Owe Taxes? These Tips Can Help

Owe Taxes? These Tips Can Help

by | Apr 3, 2018 | Tax Planning, Tax Preparation

Owe Taxes? These Tips Can Help

Owe Taxes These can help . A few of us receive an intimation letter from the IRS stating that we owe them some money in the form of taxes. Sure enough, nobody likes to receive such emails. However, if you do here are some ways you can handle the situation without losing your sleep.

Do not delay

If you receive that envelope from IRS, do not be a skeptic and not open it at all. I have seen quite a few friends who just do not wish to open the envelope. There are chances that your tax filing might have a minor error that you need to fix. Whatever the reasons could be, do not forget to open and read the letter as soon as you receive it.

jniThe letters from IRS usually tend to be long and a bit difficult for some people to understand. While calling the IRS might not be the most efficient method, it surely is the easiest workaround. Speak with them to understand the need for the letter and clarify should you have any queries regarding it.

Verify if you owe money

It is of utmost importance that you keep your nerves calm and read through the letter properly. It will help you access if you really owe the IRS some money or not. There are a few instances when the IRS goofs up the returns and sends letters to your address. For an instance, they might calculate your wages twice or Form 1099-Misc twice, which directly impact the taxes that you owe. If in doubt, you can always seek professional help to iron out things.

Taxpayers rights

You are entitled to a few rights as a tax payer such as the right to privacy, take the help of professional services to represent you and only pay the amount that you owe to the government. You can ask a CPA or an attorney to represent you. You can also take help from the Taxpayer Associate Service. You must keep in mind that most of the people involved are merely doing their jobs. Thus, being kind and gentle might help you get through the process a bit faster and with fewer worries.

Don’t pay it off immediately

This advice comes at the backdrop of your financial condition and availability of funds. You need to judiciously pay off any money that you owe to the IRS. For an instance if you have $500 with you and you owe the IRS that much, paying it off immediately puts you at other risks. Ensure that you have all the basics covered such as food and shelter before paying off the IRS.

Pay only your bills

It is not uncommon for business entities and spouses to send the bill to other individuals. If you are stuck in one such situation, do not forget to explore your options. There are chances that you might not be liable to pay the taxes at all. An example of the same would be, if your spouse was part of a deal that you are not aware of, you need not pay taxes on those.

Determine the minimum payment

It might so happen that you do not have the entire amount to pay off the dues. In such cases, check for the minimum amount that you need to pay immediately and look for options to repay the remaining ones as soon as possible. The IRS lets you repay the amount in installments as well. Thus keep your options open and not just get a mental block because you received a letter from the IRS. watch mercedes
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Tax Tips for First Time Filers

Tax Tips for First Time Filers

by | Mar 27, 2018 | Tax Preparation

Tax Tips for First Time Filers

Tax Tips for First Time Filers..Filing taxes for the first time? Don’t let all the experts and jargons overwhelm you. At the end of the day, if you understand some very basic points clearly, you shall pass this test as well. If you are out of the college or just took your first job, it is eminent that you take this step with a lot of seriousness. But not to a level that it becomes a mental block for you. We have outlined some simple tips for you to get through this.

Should you file?

Though this might sound a bit odd, it is essential that find out whether or not you need to file taxes. If a tax payer has mentioned your name as dependent on their tax filing and you had a job which fetched you more than $6300 in a financial year, you will have to file for taxes. If you did not have a job yet managed to earn more than $1050 (could be money from investments, interests etc.) you will need to file your taxes. If you do not belong to either of the categories, you technically need not file taxes. But getting into that habit early on will help you for a smoother transition later on.

Get to it quickly

We all know that April 18th is the last day for filing your taxes. But why even wait for the last day? The earlier you file your taxes, the earlier you receive refunds, if any. Even if you do not finish it immediately, getting started with the process will ensure you are a step closer to it. Because the moment you start the process, you will come to know the different documents needed for the process. One might need to do a bit of research for a few sections. Starting early gives you that time freedom to do these things.

Gather all the documents required

Yes, the previous step will help you find out and eventually gather all the documents that are needed for the filing of taxes. But there are certain other documents that you will need. For an instance, if you are an employee W-2 Form from your employer or Form 1099 if you are a contractor is a must. These forms contain the total amount paid to you for a financial year. While both the forms are expected to be with necessary tax payers by 31st December, for contractors that’s the deadline. Keep a tab on other bigger expenses as well such as charity or education as well.

