DEALING WITH IRS APPEALS

If you have been experiencing IRS Problems you may have reasons to consider appealing a decision made by the IRS if you disagree with the outcome of any of the following:

• Tax audit results

• Penalties assessed

• Interest accrued

• Tax lien placement

• Tax levy placement

• Asset seizures

• Offer in Compromise rejections

If you have been the recipient of one of the above actions, you should receive a notice from the IRS letting you know that you have the right to appeal an IRS decision. If you do not agree with the IRS then do not sign the agreement form that is sent to you. Your next step is to request an appeals hearing.

Do not consider an appeals hearing if you owe the IRS money but cannot afford to pay the bill. If the notice you receive from the IRS is an actual bill there may not be mention of the possibility of appeals.

Be prepared to show your reasons for disagreeing with the IRS decision. You will need to be able to back up your reasons with documentation.

Read the notice to find out how to prepare your request for an appeal, where to mail the request, the deadline for receipt of the request, and what information should be included with the request.

It should be noted that filing a request for appeal does not stop the interest and penalties from accruing on your bill.

Appeals hearings can be done in an informal manner, by correspondence, by telephone, or in person. You will be happy to hear that most disagreements with the IRS are settled in appeals.

The type of case you are appealing and how long it takes the IRS to review the file will determine how long it will be before your case goes to Appeals. A typical time frame for hearing from the IRS is approximately 90 days after you have filed your request. You should contact the office you sent your request for appeal to if you have not heard from the IRS after 90 days. They will be able to tell you the date your appeal was forwarded. The 90 days time frame will start from that date.

DON'T NEGLECT AFTER TAX SAVING FOR RETIREMENT

We are almost all familiar with retirement savings and investment programs that are pre-tax like 401k's, 403b's and IRA's. These programs give you a tax break today, since the amounts you contribute today is on a before tax basis. This means your taxable income is reduced for the year by the amount of the contribution, subject to the statutory annual limits. Income earned in these "before-tax" accounts is not taxed until normally withdrawn (after age 59 ½) and then it is taxed at the rate you are subject to in the year of withdrawal.

Retirement plans that are classified as after tax work in the opposite way of their "before-tax" brethren. They are called Roth IRA's and are funded with money after you have paid the income tax on the income in the years that you make your contribution. This "after-tax" contribution does not help you pay fewer taxes in the year you make the contribution. However, within the account the income is compounded year after year and you pay no tax on the yearly income or when you begin the normal withdrawal at age 59 ½.

This is a significant tax benefit during your retirement. Further, there is no mandatory withdrawal beginning at age 70 ½ as with the "before-tax" plans. The "after-tax" dollars you contribute to your Roth IRA are not taxed when you make a proper withdrawal. Importantly, all the income you've earned in the account is not taxed when it is withdrawn. This can be a significant amount.

Let's just look at the actual benefit in just one years "after tax" contribution. Assume at age 30 you invest $4000 (the maximum for your age in 2007, if over age 50 you can contribute $5000 in 2007 as a "catch-up" provision.) and you invest it in two above average mutual funds. Their earnings over the 35 years lets assume are 8% compounded monthly. The total in you account at age 65 would be about $65,170 or the original $4000 would have grown by $61,170. You can let it grow or just take out the earnings of about $5000 a year; the principal would stay about the same and regardless of your other income you would pay no income tax on the $5000 or whatever amount you choose to withdraw.

And remember this is only one year of contributions into your "after-tax" account. For many individuals who start early enough, and make regular contributions into their Roth IRA, the amount in their account at age 65 can be staggering. You might make a Google search for "compound interest calculator" and find an online calculator then plug in numbers consistent with your age, years to retirement, assumed return on your money and possible amount of contribution each year.

So, contributing to an after tax savings account today helps reduce the amount of taxes you'll pay during your retirement. This is to you benefit because most of us plan to live on a smaller income during our retirement years, however start early enough and you'll have greater income when retired than when working. This greatly improves your quality of life during retirement and opens up a myriad of options during your retirement years.

For a relatively small monthly after tax contribution each during your working years, you can be accumulating a large tax free account to use during your retirement years. In the end, you won't pay income taxes earned amount in your "after-tax" account. This is in contrast to traditional IRAs and 401ks, where you're really just delaying the payment of taxes since you eventually will pay taxes on every bit of money in these accounts, even the income that has accrued.

