taxes Tax Information: 2008

วันพุธที่ 31 ธันวาคม พ.ศ. 2551

Employment Taxes ? What Are They?

If you have employees, you are responsible for paying a variety of taxes at the federal, state, and local levels. You must also withhold certain taxes from the paychecks of your employees. So, what are employment taxes?

Employment taxes include the following.

1. Federal income tax withholding

2. Social Security and Medicare taxes

3. Federal unemployment tax (FUTA).

Federal Income Taxes/Social Security and Medicare Taxes

You generally must withhold federal income tax from wages paid to an employee. Form W-4 is used to determine the specific amount, although most payroll services or your accountant will do this for you.

Social security and Medicare taxes pay for benefits that workers and families receive under the Federal Insurance Contributions Act (FICA). Social security tax pays for benefits for the retired, survivors, and disability insurance distribution provisions of FICA. Medicare tax pays for benefits under the medical care provisions of FICA. As an employer, you must withhold a percentage of these taxes from employee and match the withholding amount.

In general, you must deposit these taxes by check or cash to an authorized financial institution, typically your bank. Check with your tax professional to make sure you are not required to use the Electronic Federal Tax Deposit System (EFTPS). Regardless of the payment method, you will then report them on Form 941, the Employer's Quarterly Federal Tax Return

Federal Unemployment Tax (FUTA)

FUTA is a combined federal and state program that provides unemployment compensation to the unemployed. As a business owner, you are solely responsible for paying this tax, to wit, nothing is withheld from the paychecks of your employees. FUTA is determined by using Form 940, but you are encouraged to use a tax professional to determine payment amounts.

Employment taxes can be frustrating for a small business owner. They are, unfortunately, a necessary evil as your business grows.

Richard Chapo is CEO of <a target="_new" href="http://www.businesstaxrecovery.com">http://www.businesstaxrecovery.com</a> - Obtaining tax refunds for small businesses by finding overlooked tax deductions and credits through a free tax return review.

Tax Time Tune Up

Excerpted from the new book, "How to Do Space Age Work with a Stone Age Brain" TM

The complete article with pictures and sample Auto Log is available at www.organize.com

Every year American companies lose millions of dollars in productivity to employees who end up taking their own personal time off to do their taxes. Whether you are filing by paper from just one W-2 or running multiple enterprises, streamlining now will pay off this year and in future.

Applying these proven Tax Time Tune-Up tips will save you time, frustration and could even save you money. Even if you only reduce your stress level ? it's worth it! Start today by getting an archive box or file crate to hold all your tax related files and forms.

If you have a good filing system, but you keep getting bogged down in old records: Every January, pull last year's financial files, any business related expenses, proof of income and all tax related items. While you are taking old files out, make the replacement new file folders for all of your regular home and business or personal financial and legal documents.

If you have no functioning filing system for your home (or business) I recommend you sort out your papers for tax and archives after setting up the FileSolutions TM color-coded pre-printed file kit that fits your current filing needs (http://www.organize.com) That way you'll have the right place to put each item as you handle it. I use the Home and Small Business FileSolutions TM kits in my own business, which makes it easy for me to guarantee your satisfaction.

Tax Preparation Software: By using tax preparation software, you can finish your federal and state returns in about 90 minutes-if you've completed the steps above. The software helps you find deductions, does the math for you and tells you what you owe or what your refund will be. Use tax preparation software matched to your situation and financial software; there are several available (TaxCut, TurboTax, etc.).

I use TurboTax (by the makers of Quicken) to do my own taxes. If I can do it ? so can you! Then, I have a tax professional check my return for way less money than it would have cost me to have my business and personal taxes done by a tax professional.

Good News/Bad News: If your Adjusted Gross Income for 2004 is less than $28,000, or you qualify for Earned Income Tax Credit ? go to http://www.taxfreedom.com and use Intuit's TurboTax program online for FREE!

Online tax-preparation sites keep improving their do-it-yourself tax tools, ease of preparation and regular or e-filing expertise. These offer the same process as desktop software does but, it is all done online. After the products fo through your return for errors (and suggest possible tax-savings), you can print your completed return or file it electronically.

The IRS likes electronically filed returns so much, in fact, that it's set up specific developers that provide free prep and filing to certain demographic groups. Go to www.irs.gov to see if you qualify.

Some tax-preparation web sites are cheaper than their desktop counterparts. But they don't always have the most complete version of tax help that the desktop software does. There can also be additional costs of state filing services, sometimes at more expense than the federal counterparts. A recent PC Magazine rated the top three Tax Web Sites as: TurboTax (?????), TaxCut and Complete Tax (both ????).

Make a file tray marked Tax Stuff every January. While sorting your mail put all 1099's, W-2's, and any tax-related material into it. You can also put colored accordion file pocket folders in your 'tax box' for incoming tax documentation.

Use your credit cards to simplify your accounting. Select which cards you will use for business, travel or expensed transactions, household, personal, and use only one card for all your internet transactions. Label your cards until the usage becomes second nature to you.

Credit card buyer-protection programs are useful in a merchandise or service dispute. Keeping only one credit card number exposed to the web limits your exposure to fraud. I use three cards only: business, personal, and web.

At month end use your credit card statements, auto/transaction log and checkbook to track expenses for your ledger or computer program instead of chasing all the receipts.

Keep a compartment, or envelope in your briefcase where you can easily stuff any receipts or notes. Then, use it. Have a drop box in your office for the expensable receipts from your briefcase or pockets. At home make a place to put any receipts that refer to warranties or personal property records.

After April 15th, archive all tax-related files: separate the previous year from your active files into an available (but not daily use) archive box. Put in a back-up disk or CD of your accounting program for that year along with the data. Also, put your calendar and a carbon copy phone message book in the tax archive box ? it's all proof of business use.

Place prior records into garage or closet storage. Mark each box on the outside by tax year and put all related tax backup documentation into it. Include a copy of the tax return itself, as well as any 1099s, W-2s etc.

Keep a transaction log for auto mileage and miscellaneous transactions. You must have a log to deduct auto expenses, and when you maintain a transaction log the IRS does not require that you keep receipts for expenses under $75.00. This documentation goes into your 'tax box' which becomes your 'tax archive box'.

You can set up your Personal Digital Assistant (e.g., PalmPilot) to use an Expenses Notes section to easily maintain your daily business expenses.

Save yourself money and stress by using these tips to get a jumpstart on 2004 taxes. Tune-up your own file system, or if you don't have one, use the cost-effective FileSolutions TM file kits. Or you can go all the way with new electronic preparation and filing to make sure this year is better than last April 15!

Since 1988, Eve Abbott has developed productivity systems for executives, managers and business owners so their teams can work at least 25% more effectively through her programs and hands-on consultations.

Ms. Abbott is the author of the How to Do Space Age Work with a Stone Age Brain? (2004). She has degrees in Sociology and Psychology from the University of California and holds a Lifetime Adult Teaching Credential. The Organizer Extraordinaire appears in New York Times, Working Woman and Home Office Computing articles. Her clients range from S.C. Johnson & Son, Inc. to Hewlett Packard and Alameda County as well as countless professionals. More information is available at <a target="_new" href="http://www.organize.com">http://www.organize.com</a>

Donating Cars To Charity - New Tax Rules

On June 3, 2005, the IRS released guidance on charitable deductions for donated vehicles. The American Jobs Creation Act (AJCA) radically changed the amount of the deduction taxpayers can claim for their donated car.

Fair Market Value v. Actual Sales Price

When donating a car to charity, a taxpayer traditionally was allowed to deduct the fair market value. The new law changes this valuation to the actual sales price of the vehicle when sold by the charity. The taxpayer is also required to get written and timely acknowledgment from the charity in order to claim the deduction

The AJCA does provide some limited exceptions under which a donor may claim a fair market value deduction. If the charity makes a significant intervening use of a vehicle--such as regular use to deliver meals on wheels-- the donor may deduct the full fair market value. For example, driving a vehicle a total of 10,000 miles over a one-year period to deliver meals is a significant intervening use.

The AJCA also allows a donor to claim a fair market value deduction if the charity makes a material improvement to the vehicle. Under the guidance, a material improvement means major repairs that significantly increase the value of a vehicle, and not mere painting or cleaning.

Interestingly, the IRS has also added an exemption not included in the AJCA. On its own, the IRS has determined that taxpayers can claim a deduction for the fair market value of a donated vehicle if the charity gives or sells the vehicle at a significantly below-market price to a needy individual, as long as the transfer furthers the charitable purpose of helping a poor person in need of a means of transportation.

If you intend to assert one of these exemptions, how do you determine the fair market value? Generally, vehicle pricing guidelines and publications differentiate between trade-in, private-party, and dealer retail prices. The IRS consider the fair market value for vehicle donation purposes to be no higher than the private-party price.

The new provisions of the Americans Job Creation Act certainly make it less attractive to donate a car to charity. Using the exemptions, however, you can still create a sizeable deduction while helping others who are less fortunate.

History Of The Federal Income Tax

The powers of Congress, and the limitations set upon those powers, are set forth in Article I of the United States Constitution. Section 8 specifies both the power to collect, "Taxes, Duties, Imposts and Excises," and the requirement that, "Duties, Imposts and Excises shall be uniform throughout the United States."

One of the major concerns of the Constitutional Convention was to limit the powers of the Federal Government. Among the powers to be limited was the power of taxation. It was thought that head taxes and property taxes (slaves could be taxed as either or both) were likely to be abused, and that they bore no relation to the activities in which the Federal Government had a legitimate interest. The fourth clause of section 9 therefore specifies that, "No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken."

The courts have generally held that direct taxes are limited to taxes on people (variously called capitation, poll tax or head tax) and property. (Penn Mutual Indemnity Co. v. C.I.R., 227 F.2d 16, 19-20 (3rd Cir. 1960).) All other taxes are commonly referred to as "indirect taxes," because they tax an event, rather than a person or property per se. (Steward Machine Co. v. Davis, 301 U.S. 548, 581-582 (1937).) What seemed to be a straightforward limitation on the power of the legislature based on the subject of the tax proved inexact and unclear when applied to an income tax, which can be arguably viewed either as a direct or an indirect tax.

