1. Self-Employment Tax
This article addresses some of the key issues regarding self-employment tax. A careful reading of this material could make a big difference in how you think about self-employment tax.
Who must pay self-employment tax and why? Well, if you’re self-employed, you will be responsible for self-employment tax. How do you determine your liability? For the purpose of determining self-employment tax, you are self-employed if you are a sole proprietor, an independent contractor, a member of a partnership, or are otherwise in business for yourself. If you are a self-employed individual, you will have a Schedule C to attach to your Form 1040, and self-employment tax is computed on Form 1040, Schedule SE. Individuals must pay self-employment tax is they have net earnings of $400 or more and there are several sources of net earnings that are used when figuring your self-employment tax liability. In most cases, net earnings include net profit from a farm or nonfarm business; if you operate more than one business, your net earnings from self-employment are the combined net earnings from all your businesses. The upside to operating more than one business: If you have a loss in one business, it reduces the income from another. self-employment tax is the self-employed individual’s contribution to social security and Medicare taxes; the old-age taxes of employment. The only difference between the employee and the self-employed is the employee’s social security and Medicare taxes are paid half by the employee and half by the employer, when an individual is self-employed; he/she is responsible for the entire amount.
There are alternative methods that can be used for figuring liability of self-employment tax and they are: The Farm Optional Method and the NonFarm Optional Method. These methods may qualify an individual to claim a larger Earned Income Credit or Child Tax Credit; they may also, however, increase your self-employment tax liability.
The maximum amount of earnings subject to self-employment tax is currently $87,000.00. Now, when figuring your adjusted gross income on Form 1040, you may deduct up to one-half of your self-employment tax liability and if you are member of the ministry or clergy you may request an exemption from self-employment tax from the IRS.
It's really a good idea to probe a little deeper into the subject of self-employment tax. What you learn may give you the confidence you need to venture into new areas.
When must self-employment taxes be paid? Generally, the self-employment taxes aren’t due until the end of the year, when your personal tax return is filed. Why is it this way? The self-employment tax isn’t due until the end of the year simply because of the fact that many self-employed business owners don’t file the net profit or net loss figures on their self-employment earnings, until the year’s end. If there is a net loss, the self-employed individual receives a credit of self-employment tax due, in the amount of one-half of the amount due.
The self-employment tax is the self-employed individual’s equivalent to the social security and Medicare tax deducted from employee’s paycheck each week. The wage earner’s taxes are configured by their employer and are deducted on a weekly basis. The self-employed individual isn’t required to make weekly payments of self-employment tax, but they are held liable for the full 15.3 rate, that is split between the employee and the employer in wage earning situations. In general, however, if you expect to owe taxes in excess of $1000 for the year, you are required to pay estimated taxes each quarter.
In summary, if you are self-employed, have net earnings of $400 or more, and file a tax return, you will be subject to self-employment tax. To learn more about individual liabilities, exemptions, and alternative tax methods, please visit the online site for IRS Forms and Publications at www.IRS.gov . Topic 554, Publication 517 and 533 will provide more detailed and situation specific information.
Of course, it's impossible to put everything about self-employment tax into just one article. But you can't deny that you've just added to your understanding about self-employment tax, and that's time well spent.
2. 2. Get Ready to Overpay Your Taxes...Again Atlas Tax Solutions - “Tax Audit"
You’re going about your normal routine. You open the mailbox, going through all the junk mail when suddenly you come across a letter from the IRS. Like most people, you get a strange tingling feeling in your body, similar to when a police officer is driving behind you. You open it in a rush and read the four scariest words that a government body can say to you, “You Are Being Audited.” It is at this moment that your primal reaction is evoked from your mouth…You scream! Frankly, that is probably the correct reaction. After all, the Internal Revenue Service is considering the fact that something in your return is questionable. But here’s the good news, it’s just a consideration. In all likeliness, you have done nothing. Your next step is undoubtedly extremely important. You need to be calm. But you also need to consider whether this is something you can resolve on your own, or whether you’ll need a tax firm such as Atlas Tax Solutions to represent you.
