How Would You Feel About This Surprise Tax Bill?
The massive amount of credit card debt that American consumers have accumulated over the years is a heavy ball and chain. In our depressed economy with so many people dealing with job loss, reduced income and higher gas prices, making credit card payments is difficult. When choices have to be made between credit card payments and rent, guess what wins?
Millions of consumers, especially small business owners, are turning to debt relief services to negotiate their credit cards down to pennies on the dollar. This will hurt your credit, but there is a bigger hurt that is sometimes overlooked. The Internal Revenue Service considers consumer debt that is forgiven to be income; and it is fully taxable!
Companies like Tax Defense Network provide help with IRS problems. Getting $30,000 in credit card debt forgiven can be a huge financial and emotional relief, but before doing it, understand the tax consequences. When debt reduction greater than $600 is granted by a bank or other creditor, they are required to mail you form 1099-C which documents for you and the IRS the amount of forgiven debt. Note that Congress passed legislation to exclude mortgage relief (short sales) from this tax law.
Consulting with a tax professional, like those available at Tax Defense Network, before making a big decision like debt relief can save you from owing thousands of dollars to Uncle Sam.
If you do not pay your taxes on time, the government treats it like you have taken a loan from them. In fact, Congress has passed a law that requires the IRS to charge interest on late payments. The interest charge is not only based on the tax bill itself, but also on the penalties. To make matters worse, the interest is compounded so that you pay interest on top of interest. If you are having difficulty understanding the letters, forms and calculations regarding a tax problem and can not get satisfactory assistance from an IRS Taxpayer Advocate, consider a free ten minute consultation with a professional.
Penalties
In addition to interest charges, there are several kinds of penalties that the IRS can impose:
File On Time; Make A Late Payment: For every $100 you owe the IRS, a late fee of 50 cents is assessed and after 10 days that fee jumps to $1.00 per month. Although this does not sound like much, it adds up fast especially since interest is charged on these fees.
File Late: Make Your Payment Late: If you are late filing and do not pay on time, the penalty is $5.00 for every $100 owed per month. Penalties can add up to almost half of the original tax debt.
Getting accrued penalties and interest reduced is possible. Taxpayers can try to work directly with the IRS to negotiate. Another option is to work with a reputable tax assistance company like Tax Defense Network.
Nathan Randall, editor, DailyDollar Newsletter provides free daily advice on money matters plus coupons and discount codes. FYI…you can now access the DailyDollar Newsletter via iTunes podcast, YouTube video, and on Facebook and Twitter too.
A CPA Helps Business Owners Understand Payroll Taxes
Payroll taxes can be a headache for business owners. Employers are required to withhold some types of payroll taxes from an employee’s paycheck. Some must be paid by both the business owner and the employee, while some are the responsibility of the business owner alone. Along with understanding the different types, employers must stay up-to-date on the amount of each tax, as well as the most current legislation regarding taxes. Many business owners consult a CPA to make it easier.
What Are Payroll Taxes?
There are federal and state payroll taxes. A CPA can help business owners understand both types, but state payroll taxes usually create more problems for employers because the requirements are different depending on the location. In Nevada, there are no state income taxes. Individuals and business owners are only required to pay federal income taxes, social security, and Medicare. Like most states, Nevada does have an unemployment tax that business owners must pay. Nevada also requires many employers to pay an additional payroll tax, known as the Modified Business Tax.
Federal Payroll Taxes
The amount of federal income tax that a business owner takes out of an employee’s paycheck is determined by an IRS W-4 form. Employers are required to have every employee complete a W-4. Generally, social security and Medicare (FICA) are shared equally by the employer and the employee. But in 2011, the employee tax contribution rate was lowered to 4.2% for social security. Business owners are still required to pay 6.2% on all wages less than $106,800. Medicare tax rates are still 1.45% for both parties.
Unemployment Taxes
Unemployment taxes are collected by the federal government, as well as individual state governments, to fund the unemployment program. Most business owners are required to pay unemployment taxes by filing a Form 940 with the IRS. As of July 1, 2011, the federal unemployment rate is 6%, but a credit of 5.4% is available for employers who pay state unemployment taxes. In Nevada, the state unemployment tax is referred to as unemployment insurance tax, or UI tax. Calculating the UI rate depends on several factors that are best explained by a Nevada CPA.
