The Truth about People Who Don’t Pay Taxes
Though some Americans do not pay taxes, it is not at the rate some have led taxpayers to believe. Roughly 47 percent of Americans do not pay taxes, but there are legitimate reasons behind it, with the most obvious being that they do not earn enough income to file.
Republicans on State and Federal Aid Programs
It is reported that republican Americans are more likely to be on government assistance programs like food stamps and Social Security. Individuals receiving Social Security, either traditional or disability benefits, do not pay taxes. Those on food stamp programs typically do not earn enough to file a tax return.
Those who are on state aid programs do not stay there forever, in most cases. Once those Americans obtain higher paying jobs or second incomes, they start filing tax returns and paying taxes.
Students and Retirees
Students and retirees typically don’t have enough income to tax. Retirees who are on fixed incomes without investments, additional sources of income, annuities, or retirement plans are not taxed. Now, if retirees do have significant income from multiple streams of income, they must file a tax return as taxes are due on disbursement payments from individual retirement accounts, annuities, and taxes are due on capital gains.
Final Thoughts
There are wealthy Americans across all political parties who avoid paying taxes because they’ll have to pay a large amount. There are also cases where wealthy individuals obtain their wealth from illegal or quasi-legal practices, meaning that they could end up in huge financial trouble and under investigation by the IRS.
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Three of the Most Hated Taxes
Taxes are something which most people, business owners and non-business owners alike, dread completing each year. Those receiving big refunds might look forward to tax time. Some taxes seem much more unfair than others. Below is a list of three types of taxes which are generally considered among the most hated because of how unfair they are perceived to be.
Phase-Out Rules
Tax breaks, such as Child Tax Credits and education credits as examples, are subject to phase-out rules. This means that for a specific number of years or at a specific income threshold, your eligibility is lowered. These phase-outs are often disguised as tax rate hikes.
Retirement Account Accumulation Taxes
Are you aware that you have pay taxes on retirement account distributions? When you receive a required minimum distribution (RMD), you must pay taxes on the amount distributed to you. Your first RMD should be at age 70 ½.
Generation-Skipping Transfer Tax (GSTT)
The GSTT tax is collected on gifts, trusts and other large transfers of money which occur between persons who are at least one generation apart. The federal tax rate for the GSTT is 40-percent on top of gift taxes on one transfer of money. Gift taxes are also 40-percent. There are several tricky rules which require the assistance of a financial expert to decipher.
Final Thoughts
It is important to view updated tax laws regarding these three most hated taxes as regulations can change from tax year to tax year. Your tax preparation specialist should have the most updated information available on these taxes and what it could mean for your individual tax situation. Make sure that all of the information supplied to hired preparers is correct and up-to-date.
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Three Things You Should Do If You Miss the Income Tax Deadline
The cut-off date to file taxes in 2016 in the U.S. was April 18 due to a government-specific holiday observance. This means that the cut-off date for those receiving extensions is October 18. If you missed the filing deadline, do not panic. It is a rather simple thing to fix.
File ASAP
If you do not require an extension, file as soon as possible. You will be subject to late filing penalties. In some cases, you may be able to get the IRS to waive these penalties. If you are due a refund, the penalty will be taken directly out of the sum you are owed.
Contact the IRS for an Extension
You can file an extension or call the IRS directly. An extension gives you an additional six months to file if it is done before the tax filing deadline. The end of the extension period is typically October 15, but exceptions exist for government-observed holidays.
Make Payment Arrangements for Late Filing Penalties
If you owe any amount to the IRS, you will owe a little more once they tack on late filing penalties and interest. Make a payment arrangement with the IRS so that you can have time to pay what is owed. The IRS will setup a suitable payment arrangement with you.
Closing Thoughts
Time gets away from people and the tax filing deadline seems to approach faster every year. Start early, as soon as all of your required documents have been received. The earlier you start on your return, the less likely you are to miss the filing deadline.
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Three Most Common Tax Mistakes
Mistakes on tax returns can trigger audits and lead to rejected returns. It is important to double and triple check your returns before filing them to prevent delays in processing your returns. Below are the three mistakes which are most commonly made on tax returns.
