Tax Freedom Day

This year Tax Freedom Day arrived on Wednesday, April 23, 2008. What is tax freedom day? That is the day that Americans stop working for the government, and start working for themselves. Just think about it, all the money that you have earned up until last Wednesday, went to pay taxes. Not just federal income taxes, but state income taxes, payroll taxes, corporate taxes, sales taxes and property taxes.

Every year The Tax Foundation calculates Tax Freedom Day. They ask “What price is the nation paying for government?” The answer is shocking. Americans pay more for taxes than for food, clothing and housing combined. About 33% of all income goes towards maintaining the government.

Continue reading “Tax Freedom Day”

Starting a Business? Free Online Classes to Get You Started on the Right Foot

Free Business Classes

There is more to starting a business than having a great idea. Just to get started you need to learn about marketing, taxes, and accounting. Then you will find you want to know more about developing a website, writing a business plan, and how to get federal grants. Hiring employees or contractors opens another can of worms! You could go to college and get your MBA which is expensive and time consuming. You could purchase countless books, and spend hours reading about moving cheese without finding what you need, or you can take advantage of a couple of resources available to anyone with an internet connection. The IRS and the SBA! Yes! Your tax dollars actually provide some useful services. Now is a good time to take advantage of these free business classes and feel like you are getting some benefit from the taxes you are paying.

The Small Business Administration

The Small Business Administration is familiar to most people because of their small business loans. But they also have an excellent online education system. The Small Business Training Center is designed to “enrich, empower, and educate small businesses”. At first I thought this would be full of dry, government issued type courses, but it is not! While many of the courses are SBA courses, several are provided by private enterprises. My favorites are the mini courses provided by Trump University. Yes, you can learn from The Donald for FREE! Topics include “How to Write a Business Plan”, “How to Find Start-Up Funding” and even “How to Start a Business on a Shoestring Budget”.

Business Tax Classes at the Internal Revenue Service

Now that The Donald has filled your head with how to make money, now you need to go over to the IRS site and learn how to hold onto it! The IRS will teach you how to pay less tax. They have a number of different classes on taxation available at all levels. I recommend most business owners start with the Online Small Business Workshop. There you will learn everything you need to know about what taxes your business needs to pay and how to pay them. Then go to the Link and Learn section. This is where the IRS trains its volunteers and you have free access to the same information. There are all levels of tax instruction, plus special sections for military and overseas taxpayers.

Business Classes on TV at Small Business TV

Once the IRS has turned your brain to mush, you can watch news and information about business on SBTV. (Please note this is online TV and the audio starts right away. Be prepared to turn down your speakers!) SBTV has hundreds of videos on business how-tos, news, and business success stories. Today, April 7, 2008 they are featuring Jack Canfield on
7 Ways to Boost Your Business Just by Asking. SBTV also has a whole section on Tech Tactics, Making Technology Work For You After spending the weekend struggling with technology that is sounding like a very interesting topic to me!

Savers Tax Credit for Retirement Savings

One of the lesser known tax credits out there is the Saver’s Credit. A credit is a dollar amount that reduces your taxes. It is better than a deduction, that reduces your taxable income. The Saver’s Credit allows lower to middle income taxpayers to take a credit based on the amount the taxpayer has contributed to a retirement plan. This is in addition to any other benefits you may get from contributing to your IRA or employer’s 401(k) plan. The credit can be as high as 50% of your retirement contribution. So say you Contribute $2,000 to your IRA account during the year. You will get to deduct $2,000 from your income, and that will save you at least $200 on your taxes. In addition, you may qualify for up to a $1,000 Saver’s credit. That is another $1,000 off your taxes. So the $2,000 IRA contribution really only cost you $800. The other $1,200 you would have paid in taxes if you hadn’t put it in your IRA. This is a really sweet deal. Anyone who’s income is under $26,000 if single, or $52,000 if married should look into this credit. And remember, you can make a 2007 IRA contribution as late as April 15, 2008.

