Tips On Giving To Charities

Here are six questions donors should ask before giving to a charity.

• Can your charity clearly communicate what it is and what it does? If a charity struggles in articulating its mission and its programs, it will probably struggle in delivering those programs.

• Can your charity define its goals? Organizations without quantifiable goals have no way to measure success.

• Can your charity tell you the progress it has made (or is making) toward its goal? Good intentions are no longer sufficient to warrant your support because the marketplace is too crowded. Ask the organization what it has done to make the issue it confronts better.

• Do your charity's programs make sense to you? The organization should work toward a result in a way that seems rational and productive to you.

• Can you trust your charity? To gain this trust, use Charity Navigator, or another unbiased source, or check with the IRS or the state Attorney General's Office.

• Are you willing to make a long-term commitment to your organization? Look hard and find an organization that you can support for many years.

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Source: www.CharityNavigator.org

How Long Should You Keep Your Records?

Recordkeeping is more than just paperwork. You need good records to monitor the progress of your business, keep track of deductible expenses, prepare tax returns, and support the items you report on tax returns.

Generally, you must keep records that support the income or deductions on a tax return until the period of limitations for that return runs out.

Keep records relating to assets until the period of limitations expires for the year you report the sale or other disposition of the property.

Read what the IRS says...How long should I keep records?

IRS Grants Extension To Shooting Victims

The Internal Revenue Service recently granted a six-month tax filing and payment extension to those affected by the shootings Monday, April 16, at Virginia Tech, in Blacksburg, Va. This relief applies to the victims, their families, emergency responders and university students and employees.

Read more....

Are You Withholding Enough Taxes?

Two questions asked by taxpayers each year are: “Why do I always owe taxes?” or "Why don't I receive a refund?" The answers to both questions, more than likely, is that you may not be withholding enough.

Federal: The IRS has a simple tool, the withholding calculator, to figure your Federal income tax withholding so that your employer can withhold the correct amount from your pay. This is particularly helpful if you've had too much or too little withheld in the past, your situation has changed, or you are starting a new job. You may use the results of the program to help you complete a new Form W-4.

Check it now and check it every year to avoid surprises when taxes are done for the current year. Complete a new Form W-4 and give it to your employer.

Arizona: Arizona income tax withholding is a percentage of the amount of federal income tax withheld. You must complete Arizona Form A-4 to elect an Arizona withholding percentage.

Unfortunately, some taxpayers do not withhold for Federal taxes because they receive earned income credit and child tax credits. If you don't withhold federal taxes, you don't withhold for Arizona taxes and will probably pay Arizona when your income tax return is prepared.

Arizona Withholding Form

Withholding Calculator

Federal Form W-4

Underestimating withholdings can cause many headaches. Check out this vlog.

Don't Delay--Answer Your Notice

You receive a notice. It's confusing and you don't know what to do. By all means don't ignore it.

To help provide you with the best assistance for your tax needs, keep the following in mind:

Contact your tax professional immediately. Send him or her a copy of the letter. The two of you can work together to quickly identify and resolve any issues that may seem too difficult. Often, these letters are merely asking for additional information, but the way the letter is written may be too confusing and difficult to comprehend.

Don't bury these notices in a file cabinet, an outbox or in a drawer. Respond to them immediately. Failure to answer IRS notices may lead to delayed refunds or tax credit payments, penalties for future tax returns, and other consequences.

Read more...
What To Do If You Receive an IRS Notice
Understanding Your IRS Notice
Publication 594, What You Should Know about the IRS Collection Process

Today is Tax Day

Today is Tax Day. Americans must do their yearly duty and pay taxes on the income they are blessed with.

Income taxes were first collected during the civil war, but an Amendment to the Constitution gave Congress the authority to tax our income. The first Tax Day was March 1 when taxes were much easier to do. Taxes became more complicated and Tax Day was changed to the March 15, often called the Ides of March (a term of impending doom). In 1955, Tax Day was move to April 15. If it falls on a weekend or holiday, it is moved to the following business day.

Some taxpayers contend that April 15 is still too soon even though we have computers to do most of the work. Some say taxes are too complicated. Others blame their procrastination. Thank goodness for extensions.

This year, Tax Day is Tuesday, April 17. This is due to April 15th falling on a Sunday and Emancipation Day, a legal holiday in the District of Columbia, falling on April 16th.

Check Withholdings: Avoid Lock-In Letter

Do you consistently owe the IRS money after preparing your taxes? Be careful! The IRS may send you a lock-in letter.

When serious underreporting is identified, the Service may issue a lock-in letter to the employer specifying the maximum number of withholding allowances permitted for the employee.

To avoid a lock-in letter, employees who owe taxes for 2005 and 2006 and have a pattern of owing each year should consider acting now to increase the amount of tax withheld from their salary now.

