Professional Tax Preparation Requires The Right Professional For Your Specific Needs

Preparing taxes is one of the least enjoyable tasks a person faces each year. While many single or multiple income households feel that they can prepare their taxes on their own each tax season, it is a good idea to think about taking advantage of professional tax preparation services. In fact, if you’ve ever found yourself wondering if you could take a specific deduction, if you could take advantage of other deductions you don’t know about, if you could be paying less or getting a larger refund, or even if you simple wonder if you are preparing your taxes properly, you should consider professional tax preparation.

When you are thinking about using professional tax preparation services, it is important to think about what you are looking for from your accountant. If you would like to have your taxes done as fast as possible, it is probably best to have them done by a nationally recognized service that specializes in quick professional tax preparation. This type of professional tax preparation is designed to have your taxes done as quickly and as thoroughly as possible.

If you are looking to make a tax plan for the future, a licensed tax professional is the best option for professional tax preparation. You can choose from either a Certified Public Accountant (CPA) or an Enrolled Agent. A CPA is an accountant who has passed certain examinations and met all other statutory and licensing requirements of a United States state to be certified by that state. This usually includes 150+ hours of business and accounting related college education in addition to a CPA exam that usually runs about 14 hours. Many corporate and small businesses use CPAs for their professional tax preparation as well as special tax circumstances like tax audits.

An Enrolled Agent is someone who has successfully completed an IRS test that encompassed all facets of taxation as well as passed a background check. Enrolled Agents must also complete an 8-hour exam over the course of two days. Unlike CPAs or tax lawyers, Enrolled Agents undergo testing by the IRS without intervention from a third party. Enrolled Agents can also have their earned title removed by the IRS for wrongful conduct.

If you are considering professional tax preparation because of a specific problem, you will want to find a professional who is trained to handle your specific issue. As with any other product or service, professional tax preparation is available at a number of different prices and you should compare to find a fee that suits your budget. Not every professional tax preparation service will be able to schedule an immediate appointment, so your tax needs and urgency should be taken into consideration. Most importantly, when you are using professional tax preparation services, you want to make sure that your accountant offers you a guarantee for his or her work.

How To Contact The IRS Without Breaking Into A Sweat

We all love to criticize the IRS, don't we? It's easy to ridicule a huge organization of government bureaucrats who often seem to be Public Enemy #1.

Our negative attitude toward the IRS can lead to a strong desire to just ignore it altogether. But
self-employed people who ignore the IRS do so at their own peril.

So when it comes to providing free information about taxes, let's not throw the baby out with the bath water. The IRS does provide some excellent resources to help us make the best of a potentially bad situation.

If you need tax assistance and prefer not to pay for it, do not overlook these five ways to obtain help from the IRS:

1. The Internet
http://www.irs.gov

There's a wealth of information just for small business owners and self-employed people at: http://www.irs.gov/smallbiz

Here you'll find everything from how to obtain a federal business tax ID to a free 6-session streaming video presentation of the "IRS Small Business Workshop." Also known as the Small Business Self-Employed Online Classroom, you can access this directly at: www.irs.gov/businesses/small/article/0,,id=97726,00.html

If you prefer to attend an IRS small business workshop in person, check here to see what's available in your state: www.irs.gov/businesses/small/article/0,,id=99202,00.html

Need tax forms and/or their instructions?

Look no further than the IRS website:
http://www.irs.gov/formspubs/index.html

Here you'll find a boatload of links to every tax form imaginable, available as downloadable PDF files or in fill-in format. All form instructions can also be downloaded. http://www.irs.gov/formspubs/lists/0,,id=97817,00.html

The IRS has many free publications that explain virtually every major (and many minor) tax topics in great detail. Sure, IRS "pubs" are not always written in the most entertaining style, but, hey, remember the price. http://www.irs.gov/formspubs/lists/0,,id=97819,00.html

2. Telephone Hotlines.

Special toll-free numbers exist for the following:

-- To order forms & pubs: 800-829-3676 (in case you'd like to receive a paper copy via snail-mail)

-- To ask business tax questions: 800-829-4933

-- To ask personal tax questions: 800-829-1040

Use common sense when phoning the IRS: to avoid long wait times, don't call on Monday morning. And no matter when you call, be prepared! Write out your questions beforehand and have all relevant documentation in front of you, as well as a favorite book or magazine to read during the inevitable wait time. Stay calm; don't yell; treat the IRS employee like a human being and he/she will likely return the favor.

