Taxes why we pay them?

It is pretty obvious why we pay taxes right? However, there seems to be a constant debate across the country on the subject. It is pretty basis to understand as a country we have expenses and our federal, state and city taxes are used to cover those expenses, right? Why the debate?

The questions that come to mind are the following:

- What is the current debt of the United States and who are the debtors?
- What is the expense distribution for Federal Taxes in the United States?
- What is the primary expense distribution for State Taxes in the United States?
- What is the primary expense distribution of taxes in major cities of the United States?
- What is the distribution across the United States of those who pay federal income taxes?
- What are the future implications of continuing to be in debt as a country?

What it all adds up to is the cost of a life style we have become accustom to in the United States. It is the financial contribution we make for the freedoms we have and the amenities that go along with it. However, the cost of living as a country continues to rise as a part of the world economy and our taxes are only a portion of the revenue required to fuel it. This is not to say that continuing to be in debt and living outside our budget is the right long term strategy but it is the reality of our current situation as a nation.

Tax Relief 2010 - What is the plan?

The passing of the American Recovery and Reinvestment Act of 2009 set into motion a wide specturm of programs to aid the United States as a whole in the implementation of an aggresive recovery plan to re-establish and promote an improved economic and infrastructure outlook for the future in America. Many of us have seen the signs and posting related to the implementation of this plan in our states, city and towns across the country. Each of these programs are expected to have wide reaching impacts in our communities as it relates to educations, roads, small business, communication and so many other areas of opportunity to improve the current and future state of the United States. What is about to follow is but a slice of a much larger pie of how it is being implemented and resources that are available if you have a deeper and wider interest. The recovery.gov website is one stop shopping to gain full insight to the act as it relates to planning, tracking, implementation, transparency, progress to date and expectations for the future.

The Office of Tax Analysis estimates that, as of June 2010, $223 billion in tax relief has been made available. This relief comes in various forms including the Making Work Pay tax credit, COBRA Continuation Coverage Assistance, and tax incentives for businesses.

On Feb. 13, 2009, Congress passed the American Recovery and Reinvestment Act of 2009 at the urging of President Obama, who signed it into law four days later. A direct response to the economic crisis, the Recovery Act has three immediate goals:
* Create new jobs and save existing ones
* Spur economic activity and invest in long-term growth
* Foster unprecedented levels of accountability and transparency in government spending

The Recovery Act intends to achieve those goals by:

Providing $288 billion in tax cuts and benefits for millions of working families and businesses. Increasing federal funds for education and health care as well as entitlement programs (such as extending unemployment benefits) by $224 billion. Making $275 billion available for federal contracts, grants and loans. Requiring recipients of Recovery funds to report quarterly on how they are using the money. All the data is posted on Recovery.gov so the public can track the Recovery funds.

Cumulative as of....................Mar '09 - Jun '10

Making Work Pay..........................$73.0
Other Individual Credits...............$98.0
Energy Incentives..........................$7.3
Tax Incentives for Business...........$38.5
COBRA...........................................$4.8
Manufacturing & Economic Recovery,
Infrastructure Refinancing, Other...$1.4
Cumulative Totals........................$223.0

In addition to offering financial aid directly to local school districts, expanding the Child Tax Credit, and underwriting a process to computerize health records to reduce medical errors and save on health care costs, the Recovery Act is targeted at infrastructure development and enhancement. For instance, the Act plans investment in the domestic renewable energy industry and the weatherizing of 75 percent of federal buildings as well as more than one million private homes around the country.

Construction and repair of roads and bridges as well as scientific research and the expansion of broadband and wireless service are also included among the many projects that the Recovery Act will fund.

While many of Recovery Act projects are focused more immediately on jumpstarting the economy, others, especially those involving infrastructure improvements, are expected to contribute to economic growth for many years.

Bottom Line Don't Worry About It

Tax audits are a part of the tax collection process, but that doesn't mean that you have to be among the few to be chosen. The key to avoiding an audit is to be truthful and able to provide the proper documentation of your deductions, donations and income. While being audited is not a goal anyone strives for getting back every cent that is own to you is and should be your goal. The idea is to review every area of your income status for income tax rebates, earned income credits and ultimately the maximum income tax refund.