Many financial experts recommend that you plan for your retirement using a combination of before tax accounts like 401ks or 403bs along with after tax savings accounts or Roth IRAs. Using this combination helps you to save for your retirement in a way that helps you avoid some taxes both today and during your retirement years. This combination is one of the best ways to save taxes now and have a financially secure future.

MORE SMALL TAX HELP - MUST-SEE TAX DEDUCTIONS

In an earlier article, I talked about how you, as a small business owner, can rightfully claim many small business deductions as a way to reduce your taxes. In this article, I'll present several more. Check to see if you have included these in your tax planning.

1. Deductions for Travel

If you fly somewhere on business and you are not reimbursed for that expense, you can claim a write-off. As always, keep a detailed log or diary of your expenses. You can claim associated expenses such as taxi fares, subway tokens -- and even stuff like dry-cleaning expenses. As for meals, you can write off half your meal expenses.

You can even write off expenses you incur for employees and/or business associates that you are traveling with (friends and family members are out). Consult your tax professional for more details.

2. Deductions for Software

If your business uses customized computer software you can claim the expense of that software as long as you spread out the deduction over three years.

But...Section 179 of the IRS rules allow you take the write-off on computer software all in the first year, IF that software is "off-the-shelf," in other words, something like Microsoft Office. Consult your tax professional for more details.

3. Deductions for Charitable Contributions

When discussing this kind of deduction, the rules are a bit complicated. For starters, if your small business is a partnership, or if it is classified as an S corporation, or if you're organized as a limited liability company, your members will be filing the company's taxes on your personal forms -- including donations to charity that you have made. In other words, charitable donations are a "pass-through," as is the case with the company's income. C corporations are entitled to corporate deductions.

[Note: if you don't know what kind of classification you fall under, consult your tax professional or your attorney.]

OK, then, now that is out of the way, here are the rules:

You, as an individual, can write off 30-50% of your adjusted gross income as long as the organization you are donating to qualifies as a 501(c)(3)charity or foundation.

A corporation can write off up to 10% of their taxable income.

If you donate more than $250 you'll need to have a letter from that organization that confirms your contribution. Make sure you read IRS Publication 551 as well as the rules set forth in Section 179. Consult your tax professional for more details.

4. Deductions for Advertising

It's true: you'll either advertise your company now, or when you have your going out of business sale. Either way, advertising and marketing expenses are deductible -- if they are directly related to your business. They fall under the "Miscellaneous" category of write-offs. Check out IRS Publication 535 and consult your tax professional for more details.

5. Deductions for Legal and Professional Fees

OK, I saved this one for last because it relates directly to the thing I've said many times already: "Consult your tax professional for more details."

Fact is, fees you pay to your attorney and/or accountant are deductible -- under certain conditions. For example, you can't write off professional fees you expend when you buy a business asset (e.g., equipment). In that case, you include the charges in the cost of the purchase.

If you are a sole proprietor you can deduct tax preparation fees on your Schedule C or Schedule C-EZ. Also for sole proprietors, use your Schedule A of your 1040. Consult your tax professional for more details -- and don't forget to ask them about deducting their fees from your tax return.

Conclusion

The US government wants you to succeed in business. So they offer lots of latitude in claiming expense write-offs. So make sure you get what's yours.

FEDERAL HELP THAT REDUCES YOUR INCOME TAX

When planning your tax strategy for the year, you'll be glad to know that you can significantly lessen (or even eliminate) your income tax liabilities if you know what deductions and credits are available to you. For example, retirement planning can have a net positive tax impact. Similarly, owning your own home has positive implications for you. And, although college is more expensive now than ever, you can send your children to college and garner substantial tax benefits at the same time.

Here are some things to consider:

Let's assume for the purpose of discussion that you're married, with three kids (two in college) and you're employed full time. Your annual income is $76 thousand. And let's assume that you are making these plans at the beginning of the tax year, so that you have an entire 12 months to implement it.

One significant tax break you can get is by putting money into a 401k Plan.

If both you and your spouse each put five thousand dollars into your 401k account, that would reduce your annual taxable income by ten thousand dollars. This means that your adjusted gross income is $66 thousand. That will yield a substantial tax savings. Another significant tax break comes to you when you buy a house -- and itemize all your deductions.

