.....Well the year is almost over and the tax season is around the corner. If you have an accountant who takes care of your business books, you should be doing some last minute tax planning. There are many things that you can do now in December to lower your taxes for 2011. If you don’t have anyone to help you with last minute planning feel free to set up an appointment with me either in person or by phone. You can call my office at 850-914-0054 and speak to my secretary, Marlo and she can set up the appointment in person or by phone.
.....For example, if you are a cash method taxpayer, you could pay off some of your current expenses now instead of waiting until January. You could purchase much needed equipment now and get the writeoffs this year. There are many other possibilities. Why not call today and set up the appointment! You might save a considerable amount on your income taxes. Again I wish you all a Merry Christmas.
Henry (CEO)
Wednesday, December 07, 2011
Thursday, November 03, 2011
The EL PASO seminar
In late October of this year, I was a guest speaker at a one hour seminar in El Paso, Texas. The subject matter was the economy and how to survive it.
I talked about: 1) Government regulations; 2) Operating expenses; 3) Marketing strategies; and 4) Payroll expenses. The basic idea is to control expenses during these hard times.
Some highlights of the seminar are below:
.....For instance under Government regulations, once you start making a profit running your business, consider becoming an "S" corporation. Since 1959, corporations have been exempt from self-employment taxes on their profits. Self-employment is basically the same as payroll taxes. This can save some tax dollars. Also, corporations are generally exempt from 1099s. This can save some paperwork.
.....As for Operating expenses, it is important for you to understand how to read financial statements such as a Profit and Loss Statement which tells you how much you are earning. Generally the three largest expenses are: cost of goods sold, payroll, and rent. If you do not have a good understanding of basic bookkeeping, you could be losing money without your paying attention to the problem. This could result in a business failure.
.....Marketing strategies are also important. If you do no marketing your business will not grow. You must market every day. Word of mouth is always good. Be aggressive. Join a networking group like BNI (Business Networking International) where word of mouth is extended by the members of the group. Their motto is "Givers Gain".
.....Payroll expenses if left unchecked can bankrupt a company. You need to make sure that your employees and yourself are productive. You cannot carry unproductive folks in this tight economy.
.....If you like to learn more, attend one of my seminars held around the country. There is no charge for the event. Call my office at 850-914-0054 and speak to my secretary Marlo, about attending or creating a seminar.
Henry (CEO)
I talked about: 1) Government regulations; 2) Operating expenses; 3) Marketing strategies; and 4) Payroll expenses. The basic idea is to control expenses during these hard times.
Some highlights of the seminar are below:
.....For instance under Government regulations, once you start making a profit running your business, consider becoming an "S" corporation. Since 1959, corporations have been exempt from self-employment taxes on their profits. Self-employment is basically the same as payroll taxes. This can save some tax dollars. Also, corporations are generally exempt from 1099s. This can save some paperwork.
.....As for Operating expenses, it is important for you to understand how to read financial statements such as a Profit and Loss Statement which tells you how much you are earning. Generally the three largest expenses are: cost of goods sold, payroll, and rent. If you do not have a good understanding of basic bookkeeping, you could be losing money without your paying attention to the problem. This could result in a business failure.
.....Marketing strategies are also important. If you do no marketing your business will not grow. You must market every day. Word of mouth is always good. Be aggressive. Join a networking group like BNI (Business Networking International) where word of mouth is extended by the members of the group. Their motto is "Givers Gain".
.....Payroll expenses if left unchecked can bankrupt a company. You need to make sure that your employees and yourself are productive. You cannot carry unproductive folks in this tight economy.
.....If you like to learn more, attend one of my seminars held around the country. There is no charge for the event. Call my office at 850-914-0054 and speak to my secretary Marlo, about attending or creating a seminar.
Henry (CEO)
Thursday, October 20, 2011
Another Satisfied Client With Professor Tax USA
All you business owners! Look at this video! Will at Cabinet & Appliance Center in Berryville, Virginia has been a very satisfied and successful client of Professor Tax USA since October 2003.
This small business in Virginia benefits by using Professor Tax to help with their accounting needs. So remember you can definitely make things easier by using Professor Tax USA for you Small Business Accounting Services.
Wednesday, October 05, 2011
An assortment of simple tips for business owners
..........1) Using QuickBooks does not make you an accountant. If you are an experienced bookkeeper then the software can be useful in your business. If not, then you might want to use an accounting firm.
