If you want to make savings on your finances and improve your financial situation, you must pay special attention to your taxes. Unfortunately, the majority of people don’t do this and they end up paying a lot more taxes than they need to because they don’t know how to take advantage of various tax benefits.
Here are some top tips to help you sort out your taxes and improve your financial situation.
Keep All Your Files In Order
The best way to help out filing your tax returns and making sure you always have all the information available is to start keeping all of your files in good order.
You must always file your statements and tax returns as soon as you receive them to automatically get them in the right order and make your job easier.
You should also ensure you always keep receipts since you might be able to file for tax returns later on in life if you do this.
Keeping your files in order is simple as long as you do it as soon as the paper and receipts are received.
Use Online Resources
There are a lot of good online resources that can help you pay the right amount of tax. For instance, Money Saving Expert has a calculator that can help you look at the amount of tax you need to pay and prepare you for paying your taxes.
It is a good idea to check with this calculator if it is more beneficial to make changes for your profit or to your business structure if you are self-employed, for example.
Learn About Benefits
There are also a lot of tax benefits and tax discounts available for private individuals as well as for businesses and it can be very helpful to find out about these. For example, in some cases, it is possible to reclaim some of your investments back in taxes, and therefore it is an essential point to consider as well.
You should also think about the benefits that different business structures can offer you. For example, in some cases registering for VAT might not prove to be beneficial while sometimes it is a good idea to do it even if you aren’t legally required to do it.
Discuss Your Options With An Accountant
Of course, you don’t need to sort out your taxes all on your own. It is a good idea to get yourself some help from a professional accountant to make sure you aren’t losing out on anything.
If you don’t yet have an accountant you can look into accountant services with Friendly Accountants and help improve your financial situation. With a professional accountant helping you out you can save on both time and money. This way you can rest assured your taxes are paid according to the law.
The key to sorting out your taxes is to stay well organized. You should try to write down the deadlines to guarantee you don’t ever run late in returning your taxes. Always ask for more information from professionals if you are unsure about your options.
Tax Payment Plan – Effective Ways to Plan Your Tax
Tax is the amount deducted for a person’s earnings by a central authority like a government. The deductions are normally based on certain percentages of earnings which are usually known by both the tax authority and the person whose income is being deducted.
The main purpose of taxation is normally to help in the provision of basic services to the citizens by the government such as health facilities, water, and roads. It is also used as an instrument in the control of money supply and demand in an economy. Therefore, the elements of tax make it very important and every citizen should pay tax.
Since there are different taxes imposed on different earnings at different rates, any individual should find out which of the earnings qualify for different types of tax.
This is done when preparing a tax payment plan. There are several types of tax such as income tax which is imposed on main salaries, the value-added tax which is imposed on goods sold, and custom and excise duty which is imposed on goods imported and exported. Firstly, one should determine the qualifying amounts for the various taxes.
He/she should also be very conversant with the rates imposed on the good or earnings. After determining the tax payable, one should file to the tax authority a tax return which shows the total amounts of earnings, tax rate, and amount of tax. Then he/she can decide on paying the tax either in installments or a lump sum payment.
Tax payment installments involve payment of tax due in bits over time. The installments should be equal and distributed over some time. This mode of tax payment plan is usually aimed at reducing the burden of lump sum payment which may strain the taxpayer.
For the lump-sum payment, the tax amount due is paid at once. The amount is calculated and the taxpayer pays the whole amount in a single payment.
Therefore, a qualified taxpayer should consider which payment plan is suitable and favorable to the nature of the business he/she operates. The payment agreement is made with the taxing authority that will be responsible for tax deductions.
The agreements usually have terms and conditions that should be adhered to by both taxpayer and the tax authority. When the payer defaults on payment, their charges are imposed on the individual. The charges make a tax payment so costly and therefore one should avoid as much as possible to pay taxes in time and adhere to the terms and conditions of the agreements.
Tax payment should be made in time as the agreements and the amounts qualifying to be tax should be easily known. The taxpayer should also be aware of the calculations of tax liability by him/her.
Favorable method of payment that does not strain the taxpayer should be adopted to enable tax payment with ease. An effective should be adopted by taxpayers and they should stick by it to avoid extra charges on default of payment.
I am Late with my Taxes-Now What?
