Alright, that old rattletrap, rusting buggy still masquerading as a car has been taking up space in your driveway for much too long. It's become part of the neighborhood landscape. You've been able to overlook it, but your neighbors are growing a little upset. You've bitten the bullet and realize the time has come to get rid of it, but how?
Why not contact a charity to see if they are interested taking the car as a donation? Not only is giving your car away to a charity good for deposit in your karma bank, when tax time rolls around, that donation can help keep some of your cold hard cash in the bank as well by allowing you to take a potentially sizable deduction. If you ask around, you'll find numerous charities that have established programs for taking vehicles as donations.
As you might expect with the IRS, there are some tricky rules. Giving a car away to charity for a tax break is not as easy as it used to be. The old tax laws allowed you to write off the fair market value of any car given to charity. Fair market value was determined by auto industry standard evaluation services, like the Kelly Blue Book, so if the Blue Book value of your car was $2,000, you got to write that whole amount off when tax time arrived. That system was fraught with abuse, however, with people claiming inflated donation values of $654 million in one year alone. Therefore, the law changed in 2005, and the IRS now places some limitations on the way donation deductions are claimed.
The basic rule is that IRS places a cap on vehicle donation deductions of $500. If your donation is worth more than that, then you will be required to meet a few criteria before you can claim your deduction. First, you need to know how the charity is using your car. If they take if from you and sell it, then the price they sell it for is the amount you can claim as a deduction, even if it is less than the value of the car. If the charity sells your car for more than it is worth, you can only claim a deduction up to the fair market value of the vehicle.
There are a few exceptions. If the charity decides to give the car away to a needy person, or if they sell the car to a needy person for far below the fair market value, then in most cases you can claim the actual worth of your car as your deduction. Also, under the "Intervening Use Exception," if the charity uses your car for awhile before selling it, and then sells it for below the fair market value, you can claim the value of your car at the time of the donation as your deduction, since their use of the car lowered the value.
However, if the charity makes improvements to the car, increasing its value, and later sells it for more than it was worth when you donated it, you can still only claim the fair market value of the vehicle at the time of donation. Whichever circumstance applies to you, the charity should notify you in writing within 30 days of receipt of the car of their intentions for the car and the donation value. If they sell the car, they must notify you within 30 days in writing of the sale price.
Of course, deductions are not subtracted directly from your tax bill, but rather allow you to reduce your tax bill by a percentage. Exactly how much a deduction will take off your tax bill depends on your income, your tax bracket and how you file.
by Robert G. Knechtel
Friday, February 23, 2007
Wednesday, February 21, 2007
Top 7 Ways to Reduce Income Taxes
Are you paying too much in income taxes? Are you getting all the credits and deductions you are entitled to? Here are 7 tips to help you minimize taxes and keep more in your pocket:
1. Participate in company retirement plans. Every dollar you contribute will reduce your taxable income and thus your income taxes. Similarly, enroll in your company's flexible spending account. You can set aside money for medical expenses and day care expenses. This money is "use it or lose it" so make sure you estimate well!
2. Make sure you pay in enough taxes to avoid penalties. Uncle Sam charges interest and penalties if you don't pay in at least 90% of your current year taxes or 100% of last year's tax liability.
3. Buy a house. The mortgage interest and real estate taxes are deductible, and may allow you to itemize other deductions such as property taxes and charitable donations.
4. Keep your house for at least two years. One of the best tax breaks available today is the home sale exclusion, which allows you to exclude up to $250,000 ($500,000 for joint filers) of profit on the sale of your home from your income. However, you must have owned and lived in your home for at least two years to qualify for the exclusion.
5. Time your investment sales. If your income is higher than expected, sell some of your losers to reduce taxable income. If you will be selling a mutual fund, sell before the year-end distributions to avoid taxes on the upcoming dividend or capital gain. Also, you should allocate tax efficient investments to your taxable accounts and non-efficient investments to your retirement accounts, to reduce the tax you pay on interest, dividends and capital gains.
6. If you're retired, plan your retirement plan distributions carefully. If a retirement plan distribution will push you into a higher tax bracket, consider taking money out of taxable investments to keep you in the lower tax bracket. Also, pay attention to the 59 and one half age limit. Withdrawals taken before this age can result in penalties in addition to income taxes.
7. Bunch your expenses. Certain expenses must exceed a minimum before you can deduct them (medical expenses must exceed 7.5% of your adjusted gross income and miscellaneous expenses such as tax preparation fees must exceed 2% of your AGI). In order to deduct these expenses, you may need to bunch these types of expenses into a single year to get above the minimum. To achieve this, you might prepay medical and miscellaneous expenses on December 31 to get above the minimum amount.
