Claiming the Standard Mileage Rate – A How To Guide

On October 27, 2010, In Finance, By admin



Claiming the standard mileage rate for an automobile on your taxes takes a little record keeping. Some taxpayers hope to avoid that hassle by claiming actual expenses, instead. Truth be told, even more record keeping is necessary with the actual expense method, and you must keep mileage records either way. These records will not be filed with your taxes, but must be available for review in the case of an audit.

If you use your vehicle for obtaining inventory or supplies for your business, you may deduct the business percentage of your automobile expenses. The first step is to record your mileage. Make a habit of writing down the odometer reading on January 1st each year. You may use a spreadsheet (like the PDF example linked below) or something as simple as a pocket calendar you keep in your glove box. Whatever the method, make sure to write it down. Record your starting mileage, ending mileage, where you went, and the purpose of your trip. Jot down your mileage on a scrap of paper if you have to. When you return home, you can fill in the remaining information on your spreadsheet. Total how many miles you drove for business only – round trip. The remaining miles used on your vehicle this year are either personal or commuting. Vehicles are considered listed property. Therefore, you must keep records denoting business use.

If your office is in your home, you will not have any commuting mileage. If, however, you work in an office on Main Street, instead of your home, the number of miles between your house, that location, and back again are your commuting miles. Write the number of business, personal, and commuting miles down in the appropriate blanks on Part IV of your Schedule C. You figure your total mileage for the year by subtracting your odometer reading on January 1st, from the odometer reading at the end of the year.

You may either claim the Standard Mileage Rate (SMR) or Actual Expenses, not both in the same year.

Standard Mileage Rate

Taking the standard mileage rate means you are able to deduct a certain amount for each business mile driven in a particular year (48.5 cents in 2007). You multiply the number of business miles driven by 48.5 cents per mile in order to figure your standard mileage deduction. This amount is figured in Part IV of your Schedule C, then deducted in Part II, line 9 of the same form. There are spaces to account for commuting and personal miles in Part IV, Schedule C, but those miles are not deductible.

You may also deduct the business percentage of parking fees and tolls, and the business percentage of state and local personal property taxes on the vehicle, in addition to the standard mileage rate. If you itemize your household deductions instead of taking the standard deduction, you may claim the remainder of your state and local personal property taxes on the vehicle on your Schedule A.


Example:

Dawn drove her car a total of 4530 miles this year. She drove her car 453 business miles this year. She multiplies that number by 48.5 cents (453 x 48.5 cents = $219.70). If she does not have any parking fees or personal property taxes to report on her car, she can simply carry the $219.70 to line 9 of her Schedule C.

If she does have parking and state and local personal property taxes on her car, Dawn will figure the business percentage she used her car by dividing the business miles by the total miles. (453 ? 4530 = 10%) Now, she will total her parking and state and local personal property taxes on her car, separately.

If she paid out a total of $150 in parking fees, she will figure 10% of that by multiplying 150 x 10%. Dawn will be able to deduct $15 in addition to the $219.70 for the standard mileage rate. She will then enter $234.70 on line 9, Schedule C.

If Dawn had a total of $200 in state and local personal property taxes for the vehicle, she will find her business percentage (200 x 10%). She may also deduct $20 on line 23 of her Schedule C.

If you want to use the standard mileage rate on a vehicle, you must choose it in the first year the automobile is available for use in your business. Then, in later years, you may choose to use either the standard mileage rate or actual expenses. If you switch from the SMR to actual expenses and want to deduct depreciation, however, you must use straight-line depreciation, as opposed to an accelerated method, estimating the remaining useful life of the car.

When the SMR is NOT allowed:

You may not deduct mileage on a car for hire (taxi). You use five or more cars in your business at the same time. You claimed an accelerated depreciation method in previous years on the same car. You claimed a Section 179 deduction on the car. You claimed actual expenses on a car you leased after 1997. You are a rural mail carrier who received a qualified reimbursement You claimed actual expenses on the same vehicle in the first year you used the automobile in your business.

Beware! When you sell the vehicle or switch to actual expenses for depreciation purposes, you will have reduce your basis by a certain amount (17 cents per mile deducted in years 2005 and 2006).

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How Payday Advance Loans Work

On October 26, 2010, In Finance, By admin



Payday advance loans may be worth considering if you need some money fast. Sometimes pay day can seem an awfully long time away. You may need to get your hands on some cash for:

a bill that cannot be put off any longer; a car breakdown situation; or just that treat that you do not want to wait for.

