Do you need to keep track of your tax witholdings?

Why is better to have a mid-year tax withholding check-up?
To little in federal tax withheld from your pay, means you need to fiind a lot of money when you file your taxes. If you withhold too much, you will get a large refund, but that means you gave up the use of your money interest free for several months. 

What can you do?

Depending on your situation, and your choices. You may want to adjust your federal tax withholding with your employer.

What about if you married/divorced during the tax year?

Your calculations will change accordingly, can go either way.  The same applies if added a dependent, purchased a home, changed jobs or retired.

How do you know? Obviously, you must do the numbers to find out by mid year, or when circumstances changes.  You may want to do the calculations yourself or have a professional do it for you.  Fill in all information that applies to your situation. Estimate when necessary. But remember, the results are only as accurate as the information you provide.

What happens then?

You must do nothing or adjust your federal withholding on Form W-4, Employee’s Withholding Allowance Certificate. 

Documentation to keep.

Keep all calculations, asumptions, and documents in a secure place for when the time comes to do your taxes.

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Independent Contrator!....Anyone?

People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax.

Generally, you are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.

If an employer-employee relationship exists (regardless of what the relationship is called), you are not an independent contractor and your earnings are generally not subject to Medicare and Social Security Taxes for Self-Employed.  YOU are then an Employee.

There is a fine line where you do not want to be walking under, 'cause you may end up paying the employee share of the payroll taxes too. 

Source IRS

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Tax Savings

To encourage investments by small businesses, legislation was passed that will increases the ability of small businesses to immediately deduct the cost of machinery, equipment, and other qualifying property. For 2009, the American Recovery and Reinvestment Act (Recovery Act) increased the amount that a small business could expense from $133,000 to $250,000. The Small Business Jobs Act (Jobs Act) further increased this amount to $500,000 for 2010 and 2011. Although this amount would have fallen to $25,000 in 2012, last December’s Tax Relief Act increased the 2012 amount to $125,000.

Source: US Treasury Secretary minutes.

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Do you need to pay FICA taxes on tips?

Yes, you do and the IRS is enforcing compliance. The IRS is sending letters to employers for their share on unreported tips.  So, do not be surprise if you get an IRS notice, and penalties and interest may be assessed on underreported amounts.

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IRS Audits and you.

IRS audits are more common these days.

According to the IRS, audits of individual income tax returns rose 1% in 2010 and the trend may continue in the foreseable future.

Taxpayers (TP) whose income are over $200,000 have more probability to be audited than (TP) under that income level, and that makes sense since they probably they have many sources of income and many deductions.  However, other factors should be taken into consideration like: type and levels of deductions, earned income credit claims, errors and misinterpretations in the application of the IRS code, and other multiple other reasons.  Small business (i.e., Schedule C) filers are prone to audits for the same reason(s) given above.

So, what can you do if you get audited?

You must hire a CPA or a Tax Lawyer.  Get your paperwork ready and all IRS notices and call your accountant at once.

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TAX Situation Analysis- part 1

This is the best time to check your tax situation for 2011 and get some help before we approach the end of the year, December 31, 2011. Once we get close to the end of the year, there is little you can do to adjust your tax liability.

Among the things you may consider are:

1- Do you pay in to much or too little during the year?

2- If you file yourself your tax return, do you doubt that you took all available deductions you qualify for?

3- What cash outflows you need to maintain your life style?

4- Can you get a tax rate reduction on your tax return by doing some investment allocation-from one asset class to another?

5- What role play my earned Income have on my social security benefits collected?

6- How much money you need to take as a distribution from your IRA and how much tax would I pay as a result of that?

7- How much benefit I will get by purchasing an energy efficient appliance or making a home improvement?

8- Do you have the too much before tax investment vehicles than after tax or tax free investment vehicles?

9- Do I be better off taken the standard deduction or itemizing?

10- Can I time my itemized deductions to get more deductions in one year and reduce my tax liability?

