Giving To Charities – Tax Deductions and Such

The tax code in the United States contains many provisions to promote certain behavior. One area of behavior is the promotion of giving to qualified charities.

Giving To Charities – Tax Deductions and Such

In the rush to get tax returns prepared and filed, many people absentmindedly forget to include deductions for contributions to charities. If you itemize deductions on your tax return, this can be an expensive omission.

Pursuant to relevant provisions of the tax code, you can take significant deductions if you donate money or goods to a qualified charity.

A qualified charity is one that is registered with the IRS as a 501c3 entity. The 501 designation refers to the relevant section of the tax code.

Importantly, not all charitable organizations are qualified with the IRS. You can go to the IRS web site and search through a list to see if a particular group is included. If they are not, red flags should go be raised.



Before claiming your deduction for donations, there are a couple of things to keep in mind:



1. Politics – You may feel strongly about certain political ideologies, issues or candidates. You can contribute to the causes, but you can’t deduct the contributions as charitable giving.



2. You can only deduct contributions actually made for the year in question. If you forgot to claim donations on your tax return for the 2004 year, you cannot claim them on a 2005 return. Instead, you should go back and amend the 2004 return.



3. If you make a contribution for a good or service, you can only deduct the amount you contribute which is in excess of the fair market value of the good or service. For instance, many charitable groups will hold auctions to raise money. If your winning bid for a two night hotel stay is $800, you can claim a deduction for the bid amount minus the normal cost. You cannot just write off $800.



4. In general, donations of stock or property should assigned the fair market value, not an arbitrary figure based on your opinion. Big ticket items should be supported with an appraisal.



5. The rules for donating automobiles have changed. The charitable group should have sent you correspondence regarding the amount it was able to sell the vehicle for. This is the amount you can deduct, not the blue book amount previously allowed.

If the charity has not sent you anything, call them to get written confirmation. They know it has to be done under new IRS regulations.

Donating to charities is positive moral step. Make sure to claim your deductions to reap savings on your taxes.

Getting The Biggest Benefit From Tax Help

Taxes are a way of American life. They are own duty to pay and file. Many people go in search of someone to help them when tax time rolls around. Tax help seems to be in abundance from January 1st to April 15th. Unfortunately, some tax help is best avoided. Other times the tax help is something that many people have no idea how to find.

Getting the biggest benefit from tax help depends why you need help in the first place and where you get that help.

Most people seek tax help because they simply can not figure out he complicated tax codes. Every year it seems something has changed and people fear doing something wrong on their taxes and ending up in trouble with the IRS. Many people look at tax help as a way to guarantee an accurate and correct tax return.

They also believe they will be able to get more deductions and credits this way, which equals a larger tax return. Unfortunately most of this depends on where you chose to get your tax help.

Trained tax professionals seem like the most logical and quickest way to get tax help. Most people do not know that the IRS offers a lot of useful information for free. They can also help you prepare your return and answer any questions you may have.

The new tax preparation software also does a wonderful job of helping prepare taxes. You enter information in a step-by-step process that is easy to follow. The software handles all the complicated stuff and you only need to enter figures and answer simple questions. While sometimes consulting a tax professional is a great idea, often times people get lured in by offers of larger, faster returns. These offers only result in high fees and less of a return. Sometimes there are even untrained tax help that claim they are qualified.

This can lead to many problems with incorrect returns that lie solely on you, the filer.

Once you understand why you need tax help then you can begin to look for someone to help you. If you are just looking for a quick return then try the accounting software that electronically files your return. You should see it within two weeks, possibly faster if you use direct deposit. If you are concerned about understanding the complicated tax codes then you should first seek help from the IRS or another free service and then try a software program. If all else fails look for a professional service. Make sure you completely understand their terms and fees and do not buy into any catchy advertising.

Getting Tax Credits For Saving Energy

Homeowners looking to cut their tax bills may want to rethink their water heaters. A recently signed law allows people to take as much as a $300 tax credit if they install a tankless water heater in their house.

The new tax credit is meant to encourage U.S. residents to better manage their energy consumption through the use of more efficient technology.

Switching to such technology carries the added benefit of reducing utility bills overall even after the tax credit has expired.

In the case of water heaters, that means using models that offer a continuous supply of hot water while reducing energy use.

For instance, Bradford White EverHot tankless water heaters use efficient technology to provide hot water instantly. The water heaters use a series of modulating gas burners that only operate when there's a demand for hot water.

The Energy Factor (EF) of the heaters ranges from 0.82 to 0.87-comfortably above the new energy bill's minimum tax credit-qualifying requirement of 0.80.

"Tankless water-heating technology may not be the best choice in all water-heating applications," said Bruce Carnevale, vice president of sales at Bradford White Corporation. "However, recent improvements in tankless water heating designs have made them an important option to the energy-conscious consumer.

One of the barriers to consumer acceptance of tankless water heaters has been their high initial cost, relative to traditional tank-type water heaters. But the $300 tax credit will help to reduce the cost differential."