..........2) If you are new in business and want to succeed, consider finding an accountant who will provide you with FREE consultations.
..........3) Once you are established, then consider becoming an "S" corporation. Currently corporation profits are exempt from social security taxes.
..........4) You want your accountant to be aggressive otherwise you will pay more taxes than necessary.
..........5) You need an accountant who will respond to phone calls and willing to visit you on a regular basis.
..........6) It is important that your accountant's personality works well with your personality. You need to feel that your accountant is working for you not the Internal Revenue Service.
..........7) Watch out for scammers. If someone wants several thousand dollars from you before they will fix your problem or offering you FREE money from government grant programs use your common sense. If it sounds suspicious, avoid these offers.
..........8) When you send important mail to the Internal Revenue Service consider using Certified Mail. This way you can prove you sent the package timely.
..........9) How long to keep your records. The IRS usually audits income tax returns for 3 years, payroll tax returns for 4 years and the state usually audits sales tax records for 5 years.
........10) Deduct your business mileage. As of July, 2011 it is 55.5 cents per mile.
........11) Most times it is better not to have corporations own Real Estate property. LLCs are usually better for real estate ownership. When closing down corporations, real estate becomes taxable, not so for LLCs.
........12) At age 66 you can collect social security while still working full-time without wage limitations.
........13) Please pay attention to deadlines, file taxes on time, especially payroll. If your payroll taxes exceed $2,500 per quarter, then you must pay on line monthly to avoid penalties.
........14) Need cash flow, how about trying Bartering. And do not forget about networking!
Henry (CEO)
..........2) If you are new in business and want to succeed, consider finding an accountant who will provide you with FREE consultations.
..........3) Once you are established, then consider becoming an "S" corporation. Currently corporation profits are exempt from social security taxes.
..........4) You want your accountant to be aggressive otherwise you will pay more taxes than necessary.
..........5) You need an accountant who will respond to phone calls and willing to visit you on a regular basis.
..........6) It is important that your accountant's personality works well with your personality. You need to feel that your accountant is working for you not the Internal Revenue Service.
..........7) Watch out for scammers. If someone wants several thousand dollars from you before they will fix your problem or offering you FREE money from government grant programs use your common sense. If it sounds suspicious, avoid these offers.
..........8) When you send important mail to the Internal Revenue Service consider using Certified Mail. This way you can prove you sent the package timely.
..........9) How long to keep your records. The IRS usually audits income tax returns for 3 years, payroll tax returns for 4 years and the state usually audits sales tax records for 5 years.
........10) Deduct your business mileage. As of July, 2011 it is 55.5 cents per mile.
........11) Most times it is better not to have corporations own Real Estate property. LLCs are usually better for real estate ownership. When closing down corporations, real estate becomes taxable, not so for LLCs.
........12) At age 66 you can collect social security while still working full-time without wage limitations.
........13) Please pay attention to deadlines, file taxes on time, especially payroll. If your payroll taxes exceed $2,500 per quarter, then you must pay on line monthly to avoid penalties.
........14) Need cash flow, how about trying Bartering. And do not forget about networking!
Henry (CEO)
Friday, September 16, 2011
Save Time and Money with Professor Tax's Bookkeeping Services
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Don't Tax Your Brain!
Friday, September 09, 2011
Choosing which entity for your brand new business?
September 9th, 2011
.....Many times when I am visiting prospective clients, I get asked about how they should form the new business they are creating. "Should I be a sole proprietor or some other entity?" they would ask. The common choices are: 1) "C" Corporation; 2) "S" Corporation; 3) Limited Liability Company; 4) Partnership; 5) or Sole Proprietorship.
.....The easiest form is a sole proprietorship. It generally does not have many regulations and fees to get started. The tax information gets reported on your Form 1040 instead of filing a separate tax return. You don’t have to get a federal identification number if you have no employees. If you use your own name, you don’t have to file a DBA (doing business as). A simple sign and you could be in business very quickly.
.....If you file your return late (not a good idea but...), the Internal Revenue Service does not hit you with a late filing fee like they do with corporations and partnerships ($195 per month per partner or shareholder even if you owe NO money!). But if you owe money on a sole proprietor return (Form 1040) then there is a late filing and late paying fee based on the amount owed. At least this fine is more reasonable.
.....If you are creating a brand new business, I usually recommend that you start out as a sole proprietor first to see if the business will be successful. Too many businesses fail because they do not know the regulations, nor do they prepare bookkeeping reports on how their business is doing. A financial report usually has a Balance Sheet and a Profit and Loss statement.