Payday lenders typically do not ask for the reason for the loan. As long as you agree to repay it on your next payday (or the one after, depending on timings), that is usually fine by them.

How do you get a payday advance?

Payday advance loans are typically quick to apply for. In order to assess your application and suitability for a cash advance, payday lenders may wish to know the following information on an online form:

your name; your address; details of your job (including when you get paid).

Payday lenders may typically be able to verify your identity electronically if you have a permanent UK address. Unlike paper identity checks, electronic checks are normally instant.

Do payday borrowers’ credit references have to be immaculate?

When deciding whether or not a potential borrower will be lent the money, a payday lender may carry out a fast credit check (rather than a full, in depth one). If you have had some issues on your credit report, it does not necessarily mean that you may be turned down.

Unlike the kinds of loans that banks offer, payday cash advances are typically only available for a short amount of time, which means that payday lenders may perceive the risks of them not being repaid as low.

Likewise, the amounts involved may typically be for hundreds of pounds (for example, from £100 – £250, but this will depend on the lender) rather than for thousands. Accordingly, it may still be worth applying for a payday loan even if you have a less than perfect credit record and have been turned down elsewhere.

How are the loans repaid?

Payday advance loans may typically be repaid with the lender taking the money straight out of the borrower’s bank account. The loan amount plus interest and any additional charges (such as for a bank transfer fee) are typically paid in full on the borrower’s payday that follows the advance.

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Tax Preparation and Filing Online

On October 25, 2010, In Finance, By admin



Using the internet to file your taxes online is a convenient way to complete your tax return.

If you are thinking about preparing your taxes online this year, then don’t worry because it’s easier than ever. Here is a quick guide to help you get your tax preparation and tax filing online done fast and easy.

There are many websites where you can prepare and file your taxes electronically to the IRS. Some of these sites are free and others will charge you a fee for filing your tax return. In order to file for free you must meet certain requirements set forth by the IRS.

What you’ll need to get started Your personal information, including name, address, telephone number, date of birth, and social security number. You will also need information for your spouse and dependents you plan to include on your tax forms. And don’t forget W-2s, 1099s and any other paperwork showing income for the year 2006. You will also need the totals for items you plan to deduct like, mortgage interest, charitable contributions, and medical expenses.

If you want to have your refund deposited directly into your bank account then you’ll need your bank name, routing number, and account number.

Most of the online tax preparation programs have an easy to follow interview system. The program asks you simple questions and all you have to do is type in the answers.

As you work through your tax return, the online program will put your answers on IRS-approved tax forms then double check for errors and missed deductions you may qualify for.

Once you complete your tax return, you can then electronically submit your tax return online to the IRS. If you expect a refund check, filing online is a great option. The IRS can process your return and issue your refund directly into your bank account much quicker than if you mailed a paper return.

If you’re still using pencil and paper to for your tax returns, consider trying an online website for your tax preparation and filing this year.

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Be Wary of Income Tax Preparation Services

On October 16, 2010, In Finance, By admin



Most income tax preparation services offer a legitimate, if over-priced, service. They help prepare a legitimate tax return. There are others, however, who might prepare an illegitimate return to make extra money.

Be careful of any income tax preparation service that promises to get you a refund, this is a good sign that this service is not legitimate. Such service cannot guarantee you a refund before they know anything about your finances. Such statements are frivolous. You should avoid any tax preparation service that charges a percentage of your tax refund as payment.

Ask yourself if you believe this person will be able or willing to support you in an IRS investigation.

Check on his or her credentials. Only attorneys, accountants, and enrolled agents have the right to represent the taxpayer in all matters. The income tax preparation service you hire can only support issues regarding returns they have prepared.

Ask for references from people for whom they have prepared income tax returns. They might try to tell you that this is proprietary because it is tax information, but taxpayers can volunteer a testament of good business conduct with no risk or violation.

Look for affiliations and memberships in things like the Chamber of Commerce or the Better Business Bureau.

Ask if they have any certification or accreditation.

Find out how long they have been in business. Finding out how long they have been preparing taxes is a good barometer of how reputable their business dealings have been. Generally, the most reputable income tax preparation services are the ones in business the longest.

Ask them if they have ever supported a client in an Internal Revenue Service Tax Audit.

Be sure to compare prices. When doing this, check out the rates of a small CPA office and compare them to the major chains. You will certainly get a more qualified person t prepare your income tax return, and the fees might be closer than you think.

