Have you tried e-file?
Tax time is quickly approaching. While many people dread this time of year, it isn’t that scary if you know what you are doing. One way to make tax time less scary is to prepare your taxes with software. There are plenty of great softwares available that will walk you through the steps to prepare and file your taxes. In fact, you can find several online software options on the IRS website, www.irs.gov.
If you don’t want to do your taxes yourself, you can also check out the irs website to find your local VITA. VITA is volunteers who will do your taxes free of charge, but you must be check to see if you will qualify for the free service.
Tax time may seem scary, but there are plenty of great options available to make the process a bit easier.
Where are your records?
Tax time is rolling around again so what can you do now to ensure a less painful tax preparation this year? The easiest thing to do is keep a record of your transactions. Sounds easy but we all forget to save those receipts or print out those statements.
What records and receipts should you be keeping? Well, did you purchase a car in 2009? If so, keep that receipt as you may be able to deduct the sales tax you paid. Did you buy or sell stocks? You need to know what your basis was in those stocks, which again means that you need to know what you paid for the stock, the commission you paid to purchase the stocks, and any stock dividends you received that were reinvested in stocks. This might not be too bad if you only make one or two stock purchases a year, however, once you reach the level where you buy and sell stocks several times a month, this can be a nightmare.
Other receipts that you might want to save are your medical receipts. For example, you need evidence to show how much you paid for the year in after tax dollars for your medical premiums. You also want to save receipts for copays, prescriptions, and other medical expenses. Many stores make this easier now by showing you at the bottom of the receipt the amount that qualifies as a medical expense.
Do yourself and your tax preparer a favor and keep your receipts and print out and save your monthly statements. You can make life even easier by sorting the receipts and statements out by category, at least you can do that if your New Year’s resolution was to get organized.
Tis the Season to Save . . . On Taxes!
Everyone hates paying taxes. We all accept it as inevitable but look for ways to reduce our tax liability. Luckily for us, the IRS offers incentives in the form of tax deductions. Some common deductions include charitable contributions, interest on your home mortgage, and interest on your student loans. While you may have no control on when you pay your mortgage and interest, you do have control on when you make charitable contributions.
Basically we are talking about the time value of money. You get the same tax deduction for your charitable donations whether you make them all in January, throughout the year, or all on December 31. This allows you to use your money throughout the year instead of letting someone else use it.
Some people might want to make charitable deductions but are afraid that if they don’t make them in little contributions throughout the year, the money will be spent come December and they will lose out on the deductions. If you are really serious about making charitable contributions but also not wasting your money, put aside the money you want for charitable contributions each month in a savings account. This allows the money to collect interest, which you can use for yourself, or you can add it to your charitable contributions at the end of the year and get even more tax deductions. Either way, you have the money to make your charitable contributions, you got the value of having the money for the entire year, and you still get your tax deductions.
Who is an employee?
When starting a business, there are many questions you need to ask yourself. One that you probably haven’t thought about is who is an employee of the business. It is important to know who the IRS considers an employee because the business needs to pay payroll taxes on all income that individual earns as well as federal and state unemployment tax. While these may not seem very expensive when the employee only earns minimum wage, however, if you make the mistake of claiming the individual is an independent contractor when the IRS determines he is an employee, not only do you have to pay the back taxes, you will also be required to pay interest and penalties, which can quickly add up.
When determining whether or not a person is an employee or an independent contractor, the IRS looks at financial control, behavioral control, and the relationship between the parties. When looking at financial control, they will look at whether or not the person had a significant interest in the his work. For example, if the person was paying his own expenses or has a significant investment in his work, he is likely to be an independent contractor. When looking at behavioral control, the IRS look at the extent of instructions the person is given to fulfill his job or the training the job provides. The more instruction or training the company provides, the more likely that the IRS will find the person is an employee. When looking at the relationship between the parties, the IRS looks at whether or not the business pays the person benefits or whether there is a written contract between the parties stating their intent that the person be treated as either an independent contractor or an employee.
The IRS says that not one of these factors is controlling, They look at the totality of the facts. If you still have questions about whether or not the person walking for you is an employee or an independent contractor, you can file Form SS-8 with the IRS requesting that they make a determination whether the person is an employee or an independent contractor.
Preparing for Tax Season
After being laid off during these difficult times, many Americans have started their own small businesses. Now that the year is over half over, these small businesses need to start thinking about their upcoming tax returns. Today we will be focusing on proper documentation of expenses.
Most expenses that businesses deduct from their income need to be properly documented. What is proper documentation of an expense? It is a receipt for the expense, a canceled check, or a bill for the expense. The documentation required varies depending on the type of expense being deducted. For example, dining expenses must be documented by a receipt that has the name and location of the restaurant, the number of people served, and the date and amount of the expense. Generally, I like to take a restaurant receipt and write the name of the people who attended the business dinner and the general business matter discussed on the back of the receipt. This way, even if I can’t remember the specific meeting several months later when preparing the business taxes, there is a reference that shows that it was a legitimate business expense.
For other questions dealing with business receipts and documentation, check out IRS publication 463.