I have personally seen tax software be wrong. Some tax software is off $1-6 dollars. How this happens you might be asking yourself, well it's simple really and I will explain it. The IRS gives you two ways to compute your tax. Either use the tax table or figure it using a basic formula. The table has many levels of taxable income listed. Every $50 dollars more of taxable income the table's level increases to the next level Example 1000-1050 is one level. The tax table figures one tax for the whole level. What the tax table does is take the tax of the middle of the level, 1025, and then computes the tax, $103, and applies it for the whole level of 1000-1050. If your taxable income was 1005 you would be paying the same tax as someone that had 1045. Where as if you compute your tax using the tax formula 1005 would be $101 and 1045 would be 105. That makes a $4 difference.
You have the choice to use either method. If your taxable income was 1049 it is clearly better to use the table and pay tax of 103, instead of 105 if you used the formula, which saves you $2.
The problem arises when tax software uses only the table to compute tax. If your taxable income is 1005 they simply use the tax table and you will pay a tax of $103. If you computed it using the formula your tax would only be $101, results in you losing $2. The same $1-3 your neighbor, relative, and half of America lost. It really adds up fast.
You might be asking were the other $1-3 might come from? Well it's simple; those individuals that are eligible for Additional Child Tax Credit get robbed another $1-3. Since the IRS bases the Child Tax Credit on your tax. It is easy to understand why the Additional Child Tax Credit would be wrong. For example you have one child and by the table’s standard your taxable income of 5450 computes 548 in tax. Your child tax credit will then be only 548. That makes your Additional Child Tax Credit 452. Now if you use the formula your tax on 5450 would be 545. That makes your Additional Child Tax Credit 455. Which I want to add for those who do not know the Additional Child Tax Credit is refundable which means money in your pocket. It basically gives you what is left from the Child Tax Credit (1000/child) IF you qualify.
To sum it up tax software that only uses the tax table will cheat about 49% of filers $1-3 and of those filers the ones that qualify for the Additional Child Tax Credit are shorted another $1-3. You might be thinking it's not a lot and it's not everyone. But why let the government keep all of that money?
Thursday, February 7, 2008
Monday, February 4, 2008
Importance of records when it comes to taxes.
Bookkeeping and record keeping is important for both individuals and business. In today’s world this is a very simple task and can save you hours in the long run. Whether you decide to use QuickBooks, Microsoft Excel, or on paper they will all get the same job done.
For businesses bookkeeping is the foundation for accounting as a whole. Bookkeeping shows you where every dollar came from and where every dollar was spent. This is a necessity when it comes to taxes. With good bookkeeping you will be able to find every dollar you spend on deductible expense for your business.
Record keeping isn't just for businesses it is just as important for individuals. Especially those that itemize their deductions saving receipts with sales tax are a must. Just have a central place to keep them all. I use a plastic filing cabinet; other options could include old shoe boxes or a drawer. To save you some time during tax season I would recommend every other month or so count all the sales tax up and write it down on a piece of paper and then paper clip the receipts you counted up. I use a Microsoft Excel spreadsheet to keep a running told of how much sales tax I paid. This is also a great way to see were you are stand with your deductions. If you need more itemized deductions consider donating some of your kid’s old toys or some old clothing around the house. Just remember to get a written statement from the charity showing the fair market value. You could even buy some deductible cookies for your family. Did I say deductible cookies what I meant to say is Girl Scout cookies. These are just a few of the many things that can help increase your deduction and lower your taxable income.
This article was written to make people aware of the importance of record keeping and to give them ideas on how to make it work for them. Enjoy.
For businesses bookkeeping is the foundation for accounting as a whole. Bookkeeping shows you where every dollar came from and where every dollar was spent. This is a necessity when it comes to taxes. With good bookkeeping you will be able to find every dollar you spend on deductible expense for your business.
Record keeping isn't just for businesses it is just as important for individuals. Especially those that itemize their deductions saving receipts with sales tax are a must. Just have a central place to keep them all. I use a plastic filing cabinet; other options could include old shoe boxes or a drawer. To save you some time during tax season I would recommend every other month or so count all the sales tax up and write it down on a piece of paper and then paper clip the receipts you counted up. I use a Microsoft Excel spreadsheet to keep a running told of how much sales tax I paid. This is also a great way to see were you are stand with your deductions. If you need more itemized deductions consider donating some of your kid’s old toys or some old clothing around the house. Just remember to get a written statement from the charity showing the fair market value. You could even buy some deductible cookies for your family. Did I say deductible cookies what I meant to say is Girl Scout cookies. These are just a few of the many things that can help increase your deduction and lower your taxable income.