In order to help pay for its war effort in the American Civil War, the United States government issued its first personal income tax, on August 5, 1861 as part of the Revenue Act of 1861 (3% of all incomes over US $800; rescinded in 1872). Other income taxes followed, although a 1895 Supreme Court ruling, Pollock v. Farmers' Loan & Trust Co., held that taxes on capital gains, dividends, interest, rents and the like were unapportioned direct taxes on property, and therefore unconstitutional.

The Sixteenth Amendment to the United States Constitution removed the limitations on Congress, paving the way for the income tax to become the government's main source of revenue; it states: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

A growing number of citizens seeks to challenge the power of the state to collect taxes by finding a way to discount the sixteenth amendment. The italicized paragraphs below are represenative of these attempts:

Lower federal courts sometimes refer to "unapportioned direct taxes" and similar catch phrases to describe the power of Congress to tax income. (See U.S. v. Turano, 802 F.2d 10, 12 (1st Cir. 1986). ("The 16th Amendment eliminated the indirect/direct distinction as applied to taxes on income.")) This, however, does not seem to be the stated position of the Supreme Court.

Yet, despite popular opinion, the 16th Amendment did not give Congress any new taxing powers. In Treasury Decision 2303, the Secretary of the Treasury directly quoted the Supreme Court (Stanton v. Baltic Mining Co. (240 U.S. 103)) in saying that "The provisions of the 16th amendment conferred no new power of taxation," but instead simply prohibited Congress original power to tax incomes "from being taken out of the category of indirect taxation, to which it inherently belonged, and being placed in the category of direct taxation subject to apportionment."

The closest the Supreme Court has come to saying that "from whatever source derived" in the amendment expanded the taxing power of Congress was in Justice Holmes' dissent in Evans v Gore (253 U.S. 245, 267 (1920). (Holmes dissent) (Partially overruled by U.S. v Hatter. 532 U.S. 557 (2001), with respect to the prior reasoning about the compensation clause.)). In that case, the Court was considering the effect the 16th Amendment had on the compensation clause, and specifically whether the compensation of judges was unlawfully reduced by the imposition of the income tax. Justice Holmes opined that under the 16th Amendment, "Congress is given power to collect taxes on incomes from whatever source derived ?[so] it seems to me that the Amendment was intended to put an end to the cause and not merely obviate" the result in Pollock. (Id.) Even in this case, though, the majority affirmed the more restrictive interpretation of the Amendment. (Id. at 262-263. (Majority opinion))

The federal income tax statutes echos the language of the 16th amendment in stating that it reaches "all income from whatever source derived," (26 USC s. 61) including criminal enterprises; criminals who fail to report their income accurately have been successfully prosecuted for tax evasion. Since the language of the amendment is clearly meant to restrict the jurisdiction of the courts, it is not immediately clear why the courts emphasize the words "all income" and ignore the derivation of the entire phrase to interpret this section - except to reach a desired political result.

Arguments about the meaning of the current income tax has continued for nearly 100 years. Courts are reluctant to support a literal reading of the tax laws in favor of potential taxpayers, since it can lead to tax avoidance. Professor Soled points out why judicial doctrines are used against tax avoidance strategies in general,

"The use of judicial doctrines to curtail tax avoidance is pervasive in the area of income taxation. There are several reasons for this phenomenon: central among them is that courts believe that if the Internal Revenue Code ("Code") were read literally, impermissible tax avoidance would become the norm rather than the exception. No matter how perceptive the legislature, it cannot anticipate all events and circumstances that may unfold, and, due to linguistic limitations, statutes do not always capture the essence of what is intended. Judicial doctrines fill the void left either by the legislature or by the words of the Code. Another reason for the popularity of these doctrines is that courts do not want to appear duped by taxpayers..." (Jay A. Soled, Use of Judicial Doctrines in Resolving Transfer Tax Controversies, 42 B.C. L. Rev 587, 588-589 (2001).)

Of course, if the intent of Congress was to actually reach all income then the simplest way to state s. 61 would be "all income ***however realized.***" Instead, s. 61 mentions sources and other sections of the federal tax code actually lists about 20 sources of income that are specifically taxed. (26 USC ss. 861-864.) A common rule of statutory interpretation is the doctrine inclusio unius est exclusio alterius. This doctrine means "[t]he inclusion of one is the exclusion of another?This doctrine decrees that where law expressly describes [a] particular situation to which it shall apply, an irrefutable inference must be drawn that what is omitted or excluded was intended to be omitted or excluded." (Black's Law Dictionary 763 (6th Ed. 1990).) Since particular sources are listed as taxable in the tax law, then it is reasonable to infer that other sources of income are excluded from taxation. This argument is called the "861 source argument" and the courts refuse to analyze the argument despite consistently holding against it, even going so far as to issue restraining orders against people who publish websites about it. (U.S. v. Bell, 238 F.Supp.2d 696, 698 (M.D. Pa. 2003).''

In 1913 the tax rate was 1 percent on taxable net income above $3,000 ($4,000 for married couples), less deductions and exemptions. It rose to a rate of 7 percent on incomes above $500,000.

During World War I the top rate rose to 77 percent; following the war, the top rate was scaled down (to a low of 25 percent).

During the Great Depression and World War II, the top income tax rate rose again, reaching 91% during the war; this top rate remained in effect until 1964.

In 1964 the top rate was decreased to 70% (1964 Revenue Act), and then to 50% in 1981 (Economic Recovery Tax Act or ERTA).

The Tax Reform Act of 1986 reduced the top rate to 28%, at the same time raising the bottom rate from 11% to 15% (in fact 15% and 28% became the only two tax brackets).

During the 1990s the top rate rose again, standing at 39.6% by the end of the decade.

In 2001 the top rate was cut to 35% and the bottom rate was cut to 10% by the EGTRRA, or Economic Growth and Tax Relief Reconciliation Act.

In 2003 the JGTRRA, or Jobs and Growth Tax Relief Reconciliation Act, was passed, expanding the 10% tax bracket and accelerating some of the changes passed in the 2001 EGTRRA.

For more free legal information on <a target="_new" href="http://www.bankdynamic.com/laws/tax-law.html">Tax Law</a>, please visit <a target="_new" href="http://www.bankdynamic.com/">Free Legal Information</a>.

วันอังคารที่ 30 ธันวาคม พ.ศ. 2551

Paying Workers ? What Can You Write-Off?

As your business grows, you are going to need help. This help comes in the form of employees and independent contractors. What you can write-off is dependent upon how your helper is classified ? as an employee or independent contractor.

Independent Contractor

Whenever possible, you want to use independent contractors to assist you. Payments to independent contractors are completely deductible. You simply claim the deduction on your return. If you pay them more than $600 during the tax year, you also must issue a 1099-MISC in January of the following year. Importantly, you do not have to pay employment taxes or make withholding on the compensation.

Unfortunately, the IRS doesn't allow you to randomly classify a worker as an independent contractor. The key to the determination is whether you "control" the actions of the worker. Generally, you must be able to show the IRS that the worker is an independent contractor because they have the ability to control the details and means by which the work is accomplished. To this end, it is helpful to show the worker sets their own ours, has a work place and risks not getting paid if the work is below standard.

Employee

If your worker is classified as an employee, the tax burden increases. Under federal law, you are responsible for paying employment taxes related to the worker, even if there is only one.

Initially, you must withhold FICA, Social Security and income taxes from employee paychecks. As an employer, you must also contribute FUTA payments on your own, to wit, they are not deducted from the employees pay.

FICA stands for the Federal Insurance Contribution Act. This Act created a system to collect and provide benefits for workers who retire, are injured or become disabled. FICA is better known as Medicare.

FUTA stands for the Federal Unemployment Tax Act. This Act created a system to provide unemployed workers with temporary benefits until they obtain a new job. The system works in tandem with state unemployment acts. Most consider it a disaster, but you still have to pay.

In Closing

As you can see, it is cheaper to use independent contractors versus employees. The tax burden is significantly less, but make sure the IRS doesn't reclassify them as employees.

Richard Chapo is with <a target="_new" href="http://www.businesstaxrecovery.com">http://www.businesstaxrecovery.com</a> - recovering overpaid taxes for small businesses. Visit our article page - <a target="_new" href="http://www.businesstaxrecovery.com/articles">http://www.businesstaxrecovery.com/articles</a> - to read more tax articles.

Early Distributions From Retirement Plans

An early distribution from an Individual Retirement Arrangement (IRA) or a qualified retirement plan need not be a "taxing" experience. Fortunately, there are exceptions to early distributions.

Any payment that you receive from your IRA or qualified retirement plan before you reach age 59? is normally called an "early" or "premature" distribution. As such, these funds are subject to an additional 10 percent tax. But there are a number of exceptions to the age 59? rule that you should investigate if you make such a withdrawal. Some of these exceptions apply only to IRAs, some only to qualified retirement plans, and some to both. IRS Publications 575, Pensions and Annuities, and 590, Individual Retirement Arrangements (IRAs), have details.

In addition to the 10 percent tax on early distributions, you will add to your regular taxable income any distributions attributable to "elective deferrals" that you contributed from your pay, your employer's contribution and any income earned on all contributions to the account. If you made any nondeductible contributions, their portion of the distribution is not taxed, since you've already paid tax on this amount.

There is a way to avoid paying any tax on early distributions, however. It is called a "rollover." Generally, a rollover is a tax-free transfer of cash or other assets from an IRA or qualified retirement plan to an eligible retirement plan. An eligible retirement plan is a traditional IRA, a qualified retirement plan, or a qualified annuity plan. You must complete the rollover within 60 days of when you received the distribution. The amount you roll over is generally taxed when the new plan pays you or your beneficiary.

If the early distribution from an employer's plan is paid directly to you, your plan administrator will normally withhold income tax at a 20 percent rate. If you roll over the distribution to a new plan, you must replace that 20 percent of the funds that were withheld and deposit that amount in the new plan or you will owe taxes on that amount. To avoid the inconvenience of this withholding, you can have your old plan's administrator transfer the rollover amount directly to the new plan or a traditional IRA.

All early distributions must be reported to the IRS. You will report tax-free rollovers on lines 15a and 16a of Form 1040 along with any taxable distributions, but you will enter on line 15b or 16b only the taxable amounts you don't roll over.