11- Should I need to update my beneficiary names on my retirement plans, insurance policies, etc., due to the changes in the family relationships and other situations?

12- Should I be better of renting/leasing a car or a house?

The possibilities are endless as well as the factors to consider. But, you can lessen the impact by acting early in the year. Additional comments will follow.

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One way to use your federal tax refund for...

Have you consider buying US Savings Bonds with your tax refund?

Some of the things the IRS wants you to know about using your federal refund to purchase savings bonds.

1- You may use a portion of your refund to purchase up to $5,000 in U.S. Series I Savings Bonds for yourself or anyone.

2- The total amount of saving bonds purchased must be in multiples of $50. Any portion of your refund not used to buy savings bonds will be deposited into another financial account – such as a checking or savings account or can be mailed to you as a paper check.

3- Paper bonds will be issued in your name or the name you designate as primary owner, co-owner or beneficiary. If you are married and filed a joint return, the bonds will be issued in yours and your spouse’s name. You can also designate a beneficiary or co-owner under this name registration option.

4- You will receive the U.S. savings bonds in the mail.

However, there are other alternatives investment options available to you when you get your tax refund.

Source: IRS






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Today's is the day... April 18, is Tax DUE date..

Why is April 18 and not April 15, 2011.

In 2011, Washington, D.C., will celebrate Emancipation Day. That is the anniversary of the day that President Lincoln signed the Compensated Emancipation Act. The Act, which was "for the release of certain persons held to service or labor in the District of Columbia," freed 3,100 slaves in the District, making DC residents the "first freed" by the federal government. Since 2005, WA DC was made an official public holiday in the District of Columbia.

So, Monday, April 18. is the date your form has to be either submitted electronically or postmarked by for your tax return to be considered timely filed by the IRS.

Furthermore, individual federal income tax returns on a "normal" extension will be due on Monday, October 17, 2011; that's because October 15, 2011, (the regular extension due date) falls on a Saturday.

Source IRS.




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Taxpayer indentification numbers for aliens

There are several types of taxpayer identifying numbers: social security numbers, Internal Revenue Service (IRS) individual taxpayer identification numbers, IRS adoption taxpayer identification numbers, and employer identification numbers.

Social security numbers (SSNs) are used to identify most individuals.  Sole proprietors use employer identification numbers (EINs). Aliens who aren't eligible for SSNs must use IRS individual taxpayer identification numbers (ITINs).

Source IRS.

Note:  Aliens and ilegal Aliens are not one in the same. Ilegal aliens are not authorized to work in the USA.  Ilegal Aliens work status are outside of this blog, and you must consult an Imigration Attorney.  



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Setting a price for your product.

The case for calculating a Selling price for your products. 
Let say you want to open a Specialty store like the one you saw in the town you grow-up as a child. The store still selling the same specialty products and they have been in business for over 25 years in the same town. You liked the store so much that you think you can do the same in your neighborhood and you are sure you can make some money selling the same products.  Well, after all, they are the same products and people have been buying these products for decades.  You open your new store and repeat everything you saw, but after the three years you find out that you sold as many products as the other store but you are loosing money and you can't keep the store open.  What happens?  Why my store sell as much as the other one and I can't keep my open any longer?

Many reasons, but maybe is that your cost structure does not allow you to sell at the same price the other store is selling their products.  And, I am not even considereing discounts, tax strategies, salaries, cost of leaving, and other considerations- 'cause they are multiple factors. 

It all boils down to good recodkeeping, tax planning, cost structures, volume of sales, break-even point analysis, taxes, product mix, etc.  The failure to do these calculations and adapt to changes in the environment could depend your sucess as an enterpreneur.  

So, what you should do if you want to stay in business?  You either have to hire an accountant (CPA) to cruntch all the numbers for you and keep him/her on the payroll to monitor your progress and help you adapt to the changes on the environment, or inmerse yourself in the mechanics of the process and forget about managing your day to day operations.  Setting a price for your product based on your cost structure is paramount to your sucess.

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