Are you getting every deduction and credit you deserve? A lot of people aren’t, because they either don’t care to look for them (which is a big mistake because they’re leaving their money on the table), or because they don’t have the right advice when it comes to preparing and filing their tax returns.

Here are some commonly overlooked tax deductions to keep in mind when filing your taxes:

1. Education expenses you paid to maintain or improve job skills
2. Required uniforms and work clothes not suitable for street wear
3. Union dues
4. Employment agency fees or commissions
5. Reservist and National Guard overnight travel expenses
6. Medical transportation expenses including tolls, parking, and mileage for trips to health facilities, doctor’s offices, laboratories, etc.
7. Hearing aids, eyeglasses, and contact lenses
8. Uniform cost and cleaning
9. Safety equipment
10. Tax return preparation fees
11. Safe deposit box charges for investments or business
12. Cell phones required for business
13. Employment/job seeking expenses
14. Employees moving expenses
15. Student loan interest
16. Business sales/entertainment expenses
17. Work travel, meals, and hotel expenses
18. At-home-office expenses
19. Vehicle use (auto, truck) miles for work
20. Home mortgage interest
21. Real estate and property tax
22. Points paid on a mortgage or refinancing
23. Donations to places of worship
24. Cash or property donations to a recognized charity

Tax Preparation Help

The tax filing deadline is fast approaching. Do you need help with preparing your taxes and filing them? Are you confused when it comes to which forms are applicable to your situations and which are not so that you know what to fill out? Do you have questions about which deductions you qualify for? Are you wondering whether or not you’ll get a refund this year? You can certainly get the answers to these questions if you use an online tax preparation program. These programs have evolved to the point where they can pretty much guide you every step of the way, from making sure you’re filling out the proper forms, to giving you much-needed information and guidance.

Federal and State Tax Forms

Preparing your taxes online makes it easy on find all the right tax forms you need, both for federal and state tax purposes. As mentioned previously, modern tax software is increasingly interactive, and provides one of the best ways to make sure that your taxes are done right.

Tips and Calculators – Help With Deductions and Credits

These are additional tools that you can use in your tax preparation process. You will be able to estimate your deductions beforehand, thanks to the various features that are built into the software: calculators to estimate your refund or tax bill, tools to help minimize how much tax you’re require to pay, and so on. Make sure that you get all the tax breaks that you qualify for!

Filing Your Tax Return Electronically

So you’re done with filling out all your tax return forms? Well you’ve done 99% of the work. You don’t even have to print it out and mail it, since modern tax software packages all offer the option to file electronically. The interface will even provide you with a notification that the IRS has indeed received your return. Using that option also allows you to get your refund faster, especially if you choose to have it deposited directly into a bank account. You can get your money in 10 to 16 days from the day you file.

Armed with this knowledge, you can certainly make sure that this year is the one where you get all the deductions you deserve AND get your money as quickly as possible.

Commonly Overlooked Tax Deductions

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What is Inheritance Tax?

Any taxes which occur as the result of a person passing away are typically referred to as “Inheritance Taxes.”  They are also called Death or Estate Taxes as they are usually levied on the total value of the deceased person’s money and property, in other words, their estate.  However, there are differences between estate taxes and tax on inheritance where international tax laws are concerned.

Estate taxes usually apply to those individuals or the deceased’s representatives that have inherited the estate proceeds of that deceased individual, whereas the income tax on inheritance is levied on the estate’s beneficiaries.  However, the distinction between the two where international tax law is concerned is oftentimes vague.  For instance, in the UK, the personal representatives of the estate have to pay inheritance taxes when in fact this is actually an estate tax.

Steps to reducing income tax on inheritance

There are basically 5 steps to reducing your income tax on inheritance and we have listed the information here in the hopes that it helps you in this area:

Step #1:  Start “gifting” your children now – you can give your children up to $13,000 annually (£3,000 in the UK).  Cash gifts given annually to your children in small amounts will help to reduce your tax liability.

Step #2:  You (and your spouse, if there is one) need to make a plan – if there are more assets and you will exceed the IRS’ inheritance tax limits, consider gifting some to your spouse if her assets put here beneath those limits.

Step #3:  If you have not set up an irrevocable trust with your life insurance company, you should consider doing so immediately – be sure to name your children as the beneficiaries on your policy when you set it up.  The proceeds of the trust will not be subject to tax when you die.

Step #4:  Help your children with their education expenses – normally, gifts in the form of education expenses (in the US) will not be taxed so long as the money goes directly to the college or university.

Step #5:  Consider setting up a QTIP Trust – these will allow you to bequeath any assets to your spouse when you die, should there still be assets left in your estate at that point in time.  However, make sure that you still name your children as beneficiaries.  If your spouse dies first, those assets may count towards their limit on the inheritance tax so the above may not apply.