The most important thing is to be aware of the tax deductions and credits that apply to you and to plan for taxable events. And don't be afraid to ask for help. The benefits from consulting an experienced tax professional far outweigh the cost to hire that professional.
by Kristine McKinley
1. Participate in company retirement plans. Every dollar you contribute will reduce your taxable income and thus your income taxes. Similarly, enroll in your company's flexible spending account. You can set aside money for medical expenses and day care expenses. This money is "use it or lose it" so make sure you estimate well!
2. Make sure you pay in enough taxes to avoid penalties. Uncle Sam charges interest and penalties if you don't pay in at least 90% of your current year taxes or 100% of last year's tax liability.
3. Buy a house. The mortgage interest and real estate taxes are deductible, and may allow you to itemize other deductions such as property taxes and charitable donations.
4. Keep your house for at least two years. One of the best tax breaks available today is the home sale exclusion, which allows you to exclude up to $250,000 ($500,000 for joint filers) of profit on the sale of your home from your income. However, you must have owned and lived in your home for at least two years to qualify for the exclusion.
5. Time your investment sales. If your income is higher than expected, sell some of your losers to reduce taxable income. If you will be selling a mutual fund, sell before the year-end distributions to avoid taxes on the upcoming dividend or capital gain. Also, you should allocate tax efficient investments to your taxable accounts and non-efficient investments to your retirement accounts, to reduce the tax you pay on interest, dividends and capital gains.
6. If you're retired, plan your retirement plan distributions carefully. If a retirement plan distribution will push you into a higher tax bracket, consider taking money out of taxable investments to keep you in the lower tax bracket. Also, pay attention to the 59 and one half age limit. Withdrawals taken before this age can result in penalties in addition to income taxes.
7. Bunch your expenses. Certain expenses must exceed a minimum before you can deduct them (medical expenses must exceed 7.5% of your adjusted gross income and miscellaneous expenses such as tax preparation fees must exceed 2% of your AGI). In order to deduct these expenses, you may need to bunch these types of expenses into a single year to get above the minimum. To achieve this, you might prepay medical and miscellaneous expenses on December 31 to get above the minimum amount.
The most important thing is to be aware of the tax deductions and credits that apply to you and to plan for taxable events. And don't be afraid to ask for help. The benefits from consulting an experienced tax professional far outweigh the cost to hire that professional.
by Kristine McKinley
Tuesday, February 6, 2007
The Secrets of Performing Tax-Deferred Exchange
In real estate investing business, performing a tax-deferred exchange can be a great way to maximize your wealth. A tax-differed exchange, also referred to as a non-taxable sale, is simply a method enabling property owners to trade an investment (non-primary residence) property for another investment property (or properties) without paying capital gain taxes on the transaction. Thus, tax-deferred exchange is a system that helps you avoid the tax bill on the sale you have performed.
For example, suppose you own a real estate investing property that has gone up in value. Now, when you sell that property under the tax-deferred exchange, and with the gain or profit from the sale, you buy a new property, you do not require paying taxes on the sale immediately at the time of closing. You can avoid the tax bill till a later date. On the other hand, if you are unable to find an appropriate property to exchange, you will not be able to avoid the tax bill. Still, you owe the taxes only at the time when you finally sell the new piece of property.
Identification Phase Of The Exchange Once you go ahead to do a tax-deferred exchange, you must not forget to identify the real estate investing property. For this, you should sign a written document and deliver the same to the party assisting you with the exchange. Make sure that you have done this on or before 45-days from the day you sold the original rental property. Also, remember that you can identify a maximum of three replacement properties without any regard to fair market value. However, in case the total value of replacement properties is less than the double value of the original property, you can go ahead and identify even more than three such properties. It is strongly recommended not to identify more properties than you are allowed because if you do so, you will be treated as if you have not identified any property, and consequently you will not be able to avoid taxes. So, act smart and be very careful.
The Time Limit When you perform a tax-deferred exchange, always remember that there is a certain time limit to perform the same. Some important deadlines are listed below. These deadlines are determined by the earliest date a property is transferred. For multiple property transfers, the time limit for the identification phase of the exchange is 45 days. On the other hand, if you are successfully through with the identification of property, you get a time limit of 180 days to complete the exchange. If you exceed the time limit of 180 days or the property is received after the due date of your return for the year you made the transfer, the real estate investing property will not be treated as similar property.
Boot Any money or any type of property that is of unlike kind, such as a car received as part of down payment, is considered as a boot. Always remember that, such money or properties are taxable. In such a case, it does not really matter if you have performed the tax-differed exchange properly or not. Therefore, in order to avoid such boots, it is always prudent to take the services of an exchange company or an attorney to examine these real estate investing transactions closely.