-- Need help with long-standing problems: 877-777-4778

-- Prerecorded messages on 140 topics: 800-829-4477

3. TaxFax Service.
You can receive most IRS forms instructions via fax by calling 703-368-9694 from your fax machine.

4. CD-ROM for Small Business.
This is known as "The Small Business Resource Guide CD-ROM", aka Publication 3207. It includes all the tax forms and publications needed to run a small business. Call 800-829-3676 to request a free copy.

5. Walk-In Offices.
Need some face-to-face tax help? For a complete list of IRS offices in all 50 states, including hours of operation and contact info, check out: http://www.irs.gov/localcontacts

How To Avoid Double Taxation Of Your Small Business Profits

Have you been cerebration about accumulation your baby business or self-employment activity? The advantages are many!

For starters, you'll be protecting yourself and your family from the possibility of a business ending lawsuit. Forming a corporation is Step One on the path known as "Asset Protection" -- you are moving from the world of unlimited liability to the world of limited liability.

(NOTE: For further insight into the legal advantages of incorporating, check out the article: "It Can Happen To You: Why Any Sole Proprietorship Is A Risky Business" at http://www.YouSaveOnTaxes.com/happen-to-you.html)

From a tax standpoint, there are both advantages and disadvantages to incorporating. Yes, forming a corporation can either reduce your taxes or increase your taxes, depending on what type of corporation you create.

There are two main types of corporations: "C" Corporations and "S" Corporations -- and which type you choose can make all the difference in the world of taxes.

NOTE: The question of "C" Corp vs. "S" Corp has no effect on the asset protection provided by your corporation. This is a tax issue, not a legal issue.

A "C" Corporation can lead you into a Tax Trap known as "double taxation". Yes, income from a "C" Corporation can actually be taxed twice -- once when it's earned on the corporate level and again when it's paid to you, the shareholder, in dividends.

There are several ways to avoid double taxation. Often the easiest way is to tell the IRS that you choose to be an "S" Corp instead of a "C" Corp. The profits of an "S" Corp are not taxable to the corporation; instead, those profits are reported directly on the shareholder's personal income tax return and are therefore only taxed once.

And once is enough, don't you think!

Of course, any article on Choice of Entity must contain the old disclaimer, "Consult your tax professional" -- I am not prescribing a one-size-fits-all approach to this issue. But for many small biz owners and self-employed folks, the "S" Corporation is a good fit because it provides protection from personal liability and avoids the nasty tax trap of double taxation -- two great benefits worth checking into.

Should you incoporate your sole proprietorship and then decide that the "S" Corporation is the right fit, you must inform the IRS that your corporation is choosing "S" Corporation status by filing Form 2553, which is, in effect, an application to become an "S" Corporation.

IMPORTANT:

If you incorporate and do not file Form 2553, you are automatically considered to be a "C" Corporation by the IRS. In other words, to be a "C" Corporation, you just incorporate; there is nothing you have to do to inform the IRS you want to be a "C" Corporation.

There are critical rules regarding how and when to file Form 2553, so be sure to read the instructions carefully, or check with your tax pro.

Failure to file Form 2553 on time or filing Form 2553 incorrectly results in a rejection of your corporation's "S" Corp application, and the corporation is then by default treated as a "C" Corp, subject to double taxation, the very trap you were trying to avoid.

To download a copy of Form 2553, go to: http://www.irs.gov/pub/irs-pdf/f2553.pdf

The instructions for filing Form 2553 are found here: http://www.irs.gov/pub/irs-pdf/i2553.pdf

What Does It Take To Pay Zero Taxes?

How abounding times accept you heard addition say, "I don't pay any taxes. My accountant takes absolute acceptable affliction of me . . . I haven't paid a dime in taxes in years."

Does that outrageous statement sound familiar?

Maybe it's your brother-in-law, or a fellow Soccer Mom, or a co-worker at the office.