Being organized is the key

Being organized is more of a life skill that will serve you in different aspects and stages of life. However, it becomes that much more important while dealing with stuff like taxation. Keep a track and copy of all the documents and paperwork related to your job, contracts or money in general. Make it a habit to keep these documents in a single place, which is of course secure. This will ensure you do not run around in the search of documents towards the filing season.

Know what you are doing with your money

There are three simple scenarios. First is the happy situation where you have paid the government exactly what you owe. The second scenario is that you have underpaid your taxes and the third is you have overpaid your taxes. You can find all of these out with the help of some tools. So, do not shy away from using these tools to make you’re a little bit easier. This also helps you keep better control over your money. limited edition
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Top 10 Self-Employed Tax Questions and Its Answers

Top 10 Self-Employed Tax Questions and Its Answers

by | Mar 6, 2018 | Tax Preparation

Top 10 Self-Employed Tax Questions and Its Answers



Top 10 Self Employed Tax Questions and Its Answers.A lot of us fancy having our own business. The idea of being your own boss is quite a strong motivating factor. But there is no denying the fact that you have to take care of most of the factors in self-employment. Here are the top 10 tax related question for self-employed individuals along with their answers.

  • Can I avail home office deductions?

Self-employed individuals usually skip out this part with the fear of increasing their chances of being audited. However, more than 50% of businesses run from an office at home. So, you need your bother yourself with any probabilities of audit as long as you are following the ground rules. The space that you use exclusively for your business requirements is only eligible for any write offs.

  • Can I deduct auto expenses?

Yes, you can. All expenses that are necessary and ordinary when it comes to business usage can be used for tax deductions. It is essential that you keep track of mileage and ensure you separate out own usage versus business needs.

  • What are the deductions applicable to me?

When you are self-employed, it is a bit more complicated to do your taxes. However, there are a lot of potential areas that you can opt for deductions that you could not do with your normal job. Essentially you can deduct any expenses that help you to run your business smoothly. Expenses such as marketing, internet bills, business related travels etc. can be deducted.

  • Is there a limit up to which I do not have to declare my self-employment earnings?

As per IRS you need to declare any income, irrespective of how small it might be out of self-employment. Thus, you need to report any and all of your sources of income, so that you do not attract any unwanted attention. If you sell services or products directly, it is a bit difficult to manage things. Thus, it is advisable to keep a track of all the earnings and report it.

  • Should I submit receipts for any write-offs?

You do not have to submit any receipts for write-offs unless explicitly called for.The safest option is to keep receipts of all expenses with you in a folder. It would allow you to file your taxes more effectively and submit the same if needed.

  • Is it necessary to hire an accountant for taxes?

No. It is not necessary to hire an accountant to do the taxes for self-employed. However, it largely depends on you, if you wish to take such services or not. Individuals, who had some experience with business taxes, can do it on their own with a little bit of research. But if you are not very confident about it, hiring an accountant might not be a bad idea.

  • What are the chances of me being audited?

Individuals making less than $25000 a year have 1% chance of being audited. While there is a 2% chance of being audited if the income is between $25000 and $100,000. If you make more than that, there is a little more than 2% chance.

  • What about health insurance premiums?

If you’re in business and you pay for your own health insurance premiums, you can deduct it as medical expenses.

  • Should I fill up the W-9 Form, as asked by a client?

If a company wants you to provide them with either your FEIN or social security number, they will ask you to fill out the W-9 Form. The Form which is for self-employed and independent contractors is similar to W-2 Form.

  • Do I need FEIN (Federal Tax ID Number)?

For individuals who are sole-proprietor or single-member LLC, they need not have a FEIN as they can use their social security number. Since, it is free to get a FEIN, having it would not hurt anyways.

Why Tax Consultant is Important

Why Tax Consultant is Important

by | Oct 27, 2017 | Tax Planning, Tax Preparation

Why Tax Consultant is Important

Before we get started with answering the question, let us first understand what a tax consultant is.

The simplest possible definition of a tax consultant is someone who can help you reduce your tax liabilities by following some of the best practices.

