Tax deductions are granted to an individual or a business entity to encourage positive initiatives such as charity and donations, investments, education, and environmental protection. The United States is known for its large number of federal tax deductions. Apart from these federal tax deductions, the citizens can enjoy the benefits of additional deductions implemented by their state governments. Apart from the standard tax deduction, a person may be eligible for additional deduction in case of age or blindness. Married couples having joint tax filing are not eligible for tax deductions if their income crosses a certain amount ($145,000 in 2005).

An individual wishing to take advantage of the federal tax deductions may choose from standard deduction or itemized deductions. The itemized deductions are applicable on expenses such as household utilities, vehicles, and computers; education expenses; work-related expenses; and medical and nursing care expenses. Contributions for charitable purposes attract special federal tax deductions. Deductions on investments and money transactions are applicable in instances of bad debts, alimony, legal fees, and loans. Interestingly, federal tax deductions are granted even to a person who has lost in gambling. All the itemized deductions are dependent on factors such as tax filing status and income. They have separately calculated limits based on percentage of expenses or percentage of Adjusted Gross Income (AGI). The deductions can be carried from one tax year to another.

Federal tax deductions have been implemented to benefit the common man. However, there are instances in which these deductions are manipulated to evade taxes. Large companies and wealthy individuals often use their influence on lawmakers to modify the existing deductions in their favor. Opponents of this fraudulent activity are very much in favor of the government adopting an alternative to tax deductions, so that charity spending and investment can be encouraged in a proper manner.

Tax Deductions provides detailed information on Tax Deductions, Federal Tax Deductions, Small Business Tax Deductions, 401K Tax Deductions and more. Tax Deductions is affiliated with Government Tax Liens .

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The IRS has changed the regulations on donating vehicles to charities. If you donated a car last year, you need to read the following to understand the new rules.

Giving Your Car to Charity The New Tax Rules

Millions of people donate cars, boats, RVs, motorcycles and many other forms of transportation to charities each year. While doing a good thing is one motivation, reaping a sizeable tax deduction is also a motivating factor. Unfortunately, the IRS has concluded that more than a few people were deduction very optimistic values for their cars. Instead of auditing everyone, the IRS simply changed the deduction rules for vehicle contributions to charity.

If you donated a vehicle of any sort to a qualified charity, but claimed less than $500 as a deduction, you can stop reading. The rule changes dont apply to such situations. If you are claiming a deduction in excess of this amount, read on.

The new IRS regulations are pretty simple to understand. If you donated a vehicle to a qualified charitable organization, the amount you can deduct is the exact dollar value the charity receives when it resells the vehicle. Put another way, you can no longer claim the blue book value of the car. The IRS wants to know what it was really worth, not what it would be worth if you hypothetically repainted it, got new tires, rebuilt the engine and so on.

Charitable organizations are more than aware of the new regulations and they will more or less take care of everything for you. To donate a car, you simply arrange for delivery to the charity. The charity will then resell the car at some point in time. The organization will then will send you correspondence detailing the gross proceeds from the sale of the vehicle.

This correspondence should, but is not required to, come to you as Form 1098-C. Yes, another form. Simply take the deduction for the gross proceeds on Schedule A and attach the Form 1098-C to your tax return. If the charity sends you a written letter, attach that to your tax return.

While the above may sound overly burdensome, it really isnt.

Richard A. Chapo is with BusinessTaxRecovery.com - providing information on tax and taxes. Visit us to read more tax articles and our new tax credits page.

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The IRS included in its e-News for Tax Professionals, detail information on Contractors, subcontractors and individual workers, not reporting or under-reporting business income from construction activities.

The IRS says businesses and individuals need to be aware of everything that counts as income and proper accounting methods in order to pay their fair share of taxes.

The report went on to say that businesses and individuals also need to be aware of all deductible expenses so that they dont overpay their taxes.

The tax gap is the difference between the amount of taxes that should be paid in a given year and the amount actually paid voluntarily and in a timely way.

Income

Contractors, subcontractors, and workers must pay taxes on income received for all work, including side jobs and work that is paid for with cash. This includes work in exchange for credit on a bill. It also includes work that is done in exchange for goods or services in a barter exchange.

The IRS went on to stress that Contractors, subcontractors and individual workers are required to report their income even if a Form 1099 or a W-2 is not issued to them.

As for accounting methods, income and expenses are reported on tax returns based on one of two accounting methods, which include either the cash method or the accrual method. Your tax professional can help you determine which method is best for you. Most small business owners and individuals use the cash method. And business activities for contractors, subcontractors and individuals are usually reported on Schedule C.

