Estimate Your Yearly Income

The first thing you have to do is to predict how much money you will be earning this current year. Obviously, it cannot be an accurate figure, but having a rough idea will also make things much easier for you. One way to do it is to look at the average monthly income for the first three months and then multiple the same with 4. However, if you are expecting some bonus or larger income in a given month, you must also take that into account. Keep the figures realistic, based on facts.

Get Yourself Educated About Tax Deductions

No matter how many different types of tax planning tips you follow, if you are not well aware of what kind of tax deductions are available, you will never be able to file your taxes properly. Even if you file your return in a proper way, you will not be able to save money on taxes, which you could have easily saved otherwise. You could also run into some legal hurdles regarding employment without knowing, issues that an employment attorney can help you overcome. Lastly, self employed professionals may qualify for include some business expenses and health insurance premiums. Using these deductions will reduce your taxes.

Retirement Plan

Solo 401 and SEP IRA are some common retirement plans that you can use. Since you are a self-employed individual, the US taxation laws allow you to make larger contributions as compared to the plans sponsored by employers. The more money you put into these retirement plans, the more you can save on your taxes.

Keeping an accurate record of how much money you spent on your personal car while you used it for business purpose is also one of the most useful tax planning tips. For example, you can keep record of the number of miles you traveled. As per the laws, you can deduct up to 50 cents per mile driven.

Following is a brief rundown on how to go about filing past year tax returns.

Obtain Appropriate Form

The process of filing past year tax returns requires you to fill out and submit specific forms. You can visit the official website of the IRS (Internal Revenue Service). You can download the necessary forms free of cost from their website; look into the “IRS Resources” category and then click on “Forms and Publications”. Alternatively, you can also give them a call at 1-800-Tax-Form and request them to send the packet of the necessary forms (past year 1040 form) along with an instruction booklet.

Gather Important Documents

Once you get the forms for filing past year tax returns, the next thing you have to do is to gather important documents that are relevant to past year’s income and taxes. These documents may include, but are obviously not limited to, self-employment income records, credit and deduction records, alimony records, itemization records, all 1099 forms, W-2G (gambling winnings form), and other such things. Married couples that are filing their tax returns jointly will need documents related to information regarding both the spouses. Depending upon your specific situation, you may also need several additional forms for deductions and credits, such as Form 2241 for dependent expenses, Form 8863 for education credits, Form 8812 for additional child tax credits, and Schedule EIC.

Double Check The Information You Are Providing In The Form

While you are filing past year tax returns, you must fill out the correct information in the correct spaces. If you are not sure about what information you have to provide in a particular space, you must refer to the instruction booklet. A safe way is to fill out the form on your computer and once you complete it, just get it printed on paper. The information you are providing in the form must be accurate and complete in all respects. Though the form is very much similar to current year’s 1040 form, you must be very careful while following any additional instructions. Always remember, you have the right to reduce the amount of taxes you owe by utilizing all possible exemptions that you are entitled to. If you forget to mention a specific tax deduction and realize it only after you have already submitted the form to the IRS, there is still an option to get that deduction adjusted. But, that will obviously add to your hassles. With a little extra care, you can save yourself from unwanted hassles. Once you have provided all required information, sign it. Do not forget to mention your daytime phone number on the form.

Submit The Form

When it comes to filing past year tax returns, it is very important for you to keep in mind that not all IRS centers process past due returns. Therefore, make sure that you mail the form to the address that has been provided in the form. You can also refer to the instruction booklet for more information about it. Since you are also attaching relevant documents, you must also include a list of the documents that you have attached on a separate sheet. Put all the forms and documents in an envelope and mail it to the address provided in the form.

Overall, the process of filing past year tax returns is not a very difficult one. Still, you have to be very careful because any wrong or incomplete information on the form can make things complicated for you. If you need some assistance in filling out the forms, you can give a call to the IRS anytime at 1-800-829-1040. Besides that, if you find the process to complicated to handle on your own, you are advised to get assistance from a professional accountant, the one who has a good deal of experience in handling such things. The accuracy of the information you are providing is very important because otherwise you may be suspected for intentional tax fraud, which can push you deeper into serious legal trouble.

Obtain Form 1040X

You have to fill out the form 1040X, which you can download free of cost from Internet. All you have to do is to visit the official website of the IRS (Internal Revenue System). However, here, it is very important for you to keep in mind that when it comes to filing an amended tax return, you have to do it manually. The tax laws of the United States of America do not allow you to file the amended tax return electronically. If you have to make changes to tax returns of several years, you will have to fill out and submit a separate form 1040x for every year. Please note that you can file a claim for tax refund only within three years of filing the original tax return.