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Income Tax Rates – It’s All About Being Fair

On October 1, 2010, In Finance, By admin



The IRS income tax rates are not only about collecting revenue to support the government. The different tax rates were established so that those Americans that can afford to pay more, do so. This is the reason for the tier levels of taxes which citizens pay.

It is neither logical nor fair for the poorest citizens to pay the same amount in taxes as the rich, nor is it even possible. With the different levels of rates assigned to the different income levels, those that can afford to pay more usually do.

This has not always been so. Every few years a new tax law is enacted that affects the way citizens are taxed and at what rate. At the present time, the progressive taxing system is so that the more you make, the higher your percentage of taxes you will pay. 30 years ago, it was those in the middle that paid the highest percentage of taxes. Most of the variations from tax act to tax act are politically motivated. This will never leave the equation when taxes are involved.

There will never be a day when a government does not have to collect taxes, but being fair is the goal that usually appears on the surface from politicians. It is just that many times, what they think is fair is dependent on who has the strongest and most influential lobbyist. Before a few years ago, they were just called “Tax Act of (the year). In more recent years, they now have a tag like the 2005 tax act was called “Tax Increase Prevention and Reconciliation Act of 2005″. It is congress’ way of justifying the current income tax rates they apply to the American citizens.

Of course, the above is not legal or accounting advice — it is for informational purposes only. Before making any decisions regarding legal or tax matters, it is vital that you consult a licensed professional lawyer or tax accountant.

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Tax Deductible Items for Fire Fighters to Take When Preparing Their Federal Income Tax Return Part I

On September 27, 2010, In Finance, By admin



It’s that time of the year again, when people’s thoughts turn to numbers. Numbers, that is, that have to be entered on their federal and state income tax returns. This is true for pretty much everyone that receives income in this country.

What about Fire Fighters?

Well, they have to file tax returns, too. But there are a number of deductions that are available to fire fighters when they are preparing their federal income tax returns. Deductions that can absolutely add up, so here is a brief recap of deductions your favorite Fire Fighter can take on their federal income tax return.

o Professional Fees and Dues

Annual dues that you pay to a professional society that relate to your being a Fire Fighter are deductible. However, amounts you may have to pay initially to become a member in certain organizations or social clubs are considered capital expenses and therefore, not deductible.
You are also allowed to deduct payments to a union, as a condition of getting your fire fighting job, and continuing employment as a fire fighter. Of course, if any part of these dues offset personal expenses, they would not be deductible. But note that the part of union dues paid which goes into a strike fund is deductible.

o Uniforms and Upkeep Expenses

In most cases, the expenses associated with your fire fighter uniforms are completely deductible. The IRS state that the expense for work clothing costs and the costs to maintain it are deductible on your tax return if:

1. You are required to wear a uniform by your employer

2. You wouldn’t wear the clothing on the street (ordinary street wear). Clothing which has an emblem attached to it indicates that it is not to be worn in the street, and therefore would be considered a uniform.

3. The cost of protective clothing (e.g., safety shoes or goggles) is also fully deductible.

o Telephone Usage

The amount for the first basic line in the house is not deductible. However, any business-related toll calls are fully deductible. Just remember to keep a detailed log showing the date, time of call, who you called, etc.

Stay tuned for Part II of this series, to get additional information on what fire fighters can deduct when preparing their federal income tax return.

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Hook, Line, and Sinker

On September 24, 2010, In Finance, By admin



One of the biggest bamboozles ever put over on the average “Joe-Citizen” is the income-tax refund. The truth is, for 12+ months you gave the government an interest-free loan. That’s not good business sense. That’s money you didn’t have to either:

a) invest with, or b) reduce debts.

Every tax season, ad upon ad extol the virtues of the big juicy tax-refund. I want to know “where’s the beef?” The nerve of them — it’s bad enough “Uncle-Sam” held onto your money 1st but along comes “Joe-Blow” charging you a fee to get it back “fast”. Two wrongs don’t make it right.

Call it like it is — “yours” minus “theirs.”

Can I make it any simpler? – you lose the use AND interest potential of your money for at least 12 months then the fee to get it back. Refunds are not the ideal situation; much better is “Even-Steven.”

Sure it’s a thrill to receive a nice check from the IRS (properly, the U.S. Treasury Department) but this isn’t the lotto.

You got what you paid in. “Yours”, NOT “theirs”; and as the saying goes there’s still “no such thing as a free lunch.”

Despite tax “credits,” you got stuck with -

TWO FACTS:

1) You gave the federal government an interest-free loan.

