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Knowing Basics of Small Business Taxes Will Protect You and Your Business

Knowing Basics of Small Business Taxes Will Protect You and Your Business

Basics of Small Business Taxes

It is imperative that if you have a small business, you should have, at least, the basics of small business taxes so you can check your returns and understand why your accountant has chosen the deductions for you.

Small business taxes

Where to Get Tax Forms

All tax forms are available at IRS.gov. Search and print any form you need.

What is a Tax Publication?

Something every small business should know about are tax publications. You can verify any major tax issue when you read a publication, they hold the IRS facts. There are publications for home selling, home buying, selling a business, running a business, tax deductions for small business, and much more.

All the facts are listed in the publications. So, when you are told to check your taxes, the place to verify tax facts are the IRS publications. You will have to search publications and sometimes order the one you need, but most are online at the IRS. 

Publication 17 gives you all of the general information you need to file an individual federal tax form. Small Business Publications are here to make sure you get all of your deductions you qualify for and verify your forms.

Download the Federal Tax Bulletin at IRS.gov

Basics of small business taxes

Importance of Tax Timing and Honesty

It is better to pay your taxes on time and not risk ruthless penalties, than to get an extension and go over your extension or run out of money. If you are a small business, you could miss your social security contribution, and have to pay later.

You can go online to make sure you are getting credited with your social security contribution if you file an extension and the credit is not posted, this can be corrected.

Understand the best of tax and money,Chat with Lois

Small Business Taxes Estimated

Some new (first year) business owners forget that they have to pay taxes on profits at year end, so they inadvertently spend all of their profits.

At the end of the first year when taxes are calculated you will be put on a quarterly estimated tax schedule and will also be told how much you owe for your first year. This means you must save funds from your first year into a tax savings account on your own.

Most first year business owners will be safe to put aside at least 30% of their first-year profits. Now, in subsequent years you will have quarterly estimated payments you will make every 3 months, these payments are based on your previous years income, so be prepared to pay over your estimated taxes, at year end, if your income skyrockets the previous year.

Who is Responsible for Your Tax Form Calculations?

It benefits you as a small business to use a qualified enrolled agent or certified public accountant. No matter who does your taxes it is important to understand that you are responsible for what is put on your tax forms.

You will have to pay penalties and interest on understated income if your taxes are done incorrectly. So, create a system where you can verify your tax deductions and the math on your tax forms.

Understand the best of finances,Chat with Lois

Every Business is Based on Profits and Losses

Because every business is based on profits and losses, the internal revenue service wants to know the details of your profits and losses. Those are recorded on Schedule C of 1040.

You should have receipts for everything you have done, and each receipt should be part of a category listed on your Schedule C. From expenses and the income you take in, you can calculate your profits and losses.

Download Schedule C at IRS.gov

1099 Income; Verify that you have all your 1099 statements

When you do business with another business and are paid income and they file a 1099 (income statement) they send you a copy. You must report that income to the IRS and claim it on your taxes.

Understand Tax Publications and Their Valuable Information

Something every small business should know about are tax publications. You can verify any major tax issue when you read a publication, they hold the IRS facts. There are publications for home selling, home buying, selling a business, running a business, tax deductions for small business, and much more.

All of the facts are listed in the publications. So, when you are told to check your taxes, the place to verify tax facts are the IRS publications. You will have to search publications and sometimes order the one you need, but most are online at the IRS.

Download the Small Business Tax Guide at IRS.gov

Importance of Tax Timing and Honesty

It is better to pay your taxes on time and not risk ruthless penalties, than to get an extension and go over your extension or run out of money. If you are a small business, you could miss your social security contribution, and must pay later.

You can go online to make sure you are getting credited with your social security contribution if you file an extension and the credit is not posted, this can be corrected.

basics of small business taxes

Estimated Taxes for Business

Some new (first year) business owners forget that they must pay taxes on profits at year end, so they inadvertently spend all their profits. At the end of the first year when taxes are calculated you will be put on a quarterly estimated tax schedule and will also be told how much you owe for your first year. This means you must save funds from your first year into a tax savings account on your own.

Most first year business owners will be safe to put aside at least 30% of their first-year profits. Now, in subsequent years you will have quarterly estimated payments you will make every 3 months, these payments are based on your previous years income, so be prepared to pay over your estimated taxes, at year end, if your income skyrockets the previous year.

Who is Responsible for Your tax Form Calculations?

It benefits you as a small business to use a qualified enrolled agent or certified public accountant. No matter who does your taxes it is important to understand that you are responsible for what is put on your tax forms. You will have to pay penalties and interest on understated income if your taxes are done incorrectly.