Let’s make something straight before we go any further. Nearly one third of tax audits are done via mail. This alone should give you some peace of mind. This usually doesn’t apply for those who owe back taxes, in which case you should have a back tax defense. If however you are being audited through the mail, the Internal Revenue Service may simply want to see your corresponding documentation to verify certain aspects of your return, for example receipts of a business. You need to determine whether your entire return is being audited, or if it’s only one part. For obvious reasons, you shouldn’t make things harder on yourself by going into the entire return if their only questioning one part of it.
If the audit is being done in person and sounds a little more complicated, then you may have to hire a tax representation firm. Of course, no two tax firms are equal. Atlas Tax Solutions uses CPA’s to go over aspects of your return as well as using Attorneys for particular appeals. If you are being audited over back taxes, then without a doubt you’ll have to deal with some headaches. Everything will have to be accounted for and your tax firm will have to mount a back tax defense on your behalf.
You’ll find that your memory can be one of your best tools when fighting an audit. Try to clear up your mind and recall all events pertaining to your audit. You may need to work closely with your tax representative to gather all necessary documentation and organize them by the sections that are being questioned. Make sure to make copies of everything you’re bringing to the audit. It would also behoove you to have your tax representative bring any forms or spreadsheets that show how certain write off’s were calculated. During the actual audit, be very nice to all the parties involved but never give any information that wasn’t asked of you. If you are being represented, let them do most of the talking. Also keep in mind that the return you are being audited on may have been prepared by someone that you are not in contact with. Some firms, such as Atlas Tax Solutions, actually try to contact the CPA that prepared your returns in question to determine how they came up with their numbers and whether any errors were made.
Once your audit is complete, the IRS agent will let you know how it went. They’ll go over any problems they’ve found or whether it all checks out. If some issues were found, make sure to get these resolved immediately. The IRS generally does not abuse people who work to get things resolved. What they don’t like, is those who try to get away with something. Tax payers have a bill of rights, and this includes any appeals that you can make with regards to an audit. But remember that everything has to be done in an organized fashion and only in a legal manner.
Each year, millions of Americans severely overpay their taxes. Are you one of them? Chances are if you are still working on the W-2 tax system, you are! Many people don’t realize, but there are two vastly different tax systems in this country. Let’s call them the educated tax system, and the uneducated tax system. The educated tax system is used by the wealthy who have taken the time and effort to more fully understand the intricacies of the tax code and arrange their affairs such that they pay single digit taxes. However, the uneducated tax system is used by those who simply accept the idea that the federal government is entitled to a huge part of their income, often over 40%, every single year. The difference is like night and day.
The line under your income on your pay stub is where these two systems differ. With the uneducated tax system, you subtract the three lines under your income and the remainder is the amount of your income that you actually get to keep. So you With the educated tax system, the first line is your reported income as with the uneducated tax system. However, the second line is the money you spent on the business, and you pay taxes on what is left. This is because when a business spends money it is called a business expense which is eligible for a tax deduction. So any money spent by the business will be untaxed. Therefore, having your own business and being in the educated tax system, you can reduce your taxes by 40-70%. To break this down even further: If you are making $35,000 a year, this information could save you up to $10,000. That means it does not matter if you are making millions of dollars or a few thousand dollars, these strategies can apply to you! A marginally profitable business can become a thriving business by applying these strategies.
Last year, Tax Freedom Day fell on April 26. This means that you worked 116 days just to turn it all over to Uncle Sam. For many people, taxes are their single largest expense. So what if you could find a legal, ethical way to reduce the amount of money you had to fork over in taxes? What would you do with the money you saved? I have spent years studying the tax codes, and I have found a reliable and perfectly legal way for you to reduce your tax burden, and best of all it can be used by anyone! The key is in arranging your affairs so that the majority of expenses are converted into legitimate business expenses and are eligible for a tax deduction. A portion of your mortgage, travel, medical expenses, meals, entertainment, and much more can be paid for with before tax dollars! The power of tax deductions can save you thousands of dollars each and every year, so why aren’t you using it? Take some time to learn the tax secrets of the rich, and put more of your money back in your pocket where it belongs
3.Get Ready to Overpay Your Taxes...Again
Each year, millions of Americans severely overpay their taxes. Are you one of them? Chances are if you are still working on the W-2 tax system, you are! Many people don’t realize, but there are two vastly different tax systems in this country. Let’s call them the educated tax system, and the uneducated tax system. The educated tax system is used by the wealthy who have taken the time and effort to more fully understand the intricacies of the tax code and arrange their affairs such that they pay single digit taxes. However, the uneducated tax system is used by those who simply accept the idea that the federal government is entitled to a huge part of their income, often over 40%, every single year. The difference is like night and day.