Individuals who qualify as tax consultants are trained with the law and accounts so that they can provide you with ways to manage your money and taxes as well. If you have ever been part of the tax filing process, you would be aware of the cumbersome and tiring process. The hiring of a tax consultant makes that part easy as he assists you with the entire process.

Do you really need a tax consultant?

If you are someone who values each and every penny, hiring a tax consultant might be a very effective decision. You can invest the money that you save by hiring a tax consultant somewhere else and make the most of it. Many times, getting the right advice and right direction towards tax planning can be the defining factor between the good and efficient use of your financial resources. Tax consultants are individuals who are thorough with the tax codes and know all the places where you can save money. By incorporating these practices, deductions and taking tax credits when and where possible you can save a substantial amount of money. What you should not confuse tax consultants with are individuals who help you find loopholes in the system. That is far from the truth and in fact misleading in a lot of ways. They merely educate you with the different clauses that you can benefit from.

  • Seasoned tax consultants have a ton of experience under their belts and you can definitely benefit from the same. Sure, there are tons of consultants available who will offer their services at much lower rates as compared to others. But when it comes to taxes and their filings, it is better to take the commonly used road and pick a seasoned or experienced consultant. The chances of seasoned consultants making mistakes are way less as to consultants who are fresh out of graduation.
  • Hiring a tax consultant can keep you away from the nightmares of technical details of the tax codes, which can be overwhelming for a lot of individuals. The tax experts or consultants undergo exhaustive training before they actually start practicing.
  • As the tax consultants are aware of both the government policies as well as the way the government works, it is much easier for them to route around. It is all about using your resources smartly without breaking any sorts of law or without getting into any troubles.
  • Though being aware of the laws might seem not all that significant, they play a critical role deciding a tax consultant for you. Knowing the laws in and out ensures that you do not get into any legal disputes by taking any of the routes mentioned by the expert. Also, the laws undergo amendments on a regular basis, which can be a bit difficult for a layman to keep track of. A tax consultant, on the other hand, is not only aware of these changes but also very well versed with the same.

If you have some additional source of income, filling up the forms properly can be quite challenging. Be it another job or rent a property, a tax expert would ensure the forms are filled up in the best possible way and at the same time also ensure that you do not pay more taxes than you owe to the government.

 

Taxable Income vs. Nontaxable Income: What You Should Know

Taxable Income vs. Nontaxable Income: What You Should Know

by | Oct 13, 2017 | Tax Planning, Tax Preparation

Taxable Income vs Nontaxable Income: What You Should Know

We all have that feeling that the government is always on the lookout for extracting more taxes from us. That feeling is not too far off if you take into consideration the definition of taxable income.

Once all your deductions are taken away from the gross income, taxable income is what is left on paper.

But things can get pretty confusing when it comes to gross income because as per the laws, income from any source qualifies to be gross income.

It becomes extremely important at such times to take some time off and reflect on the different sources of income and see which of them qualify as taxable and which all as nontaxable. So that you are not confused when the next time you win a jackpot or receive any compensation from your work place. Being aware of them also helps you plan for your taxes more efficiently.

You can also save some money on your taxes if you know it well enough which category a specific amount comes under.

Consider this as a rule of thumb, that any amount or source of money that helps increase your net wealth can be taxable.

Taxable Income

Though this list might turn out to be pretty big, we will try to cover as many sources as possible that qualify as a taxable source of income.

  • Salary from your employer
  • Wage from your employer
  • Any form of commission
  • Any kind of fees
  • Interest received on various fronts
  • Dividends from stocks
  • Compensation when you are unemployed
  • Any tips received
  • Awards and bonus (even if any trips are included)
  • Severance package received
  • Any notes that you receive as part of your service
  • Any form of non-cash income coming out of bartering
  • Rent from personal properties
  • Income or loss from gambling
  • Capital gain or capital loss
  • Financial counselling fees that your employer pays for you
  • Stock appreciation rights
  • Any debt that is cancelled or forgotten
  • Royalties received under any category
  • Back pay awards from any settlements

Any fringe benefits that you receive as part of the services that you provide is also taxable. Some common examples of fringe benefits include:

  • Gym membership paid by your employer
  • Gifts that you receive from your company, even in form of holidays or certificates
  • Vehicle provided by company for personal usage
  • Group life insurance if the same exceeds a certain amount.