And so you think to yourself, "What am I doing wrong? How come I'm paying taxes and so-and-so says he/she pays nothing? How do they do it!"

Is it really possible to pay "zero taxes"?

For purposes of this article, let's give your "no-tax" friend or relative a name. Let's call him "Charlie" (or if he is a she, just think "Charlene").

OK, what is Charlie up to? What's his secret?

Charlie has no secret. He's not doing anything that you should be doing. Do not be envious of Charlie, and here's why . . .

I can think of at least five reasons you should ignore whatever Charlie says about his "no-tax" situation.

REASON #1: Charlie is a liar. Every family has one, so don't feel bad. Let's face it, some people just like to indulge in fabrications to make themselves feel good. Charlie is telling you a big fat lie because Charlie has "issues." 'Nuff said?

REASON #2: Charlie is pond scum. OK, hear me out on this one. I don't mean to offend you if Charlie is a close and dear relative, or your best friend, but I'm going to give it to you straight: Charlie cheats on his tax return, and he cheats big time. There are plenty of folks out there like Charlie. He's one of the reasons that you and I pay so much in taxes -- he doesn't report all his income, and he deducts bogus expenses by the thousands.

He and his accountant may even be in cahoots on this. Charlie brings in his records and his accountant crunches the numbers, then calls Charlie and says, "You owe $5,000." So Charlie rummages around in his files and somehow manages to come up with another batch of expenses that miraculously
reduce his balance due to zero. It's like magic!

End result: Charlie's tax return is a big lie.

Charlie is a thief. Charlie should be put in jail for the tens of thousands in taxes he has illegally withheld from the government over the years.

REASON #3: Charlie is stupid. Again, I'm sorry if I'm being too hard on Charlie. But some people are so clueless about taxes that if they have no balance due on their return, or if they are getting a refund, they mistakenly believe they didn't pay any tax that year.

And believe it or not, this is actually a very common misconception that thousands of people cling to. Ah, to be so blissfully ignorant!

I hope you are not so naive to think that the "bottom line" on your tax return tells the whole story about your tax liability. It doesn't.

REASON #4: Charlie is broke. Charlie may actually pay zero taxes because --are you ready for this one? -- Charlie doesn't make any money!

Charlie owns a small business or works full-time at his self-employment activity, and Charlie may rake in hundreds of thousands in income from sales of his product or service -- but Charlie's business spends more than it brings in, and Charlie's business has a loss every year.

So Charlie doesn't really have a tax problem. Instead Charlie has any number of other problems. He has a marketing problem, or a management problem, or a personnel problem. Charlie's business is failing, and paying zero taxes is just a symptom of a business that will eventually close.

REASON #5: Charlie is just scraping by. Charlie's business may not be losing money every year, but it's not really making much either. He has a small profit -- enough to keep him busy. His business may even "look" profitable, but it's really the classic shoestring operation.

So now, I ask you, do you really want to pay zero taxes? People who don't pay taxes are usually in one of these five categories: Chronic Liars, Pond Scum, Stupid, Broke, or Just Scraping By.

The purpose of business is to be profitable.

The unavoidable result of a profitable business is taxes. And yes, you should do everything legally possible to reduce those taxes. But if you are going to be successful, you are going to pay some taxes.

When it comes to taxes, stay away from Charlie.

How To Avoid Those Mind-Boggling Depreciation Rules

Tired of dealing with those complex depreciation rules? Thanks to recent tax law changes, here's how to avoid them completely while benefiting from a lucrative small business tax break that not only puts money in your pocket, but also makes the filing of your income tax return much simpler.

What am I talking about? It's called the Section 179 deduction, and if there's one tax law you need to understand, this is it. Here's why:

The Section 179 deduction enables the Small Business Owner to "expense" (i.e. deduct in the current year) up to $105,000 of the cost of most business equipment, rather than use those stingy depreciation rules that require you to write-off the cost over five or more
years.

What's so great about that?

Think about it like this: I've got a dollar and I'd like to give it to you. You have two choices -- I give it to you now, or I give it to you 5 years from now.

Which do you prefer?

Obviously, you'd rather have it now, right?