Early distributions from retirement plans can involve complex tax issues. Make sure you understand the issues or get competent tax advice.

วันจันทร์ที่ 29 ธันวาคม พ.ศ. 2551

How To Claim CHILD TAX CREDIT The Right Way And Add An Extra $2,000 To Your Refund

The U.S. Department of Agriculture estimates that it costs nearly $15,000.00 a year for a middle-class family to raise a child born in 2002 to age 17 (without adjustment for inflation). In recognition of this cots, you can claim a tax credit each year until your child reaches the ago of 17. The credit is currently up to $1,000.00 per child. This credit is in addition to the dependency exemption for the child.

You may claim a tax credit of up to $1,000.00 in 2004 for each child under the age of 17. If the credit you are entitled to claim is more than your tax liability, you may be entitled to a refund under certain conditions.

Generally, the credit is refundable to the extent of 10 percent of earned income over $10,750.00 in 2004.

Conditions:

To claim the credit, you must meet two conditions.

1. You must have a qualifying child. 2. Your income must be below a set amount.

QUALIFYING CHILD.
You can claim the credit only for a "Qualifying Child." This is a child who is under age 17 at the end of the year and whom you claim as a dependent.

The child need not be your own child ? he or she can be a stepchild, grandchild, great-grandchild, sibling, stepbrother, stepsister, or a descendant of any of these.

For example, if you support your 16 year old sister and claim her as a dependent on your return, she is a qualifying child. An adopted child is a qualifying child as long as the child has been placed with you by an authorized agency for legal adoption, even if the adoption is not yet final.

MAGI LIMIT.
You must have modified adjusted gross income (MAGI) below a set amount. The credit you are otherwise entitled to claim is reduced or eliminated if your MAGI exceeds a set amount. MAGI for purposes of the child tax credit means AGI increased by the foreign earned income exclusion, the foreign housing exclusion or deduction, or the possessions exclusion for American Samoa residents.

The credit amount is reduced by $50.00 for each $1,000.00 of MAGI or a fraction thereof over the MAGI limit for your filing status. The phaseout begins if MAGI exceeds the following limits:

1. Married filing jointly $110,000.00 2. Head of household $75,000.00 3. Unmarried (single) $75,000.00 4. Qualifying widow(er) $75,000.00 5. Married filing separately $55,000.00

Example: In 2004 you are a head of household with two qualifying children. Your MAGI is $90,000.00. Your credit amount of $2,000 ($1,000 x 2) is reduced by $750 ($90,000 - $75,000 = $15,000 MAGI over the limit) = 15 x 50 = $750. Your credit is $1,250.00 ($2,000 - $750).

HOW TO CLAIM THE CREDIT AND GET A BIGGER REFUND.
If the credit you are entitled to claim is more than your tax liability, you can receive the excess amount as a "refund." The refund is limited to 10 percent of your taxable earned income (such as wages, salary, tips, commissions, bonuses, and net earnings from self-employment) over $10,750 in 2004. If your earned income is not over $10,750, you may still qualify for the additional credit if you have three or more children.

If you have three or more children for whom you are claiming the credit, you may qualify for a larger refund, called the additional child tax credit.

QUICK TIP.
If you know you will become entitled to claim the credit (e.g. you are expecting the birth of a child in 2004), you may wish to adjust your withholding so that you don't have too much income tax withheld from your paycheck. Increase your withholding allowances so that less income tax is withheld from your pay by filing a new from W-4, Employee's withholding allowance certificate, with your employer.

The child tax credit is scheduled to decline to $700 per child in 2005 and then increase to $800 in 2009, and $1,000 in 2010 and later years.

You figure the credit on a worksheet included in the instruction for your return. You claim the credit in the "Tax and Credits" section of Form 1040 or the "Tax, Credits, and Payments" section of form 1040A; you cannot claim the credit if you file form 1040EZ

If you are eligible for the additional child tax credit, you figure this on Form 8812, Additional Child Tax Credit.

Mr. Patel is a widely recognized and well respected authority on Personal Income Tax matters (Single Parents, Married Families, Small Business Owners). He put his Harvard MBA on hold to start his own Accounting firm and help everyday people just like you from all walks of life to cut your tax bill in half (by at least $1,250 - $7,500). His firm has 50+ years of experience helping everyday people just like you from all walks of life. He can help you file you Income Tax Return and put a guaranteed bigger refund back in your pocket TODAY regardless of where you live in America. Patel Financial Services has served diverse clients from all backgrounds from ALL OVER AMERICA; all the way from Maine and Florida to California and Texas. To sign up for his newsletter titled "The Wealth Builder & The Tax Cutter" visit his website at <a target="_new" href="http://www.Patelfinancialservices.com">http://www.Patelfinancialservices.com</a> or send a blank email to <a href="mailto:Subscribe@patelfinancialservice.com">Subscribe@patelfinancialservice.com</a> with the word "Subscribe" in the subject line.

You may also contact his firm directly at 1-717-909-7224

Six Urban Myths About Taxation

Six Urban Myths ? Taxation

"I am proud to be paying taxes? I could be just as proud for half the money." ? Arthur Godfrey

Temporary Taxation in Canada

In 1917, the Income War Tax Act (7-8 George V, Chap. 28) introduced Canadians to a 'temporary' tax on corporate and personal income.

After 88 years it's safe to say that the first myth of taxation is that Parliament considers taxation to be 'temporary.'

Taxation Isn't Constitutional

You've heard that it is against Canada's Constitution for the federal government to collect income taxes.

The British Parliament in the British North America Act, 1867 ?91(3) specifically empowered the federal government of Canada with the authority for "the raising of money by any mode or system of taxation".

The highest court in Canada has held that this power to raise money through taxes is "apparently limitless" (Re Anti-Inflation Act [1976] 2 S.C.R. 373 at 390 (S.C.C.), per LASKIN, C.J.)

American readers who've heard the same thing (i.e., Congress cannot legally collect taxes) should read the Sixteenth Amendment to the Constitution, which when ratified in 1913, empowered the U.S. Government to impose income taxes directly on its citizens.

So the second myth of taxation is that the federal government doesn't legally have the authority to collect taxes.

I Can't Be Convicted Of Evasion If I Believe?

Perhaps, you've heard that in order to be convicted of evasion you have to have a 'guilty mind' and if you believe, you really believe, that collecting taxes is illegal you cannot be convicted of evasion.

?239(1)(d) Income Tax Act ("ITA") provides that every person who wilfully evades or attempt to evade taxes imposed by the ITA is guilty of an offence.

The offence of evasion is a true criminal offence: R. v. Klundert (2004), 242 D.L.R. (4th) 644 (Ont. C.A.) per DOHERTY, J.A. at ?32; and R. v. Knox Contracting Ltd., [1990] 2 S.C.R. 338 (S.C.C.) at pp. 346-348.

There are two constituent elements of a crime: the prohibited conduct (actus reus) and the requisite fault (mens rea).

Parliament's use of the word "wilfully" in ?239(1)(d) ITA implies by something done by conscious design or on purpose; but does that really mean what it sounds like?

No; mistakes of law generally aren't a defence (e.g., ?19 Criminal Code), but certain factual mistakes (e.g., errors of addition) could be ? it depends on the circumstances.

"A person's mistaken belief that a statute is invalid or is otherwise not applicable to that person's conduct is a mistake of law. It is, however, a mistake of law that is irrelevant to the existence of the fault requirement in s. 239(1)(d).": Klundert at ?59; Criminal Code s. 19; R. v. Ricci (2004), 190 O.A.C. 375 (Ont. C.A.)

The third myth of taxation is that you cannot be convicted of evasion if you believe you don't have to pay taxes.

What Canada Revenue Tells Me Is Binding On Them

A taxpayer calls a Canada Revenue Agency ("CRA") hotline or goes to a local tax service office and gets their question answered, or receive other guidance on how to 'properly' do what that taxpayer is obliged to do under the ITA.

What if the advice is wrong? Most Canadians think that they can rely on it, but can they?

The short answer is that they can't - that the fourth myth.

Why this is true is somewhat complex: Since 1931 Canada's Parliament has been sovereign and they could pass any law they wanted (Burma Oil Company v. Lord Advocate [1965] AC 75 (H.L.)), but with the Canada Act, 1982 (U.K.) Parliament became subject to The Charter of Rights and Freedoms, which imposed legal limits on Parliament's ability to infringe certain fundamental rights.

The ITA is a complete code (i.e., covering all aspects of its subject matter) and it is the job of taxpayers to follow it, CRA to enforce it, the courts to interpret it and then back to Parliament if amendment is needed.

These various interests are perpetually in conflict: taxpayers want to pay as little tax as legally permissible (Inland Revenue Commissioners v. Westminster (Duke of), [1936] A.C. 1 (H.L.)) but Parliament wants to collect as much money as it possibly can.

Subject to a Charter prohibited infringement of a fundamental right, Parliament's complete code in the ITA is paramount. In other words, no one at CRA can change one word in the ITA and if any advice they give is contrary to the Act, that advice is ineffective and the ITA provision will prevail. Thus, CRA's advice is only binding on them ? and you ? if it's correct. It all goes back to the ITA and Parliamentary supremacy.

CRA's Can't Find My Offshore Funds

Perhaps you set up an asset-protection trust somewhere and you've been collecting income offshore for years; or, possibly you want to sell your condo in Barbados and plan to keep the proceeds in Belize.

?2(1) ITA imposes taxes on residents of Canada, not only on their Canadian source income but on their worldwide income. The limits on this general rule are few, narrow and require specialized expert advice to interpret (e.g., in-coming immigrants and Tax Treaties).

Just so we're clear, what we are talking about here is the crime of tax evasion.

In the post 9/11 world, secrecy doesn't exist like it did.

Domestically in the U.S. the Bank Secrecy Act (1970; "BSA") was expanded and clarified after 9/11 with passage of the USA Patriot Act (2001; HR 3162 RDS). Congress decided that an effective way to catch terrorists was to monitor cash transaction and require reporting from "money services businesses". Since the threshold for transactions in now in aggregate US$1,000 per day, it's a very tight filter.