So, create a system where you can verify your tax deductions and the math on your tax forms. So, knowing the basics of small business taxes will protect you and your business.

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7 Ways Sane-Savings Can Protect You Now!

7 Ways Sane Savings Can Protect You Now

Many people complain that saving money, or what I call sane-savings, is a useless exercise in futility. I am told by so many people that they either can’t save money, or save it and spend it quickly. Here are some ways to engage in sane-savings, and save money that will create lasting and recurring savings accounts for you.

THINK BEFORE YOU SPEND

1. Think before you spend money anywhere — Is the purchase necessary and needed? The money you save from unnecessary spending can amount to hundreds to thousands a month, especially when it comes to credit card spending. Here is my personal mantra that you can use before you shop, this is the beginning of your sane-saving program:
Can I afford this easily?
Do I need this?
Do I want this?
Will this last?

START WITH THE JAR OF COINS

1. Many of you say you can’t save money, no matter what your income is, so here is a start. Save money in a large jar — it’s there if you need it quickly, the excess goes to your passbook acct. Start with a jar to get your savings off and run easily easy. Use a large vase, about a foot high, empty your loose change in it at least once or twice a week. When the jar is full, redeem the change for paper dollars, walk to the bank and put it in a passbook account. Leave a small amount of change in the jar for a dire emergency of gas, small food item or toll change. At this point, you are not concerned with interest or interest rates with a passbook account, you are only concerned with the accumulation of money. After you get enough money to concern yourself with interest rates you can open a brokerage account at one of the major brokerage companies and start a mutual fund for long term savings. I will discuss mutual funds later.

SAVE WHEN YOUR BILLS ARE HIGH

2. I meet a lot of people who say they can’t save because their bills are too high. Those people range in income levels from very low to very high. Some in the very high-income category tell me they don’t worry because their job saves for them through their pension or 401k plan. Saving in a retirement account through your job is great, but you must have savings for immediate needs, either for emergencies or general needs. My solution to the problem of savings is to make your savings a bill, and you will save as you pay your bills. In some cases, as you progress in your sophistication of savings, you will have multiple savings accounts, just as you pay multiple bills.

CREATE YOUR HIERARCHY OF SAVINGS

3.The most important thing when it comes to saving is that you have a hierarchy of savings, so you will always be prepared. That starts with the coins, then on to the passbook savings, then onto the investment accounts for regular savings and retirement savings. If you can save coins, you can save dollars, if you can save dollars, you can open an investment account and save in a brokerage account. It takes a little research to save in an investment account and research the right investments, but that is where I come in. As a Money Strategist, I can show you how that is done.

SAVE MONEY IN A MUTUAL FUND

4. When you accumulate enough money you can start to save in a mutual fund for your general long-term savings or additional retirement savings you can save in a mutual fund. They are also great for college savings. A mutual fund is, 1. easy to understand, 2. has experts manage them, 3. are liquid, and 4. are easy to research and track. There are many types of mutual funds and there is a learning curve, but that is one of the things I do as a Money Strategist also. I teach others how to research mutual funds.

SAVE IN A RETIREMENT ACCOUNT

5. If you are a married homemaker and your husband has a retirement account, you can save money in an IRA retirement account. Of course, some of you will have a job with social security and no other retirement, an IRA or Roth IRA are great ways to shelter some money and have a real retirement when you retire. Some of you have pensions and need a supplemental thrift account or 403b plan offered through your job, investing in your supplemental accounts will give you a good retirement. There are tax advantages to investing in an IRA, Roth IRA, or if you are in business a SEP-IRA or SIMPLE IRA. The tax advantages are also adding money to your savings.

SANE SAVINGS WITH EASY WAYS TO SAVE

6. With the easy ways to save you are generating sane savings. You will have your sanity and you will have money if you need it quickly in your large jar, then your passbook savings account, at this point the interest is not important – it is the accumulation of the money that will save your sanity when you need money quickly. Then there is the sanity that comes from having savings in a long-term index fund or income equity mutual fund. See my eBook Live Rich Save Money! Learn Investing (on kindle Amazon) to teach you about saving money in mutual funds. There is also that which comes from knowing that someday you can retire because you are funding your retirement account, but with retirement savings, the sanity comes from the tax deduction you get when you fund your retirement account. The sanity of knowing you are not wasting money but saving for the near and far future comes from sane savings.

LIVE RICH SAVE MONEY

7. Read, Live Rich Save Money! 68 Powerful Ways to Save, and go to my eBook Live Rich Save Money! Learn Investing to understand more about saving money. I offer Discovery Sessions to show you how I may help you with Mega-Money Management issues. Sane savings will protect your sanity around money.