Selected to be Audited

What should you do if you are selected to be audited? Be truthful with the auditor and respond to all inquiries regarding you income tax as soon as possible. Be prepared to show all of your documentation. If you prepare your own tax return it is still a good idea if possible, to have a qualified accountant or tax attorney represent you. If someone else prepared your taxes be it a professional firm or your family member that is a CPA let them know so they are available for the meeting with the auditor.

Higher Income Does Matter

There is nothing the individual taxpayer can do about this one, the more you make does increase your chances of an audit. If you earn more than $100,000 each year, your odds of being audited does increase. There are statistics that measure your chance of being audited based on having a higher income. However, it shouldn't be an issue of fear and/or dread as opposed to a incentive to always keep your records and documentation in order and available.

Home Office Business Deductions

Be sure you can support home office business deductions with backup and documentation of the related expenses. This means you need to keep receipts and bills where possible for the home office business expenses. If you file excessive or unwarranted deductions this can raise a red flag to the IRS, as well as large deductions in comparison to your amount of income.

For example, if you earned $40,000 as an handyman (operating from home), home-office related deductions totaling $20,000 will draw a great deal of attention to your tax return.

Be sure to deduct only items that were used in the course of your business.

Don't Under-Report Income

You need to report all money that you received throughout the year from work and/or from the sale of an asset (such as a home) to the IRS. If you fail to report income and you are caught, you will be forced to pay back-taxes plus penalties and interest.

Is there a way the IRS can tell if you haven't reported something? While there are some cases they will Not be able to determine an under-reported return. However in some situations where large transactions have occurred there could be an audit trail for an asset that could ultimately be traced back to you.

In bottomline is, it's better to be safe than sorry. Make sure you report all of your income.

Make Sure You Sign the Return

There are quite a few income taxs forms depending on the schedule you submit. So double checking before you push the button or close the envelope is a good practice. While this seems like a small issue it is an issue that will raise a red flag and possibly cause the IRS to wonder what else you might have missed or left out of the return. The other serious implication is an un signed return leaves a question of you legally holding yourself responsible for the content of the return.

Use your Calculator - Math Errors

Try to cover all the bases while this may sound simple, many returns are selected for this reason alone. So when filling out your tax return make sure that everything adds up. There are free online income tax calculators specifically design for this purpose that might be a good investment of time. Even a small math error can raise eyebrows and impact the timeliness of your tax refund.

Don't Over-Estimate Donated Amounts

The IRS encourages individuals to donate things like clothes, food and even old automobiles to charities. It does this by offering a deduction in return for a donation. However, the way this works is that it is up to the taxpayer to determine the value of goods that are donated.

As a general rule, individuals should value the items they donate at anywhere between 1% and 30% of the original purchase price. There may be exceptions or special circumstances and should be supported with justification and documentation.

If in doubt about the value of an item consider having an appraiser write a letter. In fact, for individual items valued at $5,000 or more, an appraisal is required. Another benchmark the IRS uses that could come in handy is the willing-buyer-willing-seller test.

This means that taxpayers should value their goods at a point or price where a willing seller (who is under no duress) would be able to sell his property to a willing buyer (who also is under no duress to purchase the item).

Avoid a Tax Audit - Income Tax Tips

The 2009 tax season is here and if you are looking for a great return and at the same time want to do everything possible to avoid an audit here are a few tax tips that will prepare you for that unlikey audit and possibly could put money back in your pocket.

If history is any indicator, less than 1% of Americans will be audited by the Internal Revenue Service in the coming year. And while some of these audits are totally random, and there's nothing that the individual taxpayer can do about them, many audits are actually caused by the taxpayers themselves.

The good news is that there are all kinds of resources out there to assist you in getting your maximum return while abiding by the tax laws put in place to fund the tax system. There are a number of on-line resources developed by some of the best in the business of filing income tax return forms. In a number of case they have made online free tools like income tax calculators, tax fund estimators and tax refund calculators available for your use.








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