A lot has changed since President Lincoln and Congress, in 1862, created the position of commissioner of Internal Revenue and enacted an income tax to pay war expenses. The Internal Revenue Code has become a monster which consists of 2,840 pages and about 2.8 million words, compared with the Bible with 1,340 pages and about 800,000 words. One thing has not changed though, taxpayers are still required to file their annual tax return and report their income to the IRS.
The way taxpayers have been preparing and submitting their tax returns to the government has evolved throughout the years. It started with manual filling of IRS forms by tax advisors, continued with the development of professional tax software that do most of the calculations for the tax preparers (allowing them to focus on tax advisory and planning) and ends with the most recent trend of e-filing, which allows taxpayer to prepare their own tax return without using a tax professional and submit their tax returns directly to the authorities online!
So, where do we go from here? Is e-file taking 100% of the industry? Is the tax preparer profession doomed? TaxTreasure.com, believes the future of tax filing is a combination between online tax software with “real-life-event-approach” and direct access to live tax professional for on-demand advice.
Back in the old days…
Before e-file and before tax software it was the tax professional who collected the relevant data from the taxpayer (which often brought a shoe box full with bills, receipts and tax information) and then spend hours (if not days) to manually fill out all the tax forms required by the IRS and calculating each and every line in each and every form. This extremely time consuming task, done to the light of many candles as you can imagine, left little time for tax advice or tax planning, resulted in more errors and resulted in longer processing time for a refund.
Computers, the super heros of the tax industry…
When computers arrived to the scene, the tax industry has slowly started change. Tax professionals, who quickly adopted the new comers, were able to prepare a return faster and with less errors, mainly due to the use of basic spreadsheets that made tedious calculations a much easier engagement. However it was still a manual process to fill out the actual tax forms, and mailing them to “Big Brother”.
Professional Tax Software – the real change maker…
It was not until professional tax software became available, when the industry saw some really big changes. Those new creatures had a library of tax software in them, permitting the users to key in, change, erase and add the tax data, and then print a complete return, all done on the computer. No more manual. Wow. Suddenly, tax preparers did not have to do any manual form filing, any manual calculations; it was all done by the software.
The preparer was in charge of collecting the data, entering it into the software and after error proofing, just click to print and “halleluiah”, it’s all ready to be filed. Still submitting the return was done by the old fashion, U.S. post office. This new development allowed the tax advisor to focus on tax planning, maximizing the taxpayer refund and looking at the big picture, now that all the manual work has been taken by the software.
Consumer Tax Software – can they really do-it-themselves?
After the professional tax software idea proofed to be successful, some computers geeks decided to take it to the next level and allow almost any John Doe to act like a tax professional. How did they do it? The geniuses simply took the basic features from the professional tax software, the most common forms, the most common deductions, the most basic credits and package it as a do-it-your-self tax software. Even if it started slow, it really caught up and quickly millions of taxpayer dropped their tax advisors and cheated with Turbo Tax, Tax Cut and alike.
For much lower fee, John Doe, could now prepare his own taxes, at 2:00 o’clock in the morning, enjoying a fresh cup of coffee at his kitchen table. No more, going to the tax professional, no more waiting days for the returns, no more paying high fees, finally FREEDOM (the only issue with these packages is that you had to actually buy a software and install it on your hard drive before you could use it. So, you could only use it at your own computer). Submitting the returns to the IRS, as before, was done by printing, signing and mailing. For the tax preparers, this was a shocker, the sky is falling, and nobody needs us any more…
Help, arrived from an unexpected source, the government. As the tax software became easier and friendlier to use, the tax laws became much more complex. So for many taxpayer with simple returns, the do-it-yourself solution worked pretty well, but more all others, the lack of advice from a tax advisor, resulted in errors, higher taxes, and more IRS audits. Tax preparers are safe again. For now…
E-file and Online Tax Filing, today’s new best sellers
To make things much worse for the tax preparers, some “wise-guy” invented something called internet. At first, the tax industry did not really pay much attention to it, but then, remember those computer geeks from before, they decided to take the do-it-yourself software and offer it as web-based software. BOOM. Not only that a taxpayer can prepare the return without a tax preparer, he or she, can now do it even without buying software, from any computer, any place any time.
Then the last straw came, the government decided to allow taxpayer to transmit their tax returns via that internet thing, instead of printing and mailing them. They called it E-File. BINGO. Taxpayers who E-Filed their return, considered VIP by the IRS and received their refund days faster than all them tax returns mailers. The IRS even solicits taxpayer with lower income to E-File by allowing them to do it for free, no transmitting fees. And as for the mail in your return? It’s gone, no more papers, no more post office.