Expenses

Based upon the IRS Tax Codes the Following holds true:

Ordinary and necessary business expenses are deductible. An ordinary expense is one that is common and accepted in the construction business. A necessary expense is one that is helpful and appropriate for the construction business. An expense does not have to be indispensable to be considered necessary.

An example of business expenses for Contractors, subcontractors and workers working in the construction industry are as follows:

Utilities
\r Car and truck expenses
\r Advertising
\r Employee salaries
\r Trade association dues
\r Rent expense
\r Supplies
\r Continuing education
\r Small tools expected to last one year or less
\r Steel toe work boots
\r Business licenses

Expenses for business assets that are expected to last more than a year must be capitalized and depreciated over their useful lives. Examples of assets include:

Cement mixer
\r Compressor
\r Ladder
\r Other heavy machinery
\r Buildings and real property

Personal expenses including clothing that can be worn off the job site, fines and penalties, and the non-business use of vehicles or computers cannot be deducted.

The above information is a summary of Income and Expenses for the Construction Industry. For further clarification of the Tax Code, visit irs.gov and use keywords: Business Expenses, Publication 535, Publication 463, Publication 334 and Publication 946

Cassandra Ingraham is a Tax Accountant and Instructor for Basic Tax Classes in the San Francisco Bay Area. During the balance of the year she can be found at http://www.taxeswilltravel.com providing Formal Introductions to Lenders for Accounts Receivable Funding (Factoring) and Purchase Order Funding.

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IRS has refunds totaling approximately $2.2 Billion dollars for tax year 2003

Over 1.8 Million people are due a refund, however they have not filed their 2003 tax return and cannot claim the refund.

In order to collect the money you have to file no later then Tuesday, April 17, 2007.

IRS estimates that half of those who could claim refunds would receive more than $611. In some cases, individuals had taxes withheld from their wages, or made payments against their taxes out of self-employed earnings, but had too little income to require filing a tax return. Some taxpayers may also be eligible for the refundable Earned Income Tax Credit.

What does this mean? It means that even though you DID NOT have to file a tax return, usually because your income was too low, you can still get most if not all, of your federal withholding taxes that was withheld from your wages. BUT only if you file your taxes. AND in many cases, single parent families may be eligible for the Earned Income Tax Credit.

(The EIC credit is nothing to joke about. This could be a refund, between, approximately $2,000 to $4,000.)

The law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim the refund within three years, the money becomes property of the U.S. Treasury. For 2003 returns, the window closes on April 17, 2007. The law requires that the return be properly addressed, postmarked and mailed by that date. There is no penalty assessed by the IRS for filing a late return qualifying for a refund.

Taxpayers seeking a 2003 refund must have filed a tax return for 2004 and 2005 before IRS will send you a refund. Also the refund will be applied to any amounts still owed to the IRS and may be used to satisfy unpaid child support or past due federal debts such as student loans.

Generally, unmarried individuals qualified for the EITC if in 2003 they earned less than $33,692 and had more than one qualifying child living with them, earned less than $29,666 with one qualifying child, or earned less than $11,230 and had no qualifying child. Limits are slightly higher for married individuals filing jointly.

Current and prior year tax forms and instructions are available on the Forms and Publications page of the IRS Web site at IRS .gov or by calling 1-800-TAX-FORM (1-800-829-3676). Taxpayers who need help also can call the toll-free IRS help line at 1-800-829-1040 or can read below for immediate online help.

Cassandra Ingraham is a Tax Accountant.

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QUESTION:

I got to thinking about IRAs. I think this is how it works-

Traditional IRA contributions are from dollars not taxed. Distributions from this type IRA are then taxed upon withdrawal.

ROTH IRA contributions are from dollars taxed during the year you make the contribution. Distributions from this type of IRA are not taxed upon withdrawal.

Am I correct?

ANSWER:

Part I - Traditional IRA

Contributions to a \”traditional\” IRA are either deductible or non-deductible. If you are an active participant in an employer-sponsored pension plan, such as a 401(k), a 403(b) or a SEP, the amount of your traditional IRA contribution that is deductible is phased-out once your \”modified\” Adjusted Gross Income (MAGI) for tax year 2005 reaches $50,000.00 if filing as Single or Head of Household, or $70,000.00 if married and filing a joint return.

Deductible contributions are made with \”pre-tax\” dollars. If all of your contributions to all of your IRA accounts over the years were fully deductible, then all IRA distributions are fully taxable. Amounts that were \”rolled-over\” to an IRA from a pre-tax employer plan like a 401(k) are treated as deductible contributions.