Here is more on the Saver’s credit from the IRS.

If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be able to take a tax credit.

The Savers Credit formally known as the Retirement Savings Contributions Credit applies to individuals with a filing status and income of:

  • Single with income up to $26,000
  • Head of Household with income up to $39,000
  • Married Filing Jointly, with incomes up to $52,000

To be eligible for the credit you must be at least age 18, not a full-time student, and cannot be claimed as a dependent on another person’s return.

You may be able to take a credit of up to $1,000 (up to $2,000 if filing jointly) if you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans.

The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.

When figuring this credit, you generally must subtract the amount of distributions you have received from your retirement plans from the contributions you have made. This rule applies for distributions starting two years before the year the credit is claimed and ending with the filing deadline for that tax return.

The Retirement Savings Contributions Credit is in addition to other tax benefits which may result from the retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.

For more information, review IRS Publication 590, Individual Retirement Arrangements and Form 8880, Credit for Qualified Retirement Savings Contributions. The publication and form can be downloaded at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don’t be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

  • Publication 590, Individual Retirement Arrangements (PDF 1401.9K)

  • Form 8880, Credit for Qualified Retirement Savings Contributions (PDF 273.8K)

How to Get Your Economic Stimulus Payment aka Tax Rebate Check

The official title from the IRS is the Economic Stimulus Payment, but most people still call it the Tax Rebate Check and it’s going out to over 130 million US households beginning in May.

3 Simple Requirements

You must have a social security number, an ITIN (individual taxpayer identification number) will not work.

You must have at least $3,000 in qualified income. For your ESp (Economic Stimulus Payment) Social Security Payments, some veterans Benefits, and Railroad Retirement payments count towards the $3,000.

You must file a 2007 Tax Return. This means that many people who would not otherwise file a tax return, because there income is too low, or is not taxable, like Social Security Benefits, should file a tax return this year. This last point is very important. If you think you are not getting a Tax Rebate Check because you are not required to file a tax return, you are wrong! As long as you have at least $3,000 in qualified income you will get a check as long as you file a tax return. If you don’t normally file a return, you should be able to file the short form 1040A which is not too complicated and most can manage on their own.

File a return, even if you are not sure you qualify. If you don’t owe anything it doesn’t hurt to file a return. If it turns out you don’t qualify, you simply won’t get a check. Don’t worry. Filing a return this year doesn’t make the IRS “expect” a return next year.

How Much Will You Get?

If you qualify you will get at least $300 and no more than $600 per person. The exact amount depends on the information on your tax return. Higher income taxpayers will have their ESP reduced or even eliminated. With phaseouts beginning at AGI’s $75,000 for individuals and $150,000 for married couples.

Scam Alert

There is always someone wanting to take advantage. Here is a warning put out by the IRS.
If someone claiming to be from the IRS calls or e-mails you about the payments and asks you for a Social Security, bank account or credit card number, it’s a scam. The scammers are trying to get your personal and financial information so they can empty your bank account, run up charges on your credit card and more. Find out more — see IR-2008-11, IRS Warns of New E-Mail and Telephone Scams Using the IRS Name; Advance Payment Scams Starting.

If you have any questions you can leave a comment with the question, or you can visit the IRS Economic Stimulus Payment website.

Changes in the Tax Law for Your 2007 Return

Today’s guest post is by the Internal Revenue Service. Every year there are changes to the tax code. This year is better than most with only a few changes from 2006.  I really encourage everyone of low or moderate income to look into the Saver’s Credit. If you qualify the IRS will give you a tax credit of up to 50% of what you contribute to a retirement plan.  This includes employer sponsored retirement plans such as 401ks and individual plans such as IRA’s.  The Saver’s Credit can create some major tax savings while helping you to save for retirement. A little known secret is you can contribute to an IRA as late as April 15, 2008 and still take the deduction on your 2007 tax return!

Taxpayers should be aware of important changes to the tax law before they complete their 2007 federal income tax forms. Here are some changes that may affect your return.