Fill Out The Form

You will have to be very careful while you are filling out the form 1040x. Make sure that the information you are providing is accurate and complete in all respects. Some basic information that you need to provide include filing status, social security numbers, address, name, and other such things. Do not forget to mention the year of the tax return that has to be amended. Besides that, it is also important to note that though change in filing status is possible, there are certain legal restrictions. For example, the US taxation laws do not allow you to change from a joint return to an individual return.

Changing Amounts

While you are filing an amended tax return, you must also take great care while changing the amounts. First, you need to provide the amounts mentioned in the original tax return in the column A, and then, in the adjacent column B, you can mention the difference in the amounts that has to be adjusted. These amounts may be related to credits, deductions, and income. Then, in the column C, you can subtract or add (whichever is applicable) the amount in the column B from the amount mentioned in the column A. make sure that you enter the corrected amounts in the correct line. For example, the line 5 of the column C should be used to mention the corrected taxable income.

Line 6 Of Column C

You have to be very careful while you are filling out the line 6 of the column C as part of the process of filing an amended tax return. For example, if AMT (Alternative Minimum Tax) applies to your case, do not forget to mention that amount in the line 6. While you are calculating the changed tax liability, make sure you refer to the tax schedules’ or tables that are applicable to the year that is being amended.

Complete The Remaining Lines

Once you arte through with the above steps, you will have to complete the remaining lines for refunds already received, tax payments already made, other taxes, and credits. Explain each and every change that you are making. In some cases, you may be required to attach some documents. If so, do not forget to include those attachments. Depending upon your specific situation, you can show the net difference either as a refund on Line 23 or as additional tax due on Line 21.

Print The Completed Form

Once you complete the form 1040x, you can get the same printed on paper. You can then submit the form with the local IRS (Internal Revenue Service) center in your area. You will obviously have to include a check for payment in case you owe additional tax after making the changes.

Though the process of filing an amended tax return may look a simple one, the calculations can sometimes be very complicated. For example, if you are decreasing or increasing your gross income, it will impact several other items also, such as allowable credits and limitations on itemized deductions. Even the taxable amount of social security benefits may get affected because of this. Therefore, you have to be very careful while you are doing your calculations.

If you are not careful in your planning, you may end up paying a fortune of money in the form of taxes, which can actually leave a serious dent on the overall income or profit of your business. No wonder hiring professionals like business plan consultants can be life-saving.

Following is a brief rundown on some of the tips and suggestions that you may find very useful, especially if you are starting a new business.

Choose The Most Suitable Structure For Your Business

You are strongly recommended to do a thorough brainstorming about the best structure of your business while you are planning to start a new business. Tax planning for a business is also crucial when it comes to finalizing on a specific structure. It is very important for you to understand that the US taxation rules vary significantly depending upon which business structure you are using – whether it is C-Corps, S-Corps, LLCs, partnership firms, or sole proprietorships. The best structure for you is the one that does not only meet your business requirements, but also something that gives you room to save more on taxes.

Ownership Vs Lease

You can save a substantial amount of money on property taxes, sales taxes, and other taxes if you choose to go for leasing instead of buying various properties. Whether you buy or lease properties, such as vehicles, equipment, and real estate, you pay almost the same amount of money in either case. That is the reason why many people prefer to have ownerships on such properties rather than getting them on lease. But, such decisions are often based on impulses, not on facts. Ownership can cause you to pay a much larger sum of money towards various types of taxes related to those properties. Therefore, while you are doing tax planning for a business, you must seriously consider about this aspect and make an informed decision whether leasing can be a good idea in your specific situation. Obviously, there are several other factors, such as estate planning, that you may want to take into account when making these decisions. Owning these properties and not properly documenting your plan for them in the future can make for difficult situations that could even involve an estate litigation lawyer for your loved ones to legally resolve. As with all aspects of your business, filing the proper paperwork and working with professionals is essential to proper documentation and bookkeeping.

Capital Gains Tax

When you sell real estate properties, bonds and stocks, you may be held liable to pay capital gain taxes provided you are not selling them at loss. It is however important to note that capital gain taxes do not automatically apply to you just because your business is holding a particular property. You become liable to pay this form of tax only when a capital asset is sold off because it is then when government can actually get an accurate assessment of the actual value of such properties. Therefore, you must do regular monitoring of how the value of those properties is appreciating during the period you are holding it. You must also wait for the right time to sell the same; the right time is the one when the properties gross the highest amount. While you are working on your strategies to do tax planning for a business, you must also keep an eye on how the laws change over time. For example, if the capital gains taxes are expected to be increased at a specific date, it will be wise to sell the properties before that date. This way, you can manage to achieve a much higher net profit even if you are selling it at a comparatively lower price than otherwise. Similarly, if you are considering buying a property, you should again wait for the right time.