Non-deductible contributions are made with \”after-tax\” dollars. You have already paid income tax on these contributions. Accumulated non-deductible contributions make up your \”basis\” in the IRA. If some of your IRA contributions over the years were non-deductible, then a portion of any IRA distribution is a tax-free return of your after-tax contributions. The tax-free portion is determined by a special formula and is calculated on IRS Form 8606.

Many taxpayers have more than one IRA account, and each account may have a different mix of deductible and non-deductible contributions. However, when you calculate the tax-free portion of a traditional IRA distribution all monies in all traditional IRA accounts are lumped together.

You must begin to take annual minimum distributions from your traditional IRA once you reach age 70 1/2. Once you turn age 70 1/2 you can no longer make contributions to a traditional IRA, even if you continue to work and have earned income. Upon your death your beneficiaries will be taxed on distributions from an inherited traditional IRA.

Part II - ROTH IRA

You can contribute to a ROTH IRA if your MAGI is less than $110,000.00 if Single or Head of Household or $160,000.00 if Married Filing Joint.

Contributions to a ROTH IRA are made with \”after-tax\” dollars. ROTH IRA contributions are never deductible. Qualified distributions from a ROTH IRA are totally tax-free.

A qualified distribution is one that is made after a 5-year holding period, beginning on the first day of the first year you make a contribution, and is made after you reach age 59 1/2, or due to death or disability or for a qualified \”first-time\” home purchase. The earnings portion of a non-qualified distribution is fully taxable and may also be subject to a 10% penalty.

You do not have to begin taking annual minimum distributions from a ROTH IRA when you reach age 70 1/2. You never have to touch the money in a ROTH IRA during your lifetime. You can continue to contribute to a ROTH IRA after you turn age 70 1/2 as long as you have earned income. If you are still working at age 80 you can contribute to a ROTH IRA. Beneficiaries do not have to pay income tax on distributions from an inherited ROTH IRA.

Copyright (c) 2005 by Robert D Flach LLC

Robert D Flach is a tax professional with 34 tax seasons of experience preparing 1040s for individuals in all walks of life. He writes THE WANDERING TAX PRO weblog (http://rdftaxpro.tripod.com/weblog), the free online monthly newsletter STUFF AND SUCH (http://rdftaxpro.tripod.com/stuffandsuch), and the website http://www.robertdflach.net, which has a wealth of tax planning and preparation advice and information. He also writes and publishes THE FLACH REPORT, a quarterly print tax newsletter.

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In the good old days, the IRS seemed to be unable to deal with the concept of online auction sales. Alas, the good old days are over. If you are an EBay seller, you have to report your earnings.

In many ways, the government is like a baby bird. It is always hungry. It always has its mouth open. It expects someone else to feed it. In this case, the food is tax money. You and I are responsible for coming up with the grub to keep little baby happy.

A few years back, the government didnt really have a grasp of how the web worked. It really didnt understand that there were certain niches where a lot of money was changing hands. One area in particular, auctions, were completely overlooked. Unfortunately, this is no longer the case. The government wants its chunk of change and knows you are out there.

I mention EBay, but you should be clear that you have to report earnings from any auction site. Obviously, EBay is the biggest. So, what are the rules?

The issue with online auction revenues generally comes down to profit and loss. If you are making money doing it, you need to pay income taxes on the earnings. If you are losing money because you are essentially having a garage sale, to wit, selling for less than you bought the items, you do not. Of course, the IRS doesnt let you claim any loss from this, but who said the government was fair?

If you have a full blown internet auction business going, you are going to have to report the earnings on your personal taxes. This typically will be done through Schedule C, which is designed for people with sole proprietorships. If you formed a business entity for your auction efforts, taxes should be handled as they normally are for that particular business entity, to wit, file corporate or partnership returns.

Obviously, there can be variations the above situation depending on the nature of your business. The point of this article is to simply let you know the IRS has discovered auction sites and expects you to report any earnings. If you fall into this niche, you might want to sit down with an accountant to get your situation sorted out.

Richard A. Chapo is with BusinessTaxRecovery.com - providing tax articles.

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In 2004, the IRS was given the authority to use third party debt collectors to hunt down taxes owed by delinquent taxpayers. Scam artists knew an opportunity when they saw one.

Dealing with Scam Artist Pretending To Be IRS Debt Collectors

In an effort to track down delinquent taxpayers, the federal government gave the IRS the right to hire private debt collectors in 2004. You know, those annoying people that call during dinner. The reason for this change in policy actually made some sense. With as much information as the IRS is forced to deal with, it simply took forever for the IRS to start collection actions. By using the third parties, the IRS would be able to get the process moving without taking up employee time.

