Organizing Tips For a Stress-Free Tax Season

The holidays are over. The barrage of catalogs in your mailbox is turning into a flurry of year-end tax statements. If you dread tax time and usually spend your spring stressing over getting taxes done on time, these tips are for you! The best time to prepare for tax time is the year before. But if you didn't do it last year, it's not too late to start now! With this simple system, you'll get your taxes done early and be ready to enjoy spring!

Separate Business and Personal Finances

This article focuses on preparing Personal Tax Returns but these financial organizing tips work for small business owners who file Schedule C's as well! If you are a small business owner, I strongly recommend keeping your business and personal checking & credit accounts separated. Filing systems, too! It may seem more complex to do that, but it actually makes it much easier to track your financial performance and to prepare your tax return!

Start Early & Set an Early Deadline To Submit Paperwork!

If you don't do your own taxes, schedule an appointment with your tax preparer NOW for mid to end of February. (TIP: Create a recurring annual reminder to do this! See my blog "Productivity & Time Management category for details on how to do this.)

Creating an appointment for February gives you a deadline to submit paperwork and it gives your preparer ample time to review your documents and provide advice for next year's tax planning.

NOTE: One Size Does NOT Fit All!

There are many ways to effectively organize tax papers, and one size doesn't fit all. The tips below work for many people, but if you have a unique tax situation or are overwhelmed trying to decide what will work best for your organizing needs, consult an organizing professional to help you set up a simple, efficient, easy-to-maintain system and ensure a stress-free tax season!

Establish Categories

When your filing system is a mirror of the categories you usually use on your return, it's MUCH easier to complete your return. Review last year's return and note which expense and income categories have entries. Use those categories as the basis for creating a Master Category List that will guide you in creating your file structure, sorting your paper work and adding it up. For example, your Master List may look like this:

• Taxable Income Categories
o Salary & Wages
o Commission
o Interest & Dividends
o Rental Income
• Common Deductible Expenses
o Donations
o Property Taxes
o Mortgage Interest
o Medical
o Childcare
o Job-related Moving

Now estimate the number of documents you expect to collect. If you don't have more than 30 or so tax documents total, keep it simple! Use only 2 categories: Income and Expenses!

Gather Paper, Sort and Eliminate

If your papers are scattered, gather them all up into a single box or other container. Then sort your papers into the categories you decided on. Eliminate any unneeded papers as you go.

Use file folders for each category as you sort. That way, it will be easy to resume sorting if you have to stop and come back later. You can also move your project to any location if it's contained. (NOTE: You can use any kind of container you prefer: file folders, baskets, envelopes, accordion files or even individual pockets in a binder!)

Be sure to label your files/piles/containers temporarily! (I use Super Sticky Post-its.) That makes it easy to change your labels if you determine some categories can be combined into a single folder. For example, if you have fewer than 10 income documents, you can paperclip the documents by sub-category and label with a post-it and put them all in a single folder called Income.

About Receipts

Keep only receipts that prove your taxable income and deductible expenses. If a receipt is for something that is NOT tax-deductible, NOT insurable, NOT under warranty, and NOT income to you, get rid of it! You don't need to keep electric bills unless you claim a home office deduction!

Choose a Home

Where will you keep your papers once they are organized? Once you have it all sorted out, you can see how much you have. Choose an appropriate location to store them till it's time to submit them to your tax consultant / preparer. In doesn't matter where, as long as it is near where you process mail and pay bills, easy to access, easy-to-use and easy-to put away. You want it to be handy so that as you receive tax documents you can immediately file them. As you receive statements, toss the envelopes and any unnecessary paper. This will keep your files lean and easy to use. Then file the statement into your new system.

Submit / Prepare Return

By early February, all your critical documents should be received and organized. All you have to do now is add up the totals by category and prepare your return! If you prepare your own return, consider using an online system such as http://www.neatandsimple.com/organizing_services.html#financial It stores your past returns and pre-populates this year's return. I find that with Turbotax, I get my refund much faster and It's Deductible is included free! It's fabulous for valuing your donated items! Last year I got over $1000 more back in my refund just because I used It's Deductible!