.....The balance sheet shows a listing of the business assets you have and the liabilities (debts) you owe as of a specific date (usually last day of your current month). The profit and loss statement or P & L (also known as a Statement of Income) will show your total sales, cost of goods sold, and operating expenses for the full month or the totals for the year. Without these reports, it is dangerous to operate your business because you do not know if you are making any profits or wasting any money. Nor do you know what your potential tax liability would be.
.....If you create a corporation instead, you may have an attorney expense for setting up the corporation and filing fees to the state when you decide to close down your business. Generally, you will not have any expenses like this when you create your sole proprietorship. I believe that we should make operating a business simple in the beginning. It is already complicated enough to start a business without adding all the regulations and fees by creating a corporation or LLC.
.....I will continue to discuss the forms of business entities in a future blog, but for now, know that it is usually better to start your business with the simplest format.
.....Henry (CEO)
.....Many times when I am visiting prospective clients, I get asked about how they should form the new business they are creating. "Should I be a sole proprietor or some other entity?" they would ask. The common choices are: 1) "C" Corporation; 2) "S" Corporation; 3) Limited Liability Company; 4) Partnership; 5) or Sole Proprietorship.
.....The easiest form is a sole proprietorship. It generally does not have many regulations and fees to get started. The tax information gets reported on your Form 1040 instead of filing a separate tax return. You don’t have to get a federal identification number if you have no employees. If you use your own name, you don’t have to file a DBA (doing business as). A simple sign and you could be in business very quickly.
.....If you file your return late (not a good idea but...), the Internal Revenue Service does not hit you with a late filing fee like they do with corporations and partnerships ($195 per month per partner or shareholder even if you owe NO money!). But if you owe money on a sole proprietor return (Form 1040) then there is a late filing and late paying fee based on the amount owed. At least this fine is more reasonable.
.....If you are creating a brand new business, I usually recommend that you start out as a sole proprietor first to see if the business will be successful. Too many businesses fail because they do not know the regulations, nor do they prepare bookkeeping reports on how their business is doing. A financial report usually has a Balance Sheet and a Profit and Loss statement.
.....The balance sheet shows a listing of the business assets you have and the liabilities (debts) you owe as of a specific date (usually last day of your current month). The profit and loss statement or P & L (also known as a Statement of Income) will show your total sales, cost of goods sold, and operating expenses for the full month or the totals for the year. Without these reports, it is dangerous to operate your business because you do not know if you are making any profits or wasting any money. Nor do you know what your potential tax liability would be.
.....If you create a corporation instead, you may have an attorney expense for setting up the corporation and filing fees to the state when you decide to close down your business. Generally, you will not have any expenses like this when you create your sole proprietorship. I believe that we should make operating a business simple in the beginning. It is already complicated enough to start a business without adding all the regulations and fees by creating a corporation or LLC.
.....I will continue to discuss the forms of business entities in a future blog, but for now, know that it is usually better to start your business with the simplest format.
.....Henry (CEO)
Thursday, August 18, 2011
Professor Tax Helping Small Businesses Across This Great Nation
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Thursday, August 04, 2011
Is the Great Recession over?
August 4th, 2011
.....The government has told us that the Recession is over. Oh really! Well maybe in some parts of the country. Here in Florida, the value of homes keeps going down. To give you an example, when I bought my home in 1995, I paid $14,000 more than the home I sold in Asheville, NC at that time. Well as of today, my house in Florida is worth $170,000 LESS than the home I sold in North Carolina
......What does this tell us about our economy. In Florida we had a big real estate boom some 5 years ago. North Carolina did not experience much of a boom. So houses in North Carolina have actually grown in value. My old house is worth more than 2½ times what I sold it for. Which means that I would have some $300,000 in equity if I still owned the home. During the peak of the boom in Florida, I had nearly $350,000 in equity. Without borrowing any money since then, my equity has now dropped to MINUS $60,000. And I make all my payments timely.
.....So in general terms, Florida is still in trouble, while the East is holding it’s own. Business owners in Florida without equity in their homes or other assets, will find it ALMOST IMPOSSIBLE to borrow money from the banks while those in North Carolina will have a better chance since they probably have equity in their home residence. I have found that in Pennsylvania, my clients also experience housing to be fairly stable. A client of mine in Chambersburg, PA purchased a home a few years ago and while the value did not go up, at least it is being appraised for the same value today as a few years ago.