As you might imagine, the private tax debt collector program sounded like a good idea, but proved to be problematic. There were two primary problems. First, the legitimate debt collectors were threatening taxpayers. Second, scam artists started posing as debt collectors to collect money from nave tax collectors or perform identify theft on them. It is this second problem that we focus on here.

The central problem with the new debt collector program is how does a taxpayer know if they are dealing with a legitimate company or a scam artist trying to rip them off? Well, the IRS has instituted a new program in an effort to clarify matters. Here are the highlights:

1. If the IRS is going to use a private debt collector to come after you, the agency will first send you a letter indicating as much. The name of the company handling the debt collection will be included in the letter. If you do not receive this letter, ignore or report any parties claiming to be debt collectors to the IRS immediately. Play along and get their contact information so the IRS can hammer them.

2. When dealing with the debt collector, you will eventually reach a point where you write a check. The check should be written to the United States Treasury. If the debt collector instructs you to write it to any other name, they are scam artists and you should report them immediately. There is no exception to this rule. All payments are made to the United States Treasury, just like if you had actually paid your taxes on time!

Scam artists are very creative when it comes to thinking up schemes for ripping people off. Understand and stick to the following guidelines and you can foil them.

Richard A. Chapo is with BusinessTaxRecovery.com - providing information on taxes.

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There is not foolproof method of avoiding an IRS audit. It is also not very sensible to not claim the deductions that you are entitled to receive just to lessen your chances of an audit. There are some practical tax tips that you can apply that will reduce your chance of being selected for an audit.

If you are self-employed, for example, you have a much higher risk of being the target of an audit. It is a good idea to incorporate. The IRS will be much less likely to audit the return of a Corporate entity. Another good idea is to take the full extension. The last date for filing an extended return is October 15. The IRS will usually have filled its quota of returns selected for audit by then. If you do follow this tip, make sure that you have paid any taxes due by the April 15th deadline to avoid any penalties or interest charges.

There are several things that you can do on your return itself that will make you a less likely audit candidate. Make sure that all of your tax information is accurate, and that your return is completely filled out. It is important to make sure that the return is neat and that whole numbers that appear rounded off are avoided. Even when you file your taxes online by using the free e-file services, you should be prepared to send detailed explanations about any item that might appear even slightly unusual or represents a drastic change of income or expenses from previous returns.

The IRS uses a computer generated system for selecting potential audit returns. The returns that are red flagged by the computer are reviewed by an agent who has been trained to recognize the potential for extra tax income. The agent will be looking for unreported income or drastic changes in income from previous years. They will be looking for extremely high deductions in the areas of charitable contributions and such business deductions as automobile expenses. The important thing and the best audit tip is to keep accurate records of all your financial affairs. Not only do good records make tax preparation easier, but they also will make a potential audit less threatening.

In conclusion, there are ways to make an audit less likely, but an audit need not worry the honest and careful tax payer. There are some cases where an audit actually results in a larger refund. Just make sure your tax information is accurate and your return is honest and complete, and you should have nothing to fear.

Natalie Aranda writes about finance. There are several things that you can do on your return itself that will make you a less likely audit candidate. Make sure that all of your tax information is accurate, and that your return is completely filled out. It is important to make sure that the return is neat and that whole numbers that appear rounded off are avoided. Even when you file your taxes online by using the free e-file services, you should be prepared to send detailed explanations about any item that might appear even slightly unusual or represents a drastic change of income or expenses from previous returns.

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Tax savings through cost segregation is no longer out of reach for investors in small and medium size properties. With appraiser expertise, fees for analysis are often one-third to one-half lower than those charged by traditional preparers.

Several years ago a definitive court case ruled that tangible personal property included in an acquisition or in overall costs should be depreciated as personal property for asset recovery, using the old Investment Tax Credit principles to classify personal property.

This meant that owners of improved properties could distinguish between real property and personal property to depreciate component costs over varying useful lives. Basically, instead of depreciating an entire commercial property over 39 years, or residential roperty (single-family rentals or multifamily) over 27.5 years, certain components are correctly identified as depreciating in much less time. For about 135 items, useful life periods can be 5, 7 or 15 years. This is known as cost segregation.

The result of increasing depreciation is lower taxable income (which would have been taxed at 35%) and more income taxed at the capital gains rate (15%) when the property is sold. Furthermore, it works for any type of improved property.

Until recently, primarily large accounting firms or engineering firms implemented cost segregation studies, addressing large and newly built properties and sometimes outsourcing the analysis.

Prices for those analytical reports, usually in the $10,000 to $40,000 range, were out of reach for owners of small properties, especially those holding less-than-new assets. Unfortunately, those owners representing the largest segment of real estate investors in the country were mostly overlooked by previous providers of cost segregation services.