The line under your income on your pay stub is where these two systems differ. With the uneducated tax system, you subtract the three lines under your income and the remainder is the amount of your income that you actually get to keep. So you With the educated tax system, the first line is your reported income as with the uneducated tax system. However, the second line is the money you spent on the business, and you pay taxes on what is left. This is because when a business spends money it is called a business expense which is eligible for a tax deduction. So any money spent by the business will be untaxed. Therefore, having your own business and being in the educated tax system, you can reduce your taxes by 40-70%. To break this down even further: If you are making $35,000 a year, this information could save you up to $10,000. That means it does not matter if you are making millions of dollars or a few thousand dollars, these strategies can apply to you! A marginally profitable business can become a thriving business by applying these strategies.
Last year, Tax Freedom Day fell on April 26. This means that you worked 116 days just to turn it all over to Uncle Sam. For many people, taxes are their single largest expense. So what if you could find a legal, ethical way to reduce the amount of money you had to fork over in taxes? What would you do with the money you saved? I have spent years studying the tax codes, and I have found a reliable and perfectly legal way for you to reduce your tax burden, and best of all it can be used by anyone! The key is in arranging your affairs so that the majority of expenses are converted into legitimate business expenses and are eligible for a tax deduction. A portion of your mortgage, travel, medical expenses, meals, entertainment, and much more can be paid for with before tax dollars! The power of tax deductions can save you thousands of dollars each and every year, so why aren’t you using it? Take some time to learn the tax secrets of the rich, and put more of your money back in your pocket where it belongs
4.Gift Tax Valuations
Gift Tax Valuations
Gift tax valuations are prepared for many reasons. Gift tax includes market value of gifts to charity, market value of conservation easements and gifts in excess of annual limit. Well-reasoned planning of gifts can minimize gift taxes, income taxes, and estate taxes.
Gifts to charity are included in the gift tax laws. Gifts to charity can reduce taxable income and income tax. Donate appreciated assets and you do not have to pay capital gains tax. However, you receive a deduction for the current market value of the asset.
Gifts made prior to death are often made to transfer wealth and reduce estate taxes. There are no gift taxes if the gift per person is below a specific amount per recipient. Both husband and wife can each give the max amount to each other and not pay the gift taxes.
Advanced planning and proper structuring can maximize the transfer of wealth without relinquishing control. Consider XYZ Company, owned by Mr. and Mrs. Carnegie, which is worth $10 million. Clearly a taxable estate.
Split into 100 A shares which own 10% and have 100% of control and 100,000 B shares which own 90% and have no voting rights;
B shares are transferred to ABC Company which has stocks and other liquid assets worth $1,000,000.
Assume market value of all ABC assets are worth $5.5 million (1.0 million + 50% x 9.0 million). Mr. and Mrs. Smith own 90% of ABC and the remaining 10% is owned by employees of XYZ Company. ABC is not a public company and shares may not be sold without prior approval of Mr. and Mrs. Smith during their life (sole discretion). Assume a 40% discount for illiquidity and lack of control, 1% of ABC is worth $27,000 (4.5mm x .01 x .6).
Hence assets worth $10,000,000 ($9million + $1million) are reduced in value to $2.7 million. If they have four children and each give the maximum, they can give 4.74% per year and not pay gift taxes.
O’Connor & Associates is the largest independent appraisal firm in the southwestern US and has over 40 full-time staff members engaged full-time in valuation and market study assignments. Their expertise includes gift tax valuations, feasibility studies, valuing real estate, business personal property, business enterprise valuation, purchase price allocation for businesses, valuation for property tax assignments, partial interest valuation, estate tax valuation, expert witness testimony and valuation for condemnation.