New names popped up, TaxSlayer.com, TaxAct.com while old and familiar names suddenly changed to online: TurboTax Online, TaxCut online. They all started to fight over the online tax filer. Prices of those solutions range from FREE to over $100 and depend on the complicity of the return. Most of them are what industry analysts describe as Form-Based. It means that the software will take you through the form that you need to fill out, ask you for the applicable data and plug it in the form itself. This approach works well when it comes to very basic returns, but with more complex returns that includes self employment income, home sale, investment or rental properties and other less common issues, a better approach is the “Real-Life-Event-Tax-Guide”.
“Real-Life-Event-Tax-Guide” – the future of tax filing is here…
When you try to think what is it that you are looking for from your online tax software, you quickly find out that you are looking for more than just a “form-based” software. You want your online solution to really understand you and your tax situation. You want a partner that could advice you how to save on taxes, and how to maximize your tax benefits from everything that happened to your during the year.
For that reason several online tax companies are developing the “Real-Life-Event-Tax-Guide”. When using such a solution, you will be asked to talk about the events that affected you in the year, marriage, new baby, move to a new house, started college, changed employment status, etc.. You can also choose from a list of events already identified by these webistes. When you do that, the website will explain, guide and advice you on how to maximize your tax benefits relating to this event.
For example, under the “we had a new baby” event, you will be informed that “the first tax break you want to claim is additional dependant. You do that by listing the new baby's full name (as it appears on his/her social security card), social security number, relationship (son, daughter, child, etc...) and check the CHILD TAX CREDIT box as long as the child is under 17 years old, is a U.S. resident, lives with you more than half of the year and you provide him/her more than 50% of his/hers annual income. Thirdly, if both parents were working (or one a full time student) you can claim Child and Dependent Care Credit if you paid for someone else to care for the child. Use form 2441 to report the qualified child care expenses and the credit.”
“Advice-On-Demand”, where the future leads us.
Where do we go from here? I believe the future is in online tax solutions that offer its users to ask any tax question they might have, while preparing their return or doing some tax planning and pay only for that question. This “Advice-on-Demand” feature allows taxpayer to benefit from the low rates of online tax filing, but still get full access to experienced tax advisors that can save them a lot of tax money, error proof their returns and provide them the much needed confidence that they ask for the highest possible refund and that their return is 100% correct with the lowest risk of IRS audit.
Conclusion
The way Americans have prepared and filed their annual tax returns has dramatically changed over the years. No one can really foresee the future of tax filing, several companies have already developed a new approach that looks like the beginning of the future. With “Real-Life-Event-Tax-Guide” and “Advice-On-Demand”, the company offers its users the best of both worlds: unique user-friendly, event-base, online filing solution at low rates and the benefit of an experienced tax professional that charges only for the information users need.
About TaxTreasure.com
As real people we at http://TaxTreasure.com understand that online taxes should be easy, simple, fast and maybe, maybe even fun (well, lets not go overboard you say). Because of that we at Taxtreasure.com developed a unique approach to online tax preparation which takes the hassle and tension off the table. We have designed a REAL-LIFE-EVENTS solution that does not bore you with endless questions and scary forms, but instead, ask you to simply tell us: "what happened to you this year"? All you have to do, is to tell us (or choose from our event list) what really happened to you, and we in return, provide you with valuable information that will help you to better understand what, where and when to report. We will also suggest how to save on taxes based on the events that you went through this year and advice you on how to maximize your refund in light of those events.
Contact:
Http://TaxTreasure.com
Tal Rozen
Tel: [202] 742-6311
Email: Info@TaxTreasure.com
Wednesday, December 30, 2009
5 Best Tax Deductions For 2009
At http://TaxTreasure.com we are often asked how to maximize our users’ tax refunds. So, after “diving” deep into the IRS Ocean of laws we have prepared for you a list of the 5 best tax deductions for the 2009 tax season. Just follow this list and you too, can make the most of the tax code.
Deductible Taxes –
a. State, local and foreign income taxes;
b. Real estate taxes;
c. Personal property taxes; and
d. State and local sales taxes.
In this category you can find various governmental taxes imposed on your income, property, real estate, car and more. To claim this deduction simply look at your W2, and locate the box that indicates how much your employer withheld from your wages for state and local income tax. If you sent your state (or any other state) estimated tax payment, claim these payments too. In addition look at your 1098 form, that’s your annual mortgage summery and see if there are property tax listed. If you pay your real estate tax independently, add up all the bills you have paid in 2009 for property tax. If you own a car and paid personal property tax on it, use that too as deductible taxes.