© Income Tax on Inheritance

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What is IRS Imputed Interest?

The interest that is created on a loan by the IRS, as well as the taxes they level on the lender is known as IRS Imputed Interest (explained in detail in the post IRS Imputed Interest Rules).  Even if the lender is not charging and collecting interest on that loan, the IRS will add it to your tax liability anyway.  In most instances, IRS imputed interest gets levied when you loan money to a family member or friend and specify the terms of the loan (length of time to repay), but you don’t charge any interest.

A Brief History of IRS Imputed Interest

The rules about imputed interest were originated because the IRS wanted to stop the wealthy from loaning money to their heirs in order to drop them into a lower tax bracket.  Evidently, the IRS felt that the rich were trying to beat (or cheat) the system.  Additionally, the recipients of the loans would invest the money so that the income would fall into a lower tax bracket.  In so many words, the money is still in the family.  However, instead of being taxed at the proper rate, the money is now being taxed at the lower child’s rate.

Understanding how IRS Imputed Interest works

In a standard transaction involving a loan from a bank, credit union, or other lender, the financial institution will charge you interest on that loan.  Obviously the bank needs to make money and stay in business, so the interest on your loan becomes another one of their many revenue streams.

Be aware of the fact that if you do not charge your family member or friend interest on that personal loan, the IRS is going to impute interest on that loan (usually at the current average percentage) and charge taxes on that imputed interest as if it were actual income.  In other words, even if you are not charging and collecting interest on that personal loan, you are going be taxed by the IRS as if you were.

What are the best ways to avoid being charged imputed interest tax?

Whether you are making a personal loan to a family member or friend, you should still charge some kind of interest on that loan.  However, we do recommend that you charge whatever the average rate currently is as this will alleviate any doubts or stress about the issue.  The percentage rate that the IRS establishes will depend on the size and the terms of that personal loan.

© How to Avoid IRS Imputed Interest

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Understanding The Function Of Income Tax Brackets

The terminology “tax bracket” has been defined as the line separating the tax percentage rates based on different income levels.  The most important aspect about understanding tax brackets and their function is that they help you to understand how much of your income you will be allowed to keep after being taxed on that income.  Additionally, if you are considering changing jobs and will be earning more money, this will help you calculate how much of that additional income you will be able to keep and whether or not it will be worth it to take a different job.

Helpful Suggestions For Figuring Out Your Tax Bracket

The following information will give you an idea as to how to determine the tax bracket you will fall into based on your income:

Here is a simple example – the first $7,825 of income will be taxed at a rate of 10% and when you move into the next bracket it rises to 15%.  In other words, if you earn $8,000, the $175 dollars over the 10% bracket will be taxed at 15%.

Filing status will determine your tax bracket – the typical statuses are:

• head of household
• married filing jointly
• married filing separately
• single
• widow or widower

Talk to your company’s Human Resources Department – if you are unsure of the tax bracket you are going to fall into, talk with someone in your employer’s HR Department.  Or you can look at your most current stub from your pay checks.  If you are paid weekly, multiply your income gross by 52.  If you are paid bi-weekly, then you would multiply your gross by 26.

Consult the IRS’ website to figure out your tax bracket – once you have completed the prior step, visit the IRS website and search using the keywords “federal tax rate schedules.”  Be aware that tax rates do not change annually, so the rates you find may not be the actual ones for the current year.

Locate the bracket that applies to you – once you have determined what your annual income is going to be, you can locate the tax rate schedules at the IRS website that applies to your filing status to determine your taxes.  Simply locate the columns which state “over” and “but not over” to find the tax that applies to your income amount.

Income Tax Preparation Software

You can greatly simplify the process of filing your income taxes by using tax preparation software. These programs have become very advanced and can guide you step by step, from helping you figure out what information to enter where, to determining what deductions you’re eligible for, to handling the actual e-filing of your return. There even are built-in calculators and error checkers that automatically verify your information and alert you if you’ve made a mistake. In the specific context of this article, the question becomes a non-issue, because the software will automatically calculate your yearly income and assign you to the right bracket. It’s worth looking into.

© What Income Tax Bracket Am I In?

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What is debt settlement?

Debt settlement is also referred to as debt arbitration or negotiation and is an approach to the reducing of personal debt.  It is a method in which the creditor and the debtor agree to reduce the balance of a financial obligation so that when that reduced amount is paid off it is regarded as being paid in full.  Additionally, creditors will not negotiate a reduced balance if you have been maintaining your regular payment schedule.  If the payments are curtailed or stopped, that balance will increase based on interest and late fees.