Additional tax incentives exist for homebuilders who utilize the new technologies and also for commercial applications, whether the building is new or under renovation. The tax credit will run through Dec. 31, 2007.

Getting Payroll Tax Figured Out

There is nothing escaping payroll tax. It is something that you will need to deal with from the day that you get your first job until the day you retire. Payroll tax is the amount of money that comes out of your paycheck each and every time for the various services that you need to pay for. And, there is even a specific tax that is for the use of payroll as well. Nothing is certain…

If you are a business owner, then you realize that you will need to take care of these payroll tax needs for your employees.
The problem is that you cannot possibly take care of that information for your employees on your own. You need various types of help in collecting it, figuring it out, and keeping track of it. While this is quite difficult in most cases, the good news is that there are some excellent payroll tax software programs that can help you and cut down on the various needs that you have. Payroll tax software is a great way to make sure that you are getting the right information as well.

There is nothing worse than making the wrong payments or not following through on something that you are responsible for, for other people. Payroll tax software can help you do what you need to do effectively and do it right the first time.

Whether you are updating your payroll tax or if you are looking for a new option to consider for your new business, having the right payroll tax software is important. You'll find a wide variety of options available to you right here on the web.

Take some time to look through those options so that you'll find just what you need. You will find discounted and very complex programs. You will find those designed just for your business and it's needs. And, you'll find these all available for your budget needs as well. Payroll tax is something we can't avoid but it doesn't have to be that difficult either.

Getting Help With Your Taxes

Preparing your taxes can be incredibly stressful. In many cases, it just makes sense to get some help with them.

Save Me From This Misery!

When it comes time to file taxes, you can look to software or a real live person. In this article, we are going to focus on living people, to wit, the tax professional. You might be surprised to learn there are different types of assistance out there.



Tax Preparer

Generally, tax preparers have the least amount of experience when it comes to filing taxes. Tax preparers are individuals that are trained for the job or pick up the knack over time. An example of a huge collection of prepares would be the people that work at H&R Block.

The advantage of using a tax preparer is they are very cheap. Just keep in mind that you get what you pay for.

Enrolled Agents

The IRS actually licenses certain individuals if they pass scrutiny with the agency. Unlike tax preparers, an enrolled agent can represent you at an audit. Enrolled agents are a step up from tax preparers, but the quality of work and knowledge varies from agent to agent. Some can be excellent because they have an interest in the work and stay on top of changes.

Others are less impressive.

CPA

The Certified Public Accountant goes through a hellish process to obtain their license. Getting licensed as a CPA requires significant study and the licensing test is absolutely brutal. If you have a unique or complex financial situation, you want to use a CPA to do your taxes. In fact, you should use a CPA throughout the year to not only prepare taxes, but plan to avoid paying as much tax as possible.

CPAs are expensive with hourly rates in the $200 to $300 range. They can, however, be worth their weight in gold and a few of them are pretty heavy.

When picking a CPA, you want to find a proactive one. A proactive CPA is going to talk to you about your life and finances. They are then going to make suggestions to significantly lower your tax bill. The savings typically far outweigh their fees, and you’ll be glad you hired them.

So, who should you pick? The answer is entirely dependent upon the sophistication of your finances. If you are salaried employee earning $50,000 a year, you don’t need a sophisticated tax planner. If you are a small business owner with three businesses, it is time to find a CPA.

Getting a Tax Credit for Your Kids

As you know, raising a family is a full time job and can put stress on your finances. Fortunately, you can claim a tax credit to help cut your IRS bill if you have kids.

Getting a Tax Credit for Your Kids

With a tax deduction, you are reducing the total amount of adjusted gross income you have.

For instance, if you earned $50,000 dollars in 2005 and take a $1,000 deduction for something, you’ll have to pay tax on $49,000 dollars in earnings. Put another way, the $1,000 tax deduction will save you a hundred dollars or so in the amount you have to send to the IRS.

A tax credit is a beautiful thing. It is designed to reduce the amount of taxes you on a dollar for dollar basis.

Taking our example above, you would not deduct a $1,000 tax credit from the $50,000 you earned. Instead, you would go to the tax tables and determine the amount of tax you owe on the $50,000. Let’s say the tax tables reveal you owe $9,000. You would reduce this amount by the $1,000 tax credit and pay $8,000 dollars to Uncle Same. Put another way, tax credits are tax deductions on steroids!

If you are raising children, you may be able to claim a tax credit for each one.

They must be under 17 at the end of the tax year, a U.S. citizen, your child and a dependent. Adopted children fit within the tax credit as do stepchildren and certain foster children.

This tax credit, however, does have some limitation. The primary issue is something called the phase out. If you make more than a particular dollar figure, the tax credit is either reduced or eliminated depending upon your particular circumstances.

The phase out start when your adjusted gross income exceeds the following amounts:

1. Married filing Jointly: $110,000

2. Married filing Separately: $55,000

3. All Other Designations: $75,000

It is important to keep in mind that this tax credit is not a profit center. If you owe the IRS $4,000, but can tax a tax credit for 5 children, you will not get $1,000 back from the IRS. Instead, you tax bill is simply canceled out.