Canada established The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) to collect, analyze and, when appropriate, disclose financial intelligence on suspected money laundering, cash transactions and terrorist financing activities.

Internationally the U.S. used its political and diplomatic clout to step up foreign disclosure of suspicious transactions.

Canada and the U.S. belong to various international organizations that share financial and other information. One of the most dreaded of these among tax havens is The Organisation for Economic Co-operation and Development ("OECD"), which has obtained commitments from 33 of the world's 35 listed tax havens to comply with the OECD's principles of transparency and effective exchange of information.

By compelling tax havens to disclose banking information OECD members obtain fiscal information for the one purpose (combating money laundering and tracing terrorist's funds), which they can then use for another purpose (fighting fraud and other tax crimes).

It is myth number five that you can access or use offshore money and not have be discovered; it can happen in any of a thousand different ways, the majority of which his entirely beyond your control.

If a taxpayer finds themself in this position and wants to take advantage of an amnesty provision, then must retain the services of a tax lawyer. Because communications with an accountants aren't usually privileged (in Canada - Baron et al. v. The Queenm [1990] 1 C.T.C. 125 (F.C.A.); or in the U.S. - U.S. v. Arthur Young et al., (1984) 465 U.S. 805 (S.C.)) only a lawyer can achieve this without disclosing their client's before the terms are agreed to, and reduced to writing.

CRA Is There To Help

CRA says it wants you to be, "treated fairly and have the information, advice?[you] need to meet [your] obligations:" http://www.cra-arc.gc.ca/agency/fairness/rights-e.html.

Except CRA doesn't, and can't, hold itself accountable for any "information [or] advice" it gives. If they make a mistake, and you rely on their wrong 'advice', it will be you who will pay.

CRA has an opinion on everything to do with taxes; but having an opinion is no guarantee that the opinion is correct. To do what CRA says is the safe decision, but it may not always be the right decision: Canada v. Imperial Oil Ltd., [2004] 2 C.T.C. 190 (Fed. C.A.).

Caveat : Employees have little, or no, scope to tax plan. The wealthy and businesses do potentially have such flexibility, but deciding whether to take advantage of their opportunities is a question that requires an in-depth analysis of their particular circumstances by expert accountants and lawyers.
A creative tax plan may be challenged, but a creative and highly successful plan (i.e., one that defers or eliminates a lot of taxes) will be challenged. A safe rule of thumb is 'if you can't afford ? or don't want ? to fight about it, don't do it.'

This is not to say that all potential problems with CRA are self-created ? they aren't.

In R. v. Roberts & Viccars, [1998] B.C.J. No. 3184 (Prov. Ct.) the court stayed charges under ?24(1) of the Charter, against the accused charged with tax evasion and fraud. The court found that, "the abuses in his case are varied and blatant and span the investigation ? what [the CRA officer] did, aided and abetted by his supervisor?" showed "distain for the Charter."

In R. v. Saplys [1999] O.J. No. 393 (Ont. Gen. Div.) granted a stay when the investigation proved to be so unfair as to contravene fundamental notions of justice that it undermined the integrity of the justice system and compromised the defendant's right to a fair trial.

"These cases [and others] indicate that the abuses in Roberts & Viccars are not limited to a particular office. It remains to be seen whether there will be widespread changes in the conduct of SI investigations": Thomas Boddez, Esq.; Canadian Tax Highlights, 1999, Vol. 7, ? 3, ? Canadian Tax Foundation.

Since R. v. Norway Insulation Inc., (1995), 23 O.R. (3d) 432 (Gen. Div.), there was a growing (but not unanimous) condemnation in the case law of investigative techniques employed by [CRA] Investiga-tions: "The End Determines the Means", Canadian Tax Highlights, 1997, Vol. 5, ? 7, ? Canadian Tax Foundation. The issue was settled in favour of taxpayer rights under ?7 of the Charter in R. v. Jarvis, [2002] 3 S.C.R. 757 (S.C.C.) Iacobucci and Major, JJ. at ?96.

So the sixth myth of taxation is that CRA is there to help you; they are there to collect taxes for Parliament, any help they give will be incidental to that larger purpose.

What About Your Rights?

If you believe you have a problem with CRA, or if you believe its officers have broken your rights (e.g., ??7, 8, 10(b) or 11(d) of the Charter) to whom, should you complaint?

Unlike most federal government departments CRA doesn't have an Ombudsman, so you cannot go there.

In another abuse case (in which the court excluded the evidence under ?24(2) of the Charter), defence attempts to go to supervisors, local TSO directors, national directors, national director-generals, the Commissioner and even the Minister of National Revenue all proved to be ineffective.

CRA publishes Your Rights, but declarations without accountability are meaningless. CRA says that it requires its officers to adhere to a Code of Ethics and Conduct, but then refuses to release a copy so compliance with the Code can be tested.

Natural justice requires that both sides be heard ? audi alteram partem; but what if one side isn't listening? CRA may police the ITA, but "who polices the police?"

In the cases above, only the courts were able to restrain CRA in, what a senior CRA officer characterized as "rebels out there deciding policy" when the indications were that this was an entire SI office that was "out of control" (Roberts & Viccars, above).

While the courts have indicated a willingness to protect Charter rights (R. v. Clayton and Farmer, (2005) Docket No.s C37990; C36722 (Ont. C.A.) per Doherty, J.A. at ? 95) they are not the optimal venue for seeking redress for these wrongs; the expense and time involved in such litigation limits access for many. Even an award of costs against the Crown (cf., Saplys, above) would prove to be adequate compensation.

CRA's failure to recognize the dichotomy between their policies and their application is creating a crisis of confidence for many Canadians who believe themselves to have been a victim of a process, which CRA labels as "fair."

If this applies to you then email your Member of Parliament ("MP") and ask them for an Inquiry to establish an Ombudsman for CRA. Your MP's contact information may be found in the Parliamentary directory (http://www.parl.gc.ca/). When you write, please copy the Honourable Paul DeVillers, at DeVillers.P@parl.gc.ca. Mr. DeVillers is Parliamentary Secretary to the Prime Minister and he has expressed an interest in taxpayer equity and rights.

Staff Writer
For Tax Evasion Resources
<a target="_new" href="http://www.taxevasionresources.com">http://www.taxevasionresources.com</a>

Correspondence From The IRS ? Yikes!

It's a moment every person dreads. You pick up the mail and there is an envelope from the IRS. It's not a refund check. What do you do?

Don't Panic

Each year, the IRS sends out millions of "correspondence audits" to taxpayers to request payment of taxes, notify them of a change to their account or request additional information. These audits normally cover a very specific issue, often notifying you of additional small amounts of income for which you owe tax. Each letter and notice provides specific instructions explaining what you should do if action is necessary to satisfy the inquiry.

Most correspondence can be handled without calling or visiting the IRS. You simply follow the instructions in the letter and the matter is put to rest. Alternatively, you can contact the IRS to contest the matter. Simply call the telephone number indicated on the letter or write an explanation as to why you disagree. Make sure to include copies of any supporting documentation you want considered by the IRS. Typically, it will take the IRS between one and two months to respond. During the first quarter of the year, it can take two to three months.

Sometimes, the IRS sends a second letter or notice requesting additional information or providing additional information to you. Be sure to keep copies of any correspondence with your records. The IRS has been known to lose track of actions involving a taxpayer's account.

Worse Case Scenario

Everybody has a few really bad days in his or her life. You know, the car breaks down, you spill coffee on your shirt while driving to work?you get notice of a full blown audit from the IRS. The first step you take should not be drinking to excess or driving for the border. You have rights when the IRS comes calling and one of them is particularly important.

Representation

You have the right to be represented by an accountant or attorney at your audit. Under no conditions should you even consider going to an audit by yourself. Doing so would be like throwing red meat to a lion. Instead, spend the money to get representation and let them handle the audit. In most cases, you won't even have to go to the audit.

Nightmarish tax audits are generally a thing of the past. A letter from the IRS should not cause you to faint. Usually, the news isn't that bad. If it is, hire representation and let them handle it.

วันเสาร์ที่ 27 ธันวาคม พ.ศ. 2551

To Tax or Not to Tax - This is the Question

To tax or not to tax - this question could have never been asked twenty years ago.

Historically, income tax is a novel invention. Still, it became so widespread and so socially accepted that no one dared challenge it seriously. In the lunatic fringes there were those who refused to pay taxes and served prison sentences as a result. Some of them tried to translate their platforms into political power and established parties, which failed dismally in the polls. But some of what they said made sense.

Originally, taxes were levied to pay for government expenses. But they underwent a malignant transformation. They began to be used to express social preferences. Tax revenues were diverted to pay for urban renewal, to encourage foreign investments through tax breaks and tax incentives, to enhance social equality by evenly redistributing income and so on. As Big Government became more derided - so were taxes perceived to be its instrument and the tide turned. Suddenly, the fashion was to downsize government, minimize its disruptive involvement in the marketplace and reduce the total tax burden as part of the GNP.

Taxes are inherently unjust. They are enforced, using state coercion. They are an infringement of the human age old right to property. Money is transferred from one group of citizens (law abiding taxpayers) - to other groups. The recipients are less savoury: they either do not pay taxes legally (low income populations, children, the elderly) - or avoid paying taxes illegally. But there is no way of preventing a tax evader from enjoying tax money paid by others.

Research demonstrated that most tax money benefited the middle classes and the rich, in short: those who need it least. Moreover, these strata of society were most likely to use tax planning to minimize their tax payments. They could afford to pay professionals to help them to pay less taxes because their income was augmented by transfers of tax money paid by the less affluent and by the less fortunate. The poor subsidized the tax planning of the rich, so that they could pay less taxes. No wonder that tax planning is regarded as the rich man's shot at tax evasion. The irony is that taxes were intended to lessen social polarity and friction - but they achieved exactly the opposite.

In economies where taxes gobble up to 60% of the GDP (France, Germany, to name a few) - taxes became THE major economic disincentive. Why work for the taxman? Why finance the lavish lifestyle of numerous politicians and bloated bureaucracies through tax money? Why be a sucker when the rich and mighty play it safe?