And why is that?

Because of what you learned way back in Finance 101: something your banker calls "the time value of money."

I'll spare you a boring textbook definition. Instead, let's just assume we agree on this simple point: Is a dollar worth more today or 5 years from today?

It's worth more today.

And that's why the Section 179 deduction is so valuable.

Huh?

Let's use an example to bring all this financial theory into reality.

You buy $5,000 worth of office equipment in 2005. Under normal depreciation rules, you wouldn't get to take a deduction for $5,000 in 2005. Instead, you'd write off the $5,000 over 6 years -- part in 2005, part in 2006, etc.

If you're in the 35% tax bracket, you get your $1,750 in tax savings over 6 years. Yawn. That's a long time!

You'd get your deduction, and the resulting tax savings, but you'd have to wait 6 years to realize all the benefits.

Section 179 says that if you meet certain requirements, you can deduct the full $5,000 in 2005. You reduce your taxes by $1,750 in Year 2005.

So let me repeat my rhetorical question: Uncle Sam has $1,750 he'd like to give you. When do you want it? All at once, or spread out over 6 years?

That's the beauty of Section 179.

But you have to meet certain requirements to benefit from Section 179. One requirement concerns the total amount of equipment you can deduct rather than depreciate. In 2002, the amount was $24,000. And for 2003, the amount was originally set at $25,000.

Then Congress and the President passed a new tax bill in late May 2003 that raised that amount to a whopping $100,000. And since that $100,000 is adjusted for inflation each year, the maximum Section 179 deduction amounts have been increasing:

Year 2004 -- $102,000
Year 2005 -- $105,000
Year 2006 -- $108,000

Never liked depreciation? Well, you can pretty much kiss it good-bye now.

One final note: A few other requirements must be met to claim the Section 179 deduction. Here's a brief, but not comprehensive, overview:

1. Most personal property used in a trade or business can be deducted via Section 179. Real property cannot. Typical examples of personal property include: office equipment such as computers, monitors, printers and scanners; office furniture; machinery and tools. Real property means buildings and their improvements.

2. The $100,000 amount (adjusted for inflation) can be used through 2007. In 2008, unless new legislation is passed, the amount goes back down to $25,000.

3. There are special rules regarding the application of Section 179 to the purchase of business vehicles. For example, the special "SUV rule" that allowed 6,000 LB vehicles to be fully deducted (up to the $100,000 amount) was recently changed to $25,000, effective October 22, 2004.

4. Your total Section 179 deduction is limited to the business' annual profit. In other words, you cannot use the Section 179 to create or increase a loss.

This is known as the "taxable income limitation." For "C" Corporations, this limitation is very cut and dried. But if your business is an "S" Corporation, Partnership, LLC, or Sole Proprietorship, it may not be as limiting as it seems. For these non-"C" Corp businesses, the Section 179 deduction can be used to offset both business and non-business income.

And if you're married filing jointly, the Section 179 deduction can offset your spouse's income, including W-2 income.

Example: You start a new business in 2005 that ends up with a loss for the year of $5,000 (before taking the Section 179 deduction). Your spouse has W-2 income of $60,000. Even though your business is unprofitable, you can still take the full Section 179 deduction of $5,000 (again, assuming your business is an entity other than a "C" Corporation).

Be sure to consult with your tax professional to get the scoop on all the Section 179 rules.

4 Simple Steps To Reduce Your Taxes In 2010

Does Tax Season get you down?

Here are 4 simple steps that any small business owner can take to lower your tax bill this year.

STEP #1: Understand How Serious Your Tax Problem Is

Are you aware of just how much in taxes you are paying?

Here's how much the average family spends on various consumer categories -- as a percentage of income.

You must realize that it's not how much you spend on taxes that is important, it's how much you spend on taxes as compared to all other major categories of spending.

Consumer Spending:

How Do You Spend Your Hard-Earned Dollars?

Taxes ---------------------- 32.0%
Housing -------------------- 16.7%
Medical Care --------------- 11.5%
Food ----------------------- 8.2%
Transportation ------------- 7.9%
Recreation ----------------- 5.7%
Clothing ------------------- 4.1%
Savings -------------------- 1.4%
Other Miscellaneous -------- 12.5%
TOTAL --------------------- 100.0%

So, if you think you are being "nailed" by the government, you are absolutely right. You spend more on taxes than any other category of consumer spending.