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Money Saving Tips for Single Moms, When You Live on a Tight Budget

money saving tips for single moms

Nearly every single Mom eventually comes across this one question,  ‘how to save money with my one income?,  the answer to the question varies considerably from one person to another. The money saving tips working for a single mom would be different than a student, and a working professional and entirely different saving method would apply for a couple.  Being a single parent is not an easy job and it becomes more difficult when it comes to being a single Mom.  Life is not easy for Moms but when they have to play the dual room of bread-winner, and homemaker a bit of master-minding is in order. 

Maintaining good finances is always a tricky task for everyone, but this task becomes more challenging when there is one income. A single mother whether earning or not needs to take to laser focus on all her finances,  saving money will alleviate some of the stress in her plan. If you are a single Mom and looking  for solutions to save money, then you will benefit from this article,  as here I will present to you, one of the great “how-to’s”;  How to save money tailor-made for single moms, using these, money saving tips:

Saving Money on Groceries

Most Mom’s are responsible for grocery shopping, meal planning, and preparation, but a single mom is responsible for doing the same and making sure it is “cost effective”. A single mom can save money by

  • Planning the family meals in advance, because she can purchase in bulk, prepare in advance and freeze meals.
  • Cooking in bulk that can be used over a period of 2-3 weeks, freezing the excess, would help her save on cooking expenses apart from saving a lot of time and energy.
  • Purchase in-season vegetables and fruits
  • Avoid expensive cuts of meat as they will heavily increase your supermarket bills.

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The Second Hand Option!

Children are always full of demands, and I won’t be exaggerating if I say their demands are never-ending, that’s typical of kids. A  single mom needs to handle these demands without jeopardizing her monthly budget and savings. You can save a lot of money by buying used toys and clothes for their kids and, and even for yourself. And if second-hand clothes are not something you like, go in for recycling your clothes and save a lot of money on buying new ones. There are a number of shops that offer second-hand products used once or twice, and available at 30-50% of the original price. You can see that there are many options for saving money on clothes, you can think of others.

Look out for discounts and coupons

The life of a single mother is full of struggles and difficulties but shopping for discounts in major sales papers and online should be a major part of your shopping tour. Take advantage of shopping coupons, store loyalty, and reward points and make the most of your shopping by paying the lowest price possible for everything. You can go in for kid’s clothes shopping during sales at regular stores,  and  also  at deep discount retail shops in searching the best answers to ‘how to save money’.

Team up with other moms

There is one famous quote saying ‘Divided we fall, United we stand’  let this be an inspiration for single Moms everywhere. Befriend single Moms in your area and form a group where you can trade babysitting with other group members, which would not only save money but also foster support and friendship within the group. Organize group activities such as cooking and freezing, excursion trips, picnics to nearby places with kids and carpooling etc.

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Save on household bills

Household bills are a necessary evil, will always be with us, so they need to be dealt with efficiently. The process of saving money on household bills begins with cutting back on cell phones, cable, electricity and water bills. Single moms can take advantage of the internet to compare various cell phone plans and make sure you can constantly upgrade to the most discount friendly plan. Always ask your electricity, water or gas companies for a  subsidy or discount, as many companies give subsidized electricity and other amenities at lower rates to people belonging to certain income groups. As for electricity, don’t use what you don’t need. If there are cable channels you don’t use or can’t afford, cut those out of your cable package.

Get out of the debt trap

[sociallocker]Debt is considered to be an integral part of the lives of a single parent, especially the single Moms. Many people know that debt is actually the enemy of savings,  and in order to increase savings, you need to get work to get out of the debt trap as soon as possible. I suggest you replace your big car with a small one or a big house with an apartment or small manageable home.  Big assets acquired in the form of a  loan only adds to your liabilities and increases the outflow of your cash by the way of down payments and loan installments. Get rid of bigger loans with huge installment payments, and high-interest rates: and save up your monthly income for a healthy budget and securing your children’s future.

We are aware of the fact that as a single mom, you know the importance of money and savings. This is the reason you can see plenty of single moms working terribly hard from morning to evening in order to earn an income for their children. But sometimes finding answers to the question  ‘how to save money’ seems blurry even for the hardest working single moms,  this is the reason why we’ve given you the best workable tips for achieving the task. Take advantage of these money saving tips and see your budget consistently improve over time.[/sociallocker]

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Money Saving tips for single moms

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Regards,
Lois

Sell Your Home Tax-Free if You Meet IRS Qualifications

You May Qualify to Sell Your Home Tax-Free

You can sell your home tax free

You can sell your home tax-free if it is sold within Internal Revenue Service(IRS) tax exclusions. The exclusions cover the price of an average home if you are single and live in an area of moderately priced homes. The tax exclusion you are entitled to doubles if you are married, and file taxes jointly.