The results were socially and morally devastating: an avalanche of illegal activities, all intended to avoid paying taxes. Monstrous black economies were formed by entrepreneuring souls. These economic activities went unreported and totally deformed the processes of macroeconomic decision making, supposedly based on complete economic data. This apparent lack of macroeconomic control creates a second layer of mistrust between the citizen and his government (on top of the one related to the collection of taxes).

Recent studies clearly indicate that a reverse relationship exists between the growth of the economy and the extent of public spending. Moreover, decades of progressive taxation did not reverse the trend of a growing gap between the rich and the poor. Income distribution has remained inequitable (ever more so all the time) - despite gigantic unilateral transfers of money from the state to the poorer socio - economic strata of society.

Taxes are largely considered to be responsible for the following:

<ul>

<li>They distorted business thinking;

<li>Encouraged the misallocation of economic resources;

<li>Diverted money to strange tax motivated investments;

<li>Absorbed unacceptably large chunks of the GDP;

<li>Deterred foreign investment;

<li>Morally corrupted the population, encouraging it to engage in massive illegal activities;

<li>Adversely influenced macroeconomic parameters such as unemployment, the money supply and interest rates;

<li>Deprived the business sector of capital needed for its development by spending it on non productive political ends;

<li>Caused the smuggling of capital outside the country;

<li>The formation of strong parallel, black economies and the falsification of economic records thus affecting the proper decision making processes;

<li>Facilitated the establishment of big, inefficient bureaucracies for the collection of taxes and data related to income and economic activity;

<li>Forced every member of society to - directly or indirectly - pay for professional services related to his tax obligations, or, at least to consume his own resources (time, money and energy) in communicating with authorities dealing with tax collection.

</ul>

Thousands of laws, tax loopholes, breaks and incentives and seemingly arbitrary decision making, not open to judicial scrutiny eroded the trust that a member of the community should have in its institutions. This lack of transparency and even-handedness led to the frequent eruption of scandals which unseated governments more often than not.

All these very dear prices might have been acceptable if taxes were to achieve their primary stated goals. That they failed to do so is what sparked the latest rebellious thinking.

At first, the governments of the world tried a few simple recipes:

They tried to widen the tax base by better collection, processing, amalgamation and crossing of information. This way, more tax payers were supposed to be caught in "the net". This failed dismally. People found ways around this relatively unsophisticated approach and frequent and successive tax campaigns were to no avail.

So, governments tried the next trick in their bag: they shifted from progressive taxes to regressive ones. This was really a shift from taxes on income to taxes on consumption. This proved to be a much more efficient measure - albeit with grave social consequences. The same pattern was repeated: the powerful few were provided with legal loopholes. VAT rules around the world allow businesses to offset VAT that they paid from VAT that they were supposed to pay to the authorities. Many of them ended up receiving VAT funds paid the poorer population, to which these tax breaks were, obviously, not available.

Moreover, VAT and other direct taxes on consumption were almost immediately reflected in higher inflation figures. As economic theory goes, inflation is a tax. It indirectly affects the purchasing power of those not knowledgeable enough, devoid of political clout, or not rich enough to protect themselves. The salaries of the lower strata of society are eroded by inflation and this has the exact same effect as a tax would. This is why inflation is called the poor man's tax.

When the social consequences of levying regressive taxes became fully evident, governments went back to the drawing board. Regressive taxes were politically and socially costly. Progressive taxes resembled Swiss cheese: too many loopholes, not enough substances. The natural inclination was to try and plug the holes: disallow allowances, break tax breaks, abolish special preferences, eliminate loopholes, write-offs, reliefs and a host of other, special deductions. This entailed conflicts with special interest groups whose interests were duly reflected in the tax loopholes.

Governments, being political creatures, did a half hearted job. They abolished on the one hand - and gave with the other. They wriggled their way around controversial subjects and the result was that every loophole cutting measure brought in its wake a growing host of others. The situation looked hopeless.

Thus, governments were reduced to using the final, nuclear-like, weapon in their arsenal: the simplification of the tax system.

The idea is aesthetically appealing: all tax concessions and loopholes will be eliminated, on the one hand. On the other, the number of tax rates and the magnitude of each rate will be pared down. Marginal tax rates will go down considerably and so will the number of tax rates. So, people will feel less like cheating and they will spend less resources on the preparation of their tax returns. The government, on its part, will no longer use the tax system to express its (political) preferences. It will propagate a simple, transparent, equitable, fair and non arbitrary system which will generate more income by virtue of these traits.

Governments from Germany to the USA are working along the same lines. They are trying to stem what is in effect a tax rebellion, a major case of civil disobedience. If they fail, the very fabric of societies will be affected. If they succeed, we may all inherit a better world. Knowing the propensities of human beings, the safe bet is that people will still hate to see their money wasted in unaccounted for ways on bizarre, pork barrel, projects. As long as this is the case, the eternal chase of the citizen by his government will continue.

About The Author

Sam Vaknin is the author of "Malignant Self Love - Narcissism Revisited" and "After the Rain - How the West Lost the East". He is a columnist in "Central Europe Review", United Press International (UPI) and ebookweb.org and the editor of mental health and Central East Europe categories in The Open Directory, Suite101 and searcheurope.com. Until recently, he served as the Economic Advisor to the Government of Macedonia.

His web site: <a href="http://samvak.tripod.com" target-new>http://samvak.tripod.com</a>

Save Money on Taxes - Let Uncle Sam Pay for Your Fun!

"Deducting Meals and Entertainment"

O.K. You've been working really hard on these lessons. Now its time for some fun. Are you with me? Imagine if you could spend time with friends, eating, drinking and seeing shows and your company could foot the bill? Wouldn't that be GREAT! Fasten your seat belt, we're going on a (tax-deductible) journey?

<a target="_new" href="http://m123.infusionsoft.com/go/MikeDrew/MikeDrew/sampay">Tax Secrets of the Rich found here</a>

Our first stop is meals. There are several great ways to deduct your meals. The first is to turn your social outings into business meetings. No Fun, you say. Watch this, I say. Many of my lunches are already spent with colleagues and associates. That's the way it is when you're in business for yourself. You start spending more and more time with business partners and associates. <a target="_new" href="http://m123.infusionsoft.com/go/dm/MikeDrew/sampay">Asset Protection Techniques</a>

Well, if I have lunch or dinner with a friend, that's NOT tax deductible. But, if I discuss business with that same person, suddenly it becomes a deductible expense. And what does it take to officially discuss business? The IRS says that that the following conversation will suffice:

Your Associate: "How's Business?"

Your Reply: "Great, but I could always use more business" (with the inherent request for referrals) That's it. You've just turned a social gathering into a legitimate business meeting and the meal becomes 50% deductible. Don't forget to document it properly.

What about having a meal with your spouse or "significant other." We'll the IRS is pretty darn smart, so they aren't about to let use write off all our romantic dates. Yet they realize that when two couples go out for a meal, that's a great time to discuss business in a relaxed setting. So the rule is that if you and your spouse enjoy a meal with another couple and you have that same business discussion outlined above, the meal is (50%) deductible. You want more? No problem. <a target="_new" href="http://m123.infusionsoft.com/go/pfbsaff/MikeDrew/sampay">Tax Strategies</a>

How about dinner and a show. Or what about a full day on the golf course? The rule is that if you have a business meeting that is followed by entertainment, or entertainment that is followed by a business meeting, that's a deductible expense. The IRS wants to see that you have a table or some other flat surface available to you during the meeting, so that you can sign documents, etc. Same thing goes for skiing, the movies or even a day at the beach. How about a ball game or even the Super Bowl? Just precede or follow it with a business meeting and document what you discussed.

One more, you say. Fine here it is. Imagine that you work for a large insurance company or law firm. You're involved in a big case and you're up against a touch deadline. Your boss comes in toward the end of the day and says, "I need you to work though dinner tonight- we've got to come in under that deadline. Don't go home for dinner, just order in, on the firm". Its called "supper money" In essence, your boss has allowed the company you work for to buy your dinner.

Your own company can do the same for you. Just don't forget to document your expenses properly.

Sincerely,
Drew Miles, The Tax Saving Attorney

Drew has combined what he learned during formal education, informal education and twenty five years of business experience in the development of programs designed to teach people how to build and preserve lasting wealth. He is an author, teacher and international speaker in the areas of asset protection, and tax saving and wealth building strategies.

วันศุกร์ที่ 26 ธันวาคม พ.ศ. 2551

IRS Offer-in-Compromise, Hype or Hope?

"Settle for Pennies on the Dollar! IRS debts settled for $20 Wipe out the Penalties with an Offer"-such is the language of Offer-in-Compromise promoters. What they fail to tell you is that one has to qualify for an Offer and few taxpayers will be able to meet the tough standards for an OIC.

The Offer-in-Compromise (OIC) has been around for a long time, but it wasn't until 1992 that IRS started really using the program in good faith. After the Revenue Reform Act of 1998, IRS became even more liberal with the OIC. At one point almost half of all Offers were being accepted. Unfortunately, in 2002, the IRS started getting tough on Offers and now only about 25% of all Offers are accepted. The main reason for the decline was the centralization of Offers at two IRS locations instead of them being worked locally at the district offices.

An Offer can be made for "Doubt as to Liability" or "Doubt as to Collectability." Submitting a proper OIC is more than just filling out an IRS Form 656. A good offer must have 3 recent months of supporting documentation attached with the Form 656 (if the OIC is for doubt as to collectability). Failure to fill out the Form 656 properly, failure to include all liabilities, or failure to provide the documentation required results in an Offer that is dead on arrival. Even if the forms are complete and the data provided; the Offer is now just "processable" and 6-9 months may go by before a decision is reached on the merits of the OIC.

Unscrupulous Offer Promoters often don't qualify people for the Offer, they just sell them a bill of goods. Folks can pay thousands and not have a chance at an OIC to begin with! Don't do business with anybody that doesn't at least take a full financial statement from you. If the matter is Doubt as to Liability, no financial is required, but there needs to be a solid basis for the claim in law and policy.