.....The best area? Believe it or not, but things are doing much better in New Mexico and other western states. Exit Realty, a client of mine, in Alamogordo, NM told me that while Florida experienced a big realty boom years ago, people in New Mexico found real estate stable, there was no boom, therefore no crash. Again if you have equity in your home in New Mexico, your equity is safe. By the way, I really like New Mexico. Almost every time I visit the state, I get more clients. Wish I could say that for Florida where I actually live. So maybe, I need to spend more time in New Mexico!! I think so.
.....The point I am making, is that without EQUITY in your home, BANKS won’t loan you any money. So how does the economy improve, if you as a business owner cannot borrow money because your ASSETS do not have enough worth? Kind of scary.
.....So WHEN will the recession really end? When foreclosures are finally completed and housing values are based on real numbers, not artificially low numbers because banks sell foreclosed houses for nearly nothing and count that in the average sales price for your neighborhood. So here in Florida, that may still be years away. Let us hope that business can stay afloat until then.
.....Henry (CEO)
.....The government has told us that the Recession is over. Oh really! Well maybe in some parts of the country. Here in Florida, the value of homes keeps going down. To give you an example, when I bought my home in 1995, I paid $14,000 more than the home I sold in Asheville, NC at that time. Well as of today, my house in Florida is worth $170,000 LESS than the home I sold in North Carolina
......What does this tell us about our economy. In Florida we had a big real estate boom some 5 years ago. North Carolina did not experience much of a boom. So houses in North Carolina have actually grown in value. My old house is worth more than 2½ times what I sold it for. Which means that I would have some $300,000 in equity if I still owned the home. During the peak of the boom in Florida, I had nearly $350,000 in equity. Without borrowing any money since then, my equity has now dropped to MINUS $60,000. And I make all my payments timely.
.....So in general terms, Florida is still in trouble, while the East is holding it’s own. Business owners in Florida without equity in their homes or other assets, will find it ALMOST IMPOSSIBLE to borrow money from the banks while those in North Carolina will have a better chance since they probably have equity in their home residence. I have found that in Pennsylvania, my clients also experience housing to be fairly stable. A client of mine in Chambersburg, PA purchased a home a few years ago and while the value did not go up, at least it is being appraised for the same value today as a few years ago.
.....The best area? Believe it or not, but things are doing much better in New Mexico and other western states. Exit Realty, a client of mine, in Alamogordo, NM told me that while Florida experienced a big realty boom years ago, people in New Mexico found real estate stable, there was no boom, therefore no crash. Again if you have equity in your home in New Mexico, your equity is safe. By the way, I really like New Mexico. Almost every time I visit the state, I get more clients. Wish I could say that for Florida where I actually live. So maybe, I need to spend more time in New Mexico!! I think so.
.....The point I am making, is that without EQUITY in your home, BANKS won’t loan you any money. So how does the economy improve, if you as a business owner cannot borrow money because your ASSETS do not have enough worth? Kind of scary.
.....So WHEN will the recession really end? When foreclosures are finally completed and housing values are based on real numbers, not artificially low numbers because banks sell foreclosed houses for nearly nothing and count that in the average sales price for your neighborhood. So here in Florida, that may still be years away. Let us hope that business can stay afloat until then.
.....Henry (CEO)
Thursday, July 07, 2011
The Great Recession of the 21st Century (continued)
July 7th, 2011
.....The previous blog talked about how the owner handles this recession. But what about the employees...How do they handle the recession? Most employees do not think about the fact that the true employer is not your immediate supervisor but YOUR CUSTOMERS. Suppose you were to lose ALL your customers. Your boss would go out of business and you would lose your job. How smart is that?
.....We have a lot of competition for these customers. If we do not give great service, they can always find someone else cheaper, who gives just as much "lousy" service. The word "lousy" is sarcastic, but if you expect people to pay good money in a recession you had better be greater than your competition. Otherwise you are the loser.
.....Suppose your customer was your own mother. Would you not give her special service? Treat her as a queen? Why not imagine all your customers to be family...brothers, sisters, cousins. First of all the job would suddenly become more fun because you would start making new friends. If you think of them FIRST and you Second, I guarantee that your business will hold together. You will not only keep your customers but get new ones by referrals. Do you think your employer will notice you over the other employees? You bet the boss will notice. If there had to be layoffs, would you not agree that you have given yourself job security.