The consumer has some options for arranging their own debt settlements including:

• hiring an attorney to assist them
• hiring a debt settlement company
• using the advice that they find on an online debt settlement website

Since there is the distinct possibility that the debt settlement company may charge an individual a large up-front fee for their services, or take the monthly fees from the person’s bank account, many consumers may be reluctant to pursue debt settlement.  We suggest that you search for a debt settlement company that only charge you the fees for their service once the debt has been settled.  It is not uncommon for these fees to equal up to 20% of that amount that the outstanding account balance has been reduced by.

The most common objections to debt settlement

There are 5 primary objections to pursuing debt settlement.  These are:

• damaging one’s credit history and score
• an increase in the number of collection calls
• needing to settle with every creditor, not just one
• the possibility of numerous lawsuits
• the tax consequences

The bottom line is that you can still be sued by your creditor(s) as well as it damaging your credit history and score.

What are the tax consequences or implications of debt settlement?

Most importantly there are tax consequences that you should be aware of.  When a debtor’s obligations are canceled (in part or wholly) and this has not resulted from filing bankruptcy, the canceled portion of the debt is viewed as taxable income by the IRS.  This is actually the biggest objection that most consumers have to debt settlement.

According to Form 982 (IRS publication), anything over $600 in discharged or forgiven debt is considered taxable income.  However, the IRS does not require this income to be reported should you be deemed insolvent.  Insolvency is defined as when your debts exceed your assets.  Additionally, and we are quoting the IRS ruling “you cannot exclude any amount of canceled debt that is more than the amount by which you are insolvent” (IRS Publication 525).

© Tax Implications of Debt Settlement

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The US Internal Revenue Code Chapter 12-Subtitle B states that “gift tax” is the gratuitous transfer of property ownership.  Section 2501 of the Internal Revenue Code imposes this tax, the responsibility of which typically falls on the shoulders of the donor or the giver of that gift.  The exception to this ruling would be if there is some retention of interest involved which has delayed the giving of that gift.  Additionally, the donor or giver receives nothing in return for the gift.

For tax purposes, the federal courts define the word gift as the proceeds resulting from “detached and disinterested generosity” therefore, you should be aware that there is a difference between the Federal Gift Tax compared to the IRS treatment of gifts.  In other words, where the treatment of gifts for the purposes of US gift tax (oftentimes referred to as the “transfer tax”) is concerned, it should not be confused with how those gifts may be treated for other tax purposes.  Where tax laws are concerned, most gifts may be excluded under Section 102 of the Internal Revenue Code.

What Is The Allowable Amount Before Being Taxed?

From an estate tax planning standpoint, many individuals incorporate gifting as a method for reducing tax liabilities based on their estates.  There are 2 exemption levels where gift tax is concerned.  As of 2009, you could give meaningful and substantial gifts of up to $13,000 in value on an annual basis without incurring any gift tax.  If your spouse is involved giving gifts of this same nature, that figure doubles to $26,000.  In addition to this, you are not restricted to the number of people who receive gifts from you and the lifetime limit for gifting is $1 million before being taxed.

How To Avoid Gift Taxes

The primary purpose of gifting is to reduce the amount of tax liability that your heirs will incur from your estate when you pass away.  Here are a few tips on how to avoid this:

• Give your spouse assets or monetary gifts
• Set your children up with trust funds (irrevocable)
• While you are still living, plan on how you can give enough money to any future heirs to avoid taxation, as well as planning this out accordingly
• Make arrangements for charitable donations to be given after you die
• Hire an income tax attorney or professional to help you

Hiring An Income Tax Attorney

The best time to hire an income tax attorney is for prevention purposes, to avoid getting in trouble with the IRS or facing a tax bill that turns out to be way higher than what you would expect, because you did something without getting all the necessary information.

People are usually reluctant to consult a tax lawyer, but it’s much better to take the advice of a professional and minimize the chances of you making a costly mistake. This is definitely one of the areas where a competent tax attorney  can help you save a lot of money.

© Gifting Money Rules: What Is The Maximum Allowed Gift Without Having To Pay Tax?

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What Is A 1031 Exchange?

The 1031 exchange (also know as tax-deferred exchange) gets its name from section 1031 of the US Internal Revenue Code, which addresses the issue of the deferment of capital gains from the exchange of properties. Capital gains (or losses) are typically realized from the sale of property, so the 1031 Exchange defers the taxes on those capital gains that you would normally be responsible for when filing your taxes for the specific year. A homeowner or property investor can legally save a significant amount of money when qualifying for a 1031 Exchange.