Getting A Tax Credit For Doing The Right Thing

Making energy-efficient home improvements and purchasing fuel-efficient hybrid electric vehicles is no longer just an environmentally friendly move -making these purchases could save you money at tax time.

That's because the Energy Policy Act of 2005 will offer consumers federal tax credits for making energy-efficient purchases.

Using energy-efficient appliances and installing better windows and insulation can provide many benefits. In addition to lower energy bills, individual energy-saving action can increase comfort in the home and reduce air pollution.



By driving or buying or leasing a new hybrid gas-electric automobile fuel-efficient vehicle you can get an income tax credit of $250-$3,400 plus better mileage-meaning lower gasoline prices--and fewer emissions.

What Are Tax Credits?

One of the best benefits this year is the new tax credit offered by the Energy Policy Act. Qualifying products and vehicles can mean having to pay less at tax time.

Eligible homeowners don't get an instant return on what they buy, like a rebate or a discount.

Instead, they itemize the purchase on their federal income tax form and that affects the total amount of tax they're supposed to pay. This credit increases a person's rebate or lowers the amount he or she owes.

A tax credit is not like a tax deduction. It's generally more valuable since it reduces tax dollar for dollar, while a deduction only removes a percentage of the tax that is owed.



Home mortgages, charitable giving and home office expenses reduce taxable income only by a percentage of what's taken in tax; a tax credit, on the other hand, reduces taxable income directly, not as a percentage.

Energy-Efficiency Improvement Tax Credit: The Breakdown

According to the Department of Energy, you can, for example, get a one-time tax credit of up to $500 total for installing efficient new windows, insulation, doors, roofs, and heating and cooling equipment in your home.

Building materials must meet Energy Star® requirements and must be placed in service from Jan. 1, 2006 to Dec. 31, 2007.

New Tax Credits for Solar Energy Technologies

There are also tax credits for solar energy technologies and for fuel cells. Some consumers may also be eligible for state rebates.

Getting A Tax Break With Your Hybrid Vehicle

Buying a hybrid car gives the phrase “go green” a whole new meaning. Not only is it good for the environment, it’s also good for your pocket book. Check out the tax benefits of hybrid vehicles for yourself.

The government has decided that encouraging drivers to do their part to protect the environment could be better enhanced by offering tax incentives.

So 2006 sees a variety of incentives from tax credits to tax deductions.

But before you get too excited, be sure you understand all the regulations. It is a bit complex and not all vehicles that call themselves hybrids actually qualify for the hybrid tax relief programs.

The full on hybrid vehicle uses both a gas engine and an electric engine. The Toyota Prius is an example of a full on hybrid.

However some of the other models that call themselves hybrids aren’t classified as such by the government. That’s because some vehicles that do no more than shut the engine off at idle wear the hybrid designation.

The full tax credit is applicable to only the first 60,000 cars sold by the car maker.
After that, the amount of the credit goes down. So if you want to be able to take the full tax credit you need to be buy early. Be aware that leasing doesn’t qualify for a tax credit.

The new tax incentive programs are much more valuable than the old programs that were in place. For the exact amount and rules you need to contact the IRC, but ACEEE has provided the following estimates to give you an idea of the tax benefits you might reap.



The Toyota Prius should qualify for the full $3400 tax credit, and it’s the only hybrid to earn this honor. A $2600 credit goes to the Ford Escape 2WD, Honda Insight, and Toyota Highlander 2WD. A $2200 credit is available for the Lexus RX400H, Honda Civic Auto Transmission, and Toyota Highlander 4WD. A $1950 credit goes to the Ford Escape 4WD and Honda Civic Manual Transmission. The Lexus GS450H, Nissan Altima, and Toyota Camry all have a $1300 tax credit. The Honda Accord, GMC Sierra, and Chevy Silverado all get under $1000.

Remember, these are estimates.

The actual numbers will have to be obtained from the IRS or you’ll need to wait until they release them.

The basics for being able to take the credit are as follows: you must purchase the vehicle new on or after Jan 1, 2006, and it cannot be for re-sale. That’s pretty simple but there are some other areas that aren’t so clear so be sure you get the details on “all” the rules.

The tax benefits of hybrid vehicles are definitely improving. Have your accountant or bookkeeper find out what your personal options are and take advantage of any tax breaks you can!

Gambling Income and Expenses - Tax Requirements

Hit a big one? With more and more gambling establishments, keep in mind the IRS requires people to report all gambling winnings as income on their tax return.

Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse and dog races and casinos.

Unfortunately, gambling income also includes the fair market value of prizes such as cars, houses, trips or other non-cash prizes.

Generally, if you receive $600 ($1,200 from bingo and slot machines and $1,500 from keno) or more in gambling winnings and your winnings are at least 300 times the amount of the wager, the payer is required to issue you a Form W-2G.