UI Tax Rate
Any business owner in Nevada who pays at least $225 in wages within one calendar quarter is subject to UI taxes. The amount of the tax is a percentage of every employee’s wages, up to $26,400 (2012 wage limit). New businesses pay 2.95% for the first 14 to 17 quarters in operation. After this period, the UI tax rate is determined by Nevada’s ‘experience rating.’ Depending on how much a business pays in UI taxes and the unemployment benefits its employees receive, the UI tax rate can range from 0.25% to 5.4% of the total taxable wages the business has paid.
Modified Business Tax
On October 1, 2003, the state of Nevada made it a requirement for owners to also pay an excise tax on their paid wages. The Modified Business Tax is quarterly based on an employer’s gross wages and paid to the Nevada Department of Taxation. This is in addition to the UI tax that is paid to the Employment Security Commission. The current rate is 0.63%, and there are no wage limits or caps to benefit the business owner. There are deductions available. Most of these credits are associated with health care payments.
Many owners are unsure of the legislation concerning payroll taxes, but failing to comply with state and federal laws can be detrimental to a company. An experienced Nevada CPA is the best resource for learning more about federal payroll taxes, as well as current information on the UI and Modified Business taxes.
Reno CPA Tim Nelson has been helping individuals and businesses with their tax preparation and financial planning for years. Tim has a passion for numbers, so that you don’t have to. Visit Tim Nelson’s Website to download the FREE Business and Tax Preparation Organizer.
To see what else Tim is talking about, visit Tim’s Blog.
Do You Need Year End Tax Tips To Get Organized?
Do you have piles of papers, stacks of statements and drawers stuffed with receipts? Part of preparing for tax season is being organized. The last few days of the year are as good a time as any to invest a few hours in organizing your piles.
When people contact services like independent tax advice providers for assistance, the tax professionals will ask to see a variety of documents, possibly including previous tax returns. Picture all the paperwork you receive throughout the year. Our mail is full of monthly statements from:
banks
credit card issuers
utility companies
car loan servicers
mortgage companies
insurance firms
In addition, you receive receipts from doctor and dentist offices, property and school tax notices, Department of Motor Vehicles correspondence, charities you donate to and more. Having a system to stay organized is key.
One easy process to keep all this paperwork organized is to purchase a four drawer fireproof file cabinet and a box of hanging files. These are inexpensive and may be tax deductible.
Top Drawer Should Have The Label “CURRENT YEAR”
Create a hanging file for each company you receive bills or statements from. Store the current year’s statements and other paperwork in this drawer. Hang them alphabetically. Have one hanging file labeled “Taxes” to store documents you may need to refer to when you do your taxes at the end of the year.
The Second Drawer Should Have The Label “LAST 7 YEARS”
The IRS recommends storing documents for seven years. At the end of each year, move the contents from the top drawer down to this drawer. The hanging files in the second drawer should mirror the categories from the top drawer and the labels should include the year that the documents are from (example “2009 Insurance”). You can consolidate some companies into categories. For example, you could combine your cable, power, water and phone documents into one file called “2009 Utilities”.
The Third Drawer Should Have The Label “LAST 7 YEARS”
You may want to reserve the third drawer for overflow from drawer two. Seven years worth of documents adds up and after a few years you may need both drawers to store all the volume. You can also use this drawer to store all the previous year’s tax returns and supporting documents. If you ever have a tax problem and need professional help from an independent advisory service to work with you to resolve your IRS tax situation, this organization system will save you a lot of time and headache!
The Bottom Drawer Should Have The Label “PERMANENT RECORDS”
A good use for the bottom drawer is for permanent record keeping including jewelry appraisals, title to house, passports, birth certificates, marriage license, social security card and any other documents you feel are important to keep on a permanent basis. If you have room left over you can create some files to store catalogues you want to keep as well as manuals and warranty information for items you purchased like electronics.
After documents are older than seven years, simply remove them from the file cabinet and shred them. Imagine the clutter this system will remove from your house and how easy it will be to find something when you really need it.
Nathan Randall, editor, Daily Dollar Newsletter provides free daily advice on money matters plus coupons and discount codes. FYI…you can now access the Daily Dollar Newsletter via iTunes podcast, YouTube video, and on Facebook and Twitter too.
Expiration of Bush-Era Tax Cuts
What are the tax cuts?In 2001 and again in 2003, the Bush administration instituted a series of changes in the tax code that had the effect of lowering the taxes at every level. The 2001 act lowered the 28-percent bracket to 25 percent by 2006 and the 39.6 percent bracket (the top bracket) to 35 percent. The 2003 act decreased tax rates on income derived from interest, dividends and capital gains and provided a $1,000-per child tax credit, among other measures. In order to ensure the passage of these acts, the Bush administration agreed to allow the tax cuts to expire in 2010.