  • AMT Exemption Increased for One Year. For tax-year 2007, Congress raised the alternative minimum tax exemption to $66,250 for a married couple filing a joint return. The exemption rises to $33,125 for a married person filing separately and to $44,350 for singles and heads of household. While the vast majority of taxpayers can file as usual, about 13.5 million taxpayers who file any of five tax forms affected by recent tax law changes related to the AMT will have to wait until Feb. 11, 2008, to file their returns. IRS.gov has more information on this important subject, including downloadable copies of affected forms and questions and answers.
  • Extender Tax Breaks Reappear on IRS Forms. Several popular tax breaks, renewed too late to be included on 2006 forms, once again appear as separate items on various 2007 IRS forms. As a result, unlike last year, eligible taxpayers will no longer have to follow special instructions in order to claim the deduction for state and local sales taxes, the educator expense deduction and the tuition and fees deduction.
  • Saver’s Credit. This year for the first time income limits for the saver’s credit are adjusted for inflation. The saver’s credit supplements other tax benefits available to low- and- moderate income taxpayers who save for retirement. Begun in 2002 as a temporary provision, the saver’s credit is now a permanent part of the tax code. Use Form 8880 to claim the credit.
  • Mortgage Insurance Premiums May be Deductible. Some borrowers may be able to deduct mortgage insurance premiums paid on mortgages taken out or refinanced during 2007. The deduction for mortgage insurance premiums is phased out for taxpayers with adjusted gross incomes exceeding $100,000 ($50,000, if married filing separately). Claim this deduction on Schedule A, Line 13. Further details are in Publication 936.
  • New Rules for Giving to Charity. To deduct any charitable donation of money, taxpayers must have a bank record or a written communication from the recipient showing the name of the organization and the date and amount of the contribution. Though taxpayers are already required to keep records to support their contribution deductions, this new provision is designed to provide greater certainty, both to taxpayers and the government, in determining what may be deducted as a charitable contribution. See Publication 526.

More information about the changes can be found on IRS.gov and in various IRS documents, including the Instructions for Form 1040.

Remember that for the genuine IRS Web site be sure to use .gov. Don’t be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.
Links:

Traveling for Business

Hotel in Spain

I love being in business for myself. One of my favorite aspects of being self-employed is that business travel is deductible from my business income. As long as the primary purpose of the travel is business, with a few exceptions, all my travel expenses are deductible. I have visited many US destinations on business, next, I need to find clients in other parts of the world so I can travel there! Is there anyone in Spain who needs a U.S. tax return prepared?

The rules for business travel are fairly simple. If the primary purpose of your trip is business, you can deduct all your expenses to get to your destination, and all your food, lodging, and incidental expenses related to the business purpose of the trip. So for example, if I go to San Diego for a tax seminar and spend 4 days in the seminar, and 2 days visiting friends, then my airfare is 100% deductible, as well as my lodging and food while I was attending the seminar.

It is important to understand that “Primary Purpose” is determined by how much time you actually spent on each activity, not your main reason for taking the trip. So if I had spent 4 days visiting with friends, and 2 days in seminar, then the primary purpose of my trip was visiting friends, and my airfare and other transportation costs are not deductible. I can still deduct lodging and meals for the 2 seminar days and other direct seminar expenses. For travel within the United States, transportation costs are all or nothing. In the example above, I spent 1/3 of my time on business, but I cannot deduct 1/3 of my transportation costs.

For travel outside the United States, the rules are a little different. When traveling for business outside of the United States, if the primary purpose of your trip is business, you can still deduct all your business related lodging food and incidental expenses, but you have some non-business days, then you MUST prorate your transportation costs and the non-business percentage is not deductible. And just like for domestic travel, if the primary purpose of your trip is not business, then none of your transportation cost are deductible. The good news is, for business travel purposes, travel days, certain weekends, and some holidays are counted as business days, even if you are not attending a business event on those days.