If you have won more than $5,000, the payer may be required to withhold 25 percent of the proceeds for Federal income tax. However, if you did not provide your Social Security number to the payer, the amount withheld will be 28 percent.

The full amount of your gambling winnings for the year must be reported on line 21, Form 1040.

If you itemize deductions, you can deduct your gambling losses for the year on line 27, Schedule A (Form 1040). You cannot deduct gambling losses that are more than your winnings.

It is important to keep an accurate diary or similar record of your gambling winnings and losses.

To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.

Face it, the IRS gets you coming and going. Well, I’m off to play poker.

Fraudulent Tax Shelters – KMPG Goes Down Hard

In the largest criminal tax case ever filed, KMPG has copped a plea to using fraudulent tax shelters to bilk the government out of 2.5 billion dollars. KMPG has agreed to pay a fine of $456 million dollars, but nine of its executives still are under indictment.

Son of Boss Tax Shelters

From 1996 to 2003, KMPG promoted a tax strategy known as the Son of Boss.

This shelter was used to create phony tax losses that could be claimed by wealth individuals looking to write off tens of millions of dollars. KMPG promoted the structure despite the fact it’s own internal tax attorneys warned the structure was fraudulent and could result in criminal charges.

So far, wealthy individuals participating in the scheme have paid over $3.7 billion dollars to the IRS.

There should be no mistaking the impact of the plea agreement in this case. KMPG may have enjoyed the huge fees earned from the scam, but it is paying an incredible price for pursuing this practice.

The price paid includes:


1. 456 Million Dollar Fine,

2. Permanently barred from providing tax services to wealthy individuals,


3. Permanently barred from involvement in any pre-packaged tax strategies,
4. Permanently barred from charging a contingency fee for work,


5. All actions monitored by government appointee for three years,


6. Full cooperation with government in indictments of individual KMPG employees.



Remaining Indictments

While KMPG pled guilty, it left its employees out to dry. An interesting maneuver since one can assume KMPG enjoyed the millions of dollars produced from the fraudulent tax shelters.
Those under indictment, who are all now former employees, are:


1. Jeffrey Stein, former Deputy Chairman of KPMG, former Vice Chairman of KPMG in charge of Tax and former KPMG tax partner;


2. John Lanning, former Vice Chairman of KPMG in charge of Tax and former KPMG tax partner;


3. Richard Smith, former Vice Chairman of KPMG in charge of Tax, a former leader of KPMG’s Washington National Tax and former KPMG tax partner;


4. Jeffrey Eischeid, former head of KPMG’s Innovative Strategies group and its Personal Financial Planning Group and former KPMG tax partner;


5. Philip Wiesner, former Partner-In-Charge of KPMG’s Washington National Tax office and former KPMG tax partner;


6. John Larson, a former KPMG senior tax manager;


7. Robert Pfaff, a former KPMG tax partner;


8. Mark Watson, a former KPMG tax partner in its Washington National Tax office.



In Closing

In the end, KMPG led clients down a very dangerous path for the apparent purpose of generating revenue. While even bad publicity is supposed to be good publicity, this situation seems to suggest the opposite.

Fourth Quarter Machine Tool Depreciation

Accelerated depreciation in the fourth quarter of 2004 can provide significant tax shelter to many parts production job shops or tool and die shops, according to capitol equipment financing specialists at Makino, a global provider of advanced machining technology.



Operations that invest in new equipment technology and receive delivery before December 31, 2004, may see significant corporate and personal owner refunds in the spring of 2005. In some cases, the corporate tax savings/refund will offset the first year's expenses associated with operating the machine.

After the terrorist act of 9/11, Congress passed a tax relief act in 2002 allowing companies that purchase new machinery to immediately depreciate 30 percent of the value of those acquired assets.

The remaining book value would be subject to MACRS depreciation as per Internal Revenue Service guidelines. Additionally, the act permits a company to reach back five years (as opposed to three years) for a tax refund.

In order to stimulate the economy in 2004, Congress has passed President Bush's jobs and economic growth tax relief bill.

This bill contains a new 50 percent expensing allowance for machine tools and other equipment ordered between May 6, 2003, and Dec. 31, 2004, so long as it is placed in service by Dec. 31, 2004. This increases and/or replaces the temporary 30 percent expensing allowance enacted in 2002.

Additionally, small businesses (those whose equipment purchases of all kinds do not exceed $410,000) are permitted to depreciate the first $102,000 of an acquisition.

Then, they can further depreciate 50 percent of the remaining basis of the machine and apply MACRS depreciation as per IRS guidelines to the remaining value. In other words, a qualifying small business that buys a $100,000 machine can expense it all in the first year.

A $200,000 machine could qualify for a $158,000 first year deduction, or 79 percent of the asset. A $300,000 machine could qualify for a $215,147 first year deduction, or 71.7 percent of the asset.

Finding Energy Tax Credits For Homeowners

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.

Finding Assistance with Your Taxes

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.

