Change Your Life By Filing Your Tax Return

2010 Tax Return

Someone who has not filed his 2010 tax return may be a little nervous. The IRS, the most ruthlessly efficient collection agency in the country, tends to take a dim view of people who do not file their tax returns in any year. The organization wants to make sure the government gets the money it feels that it’s owed. Whether or not the taxes are fair or not is an irrelevant issue. The government needs to make sure it has the funds it needs to continue running. This is especially true with the current national debt.  It may seem to be a little clichéd, but filing 2010 tax returns can change your life.

It will not bring the great change promised by certain self-help pundits, but it certainly will bring relief.  A person does not need to lie awake at night wondering if he has filed his taxed properly or if he is going to suffer from any unwanted visits from the IRS agents. He may prefer to think of the agents as men in black, but that is unlikely to bring a person any comfort. Fortunately, the IRS will do its best to make it easy for a person who owes back taxes to give it money, even if the amount it is demanding is not in line with what the person thinks he owes. Filing his 20120 taxes can prevent a larger problem down the road.

5 Tax Tips for Self-Employed Individuals in Any Field

Self-employment is like ice cream; it comes in a large variety of flavors. You can be a freelance writer, a graphic designer, a landscaper or a dog walker. Some people are self-employed full time, while others work part-time around their “day job”. Whatever your flavor of self-employment is, there are some definite tax tips you need to know.

If You Earn It, You Have to Declare It

If you do work for businesses, they will generally send you a 1099 form that you have to file at the end of the year. However, even if you work for individuals, or a business that does not send you a 1099 form, you still have to declare that income. Do not be fooled by thinking, “If I make less than $600 from one person (or business) during the year then I don’t have to declare it.” That is an often-misunderstood concept. The IRS expects you to declare every penny you earn.

Track Your Income and Expenses

You do not want to hand your accountant envelopes full of unsorted receipts and cashed checks come tax season. The accountant may miss some deductions because he or she could not find the right slip of paper. Even relatively inexpensive programs like Quicken work great. Keep track of all your hard copy paperwork and keep it organized as well. The IRS has very specific rules about business tax deductions and whoever does your tax return will need as clear a picture as possible to maximize your deductions.

Estimate Your Taxes

There are two ways to avoid being hit with a whopping tax debt at the end of the year. Either you have to be frugal enough to put away a certain percentage of every payment you receive, or you have to arrange with the IRS to pay quarterly estimated tax throughout the year. Most people choose the latter in order to avoid yearly penalties for underpayment. It may be tempting to spend all your money as quick as you earn it, but remember that just because no one took taxes out when you earned it, that does not mean you will not have to pay later. Estimating and paying your taxes is one way of avoiding having to file a tax extension form in the future.

Pick Your Name

If you are doing business under your own name, that is great. You just file a Schedule C form with the IRS and life is simple. However, if you are doing business under a company name, then you should have some sort of business license in order to avoid problems with the IRS. It can be a simple DBA (doing business as) license, but you want to make sure that you have all your legal paperwork in order before filing your taxes.

Self-Employment Tax

The IRS does charge a special tax rate for people who are self-employed. You will have to pay the self-employment tax, but you can deduct half of when figuring out your adjusted gross income. Form 1040 Schedule SE, available on the IRS website, will help you figure out exactly how much your self-employment tax will be.

Filing a tax return when you are self-employed is trickier than filing a regular tax return. Many people find that going to a professional tax accountant is well worth the initial fees in order to get the highest possible return they can. Unless you are very knowledgeable about business tax laws, you should keep yourself as organized as possible and seek the help of a reputable professional when it comes time to file your taxes.

About the Author: Annita Grosh is an accountant who specializes in working with self-employed invididuals. She loves watching as an idea becomes a workable and profitable business.

Would You Like To Have the IRS Do Your Taxes?

To paraphrase Will Rogers, more liars were made of the American people from income tax than from golf.

But if the IRS made it easy and almost impossible to lie on a tax return, would anyone be interested?

Doug Shulman, the IRS Commissioner, recently hinted that if the IRS would prepare taxpayers’ returns the potential for tax fraud would be reduced. No-one would have to prepare their own returns at tax time because the IRS would do it for them.

The common name for this idea is a “ready return” or “simple return.” The IRS would complete the taxpayer’s wage information and identification under this plan and send out the completed returns. Taxpayers would sign them after checking them for accuracy and correcting any mistakes, and return them.

It is already the responsibility of employers and other parties to provide income information to the IRS, so they already have most of our information at their disposal.

Completing the returns for taxpayers would be expensive, however, and the IRS does not presently have the budget nor the manpower to carry out the plan. It would mean a major undertaking to add preparing returns to the collections and enforcement they are already obligated to do. However, Shulman apparently thinks it is worth discussing.

California already has a similar, if limited, plan for their state taxpayers. Not many have signed on, though, because of limits such as no more than five dependents, income from wages only and mandatory standard deduction. Those who do use the system reported they like it. Nobody knows if the IRS will ever implement such a plan.

Changes For Tax Filing

Tax season is upon us and even though the filing deadline is months away we all need to be prepared ahead of time. The required documents for each of us will arrive in the mail in the month of January so everyone who plans to file taxes needs to start preparing files and documents that have tax implications.