2) You had to go with less money in your pocket or bank account.

What’s that in dollars and sense? The IRS records that in tax year 2008, more than 100 million Americans received tax-refund checks, with an average refund of $2,429 only up slightly from the year before. Do the math–

That’s 100 million Americans X $2,429 (average) = $242,900,000,000

INTEREST-FREE to US government.

And for all their crafty hooks, lines and sinkers they weren’t any better stewards. Open your eyes and see!

Lies breeds lies. Why do people assume that just because he’s called “Uncle-Sam”, that he has their best interests at heart? Why wouldn’t he want an interest-free loan? Sure tell the people what they want to hear – we have the earning potential in our hands.

Well I cry “Uncle.” Let’s turn this around so it’s clear: what about your creditors — would they waive your interest payments? Not likely.

Let’s get radical — adjust your withholding and put the extra into something that pays you.

To those who still “need” their refund — of course you do –now not next year. Your money should earn you interest. Now more than ever, make every penny count! You decide how, where and more importantly, when to invest your money. A tax-refund is the most backwards form of savings.

Over the years, people use their tax-refunds for a family vacation, a new television, or other non-essentials. More often others pay service fees to get their money “rushed” back to pay on debt. Whose money is it again? Your money less your earnings less their fees and service charges to pay your creditors’ fees and charges.

Back to basics. Discipline yourself to put that extra each paycheck into savings. Maybe a “rainy day” fund. After that base is covered, build your line of defense: Life insurance, IRAs, Annuities, 401(k)s, Savings Bonds and maybe a Mutual Fund if you have the resources.

Remember “shame me once, shame on you but shame me twice, shame on me.” That tax-refund is YOUR money LESS interest earnings LESS a service charge to “rush” it back. And you’re still paying others interest.

Aim for having the correct amount withheld each paycheck and put that extra money to work for you not “Uncle-Sam.”

For the self-employed or those with investment income, your estimated payments should be equal or in proportion to actual earnings per quarter. Your professional tax-planner can easily help.

The flip side, if you anticipate owing taxes –why not earn something that can ease the bill? Let sound-planning and discipline work together for you. Why should your money work for the IRS? You have nothing to lose and freedom to gain.

Every tax season, they bait the hook but that doesn’t mean you have to get stuck.

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Anticipating Your IRS Refund Can Cost You Plenty

On September 18, 2010, In Finance, By admin



While accountants are reaching for aspirin, millions of Americans are reaching for some fast cash this tax season. Unfortunately, those who reach for fast cash in the form of a “refund anticipation loan” are getting hit with interest rates and fees that are out of this world.

The tempting ads are plastered in newspapers and on television for “fast cash refunds”, “express refunds”, or “instant refunds.” The ads offer to get your refund in a day or two, or in some cases even instantly.

What is a “refund anticipation loan”? It’s a loan that borrows against your anticipated tax refund from the IRS. Refund anticipation loans, or RAL’s as they are known in the tax industry, carry annual percentage rates (APR’s) of about 60% to over 700%, a fact that many consumers either don’t realize or simply overlook.

RAL’s are marketed to people who need money the most such as low and moderate income workers. A report by the National Consumer Law Center notes that “about 40% of the 12 million refund loan customers in 2000, were families who received the Earned Income Tax Credit, the largest federal poverty assistance program.” And since the RAL’s often use the term “refund” in their ads, many of those who take the bait don’t realize that they’re receiving a loan and not their actual refund from the IRS.

The fees associated with RAL’s are expensive. For example, let’s say the IRS owes you a refund of $2,000. In order to get a RAL you pay the following: RAL loan fee = $75, Electronic filing fee = $40, tax preparer’s fee = $100. Total fees associated with your RAL = $215 which is more than 10 percent of your estimated refund. The APR on your refund loan equals a whopping 142 percent!

Many low and moderate income workers are without bank accounts and wind up paying an additional fee to set up a one-time-use account so that their IRS refund can be direct deposited.

Before giving in to the temptations of refund anticipation loans, ask yourself if you really need your money that quickly. If you can wait just a bit longer for your refund you’ll line your own pockets with extra cash rather than forking it over to a RAL lender.

A great way to save money at tax time is to go to a Volunteer Income Tax Assistance (VITA) site. VITA sites provide free tax preparation to low and moderate income taxpayers and are sponsored by the IRS. They can be found in libraries, community centers and other locations during the tax season. To find a VITA site call the IRS general help line at 1-800-TAX-1040 or visit http://www.tax-coalition.org.