Caution: IRS Topic 503 specifically disallows some tax payments;“Taxes and fees you cannot deduct on Schedule A include Federal income taxes, social security taxes, stamp taxes, or transfer taxes on the sale of property, homeowner's association fees, estate and inheritance taxes and service charges for water, sewer, or trash collection”.
Interest and Points –
a. Mortgage interest on principal resident;
b. Points paid purchase of principal resident ;
c. Interest on home equity loan; and
d. Student loan interest.
Any homeowner that took a mortgage can claim the interest paid on that mortgage if some criteria are met. If your mortgage was taken from a U.S. bank or mortgage company, you will probably receive IRS form 1098, which reports the amount paid by you as interest in the tax year. Form 1098 also specifies any points paid and often real estate tax paid, if it was paid through an escrow account set up for you by the bank or mortgage company.
The following situations qualify for mortgage interest deduction:
1. A mortgage you took out on or before October 13, 1987 (grandfathered debt)
2. A mortgage taken out after October 13, 1987, to buy, build, or improve your home, (called home acquisition debt) but only if this debt plus any grandfathered debt totals $1 million or less throughout 2008. The limit is $500,000 if you are married filing separately.
3. A mortgage taken out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if these mortgages total $100,000 or less throughout 2008, and all mortgages, including any grandfathered debt and home acquisition debt, on the home, total no more than your home's fair market value. The limit is $50,000 if you are married filing separately.
Caution: IRS Topic 503 excludes some items form being claimed; “You cannot deduct personal interest. Personal interest includes interest paid on a loan to purchase a car for personal use. Personal interest also includes credit card and installment interest incurred for personal expenses. Items you cannot deduct as interest include points (if you are a seller), service charges, credit investigation fees, and interest relating to tax–exempt income, such as interest to purchase or carry tax–exempt securities.”
Charitable Contributions -
a. Cash contributions; and
b. Non-Cash contributions.
If you are a giver, this is your chance to benefit from your generosity. Contributions you have made to qualified organizations as defined in IRS Publication 526, Charitable Contributions may be deductible if they meet certain criteria.
Non-Cash Contributions: In general, you can deduct the fair market value of any property you have donated. If you received any merchandise, goods, or services, including admission to a charity ball, banquet, theatrical performance, or sporting event in return to your contribution, you can only deduct the amount that exceeds the fair market value of that you have received.
Cash Contributions: if your donation includes cash, check, or other monetary gift (regardless of amount), you can deduct that payment as qualified contributions if made to qualified organizations.
Caution: IRS Topic 506 determines which documentation you need to keep to proof your donation; “For any contribution of $250 or more (including contributions of cash or property), you must obtain and keep in your records a contemporaneous written acknowledgment from the donee organization indicating the amount of the cash and a description of any property contributed, and whether the donee organization provided any goods or services in exchange for the gift. One document from the donee organization may satisfy both the written communication requirement for monetary gifts and the contemporaneous written acknowledgement requirement for all contributions of $250 or more.”
Business Use of Home -
Business Use of Home: This is a fun one. If you are “workaholic” and work anywhere anytime, including your home, you will be happy to know that the IRS understands you and really wants to help. Whether you are self–employed or are an employee, you may be able to deduct certain expenses for the part of your home you use for business despite the general denial of business expense deductions for the home.
Not everything is deductible. The first criterion you must meet is that part of your home must be used regularly and exclusively as one of the following:
1. The principal place of business for your trade or business;
2. The place where you meet and deal with your patients, clients, or customers in the normal course of your trade or business; or
3. In connection with your trade or business, if you use a separate structure that is not attached to your home.
What can you deduct? In general most expenses paid to lease, maintain and repair the home are deductible including:
Business portion of real estate taxes;
Deductible mortgage interest;
Rent;
Casualty losses;
Utilities;
Insurance;
Depreciation;
Maintenance and repairs.
Caution: IRS Topic 509 prohibits you from claiming certain expenses; “You may not deduct expenses for lawn care in general or for painting a room not used for business.”
How much can be claimed? Not 100% of the above expenses can be deductible mainly because only portion is used in the business and the rest is merely personal expense. To figure the deductible portion you should divide the number of square feet used for business by the total square feet in your home (if the rooms are approximately the same size, divide the number of rooms used for business by the total number of rooms in your home) and then multiple this % by the total amount of expenses listed above.
.
Business Use of Care -
Have you ever been asked to use your car for your job? It’s Payback time. Now you can save tax money by claiming business use of your car. How does it work? Simple. You can choose one of two methods:
Standard mileage rate: the way this method works is that you multiple the actual business miles you have driven your car in the tax year by the standard miles allowance (for 2009 it’s 55 cents per mile).