Overall, it is crucial to do a thorough tax planning for a business. The success and failure of your business depends very much on how you have dealt with the taxation related issues while preparing your business plans

How To Determine AMT Tax?

The first thing that is very important for you to learn about AMT tax planning is how AMT taxes can be determined. There are certain steps that you need to follow in this regard. First of all, you have to find out whether you are subject to this type of tax or not. One way to do this is by using the online calculator provided on the official website of the IRS (Internal Revenue System). In order to get a better idea, you will also have to do a thorough study of the IRS 1040 instructional worksheet. As per the US taxation laws, you can be subject to AMT taxes if your total income (plus any adjustments as applicable) exceeds 50% of the exemption amount allowed for Alternative Minimum Tax. In the year 2009, the exemption amount allowed for Alternative Minimum Tax was $35,475 for married people when filed separately, $70,950 for married people when filed jointly, and $46,700 for individuals (or for head of the households). You can use a simple formula to calculate the AMT tax; you just have to deduct the exemption amount (whatever applies in your case) from the addition total of 26% of income below $175,000 and 28% of income above $175,000.

How To Avoid Amt Tax?

While you are working on your strategies regarding AMT tax planning, the next big thing that you have to focus on is how you can avoid paying these taxes. There are plenty of things that you can do in this regard. For example, you must make the payments toward local and state taxes at such a level that should not force you to owe, but also should not overpay the owed taxes. This strategy can help you to avoid these taxes for the filing season. If not, it will at least help you to minimize the Amt tax amount to a great extent. You are also recommended not to prepay property taxes for the following year; instead, you should pay it only when it is due. This strategy will also help you avoid Amt taxes by keeping your state deductions to a very low level. Another great way to avoid AMT taxes is to implement certain strategies in a way that should allow you to keep your taxable income outside the range of $150,000-to-$415,000. If the large distributions are likely to push you in the AMT tax bracket, it is not at all a wise idea to spread the large distributions out; instead you must consider claiming the same all in one year.

When it comes to AMT tax planning, it is very important for you to keep in mind that some of these strategies may not work as effectively as they sound in theory. As per the records provided by the IRS, AMT taxes apply to approximately fifteen percent of US taxpayers who come within the income bracket of $75,000-$100,000.

Capital Gains

The sales transactions related to real estate generally involves either a capital loss or a capital gain. Therefore, it is very important for you to have a clear idea about the kind of tax consequences that you may have to face before you go for port orange fl homes. In order to ensure the maximum benefits from the purchase or sale of a real estate property, you must do tax planning regarding all such transactions much in advance - click this for more. Following are some of the most basic things that you must know in this regard.

Before you start working with My Real Estate Team for related tax planning, you must first have a thorough understanding of what capital gains taxes are and how you can deal with the same. If a property that you have sold had increased in value from the point of purchase, the US tax laws require you to pay taxes on the difference between the ultimate sales price and the original purchase price. In order to save money on capital gain taxes, you will have to work on your strategies in advance and look out for ways on how this tax liability can be deferred to a future date. If you are not aware of those strategies, you may consider hiring an experienced accountant specialized in taxes related to real estate transactions.

Structured Sale Annuity

Structured sale annuity is one of the most strategies that seasoned investors often use when it comes to real estate related tax planning. This strategy can turn out to be very useful, as it can help you perform a real estate sale over time. It means you will be able to pay taxes over time instead of paying the capital gain taxes on the total sale price at one time. This strategy can eventually help you save a substantial amount of money, as you will be liable to pay the capital gain tax only on that specific part of the total sale price that you received during the tax year. For an individual who is selling a real estate property, this can be a huge tax saving. In the case of rentals, there can be disputes which  can only be resolved through legal mediation. Look for a landlord attorney, as they will be well versed in the types of laws and procedures that will apply in cases such as these.

1031 Real Estate Exchange

1031 real estate exchange is another popular strategy for that seasoned investors use to maximize financial benefits. It is often an integral part of the real estate related tax planning. Here, it is very important for you to keep in mind that the number “1031” in the term used above actually refers to a particular section of the IRC (Internal Revenue Code). You can use this strategy to avoid the capital gain taxes at the present time. You can perform a real estate sale and invest the money thus received in another real estate venture without worrying about any tax liabilities caused by it for the current year. 1031 exchange is a very common strategy that is used to defer capital gain tax dues into the future.