.....I run an accounting business. Do I notice which employee takes personal care of the clients over the other employees? Would I likely give more work and therefore more money to the better employees. The answer of course is obvious. Even with the Great Recession going on now for many years and many employees out of work for a long time, it is amazing how many working employees still have attitude problems with their customers. This recession is not going away any time soon, so I hope they wake up before they find themselves out of a job and replaced by a better employee.
.....My seminars will explain in more detail how to survive this on going recession. So if you would like me to conduct a Free seminar in your home town let me know. It does not matter how many people will attend. Even a small group will have the advantage of getting one on one consultation from me for FREE.
.....Henry (CEO)
.....The previous blog talked about how the owner handles this recession. But what about the employees...How do they handle the recession? Most employees do not think about the fact that the true employer is not your immediate supervisor but YOUR CUSTOMERS. Suppose you were to lose ALL your customers. Your boss would go out of business and you would lose your job. How smart is that?
.....We have a lot of competition for these customers. If we do not give great service, they can always find someone else cheaper, who gives just as much "lousy" service. The word "lousy" is sarcastic, but if you expect people to pay good money in a recession you had better be greater than your competition. Otherwise you are the loser.
.....Suppose your customer was your own mother. Would you not give her special service? Treat her as a queen? Why not imagine all your customers to be family...brothers, sisters, cousins. First of all the job would suddenly become more fun because you would start making new friends. If you think of them FIRST and you Second, I guarantee that your business will hold together. You will not only keep your customers but get new ones by referrals. Do you think your employer will notice you over the other employees? You bet the boss will notice. If there had to be layoffs, would you not agree that you have given yourself job security.
.....I run an accounting business. Do I notice which employee takes personal care of the clients over the other employees? Would I likely give more work and therefore more money to the better employees. The answer of course is obvious. Even with the Great Recession going on now for many years and many employees out of work for a long time, it is amazing how many working employees still have attitude problems with their customers. This recession is not going away any time soon, so I hope they wake up before they find themselves out of a job and replaced by a better employee.
.....My seminars will explain in more detail how to survive this on going recession. So if you would like me to conduct a Free seminar in your home town let me know. It does not matter how many people will attend. Even a small group will have the advantage of getting one on one consultation from me for FREE.
.....Henry (CEO)
Sunday, June 05, 2011
The Great Recession of the 21st Century
.....As you know, I want to do a seminar in person on the above subject. But in the meantime, what can we do to soften the effects of this recession? This first blog, we will discuss from the employer’s point of view (how to protect their company) and the next blog will go into details for the employees (how to protect their job). The two are deeply connected.
.....If the owner, or CEO, really care about their customers, the client will sense that you care and appreciate what you do for them. They will even forgive mistakes made and will stay loyal to your company. It is almost impossible to fail in business if you have the attitude that no matter what, the customer comes first. I have a client in Alamogordo, NM who thinks I am an "angel". That’s a lot to live up to, but if I try, this customer will use our services for life no matter how bad the recession is. Also, if you really care about your customers, you will do whatever you can to keep them successful too. By being a caring person, you also set a good example for your employees.
.....My son Daryl and I visit virtually every client we have on a regular basis (monthly or semi-monthly). By doing this, we stay in touch with our clients and if they have any concerns they will make them known to us in time for us to take care of any potential problem. We are less likely to lose clients that way and also more likely to get referrals from them so that in spite of the recession, we can still grow our business.
.....Regardless what the government tells you, it will be a long time before things get back to "normal". You must stay "hungry" and want to succeed, otherwise you will go by the wayside like many of your competitors.
.....So in conclusion, please treat your clients like family and they will do the same. Imagine how good it feels when a client wants you to have dinner with them or go out and socialize with them. I have many clients who do just that and it makes me feel really good. Our jobs would become more fun if we think of our customers as family members and they will treat you as part of their family (I promise).The photo above is of myself, my son Daryl, and my grandson Ethan.....Henry (CEO)
Wednesday, May 04, 2011
We have new plans for our Professor Tax Blog pages!
May 4th, 2011
.....We are now developing our facebook page at: www.facebook.com/professortaxusa. We will begin to use our blog page on a more regular basis. As of today we have 89 fans that like our Professor Tax USA page. It is a start and we hope to see that number grow. We intend to do Free Seminars wherever there is an interest in the United States. These seminars will cover many topics starting with Surviving this Recession, designed for business owners and even employees. Very soon, I will ask my Facebook Friends and their friends if they are interested in attending these Free Seminars and as soon as enough respond favorable, we will start (hopefully in the next month or so).