Qualifying For the 1031 Tax-Deferred Exchange

In order for an individual to qualify for this, the properties which have been exchanged must have been owned for productive use, such as:

• an investment
• business purposes
• used in a trade

Section 1031 specifically excludes the following from being qualifying aspects:

• bonds
• stocks
• properties that do not fit the above criteria

Certain securitized properties will qualify. One of the key factors involved in the qualifying of the 1031 Exchange process is that the properties concerned must be considered as “like-kind”. In other words, they must be of the same character or nature, regardless of any differences in the grade or quality of those properties. Additionally, personal or real properties that are of the same character and nature are considered like-kind properties, whether they are improved or not.

Conversely, personal or real property in the United States and those properties that are used elsewhere are not considered to be like-kind properties. So if one of the properties is located in the US and the other is not, they will not qualify for the 1031 Exchange tax break. As you can well imagine, the ruling has to be followed to the letter in order to benefit from it.

The IRS has specific guidelines that must be met in order for a property to qualify for the benefits of a 1031 tax-deferred exchange. To summarize things, you

• are not allowed to receive any material benefit from the sale of the property
• must clearly identify potential replacement properties, and
• complete the transaction within certain time frames.

Additional Considerations For The 1031 Tax-Deferred Exchange

1031 exchanges carry risks if you don’t follow the rules. Your income tax burden can be lightened considerably if you qualify for the 1031 Exchange whenever capital gains are involved. If you feel that you are in a position to qualify for this and take advantage of it, it is recommended that you consult with an accountant who specializes in tax accounting or a licensed tax preparer. The Internal Revenue Code is very specific and very strict, as well as being difficult to interpret by the average person. So before exchanging properties, it is advisable that you consult with a qualified professional in order to avoid any future complications with the IRS.

© Accounting For 1031 Like Kind Exchanges

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What Is IRS Imputed Interest?

Any interest which the IRS has created on a loan and which the lender is taxed on, despite the lender not charging the interest to the debtor is referred to as “imputed interest.”  For example, you can loan your daughter or son $10,000 and let them pay the loan off over 5 years without charging any interest.  However, the IRS will impute an arbitrary rate of interest and consider it as taxable income, adding this to your tax liability.  Therefore, even if you loan money to family members, you should still charge minimal interest on that loan.

Tax Help: Understanding How Imputed Interest Works

With standard market transactions, especially those transactions between a bank or another lending institution and a borrower, there will obviously be some interest charged on that loan.  This is one of the ways that banks and lending institutions make their money and stay in business.  When you contrast this with a loan between family members, the tax liability factors come into play if you do not charge that family member any interest on the loan as was discussed in the prior section.

Since most parents are not in the business of earning a living by making money off of their daughters and sons, they overlook the need to charge them even a slight amount of interest on any inter-family loans.  Unfortunately, this creates a tax liability for you because of imputed interest that the IRS will levy against you.  This basically means that you are taxed on imaginary interest that doesn’t really exist and is being collected while the family member is repaying the loan.

How Can Someone Avoid Being Charged Imputed Interest?

Obviously, the primary way in which you should avoid being charged imputed interest is to charge anyone a slight amount of interest to begin with, even if they are family members.  Remember that the IRS is going to charge the standard rate of interest based on the size and the terms of the loan.  Consult the IRS tables, as they frequently update these.

It is recommended that you charge the minimum amount of interest that the IRS lists in this table, referred to as the “applicable federal rate of interest”, in order to avoid being charged the taxes on the imputed interest. Many sites offer “Tax Tools & Resources” sections to help you with those kinds of questions.  Most importantly, if you are considering lending money to a family member or friend, you should probably consult with your licensed income tax professional or a tax attorney to assist you with this.

IRS Tax Advice

Reaching out to a professional to get IRS tax advice is very important, especially in those types of situations where you can increase your tax bill by a large amount without knowing it. Loans to family members should be handled with care. For example, you have to have documentation to prove to the IRS that the loan is not a gift, and that means requirements must be attached to it, such as interest rates, an agreed-upon payment schedule and a letter from the borrower certifying (with proof of income and expenses) that he/she is capable of fulfilling his financial obligations. If you can’t show this kind of proof, the IRS may decide that instead of a loan, that money was a gift and the rules on gift taxes will apply:  the lender is usually the one required to pay these taxes.

Clearly, if you’re asked for a loan by a family member, you should definitely take your time and look into all the implications that transaction can have on all the parties involved, because you may need serious tax preparation help come tax filing time. Furthermore, family loans can damage personal relationships and cause income tax and estate planning problems. Because of the complexity of the imputed interest rules and the related exceptions, it’s wise to work with a CPA or tax professional in structuring loans to family members.

© IRS Imputed Interest Rules | IRS Tax Advice

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