Tag Archives: Income tax

Tax Tips: I Do Declare

Did you know that there are hundreds of little things that you should be declaring on your tax returns? Here are some of the most important items that must be declared on your federal and state tax return.

All Sources of Income
The tax code of the Internal Revenue Service (IRS) requires that all income earned or received must be reported on your income tax returns. The categories of income recognized by the IRS include the following:

•    Wages, salaries and tips
•    Interest on bank accounts, certificates of deposit, bonds and other investments
•    Capital gains
•    Business income
•    Alimony
•    Income from bartering
•    Dividends
•    Annuities, pensions and lump-sum distributions
•    Rental revenues
•    Gambling income
•    Earnings from agriculture and fishing
•    401(k)
•    Unemployment benefits

Each of these types of income must be declared on your income tax return. In some cases, losses in a particular category can be used to offset income earned in that category.

Certain Gifts

Depending on the amount of the gift and the identity of the recipient, you may need to report gifts to others on your income tax return and may be required to pay taxes on these transactions. Unlike donations to charitable organizations, which are generally tax-exempt, gifts directly to someone else are subject to an annual gift limit. The limit is currently set at $13,000. Couples can make gifts of up to $26,000 without incurring tax liabilities for these gifts. Certain types of gifts are not subject to the gift limit; these include the following:

•    Payments directly to universities for college tuition
•    Direct payments to hospitals, clinics and other healthcare facilities for medical procedures
•    Gifts to one’s spouse
•    Political contributions

Individuals and couples can choose to exclude additional amounts from the gift tax requirements by taking advantage of the Unified Credit. Currently capped at $1,772,800, the Unified Credit allows a greater degree of flexibility when giving gifts to your network of friends and family.

Itemizing Deductions

If you are required to declare gifts on your federal tax return, you must typically itemize your deductions as well. Itemized deduction categories include the following:

•    Mortgage points and interest
•    Medical and dental fees
•    Interest expenses
•    Contributions to charities
•    Business and education expenses
•    Depreciation of cars, trucks and other vehicles used in the course of business
•    Losses due to accidents, disasters, thefts and other critical events

The standard deduction amount may actually provide greater tax savings for your particular situation. Nonetheless, if you are declaring gifts on your tax return, you should usually itemize your deductions as well. This process can be challenging and typically requires the help of a skilled and knowledgeable tax preparer for optimal results. Some studies suggest that itemizing deductions can also increase the chances of an audit. Your tax preparer can assist in your defense if an audit does occur.

Declaring all sources of income and all sizable gifts is required by the tax code. Maintaining compliance with these legal requirements is your best defense against audits, penalties and other consequences that may arise from failure to incorporate these items into your tax return.

 

Form 990 Redesign for Tax Year 2008 (Filed in 2009)

On December 20, 2007, the IRS released a redesigned Form 990, Return of Organization Exempt from Income Tax, for tax year 2008 (to be filed in 2009 and later years). The new form incorporates comments and suggestions from the over 650 e-mails and letters received during the comment period, which closed on September 14, 2007.

The redesign of Form 990 is based on three guiding principles: enhancing transparency, promoting tax compliance, and minimizing the burden on the filing organization.

Additional information:

  • Press release (IR-2007-204)
  • Overview of Form 990 redesign
  • Background paper on Form 990 redesign
  • Form 990 Redesign Forms and Highlights
  • Frequently Asked Questions
  • Discussion Draft (June 14, 2007)

Tax Accountant Vs Tax Software

Tax Software

You are one of 50,000,000 Americans who must fill out an income tax return by March 15th … file yours early. (Photo credit: Keijo Knutas)

Why choose a tax accountant over tax software?

Preparing and filing taxes are rarely activities most people look forward to. Whether you need to prepare an individual or business tax return, you may be looking for an easier way to simplify this process. While one option available is for you to prepare your tax return on your own, the fact is that many people will find the process easier to complete when they use either tax software or the services of an accountant. While both options are preferred by many over completing a tax return on your own, there are clear benefits associated with using the services of a tax accountant.

Finding All Deductions
For most individuals and businesses, it is not enough to simply prepare and file a return. The goal also is to minimise the amount of taxes owed and even to maximize a refund. Tax software is designed to help taxpayers identify common tax deductions, but the fact is that you may qualify for additional deductions that are less common. In some cases, you may not be clear about if you qualify for certain deductions or not. Tax software may help you to identify some of these deductions, but you simply cannot beat the benefit associating with having a live professional assist you with the identification of deductions.

Getting Questions Answered
Most tax software programs are designed to be user-friendly, and they have a helpful hints or frequently asked questions section that may assist you if you have questions. However, many questions that taxpayers have are unique. They may fall into what can be perceived as a gray area, or the situation may be unusual and may require expert assistance. The fact is that you need to file your return accurately to avoid penalties. Therefore, working with a live tax expert can be useful to you.

A Look Toward the Future
Furthermore, a tax accountant can help you to plan for the future. When a tax accountant reviews your finances now, he or she may be able to identify different steps that you can take to minimize your tax liability next year or for several years in the future. You may be planning to purchase a new home, to buy office equipment or to make some other change, and there may be tax consequences associated with this. By working with a tax accountant, you will be able to better plan for the future and avoid paying more than necessary on your tax return.

As tax day approaches, one of the best steps that you can take to ensure that your tax return is filed accurately and on time and to ensure that your tax liability is minimized is to work with a professional tax accountant. The best tax accountant to use is one who is experienced and knowledgeable and who has the desire to communicate openly with you about your taxes. Take time today to locate a tax accountant to work with, and you can rest easy knowing that your tax return will receive the personal attention it deserves.