Actual expense method. First, you divide the amount of business miles driven in the tax year by the total miles driven in the same period (you do that to determine the business portion of the car use). Then, you multiple that portion by the expenses actually paid to operate the car (include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments).
Caution: IRS Topic 510 restricts the use of the standard mileage method in some cases; “To use the standard mileage rate, you must own or lease the car; the car must not be used for hire, for example as a taxi; you must not operate five or more cars at the same time, as in a fleet operation; you must not have claimed a depreciation deduction using the Modified Accelerated Cost Recovery System (MACRS) on the car in an earlier year or any method other than straight-line for its estimated useful life; you must not have claimed a Section 179 deduction or the special depreciation allowance on the car; and you must not have claimed actual expenses after 1997 for a car you leased. You cannot use the standard mileage rate if you are a rural mail carrier who received a "qualified reimbursement".
Conclusion
When you prepare your 2009 tax return, make sure you carefully read this article to determine which of the tax deductions mentioned in it could be applied to you. Using one or more of the deductions could lead to a much bigger refund not only this year but in many years to come.
About TaxTreasure.com
As real people we at http://TaxTreasure.com understand that online taxes should be easy, simple, fast and maybe, maybe even fun (well, lets not go overboard you say). Because of that we at Taxtreasure.com developed a unique approach to online tax preparation which takes the hassle and tension off the table.
We have designed a REAL-LIFE-EVENTS solution that does not bore you with endless questions and scary forms, but instead, ask you to simply tell us: "what happened to you this year"? All you have to do, is to tell us (or choose from our event list) what really happened to you, and we in return, provide you with valuable information that will help you to better understand what, where and when to report. We will also suggest how to save on taxes based on the events that you went through this year and advice you on how to maximize your refund in light of those events.
Contact:
Http://TaxTreasure.com
Tal Rozen
Tel: [202] 742-6311
Email: Info@TaxTreasure.com
Deductible Taxes –
a. State, local and foreign income taxes;
b. Real estate taxes;
c. Personal property taxes; and
d. State and local sales taxes.
In this category you can find various governmental taxes imposed on your income, property, real estate, car and more. To claim this deduction simply look at your W2, and locate the box that indicates how much your employer withheld from your wages for state and local income tax. If you sent your state (or any other state) estimated tax payment, claim these payments too. In addition look at your 1098 form, that’s your annual mortgage summery and see if there are property tax listed. If you pay your real estate tax independently, add up all the bills you have paid in 2009 for property tax. If you own a car and paid personal property tax on it, use that too as deductible taxes.
Caution: IRS Topic 503 specifically disallows some tax payments;“Taxes and fees you cannot deduct on Schedule A include Federal income taxes, social security taxes, stamp taxes, or transfer taxes on the sale of property, homeowner's association fees, estate and inheritance taxes and service charges for water, sewer, or trash collection”.
Interest and Points –
a. Mortgage interest on principal resident;
b. Points paid purchase of principal resident ;
c. Interest on home equity loan; and
d. Student loan interest.
Any homeowner that took a mortgage can claim the interest paid on that mortgage if some criteria are met. If your mortgage was taken from a U.S. bank or mortgage company, you will probably receive IRS form 1098, which reports the amount paid by you as interest in the tax year. Form 1098 also specifies any points paid and often real estate tax paid, if it was paid through an escrow account set up for you by the bank or mortgage company.
The following situations qualify for mortgage interest deduction:
1. A mortgage you took out on or before October 13, 1987 (grandfathered debt)
2. A mortgage taken out after October 13, 1987, to buy, build, or improve your home, (called home acquisition debt) but only if this debt plus any grandfathered debt totals $1 million or less throughout 2008. The limit is $500,000 if you are married filing separately.
3. A mortgage taken out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if these mortgages total $100,000 or less throughout 2008, and all mortgages, including any grandfathered debt and home acquisition debt, on the home, total no more than your home's fair market value. The limit is $50,000 if you are married filing separately.
Caution: IRS Topic 503 excludes some items form being claimed; “You cannot deduct personal interest. Personal interest includes interest paid on a loan to purchase a car for personal use. Personal interest also includes credit card and installment interest incurred for personal expenses. Items you cannot deduct as interest include points (if you are a seller), service charges, credit investigation fees, and interest relating to tax–exempt income, such as interest to purchase or carry tax–exempt securities.”
Charitable Contributions -
a. Cash contributions; and
b. Non-Cash contributions.
If you are a giver, this is your chance to benefit from your generosity. Contributions you have made to qualified organizations as defined in IRS Publication 526, Charitable Contributions may be deductible if they meet certain criteria.