.....Also, I intend to have special blog pages as a testimony on behalf of our clients (with their permission) to talk about their company and what makes them special. I look forward to doing this in the very near future (30 to 60 days).
.....So tune in soon and see what is happening here at Professor Tax. Thanks. Henry (CEO)
.....We are now developing our facebook page at: www.facebook.com/professortaxusa. We will begin to use our blog page on a more regular basis. As of today we have 89 fans that like our Professor Tax USA page. It is a start and we hope to see that number grow. We intend to do Free Seminars wherever there is an interest in the United States. These seminars will cover many topics starting with Surviving this Recession, designed for business owners and even employees. Very soon, I will ask my Facebook Friends and their friends if they are interested in attending these Free Seminars and as soon as enough respond favorable, we will start (hopefully in the next month or so).
.....Also, I intend to have special blog pages as a testimony on behalf of our clients (with their permission) to talk about their company and what makes them special. I look forward to doing this in the very near future (30 to 60 days).
.....So tune in soon and see what is happening here at Professor Tax. Thanks. Henry (CEO)
Wednesday, February 16, 2011
Tax Deductions with Some of the Biggest Payouts
A $5,000 or $6,000 deduction for IRA contributions, a $4,000 deduction for college tuition and fees, a $1,000 child tax credit — these are hefty tax breaks for which a taxpayer may understandably yearn. But they’re small beans when compared with the tens of thousands of dollars in savings some reap through deductions and credits.
How about taking a $50,000 deduction for state and local taxes paid, a $37,000 deduction for medical expenses, a $28,000 deduction for mortgage interest, or a $21,000 deduction for charitable contritbutions.
Those are the average amounts claimed for each of those deductions in 2008 by taxpayers with adjusted gross income higher than $250,000, the group with the highest average claim for each of those deductions that year, said Mark Luscombe, principal tax analyst with CCH Inc., a Riverwoods, Ill.-based tax publisher and unit of Wolters Kluwer. (The average dollar amounts are rounded, and count only those taxpayers who claimed that particular deduction.)
Some tax breaks “basically don’t have any limit,” Luscombe said. For example, to take the medical-expense deduction your expenses must exceed 7.5% of your adjusted gross income.
“That puts a floor on it, but as far as a top number, the more medical expenses you have, the higher the deduction,” Luscombe said. (Some deductions discussed here are restricted or disallowed under the alternative minimum tax.)
For taxpayers with adjusted gross income of $30,000 to $50,000 in 2008, the average deduction for state and local taxes was about $3,800; for medical expenses, $6,000; mortgage interest, $9,000; charitable contributions, $2,200, according to CCH.
For taxpayers with AGI of $50,000 to $100,000, the average deduction for state and local taxes was about $6,000; medical expenses, $7,000; mortgage interest, $10,600; charitable contributions, $2,700.
The mortgage-interest deduction is limited by the value of your home — generally speaking, you can claim it for interest paid on mortgage indebtedness up to $1 million, plus another $100,000 of home-equity debt. See this IRS page for more on the mortgage-interest deduction.
Meanwhile, some credits don’t have an upper limit, Luscombe said. The residential energy-efficient property credit for installing solar, wind or geothermal systems is worth 30% of the amount spent — whatever that amount is.
But don’t confuse that credit with the one for home energy-efficient upgrades, such as new windows and doors. That credit was worth up to $1,500 in 2010 but lawmakers reduced it for 2011, in the Tax Relief Act passed in December.
Other credits have a top limit, but it’s hefty: The adoption tax credit is worth up to $13,170 in 2010, up from $12,150, and it’s now refundable. Read more about the adoption credit on IRS.gov.
Almost Half of Taxpayers Don’t Owe Federal Income Tax
Taxpayers may enjoy the bounty, but these deductions and credits — plus other tax breaks that never show up on our returns, including those we get through 401(k), Roth IRA and 529 plans — all add up to a lot of money the U.S. government is not collecting.
While the definition of what should be counted as a so-called “tax expenditure” varies, “by any measure, the revenue losses from tax expenditures are large,” according to a Tax Policy Center report, co-authored by Eric Toder.
“Adding up all the tax expenditure estimates in the 2010 federal budget, we calculate a sum of about $1.1 trillion in fiscal year 2012, or about 6.7% of projected gross domestic product.” Read the report.