No matter your profession, everyone is required to pay taxes. In 2012, taxes need to be filed by April 17th no matter if you owe money or will be receiving a return. Some procrastinators wait until the last possible second to file their taxes, and others procrastinate too long that they end up being late on their taxes.
The fees and penalties of filing late
Filing your taxes late can incur a wide variety of penalties and fees. From the moment you are late on your taxes, interest starts accruing on what you owe. The longer you wait to file after the due date, the more interest you will accrue, and you will end up owing more money to the IRS.
If you were getting a refund on your taxes, interest will also accrue, and the amount you were to receive back will be reduced by the amount of interest you owe.
Filing late also comes with multiple penalties. The IRS will label you as failure to file or failure to pay. These penalties also accrue interest. Some penalties are more severe than a hefty fine. If you don’t pay your taxes, you could be charged with criminal fraud for tax evasion, and you could end up serving jail time. There are other forms of penalties that come with large fines, such as negligence and frivolous returns.
Your best bet is to file an extension
The IRS understands that things may occur in your life that negates you from filing your taxes on time. For this reason, they allow individuals to apply for a six-month extension. You will need to file Form 4868 by April 17th. For businesses, you will need to file a Form 7004 or Form 1138. Just make sure to file your taxes within the six-month extension, otherwise, your fees and penalties will be even larger.
If there was a legitimate reason that you missed the due date, such as severe illness or hospitalization, you won’t need to file an extension, but you will need to provide real documentation that you were inhibited from filing.
What to do if I didn’t file an extension?
If you didn’t file an extension and it’s after April 17th, you need to simply file your taxes as soon as possible. Whether you do it yourself with a tax preparation software or enlist the help of a professional, the sooner you get your taxes filed, the better off you’ll be.
You must understand that you will be required to pay all of the back taxes and interest that has accrued since April 17th. If you can’t afford to pay all of it in one lump sum, you may be able to work out a deal with the IRS.
If you don’t file your taxes on time, you can’t simply ignore them or wait until next year to file them. Doing this will result in hefty interest payments or severe penalties.
Think about it this way: is filing late on your taxes worth paying the extra money or possibly serving jail time? Didn’t think so. Get your taxes filed as soon as possible. It will save you from a financial headache.
What You May Not Know About The 1040EZ Tax Form
How do you know if the 1040ez tax form is the best tax return form for your particular situation in life?
One of the things you may not know about the 1040ez tax is form is you’re limited to only two choices to pick from for your filing status.
1040ez Filing Status
Single or Married Filing Jointly
You are eligible to claim Single as your filing status if ;
- You were never married.
- You were widowed in that tax year and did not remarry in that tax year.
- You were legally separated under a decree of divorce or separate maintenance, under your state law.
Married Filing Jointly
- You were married by the end of that tax year even if you didn’t live with your spouse.
- If your spouse died in that tax year and you did not remarry in that tax year.
- You were married by the end of that tax year and your spouse died before filing a tax return for that year.
Why Does The Tax Return Filing Status Matter?
There are other choices for the status of filing for your tax return. You may be able to qualify for Head of Household, or Married Filing Separately.
- Head of household tax filing status usually places you in a lower tax obligation than single tax return filing status.
- Married filing separately allows you to file your tax return as an individual if you don’t want to be responsible for the tax obligation your spouse might have or if you suspect your spouse is not reporting his or her income.
1040ez Does Not Allow Exemptions For Dependents
An exemption for a dependent is similar to a large tax deduction which reduces your taxable income. The dependent exemption is a large sum of money and should not be missed if you have a qualifying dependent.
1040ez Does Not Allow You To Itemize
If your itemized tax deductions add up to more than the standard deduction you will not want to use the 1040ez tax form. You cannot itemize tax deductions if you use the 1040ez tax form.
No Adjustments To Income On The 1040ez Tax Form
Your Adjusted Gross Income (AGI) is your total income minus your deductions. Most tax forms do the math calculations to arrive at your adjusted gross income. The 1040ez tax form does not allow adjustments to income. Every penny you made will be your total income and you are not allowed to take advantage of any of the adjustments available to lower your taxable income.
1040ez Income Limitations and Tax Credit Limits
Your income must be less than $100,000 to use the the1040ez tax form. The $100,000 is the total of your combined income if you’re married filing jointly.