What happened in 2010? Faced with difficult economic conditions, the Obama administration could not allow the tax cuts to expire for all Americans. They suggested extending the tax cuts for everyone except for those individuals with incomes above $200,000 ($250,000 for couples), who represent 2-to-3 percent of Americans. Republicans in Congress blocked these proposed changes, so a compromise was created that allowed all Bush-era tax cuts to remain in place-but only for two years.
Why are we talking about it again in 2011? In September 2011, President Barack Obama suggested allowing the tax cuts to expire in 2013 as part of his $3 billion deficit reduction plan. In addition, he proposed limiting the deductions, which high-income taxpayers-households over $250,000-can use to reduce their tax liability. If Obama gets his way, in 2013 high-income households would see the top two income tax rates increase to 36 percent (from 33 percent) and 39.6 percent (from 35 percent). In addition, investment tax rates for these groups would rise to 20 percent from 15 percent.
Where the tax cuts a good idea? It depends on who you ask. When the acts were passed, Bush touted the idea that allowing more Americans to have more spending money would help stimulate the economy. Republicans maintain that continuing tax cuts for the $200,000 and up crowd allows the wealthiest Americans to create more jobs through spending and by hiring employees in their businesses; however, that plan assumes that the wealthiest Americans will invest the money in activities that provide jobs.
Opponents of the tax cuts point out that such cuts have contributed to the federal deficit and that they give a disproportionately large break to the wealthiest taxpayers. The Congressional Budget Office (CBO) estimates that extending the tax cuts for all taxpayers for the 2011-20 time period would add $3.3 trillion to the national debt.
What was the impact on the economy?This is also up for interpretation. Conservative economists claim that the tax cuts have been beneficial for the economy and advocate a 10-year extension of the cuts, which they predict would generate a GDP increase of$75 billion annually and a substantial growth in employment. Other studies observe that tax cuts to the wealthiest Americans have not done much to stimulate economic growth. When adjusted for inflation, median household income was lower in 2007 than in 2000; during the same time, the number of jobs grew at .9percent average annual rate, as compared with a 2.5percent average for comparable periods of economic expansion.
The mission of Financial Executives International (FEI) is to advance the success of senior-level financial executives, their organizations and the profession. Learn more about FEI.
Tax Software Does It All For You
The everyday use of professional income tax software is becoming vastly popular. Using a tax software makes filing your taxes to the IRS fast and easy. This may be a reason that it is becoming popular or because people like to keep files on their taxes which most softwares do for you. Tax softwares normally come with files that you fill out. Such as family, house, and marriage files.
This is a great convenience so you don’t have to file each separately. You can pay a direct tax through a tax software, which will go to the government and then you can be expecting a tax return. Now many of us deal with indirect tax everyday. Indirect tax is the usual seven cents per dollar you spend on goods or products that you may buy at a store.
In case you do decide to change or stop using a professional income tax or small business software, you can transfer your tax info to a different software or file. These kinds of softwares keep tabs on everything for you to make it a little less stressful for you. The tax program you use will even keep track of purchases you make with your credit or debit card. This makes it so you may not need to keep track of every receipt, but keeping receipts is still a good idea.
Having your purchases on record will make keeping track of your money will make it easier to handle your budget because you can see exactly where your money went and when it went. There is a range of tax softwares you can use, although they have and use the same basics, others may perform for you better and some may be better for you. You don’t need every available feature, you just need what will cover your needs.
Using a professional income tax software may be a great idea for an employer. Simply because he can keep tabs on his payments on products and see the indirect tax from customers. Having these programs will make just one thing easier in your life. Things are not always easy but it can make at least one thing better.
Tax softwares are even a simple way to save money on filing your taxes. You can have someone do them for you or you can use a tax software and have the same results and save some money at the same time. It is personal preference though. Some people just might trust an accountant and feel more comfortable about it.
A professional income tax software is as reliable and safe as an accountant. You can trust that the software you are using is completely private. There is really no need for an accountant
Some people do taxes themselves which is easily manageable if you have the time. You can save time by having a good tax software. Having a tax software does not mean that you are not in control, you can still manage your own hard earned money.
Jordan McPelt has been writing and teaching about tax software for a long time. He has dealt with small business tax software all the way up to professional income tax software. Read this article and others from him to learn more about this field.