation filing electronic tax returns is laughable. The IRS has finally realized as much. In response, it is making an effort to simplify or do away with regulations. In fact, the service has changed over 20 different regulatory groups to massively simplify a variety of tax situations.

One area of simplification has to do with the transfer of interest in certain types of corporate share transfers. Known as a section 351 transfer, the regulations previously required both the corporation and shareholder to file up to 18 different information items. Yes, 18! To simplify this mess, the IRS is now requiring the filings only for individuals that own more than five percent of a publicly traded company orone percent of a private company. Those still required to file will now only have to provide very basic information. This is a vast improvement on the old system.

One of the big red tape problems for corporate and shareholder filings is a simple one. The IRS has historically required everything to be physically signed by certain shareholders. This was essentially a method for forcing shareholders to come forward regardless of the corporate planning being done. The IRS is now de-emphasizing the signature requirements and allowing the same forms to simply be filed electronically. It sounds like a small thing until you go through the experience of sending a form to 15 different shareholders around the country.

The effort of the IRS to simply corporate and shareholder filings should be applauded. It is a small step in dealing with a large problem.

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Tax Changes You Should Know For 2005 Returns

(category: Taxes, Word count: 524)
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Every year, you have to file tax returns and every year there are changes to the tax code. Here are some key changes for 2005 to keep in mind when you prepare returns.

Tax Changes You Should Know for 2005 Returns

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

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

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

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

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

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

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

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

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Should You Pay Taxes Or Not

(category: Taxes, Word count: 450)
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The first attempt to impose an income tax on America occurred during the War of 1812. After more than two years of war, the federal government owed an unbelievable $100 million of debt. To pay for this, the government doubled the rates of its major source of revenue, customs duties on imports, which obstructed trade and ended up yielding less revenue than the previous lower rates.

And to think that the Revolution was started because of Tea Taxes in Boston?

Excise taxes were imposed on goods and commodities, and housing, slaves and land were taxed during the war. After the war ended in 1816, these taxes were repealed and instead high customs duties were passed to retire the accumulated war debt.

What is Taxable Income?

The amount of income used to arrive at your income tax. Taxable income is your gross income minus all your adjustments, deductions, and exemptions.

Some specific taxes:

Estate Taxes:

One of the oldest and most common forms of taxation is the taxation of property held by an individual at the time of death.

The US still has Estate Taxes, although there are proposals to do away with them.

Such a tax can take the form, among others, of estate tax (a tax levied on the estate before any transfers). An estate tax is a charge upon the deceased's entire estate, regardless of how it is disbursed. An alternative form of death tax is an inheritance tax (a tax levied on beneficiaries receiving property from the estate). Taxes imposed upon death provide incentive to transfer assets before death.

Canada no longer has Estate Taxes.

Most European countries have Estate Taxes, one prime example is Great Britain which has such high Estate Taxes that it has just about ruined the financial well-being of most of Britain's Nobility which has been forced to sell vast Real Estate holdings over time.

. Such a tax can take the form, among others, of estate tax (a tax levied on the estate before any transfers). An estate tax is a charge upon the decedent's entire estate, regardless of how it is disbursed. An alternative form of death tax is an inheritance tax (a tax levied on individuals receiving property from the estate). Taxes imposed upon death provide incentive to transfer assets before death.

Capital Gains Taxes

Capital Gains are the increases in value of anything (including investments or real estate) that makes it worth more than the purchase price. The gain may not be realized or taxed until the asset is sold.

Capital gains are normally taxed at a lower rate than regular income to promote business or entrepreneurship during good and bad economic times.

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Wise Tax Ideas

(category: Taxes, Word count: 487)
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Most people don't really look forward to filing their tax returns and paying their taxes. As it is, there really isn't much to look forward to because it is a tedious process that can take weeks to complete. Some people even have the bad luck to raise the interest of the IRS. The trouble is, most of these people's mistakes are not intentional. They just lack proper tax preparation, and in all probability, must have rushed through the filing process. Lack of preparation and attention to detail are the most common faults of people who often get flagged by the IRS. Let's face it. Even if audits are not criminal in nature, they are embarrassing and distressing events people can do without.