This article was written to make people aware of the importance of record keeping and to give them ideas on how to make it work for them. Enjoy.
Saturday, February 2, 2008
2008 Stimulus Rebates
In early January, President Bush proposed a tax rebate in effort to stimulate the economy and prevent a recession. When the bill arrived in Congress a few changes were made which resulted in over 20 million more people being included. Although it reduced the amount Bush projected I believe the package would be more effective.
As of now it stands if you made under 75,000 for singles and 150,000 for couples and paid income tax you are subject to the full rebate which is up to $600 per person leaving the couple with $1200. In addition to that they will get $300 per child they have. The changes congress made included those that did not pay any income tax they would be receiving rebates of $300 if their income was more than 3,000. Congress included the retired into the package as well and they will be subject to the same guidelines.
A few examples are couple with one kid that made 45,000 and paid in 850 dollars in taxes their rebate will be 1150. Were as a single mother of two making 25,000 with no taxable income will receive $900.
The rebates from the stimulus package are expected to arrive between May and August of 2008. The IRS will be the ones sending out the checks and they already have all the information they need. Please be careful if anyone calls you asking for personal information regarding your tax rebate. Plenty of people have already got scammed. If you get a phone call please contact your local authorities.
Please enjoy your rebates as they are meant to stimulate our economy. This can not be done if they are put in a savings account. Go out and buy a new car, upgrade something in your house, or use it toward closing cost on a new home, since mortgage rates are at an all time low which is a whole other story in it's self.
As of now it stands if you made under 75,000 for singles and 150,000 for couples and paid income tax you are subject to the full rebate which is up to $600 per person leaving the couple with $1200. In addition to that they will get $300 per child they have. The changes congress made included those that did not pay any income tax they would be receiving rebates of $300 if their income was more than 3,000. Congress included the retired into the package as well and they will be subject to the same guidelines.
A few examples are couple with one kid that made 45,000 and paid in 850 dollars in taxes their rebate will be 1150. Were as a single mother of two making 25,000 with no taxable income will receive $900.
The rebates from the stimulus package are expected to arrive between May and August of 2008. The IRS will be the ones sending out the checks and they already have all the information they need. Please be careful if anyone calls you asking for personal information regarding your tax rebate. Plenty of people have already got scammed. If you get a phone call please contact your local authorities.
Please enjoy your rebates as they are meant to stimulate our economy. This can not be done if they are put in a savings account. Go out and buy a new car, upgrade something in your house, or use it toward closing cost on a new home, since mortgage rates are at an all time low which is a whole other story in it's self.
Friday, February 1, 2008
Individual Income Tax Planning
Many people ask "How can I reduce my tax liability?". It is simple. Just like anything else planning is essential to success. A well planned year could save you hundreds or even thousands of dollars when it comes time for income taxes. The single best thing you could do for yourself is buy a house. I can't stress the importance of owning a home. The interest on the mortgage is tax deductible, you build equity in the home, your housing expense is fixed for 30 years, the list could go on and on about how owning out weighs renting. Right now could not be a better time to go out and buy. With sub prime rates, FHA and other government housing, it would be foolish for anyone not to TRY to qualify for a mortgage. Mortgage interest and now MI premiums are tax deductible which often are the first things that make a person itemize.
If you know you are going to itemize your deductions you better be saving all your receipts! Sales tax can quickly overcome state and local tax payments. If you own your own business or simply sell crafts saving receipts on materials bought could help reduce your taxable income.
The next deduction that comes to mind is contributing to an IRA. The IRS is allowing you to deduct payments into an IRA. This is a no brainer. The number one thing people lack the most is retirement funds. Whether your 30 or 20 there is no better time to start and IRA fund. Time flies by as we already know! You never want to face retirement on social security alone.
Hopefully this has been helpful. I wish you all good luck in life and hope you are successful. May this article save you thousands on your income tax next year or even this year.
If you know you are going to itemize your deductions you better be saving all your receipts! Sales tax can quickly overcome state and local tax payments. If you own your own business or simply sell crafts saving receipts on materials bought could help reduce your taxable income.
The next deduction that comes to mind is contributing to an IRA. The IRS is allowing you to deduct payments into an IRA. This is a no brainer. The number one thing people lack the most is retirement funds. Whether your 30 or 20 there is no better time to start and IRA fund. Time flies by as we already know! You never want to face retirement on social security alone.
Hopefully this has been helpful. I wish you all good luck in life and hope you are successful. May this article save you thousands on your income tax next year or even this year.
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