The type of home covered includes single-family homes, condominiums, cooperative apartments, mobile homes or a houseboat. To qualify for the tax breaks at the sale of your home your home must meet what the IRS calls “the eligibility test”.

If your home is above the exclusion limits to qualify as a tax-free sale, you will still get a tax break even if you don’t purchase another home. You can sell your home tax-free if the gain on your sale is $250,000 or less if you are single and $500,000 or less
if you are married filing jointly.

Here is how the $250,000 or $500,000 home sale exclusion is applied:

  • When you owned the home and used it as your main home during at least 2 of the last 5 years before the date of sale.
  • If you did not acquire the home through a like-kind exchange (also known as a 1031 exchange), during the past 5 years.
  • You did not claim any exclusion for the sale of a home that occurred during a 2-year period ending on the date of the sale of the home, the gain from which you now want to exclude.

If one or more of these are not true, you might still be eligible. Keep reading to find out.

Transfer of your home.  When your home is transferred (or share of a jointly owned home) to a spouse or ex-spouse as part of a divorce settlement, you are considered to have no gain or loss. You have nothing to report on your tax forms and this entire publication does not apply to you.

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Your Main Home is your Tax-Break

The test when you own or live in more than one home, the test for determining which one is your main home is a “facts and circumstances” test. The most important factor is where you spend the most time. However, other factors can enter the picture as well. The more of these that are true of a home, the more likely it is your main home:

  • The address listed on your:
    1. U.S. Postal Service address,
    2. Voter Registration Card,
    3. Federal and state tax returns, and
    4. Driver’s license or car registration.
  • The home is near:
    1. Where you work,
    2. Where you bank,
    3. The residence of one or more family members, and
    4. Recreational clubs or religious organizations of which you are a member.

Here are the Details of the Eligibility Tests

 There are six eligibility factors the IRS uses to determine if your home qualifies for a tax exclusion when it is sold. You can exclude up to $250,000 of gain ($500,000 if married filing jointly) on the sale of your home if you meet the Eligibility test.

Eligibility Step 1—Automatic Disqualification

Determine whether any of the automatic disqualifications apply.   Your home sale is not eligible for the exclusion if ANY of the following is true:

  • You acquired the property through a like-kind exchange (1031 exchange), during the past 5 years. See Pub. 544, Sales and Other Dispositions of Assets.
  • You are subject to expatriate tax. For more information about expatriate tax, see chapter 4 of Pub. 519, U.S. Tax Guide for Aliens.

You must figure out your gain or loss using the IRS formula listed in the IRS publication on, “Selling Your Home”.

Eligibility Step 2—Ownership

Determine whether you meet the ownership requirement.   Your home was owned by you for 24 months (2 years) during the last 5 years leading up to the date of sale (date of the closing), you meet the ownership requirement.

You received Form 1099-S, Proceeds from Real Estate Transactions, the date of sale appears in box 1 of Form 1099-S.

If you did not receive Form 1099-S, the date of sale is either the date the title transferred or the date the economic burdens and benefits of ownership shifted to the buyer, whichever date is earlier. (In most cases, these dates are the same.)

Eligibility Step 3—Residence

Determine whether you meet the residence requirement.   If your home was your residence for at least 24 of the months you owned the home during the 5 years leading up to the date of sale, you meet the residence requirement. The 24 months of residence can fall anywhere within the 5-year period.

It doesn’t even have to be a single block of time. All you need is a total of 24 months (730 days) of residence during the 5-year period.

If you were ever away from home, you need to determine whether that counts as time living at home or not. To not exceed the residency requirement, a vacation or other short absence can count as the time you lived at home (even if you rented out your home while you were gone).

If you have a disability and are physically or mentally unable to care for yourself, you only need to show that your home was your residence for at least 12 months out of the 5 years leading up to the date of sale.

In addition, any time you spend living in a care facility (such as a nursing home) counts toward your residence requirement, so long as the facility has a license from a state or other political entity to care for people with your condition.

Eligibility Step 4—Look-Back

Determine whether you meet the look-back requirement.  1) If you did not exclude the gain when selling a home on your tax returns for the previous two years. 2) And you do not intend to do so on any returns or amended returns for the past two years that have not been filed.  The look-back requirement has been met by you.

Eligibility Step 5—Exceptions

Check to see if there is anything about your situation that could affect your answer to Eligibility Step 2—Ownership through Eligibility Step 4—Look-Back.   You’ll need to review the IRS section, Does Your Home Qualify-Details and Exceptions in the IRS “Selling Your Home” publication 523.