Filing accurate tax returns and paying correct taxes are not impossible with the right preparation and a good headstart. A good headstart is important in filing because taxpayers get more lead time to organize and prepare the necessary documents. Even if there are lots of tax software available, it is a wise idea to allot a significant amount of time in reviewing past returns, current returns applications, and tax laws. Tax laws are dynamic; they can be changed or revised between the last tax season and the one coming up. There might be some important things in the revised policies that can affect your returns and deductions. Pleading ignorance of the new policies are not acceptable to the government and the IRS because everybody is presumed to know the law. Taxpayers are recommended to review their current applications especially if they've been audited before. According to the IRS, taxpayers repeating audited mistakes are not uncommon. Speaking of mistakes, "forgetting" additional income sources is the predominant mistake most people make. The IRS also compares issued forms against reported income on the returns for disparity. Still on the issue of disparity and comparison, returns are checked for names and SS numbers so they must mirror those in the SS records. Wrongly issued forms must be returned and reported to the issuer for corrections.

Wrong sums are also common mistakes due to rushing. Though tax software is usually thought of as a late taxpayer's savior, early filers can use this software to check their computations. Tax charges can usually be avoided by printing correct sums on returns. Taxpayers are encouraged to file their returns even if their current financial situation makes them unable to pay their taxes. Installment payment is an option that IRS offers. Tax matters are sensitive and can be subjected to random auditing. It is advised that taxpayers keep and file their returns of six years at the very least for reference if ever they are called for auditing. Lastly, since the agency is the one who gets burdened by tax problems, the IRS is open to giving assistance to taxpayers. With proper preparation, filing tax returns can be an easy process.

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1099 Misc Forms For Independent Contractors For 2005

(category: Taxes, Word count: 453)
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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.

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Your Irs Tax Appeal Rights

(category: Taxes, Word count: 370)
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Are you in the middle of a disagreement with the IRS? One of the guaranteed rights for all taxpayers is the right to appeal. If you disagree with the IRS about the amount of your tax liability or about proposed collection actions, you have the right to ask the IRS Appeals Office to review your case.

During their contact with taxpayers, IRS employees are required to explain and protect these taxpayer rights, including the right to appeal. The IRS appeals system is for people who do not agree with the results of an examination of their tax returns or other adjustments to their tax liability. In addition to examinations, you can appeal many other things, including:

1. Collection actions such as liens, levies, seizures, installment agreement terminations and rejected offers-in-compromise,

2. Penalties and interest, and

3. Employment tax adjustments and the trust fund recovery penalty.

Internal IRS Appeal conferences are informal meetings. The local Appeals Office, which is independent of the IRS office, can sometimes resolve an appeal by telephone or through correspondence.

The IRS also offers an option called Fast Track Mediation, during which an appeals or settlement officer attempts to help you and the IRS reach a mutually satisfactory solution. Most cases not docketed in court qualify for Fast Track Mediation. You may request Fast Track Mediation at the conclusion of an audit or collection determination, but prior to your request for a normal appeals hearing. Fast Track Mediation is meant to promote the early resolution of a dispute. It doesn't eliminate or replace existing dispute resolution options, including your opportunity to request a conference with a manager or a hearing before Appeals. You may withdraw from the mediation process at any time.

When attending an informal meeting or pursuing mediation, you may represent yourself or you can be represented by an attorney, certified public accountant or individual enrolled to practice before the IRS.

If you and the IRS appeals officer cannot reach agreement, or if you prefer not to appeal within the IRS, in most cases you may take your disagreement to federal court. Usually, it is worth having a go at mediation before committing to an expensive and time-consuming court process.

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