Filing Taxes Online Now Stress Free, Cost Free

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 www.TaxACT.com 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 TaxACT.com.



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.

FCC's Proposed Change Could Raise Phone Taxes

Americans are speaking out against a proposal by the Federal Communications Commission (FCC) that could raise millions of people's phone bills. The proposal by FCC Chairman Kevin Martin has to do with a tax called the Universal Service Fund (USF).

The USF tax was established to help ensure that low-income and rural consumers have access to affordable phone services. Currently, USF money is collected on a "pay-for-what-you-use" system; a tax based on how much interstate long distance a person uses. The less a person uses long distance, the less he or she pays.



However, the FCC is proposing a monthly flat fee instead. The proposed monthly flat fee would apply to all phone numbers and other connections, regardless of how few interstate long-distance calls are made. That could raise taxes on 43 million U.S. households by more than $700 million.

Callers in California, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Ohio, Pennsylvania, Texas and Virginia stand to be the biggest losers.

Taxpayers in 10 of those 12 states-all but Texas and Minnesota-already pay more in federal USF taxes than their states get back for schools, hospitals and rural connectivity. Under the proposed FCC plan, that disparity would grow even wider. The most conservative estimate of the proposed plan-where the USF fee would shift from the current structure to a flat $1 fee, per phone line, per month-indicates that 11 of the 12 states would end up paying more into the USF than they currently do.


According to the Keep USF Fair Coalition, a consumer advocacy group, this USF proposal has grave implications for the future of telephone service nationwide. The proposed USF change also affects anyone who has friends or relatives in any of those 12 states, or does business with a person or company located there.

With low-income and elderly consumers already hit with high gas prices, higher home energy costs and continued inflation in medical prescriptions, the wide range of diverse groups in the Keep USF Fair Coalition is opposing the FCC's proposed "number"-based plan. These groups caution against balancing USF finances on the backs of the very consumers whom they were intended to help.

Failure To Pay Employment Taxes – Penalties

As an employer, you must pay employment taxes if you have employees. Fail to pay and the IRS will rain all over your parade.

Penalties

If you have employees, you absolutely must deduct and withhold various taxes from the paychecks of your employees.

Since you are deducting money from the employee’s paycheck, you are handling their funds. This fact is very important to the IRS and it places great emphasis on any failure to deposit employment taxes.

If you fail to pay employment taxes, you will be subject to a 100 percent penalty. Yes, 100 percent.

Known as the “trust fund recovery penalty”, the penalty is assessed against the person responsible for paying the taxes, not the entity. The person can be the owner, corporate officer or other “responsible person.” In short, a business entity is not going to protect you from the wrath of the IRS.

Late Payments

Cash flow crunches are an inevitable event for practically every business. So, what happens if you make a late payment for employment taxes.

Unless you can show a reasonable reason for the delay, the IRS is going to penalize you.

Late payment penalties range in amount depending on the delay. If the delay is less than six days, the penalty is two percent. Delay for six to 15 days and you are looking at five percent. More than 15 days in delay is going to push the penalty to 15 percent. If you delay this long, the IRS will be peppering you with penalty notices telling you where you stand.

In Closing

Whatever you do, make sure you deposit employment taxes with the IRS in a timely fashion.

Take a moment to think about the worst thing you have ever heard done by the IRS. If you fail to pay employment taxes, the actions taken by the IRS will be ten times worse and you will be the one telling horror stories.

Employment Taxes – What Are They?

If you have employees, you are responsible for paying a variety of taxes at the federal, state, and local levels. You must also withhold certain taxes from the paychecks of your employees. So, what are employment taxes?

Employment taxes include the following.



1. Federal income tax withholding


2. Social Security and Medicare taxes


3. Federal unemployment tax (FUTA).



Federal Income Taxes/Social Security and Medicare Taxes

You generally must withhold federal income tax from wages paid to an employee. Form W-4 is used to determine the specific amount, although most payroll services or your accountant will do this for you.



Social security and Medicare taxes pay for benefits that workers and families receive under the Federal Insurance Contributions Act (FICA). Social security tax pays for benefits for the retired, survivors, and disability insurance distribution provisions of FICA. Medicare tax pays for benefits under the medical care provisions of FICA.

As an employer, you must withhold a percentage of these taxes from employee and match the withholding amount.

In general, you must deposit these taxes by check or cash to an authorized financial institution, typically your bank. Check with your tax professional to make sure you are not required to use the Electronic Federal Tax Deposit System (EFTPS).

Regardless of the payment method, you will then report them on Form 941, the Employer’s Quarterly Federal Tax Return

Federal Unemployment Tax (FUTA)

FUTA is a combined federal and state program that provides unemployment compensation to the unemployed.

As a business owner, you are solely responsible for paying this tax, to wit, nothing is withheld from the paychecks of your employees. FUTA is determined by using Form 940, but you are encouraged to use a tax professional to determine payment amounts.

Employment taxes can be frustrating for a small business owner. They are, unfortunately, a necessary evil as your business grows.