Get Ready for Next Year - Archive

Instead of creating a whole new system for next year, empty the system you created this year, put all the tax return related documents in a single envelope or folder labeled Tax Documents 2006. Create a folder for your final Tax Return as well, and archive it in a safe, out-of-the-way place.

Relax!

Now you can relax! When spring rolls around, take your refund and do something fun as a reward for not waiting till the last minute!

Interesting Facts About The New Business Tax Law

Before getting involved into any business deductions, one should first have a good understanding of the business tax law. The business tax law involves the taxation of income and property acquired through professional efforts. In addition to income tax, there is sales tax, capital gains tax, property tax, and other areas of tax. Every business liable for income tax must keep a record of all transactions made so that the total amount of the gross income can be estimated. The interesting thing about business tax law are the changes made by the Bush administration with the 'Tax Increase Preven-tion and Reconcilia-tion Act of 2005.' This act includes several important business tax changes that will examine.

The new business tax law allows small business to deduct up to $100,000 of investments in qualifying depreciable assets through 2007. Also, under current law, the domestic manufacturing deduction is also limited to 50% of a taxpayer's total W-2 wages. The new law modifies the wage limitation so that taxpayers may only include W-2 wages that are deducted in arriving at qualified production activities income.

For all you business owners out there, there are some advices that you can use in respect to those business tax law changes. First of all, you can continue to treat dividend payments at the lower rate.

The main business tax increases in the new law consists of - limiting the foreign earned income exclusion for housing expenses; repealing the foreign sales corporation and extraterritorial income exclusion benefits for certain "grandfathered" contracts; denying tax-free treatment to certain "cash-rich" spin-off transactions; and requiring withholding after 2010 on government contract payments.

The act also modifies certain corporate estimated tax payment requirements for large corporations (those with a minimum of $1 billion in assets), requires reporting of interest on tax-exempt bonds, and applies the earnings-stripping rules to corporate partners. Other business revenue-raisers affect foreign investors in U.S. real estate, major integrated oil companies and pooled financing bonds. Find out more about tax law and tools at http://www.localtaxabatement.com

According to the new business tax law, the self-employed tax contribution base is increased from $94,200 to about $102,000 in 2008. The self-employment tax rate continues to be 15.3%. The full rate applies to the first $102,000 of self-employment income; after that only the 2.9% Medicare tax applies.

Keep in mind that US business are taxed on their worldwide income. In other words, no matter where your business earns money from (in terms of geographic locations), it's still treated as income taxable in the US. There is just one exception to this rule and it's only if your business is located outside of the US and you reside there for most of the year.

How To Check Your Tax Return Filing Status In Easy Steps

Taxpayers have two options when filing a national or state income tax return. Taxpayers can have their tax returns professionally prepared or they can prepare their own taxes. Whatever tax preparation option an individual chooses, it is likely they will have a number of tax questions. To find the answer to a tax question many taxpayers research and review general tax information.

Since each state has different tax laws and tax forms, taxpayers looking for tax information are encouraged to contact their local or state government. Many local county officials may be able to answer common tax questions or point taxpayers in the right direction if they are unable to help. The majority of state tax officials can be contacted by obtaining a phone number from the Internet. In addition to using the Internet as a way to obtain contact information, many taxpayers may also be able to find valuable state tax information on the Internet. The majority of states have a website that is related to state taxes. It is not uncommon for a number of these tax websites to offer tax tips and other valuable state tax information.

From Where to Get Started:

We all work so hard for our money that the thought of parting ways often makes us restless, yet everyone knows that our government was designed to function with our tax paying dollars. Many of us out there feel as though the only thing you can count on is death and taxes. Often times we ask ourselves, 'Would the government know if I didn't pay my taxes?' Yes, the Internal Revenue Department is adamant that we all do our part to keep the country economically viable. Ever heard of Al Capone? The FBI tried for years to convict him of his many heinous crimes. Who finally got him and trotted him off to jail where he died? Yes, the IRS tried him for income tax evasion and put him in prison. Finally, one of the most notorious criminals of the Twentieth Century went to jail because he didn't pay his taxes.