In fact, you spend more on taxes than on food, clothing, and housing combined.

And it's not just federal income taxes we're talking about here. There's also state and local income tax, payroll tax (Social Security and Medicare), sales tax, excise tax and property tax.

Maybe you already knew "intuitively" that your tax bill is outrageously high. If not, the picture I've just painted should thoroughly convince you that you pay too much tax, period.

STEP #2: Get The Right Attitude About Your Taxes

What do I mean by this? Well, you simply must have a certain "mental attitude" toward this whole idea of paying taxes. I'll get right to the point -- you must have an attitude about taxes that says, "Enough is enough. I'm paying way too much tax and I don't like it. And it's about time I did something about it -- TODAY!"

After reading those numbers above, how do you feel? Doesn't that just make you furious? If so, great, then you are on your way to solving this problem. The old cliche is true: "You can't solve a problem until you admit you have one.")

If you saw those numbers above and said, "Big deal. So I pay 32% in taxes. So what? So does everybody else in this country" -- well, I'm sorry, but you might as well just stop reading this article right now. You will continue to pay too much tax because you really don't care about it.

To reduce your taxes, you must be committed to the idea of paying less taxes.

Before today is over, go get last year's personal income tax return (Form 1040) and look at how much tax you paid.

When you have Form 1040 in front of you, do you realize where the most important number is on this form?

No, it's not Line 71 -- the refund amount.

No, it's not Line 74 -- the balance due amount.

The most important number on Form 1040 is Line 62.

It says: This is your TOTAL TAX. That is how much federal income tax you paid for all of last year. When it comes to reducing your taxes, it doesn't matter whether you got a refund or whether you had a balance due.

What matters most is: What was your total tax liability for the year. That's the "magic number" that should just make your blood boil and your heart beat so fast that you can hardly stand it.

Now that I've got you all "riled up" about paying so much tax, let's move on to Step #3.

STEP #3: Realize That Reducing Taxes Is The Easiest Path Possible To Creating Wealth

Consider this simple fact: Reducing your taxes by just $4,000 per year is the easiest way possible to becoming a millionaire.

Let me elaborate.

Let's say you implement some new tax-saving strategies that reduce your taxes by $4,000 each year. Now, if you take that $4,000 per year in tax savings and invest it over the next 30 years, assuming you earn 11.5% on your investment, you end up with $1,048,745.98 at the end of the 30 years.

And here's the best part about this scenario: Where did you get the $4,000/year to invest? Well, you got it from money that would have gone to Uncle Sam. It's money that you used to spend on taxes, part of the 32% of your income that goes to taxes each year.

In effect, it's free money. It's money that was always there -- you just didn't realize it.

Is this a good deal or what? By simply reducing your taxes, the government will finance your million-dollar retirement.

And let's say your tax situation is such that you save $2,000/year instead of $4,000/year. Same assumptions: you invest the $2,000 each year at 11.5% for 30 years. End result: $524,372.99. Not too shabby, eh?

So all you have to do is come up with the tax-saving strategies that will put $2,000 or $4,000 in your pocket each and every year. Which brings us to Step #4.

STEP #4: Get Hold Of The Tax-Saving Strategies That Will Make You A Millionaire

You know, it doesn't really take much information to save a bundle in taxes. It is true: just a little bit of tax knowledge goes a very long way.

Useful tax information is freely available. On the Internet, at your local library, and through your local tax professional.

The question is: Are you willing to spend some time this year learning about effective tax strategies that can save you literally thousands of dollars?

Here's a simple goal to set for yourself: Over the next 10 weeks, set aside just an hour a week to read up on tax-reduction strategies. That's all, just 10 hours.

Chances are you'll find 2 or 3 strategies that reduce your tax bill by $1,000 this year.

So you spend 10 hours and, in effect, pay yourself an extra $1,000 for your time. Not a bad hourly rate, eh?

Many times, that's all it takes to pay less tax.