As you can see, saving taxes on real estate transactions can be a slightly complex process. Therefore, it might be a nice idea to hire a professional estate planning attorney to help you with real estate related tax planning.

Discuss Things With Your Accountant

When the time for filing tax returns come closer, you must have a meeting with your accountant, where you must discuss various things associated with business tax planning with them. The idea is not just to review the current year’s performance but also set the projections for the next year. Pay special attention toward the kind of deductions that are available for you this year. The deductions you used last year may not necessarily be available this year also. Likewise, this time, you may also qualify for some additional deductions. Do a thorough research and brainstorming in this regard because tax deductions are something that can save you a fortune, which otherwise may just go to the IRS wallet. You may also have to change your tax strategies this year, especially if there have been some business related changes or changes on person front, such as the change in marital status.

Get Yourself Prepared For Premium Increases

If the health insurance premiums are expected to rise significantly in the coming year, you should consider increasing the deductibles and co-pays of your employees as part of your business tax planning strategy. You can enjoy several benefits by increasing the cash bonuses; for example, it can help you cut down the taxable income.

Deductions That Are Not Very Common

If you go through the legal documents regarding tax laws applicable in the United States of America, you will find that there is a very long list of deductions that tax payers can take advantage of. Though you may be well aware of the most common types of tax deductions because you have used it again and again every year, you may not have any idea about the least common deductions that you qualify for. As a general rule, any expenses that you pay for to ensure smooth running of your business is tax deductible. If you use a phone to talk to clients and vendors, the phone bills are deductible. If you use your car to perform business related works, any expenses associated with that car can be treated as a business expense and thus can be considered for tax deductions. Deductions, overall, must be an important point to consider while you are working on your business tax planning strategies.

Debt And Losses

You must have a system to document debts and losses related to your inventory. Your accountant may be able to give you business debt advice and tell you how to use those debts and losses for deductions. In order to ensure an accurate count, you are advised to have a system in your business that ensures documentation of all such inventory losses on a quarterly basis. Besides that, you are also recommended to keep proper records of several other things, such as collection-agency receipts, copies of mailed letters, e-mails, phone calls, and documents related to collection attempts.

Overall, when it comes to business tax planning, it can be a little complex and time consuming process. Make sure you have an expert and highly experienced accountant to assist you.

Get References

In order to choose the best accountant specialized in tax planning, you can start by asking references from your friends, acquaintances, family members, colleagues, and others. Those who have already gone through this process can help you learn a lot on how you should go about it. Whether it is a recommendation or a warning, you are strongly recommended to take their suggestions seriously. If they have already worked with an accountant on tax related matters and were happy with their performance, you can consider hiring one from those good references. However, they are warning you against a specific accountant, someone who they have a very bad experience with, you must take it as an alert sign. Contact only those accountants who have got good reviews for.

Check The Credentials

When you call an accountant specialized in tax planning for an interview, the first thing you should look at is their credentials. Make sure that they are duly licensed to offer such services in your state. Look at the kind of designations they have. Check to see if the certified public accountants you are interviewing have passed all necessary examinations.

Review Their Specialties

It is very important for you to understand that not all accountants can handle all types of tax matters. Tax planning is a wide subject. You need someone who has specialization in handling the tax issues related to your case. Ask them in details about the different types of tax planning matters they have handled before. Do their specialties match your requirements? For example, if you are an individual and want to hire someone who can handle the matters related to personal tax return filings, it is obviously not a good idea to hire one who specializes in handling business taxes only.

Do A Thorough Background Check

The best accountant specialized in tax planning for your case is the one who is not only experienced but is also someone you can trust. Besides that, you just cannot assume all their answers to be true. You must verify whatever they tell you about their specialization and experience and knowledge. You can do a check their past records by contacting the board of accountancy in your state. Check if the accountant you are considering hiring is duly licensed with your state’s board of accountancy. Furthermore, it is also important for you to make sure that no disciplinary actions have been taken against them in the past.

Work Style

Before you hire an accountant specialized in tax planning, you must also ask them how much time they are going to take for the work you are assigning to them. You should also inquire about their work style, such as whether they work alone or have a team of assistants for help. Some accountants these days take the job and outsource the same. Therefore, it would be a nice idea to get into a written agreement before you hire one. Read the fine prints thoroughly before you sign it. If you have no objection with the outsourcing thing, you should at least inquire about how the outsourced work is supervised.