Let's say you paid mortgage interest to the tune of $16 thousand. In addition, you paid real estate taxes of five thousand dollars. You also made charitable donations totaling $3500 to your church, synagogue, mosque or some other eligible organization. For purposes of discussion, let's say you live in a state that charges you income tax and you paid three thousand dollars.

Your itemized deductions equal $27,500. Now, your adjusted gross income is down from $66 thousand to $38,500.

If you claim 5 personal exemptions, your taxable income is reduced another $15 thousand to $23,500. Your income tax bill is going to be approximately three thousand dollars.

Now, let's see if we can whittle that down some more. How about using some relevant tax credits? Since two of your kids are in college, let's assume that one costs you $15 thousand in tuition. There is a tax credit called the Lifetime Learning Tax Credit -- worth up to two thousand dollars in this case. Also, your other child may qualify for something called the Hope Tax Credit of $1,500. Consult your tax professional for the most current advice on these two tax credits. But assuming you qualify, that will reduce your bottom line tax liability by $3500. Since you owed three thousand dollars, your tax is now zero dollars.

Not bad!

Lastly, since we are planning this strategy at the beginning of the tax year, you should go ahead and adjust your withholding amounts.

Since you've effectively done the planning ahead to reduce your tax liability to zero, you can go ahead and adjust your withholding to zero as well. But don't stop there: open up a Roth IRA (both of you) and put the excess cash there before you even have a chance to spend it. And if you have anything left over, set aside some money for your third child who isn't due to enroll in college for a few years yet.

Conclusion

With some help from the Federal tax code, you can reduce your income tax to zero. It just takes some knowledge, planning and action.

SMALL BUSINESS TAX HELP - GET TAX DEDUCTIONS

If you are a small business owner, you already know that you will pay a tax on what's left of your income after you've booked your expenses. So it's logical to make sure you have booked as many legal expenses as you can. That way your net income (and your resulting taxes) will be as small as possible. The IRS allows you a pretty wide range of small business tax deductions.

Here is a list of them. Check to see if you have included these in your tax planning.

1. Deductions for Start-up Costs

In your first year of small business, you are allowed to write off as much as $5,000 in start-up costs. In addition you can write off an additional $5,000 in organizational costs. Not only that: you also have the option of spread out expenses not deducted in the first year over a period of 15 years, beginning with when you opened your business. Eligible costs include things like market research, company advertising, training of your employees, travel for business, legal advice and other costs. Consult your tax professional for more details.

2. Deductions for Education

First stop: IRS Publication 970, "Business Deductions for Work-Related Education." For the most part, you can write off expenses related to your employees' education if the courses relate to their jobs.

In other words, if the course helps them keep pace with the marketplace demands (or improve their skills) or if they need the course to actually keep their existing jobs, then the expense may be a legitimate deduction. The bad news is that you can't take a write-off on any expense related to training in a new, unrelated field. A couple of other things to remember: You can also claim a write-off if you are self-employed. Deductions also include the cost of getting to and from the classes. Consult your tax professional for more details.

3. Deductions for Vehicles

Be careful here: the rules for deducting automobile expenses are pretty detailed and the Feds pay close attention to anyone claiming these deductions. So, for starters, keep clear and concise records. You can deduct expenses two ways:

The first option is to claim a deduction by counting how many miles you drove while on business. Currently, you can claim a deduction of 44.5 cents per mile. Check to make sure that is the current amount, as it does change occasionally. The other option is to track your total expenses incurred on things like gasoline, repairs and maintenance.

Remember: keep good records. If you're using your own personal vehicle for your small business, make sure you separate the times you use it for business from the times you do not. Include dates, destinations, purpose of the travel, etc. Read IRS Publication 463 for more info. And here's an important point: if your employees use a business vehicle while running personal errands, for example, you have have to show this as income to them on their W-2.

A couple of other things to remember: If you bought a new (or previously owned) car, you can take a write-off. You'll have to decide if it's better to take it in one single deduction or spread out over a period of time through depreciation. And if that car is a hybrid, you might be eligible for a tax credit. Read IRS Publication 8910 for more details. As always, consult your tax professional for more details.

4. Deductions for Equipment

You have the ability to take a write-off for small business equipment purchases. The write-off can be pretty large -- in 2006 it amounted to over $100 thousand. And the equipment can be used; the only requirement is that you use it at least half the time for your company. Allowable equipment includes things like computer hardware, machinery, office furniture, automobiles and other related equipment.