That’s a lot of tax breaks.
“Our tax system is such that for 2010 we estimate 45% of American households will pay no income tax, because of the combination of credits and deductions and so forth,” said Roberton Williams, a senior fellow at the Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution in Washington.
And that includes high-income people, he said. For instance, recent IRS statistics showed that about 2,000 people with income of $1 million or more don’t pay income tax, Williams said. “A part of it is that money is earned overseas and is subject to foreign taxes; a part of it is they have a lot of money in tax-exempt bonds so they don’t pay tax on that income,” he said.
“For one reason or another these very, very wealthy people have set up their financial situation in such a way that they avoid U.S. federal income taxes entirely.”
Keep in mind that some of the largest tax expenditures don’t show up on your tax return. For instance, the value of employer-provided health insurance isn’t counted as income for most taxpayers.
Few Deductions Available to Some Taxpayers
Still, for his clients — most of whom are high-net-worth retirees who’ve paid off their home mortgage — deductions can be hard to tap, said Rial Moulton, a certified financial planner and certified public accountant in Spokane, Wash.
For a married couple filing jointly, the standard deduction in 2010 is $11,400, and it’s $5,700 for a single filer. “To think about itemizing, you have to have [deductions that total] more than that,” Moulton said. “For most people in our area, if you have your house paid off, it’s hard to get above that number unless you have significant health-care costs.”
Meanwhile, for taxpayers at a lower income level, one of the most valuable deductions is the earned income tax credit, worth as much as $5,666 for those with three qualifying children in 2010. For a family with three children to be eligible, AGI can’t exceed $43,352 for head-of-household filers and $48,362 for married-filing-jointly filers. Read this IRS page for more information.
There’s also a saver’s credit, worth up to $2,000 for married-filing-jointly couples and up to $1,000 for single filers, but that maximum credit phases out as income rises. And the maximum adjusted-gross-income limit to get any of the credit is $55,500 for married-filing-jointly filers and $27,750 for single filers. See this IRS page for more information.
Andrea Coombes is MarketWatch's personal finance editor, based in San Francisco.
How about taking a $50,000 deduction for state and local taxes paid, a $37,000 deduction for medical expenses, a $28,000 deduction for mortgage interest, or a $21,000 deduction for charitable contritbutions.
Those are the average amounts claimed for each of those deductions in 2008 by taxpayers with adjusted gross income higher than $250,000, the group with the highest average claim for each of those deductions that year, said Mark Luscombe, principal tax analyst with CCH Inc., a Riverwoods, Ill.-based tax publisher and unit of Wolters Kluwer. (The average dollar amounts are rounded, and count only those taxpayers who claimed that particular deduction.)
Some tax breaks “basically don’t have any limit,” Luscombe said. For example, to take the medical-expense deduction your expenses must exceed 7.5% of your adjusted gross income.
“That puts a floor on it, but as far as a top number, the more medical expenses you have, the higher the deduction,” Luscombe said. (Some deductions discussed here are restricted or disallowed under the alternative minimum tax.)
For taxpayers with adjusted gross income of $30,000 to $50,000 in 2008, the average deduction for state and local taxes was about $3,800; for medical expenses, $6,000; mortgage interest, $9,000; charitable contributions, $2,200, according to CCH.
For taxpayers with AGI of $50,000 to $100,000, the average deduction for state and local taxes was about $6,000; medical expenses, $7,000; mortgage interest, $10,600; charitable contributions, $2,700.
The mortgage-interest deduction is limited by the value of your home — generally speaking, you can claim it for interest paid on mortgage indebtedness up to $1 million, plus another $100,000 of home-equity debt. See this IRS page for more on the mortgage-interest deduction.
Meanwhile, some credits don’t have an upper limit, Luscombe said. The residential energy-efficient property credit for installing solar, wind or geothermal systems is worth 30% of the amount spent — whatever that amount is.
But don’t confuse that credit with the one for home energy-efficient upgrades, such as new windows and doors. That credit was worth up to $1,500 in 2010 but lawmakers reduced it for 2011, in the Tax Relief Act passed in December.
Other credits have a top limit, but it’s hefty: The adoption tax credit is worth up to $13,170 in 2010, up from $12,150, and it’s now refundable. Read more about the adoption credit on IRS.gov.