Last, but not the least, you also need to be very clear about the terms related to the accountant’s fee. Overall, if you keep in mind the above things, it will help you make an informed decision when it comes to hiring an accountant specialized in tax planning.

Personal Income Tax

Personal income tax is probably the most common among the different types of income taxes. This includes dividends, interest income, and earned wages. These taxes are also referred to as progressive taxes because the person earning a higher income must pay higher taxes. For example, as per the US tax laws in 2009, individuals paid 35% of the income over $372,950 while they paid taxes at the rate of only 10% for the first $8,350 of taxable income.

Capital Gains

If you have invested in certain goods or properties, the income thus earned is refereed to as capital gain. If it is a loss, it is called capital loss. How much taxes are charged on that income depends mainly on whether it is a short-term or a long-term capital gain. If you have invested a certain amount of money for at least twelve months, it is a long-term investment and the income thus earned is long-term gain. As per the current laws, you must pay capital gain taxes at 15% of the total income you get from such long-term investments.

Corporate Income Taxes

Different types of income taxes are applicable to companies also. If you run a company, you must pay corporate income tax on the profit (if any) you thus earn from it within a year. These taxes are charged on both federal and state levels. These taxes when combined at both levels become one of the highest rates in the world. In 2009, it was 39.1%. Probably, that is the reason why there has been continuous debate on different issues, such as whether the double taxation on dividends received by shareholders and paid by companies is fair. After all, both the companies as well as their shareholders are supposed to pay taxes on this dividend – for the companies, it is profit; for the shareholders, it is income. Despite such controversies, as per the current laws, both companies and individuals (who receive dividends) must pay taxes on it.

Social Security And Medicare Taxes

The different types of income taxes charged under this category are regulated by the Federal Insurance Contributions Act. Those who work under an employer, the Social Security and Medicare taxes are divided between them and their employer. For example, at present, the social security taxes are charged at the rate of 12.4%, where both you and your employer pay 6.2% each. Likewise, the rate at which the Medicare taxes are charged is 2.9%, where both you and your employer must pay 1.45% each.

Even self-employed individuals must pay different types of income taxes on their income. Since these individuals do not have any employer as such (they have clients), they are liable to pay the total amount of Social Security and Medicare taxes alone, which is 15.3% and is charged on 92.35% of the total income.

Sales Taxes

Sales taxes are probably the most common among different types of taxes. State and local governments use the money thus collected to improve services, such as medical, fire, and police. The laws however significantly vary from one state to another. For example, Pennsylvania imposes 6%, Montana and Alaska 0%, Colorado 2.9%, Alabama 4%, and California 7.25% (which is the highest sales taxes in the United States of America).

Property Taxes

US citizens are also required to pay property taxes on land and properties that they own. The legal provisions in this regard also vary widely by state. As per the latest report, the states that are ranked within the top four percentile for the highest amount of property taxes include Wisconsin, Colorado, Vermont, and New Jersey. If you need help with your property taxes, you may hire a professional from a property tax services firm. Different types of taxes are used on different projects and programs. The money collected from property taxes is used by the state and local governments to fund public school programs.

Federal, State, And Local Taxes

Most of the government projects are funded by federal, state, and local taxes. The Internal Revenue Service regulates these types of taxes. These taxes are charged on individuals on the basis of their income. The higher the income, the higher percentage rates apply (and vice versa). If you are dealing with tax issues, you may seek the services of an irs tax problems attorney.

Income Tax

Federal government charges income tax, but state and local governments also have the right to charge additional taxes. It is legally mandatory for all citizens to pay these taxes as per the tax brackets they come under. Taxable income includes self-employment earning or any other earned wages. The government in most cases deducts it from the monthly or weekly wages of the individuals. Employers are supposed to make the wages payment after deducting this amount. The final calculation is then made at the end of the year when W2 forms are filled.

Depending upon the different sources of income, the kind of assets and properties you own, and the type of business you run, you may be liable to pay different types of taxes. Whatever taxes are applicable, you must pay the same in a timely manner. Hiding income information and not paying taxes in full is considered as a serious legal offence. You can even be sent to jail for this. Therefore, though it is quite okay to use legal strategies to lower your taxes, it is not okay not to pay taxes at all. You can be in trouble if you do so. A couple of years back, the famous actor Wesley Snipes was awarded with a punishment of 3 years of jail time for tax evasion.