The main items that often sink an Offer when someone does qualify based on income and expenses are assets such as IRAs, 401Ks and home equity. If you owe the IRS 25K but you have an IRA worth 50K and home equity of 50K, forget about an OIC. There would have to be a horrible circumstance in your life to get past the equity in assets. In very rare cases of health or old age, exceptions can be made. Just because you can't pay your bills on time doesn't make you an Offer candidate. You must not be able to full pay based on income and expenses plus the "quick sale" value of your assets. Only then is a Doubt at to Collectability Offer an option.

If you qualify, you really can settle for "pennies on the dollar," but it might be 30-50% of your debt based on the math. To settle for $500 you would have to be broke with no assets at all and no prospects for near term improvement of your financial situation. See a CPA, Tax Attorney, or Enrolled Agent if you are considering an Offer. They can go over all of your options.

You can learn more about Offers at these websites:

www.irs.gov
www.naea.org
www.nsacct.org
www.etaxes.com
www.exirsman.com

James Robert Coleman, E.A., A.T.A.
Enrolled Agent, Accredited Tax Advisor, former IRS Revenue Officer. Member-National Association of Enrolled Agents & National Society of Accountants.

Requirements To Produce Tax Information (Whats Up With That?)

"What we've got here is a failure to communicate."
--Strother Martin in Cool Hand Luke

Statutory Law

Governments pass laws, it's what they do. It is the job of others to interpret the laws that Parliament has made.

Statutory Construction

It is "presume[d] that the legislature avoids superfluous or meaningless words, that it does not pointlessly repeat itself or speak in vain. Every word in a statute is presumed to make sense and to have a specific role to play in advancing the legislative purpose": Tower v. M.N.R., [2004] 1 F.C. 183 (F.C.A.) per MALONE J.A. per curium at para. 15.

Also Communities Economic Development Fund v. Canadian Pickles Corp., [1991] 3 S.C.R. 388, per IACOBUCCI, J. at page 408 Interpretation of the Canadian Income Tax Act ("ITA") in practice is primarily done by the Canada Revenue Agency ("CRA"); followed closely by tax accountants and lawyers with the tying vote going to the Courts.

The Legislative Purpose

To raise money and implement federal policies.

The Accounting/Legal Purpose

To assist taxpayers to legally structure their affairs so as to minimize the taxes they must pay: IRC v. Westminster, [1936] A.C. 1 (H.L.), at p. 19 and Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536 (S.C.C.), at p. 540.

It is not difficult to foresee that the legislative objective and private sector tax adviser will frequently disagree. While CRA wins many such arguments by default (e.g., the taxpayer can't, or won't, fight) for those that do contest a restrictive or erroneous interpretation of the ITA, there is a heartening rate of success.

A caveat should be interjected here, this presumes challenges where have been made thoughtfully; that is, were CRA "got it wrong" and the taxpayer has called them on it. Frivolous challenged or specious arguments (i.e., R. v. Klundert) are not going to succeed.

Legislative Tools

In order to expedite the collection of taxes Parliament has given CRA broad powers to enforce the ITA, some require taxpayers to cooperate under a compulsion of law.

While such compulsion may be permissible in the civil context (R. v. McKinlay Transport Ltd., [1990] 1 S.C.R. 627), the same is not true if the information sought or seized by CRA will be used to prosecute the taxpayer for an offence under the ITA (R. v. Jarvis [2002] 3 S.C.R. 757; s. 7 of the Canadian Charter of Rights and Freedoms).

Thus the following material assumes a CRA civil audit, but if you believe that in your situation CRA abused these provisions while you were under a criminal prosecution (e.g., s. 239(1)(d) ITA for evasion) then obtain immediately legal advice.

S. 230(1) ITA: Books & Records

Every "person" carrying on business or required to pay, or collect, taxes under the ITA is required to keep records and books of account at their place of business or residence. What books? Enough to enable you to calculate the taxes and for CRA to see that you did it correctly. "Person" includes corporations (s. 248(1) ITA).

This ties into with the obligation on each Canadian taxpayer to estimate the amount of the taxes payable in any taxation year under s. 151 ITA.

S. 231.1(1) ITA: Inspect, Audit & Examine Books

Someone from CRA may, enter your place of business to inspect, audit or examine your books and records, or those of another taxpayer, to see you fulfilled your obligation under s. 151, above. They may not enter your home without a search warrant, unless you invite them in.

Although the wording of this provision is broad, it is not unlimited: the person has to be authorized, their approach has to be at a reasonable time(s), the request has to be related to enforcement of the ITA and it is restricted to "inspect[ing], audit[ing] or examination[s]."

If you are subject to such a "compliance audit" you will want to have your accountant involved as soon as possible in the process.

If, however, you are audited and shortly thereafter charged with an offence under the ITA speak with your lawyer as this "audit," it may have violated s. 7 of the Charter and the Jarvis principles.

S. 231.2(1) ITA: Requirements To Provide Information and Documents ("RPIDs")

If CRA wants you (or a third party) to produce (a) information or (b) any document the Minister of National Revenue ("MNR") may, for any purpose related the ITA, give notice served to you, or that third person, personally requiring production, within a reasonable time, of stipulated materials listed in the notice: Tower, above, s. 17.

Like you, CRA must follow the wording of s. 231.1(1) ITA (Ludmer v. Canada, [1995] 2 F.C. 3 (F.C.A.), CHEVALIER D.J. at p. 17).

CRA does get this wrong from time to time. Just how serious their error is you can discuss with your lawyer. An irregular RPID doesn't necessarily mean the evidence will be excluded, but the mere possibility is sufficient to justify your lawyer thoroughly reviewing the memoranda, RPIDs and related materials for errors.

Only the MNR (or his delegate) can issue RPIDs. RPIDs must be subject to prior approval and the delegate must act in a quasi-judicial manner; or in other words, if they don't act unreasonably.

The Supreme Court of Canada has held that a taxpayer may have substantive defences to successfully attack RPIDs and any resulting prosecution (McKinlay Transport), defence which include:

1) unauthorized fishing expeditions by CRA (James Richardson & Sons, Ltd. v. M.N.R. [1884]1 S.C.R. 614 at p. 623), and

2) there is no a genuine and serious inquiry into a taxpayer's liability (relying on Canadian Bank of Commerce v. A.G. Canada (1962), 35 D.L.R. (2d) 49).

The court ruled that the test is objective, which means that what's important is statutory compliance not CRA's good faith.

If the Requirement power was used improperly and all of the resulting information was obtained in violation of the Charter then your lawyer may ask the Court to exclude the evidence: Charter s. 24(2).

If search warrants were obtained "based solely on information gleaned in violation of the Charter [those warrants] are invalid": R. v. Evans, [1996] 1 S.C.R. 8 at para. 26.

S. 231.2(2) ITA: Unnamed Persons

The MNR shall not impose on any third party a RPID to provide information or any document relating to any one, or more, unnamed persons without prior judicial authority.

The Supreme Court of Canada has held that warrantless searches are prima facie a violation of s. 8 of the Charter: R. v. Collins, [1987] 1 S.C.R. 265 per LAMER, J. at para. 22 and it then becomes a question of fact whether that violation was "reasonable."

To rebut this presumption the onus will be on the Crown/CRA; but normally a "search will be reasonable if it is authorized by law, if the law itself is reasonable and if the manner in which the search was carried out is reasonable" (Collins, at para. 23).

In other words, an RPID will be legal if:

* the ITA was followed, exactly (Tower);

* if it was done in the civil context (McKinlay Transport);

* if there was a genuine and serious inquiry into a taxpayer??s liability (Canadian Bank of Commerce); and

* the taxpayer was named (s. 231.2(2) ITA; Artistic Ideas Inc. v. Canada (CRA), 2004 FC 573 (F.C.T.D.) per SNIDER, J.);

And, an RPID will not be valid and enforceable if:

* the ITA was not followed;

* if the MNR??s delegate didn??t act quasi-judicially;

* if the RPID was used as part of an investigation (Jarvis);

* if CRA was "fishing" (Richardson & Sons); and

* if CRA didn't obtain prior authorization for the RPID (Hunter v. Southam Inc., [1984] 2 S.C.R. 145 DICKSON J.)

This is a simplified version of the law, only your lawyer can give you advice about your particular situation.

S. 231.3(1) ITA: Search Warrants

CRA can apply to a judge for a search warrant ("SW") without notice to you.

A CRA officer must swear an Information to Obtain (s. 231.3(2) ITA) and under s. 231.3(3) ITA a judge may issue the search warrant if they are is satisfied that there are reasonable grounds to believe:

(a) an offence under the ITA was committed;

(b) a document or thing that may afford evidence of the offence; and

S. 231.3(3) ITA now reads "may issue" rather than "shall" because the Baron v. Canada, [1993] 1 S.C.R. 416 declared the former invalid as a violation of s. 8 Charter because it unduly restricted judicial discretion in refusing to issue search warrants. So you can see judicious challenges can change not only the results, but the law as well.

S. 487 Criminal Code

Provides an alternative procedure for applying for SWs, similar to the foregoing; which in practice, CRA uses regularly; as you might imagine s. 487 has been extensively litigated and it is generally well understood by the criminal bar.

S. 231.5(1) ITA

Where any document is seized, inspected, examined or provided under ss. 231.1 to 231.4 ITA the CRA officer my make copies. Such copies, when certified, have the same probative force as the original.

S. 231.5(2) ITA

No person shall hinder, molest or interfere with any person doing anything he is authorized to do under ss. 231.1 to 231.4. If you think that CRA has violated your rights or otherwise failed to comply with the ITA ?V then call your lawyer. Don't try to stop them yourself.

S. 238(1) ITA

Provides that every "person" who has failed to file a return as and to comply with the sections of the ITA listed therein is guilty of an offence and in addition to any other penalty (e.g., s. 162(1) ITA). If convicted a taxpayer is subject to a fine and imprisonment

The Bottom Line

Although the CRA uses these provisions frequently, they don't always do so correctly.

Some CRA officers have testified that they followed CRA "practices" rather than the ITA per se (e.g., s. 231.2(2) ITA), but as only the statutory provisions that are binding this may give your lawyer grounds to challenge CRA use or reliance on any materials found.

Parliament has spoken, but sometimes CRA hasn't listened; that "failure to communicate" may, if your lawyer decides circumstances warrant it, may justify challenging CRA on their use of their requirement powers.