Overall, if you consider the above few aspects while performing a tax-deferred exchange in real estate investing business, you can do wonders in maximizing your wealth.
by James Klobasa
For example, suppose you own a real estate investing property that has gone up in value. Now, when you sell that property under the tax-deferred exchange, and with the gain or profit from the sale, you buy a new property, you do not require paying taxes on the sale immediately at the time of closing. You can avoid the tax bill till a later date. On the other hand, if you are unable to find an appropriate property to exchange, you will not be able to avoid the tax bill. Still, you owe the taxes only at the time when you finally sell the new piece of property.
Identification Phase Of The Exchange Once you go ahead to do a tax-deferred exchange, you must not forget to identify the real estate investing property. For this, you should sign a written document and deliver the same to the party assisting you with the exchange. Make sure that you have done this on or before 45-days from the day you sold the original rental property. Also, remember that you can identify a maximum of three replacement properties without any regard to fair market value. However, in case the total value of replacement properties is less than the double value of the original property, you can go ahead and identify even more than three such properties. It is strongly recommended not to identify more properties than you are allowed because if you do so, you will be treated as if you have not identified any property, and consequently you will not be able to avoid taxes. So, act smart and be very careful.
The Time Limit When you perform a tax-deferred exchange, always remember that there is a certain time limit to perform the same. Some important deadlines are listed below. These deadlines are determined by the earliest date a property is transferred. For multiple property transfers, the time limit for the identification phase of the exchange is 45 days. On the other hand, if you are successfully through with the identification of property, you get a time limit of 180 days to complete the exchange. If you exceed the time limit of 180 days or the property is received after the due date of your return for the year you made the transfer, the real estate investing property will not be treated as similar property.
Boot Any money or any type of property that is of unlike kind, such as a car received as part of down payment, is considered as a boot. Always remember that, such money or properties are taxable. In such a case, it does not really matter if you have performed the tax-differed exchange properly or not. Therefore, in order to avoid such boots, it is always prudent to take the services of an exchange company or an attorney to examine these real estate investing transactions closely.
Overall, if you consider the above few aspects while performing a tax-deferred exchange in real estate investing business, you can do wonders in maximizing your wealth.
by James Klobasa
Saturday, February 3, 2007
Knock-Knock-Knock
Who's there?
The IRS!
The next quarterly payment of estimated income tax for the self-employed is not far off. Network marketers who receive a form 1099 at the end of the year, and/or who are expected to owe $1,000 or more in taxes, must file a form 1040-ES Payment Voucher quarterly to avoid paying a penalty.
When it comes to paying income tax, I'm like Arthur Godfrey who said, "I am proud to pay my taxes. I'd be just as proud to pay half as much.
Like most network marketers, I work hard for what I earn and do not savor sending the government any more money than what I legally owe. So you can imagine how I felt four years ago, when I learned I had overpaid my income tax by some $9,800 over three years.
I had trusted the guy who did my tax returns. After all, preparing tax returns was big part of his business.
But guess what, I fired him.
Once I learned what the law provides home-based business owners to deduct, I went back through three most recent years of returns, revising my 1040 to claim deductions my tax guy didn't have the foggiest notion existed. Or if he did know, he failed to ask me about them.
For instance, my tax guy failed to ask me if I had any dogs. Did you know your dog (or three dogs in my case) qualifies as a "security system" for your home-based business? 100% of all dog food, Vet bills, license fees and medication is tax deductible! I have the IRS tax code to prove it. My tax guy didn't know that. I called him on it and told him to look it up for himself.
You see, I did something worthwhile. I invested in a well-known and respected home-based business tax-reduction book. I learned that with some 43,000 tax codes on the books, a typical CPA could not possibly know them all. How could they?
CPA's typically specialize in corporate tax code, and are often short sighted when it comes to tax deductions for home-based business owners. But I now have my home business tax-guide that lays out exactly what deductions I can take and cites the tax code for each one.
Thankfully, the law allows me to revise previous tax returns, so I was able to save a bundle of money, money I thought was gone. My point to you is this: The likelihood is great that you, too, have overpaid your taxes and are not even aware of it. How much?
According to what I read, the average home-based business owner overpays $1,000 to $2,000 in taxes every year. But the IRS is not about to refund what we overpay without us asking for it through an amended tax return. When you add in the interest
that tax money is earning and refunded with your overpayment, the average refund is more like $3,000 to $6,000.
From my experience, do not trust anyone doing tax preparation who is not intimately familiar with home- based business tax deductions and tax strategies. They could cost you thousands of dollars if they are not up on home-based business tax law, no matter how many initials they carry after their name.