  • A marriage, separation, divorce, or the death of a spouse occurred during the ownership of the home.
  • The sale involved vacant land.
  • What you sold was a “remainder interest” (such as ownership of a home in which another person has the right to live for the rest of their life).
  • Your previous home was destroyed or condemned.

Eligibility Step 6—Review

Review your eligibility.   If you meet the ownership, residence, and look-back requirements, your home sale qualifies for exclusion, then you would use the IRS rules to figure out your gain or loss in the IRS publication 523.

 If you did not meet all the tests in Eligibility Step 1 through Eligibility Step 5, earlier, your home is not eligible for the full maximum exclusion. However, you may still be eligible for partial exclusion. When you can show the main reason you sold your home was because of a change in workplace location, for health reasons, or because of an unforeseeable event, these may qualify as partial.

The IRS rule that allows you to sell your home tax-free if the gain is at or under $250,000 ($500,000 if married filing joint), has other advantages as well, you can
1. Keep more or all of your profit when you sell.
2. Gives you more money for the down payment on your next purchase.
3. Allows money to pay off bills, fund vacations or educations, purchase a car, boat, etc.
4. Allows no time frame to worry about purchasing another house.
5. Sell your rental house now tax-free if it was your primary residence any 2 of the past 5 years.

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5 Reasons Tax Evasion Doesn’t Work

 

You can sell your home tax free

Tax Evasion an Option For the Tax Adverse, 5 Reasons

Tax Evasion is Not an Option
Tax evasion is not a 5th amendment right

Tax evasion is a practice employed by some tax revolt groups and individuals who feel, for different reasons, that paying taxes are not fair to them, either legally or morally. They take their excuse for tax evasion even further, by claiming it is their “fifth amendment right”. The government and interpreters of the law are in disagreement with tax evaders on this topic.

A “Tax” is a compulsory payment imposed or levied upon a taxpayer by their state, federal, or local governments, against their income, product sales, or services. This compulsory payment angers some taxpayers to the degree, that they resort to tax evasion.

The word tax evasion is often misunderstood as tax fraud or penalty, but tax evasion is a totally different term, having a different role in the scheme of “all things taxed”.

The word tax evasion is often misunderstood as tax fraud or penalty, but tax evasion is a totally different term, having a different role in the scheme of “all things taxed”.

Every American employee, business owner, or person with a qualified financial windfall, having an income or a qualified financial gain, normally owes a tax liability to the state, federal or local government, and being a mandatory payment, some resent paying taxes as an over-reach by government. This is the main reason, every year,  thousands of Americans decide to skip paying taxes.

What is tax evasion? How is it different from tax avoidance and tax fraud?

Tax evasion is actually a subset of tax fraud which usually entails a deliberate act of misrepresentation of taxable income to the IRS or Internal Revenue Service. It refers to any attempt by  a taxpayer to avoid paying taxes, usually by some type of illegal methods.

Tax evasion should never be confused with tax avoidance because the latter can be a legal way of avoiding taxes by means of legal deductions, sometimes simple and some very complicated, but always allowed by law.

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Tax fraud can involve cases that are civil and criminal in nature, while tax evasion usually includes cases which are criminal in nature.

Types of tax evasion

There are a number of ways an individual can evade his/her tax, some of the most common ones are enlisted below:

  • Reporting less than actual income or failing to report any cash income.
  • Claiming false deductions or showing inflated donations to charitable institutions in order to avoid tax payments.
  • Filing an intentionally deceptive and incorrect tax return or deceiving the IRS with misleading details.
  • Omitting a property or not understating the value of property owned, etc.


Why tax evasion is not a short term or long term option for those who don’t like taxes

Taxes are a legal payment that every American with income or gains is obligated to pay the government– both federal and state. Taxes are usually levied on the income of an individual which can be in the form of a salary, capital gains or income from miscellaneous sources, but the idea of giving up a considerable portion of their income to the government disturbs many taxpayers.

People feel that the government is actually exploiting their fundamental rights by taking away a part of their hard-earned money, and as a result, they resort to tax evasion.

However, tax evasion is never a short or long term option for people who don’t like paying taxes, because taxes are a legal income you owe the government. Our government spends tax money making sure public services are available to you and your family, such as government hospitals, schools, roads, dams, and bridges, as well as streets,  government buildings and salaries of government officials.

Thus, your taxes are the government’s rightful claim and are therefore the law, you must pay your share.

Indulging in tax evasion would mean that you are subject to punishments in the form of several penalties and possibly prosecution. There is a paper trail for everything you do, and the government will eventually find you if you evade taxes. So, I have one bit of advice for you, “pay your taxes, be honest about income”, otherwise tax evasion will eventually open you to severe penalties and punishment.