Read more on this subject…

Credits for High Income Taxpayers

This year your income increased beyond expectations. Your wife started working making an unbelievable salary and your own generous boss gave you a huge raise. You claimed the usual amount of exemptions on your W4, but when it came to income tax day, you had to pay the IRS.

Now is the time to start planning for this year’s taxes. There are a number of ways to lessen your tax bill this year.

When preparing last year’s taxes, you become aware that many of the tax breaks are phased out as AGI (Adjusted Gross Income) increases. Is being successful too costly? Not really. Some tax breaks are available to almost anyone--even high income taxpayers. Here are six of them.

The Dependent Care Credit

Although this tax break is technically subject to some AGI phase-out rules almost everyone claiming this credit is partially phased out. But it still provides a good tax break.

If you work this year and pay someone to take care of your child under the age of 13, you are probably eligible for this credit. Don’t forget though; if you're married, both parents must work, unless one is a student. Additionally, neither of you could have contributed to a your employer's child-care flexible spending accountlast year.

If your income (married or single) exceeds $28,000 then you can take a credit equal to 20% of your child-care expenses. However, the credit limit is $480, if you have one child, or $960, if you have two or more. (If you earned less than $28,000 you may be entitled to a larger credit.) Thankfully, the definition of child care is generous — it can cover anything from summer camp to a baby sitter. For more on this subject, see Publication 503.

Retirement Plans for the Self-Employed

If you own your own business, starting a small business retirement savings plan might be easier than you think. Moreover, there are several retirement programs that provide tax advantages for both employers and employees. You may be able to contribute and deduct up to $42,0 by setting up a simplified employee pension, or SEP, plan. Contributing to a SEP could dramatically reduce your taxable income and save you a bundle. For more information, see Publication 3998.

Writing Off Your Investment Interest

Did you invest a lot in the market last year? Did you borrow on margin? You probably can deduct the interest paid on your taxable investment account as long as you itemize. This deduction is unaffected by the phase-out rules. There is a ramification though; your investment interest deduction generally can't exceed your taxable income from dividends, interest, annuities, royalties and short-term capital gains. See IRS Form 4952 (Investment Interest Expense Deduction) for all the details

Writing Off Your Gambling Losses

You visit the casino this year and hit it big. You may deduct your losses up to the amount you win. But be careful, you must have written proof if you are audited. So keep your evidence, (betting ticket, lottery tickets, keno tickets, etc.)

Alimony Payments to Your Ex Reduce Your AGI

Don’t forget alimony payments. You can reduce your adjusted gross income by the amount of alimony you pay, but you cannot deduct child support. Publication 504 explains this deduction well.

Credit for Overpaid Social Security Taxes

If you have two jobs last year and more than $94,200? Then you probably over contributed to Social Security. Your credit will be for the amount you contributed beyond $5,840, which represents your half of the 12.4% Social Security tax based on a maximum salary of $94,200. Getting the money back is easy — just report the overpaid amount (you can tell what that is by looking at your W-2s) on Form 1040, line 67.

More suggestions will follow.

Should I Pay My Tax Bill With a Credit Card?

The IRS would like for you to send your tax payments as soon as possible. If you don’t have the cash, the quickest way to pay is by credit card. Then the IRS doesn’t have to worry if they are going to get their money. Below are the benefits for paying by credit card listed on the website (irs.gov):

Features and Benefits:

• It's convenient - Taxpayers can e-file or paper file early, make a payment by credit card and yet delay out-of-pocket expenses. Payments can be made by phone, on-line or when e-filing.
• It's safe and secure - standard, commercial card networks are used. The IRS does not receive or store card numbers.
• The payment options are available through service providers.
• There is a fee charged by service providers. Fees are based on the amount of the payment and may vary by service provider (check IRS Website)
• Payment information will not be disclosed for any reason other than processing the transaction authorized by the taxpayer.
• A confirmation number is provided at the end of the phone or Internet transaction.
• The "United States Treasury Tax Payment" is included on the card statement as further proof of payment. The convenience fee will be included on the statement as a "Tax Payment Convenience Fee" (or similar transaction).
• If enrolled in such a program, taxpayers may earn miles, points, rewards or money back from the credit card issuer.

But before you pursue this option, make sure to check what kind of one-time fee your credit card company will charge and check your interest rate. Check all of your options.

You may find the IRS installment payment program is a better deal.
You may request to pay by installments. File Form 9465 (Installment Agreement Request) with your 2005 return — either on April 17 or by Oct. 15 if you extend. However, you will be charged a one time user fee of $105.00, as well as interest on any tax not paid by its due date, and you can be charged a late payment penalty unless you can show reasonable cause for not paying the tax by the due date (April 17, 2007 for individual income tax returns) even if your request to pay in installments is granted.

