IRS Gives Victims of Hurricane Katrina More Relief

The IRS has announced further tax relief for victims of Hurricane Katrina due to slow clean up efforts and obviously devastated areas.
The IRS is giving relief to both businesses and individual taxpayers in certain areas that have been absolutely wiped out. Instead of being required to file in March or April, depending on whether the payer is a business or individual, all taxpayers in certain regions will have till August 28, 2006. Further, the IRS is waiving all late filing penalties on people in the impacted areas even if they don’t file by the August 28, 2006 deadline.

This automatic extension represents a very positive move by the IRS, but readers should keep in mind it doesn’t apply to all areas. Only the most severely damaged areas get to take advantage of the extension. Those areas are in Louisiana: Cameron, Jefferson, Orleans, Plaquemines, St. Bernard, St. Charles, and St. Tammany. The automatic extension is also applied to individuals living in the Mississippi counties of Hancock, Harrison and Jackson.

For impacted taxpayers who live outside of these areas, the IRS is willing to grant more time to file taxes. Said taxpayers, however, must contact the IRS to identify themselves. To do so, taxpayers must contact the IRS by calling 1-866-562-5227, a disaster relief hotline or writing Hurricane Katrina on their tax returns when filing.

Importantly, none of these extensions applies to any ongoing business tax requirements for entities which are functioning. Ongoing business tax requirements include items such as filing employment tax deposits for employee wages if your business is still functioning. You can file your annual tax return late, but not monthly or quarterly items if you are up and running.

Without doubt, the Internal Revenue Service is the most maligned agency in the government. It is ironic that the agency has made positive step after positive step to grant relief of all sorts to victims in the disaster zone. The IRS has even published articles and press releases telling victims how to file amended taxes to claim the losses on previous tax returns and get refunds.

Compared to the rest of the federal government, the IRS is clearly the only agency that has stepped up and delivered for the victims of Hurricane Katrina. For once, the IRS deserves a standing ovation.

Income Tax Help

There are many websites on the Internet today that gives much needed income tax help for those who have no idea of what's going on during tax time. Income tax is a tax paid on income, unfortunately no matter how little it is. It's paid by employees and people who are self-employed and may also be payable if you are not working but you have an income, such as a retirement pension or an occupational pension. Not all types of income are taxable and it will seldom be the case that all of your income is taxed. There is no minimum age at which a person becomes liable to pay income tax. What matters is your income. If this is below a certain level, no tax is payable. There is actually no single definition in tax law of income. Income tax law divides various types of income into schedules. If an item comes within a schedule it counts as income and income tax must be paid on it. The way the tax must be paid will depend on which schedule it falls into. The most common schedules are Schedule E for employees and Schedule D for the self-employed.

There are five main steps in calculating income tax:-

Step 1: Add together all your yearly income, including social security benefits, income from renting out accommodation, wages, occupational pension, interest from bank and building society accounts.

Step 2: Take off any income which is exempt from tax. Calculate whether you can claim tax relief on any of the money you have spent over the year (tax relief usually applies to people who are self-employed and have to buy items for the business). Deduct this tax relief. This leaves income on which tax may be payable (taxable income).

Step 3: Work out which tax allowances you are entitled to. You will be entitled to a personal allowance (plus age related additions if appropriate). These allowances are deducted at this stage in the calculation.

Step 4: Multiply the taxable income by the correct tax rate. This gives the tax due to be paid that year, unless you are entitled to married couple's allowance for over 65 year olds.

Step 5: If applicable, deduct the appropriate percentage rate of married couple's allowance for over 65 year olds.

Some income is exempt from income tax, which means that tax is never paid on this income. This income should therefore be put to one side before any tax calculation can be done. Examples of income which is exempt from tax include premium bond prizes, housing benefit, child benefit and profit-related pay. It is therefore necessary to check whether any income is exempt from tax before doing a tax calculation. For more income tax help, all the help you need in on the internet. The IRS itself can give you income tax help and answer any tax questions you may have.

Tax Laws The IRS Doesn't Want You To Know About

Most People Are Not Acquainted That We Have Two Tax Systems. </p><p>One is for employees, which was created to booty your wealth, and one is for baby businesses that was advised to actualize bread-and-butter growth.  By actuality acquainted of the additional you will save bags of your adamantine becoming money.

Most People Are Not Aware That We Have Two Tax Systems.

One is for employees, which was created to take your wealth, and one is for small businesses that was designed to create economic growth. The reason is that small businesses generate over 70% of the job growth in this country. This is why Congress passes "good" tax laws (Yes, you heard me right, there are "good" tax laws) for small businesses. However, you must have a business to take advantage of these "good" laws.

If you have a side business and have the right knowledge, you can deduct part of your house, your kid's education (no kidding), some of your vacation costs almost anywhere in the world, set up a pension plan that makes any government plan paltry by comparison and much more. Even better, if your business generates a loss, you can use that loss against any form of income such as your wages, pensions, rents etc.

There Is Catch However

The first catch is you must properly document your deductions.

The second catch is that you must run your business as a business and not as a hobby.

The following are some of the criteria that IRS and the courts look for:

How To Distinguish Between A Business And A Hobby

The IRS seems to love the "loss rule." A person must have a profit two out of five years. In one of my tax law classes, the professor was determined to show that any business that did not show a profit in two out of every five years would lose all of the tax-deductions. I remember distinctively showing that this is only a misconception of the tax rules.

(From IRS Publication 535)
Generally, a hobby is an activity that is carried on for personal pleasure or recreation. It is not an activity entered into with the intention of making a profit. In determining whether you are carrying on an activity for profit, all the facts are taken into account. No one factor alone is decisive. Among the factors to consider are whether:

You carry on the activity in a businesslike manner
The time and effort you put into the activity indicate you intend to make it profitable
You depend on income from the activity for your livelihood
Your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business)
You change your methods of operation in an attempt to improve profitability
You, or your advisors, have the knowledge needed to carry on the activity as a successful business
You were successful in making a profit in similar activities in the past
The activity makes a profit in some years, and how much profit it makes
You can expect to make a future profit from the appreciation of the assets used in the activity

Killer Secret: To qualify as a business, you have to prove your intent to produce a profit.

 We have all heard of Internet companies that have lost millions for years, Amazon.com being the best example we all know. If your goal is to take a loss, you have a hobby. If your intent is to create profit, then you have a business.

What You Can Deduct

The Internal Revenue Code allows you to deduct all "ordinary and necessary" expenses of operating your business -- these can vary depending on the type of business. Understanding some of the terminology of the tax code will be crucial and the creating and keeping records related to reducing your tax liability.

President Clinton in one of his famous hearings made the following remark, which many of us deemed to be ridiculous, "It depends upon what the meaning of the word is "is". What you "name" your deduction will often determine whether or not it is deductible.

(From the IRS Publication 535)

You can deduct business expenses on your income tax return. These are the current operating costs of running your business. To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business, trade, or profession. A necessary expense is one that is helpful and appropriate for your business, trade, or profession. An expense does not have to be indispensable to be considered necessary.

Killer Secret: Find ways to deduct expenses that occur every day for you!