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What happens when you evade taxes?

A person suspected of tax evasion is first; interrogated by the Internal Revenue Service, and if proven guilty the suspect is immediately imposed with penalties. However, in certain cases, the IRS may deploy The Central Investigation Division to collect further evidence.

If an individual is found guilty, he may be imposed with the following penalties (these penalties are subject to change from year to year):

  • If a person is held guilty for cheating on taxes owed to the government, then his penalty may include a prison sentence of up to 5 years or a fine of up to $250,000 or both. In the case of corporations, the fine may be up to $500,000.
  • Filing a wrong return; having misleading information where the motive of the suspect was to evade tax, in this case, the penalty would be imprisonment up to 3 years or fine of up to $250,000 or both. In the case of corporations, this fine may go up to $500,000.
  • A penalty of 100% of the amount not paid by employers is to be paid by employers when they do not pay the required taxes to government agencies. In the case of businesses with employees, there are certain social security benefits that every employer needs to pay on his employees’ salary, and in the case of failure to pay the required tax, the employer will have to pay 100% of the amount withheld.
  • Non-filing of the tax return also attracts certain penalties and thus a person held guilty may get 1-year imprisonment or $100,000 fine or both. The amount of a fine is $200,000 in the case of corporations.
  • The penalty for failure to file a timely tax return- If a taxpayer who is required to file a tax return fails to do so within a stipulated time period then, he may be charged with a penalty. There will be a 5% penalty on the amount of tax unpaid per month until the return is made, but up to a maximum of 25%.
  • The penalty for failure to pay a timely tax- If a tax- payer is unable to pay his taxes due by the return date then, he/she will have to pay a penalty of 0.5% of the amount of unpaid tax per month up to a maximum of 25%.
  • The penalty for non-payment of stipulated dues- If a taxpayer is unable to pay his taxes even after being notified about the same within a given time period then, he will have to pay interest on the amount withheld along with a penalty of 0.5% per month applied to the unpaid amount.

easy budget planner, prevent tax evsion


Prevent tax evasion under all circumstances

By now you know that tax evasion is a crime and the best way to avoid penalties and fines imposed by the IRS, states, and local governments, would be to follow all tax rules and laws. Make use of legal deductions and avoid anything not permitted by tax law. In case you will be late filing your return, ask for an extension from the IRS, clear your tax debts as soon as possible and always stay away from tax evasion.

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5 reasons tax evasion is not a 5th amendment right at msfinancialsavvy

These are five great reasons tax evasion is not your 5th amendment right

How to Protect Your Tax Returns and Pay Taxes Online

Tax returns can be protected and avoid unnecessary stress.

How to protect tax returns and pay taxes online


Tax preparation and tax preparer selection are not all that difficult, but there are those who make it difficult by not adhering to a few simple rules.


Avoid tax fraud by choosing your tax preparer carefully, and carefully communicating with your tax preparer once he or she is chosen. You can pay taxes online  with the new IRS systems.

The IRS defines someone who is an Abusive Tax Preparer as someone who prepares fraudulent or abusive tax returns for compensation. Here are some of the ways they prepare false tax returns that are easily detected by the IRS.

  • They may inflate expenses related to business or personal use.
  • State false deductions, give tax credits that are not allowed, state excessive exemptions
  • Give false tax credits, such as business equipment credits or personal Earned Income Tax Credit (EITC)
  • Claiming false income and loss statements
  • Claiming non-existent charitable contributions
  • Claiming false dependents
  • Preparing fraudulent schedule C (for business expenses)
  • Claiming false medical and dental expenses; usually over inflating medical cost so they can deduct them.

These and other deductions are usually caught with the IRS “red flag” system as tax fraud. The return is rejected for review because it does not make sense according to computer analyses of the return. You can check own tax forms, filing your own tax forms, and pay taxes online.

The IRS has a special division whose sole purpose is to investigate tax preparer abuse and fraud. It is the IRS Criminal Investigation Return Preparer Program (RPP) that flags the fraudulent returns. Through the RPP, all fraudulent tax preparers are subject to criminal charges.

The abusive tax preparer usually prepares taxes for large numbers of people. The people, who use the services and receive bad tax preparation, will later be charged with interest, penalties, and sometimes civil and even criminal charges.

In 2010 the IRS launched the tax preparer oversight program. This allows the IRS to monitor and catches tax preparers easier. It is important for every taxpayer to make absolutely sure they have closely researched their tax preparer, so they can choose a preparer carefully. The taxpayer is responsible for every single item their tax preparer places on their return.