Employment Taxes – Depositing With The IRS

If your business has employees, you must pay employment taxes. The payment system can be a bit confusing, so this article discusses how to go about depositing employment taxes with the IRS.

Depositing Employment Taxes

To pay employment taxes, you must deposit the money with the IRS. As is typical with tax situations, the payments are not actually made to the IRS.

Instead, you must deposit the employment taxes with a federal depository. Moving the burden to the private sector, the IRS requires most banks to act as depositories. If your business has just started hiring employees, ask you bank if they act as a depository. If they do not, you may want to change banks.

To deposit the taxes, you forward money per the bank specifications. You will also need to file a Federal Tax Deposit Coupon, Form 8109, with the deposit.

The IRS typically sends these forms to you at the beginning of each calendar year. If you don’t receive any, you can download the form from the IRS site or ask your tax professional.

When To Deposit

You must deposit employment taxes either once or twice a month. The IRS will send you a schedule at the end of each year for the subsequent year. As a general rule, you want to file within a few days of each pay period.

Failure To Deposit

Collecting employment taxes is a high priority of the IRS. Since the taxes include money deducted from an employee’s paycheck, the IRS views an employer’s non-payment as a form of theft.

If you fail to pay, you can expect the IRS to come down hard on your business and, potentially, shut it down. In short, make absolutely sure you deposit the employment taxes.

In Closing

There is no other way to put it – paying employment taxes is a pain. Just make sure you pay them to avoid the wrath of the IRS.

Employer Cash Incentives To Employees For Hybrids

Many companies offer their employees cash incentives to undertake certain actions such as buying a hybrid car. It is important to remember that such situations have tax consequences

Employer Cash Incentives To Employees For Hybrids

Purchasing a hybrid vehicle makes sense on many fronts. It is a financial windfall given tax credits provided under the Energy Policy Act of 2005.

Driving a hybrid has the additional financial advantage that one uses less gas, thus saving on fuel prices. Finally, hybrids are much easier on the environment given the fact they produce less pollution than traditional fossil fuel vehicles.

As is often the case, businesses tend to take action to promote socially positive steps before the federal government. Whether it is promoting healthier lifestyles or, in this case, a more green lifestyle, businesses almost always lead the way.

The situation with hybrid cars is no different.

Many businesses are providing financial incentives to employees that purchase hybrid vehicles. These incentives can be significant. They often are offered in the form of cash payments, contributions to retirement plans and even stock options. As you might image, employees are taking advantage of the situation.

There is, however, one cautionary not for both businesses and employees when it comes to incentives for hybrids.

The act of transferring wealth to the employees is considered a taxable event. Simply put, the employees must claim the amount of the incentive as income when reporting taxes. The employer is responsible for reporting said income as part of the reported W-2 wages and the employee must pay the relevant taxes.

There is one exception to this taxable income rule. If the employer is actually producing the product in question, then no taxable event occurs. In the case of the hybrid incentives, this exception would obviously only apply to employees of vehicle manufactures actually building the hybrids, to wit, Honda, Toyota, Ford, GM and so on.



The decision by many companies to offer incentives to motivate employees to purchase hybrids is laudable. It is important, however, that both employers and employees understand the tax consequences.

Early Distributions From Retirement Plans

An early distribution from an Individual Retirement Arrangement (IRA) or a qualified retirement plan need not be a “taxing” experience. Fortunately, there are exceptions to early distributions.

Any payment that you receive from your IRA or qualified retirement plan before you reach age 59½ is normally called an “early” or “premature” distribution. As such, these funds are subject to an additional 10 percent tax.

But there are a number of exceptions to the age 59½ rule that you should investigate if you make such a withdrawal. Some of these exceptions apply only to IRAs, some only to qualified retirement plans, and some to both. IRS Publications 575, Pensions and Annuities, and 590, Individual Retirement Arrangements (IRAs), have details.

In addition to the 10 percent tax on early distributions, you will add to your regular taxable income any distributions attributable to “elective deferrals” that you contributed from your pay, your employer’s contribution and any income earned on all contributions to the account.

If you made any nondeductible contributions, their portion of the distribution is not taxed, since you’ve already paid tax on this amount.

There is a way to avoid paying any tax on early distributions, however. It is called a “rollover.” Generally, a rollover is a tax-free transfer of cash or other assets from an IRA or qualified retirement plan to an eligible retirement plan. An eligible retirement plan is a traditional IRA, a qualified retirement plan, or a qualified annuity plan. You must complete the rollover within 60 days of when you received the distribution.

The amount you roll over is generally taxed when the new plan pays you or your beneficiary.

If the early distribution from an employer’s plan is paid directly to you, your plan administrator will normally withhold income tax at a 20 percent rate. If you roll over the distribution to a new plan, you must replace that 20 percent of the funds that were withheld and deposit that amount in the new plan or you will owe taxes on that amount.

To avoid the inconvenience of this withholding, you can have your old plan’s administrator transfer the rollover amount directly to the new plan or a traditional IRA.