New for 2012 is the fact that the The Internal Revenue Service (IRS) gave taxpayers an extra two days to file taxes this year. April 15th falls on a Sunday and the 16th is Emancipation Day (an observed District of Colombia holiday) so April 17 is the last day that regular tax forms will be received as “on time”. Individuls who are unable or unwilling to file by April 17th may file for an extension and in that case the deadline is October 15th. This extension date is for filing purposes ONLY and is not applicable for individuals who must PAY taxes. If one does not meet the respective deadline then penalties and interest may result as a consequence.

Some people elect to pay their taxes quarterly and in this case the next payment is due on January 16th. The remaining dates for quarterly payments are April 17, June 15 and September 17.

Brokerage firms are now required to report proceeds from the sale of stocks and mutual funds as well as the complete cost basis of investments that have been sold. Individuals and businesses who need to report capital gains should use the new Form 8949 to file such reports.

The rates for calculating business mileage has also changed due to gas prices and inflation. Use a rate of 51 cents per mile up to June 30, 2011 and change to a rate of 55.5 cents per mile from July 1 through December 31. This is the business rate alone; moving and medical mileage is 23 cents per mile and charities can deduct 14 cents per mile.

Individuals making a 2011 tax filing should be aware that the tax credit for first-time home buyers has expired for everyone except those who serve in the military or Foreign Service. The Making Work Pay credit has been eliminated as well, so the $400 single/$800 joint credit against liabilities is no longer valid. For a full list of changes visit irs.gov.

Keeping track of your business mileage

The guidelines that are in place from the IRS enable workers and business owners to claim for mileage as a business deduction if you are using your vehicle for business purposes. Some people who are employed are able to deduct business mileage if it is not reimbursed by employers or is only partially reimbursed at a rate that is lower than the official business mileage rate.

Owners of small businesses also often use their vehicles for business related purposes and in this event they too can claim their mileage as a business expense. However, it is important that no matter why or how you are claiming for your business mileage you are able to differentiate between business and personal use mileage and that you do not end up claiming for mileage clocked up when using your vehicle for personal use, as this could be classed as a fraudulent claim. On the other hand you don’t want to miss out and end up claiming for less mileage than you have actually done for business. For these reasons it is vital to ensure that you keep track of your business mileage.

The easiest way to keep track of your business mileage is to use your odometer, which will enable you to see how many miles you do from the start of your journey until the end, each time you go out for business purposes in your vehicle. You simply need to record the number of miles that you do either on a spreadsheet or even in a notebook that you use specifically for logging mileage. It is also advisable to make a note on your spreadsheet or notebook about why you had to make this trip, as this is information that the IRS may ask for. Write or log down where you traveled from and where you traveled to, detailing any detours that you may have made en-route for business purposes.

Of course, many people forget to check their odometer before they head out and therefore, unless they have made the same trip many times and already have a record of the number of miles done, it can become difficult to estimate your business mileage for that particular trip. However, you can simply use an online map and enter details of where you travelled from and to in order to get a good idea of the number of miles that you have done.

Andrew writes frequently about personal finance as well as issues effecting both consumers and small businesses, covering everything from savings to mortgages to
Auto insurance car insurance.

Top 10 Reasons for a Tax Audit

A tax audit can occur for several different reasons that most people are not aware of.  You will have to comply with at least two of these factors before you have anything to worry about.

The most popular reason for a tax audit is unreported income.  Here, there is a lot of paperwork that must be filled out and completed.  When the paperwork contains errors or does not get turned it at all, issues can start to occur.  This type of paperwork is also time sensitive and should be received in order to file by January 31st.

Improperly prepared tax returns are the second most common reason for a tax audit.  In the event that your tax forms are filled out or filed incorrectly, this will definitely have the IRS breathing down your neck.  In this case, many people decide to round numbers or estimate amounts when it comes to their deductions.  When information is repeatedly misrepresented and estimated, the IRS may view this type of activity as a red flag.

A drastic increase or decrease reported income can raise a few eyebrows within the IRS.  When income amounts fluctuate a great deal, whether it is an increase or decrease, this could insinuate that somewhere along the line, income was not reported.  Taxpayers may also be tempted to hide assets such as bank accounts but in many cases, the IRS can find out.

Income that is not enough to support the individual’s current lifestyle can also become an interest of the IRS.  If you report things, such as a mortgage or other type of tax on property but do not show income that can represent proof of these allegations, this may pose additional issues.

Claiming charitable contributions can also get you into trouble with the IRS.  Some may claim to have given a specific amount but the IRS may look for documentation to prove your contribution.  The IRS provides information on how to properly report charitable contributions.  A safe percentage in this case would be anywhere from 2% to 5%.

If you are claiming business expenses, make sure expenses are business-related.  Many taxpayers have reported expenses that have turned out to be personally related.  Also, keep in mind of purchases made with business funds but have been used for personal reasons.  Be sure to document expenses such as travel and equipment purchases correctly in order to obtain the proper credit.

Andrew writes frequently about personal finance as well as issues effecting both consumers and small businesses, covering everything from credit cards to mortgages to how to setup an umbrella company.