Transposed Numbers
Transposing numbers is easy to do. It is important to enter two or three digits at a time, and use something to keep your place when transferring long series of numbers. A pencil or highlighter is a good way to maintain your place in the sequence.
Misspelled Names
It is rather unlikely that you will misspell your name or a family member’s name, but tax professionals can make mistakes. It is necessary that you double-check all names before submitting returns. Even check that your children’s names are properly spelled as that can have an effect on your return.
Incorrect Filing Statuses
If you are married, your filing status has to match, especially when you opt to choose the married filing separately option. If you are a single parent or in a domestic partnership, you and your partner should decide who will claim head of household. Single parents should make sure they can claim their children as both parents cannot claim the same child.
Final Thoughts
Take the extra few minutes to check all of your calculations, spellings, and sign your forms. Make sure that you have completed all of the additional forms and worksheets associated with your return. Run through your entire return, even electronic versions, before submitting your return.
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Four Tax Facts You Should Know Before Starting a Business
There is more to income taxes as a business owner than you might think. Many business owners do not realize that filing personal income taxes is required, which can get them into deep financial trouble. Below are a few facts which will help you start your new business.
Business Type Determines Tax Liability
Choose how you classify your business carefully as it will determine the tax burden for your new business. S corporations, for example, pay taxes at shareholder levels. There cannot be more than 100 shareholders for a single stock.
Startup Expense Deductions
Once your business is up and running, you may be able to deduct some of your startup costs. Small businesses do have expenses which can be deducted before the first day of business. Costs accumulated prior to opening can be deducted.
Estimated Payments Are Required
If you do not file all of the taxes that you owe, penalties can be placed on you. Use the previous tax year’s income, including credits and deductions, to calculate estimated tax burdens. Startups are typically tax exempt in their first year.
Self-Employment Tax Payments Are Required
When you earn money but no one takes out withholdings for Medicare and social security, you are self-employed and are responsible for paying those taxes out-of-pocket. The downside to self-employment taxes is that you pay 1.5 times what a traditionally employed person does.
In Conclusion
With a better understanding of taxes for new business owners, you should be able to start planning ahead. Using some of your personal profits to save for self-employment taxes can help take some of the stress off of you.
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Will The Family Business Estate Tax Loophole Be Closed?
Family business estates often require a team of accountants and financial advisors to sort through. During tax time, the wealthier portion of family estate business owners do whatever they can, within established legal boundaries, to reduce their tax liabilities. Some maneuvers are seen as dishonest and the Treasury plans to close in on these loopholes in the future.
Restricting Assets Loophole
Donors, or family estate executors, can transfer assets and gifts to other family members without tax liability. Estates with a value of $5.45 million for a single person or $10.9 million for married couples are taxed. Some wealthier estates are artificially reducing values of assets to reduce tax liabilities.
Placing restrictions on assets is done to justify discounting values when gifts/shares/donations are transferred. This reduces the tax liability but does not reduce the value of the entire estate.
Minority Shareholder Discount
Financial advisors for large estates can help their clients by assisting that they divide shares or sell shares of the company to ensure that they own a minority number of shares. This would reduce a stakeholder’s power in voting and lower their level of control in the business. This discount can no longer be taken. This is one loophole that has completely closed for wealthy family estates.
Closing Thoughts
It is important that your family business estate account for every dollar appropriately. It is also vital to claim the proper values of assets and belongings. An annual appraisal of assets and possessions should be completed and available for the IRS to view when questions do arise.
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Three Tax Tips to Keep in Mind if You Win the Lottery
Winning the lottery brings on immediate excitement, relief and fear. The fear is that you have an almost unlimited amount of money to spend in your lifetime as most jackpots are more than a single person needs to cover their expenses for the remainder of his life. You have to know how to claim your winnings and how to invest it to reduce your tax burden.
Check State Income Tax Laws
Not all states have individual laws requiring lottery winnings to be reported as income. Check your state laws, or inquire with an in-state tax preparation specialist, while remaining anonymous, about the laws. You may not have to claim the income for state purposes, but you will for federal income tax.
Choose the Annuity Payment Option
Choosing the annuity payment option is better for you in more than one way. In reference to taxes, you are only taxed on the amount of payments received (income) each year, not your entire winnings. It may take more time to receive your money, but it controls distribution which ultimately results in more money in your pocket.