Make sure you read a current copy of IRS Form 4562 before planning your tax strategy on this point. If you decide you are not going to claim this write-off immediately, you can spread it out over a period of years by claiming depreciation on that equipment. Consult your tax professional for more details.

5. Deductions for Entertainment

The IRS definition of entertainment is pretty flexible. Generally speaking, if you attend a business meeting, for example, and you are not reimbursed for the expenses, you're allowed to write off up to half the entertainment expense. They do caution you that the "entertainment" must be in a business context. This means if you go to a seminar or conference, that's OK. Also, the entertainment should come immediately before or after the meeting. You get a break if you are self-employed; then, the 50 percent deduction cut-off does not pertain to you. Consult your tax professional for more details.

Conclusion

There are lots of ways to reduce your small business taxes. Generally it involves increasing the number and amount of allowable business deductions. Consult your tax professional for more details.

INCOME TAX FORMS - COMPLETING YOURSELF OR FARM IT OUT ?

The annual tax filing season will soon be here. It can't be avoided. Until the tax laws are changed and filing our federal tax returns will be done on one side of a post card it will remain a fact of life. The biggest source of confusion seems to be the many tax forms required to complete the process. With the tax code exceeding many thousands of pages it's no wonder we have all the tax forms to fill out and complete.

It seems to be an annual struggle for many to get their tax forms and the tax return completed accurately and on time. Not to mention that it can become confusing unless you know what you are doing. Many prefer to do their federal income tax forms and all of the other forms by themselves. Then there are others who prefer to get help, even through their only income is reported on one W-2 tax form.

Following are some reasons that many complete their own federal income tax forms:

• When you know how they were completed you will know what exactly is happening on the federal income tax forms. In other words, you will know what you owe or what you are getting back for your tax return. Not to mention the fact that you will know how the amounts were figured out.

• You won't have to worry about anyone knowing anything about your personal finances except the government. Some people prefer to keep their finances personal because they don't want others learning about their income and personal financial situation.

• You'll save money every year when it comes to tax time because you'll know how to fill out your own federal income tax forms and all of the others. You won't have to spend any money to hire someone to do it for you.
For those who hire a service or someone else to complete their federal income tax here are some reasons you might have to hire someone else to do the job for you:

• You may able to save yourself a lot of time and bother. You won't have to sit down and figure out how to fill in the federal income tax forms or any of the others, which can be difficult unless you're familiar with the process or have done it before. .

• You may end up getting more money back on your tax return because your tax preparer will know what tax deductions you can properly declare. There are other aspects of the tax law that they may be able to help you with that may save you additional tax dollars.

How you get your federal income tax forms completed is an individual decision. You might want to weigh the pros and cons of each one to help you decide how you want to do your taxes at the end of each year. Also, however you decide, be sure to carefully plan what you can do each year to minimize you tax liability. Take advantage of the full extent of your employers 401k or 403b and don't forget to fund your IRA's. Aside from saving on your taxes you'll be way ahead in planning your financial future. However you get the tax forms completed be sure you do it or get it done on time.

GET FAST TAX REFUND IN 24 HOURS

Each year, a number of U.S. taxpayers around the country get tax refunds even if they build on zero income tax. This is due to deducting calculations and the earned income tax credit. Because withholding is calculated on an annually basis, an individual just entering the work force or unemployed for a long period of time will have more tax than is owed withheld.

For a greater majority, however, tax refunds are simple 'savings' - money that the government kept for you that you are now going to get back for use in other things. Many Americans are pleasantly surprised to receive tax refunds each year. Most people use the money to pay off debts, beef up savings accounts, and even go on vacations.

To get your tax refund you have three options. You can either let the government directly deposit your tax refund into your bank account, have a check mailed to you, or apply your refund to next year's income tax.
There are several good reasons to prepare and file your taxes online

- If you expect a refund check, filing online is a great option. The IRS can process your return and issue tax refunds much sooner than if you mailed a paper return.

- Preparing and filing directly from your computer will cost you much less than going to a tax professional, and way less than going to a CPA.

- By using your computer, your forms will be much more legible than anything you could hand-write, which will help cut down on possible errors.

Join the millions of people who have discovered how easy, online tax filing can be. The cost will be much less, your tax forms will get to the IRS with no hand-written errors, and you'll get your tax refund in as little as 10 days.