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Taxation in India

On September 7, 2010, In Finance, By admin



India’s tax collection structure is well divided and the central government, state governments and local bodies are responsible for it. The union governments collect income tax, central excise and service tax while the state governments levy taxes on land revenue, VAT, stamp duty etc. The local bodies are responsible for water tax, octroi and many other taxes.

There are three broad classification of taxes, namely, ad valorem and specific taxes, indirect and direct taxes and progressive and regressive taxes. An ad valorem tax means the tax is imposed on the basis of total value of the commodity whereas the specific tax is the tax imposed on the basis of weight, quantities, size, breadth and width.

Direct tax is imposed on someone and its burden is not shifted to another and borne by the person himself example income tax, corporate tax. Indirect taxes are imposed on someone but whose burden can be shifted to someone else example excise duty, sales tax and customs duty.

A Progressive tax is a tax under which as income goes up, the rate of tax will go up so as those earning higher income ends up paying more. A proportional tax is a tax under which whatever be the income level, the rate of tax remains the same so that differences between higher income and lower income is same before tax as it is after tax.

Every citizen should follow proper tax planning practices. This means that he should pay his taxes as well as makes proper investment and select right tax saving instruments. The tax that is to be paid is deduced on the income earned and the kind of investment made. There are many tax exemptions investment, which is made on the basis on source of income. The investors should have proper tax planning to avail these benefits.

The income tax can be calculated with the help of income tax calculator. It calculate the taxable income by combining the income on the basis of salary, allowances and incentives, capital gains and other sources of income. For the fiscal year 2007-08, income up to Rs 1, 10,000 per annum is exempted from such tax. For the income above this amount, there are various slabs. The additional charge of 10 per cent is levied if the income crosses Rs 8, 50,000. The education cess of 2 per cent is added along with this charge.

In India, the amount of indirect taxes was very high compared to the direct taxes. In 1991, prior to tax reform, just 19 per cent of the taxes came from direct tax while the percentage was 81 per cent from the indirect taxes.

The fact that in a country indirect taxes are predominant against direct taxes suggest that burden of taxation falls more heavily on the poor people because indirect taxes are taxes on commodities.
But after tax reform based on Chelliah and Kelkar committee recommendation, many of these characteristics have been addressed to make the tax structure simple, broad based, reduce the multiplicities of taxes, reduce complexities of taxes and even plug evasion.

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Do You Really Understand Federal Income Taxes

On September 1, 2010, In Finance, By admin



Regardless of how you or I personally feel our dollars that are generated from the federal income taxes support many vital public services. Many of our federal programs such as schools, public utilities, healthcare and retirement programs like Medicare and Social Security wouldn’t be functioning without them. Federal income taxes are collected from income earnings of entities and individuals yearly. However, there is an exception to paying the tax if a person does not meet the lowest earning requirements. Many people rightfully feel that tax codes are too complex and complicated and as a result hire professional tax preparers to ensure that the filing process is easy yet accurate. Over the years there have been many improvements to make make filing quicker and smoother by implementing shorter tax forms, clear directions and web-based filing programs.

The federal income tax system that we currently use stems from a very archaic taxation system. The very early taxation systems were primarily based on livestock, grains and barter services because they did not have money as we know it today. Due to the nature of the tax system necessary for managing the taxes levied the tax burden was literally very heavy, particular for the individuals who were unable to carry their share of the tax load. A common punishment for those who were unable to pay their taxes was to be sold into slavery to pay their taxes or put in prison.

Thankfully the use of slavery or torture is no longer a option for individuals who are unable to pay their tax, however imprisonment is still a common form of punishment for deliberate avoidance of paying taxes. While it may seem that the IRS may want to ruin people’s lives they really prefer to present a payment plan to pay back taxes in a manageable and responsible way. The IRS recognizes that most accruing tax debts are the result of accidental mistakes in calculations and do not warrant the maximum penalty. When using a payment arrangement the back taxes are usually paid off fairly quickly, which is a win-win for everyone.

Most countries have a formalized system that collects taxes. The three most common systems are progressive, proportional or regressive. In recent history many more taxpayers are filing their federal income taxes utilizing quick and easy online filing software. This convenient option favors taxpayers but also favors the IRS as well. The new online filing programs cut down on the paperwork load and processing returns and refund checks much quicker than the paper system. Many people are happy to know that the anxiety surrounding filing taxes can be minimized by filing federal and state income taxes at the same time.

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