Category Archives: taxes

As you may be aware, you can pay your income taxes by credit card (1); however, you are responsible for a 2.49% add on fee. You can pay by credit card by phone at (888) 729-1040 or on the web at www.pay1040.com for federal taxes or (800)-272-9829 or on the web at www.officialpayments.com for federal, state or local property taxes.

There are 2 other ways in which to pay your taxes electronically. First is the Electronic Funds Withdrawal (EFW) (2) and the second is the Electronic Federal Tax Payment System (EFTPS) (3). These 2 ways have no fees as these are direct withdrawls from your bank accounts. To use the EFTPS you must register as an individual and/or a business separately with the IRS and wait for a pin number that can take about 2 weeks. The difference is that you can pay all federal personal and business taxes on line.

The EFW plan is set up when you e-file your tax return, you can authorize that the taxes are withdrawn from your checking or savings account. The EFW program is only available through your tax professional or tax software. The toll free number is (888) 353-4537 which can be called 24/7 for information regarding a payment or to cancel a scheduled payment (to cancel a payment you maust call by 8 p.m. 2 business days prior to the withdrawal date.

The EFTPS gives you more control as you set up the amounts for the following taxes:

Form 1040 – individual income tax return; (1), (2) (3)

Form 4868 – extension for individual income taxes;(1), (2) (3)

Form 1040-ES – estimated taxes for individuals (you can schedule up to 4 withdrawals on the due dates of the estimates, April 16, 2007 (April 17 2007 in Massachusetts and Maine), June 15 2007, September 17, 2007 and January 15, 2008; (1), (2) (3)

Form 1041 – income tax returns for estates and trusts;

Form 940 – unemployment taxes; (1), (2) (3)

Form 941 – quarterly employment taxes; (1), (2) (3)

Form 944 – employers annual federal tax return; (1), (2) (3)

Form 1120 – corporate income tax returns; (1) (3)

Form 1120S – “S” Corporation returns; (1) (3)

Form 1065 & 1065B – partnership & limited liability Companies returns (1) (3)

Form 7004 – extension for corporate returns; and, (1) (3)

Form 990-PF – income tax return for private foundations; (1) (3)

Most states have also added on-line payments to their system. You should check with your state’s department of revenue to set up their payment process. Links to all state’s department of revenue http://www.irs.gov/businesses/small/article/0,,id=99021,00.html

As we are counting down to December 31, 2006, the end of another tax year, it is time to see if there is anything that needs to be done in order to minimize your income taxes.

If you have a business and you want to set up a retirement plan certain plans must be set up before December 31, 2006. They include pension and profit sharing plans as well as profit sharing 401(k) plans. A SEP-IRA checlklist

If you don’t set up one of these plans you can set up and fund a Simplified Employee Pension SEP-IRA before the due date of your return (including extensions).

The SEP-IRA has different vesting requirements that a pension or profit sharing plan. The pension and profit sharing plan has several vesting schedules with the longest vesting schedule being 5 years from entering the plan (6 years from date of hire). The SEP-IRA has an immediate vesting, where your employee does not lose a share of the retirement contribution if he or she leaves after the plan is funded, usually 2 years.

The radio is constantly playing advertisements for donations of cars, boats and other items of value. Remember that only donations completed by December 31, 2006 will provide a deduction for 2006. Also, if the vehicle is sold by the not-for-profit organization your deduction is limited to the amount of the vehicle proceeds. If the vehicle is kept and used by the not-for-profit organization (not sold) then you can deduct the value of the car. The values can be obtaind from Kelly Blue Book (KBB), Edmunds, or National Automobile Dealers Association (NADA).

Buying equipment before December 31, 2006. It is only a good idea if you really need the equipment now or early next year and you know what specifically want to buy.
If you buy equipment to reduce taxes, it not only reduces the tax; however, it also reduces cash or puts you in debt for 100% of the cost.

An example, if you are in the 40% tax bracket and buy a piece of equipment with a cost of $10,000.00, you will save $4,000.00 in taxes or the equipment only cost $6,000.00 ($10,000.00-$4,000.00). However, if you didn’t buy the equipment you would have $6,000.00 in your pocket ($10,000.00-$4,000.00).

The only reason to ever buy equipment is if you need it.

Bunching of deductions, if you are planning to give charitable contributions in early 2007, paying them in 2006 reduces your income taxes by 1 year.

Tax planning is an important tool that some CPA’s use. Although April 16th (17th for those states that celebrate Patriot’s Day (Massachusetts and Maine) is approximately 4 and 1/2 months away, estimating your 2006 income taxes can save money and cash flow or give you as much time as possible before taxes are due.

On several instances calculations can determine that there is enough tax payments made during the first 3 quarterly estimate payments to cover your entire tax. When this occurs you don’t have to make the 4th estimated tax payment. This helps your cash flow.

Sometimes the calculation shows that you will owe alot of money, the earlier you know how much you will owe the longer you will have time to put the funds together.

Although the 4th Quarterly estimated tax payments are due by January 15th, it may save Federal income taxes to prepay your state estimated tax payment, either the original amount or an adjusted amount based on the tax planning. The reason It may save income tax is two-fold. First you must itemize deductions in preparing your tax return. Second, there is an add on tax called the Alternative Minimum Tax (AMT) that disallows taxes and miscellaneous itemized deductions as well as having additional adjustments that have the potential to create the add on AMT tax.

It is important to note that each year more and more people become subjected to the AMT tax.

The AMT was originally added to the Internal Revenue Code in 1969, going into effect in 1970. The AMT was to create a tax on income even when the regular income tax was either $0.00 or very low. It was originally set up to make certain that the wealthy paid some taxes.

In a brief issued by the Congressional Budget Office (No. 4, April 15, 2004),^[3] the conclusion was clear:

Over the coming decade, a growing number of taxpayers will become liable for the AMT. In 2010, if nothing is changed, one in five taxpayers will have AMT liability and nearly every married taxpayer with income between $100,000 and $500,000 will owe the alternative tax. Rather than affecting only high-income taxpayers who would otherwise pay no tax, the AMT has extended its reach to many upper-middle-income households. As an increasing number of taxpayers incur the AMT, pressures to reduce or eliminate the tax are likely to grow.

The IRS has a new option regarding an online payment agreement.

The online payment agreement program is currently available to tax professionals; however, eventually the online payment aggrement will be available to all taxpayers via the IRS website, www.IRS.gov

The online payment plan applies to cases up to $25,000 for individual tax obligations expected to be paid within five (5) years.

There is a $43.00 fee to set up the payment plan and there is an online payment calculator to help determine acceptable payment agreements based on income and expenses.

Changes have been made to the Offer in Compromise program.  In order to request an offer in compromise a 20% deposit is required with the offer.

Be careful with the IRS collections as the IRS has recently started using private collection agencies.  When a private agency is used to collect IRS liabilities, the taxpayer has the same rights aforded the taxpayer by the IRS.

Sole Proprietors/Self-employed businesses are expected to be audited more than they have been in the past.  The IRS has determined that sole-proprietorships have relatively low reporting rates.  There is more information available at www.taxtalktoday.tv/index.cfm? pag=571