Donate to IRS-approved Non-Profit Organizations
Making donations is something many lottery winners do, and in some cases it is merely to reduce tax liabilities. For a donation to count as a deduction of income, it must be made to an IRS-approved non-profit organization. The IRS website has a list of approved non-profit organizations available.
Final Thoughts
Before doing anything with your lottery winnings, hire a financial advisor and tax attorney to help setup bank accounts, trusts and keep your anonymity safe. It is important to claim your funds as anonymous if your state permits it.
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Tax Credits That Get You a Larger Refund
When it comes to tax season taxpayers want to get the most they can out of their yearly return. Using tax credits to boost your refund is a great way to get back some of your hard-earned income. It’s important to know about the different types of tax credits available. In this article we will discuss some of the tax credits which can boost your refund.
What Are Tax Credits?
Tax credits have the ability to reduce the amount of federal and state income tax you owe to the government. They are an exact deduction of the income tax that you owe. Some credits are refundable while others are not. Having a refundable credit means that you still receive the credit even if it exceeds your charged amount.
Educational Tax Credits
There are two types of educational tax credits available to taxpayers: The American Opportunity credit, and the Lifetime Learning credit. The American Opportunity credit has the ability to cover up to $2,500 in undergraduate educational costs while the Lifetime Learning credit covers up to $2,000.
Child and Dependent Care Credit
If your child is under the age of 13 or has a disability and is placed with a babysitter or daycare center while you’re at work, you may be eligible to obtain the Child and Dependent Care Credit. This credit allows you to claim back money used to look after the child if the time used is dedicated to your career.
Conclusion
Determining what tax credits most benefit you is vital to maximizing your tax return. Make sure to do careful research to figure out which returns work in your favor.
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Three Business Tax Tips for Home Business Owners
Running a business out of your home allows you to have access to a variety of tax advantages. It’s important to discover just what opportunities fit best with your lifestyle. Using tax write offs and deductions will help you save money on your return.
Stay Organized!
The biggest thing you can do to prepare for the next tax season is to stay organized and keep good records. This will help immensely when it comes to writing off deductibles or reporting income. After you report profit to the IRS, they may request for additional information.
Deducting Home Office Space
In order to deduct a percentage of your home space, there must be a dedicated area used exclusively for business activities; you cannot have another fixed location outside of the home where you regularly conduct business activities. Any rent, utilities, repairs, or home improvements may have a percentage written off on them depending on the space’s contribution.
Track Car Mileage
If you are using your vehicle to complete local deliveries, collect supplies, or attend conferences and meetings you may be eligible to write off your car mileage as a deductible. Keep track of the yearly miles you put on the vehicle for business adventures instead of taking the standard mileage allowance to get the full benefit of the write-off.
Conclusion
Having a business out of your home can be very advantageous to your career. Be sure to use these tax tips to your benefit during the next season. Missing out on the opportunities is comparable to throwing away money.
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Three Tax Tips for Individual Investors
There are many simple tax principles which can help investors in their quest to save money. As an investor, preparing your taxes for the next year can present a lot of confusing and unanswered questions. Using these simple tax tips can help your investments meet their full potential.
Invest in Municipal Bonds
Investing in municipal bonds can offer significant advantages given their tax-exempt status. The returns they generate do not need to be claimed as income when the taxpayer files their return. This low-risk investment is especially attractive when stock market expectations are low.
Write-Offs and Deductibles
Writing off a portion of your taxes as expenses can be beneficial to investors, particularly investors who are self-employed. If you use your phone to invest or for business purposes, you may be eligible to write off a percentage of your monthly phone bill as an expense. Look into what expenses you’re purchasing for your business and think of ways you can use them for your advantage.
Holding Stocks
The buy and hold strategy offers advantages over short-term capital gains. Stocks sold under the year mark are always taxed at a higher rate than those which have been sitting for over 12 months. However, it’s important to realize that this method may not work for stocks which are losing value.
Conclusion
Being an individual investor can be a challenging process when you are not aware of certain tax principles. Be sure to do research on what tax advantages are available for individual investors. Preparing yourself now will help you to avoid income loss in the future.
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