You cannot claim any of the tax credits on the 1040ez tax form except for the Earned Income Credit. Tax credits reduce your tax bill dollar for dollar, so missing out on tax credits is not wise financial planning and will leave your pockets empty if you were eligible for refundable tax credits.
The Short Form 1040ez
The 1040ez tax form is for very simple, uncomplicated tax filers. Take a look at your life situation before you use it. Easy is not always beneficial. You may miss out on thousands of dollars by making the wrong tax form choice.
Online tax software will choose which tax form will give you the best outcome for your situation in life. If you’re unsure about which tax form is best for you, give online tax filing a try. You can try a different filing status to see which filing status reduces your taxable income, or gives you a tax refund.
Tax Dodging Celebs Who Got Caught
Nobody messes with the taxman. A veritable grim reaper, everyone is financially mortal in the eyes of the taxman; including our usually untouchable celebrities. The conviction rate is at 90%, so if you fall foul of the IRS, you might as well kiss goodbye your Hollywood house, the Caribbean island, and your shiny collection of sports cars. The taxman has the power to reduce stars from riches to rags in an instant. There is no happy-ever-after for tax dodgers.
An elegant homemaker and TV personality, Martha Stewart, spent a less-than-gracious 18 months in jail, after lying to federal investigators about her stocks. Stewart claimed that she had a contract with the pharmaceutical company, ImClone Systems, to sell her shares of stocks if they ever dipped below $60 in value. This was never the case, and she sold 4,000 shares of stock ($228,000) just before ImClone came clean about their lack of FDA approval.
All this wasn’t helped by her failure to pay $222,000 of tax on her New York home because she didn’t spend much time there, and so consequently thought she shouldn’t have to pay taxes.
Charity singer, Willie Nelson, was hit by a $16.7 million bill for back taxes in 1990. Although Willie had been traveling, his accountants had neglected to pay his taxes for years, heralding the release of Willie’s album “The IRS Tapes: Who Will Buy My Memories?”
Many items the IRS didn’t sell, Willie auctioned off to willing bidders. Some were friends who, luckily for Willie, returned his possessions to him in subsequent years.
Nicknamed ‘The Juice’, this guy was certainly a smooth tax mover. A retired professional football player, OJ Simpson had been running away from the IRS with $1.4 million in back taxes still outstanding.
Simpson had locked up his money in pensions and bank accounts that weren’t exactly happy to open up their books to the IRS. He’d also borrowed against all of his assets, so there was no money to be found in large personal possessions like his house. At the moment, he’s sitting it out in Lovelock Detention Centre for kidnapping and armed robbery.
If you want to know how to lose a Bavarian castle and homes in LA, Orleans, and California, see Nicholas Cage’s failure to grease the taxman’s palm with $6.2 million of back taxes. Cage pointed the finger at his accountants, accusing them of trying to benefit from Cage’s financial destruction. This is the same guy who was charged with claiming $600,000 in personal expenses – ouch.
Everyone remembers that sweet, innocent face of 16-year-old Judy Garland as she clicked her ruby slippers through “Wizard of Oz” in 1939. 15 years later, Garland was struggling with a string of husbands and a serious drug problem.
When it looked like she could crawl back to celebrity heights with the remake of 1954’s musical “A Star is Born,” everything came crashing down for Garland when the critics slammed the production, due to obvious sellout cuts on screen time, so more viewings could be aired at theatres.
Unfortunately, Garland had been spending as if she was dancing down her golden brick road, and when the musical flopped, she couldn’t pay her tax bills. In a pretty tragic story, Garland’s home was eventually claimed by the taxman, and she moved from hotel to hotel before inadvertently overdosing in 1969.
Removing Levies and Liens
Tax levies and liens can be the kiss of death when they show up on your credit report. In addition to lowering your credit score significantly, the credit bureaus can report these notices indefinitely until you settle your unpaid federal tax debt.
A tax lien, more formally known as a Notice of Federal Tax Lien (NFTL), attaches to your personal property and informs the public that in the event you sell your property (while the lien is in effect) your debt will be paid off with proceeds from the sale.