All early distributions must be reported to the IRS. You will report tax-free rollovers on lines 15a and 16a of Form 1040 along with any taxable distributions, but you will enter on line 15b or 16b only the taxable amounts you don’t roll over.

Early distributions from retirement plans can involve complex tax issues. Make sure you understand the issues or get competent tax advice.

Do You Know When To File A Tax Return?

Every year, millions of Americans dread the inevitable; they have to gather all of their receipts and records and get ready to file their Federal Income Tax Returns. When was tax season first initiated? Here, we will take a look at that magic day of April 15 and why it was chosen as tax day.



During Abraham Lincoln’s presidency in the 1860’s, were first legally required to pay income taxes. The President and Congress created the Commissioner of Revenue and enacted a Federal Income Tax law in order to fund the costly Civil War.

The original deadline for submitting your income taxes was March 1, not April 15. It was in 1918 when the Congress pushed the date out to March 15.

Then in 1954, the date was once again moved, this time to April 15, the date we still know as tax day.

If you are an individual taxpayer, you are required to file either a return or an extension (Form 4868) by April 15. Corporate and other legal group entities must file their tax return or an extension by March 15.

The extension merely gives you extra time to file your tax return, not extra time to pay if you owe.

For some years after World War 2, the tax burden was shared relatively equally by the corporate world and the individual taxpayer. Today, the shift seems to be toward the individual carrying the load of the tax burden.

An interesting event that occurred during formation of income taxation laws in America occurred during 1918.

Up until then, a lot of revenue for government funding came from alcoholic beverage sales.

Then came Prohibition. In 1919, Congress passed an amendment to the Constitution that made it illegal to manufacture or sell alcohol. In order to replace that lost revenue, income tax was the proposed solution, and despite the repeal of Prohibition, we’ve been paying income taxes ever since.

When the Revenue Act of 1942 was passed and the “New Deal” era was begun, government control and expenditures has continued to increase exponentially, and today the American taxpayer supports a multi-trillion dollar National Debt.



Currently, all the tax regulations for this country are under the management of the Internal Revenue Service, in which there are four major division: Wage and Investment, Small/Business Self-Employed, Large and Midsize Business, and Tax Exempt and Government. Each division governs the taxpayers and the laws as they are relevant to their particular department.

Donating Cars To Charity - New Tax Rules

On June 3, 2005, the IRS released guidance on charitable deductions for donated vehicles. The American Jobs Creation Act (AJCA) radically changed the amount of the deduction taxpayers can claim for their donated car.

Fair Market Value v. Actual Sales Price

When donating a car to charity, a taxpayer traditionally was allowed to deduct the fair market value.

The new law changes this valuation to the actual sales price of the vehicle when sold by the charity. The taxpayer is also required to get written and timely acknowledgment from the charity in order to claim the deduction

The AJCA does provide some limited exceptions under which a donor may claim a fair market value deduction. If the charity makes a significant intervening use of a vehicle--such as regular use to deliver meals on wheels-- the donor may deduct the full fair market value.

For example, driving a vehicle a total of 10,000 miles over a one-year period to deliver meals is a significant intervening use.

The AJCA also allows a donor to claim a fair market value deduction if the charity makes a material improvement to the vehicle. Under the guidance, a material improvement means major repairs that significantly increase the value of a vehicle, and not mere painting or cleaning.

Interestingly, the IRS has also added an exemption not included in the AJCA.

On its own, the IRS has determined that taxpayers can claim a deduction for the fair market value of a donated vehicle if the charity gives or sells the vehicle at a significantly below-market price to a needy individual, as long as the transfer furthers the charitable purpose of helping a poor person in need of a means of transportation.

If you intend to assert one of these exemptions, how do you determine the fair market value? Generally, vehicle pricing guidelines and publications differentiate between trade-in, private-party, and dealer retail prices.

The IRS consider the fair market value for vehicle donation purposes to be no higher than the private-party price.

The new provisions of the Americans Job Creation Act certainly make it less attractive to donate a car to charity. Using the exemptions, however, you can still create a sizeable deduction while helping others who are less fortunate.

Doh! IRS Loses Taxes In San Francisco Bay

On September 23, 2005, the Internal Revenue Service began sending notices to tax payers in thirteen states that there may be a problem with their tax payments. Here is the scoop.

Traffic School?

It seems one of the trucks carrying the payments was involved in a traffic accident and the payments were lost. The accident actually occurred in San Mateo, California and resulted in…wait, I have to stop laughing. Okay. Deep breathe. The tax documents were “ejected into the bay” and can’t be recovered! There must be a couple of great white sharks wondering what is going on.



The payments in question are estimated tax payments made by anyone to the San Francisco mail box for the IRS in the first few weeks of September. Yes, the IRS uses drop mail boxes like everyone else. How encouraging.

The little traffic snafu suffered by the IRS apparently wasn’t so little. The service is reporting that as many as 30,000 estimated tax payments from individuals and businesses in 13 states may have been lost.