With electronic filing of income tax returns, and refund anticipation loans (RAL), came new abuses in filing for tax preparers. There were fake tax preparers, filing fake electronic returns and taking fake RAL’s. Since 1977 the Criminal Investigation Unit in the 10 IRS campuses, monitor returns for fraud at their Fraud Detection Centers (FDC). The FDC’s role is to detect tax fraud and tax fraud schemes, and send them to the Criminal Investigation Unit of the IRS.

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Here are questions you can ask your tax preparer before you get started.


1.   What are your qualifications?

A CPA or Enrolled agent are the best qualified to do taxes. Both of these designations regularly take classes and take an exam for their designations. A CPA or certified public accountant is the highest qualified in the tax field.

2.   Would you be willing to lie on my return?

If your preparer says yes, run as fast as you can. This can get both of you in trouble so why would he/or she be willing to lie. Perhaps your preparer is not licensed. Licensed preparers can lose their designation if they are caught lying on a return.

3.   How is your information protected in their office?

The computer and backup files should be secure during and after hours. All paper files should be secured in locked cabinets. Identity theft is on the rise.

Easy Budget Planner for an outrageously great budget4.   What are your costs?

Agree on a tax preparation fee before you hand over your information, so there are no surprises.


5. Can I pay you extra to re-check my return against documents I have given you?

Ask your preparer to re-check your return. If you have the ability to check your return against your documents that is fine. But, you absolutely should check for the small things: correct spelling of your name, correct social security number, correct occupation, correct income, and any other minor items, which could turn major if entered incorrectly.


6.   How Long Will It Take?

It is your responsibility to organize your tax information and submit it to your tax preparer early. It is your tax preparer’s responsibility to get the information back to you in a timely manner, so you can file your taxes well before the tax deadline.

The Internal Revenue Service has several ways to find dishonest tax preparation. They have a series of checks and balances in their system that can signal fraud.

Why would you risk getting caught by the Internal Revenue Service when the penalties are far, far greater than the savings you will get for dishonesty, by you or your tax preparer? There are many ways your preparer can be dishonest about preparing your tax return.

He or she can make it seem as though you have more business or personal expenses than is true. I have listed many of the ways dishonest tax preparers try to fool the IRS. Some of the more common are; going through the trouble of presenting false receipts for equipment or furniture not purchased.

They can get you a credit where you do not deserve one. They can make false claims about deductions you are not entitled to. False receipts can be detected by the IRS, as well as other forms of fraud.

Understand how tax preparers charge. This is another area where you can get scammed. Tax preparers charge according to the difficulty of your tax return. This should be a flat fee. If a tax preparer charges you according to the percentage of the money you receive from your return or if they claim they can get you a higher return than anyone else, run, as fast as you can. This should raise a red flag in your mind.

You have heard this in other articles I have written, but I will say it over and over. You are responsible for every item that goes into your tax return. You will be heavily fined and penalized for dishonesty in your tax return. So, check your tax return carefully. If there is something you don’t understand, ask your tax preparer to explain it. As you can see from all of the above, you will sleep better for years to come if you file an honest return.

But, better yet, you will save money, lots of money in the long run if you are honest with your return, and you choose an honest tax preparer. You can pay taxes online when you find you own money after tax preparation.

Be sure your preparer signs your return and gives you a signed copy of the return, so you can verify everything on your return is correct before you mail it, and avoid tax fraud at all cost.

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How to protect tax returns and pay taxes online

Sell Your Home Tax-Free

Tax-Free Savings

sell your home tax-free

You may be able to sell your home tax-free. This is a tax saving Americans rarely discuss when they are complaining about tax rates. The tax-free benefit that comes with the sale of a home is one of the major benefits of home ownership. The interest deduction is another benefit that occurs while occupying the home.

Most earned income is taxable, but the income you earn from the sale of your home may not be. Therefore, you will not have to pay taxes on the equity from the sale of your home if you meet certain IRS requirements.

In most states, if you sell your home with a real estate broker you will have to pay fees to the real estate company for the sale as well as other costs.

Other cost includes sellers escrow cost and repairs to the home as required by law or requested by the buyers.

Many of your cost are tax deductible, which means you will get some of the money back when you file your taxes.

To get homeowners tax breaks when you sell your home pay attention to the requirements for a tax-free home sale

If you qualify, you can exclude part or all of the gain from the sale of your home. To get the exclusion, the tax law requires that you use the home as your main home, and own it for 2 out of  5 years prior to the date of sale.

There are exceptions to this rule if you are military, handicapped, or have been in the peace corps. Read IRS publication 523 for the specific rules.