Now back to my travel to Spain. When I find my perfect client in Spain, I am going to want nice lodging at an affordable price. While searching the internet I found a site for Holidays in Spain. There I found that Granada, in the south of Spain, is one of the best tourist destinations. In Granada you can find the Alhambra, a Moorish Citadal and palace. Seville, is the artistic, cultural, and financial capital of Southern Spain. In Seville you can find City’s Cathedral which is one of the largest of all Medieval and Gothic cathedrals. And in Malaga you can find Gibralfaro castle which provides stunning views of the city.   I think it might be nice to attend a tax seminar in a nice Spanish Castle!

Resources:

Seville Hotels   Granada Hotels   Malaga Hotels

As always, this article is intended as just general information and may not apply to your particular tax situation. Please consult with a tax professional (preferably an Enrolled Agent) about your particular tax situation.

Free Online Tax Filing

pic of tax forms If you are going to do your taxes yourself, (and I can think of a lot of reasons why you should not!) why pay for tax preparation software? There are a number of online sites that will allow you to prepare and efile your federal tax return for free…if you meet certain criteria.

Side note:If you don’t qualify for free tax preparation, and you don’t want to pay me to do your taxes, at least click on the link below to receive both Turbo Tax and Quicken for as little as $30! This offer is good until April 15.

Buy Quicken and TurboTax Bundle & Save up to $25 + Free Shipping!

Now back to doing it for free.

If your gross income for 2007 is under $54,000, you may qualify to have your taxes filed for free with a number of different online tax preparation websites. If you need a state tax return done, most of the sites will include state tax preparation for a small fee. All sites include free e-file.

I will highlight a few of them here, but you can see the whole list at the IRS website. It is important to note, I am not providing links to the companies, because to get the best free file deal you need to access them through the IRS website. Going directly to the company website may cost you money!

A few of the big name companies are there, including Turbo Tax, Liberty Tax Service, and H&R Block’s Tax Cut. Names familiar to professional tax preparers include Tax Act and Tax Slayer, and FileYourTaxes.com.

In addition to free filing of your federal return, Liberty Tax Service offers state return filing for $9.95 each. If you don’t qualify for the free file, the federal return is also just $9.95

Turbo Tax is a little more restrictive, with free Federal Tax Preparation for only those with incomes below $30,000 or Active Duty military. They do offer free state filing for some states. If your state is one they don’t do for free, the cost is $9.95. They have a variety of options for those that don’t qualify for free filing starting at $14.95.

The H&R Block free tax site offers interview only service. To include a state return is $29.95.

In some of the lesser known companies there are some good deals. Online taxes has state returns for just $7.95. If you don’t qualify for the free file Federal taxes are also just $7.95. They also offer free telephone support.

Tax$imple is also a good deal with $7.95 state returns and if you don’t qualify for the free file the federal return is just $9.95.

Why are companies offering free filing? In addition to being listed on the IRS website, they are hopeing to sell you “value added services”. Often the free filing versions are very stripped down models of their paid filing products. They hope that once they get you started on your tax return you might decide to pay for some extra services.

Research the companies carefully to choose the firm that is best for you. Note that some companies may have slowdowns during high traffic times, particularly in early February and April. Don’t wait until the last minute to file your return. Chances are good that all these sites will have heavy loads on April 15. You don’t want to be in the middle of preparing your taxes when their servers go down! Make sure to make a copy of your tax return, and keep a backup on your computer.

Would you like to have your tax returns double checked? If you prepared your returns yourself, or even if you had them prepared for you, get a second opinion. I will review your tax return for errors, and offer tax saving advice for future returns starting at just $29.95. Your information is completely confidential and will never be used for any purpose other than the services you have requested. For tax return review just email your contact information and your tax return as a PDF attachment to: taxreview@mycfoonthego.com . I will get back to you with an exact price for review plus information on how to send payment within 2 business days. Satisfaction guaranteed. For more information on Kathleen please click the About Kathleen tab at the top of the page.