Who knew the IRS used monster trucks? Instead of “Grave Digger”, the truck must have been called “Every last penny you have Digger.”

Anyway, taxpayers located in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Ohio, Oregon, Utah, Virginia, Washington and Wyoming may have seen there tax payments deep sixed. In a particularly cheeky announcement, the IRS wishes to assure taxpayers that it will help make sure the tax snafu is fixed up.



Anyone up for a dive?

Check Your Debits

If you think you might be a victim of the IRS traffic accident, just check any estimated tax payments made to see if processing occurred. If all else fails, rest assured the IRS will let you know if there is a problem.

While the above article may seem like a bad Saturday Night Live skit, it is real. I can’t wait to see the next notice from the IRS about an agent’s dog eating 50,000 or so tax returns.

Didn’t File Anything with the IRS on April 15th?

The magic tax date of April 15th has passed. If you did not file a tax return or extension request, you need to consider the following.

Didn’t File Anything with the IRS on April 15th?

The Internal Revenue Service is a bit touchy about filing tax returns. It would prefer you to file a return or extension to doing nothing, even if you cannot pay.

If worse comes to worse, the IRS will simply put you on a payment plan. Failing to file anything, however, can lead too more unwanted attention from the agency than you could possible want to receive.

In general, you should always try to pay your taxes whenever possible. Failure to do so can lead to brutal penalties and interest charges. If the IRS thinks you are up to something funny, the penalties and interest can add up to 25 percent of your tax bill.

That is a big chunk of change!

If you are due a refund, but just did not get around to filing your taxes, you do not have to worry about penalties and interest. There are none since you are owed money. That being said, are you nuts? Why would you give the government an interest free loan? What could you be using that money for in your daily life? Get off the couch and get a return filed so you can get your money back. For obvious reasons, few people let refunds sit at the IRS.

If you are insanely lazy, keep in mind you will lose the refunds if you do not claim them within three years of the original filing date. Frankly, you deserve to if you are that lazy!

If you owe taxes and do not have the cash, there may be an alternative you can use. To the surprise of many, the IRS accepts credit cards as a payment method. With high interest rates, credit cards are not a great option. On the other hand, credit card companies cannot audit you!

The IRS understands that a certain percentage of taxpayers may not be able to pay all of their taxes. The key to keeping the agency off your back is to file the return even if you cannot pay.

Deducting Points On Home Refinances

Any points that you pay in the refinancing of your residence are tax deductible over the length of the loan in question. The deduction is allowable only if the residence is your primary home and the new mortgage replaces a previous one and/or is used to improve the residence. To the extent that money is taken out to pay off credit cards and non-residence costs, the points may not be used as a tax deduction.



Big Deductions By Refinancing Twice

If you refinanced your primary residence twice during 2004, you may be in for a very nice surprise. A significant tax deduction can be created when you refinance twice in one year. If you refinance a mortgage, you accelerate the deductible amount of points from the first mortgage and may claim the points from the first mortgage all at once.

As an example, assume that I refinanced my home in January 2004 and paid $3,000 in points.

Interest rates continued to drop through 2004 and I then decided to refinance again in August. Because I paid off the original loan with the refinance, I am able to accelerate the value of the points of the January loan.

So, what tax deductions have I created for my 2004 filing period? Initially, I am going to deduct a percentage of the points off of my latest refinance. The deduction will amount to the total amount of points paid divided by the total months of the loan.

This will not be a big deduction, but every little bit helps.

In addition to this amount, however, I will also deduct the full $3,000 in points that I paid on my January 2004 refinance! I am able to claim this deduction because I "accelerated" the deductibility of the points by paying of January mortgage with the August refinance.

By refinancing twice, I get a lower interest rate and a healthy tax deduction. Ah, the value of owning a home.

Deducting Alimony Payments

Over 50% of marriages end in divorce in the United States. Many divorce decrees include provisions for the payment of alimony. The IRS takes the position that such payments constitute a form of income and create an alimony tax deduction for the person making payments.

According to the IRS, alimony payments are taxable to the recipient in the year received.

In turn, the person paying the alimony can claim a deduction for the payments if the following tests are met:



1. You and your spouse or former spouse do not file a joint return with each other,



2. You pay in cash (including checks or money orders)

,

3. The divorce or separation instrument does not say that the payment is not alimony,



4. If legally separated under a decree of divorce or separate maintenance, you and your former spouse are not members of the same household when you make the payment,



5. You have no liability to make any payment (in cash or property) after the death of your spouse or former spouse; and



6. Your payment is not treated as child support.

If you are receiving or paying alimony, you must use Form 1040 for your personal taxes.

Regardless of income levels, deductions or miscellaneous tax issues, you cannot use Form 104A or Form 1040EZ.

In preparing your tax return, the person receiving alimony will report the information on line 11 of Form 1040. That person must also provide their social security number to their former spouse or face a fine of $50. The person paying the alimony can claim the deduction on line 34a of Form 1040.