Almost Half of Taxpayers Don’t Owe Federal Income Tax
Taxpayers may enjoy the bounty, but these deductions and credits — plus other tax breaks that never show up on our returns, including those we get through 401(k), Roth IRA and 529 plans — all add up to a lot of money the U.S. government is not collecting.
While the definition of what should be counted as a so-called “tax expenditure” varies, “by any measure, the revenue losses from tax expenditures are large,” according to a Tax Policy Center report, co-authored by Eric Toder.
“Adding up all the tax expenditure estimates in the 2010 federal budget, we calculate a sum of about $1.1 trillion in fiscal year 2012, or about 6.7% of projected gross domestic product.” Read the report.
That’s a lot of tax breaks.
“Our tax system is such that for 2010 we estimate 45% of American households will pay no income tax, because of the combination of credits and deductions and so forth,” said Roberton Williams, a senior fellow at the Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution in Washington.
And that includes high-income people, he said. For instance, recent IRS statistics showed that about 2,000 people with income of $1 million or more don’t pay income tax, Williams said. “A part of it is that money is earned overseas and is subject to foreign taxes; a part of it is they have a lot of money in tax-exempt bonds so they don’t pay tax on that income,” he said.
“For one reason or another these very, very wealthy people have set up their financial situation in such a way that they avoid U.S. federal income taxes entirely.”
Keep in mind that some of the largest tax expenditures don’t show up on your tax return. For instance, the value of employer-provided health insurance isn’t counted as income for most taxpayers.
Few Deductions Available to Some Taxpayers
Still, for his clients — most of whom are high-net-worth retirees who’ve paid off their home mortgage — deductions can be hard to tap, said Rial Moulton, a certified financial planner and certified public accountant in Spokane, Wash.
For a married couple filing jointly, the standard deduction in 2010 is $11,400, and it’s $5,700 for a single filer. “To think about itemizing, you have to have [deductions that total] more than that,” Moulton said. “For most people in our area, if you have your house paid off, it’s hard to get above that number unless you have significant health-care costs.”
Meanwhile, for taxpayers at a lower income level, one of the most valuable deductions is the earned income tax credit, worth as much as $5,666 for those with three qualifying children in 2010. For a family with three children to be eligible, AGI can’t exceed $43,352 for head-of-household filers and $48,362 for married-filing-jointly filers. Read this IRS page for more information.
There’s also a saver’s credit, worth up to $2,000 for married-filing-jointly couples and up to $1,000 for single filers, but that maximum credit phases out as income rises. And the maximum adjusted-gross-income limit to get any of the credit is $55,500 for married-filing-jointly filers and $27,750 for single filers. See this IRS page for more information.
Andrea Coombes is MarketWatch's personal finance editor, based in San Francisco.
Sunday, January 09, 2011
Just in, the I.R.S. plans on stiff penalties for late filing of Corporations & Partnerships
.....
Link: http://www.irs.gov/formspubs/article/0,,id=210604,00.html
.....January 9th, 2011
.....The Internal Revenue Service has raised their penalties from $89.00 a month for up to one year per partner or shareholder to $195.00 a month for all 2010 corporations and partnerships that file late beyond extensions properly filed. That means the fine could be nearly $2,400 just for one stockholder.
.....Most corporations file extensions, but if you are in the habit of filing when you feel like it, that means LATE, then consider being a single member LLC instead and closing down your corporation or partnership. So far the IRS in not accessing late filing penalties for single owned LLCs, because it is filed with the Form 1040, on Schedule C.
.....In a few months all these returns will be due. Please be ready to file on time. If you must file an extension, then be ready to file long before the extensions expire.
.....See link above from the IRS website. Henry (CEO)
Link: http://www.irs.gov/formspubs/article/0,,id=210604,00.html
.....January 9th, 2011
.....The Internal Revenue Service has raised their penalties from $89.00 a month for up to one year per partner or shareholder to $195.00 a month for all 2010 corporations and partnerships that file late beyond extensions properly filed. That means the fine could be nearly $2,400 just for one stockholder.
.....Most corporations file extensions, but if you are in the habit of filing when you feel like it, that means LATE, then consider being a single member LLC instead and closing down your corporation or partnership. So far the IRS in not accessing late filing penalties for single owned LLCs, because it is filed with the Form 1040, on Schedule C.
.....In a few months all these returns will be due. Please be ready to file on time. If you must file an extension, then be ready to file long before the extensions expire.
.....See link above from the IRS website. Henry (CEO)
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