Staff Writer For - Tax Evasion Resources - <a target="_new" href="http://www.taxevasionresources.com">http://www.taxevasionresources.com</a>

Alas! In E-Commerce Taxland

In trying to comply with tax laws for your e-business, you may find yourself falling down the rabbit-hole, going through the looking glass, and attending a Mad Tea-Party.

Common sense, logic, and fairness never did apply fully to the field of taxation but this is especially true of e-commerce transactions.

1. Canada Customs Welcomes You to Canada!

Since I`m located in Canada, let`s start here.

Canada has what you might call a national sales tax or a value added tax (VAT). This Goods and Services Tax (G.S.T.) of seven percent is applicable to many Canadian transactions.

Not only is it critical to determine whether a taxable sale was made in Canada or not, but also where in Canada. If it was made (or deemed to be made) in any of the Harmonized Sales Tax (H.S.T.) provinces (Nova Scotia, New Brunswick, and Newfoundland and Labrador), a higher, fifteen percent H.S.T. rate applies. This is because those provinces have allowed Canada to collect their provincial sales taxes for them.

As well, each province and territory has its own rules. Ontario charges eight percent retail sales tax on many typical Internet transactions whereas Alberta has no provincial sales tax.

Of course, this is only scatching the surface. This entire article is an over-simplification of a very complex subject. You will definitely need professional advice to help you through E-Commerce Taxland.

2. When Exports Aren`t Exports

In Canada, exports are "zero-rated" sales for G.S.T. purposes. This means that when you ship a product to someone outside Canada, you don`t charge G.S.T. Yet, you get to claim (or deduct from the G.S.T. collected by you) all the "input tax credits" (G.S.T. that you paid for business purposes) to make that export. The idea, I suppose, is to encourage exporting.

However, if you export products other than tangible, physical goods, beware! There are many pitfalls to watch out for.

As one example, consider digitized products that you might sell from your Canadian website, such as e-books, downloadable software, or subscriptions to content. You would be considered to be selling "intangible personal property". Unless your product is also considered "intellectual property" (such as software or e-books that you produced or have obtained the rights for), you will have to charge G.S.T. The reason why, according to the Canada Customs and Revenue Agency, is that it COULD be used inside Canada, even if it isn`t.

Say you sold a membership for accessing digitized content (from various sources) on your Canadian website to a customer in the United States. Since there are no restrictions as to where the intangible personal property may be used, and the property is not considered intellectual property (nor the provision of a service), the American customer is subject to G.S.T., even if he never comes to Canada.

Strangely, the same logic doesn`t apply when an American buys a regular book (or a car) which he COULD bring into Canada with him and use here. It is true that it is easier for Canada to assess such items at the border than in cyberspace, but I know of no cases of Americans being taxed on the books or cars they bring with them when they come to live in Canada for about half the year.

As a Canadian registrant, one way you might legally avoid this silly March Hare is to explicitly state on your website and invoice that use of such intangible personal property in Canada is prohibited (or requires an additional fee and the payment of G.S.T.).

3. When Imports Aren`t Imports

Goods shipped to Canada are subject to G.S.T. on importation. Such tax is often assessed at the border. But what if you are a Canadian registered for G.S.T., selling to a Canadian customer but your supplier is in a foreign country?

Pretend that your Canadian customer has bought a book from you from your Canadian website. Your drop ship supplier is located in the United States and is registered for G.S.T. You fax your order to the American company, and they, in turn, ship the book for you (complete with Customs Declaration and their G.S.T. Business Number).

Since they paid the G.S.T., you wouldn`t think you would have to charge it again, would you? "Wrong!", smiles the Cheshire cat. Since you are a registrant located in Canada, you are required to charge and remit the G.S.T.

But you are entitled to input tax credits, aren`t you? In many cases, the answer is "No".

It may be very difficult for you to satisfy the documentary and other technical requirements. As an example, it is not uncommon for American suppliers to absolutely refuse to give an invoice breaking down the G.S.T. or to allow you to be the Importer of Record. This complicates their life unnecessarily and they just don`t need the aggravation.

There are relieving tax provisions covering drop shipping, sales agencies, and other situations. In many cases, unfortunately, the most practical solution is to allow the tax to be paid twice.

4. When You`re Subject to Tax Where You`re Not Subject to Tax

It makes sense that countries impose a tax on sales and income made in their own jurisdiction. But does it make sense for Germany to tax sales made in the United States?

In effect, starting July 1, 2003, the European Union has done just that by imposing an online sales tax.

This means that if someone from England buys an e-book from someone in the United States, the American should submit this tax. Of course, If the sale was to someone in Germany, the tax rate would be different.

The rationale behind this follows: Since countries can`t collect sales tax on Internet transactions at their borders, the only way they can collect it (other than a self-assessment system) is with an online sales tax. Further, it is claimed that businesses in the European Union suffer a major competitive disadvantage because they have to collect Value Added Tax (VAT) but others don`t.

I know what they mean. Welcome to the club!

J. Stephen Pope, President of Pope Consulting Inc., <a target="_new" href="http://www.popeconsultinginc.com/">http://www.popeconsultinginc.com/</a> has been helping clients to earn maximum business profits for over twenty years.

For valuable Work at Home Small Business Ideas, visit <a target="_new" href="http://www.yenommarketinginc.com/">http://www.yenommarketinginc.com/</a>

วันพฤหัสบดีที่ 25 ธันวาคม พ.ศ. 2551

Tax Trap #5 -- Ignoring The IRS (and the 5 best ways to contact them!)

We all love to criticize the IRS, don't we? And I'm just as guilty as anyone. It's easy to ridicule a huge organization of government bureaucrats who often seem to be Public Enemy #1.

Our negative attitude toward the IRS can lead to a strong desire to just ignore it altogether. But self-employed people who ignore the IRS do so at their own peril.

So when it comes to providing free information about taxes, let's not throw the baby out with the bath water. The IRS does provide some excellent resources to help us make the best of a potentially bad situation.

If you need tax assistance and prefer not to pay for it, do not overlook these five ways to obtain help from the IRS:

1. The Internet

http://www.irs.gov

There's a wealth of information just for small business owners and self-employed people at: http://www.irs.gov/smallbiz

Here you'll find everything from how to obtain a federal business tax ID to a free 6-session streaming video presentation of the "IRS Small Business Workshop." Also known as the Small Business Self-Employed Online Classroom, you can access this directly at: www.irs.gov/businesses/small/article/0,,id=97726,00.html

If you prefer to attend an IRS small business workshop in person, check here to see what's available in your state: www.irs.gov/businesses/small/article/0,,id=99202,00.html

Need tax forms and/or their instructions? Look no further than the IRS website: http://www.irs.gov/formspubs/index.html

Here you'll find a boatload of links to every tax form imaginable, available as downloadable PDF files or in fill-in format. All form instructions can also be downloaded.

http://www.irs.gov/formspubs/lists/0,,id=97817,00.html

The IRS has many free publications that explain virtually every major (and many minor) tax topics in great detail. Sure, IRS "pubs" are not always written in the most entertaining style, but, hey, remember the price. http://www.irs.gov/formspubs/lists/0,,id=97819,00.html

2. Telephone Hotlines.

Special toll-free numbers exist for the following:

-- To order forms & pubs: 800-829-3676 (in case you'd like to receive a paper copy via snail-mail)

-- To ask business tax questions: 800-829-4933

-- To ask personal tax questions: 800-829-1040 Use common sense when phoning the IRS: to avoid long wait times, don't call on Monday morning. And no matter when you call, be prepared! Write out your questions beforehand and have all relevant documentation in front of you, as well as a favorite book or magazine to read during the inevitable wait time. Stay calm; don't yell; treat the IRS employee like a human being and he/she will likely return the favor.

-- Need help with long-standing problems: 877-777-4778

-- Prerecorded messages on 140 topics: 800-829-4477

3. TaxFax Service.

You can receive most IRS forms instructions via fax by calling 703-368-9694 from your fax machine.

4. CD-ROM for Small Business.

This is known as "The Small Business Resource Guide CD-ROM", aka Publication 3207. It includes all the tax forms and publications needed to run a small business. Call 800-829-3676 to request a free copy.

5. Walk-In Offices.

Need some face-to-face tax help? For a complete list of IRS offices in all 50 states, including hours of operation and contact info, check out: http://www.irs.gov/localcontacts

Wayne M. Davies is author of 3 tax-slashing eBooks for the self-employed, available separately or as a 3-volume set, "The Ultimate Small Business Tax Reduction Guide". <a target="_new" href="http://www.YouSaveOnTaxes.com/ultimate-guide">http://www.YouSaveOnTaxes.com/ultimate-guide</a>

To get your free copy of Wayne's 25-page report, "How To Instantly Double Your Deductions" visit: <a target="_new" href="http://www.YouSaveOnTaxes.com">http://www.YouSaveOnTaxes.com</a>

วันพุธที่ 24 ธันวาคม พ.ศ. 2551

Section 179 ? Tax Relief From Depreciation Rules

"Depreciation." For business owners, this word is the one most likely to inspire headaches and fits of cussing. The expanded provisions of Section 179 are just the medicine you need to cure the depreciation blues.

Depreciation

Traditionally, if your business property had a life of more than one year, the cost had to be deducted over several tax years. The number of years depended on the characteristics of the property, which made depreciation the flag-bearing example of the complexities of the tax code. Shockingly, the federal government has provided substantial relief to business owners.

Section 179 of the Internal Revenue Code has been dramatically expanded to the benefit of businesses, particularly small ones. This code allows businesses to completely deduct the cost of tangible property in the year of purchase. The tax relief comes from the expansion of the total amount that can be deducted in one year.

Huge Deduction Increase

As part of the Job Growth and Reconciliation Act of 2003, the one-year deduction amount was increased from $25,000 to $100,000. The 100,000 figure will be adjusted for inflation each year, which means it will continue to increase. This is very good news.

What Property Qualifies?

You can deduct the cost of the following property under Section 179:

1. Machinery and equipment

2. Furniture and fixtures

3. Computer software.

You must elect Section 179. It is not automatically given to you. Simply fill out IRS Form 4562 and attach to the returns for the business.