Nontaxable income

Now you must be wondering, if there is anything left at all for nontaxable income. But in fact there are quite a few categories left, which are nontaxable. They are:

  • Most of the health care related benefits
  • Any child support money
  • Amount received as inheritance or gifts
  • Cash discounts that you receive when shop from a retailer or dealer
  • Any form of welfare payments
  • Reimbursements from qualifying adoptions

Apart from the above ones, there are a few more instances where certain items are nontaxable.

  • If you are the nominee on someone’s life insurance, the amount you receive on their unfortunate death is nontaxable
  • If your boss or employer provides you with any educational assistance, the same is nontaxable up to $5250
  • Certain companies provide financial assistance for adoption of kids, that amount is nontaxable
  • Compensation that you receive as part of any injury or illness that occurred during working hours or any other federal or state level compensation is also tax exempt
  • Earnings from certain types of bonds are non-taxable

Being aware of different taxable and nontaxable sources makes things a little bit easier when it comes to tax planning. The above points should help you assess if a certain source type is taxable or nontaxable so that you can take appropriate steps.

Don’t forget to check our blog for more Tax related information, Click here now to learn more.

1040, 1040A, 1040EZ Which Tax Form Should You File?

1040, 1040A, 1040EZ Which Tax Form Should You File?

by | Oct 6, 2017 | Tax Preparation

1040, 1040A, 1040EZ Which Tax Form Should You File?

When it comes to federal income tax filing, there are three forms available for filing the returns IRS Form 1040, IRS Form 1040A and IRS Form 1040EZ. And this is the part that confuses most Americans, which form to choose. Each form has a different purpose and different set of requirements as well.

The easiest of them all is 1040EZ, as it is the shortest and the simplest. The 1040A follows it with bit more details and the 1040 tops the list with complexity and length of the form as well. Anyone can go ahead and use the form 1040. But to use 1040A and 1040EZ you need to meet certain criteria.

If you are still filling out forms on paper, it is advisable to use the simplest as it calls for fewer errors and subsequently faster processing.

1040EZ

This is the simplest translation of Form 1040, but it has some minor drawbacks as well. For an instance, you cannot make adjustments to income (apart from Earned Income Tax Credit) or itemize your deductions. 1040EZ also does not have any provisions for alimony, dividends, capital gains or money from self-employment.

To use 1040EZ, you should be ticking off all of the following check points:

  • A taxable income that is less than $100,000.
  • You have a single or married filing jointly as your filing status.
  • You do not have any dependents.
  • Your (and your spouse’s if married filing jointly) age is below 65 years on 1 January for the year for which you are filing taxes.
  • You should not be blind for the year you are filing your taxes.
  • A taxable interest of $1500 or lower.
  • Boxes 5 and 7 of the W-2 form contains all the tips received (if any).
  • Your source of income is one of the following:
    • Salary
    • Wage
    • Tips
    • Alaska Permanent Fund dividends
    • Scholarship or university grants
    • Compensation for unemployment
  • There are no pending household employment taxes against your name, for the household wages you paid to an employee.

1040A

Form 1040A sits right between 1040 and 1040EZ when it comes to the length of the form as well as its complexity. It also opens up avenues for certain deductions, which 1040EZ does not allow you. You can use Form 1040A if you fulfill all of the following criteria.

  • A taxable income that is less than $100,000.
  • There are no itemized deductions. (You can’t utilize mortgage interest or charity donations)
  • Your source of income is one of the following:
    • Wage
    • Salary
    • Scholarship or university grants
    • Tips
    • Interests
    • Dividends
    • Pension
    • IRAs
    • Annuity
    • Alaska Permanent Fund dividends
    • Compensation for unemployment
    • Social Security that is taxable
    • Capital gain
  • You are claiming only the following tax credits:
    • Education credits
    • Child tax credit
    • Earned Income Credit
    • Credit for child and dependent care expenses
    • Retirement savings
  • The following are the only adjustments against your income.
    • Education loan interest
    • IRA
    • Educator expenses
    • Tuition and Fees deductions
  • Taxes applicable for you are any one of the following:
    • Capital gains
    • Dividends
    • Form 8615
    • Tax applicable as per the Tax Table

Filing taxes can be a daunting task if you do not know where to start from or do not pick up the right form. If you are eligible for 1040EZ or 1040A make use of it and go for 1040 only as last resort.