According to federal and most state laws, if you made some sort of an income last year, than you must file an income tax return. Income tax returns are required regardless if you had income tax withheld or not; while all businesses except partnerships must file an annual tax return. For the individual, when determining whether you must file or not, the IRS takes into account your income, filing status, and age.

To Sum up with:

There is assistance from commercial tax filing services for low income tax payers. One service provider, VITA, provides free basic income tax return preparation to individuals with income of $34000 and below. The IRS stresses that it does not provide free electronic filing or tax return preparation services, which is why it formed this public-private alliance. Are you planning on filing your taxes yourself? You should consider avoiding filing manually and file electronically.

Filing electronically is less cumbersome and less stressful. Make sure that you are using the appropriate tax rate for your filing status.

Essential Tax Info That You Can Use

Don't let the April 15th rush to prepare and file your taxes cost you unnecessary money. By taking time to explore tax reduction tips, you can file on time and still keep more of your hard earned money.

Small Business Pension Plan Tax Credit

If your small business employs fewer than 100 people, you can claim a tax credit of $500 for each of the first three years after the implementation of an employee pension plan. Tax credits are more valuable than deductions because they directly reduce the net taxes you owe instead of reducing your gross taxable income. Establishing a pension plan can increase employee retention and help your bottom line come tax time.

You can claim up to 50% of eligible start up costs incurred in every one of the first three years of the plan. Additional costs that are eligible to be claimed for this credit are any retirement planning education that you provide for your employees.

If you spend $2000 establishing an employee pension plan in 2004 and $1500 a year maintaining it for the next two years, you will be eligible to claim a $500 tax credit for each of the three years. The tax credits you receive over the life of the three year credit are enough to fund the plan for one year.

Personal Business Loans

Make sure you keep your personal money separate from your business money. Many owners make personal loans to their business, but do not keep correct records. By inaccurately counting loan proceeds as business proceeds they incorrectly inflate gross revenues, costing them money in unnecessary taxes. Review past tax records to make sure that this is not a problem for you. Separate personal and business credit cards can help keep spending separate and can save you money.

You Can Still Claim the SUV Deduction

Originally, the "SUV Deduction" allowed the owners of SUVs over three tons to deduct up to $100,000 of the price of their vehicle. Despite popular belief, the American Jobs Creation Act did not do away with this deduction, but it has been chopped by three quarters, down to $25,000. The remaining $75,000 is allocated to depreciation of the vehicle. While not as large a deduction, it is still large enough to have a significant effect on your taxes. You are not limited to the $25,000 deduction is you purchased a 6,000 pound vehicle that is not classified as an SUV.

Sales Tax Deductions

You can deduct state and local sales tax or you can choose to deduct your local and state sales tax. This tax deduction can result in significant savings if you live in a state that does not collect income tax. If you have questions about this deduction, see IRS Publication 600.

Discrimination Lawsuit Cost Deductions

The deduction for discrimination lawsuit costs is available if you lad to be lawyer's fees and court costs after being sued for discrimination. The Alternative Minimum Tax does not limit your ability to claim this deductions.

How Long Does the IRS Have to Collect Taxes From You?

The statute of limitations on the collection of a tax liability is 10 years. (Internal Revenue Code 6502.) After ten years the debt is wiped out. (continue to read for provisional conditions)
There are a number of ways the ten-year period can be extended.

1. The ten-year period does not start until you file your tax return and IRS assesses the tax against you. So NOT filing a return and hiding for 10 years won`t get your tax debt wiped out.

2. IRS can extend the ten-year period by suing you in federal court. This does not happen very often, so I am told.

3. If you file an Offer in Compromise, or traveling or living outside of U.S., or involved in a dispute with IRS, or file bankruptcy or request a Taxpayer`s Assistance, sign a waiver form or request any kind of hearing; your ten-year period is extended until any of these issues are involved.

usually IRS will make every effort to collect the Tax liability before the 10-year period is up. This includes garnishment of your wages and placing a levy on your bank account.

Back Taxes, You Forgot to File, Now What?