In Closing

As shocking as this will sound, the government should be applauded for expanding Section 179. Small businesses are burdened by too many regulations and mandatory costs. The expansion of Section 179 is a nice piece of tax relief legislation. Let's hope more is on the way.

Small Business Tax Issues for Self-Employed Individuals

The United States is a nation of entrepreneurs. There are literally tens of millions of self-employed individuals that enjoy pursuing their dream business. Of course, few of you enjoy the paperwork and confusing tax issues that arise from owning your own business.

Many self-employed individuals are considered "sole proprietors" or "independent contractors" for legal and tax purposes. This is true regardless of whether you are turning a hobby into a business, selling an indispensable widget or providing services to others. As a self-employed person, you report business revenue results on your personal income tax return. Following are a few guidelines and issues you should keep in mind if you are pursuing your entrepreneurial spirit.

Schedule C - Form 1040.

As a self-employed person, you are required to report your business profits or losses on Schedule C of Form 1040. The income earned through your business is taxable to you as an individual. This is true even if you do not withdraw any money from the business. While you are required to report your gross revenues, you are also allowed to deduct business expenses incurred in generating that revenue. If your business efforts result in a loss, the loss will generally be deductible against your total income from all sources, subject to special rules relating to whether your business is considered a hobby and whether you have anything "at risk."

Home-Based Business

Many self-employed individuals work out of their home and are entitled to deduct a percentage of certain home costs that are applicable to the portion of the home that is used as your office. This can include payments for utilities, telephone services, etc. You may also be eligible to claim these deductions if you perform administrative tasks from your home or store inventory there. If you work out of your home and have an additional office at another location, you also may be able to convert your commuting expenses between the two locations into deductible transportation expenses. Since most self-employed individuals find themselves working more than the traditional 40-hour week, there are a significant number of advantageous deductions that can be claimed. Unfortunately, we find that most self-employed individuals miss these deductions because they are unaware of them.

Self-Employment Taxes - The Bad News

A negative aspect to being self-employed is the self-employment tax. All salaried individuals are subject to automatic deductions from their paycheck including FICA, etc. In that many self-employed individuals often do not run a formal payroll for themselves, the government must recapture these taxes through the self-employment tax. Simply put, you are required to pay self-employment taxes at a rate of 15.3% on your net earnings up to $87,900 for 2004. For net income in excess of $87,900, you will pay further taxes at a rate of 2.9% on the excess.

In an interesting twist that reveals the confusing nature of the tax code, you are allowed a partial deduction for the self-employment tax. Simply put, you are allowed to deduct one-half of your self-employment taxes from your gross income. For example, if you pay $10,000 in self-employment taxes, you are allowed a deduction on your 1040 return of $5,000. Many self-employed individuals miss this deduction and pay more money to taxes than needed.

Health Insurance Deduction

This used to be a very messy area for self-employed individuals, to wit, you received little tax relief when it came to your health insurance bill. This was a particular burden for small business owners when considering the astronomical cost of health insurance. All of this has changed and you now may deduct 100% of your health insurance costs as a business expense.

No Withholding Tax

Unlike a salaried employee sitting in a cubicle, you are not subject to withholding tax on your paycheck. While this sounds great, you are required to make quarterly estimated tax payments. If you fail to make the payments, you are subject to a penalty, but the penalty is not the biggest concern.

A potential and dangerous pitfall of being self-employed is failing to pay quarterly estimated taxes and then getting caught at the end of the year without sufficient funds to pay your taxes. The IRS is not going to be happy if you fail to pay your taxes and you will suffer the consequences in the form of penalties and interest. Making sure you pay quarterly estimated taxes helps avoid this situation and it is highly recommended that you follow this course of action.

Record Keeping

You must maintain complete records of all business income and expenses. Simply put, document everything. Create a filing system for each month and file every receipt, etc. All business travel expenses must be documented, including auto mileage you incur when performing business tasks. Office supply stores sell business mileage books that you can keep in your car and use whenever you travel. If you have any doubt about documenting something, just do it!

In Closing

As a self-employed individual, your focus and time is spent on making your business successful. Your focus is not on the complexities of the tax code and how to limit the amount of taxes you owe. If any of the information in this article is new to you, then it is highly likely you have paid far more in taxes than required.

Are You An Innocent Victim of These Popular Myths?

Misconceptions, misinterpretations and just plain "untruths" are floating about income taxes. Believing them could be costing thousands of tax dollars!

Myth: A Professional Tax Preparer knows all there is to know about taxes so you don't have to know anything them.

Truth: Tax Preparer's/CPA's/Accountants are not uniformly informed about ALL tax laws. Most are able to file a personal income tax and know all the laws and how to apply them to personal income tax.

There are thousands of excellent, hard-working accountants doing a great job. And if you use a tax professional, maybe they have done everything possible to reduce your taxes. But many professional tax preparers are just tax preparers.

They may know how to prepare a tax return in their sleep. They know what numbers go on which form. But that's about all they know.

A good tax preparer is not trained in tax reduction strategies.

The only way you are assured to get the tax deductions you are entitled to, as a Home-Based Business Owner, is to become informed yourself.

Myth: You must "itemize" in order to take Home-Based Business expenses.

Truth: Many people misunderstand the terminology here.

When you "itemize" your income tax you file Form A&B and take such things as medical, home mortgage interest etc. You will only "itemize" if the total of Form A is over the standard deduction (for 2003 taxes?$4,700 single, $9,500 married)

Some people call this filing "long form."

All taxpayers have the opportunity to itemize if it is to their advantage.

Whether you "itemize" or not has NO bearing on your Business.

Myth: You're not making a profit so there is no advantage to filing business income taxes.

Truth: This is so not true! There's many tax advantages to filing a Home-Business tax return and especially so if you are not making a profit. If you also work a job, be it part-time or full time, in addition to your Home-Based business it is especially beneficial to you to file a business tax return.

Expenses incurred in your business can be taken against your job income thus reducing your taxable dollar, which decreases your tax liability.

Myth: Because you work a full-time job your Internet Marketing Business is just a hobby.

Truth: Only another Internet Marketer can truly understand the hours and money spent on what someone else would call a "hobby"!

The rules clearly state you have a business if you meet 8 rules. Four of the most important rules to meet are:

1. Expertise of the taxpayer or his/her advisors. That would mean your expertise in Internet Marketing or those who advise you. If you're learning and actively applying what you learn to your Internet Marketing activities and have a good "handle" on this?you qualify.

2. Time and Effort the Taxpayer puts into 'running the business'. They just want to make sure you're running a real business, not just engaging in a hobby. How much "time and effort" is enough? The United States Federal Tax Court has ruled that "45 minutes a day, 4 to 5 days a week" qualifies.

I can't see anyone who is in Internet Marketing with a profit motive not qualifying here!

3. The Manner in Which the Taxpayer Carries On the Business Activity. This one is common sense. Do you conduct your business mostly on the telephone, over the Internet and in-home presentations (these are good), or mostly at the golf course, during lunches and at the pub (not so good). Just treat your business like a business.

4. Is the Primary Purpose of your activity to 'Produce a Profit," or to 'Produce Tax Write-offs'? The best way to Pass the profit-motive test, is to have a Business Plan, and That Business Plan should include a table of Income and Expense projections, clearly showing profitability at some point in the future. Note that you are not required to actually produce a profit in order to qualify for home-business tax deductions -- just to show that you have the intent to produce a profit.

If you are doing all this then there is no reason for your business to be considered a "hobby".

Myth: You must make a profit within 5 years to be considered a "business" and file Home-Business taxes.

Truth: That's a generalization. Yes, the government would like to see you make a profit within 5 years but you are not penalized for not doing so. If you are following the above 4 rules and conducting yourself as a business you have nothing to worry about. You are a business and some businesses are not profitable for a number of years.

Myth: Learning how to reduce you taxes is hard and complicated.

Truth: Average Small Business Owners have plenty of tax reduction strategies at their disposal. You just have to know what they are and how to use them.

Once you learn what deductions are allowed you will know what figures your Tax Preparer/Accountant needs and you can configure your accounting accordingly.

Myth: Accounting and tax documentation for the Home-Business is not for the do-it-yourselfer.

Truth: All Small Business Owners can easily keep their own books using any number of software programs. It is not necessary to have an accountant.

No, you will not have to learn accounting. You will just need to be able to "categorize" and record expenses and sales.

Documentation for the government is very easy if you use a pocket calendar and keep your receipts.

In just 5-10 minutes a day you can have records that will withstand any government scrutiny.

About The Author

Karin Workman is a 30-year veteran Home-Based Business Owner who specializes in Tax Preparation for Home-Based Businesses. Karin also wrote the Hot New Ecourse: "Reap the Rewards!" Designed to help you save tax dollars and put more money into YOUR pocket. The course is Free exclusively at: <a href="http://reaptherewards.businessoppsunlimited.com" target="_new">http://reaptherewards.businessoppsunlimited.com</a>

taxes Tax Information

วันพุธที่ 31 ธันวาคม พ.ศ. 2551

Employment Taxes ? What Are They?

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วันอังคารที่ 30 ธันวาคม พ.ศ. 2551

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วันจันทร์ที่ 29 ธันวาคม พ.ศ. 2551

How To Claim CHILD TAX CREDIT The Right Way And Add An Extra $2,000 To Your Refund

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วันเสาร์ที่ 27 ธันวาคม พ.ศ. 2551

To Tax or Not to Tax - This is the Question

Save Money on Taxes - Let Uncle Sam Pay for Your Fun!

วันศุกร์ที่ 26 ธันวาคม พ.ศ. 2551

IRS Offer-in-Compromise, Hype or Hope?

Requirements To Produce Tax Information (Whats Up With That?)

Alas! In E-Commerce Taxland

วันพฤหัสบดีที่ 25 ธันวาคม พ.ศ. 2551

Tax Trap #5 -- Ignoring The IRS (and the 5 best ways to contact them!)

วันพุธที่ 24 ธันวาคม พ.ศ. 2551

Section 179 ? Tax Relief From Depreciation Rules

Small Business Tax Issues for Self-Employed Individuals

Are You An Innocent Victim of These Popular Myths?

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