Non-Cash Contributions: In general, you can deduct the fair market value of any property you have donated. If you received any merchandise, goods, or services, including admission to a charity ball, banquet, theatrical performance, or sporting event in return to your contribution, you can only deduct the amount that exceeds the fair market value of that you have received.
Cash Contributions: if your donation includes cash, check, or other monetary gift (regardless of amount), you can deduct that payment as qualified contributions if made to qualified organizations.
Caution: IRS Topic 506 determines which documentation you need to keep to proof your donation; “For any contribution of $250 or more (including contributions of cash or property), you must obtain and keep in your records a contemporaneous written acknowledgment from the donee organization indicating the amount of the cash and a description of any property contributed, and whether the donee organization provided any goods or services in exchange for the gift. One document from the donee organization may satisfy both the written communication requirement for monetary gifts and the contemporaneous written acknowledgement requirement for all contributions of $250 or more.”
Business Use of Home -
Business Use of Home: This is a fun one. If you are “workaholic” and work anywhere anytime, including your home, you will be happy to know that the IRS understands you and really wants to help. Whether you are self–employed or are an employee, you may be able to deduct certain expenses for the part of your home you use for business despite the general denial of business expense deductions for the home.
Not everything is deductible. The first criterion you must meet is that part of your home must be used regularly and exclusively as one of the following:
1. The principal place of business for your trade or business;
2. The place where you meet and deal with your patients, clients, or customers in the normal course of your trade or business; or
3. In connection with your trade or business, if you use a separate structure that is not attached to your home.
What can you deduct? In general most expenses paid to lease, maintain and repair the home are deductible including:
Business portion of real estate taxes;
Deductible mortgage interest;
Rent;
Casualty losses;
Utilities;
Insurance;
Depreciation;
Maintenance and repairs.
Caution: IRS Topic 509 prohibits you from claiming certain expenses; “You may not deduct expenses for lawn care in general or for painting a room not used for business.”
How much can be claimed? Not 100% of the above expenses can be deductible mainly because only portion is used in the business and the rest is merely personal expense. To figure the deductible portion you should divide the number of square feet used for business by the total square feet in your home (if the rooms are approximately the same size, divide the number of rooms used for business by the total number of rooms in your home) and then multiple this % by the total amount of expenses listed above.
.
Business Use of Care -
Have you ever been asked to use your car for your job? It’s Payback time. Now you can save tax money by claiming business use of your car. How does it work? Simple. You can choose one of two methods:
Standard mileage rate: the way this method works is that you multiple the actual business miles you have driven your car in the tax year by the standard miles allowance (for 2009 it’s 55 cents per mile).
Actual expense method. First, you divide the amount of business miles driven in the tax year by the total miles driven in the same period (you do that to determine the business portion of the car use). Then, you multiple that portion by the expenses actually paid to operate the car (include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments).
Caution: IRS Topic 510 restricts the use of the standard mileage method in some cases; “To use the standard mileage rate, you must own or lease the car; the car must not be used for hire, for example as a taxi; you must not operate five or more cars at the same time, as in a fleet operation; you must not have claimed a depreciation deduction using the Modified Accelerated Cost Recovery System (MACRS) on the car in an earlier year or any method other than straight-line for its estimated useful life; you must not have claimed a Section 179 deduction or the special depreciation allowance on the car; and you must not have claimed actual expenses after 1997 for a car you leased. You cannot use the standard mileage rate if you are a rural mail carrier who received a "qualified reimbursement".
Conclusion
When you prepare your 2009 tax return, make sure you carefully read this article to determine which of the tax deductions mentioned in it could be applied to you. Using one or more of the deductions could lead to a much bigger refund not only this year but in many years to come.
About TaxTreasure.com
As real people we at http://TaxTreasure.com understand that online taxes should be easy, simple, fast and maybe, maybe even fun (well, lets not go overboard you say). Because of that we at Taxtreasure.com developed a unique approach to online tax preparation which takes the hassle and tension off the table.
We have designed a REAL-LIFE-EVENTS solution that does not bore you with endless questions and scary forms, but instead, ask you to simply tell us: "what happened to you this year"? All you have to do, is to tell us (or choose from our event list) what really happened to you, and we in return, provide you with valuable information that will help you to better understand what, where and when to report. We will also suggest how to save on taxes based on the events that you went through this year and advice you on how to maximize your refund in light of those events.
Contact:
Http://TaxTreasure.com
Tal Rozen
Tel: [202] 742-6311
Email: Info@TaxTreasure.com
Subscribe to:
Posts (Atom)