Form 9465 is simple. (Believe it or not!) Just fill-in the blanks. Let’s say you owe $5,000, consider paying as much as possible, such as $200, with the tax return. Approval is generally automatic if you owe $10,000 or less and propose a repayment period of 36 months or less. Divide the remaining $4,800 by 36 to arrive at a monthly payment. Make this your minimum payment, but squeeze more if possible out of your budget, because the faster you pay the amount, the less it will cost you. Generally speaking, you will get an official answer within 30 days of filing Form 9465, but it sometimes takes a bit longer. On approval, you'll be charged a $43 "setup fee."

Before requesting an installment agreement, another option might cinclude checking with your bank to investigate a less-costly alternative.

To request an installment agreement send Form 9465 (PDF), Installment Agreement Request, with your return or call (800) 829-1040.

Form 9465

Small Business Write-offs & Expenses

Do you work for someone else for a fee? Do you have a home business? Are you an independent contractor? If so, don't forget all your expenses you can deduct that are business related:


• Write off the purchases of computers, printers, answering machines, copiers, furniture and other tangible equipment through Section 179 as depreciation expense in the year of purchase. (The maximum Section 179 deduction you can elect for property you placed in service in 2006 is $108,000 for qualified property.)
• Internet, telephone, and cell phone service.
• Professional dues and other business dues, such as Chamber of Commerce, trade group membership, etc.
• Office supplies and postage.
• Business subscriptions.
• Auto expenses deducted under one of the following methods:
• Standard mileage: Consider taking the standard mileage rate on all business miles ($0.445 per mile in 2006 and $0.485 per mile in 2007), or
• Actual cost: The itemization of auto expenses, which would include the following, multiplied by the appropriate business use percentage.
• Auto lease/depreciation.
• Gas.
• Repairs and maintenance.
• Insurance.
• Interest on your auto loan at the appropriate business use percentage.
• Parking and tolls.
• Legal and professional fees.
• Business entertainment (the IRS allows a 50% deduction).
• Business meals (the IRS allows a 50% deduction, unless the meals are provided on your business premises, in which case they are 100% deductible).
• Interest on credit cards for purchases that are applicable to business use.
• Interest on bank loans and lines of credit to buy equipment and pay for business operating expenses is always deductible.
• Advertising and promotions.
• Seminars and trade shows.
• Business travel.
• Business gifts ($25 limit per person).
• Cost of acquired computer software. Software included in the purchase price of a computer (not separately stated) is added to the basis of the computer and depreciated over five years, or expensed under Section 179. Off-the-shelf software is depreciated over 36 months using the Straight Line method, beginning with the month the software is placed in service.

If you have a home office, you’re also eligible for a range of write-offs based on the portion of your home used “exclusively” for business. Determine the percentage of your home’s square footage used for business as a percentage of the total square footage of your home. If it’s 15%, for example, you can deduct 15% of:
• Property taxes.
• Interest on your home loan.
• Homeowner’s insurance.
• Utilities.
• Maintenance and repairs.
• Lawn care.
• Burglar alarm system.
• Homeowner’s dues.
• Depreciation on your home.

Start-up costs. If you’re a new business owner, you can write off start-up costs connected with setting up or investigating the creation or purchase of a trade or business. These expenses occur before the business begins operations. Start-up costs can include survey of potential markets, advertising for business opening, consulting or other professional fees, cost of training employees, analysis of possible facilities, labor force, supplies, etc., and travel and related expenses to secure distributors, suppliers and customers. An election under Section 195 allows taxpayers to deduct up to $5,000 of start-up costs and amortize the remainder over 180 months. The election to deduct or amortize must be made no later than the filing date for the tax return of the year in which the business begins (including extensions). Business start-up costs.

These are costs related to creating an active trade or business, or investigating the creation or acquisition of an active trade or business. Generally these costs are amortized. However, taxpayers who started a business in 2006 may elect to deduct up to $5,000 of certain start up costs, subject to limitations. Refer to chapter 7 of Publication 535, Business Expenses, for more information.
• Fixed assets. Review your businesses’ schedule of fixed assets and record, if applicable, losses from the sale or abandonment of any of these assets.
• Bad debts. Review your accounts receivable to see what can be written off as bad debt. Business bad debts are treated as ordinary losses and can be deducted when they become partially or wholly worthless. In order to deduct a bad debt, you must have previously included the amount in your income or loaned out your cash. If you are a cash-basis taxpayer, as most individuals and S Corps are, you may not take a bad debt deduction for income you expected to receive but didn’t because the amount was never included in your income.
• Consider setting up a retirement plan. Many retirement plans need to be set up by year end. However, one that is still available for year 2006 is the simplified employee pension plan (SEP). It does not need to be set up and funded until the due date (including extensions) of the employer’s return (S Corp) or the individual’s Form 1040, which includes Schedule C. For 2006, the maximum deduction is 25% of compensation or $44,000 (whichever is less) with compensation considered limited to $220,000. Note that the earnings from self-employment must be reduced by 50% of the self-employment tax in determining the amount of the retirement plan contribution.

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