Congress knows that small business is the engine that runs our nation's economy. To encourage small business, Congress has passed legislation giving huge tax breaks to people who invest in a small business. Your network marketing enterprise places you squarely into that small business category.
That fact presents another problem for many part- time network marketers, because they do not think they have earned enough money from their business to qualify for tax deductions. This erroneous thinking is costing them literally thousands of tax dollars.
When I do business seminars, I hold up a Distributor Application and romance it. Why, because just the act of signing that piece of paper qualifies us as a home-based business owner; one who is now eligible to claim thousands of dollars in legally authorized tax deductions; deductions we could not claim before signing that piece of paper.
Profit or loss is not the criteria, it is our intent to make a profit that allows us to claim deductions year after year.
No matter how you view your business, this is your money. So it should behoove you to learn what you can about minimizing your tax liability.
You should do so for yourself, and then for others. How much more good could we do if learned how to keep tax dollars at home? How much more could we do for others if we taught them the same?
Jim Lynn is the author of, "Real World Secrets Behind America's Most Successful (And Profitable) People Who Network." Website: http://peoplewhonetwork.net
The IRS!
The next quarterly payment of estimated income tax for the self-employed is not far off. Network marketers who receive a form 1099 at the end of the year, and/or who are expected to owe $1,000 or more in taxes, must file a form 1040-ES Payment Voucher quarterly to avoid paying a penalty.
When it comes to paying income tax, I'm like Arthur Godfrey who said, "I am proud to pay my taxes. I'd be just as proud to pay half as much.
Like most network marketers, I work hard for what I earn and do not savor sending the government any more money than what I legally owe. So you can imagine how I felt four years ago, when I learned I had overpaid my income tax by some $9,800 over three years.
I had trusted the guy who did my tax returns. After all, preparing tax returns was big part of his business.
But guess what, I fired him.
Once I learned what the law provides home-based business owners to deduct, I went back through three most recent years of returns, revising my 1040 to claim deductions my tax guy didn't have the foggiest notion existed. Or if he did know, he failed to ask me about them.
For instance, my tax guy failed to ask me if I had any dogs. Did you know your dog (or three dogs in my case) qualifies as a "security system" for your home-based business? 100% of all dog food, Vet bills, license fees and medication is tax deductible! I have the IRS tax code to prove it. My tax guy didn't know that. I called him on it and told him to look it up for himself.
You see, I did something worthwhile. I invested in a well-known and respected home-based business tax-reduction book. I learned that with some 43,000 tax codes on the books, a typical CPA could not possibly know them all. How could they?
CPA's typically specialize in corporate tax code, and are often short sighted when it comes to tax deductions for home-based business owners. But I now have my home business tax-guide that lays out exactly what deductions I can take and cites the tax code for each one.
Thankfully, the law allows me to revise previous tax returns, so I was able to save a bundle of money, money I thought was gone. My point to you is this: The likelihood is great that you, too, have overpaid your taxes and are not even aware of it. How much?
According to what I read, the average home-based business owner overpays $1,000 to $2,000 in taxes every year. But the IRS is not about to refund what we overpay without us asking for it through an amended tax return. When you add in the interest
that tax money is earning and refunded with your overpayment, the average refund is more like $3,000 to $6,000.
From my experience, do not trust anyone doing tax preparation who is not intimately familiar with home- based business tax deductions and tax strategies. They could cost you thousands of dollars if they are not up on home-based business tax law, no matter how many initials they carry after their name.
Congress knows that small business is the engine that runs our nation's economy. To encourage small business, Congress has passed legislation giving huge tax breaks to people who invest in a small business. Your network marketing enterprise places you squarely into that small business category.
That fact presents another problem for many part- time network marketers, because they do not think they have earned enough money from their business to qualify for tax deductions. This erroneous thinking is costing them literally thousands of tax dollars.
When I do business seminars, I hold up a Distributor Application and romance it. Why, because just the act of signing that piece of paper qualifies us as a home-based business owner; one who is now eligible to claim thousands of dollars in legally authorized tax deductions; deductions we could not claim before signing that piece of paper.
Profit or loss is not the criteria, it is our intent to make a profit that allows us to claim deductions year after year.
No matter how you view your business, this is your money. So it should behoove you to learn what you can about minimizing your tax liability.
You should do so for yourself, and then for others. How much more good could we do if learned how to keep tax dollars at home? How much more could we do for others if we taught them the same?
Jim Lynn is the author of, "Real World Secrets Behind America's Most Successful (And Profitable) People Who Network." Website: http://peoplewhonetwork.net
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