A levy on the other hand is a confiscation of the payment owed directly from your monetary accounts and/or paycheck. The best way to avoid either one of the aforementioned actions is to pay your debt in full before the notices are filed. The IRS also has several installment plans available if the balance is $10,000 or less.
In recent years the IRS enacted the Fresh Start Program, an initiative that permits taxpayers to file for what’s known as a ‘withdrawal’ before the underlying debt is paid. Last year, the IRS issued close to 7,000 lien withdrawals—not nearly the number of liens issued, but definitely, a clean slate for the individuals reprieved!
Do I Qualify?
To receive a withdrawal, you must meet the following criteria.
- Filed individual and business returns for the last 3 consecutive years
- Tax liability has been resolved; lien has been released
- Current on tax payments and federal deposits
If you meet the aforementioned specifications head over to the official IRS website and fill out IRS Form 12277, Application for Withdrawal. After the tax lien is withdrawn you can then contact the major credit bureaus and request it be removed from your credit report. In turn, this may improve your credit score.
Levies are a bit harder to remove because they are tied to your bank account via the IRS. The first step to take once a levy has been issued is to contact the bank and ascertain the details encased in the judgment. Confirm that the paperwork stipulates the accurate amount of debt you owe by gathering all relevant paperwork.
To file a refusal of the levy, submit Form 9423, Collection Appeal or Form 12153, Applications for Collection Due Process Hearing. In extreme cases, bankruptcy may be a viable option if the levy in question is for a debt that cannot be discharged.
Examples of this include child support payments, student loans, and certain types of taxes. Levytaxhelp.com can help you determine exactly which options are available to you with the help of their certified attorneys.
The lien and levy removal process can be quite overwhelming for someone unfamiliar with the process. If you’re unsure what steps to take in the removal of these penalties or have other questions regarding IRS tax help, get in touch with a professional agency. There’s no better time than the present to get your finances under control.
Taxation for Expatriate Americans
Taxation is already a complex process in itself, even more so for American expatriates who have decided to enjoy the perks of doing business or retiring in countries where costs of living are much lower and therefore, preferable.
There are an estimated 6-7 million Americans residing in foreign countries as of this year and regardless of where they live, they are required by the IRS to file a US tax return if they earn an income of $9000, earned both in the US and their country of residence.
Each US state implements different taxation rules regarding expats and state taxes. Some states release you from the responsibility of filing a tax return when you move away, while others will not. The national government has started imposing stricter tax filing requirements since 2008. In 2010, the Foreign Account Tax Compliance Act (FATCA) was announced.
What is FATCA?
Under FATCA, American expats would need to be more rigorous in filing income tax returns. Starting July 1 next year, financial institutions around the world will be obligated to report directly to the IRS all assets and income of US citizens with $50,000 on their books. Failure to comply would subject banks and financial institutions to withhold 30% of dividends and interest payments due to the banks.
FATCA was approved in a bid to recover an estimated $1 billion of unpaid taxes in US citizens’ assets abroad every year. US expatriates have always had to file tax returns and disclose all foreign accounts but with the new law, which would seem to allow the US government greater liberty to peek at their overseas assets, they could face huge fines if they do not.
Filing Tax Returns
Americans living abroad are due to file their US tax returns come June 15th or the following Monday if the date falls on a weekend or a holiday. Filing extensions can be moved as far back as October 15th. Filing your return takes the same process as when you were residing in the US. You need to fill out a 1040 form, on top of other forms, that declare your foreign-earned income and qualification for the Foreign Tax Credit.
Foreign-Earned Income Exclusions
US citizens who are bona fide residents of a foreign country for a period of time with one complete tax year are eligible for the Foreign-Earned Income Exclusion (FEIE). Resident aliens of the US whose home country has an income tax treaty with the United States, as well as citizens and resident aliens of the US absent from the US for a minimum of 330 days out of 365, may also qualify for FEIE.
How about Foreign Taxes Paid?
In general, taxes you owe the IRS on foreign income can be reduced and even waived if your country of residence has already taxed your income. You can make a claim on paid taxes in your Federal returns or claim the amount as an itemized deduction.
The choice would largely depend on your country of residence and whether or not it has entered a tax treaty with the US. It would be useful to review the expat tax laws in your country of residence as well so you could manage your funds and pay just the right amount of taxes—no more and no less than that.