There is a limit to the financial exclusions when you buy a home. You can only get up to $250,000 tax-free if you are single and a $500,000 tax-free gain if you are married. In most cases, you can exclude the gain on the sale of your home every two years. If you
sell your home at a loss, it is not tax deductible.

If your home sale is not taxable you may not need to report the sale to the IRS, if all or part of the sale is taxable you will need to report the sale.

Some of you may have used the first time home buyers credit to buy your home, if so, this is an exception and certain rules will apply to your sale.

These rules are current as of August 2016, verify if there are new rules in place when you sell your home after this date, by going to IRS.gov.

There are many advantages to selling your home tax-free up to the exclusions.

1. You get to keep some or all of your profits from equity up to the $250,000 for singles or $500,000 for married couples.
2. You can have a large down payment for your next home or use it for retirement income.
3. When you sell, you can use part of the money to pay off bills, fund an education or start a savings account.
4. You don’t have to purchase your next home immediately; you have time to evaluate all of your options for a new home.
5. If you live in your previous rental home 2 of the 5 prior years, you can sell your home tax-free now that it is not be considered a rental home.

Related Links:
Create Your Home Buying or Selling Budget Here
Understand How Money Works on a Global Scale
Save Money The Right Way

 

sell your home tax-free

Start Tax Savings Ideas Now

Tax Savings Ideas

Start tax savings ideas now

Start tax savings ideas now

A collective sigh of relief can be heard around the nation after the April 15 deadline normally, but this year April 18, 2016,  because many people only think about tax savings during tax season. Smart savers and investors realize that managing their tax burden is a year long commitment that can save them a lot of headaches and money. It is important to have a tax strategy early to take advantage of steps that can help relieve the April 15 (18) tax burden.

A good place to start is to analyze your paycheck to see if there are any opportunities you are missing that could result in tax savings or tax payment to Uncle Sam. People should decide if they want to get more money in their paycheck and perhaps have to pay something back each year or perhaps they would like to get a big refund check.

Some financial analyst suggest that people take limited exemptions and use the extra cash in their paychecks to invest. This is a good suggestions for those who are disciplined enough to put that extra money into an investment account instead of purchasing the latest fashion or using the money for entertainment.

If you are not one of those people who can be disciplined enough to dedicate the extra cash generated by limited exemptions and claims taking more deductions might be the better strategy for you. The larger check you receive when you file your taxes should be spent wisely with at least a portion of the money going to an investment account.

The government has creative ways to get more of your money and you have to use creative (and legal ways) to decrease your tax bill. Many people don’t think about taxes until it is too late to do anything about them. There are some steps you can take now that will help you feel less of the pinch of your tax bill. (Please be sure to check with your tax provider or visit the IRS Website for additional information.

Itemized vs. Standard
Keep a file of all the times you have donated to various causes, the Salvation Army and even donation to your church. Compare the itemized deductions with the standard one to see which one will save you more money. It important to remember that when claiming charitable donations on taxes that a receipt is required for donations $250 or more. Make sure that receipts are kept in a safe place.

Education Expenses
The cost of higher education can be felt at public and private colleges especially when considering the starting salary for many careers start below the $30,000 a year mark. Make sure you include student loan repayments on your tax bill. Parents can also include contributions to a 529 college savings account on their taxes.

Contribute to Company sponsored 401K
There are two great reason to contribute to a 401K. The first is that it lowers your tax bill because money used for the plans are not taxed until you withdraw. The second reason is that when a company matches the plan giving you free money. There is usually a schedule of when you can take all the company match if and when you leave the company. (Ex. 2nd year+40%, 3rd year=60%, 4th year=80 % 5th year=100%) Please note that you can always take the money that you contribute from your paycheck with you.

Consider Flexible Spending Accounts
Flexible Spending Accounts are ways to put away money for medical expenses. You can use pre-tax money to pay for out of pocket costs. These accounts can help you save money by lowering your taxable income. The important thing too remember about these accounts is that you lose whatever you don’t use during the year so plan carefully.

Business Owners
There are many deductions self-employed people can take. It is important to keep accurate and up-to-date records. Gas, home office supplies, conferences and memberships to professional societies are a few deductions that you can take.

Home Improvements
Recently the government has allowed people to write off home repairs related to decreasing energy waste.

Medical Expenses
Most people employed by companies don’t use this credit because out-of-pocket expenses have to be above 7.5% of your income. The self-employed and those using unemployment benefits may meet the financial requirement.

Whatever your strategy is it is important to have a definite plan on how to manage your taxes. There is one thing that is always certain-paying taxes and the smart investor manages taxes. Check out this articles site and IRS.gov for more information, the IRS site has all of the current tax information for everything in publications, articles and more..