Problem? Yes and No. No because you can file ASAP. Yes, because penalties and interest can be fairly steep. (Generally, interest is charged on any unpaid tax from the due date of the return until the date of payment. The interest rate is determined every three months and is the federal short–term rate plus 3 percent. Interest is compounded daily)

(If you owe tax and don`t file on time, the total late–filing penalty is usually four and one-half percent of the tax owed for each month, or part of a month, that your return is late up to five months. If your return is over 60 days late, the minimum penalty for late filing is the smaller of $100 or 100 percent of the tax owed)

If IRS has sent you communications that you had to sign for - then your time may be short before they start the process to levy your wages or your bank account. Once this happens you will need to talk to them one way or another, either by calling them or by contacting a tax professional who will call them for you. (I recommend the second option)

If IRS levies your bank account, your bank must hold funds you have on deposit - up to the amount you owe, for 21 days. This period allows you time to solve any problems from the levy or to make other arrangements to pay. After 21 days, the bank must send the money, plus interest if it applies to the IRS. Contact Us (Note: If you own Real Estate or have a Small Business and IRS has sent an intent to Levy, it is best to contact an Enrolled Agent or a Tax Professional as soon as possible).

Your question might be, at this point, "If I did NOT file my taxes, how do they know how much I owe"?Answer: IRS completes your tax return for you; based upon 1099s and W-2 information from your employer. The tax liability that IRS computes stands as the collection amount UNTIL you file your tax return for that year. And of course their tax return almost always generates a higher tax liability then if you had filed your own taxes!

Taxes Will Travel specializes in filing Back Taxes for Individuals. A consent form from the client is necessary in order to obtain income information from IRS for the year(s) in question. Once this task is completed and SS numbers, dependents, deductions, etc information is received the tax return(s) can be completed immediately.

Hiring an Attorney

When is it wise for you to invest in an attorney? Quite frankly, any time you are faced with a significant legal issue that leaves you baffled about the law is the time you should consider investing in an attorney. An attorney can help you through any number of legal situations and can also help you avoid the pitfalls associated with many legal situations. Finally, an attorney can serve as your legal guide and if you really feel like you need a friend in your corner, then it may be time to hire an attorney.

Lawyers specialize in all sorts of fields. The most commonly known lawyers are divorce and family court lawyers. Both can assist you with child support, child custody, and family court issues that may arise as the result of a divorce. Likewise, criminal lawyers are lawyers that help many individuals when they are faced with unfortunate criminal charges and the like. Yet, there are many other lawyers in the legal field and people often don't think about lawyers until they are really needed.

For instance, there are tax lawyers. Tax lawyers can assist individuals with tax related issues whether they are of a personal or business nature. In fact, small business owners and corporations often speak with tax lawyers to get advice about deductions and information about the proper methods for filing taxes. Moreover, tax lawyers can help people understand the various complex tax laws that may otherwise baffle them. Immigration lawyers assist individuals that want to become a citizen of a certain country. The immigration laws can be just as complicated as tax laws, perhaps more so, and lawyers can help individuals fulfil the requirements they need to in order to become a citizen.

Conversely, there are Worker's Compensation Lawyers that help clients fight for their rights in worker's compensation related claims and there are employment lawyers that will help clients battle out their claims for job discrimination and the like. Labor lawyers also help unions fight for the rights of employees and there are a number of lawyers that specialize in the employment area. Along the same lines, for those individuals that have filed a claim to receive social security benefits and have been denied, there are lawyers ready and willing to help you win your case.

Accident and personal injury lawyers help people reclaim their lives after traumatic injuries. Likewise, medical malpractice lawyers help people go after doctors or hospitals for poor medical treatment and/or practices. Some lawyers specialize in the writing of trusts and wills while other lawyers focus solely on the art of finance. Clearly, no matter what the legal situation may be, there is always a lawyer available to help.

Ultimately, the cost of any lawyer will vary from one to the next and are usually based on the time that your case will involve, the amount of work involved, and the lawyers overall expertise. The more experienced a lawyer is, the more expensive that lawyer can become. If you are interested in hiring a lawyer however, many lawyers are willing to give clients a free initial consultation.