Now a revolutionary paradigm shift is opening the door to very significant savings for owners of small properties. Much of the change is based upon introducing the efficiencies of highly knowledgeable real estate appraisers who often apply industry-accepted cost estimation techniques before determining remaining asset life. By not over-engineering the staffing or production process, professional fees are lower. Yet, results can usually meet or exceed those of far more expensive reports. This approach has been successfully field-tested by IRS auditors.

Changes that appraisers are introducing to cost segregation analysis and reporting are addressing: 1) the size of the property being analyzed, 2) the age of the property, and 3) an affordable price point. OConnor & Associates, a nationwide real estate service firm, is taking advantage of such techniques to effect these beneficial changes:

1. Owners of property with an improvement basis as low as $500,000 can benefit from cost segregation. This compares to the limited properties worth $5 to $10 million and above that previously benefited.
\r 2. Existing properties built or purchased after 1986 offer significant savings in year-one of cost segregation, even without producing original cost documents. Capturing non-segregated depreciation from prior years is perfectly allowable by the IRS. This compares to firms previously applying the methodology only to new construction.
\r 3. Fees are no longer prohibitive. To prepare an analysis and report for many small properties, prices are low enough to generate at least 3 times the report cost in the first year. This compares to the traditional fees ranging from $10,000 to $20,000 and up for comparable size properties.

It is wise to keep the owners CPA or tax preparer abreast throughout the process. For older properties, the CPA may need to complete a Form 3115 to submit with the tax return so the owner can realize savings on items not previously depreciated - without filing an amended return. \r Income producing properties worth as little as $500,000 can achieve a 3:1 payback ratio of tax savings over the modest price of a cost segregation report. If owned for 3 or more years, the typical payback ratio is 10:1.

Patrick OConnor, MAI, is president of OConnor & Associates. The firm, in business since 1974, specializes in state and federal tax reduction services, real estate appraisals and research and consulting nationwide. With offices in Houston, Dallas, Los Angeles and Newport Beach, the firm employs more than 130 people. Patrick OConnor is frequently acknowledged by national publications as a respected source of information on real estate trends. Visit http://www.cutmyfederaltaxes.com
\r http://www.poconnor.com

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At the end of a financial year, you start your tax return preparation. This is a mandatory procedure in United States to file the tax returns. Every individual and corporate body must follow this rule and have to do it in the specific time frame. If you are serious about your business and want to make your company to progress, you must file tax on time so as to avoid redundant problems like tax raids and other problems. If not returned on time then you and your business can come in problem, it may result that your business can shut down and you would never like this to happen. So it is advisable to take steps in the favor of your business and do such things that can keep you away from tax problems. Tax return preparation must be undertaken before the tax return date resumes so that you can prepare dully in the manner to help you and your business.

Traditional means of tax return was quite tedious as you were to stand in a long queue and wait for hours to file your tax. But today this method is no longer used and online tax return has replaced this. Advancement in technology has influenced every system and so this result can be effectively seen in online tax return. Internet has become our need because it caters to fulfill most of the things that we desire. Among many advantages of internet, one of them is to pay tax online which saves much of your time to do manual tax return preparation. Tax return is an issue that necessitates absolute concentration in the matter of tallying of the financial documents of your firm. You need to tally profit and loss account, balance sheet, daily bills receivables trial balance, financial statements, and payables and many things that constitutes to be a part of financial documents.

During peak tax season, financial departments of all organization have an excess work load and they have to work hard f to resolve all the financial records. Every tax accountant is busy in arranging data to bring correct figure so that tax can be paid without any problem and on time as well. The accountants are very busy and concentrate on tax return preparation so that the process is done without any error. Calculating financial data accurately and other things are very important to make tax return preparation smooth. Tax return preparation has got simplified by the online procedure because now accountant does not have to do many things manually and so there is less chances of in accuracy. Now, you do not have to run every time to your accountant for even a small piece of work and others.

Before you hand-over your entire task of tax return to an accountant, you must confirm that the accountant is a certified professional from American Institute of Certified Public Accountant. Apart from hiring an accountant, you have another option to get the services of accounting firms that provides online tax return facility through which you can instantly know the amount of tax that you need to pay. This method can save your time and you can pay the tax in the allotted time.

Michelle Barkley is a CPA who advises people on tax preparation and tax calculation.\r She specializes in Bookkeeping outsourcing,Accounting outsourcing and Tax return \r preparation.To know more about Accounting outsourcing services and to use the services visit http://www.ifrworld.com

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