by Tatya H.P.
‘In this world’, said the great Benjamin Franklin, ‘nothing is certain but death and taxes’. While modern medicine continues to work on a cure for mortality, 1031 exchanges offer a valuable mechanism against the foibles of the taxman. Allowing the exchange of one property for another, this property market trend can help you hold on to money that might otherwise end up with the IRS. How do you know whether you are eligible to take advantage of this great property trend?
The first stipulation is that the two properties involved in the swap be in use for ‘trade or productive purposes’, that is that they are moneymaking concerns of some kind, such as a rental property or holiday home. The property intended for swapping must also reside in the US, though it can be located at any point within.
1031 exchanges necessitate the involvement of what are known as Qualified Intermediaries, who deal with the paperwork involved in the switch, and assume a role akin to a property purchaser. The property to be exchanged is handed over to this intermediary, until the property owner locates a new property, at which point the switch can be made.
This type of property exchange operates under strict guidelines and an exacting timetable. Once the original property is sold, a list of possible replacements must be supplied to the intermediary with forty-five days, while the exchange itself must be completed within one hundred and eighty. The title to both properties must remain intact throughout the entire process, so this is not the time to dissolve any business partnerships that might be involved. Any deviance from these strictures can threaten the entire exchange process.
The properties to be exchanged must also be what is described as ‘like-kind’, meaning that they are roughly comparable. This does not mean that the two properties must echo one another entirely, it simply refers to the fact that the property relinquished and the one to be taken up must both be suitable for use in a similar business or investment related way.
1031 exchanges are not for use on residential homes, and so, for many people, are of little value. But if you own a business property and would like to move premises without losing a sum of money to the taxman, then a 1031 exchange might just be the right choice for you.
Showing posts with label taxes. Show all posts
Showing posts with label taxes. Show all posts
Sunday, January 10, 2010
4 Simple Steps To Reduce Your Taxes In 2006
by Tatya H.P.
Does Tax Season get you down?
Here are 4 simple steps that any small business owner can take to lower your tax bill this year.
STEP #1: Understand How Serious Your Tax Problem Is
Are you aware of just how much in taxes you are paying?
Here's how much the average family spends on various consumer categories -- as a percentage of income.
You must realize that it's not how much you spend on taxes that is important, it's how much you spend on taxes as compared to all other major categories of spending.
Consumer Spending:
How Do You Spend Your Hard-Earned Dollars?
Taxes ---------------------- 32.0%
Housing -------------------- 16.7%
Medical Care --------------- 11.5%
Food ----------------------- 8.2%
Transportation ------------- 7.9%
Recreation ----------------- 5.7%
Clothing ------------------- 4.1%
Savings -------------------- 1.4%
Other Miscellaneous -------- 12.5%
TOTAL --------------------- 100.0%
So, if you think you are being "nailed" by the government, you are absolutely right. You spend more on taxes than any other category of consumer spending.
In fact, you spend more on taxes than on food, clothing, and housing combined.
And it's not just federal income taxes we're talking about here. There's also state and local income tax, payroll tax (Social Security and Medicare), sales tax, excise tax and property tax.
Maybe you already knew "intuitively" that your tax bill is outrageously high. If not, the picture I've just painted should thoroughly convince you that you pay too much tax, period.
STEP #2: Get The Right Attitude About Your Taxes
What do I mean by this? Well, you simply must have a certain "mental attitude" toward this whole idea of paying taxes. I'll get right to the point -- you must have an attitude about taxes that says, "Enough is enough. I'm paying way too much tax and I don't like it. And it's about time I did something about it -- TODAY!"
After reading those numbers above, how do you feel? Doesn't that just make you furious? If so, great, then you are on your way to solving this problem. The old cliche is true: "You can't solve a problem until you admit you have one.")
If you saw those numbers above and said, "Big deal. So I pay 32% in taxes. So what? So does everybody else in this country" -- well, I'm sorry, but you might as well just stop reading this article right now. You will continue to pay too much tax because you really don't care about it.
To reduce your taxes, you must be committed to the idea of paying less taxes.
Before today is over, go get last year's personal income tax return (Form 1040) and look at how much tax you paid.
When you have Form 1040 in front of you, do you realize where the most important number is on this form?
No, it's not Line 71 -- the refund amount.
No, it's not Line 74 -- the balance due amount.
The most important number on Form 1040 is Line 62.
It says: This is your TOTAL TAX. That is how much federal income tax you paid for all of last year. When it comes to reducing your taxes, it doesn't matter whether you got a refund or whether you had a balance due.
What matters most is: What was your total tax liability for the year. That's the "magic number" that should just make your blood boil and your heart beat so fast that you can hardly stand it.
Now that I've got you all "riled up" about paying so much tax, let's move on to Step #3.
STEP #3: Realize That Reducing Taxes Is The Easiest Path Possible To Creating Wealth
Consider this simple fact: Reducing your taxes by just $4,000 per year is the easiest way possible to becoming a millionaire.
Let me elaborate.
Let's say you implement some new tax-saving strategies that reduce your taxes by $4,000 each year. Now, if you take that $4,000 per year in tax savings and invest it over the next 30 years, assuming you earn 11.5% on your investment, you end up with $1,048,745.98 at the end of the 30 years.
And here's the best part about this scenario: Where did you get the $4,000/year to invest? Well, you got it from money that would have gone to Uncle Sam. It's money that you used to spend on taxes, part of the 32% of your income that goes to taxes each year.
In effect, it's free money. It's money that was always there -- you just didn't realize it.
Is this a good deal or what? By simply reducing your taxes, the government will finance your million-dollar retirement.
And let's say your tax situation is such that you save $2,000/year instead of $4,000/year. Same assumptions: you invest the $2,000 each year at 11.5% for 30 years. End result: $524,372.99. Not too shabby, eh?
So all you have to do is come up with the tax-saving strategies that will put $2,000 or $4,000 in your pocket each and every year. Which brings us to Step #4.
STEP #4: Get Hold Of The Tax-Saving Strategies That Will Make You A Millionaire
You know, it doesn't really take much information to save a bundle in taxes. It is true: just a little bit of tax knowledge goes a very long way.
Useful tax information is freely available. On the Internet, at your local library, and through your local tax professional.
The question is: Are you willing to spend some time this year learning about effective tax strategies that can save you literally thousands of dollars?
Here's a simple goal to set for yourself: Over the next 10 weeks, set aside just an hour a week to read up on tax-reduction strategies. That's all, just 10 hours.
Chances are you'll find 2 or 3 strategies that reduce your tax bill by $1,000 this year.
So you spend 10 hours and, in effect, pay yourself an extra $1,000 for your time. Not a bad hourly rate, eh?
Many times, that's all it takes to pay less tax.
Does Tax Season get you down?
Here are 4 simple steps that any small business owner can take to lower your tax bill this year.
STEP #1: Understand How Serious Your Tax Problem Is
Are you aware of just how much in taxes you are paying?
Here's how much the average family spends on various consumer categories -- as a percentage of income.
You must realize that it's not how much you spend on taxes that is important, it's how much you spend on taxes as compared to all other major categories of spending.
Consumer Spending:
How Do You Spend Your Hard-Earned Dollars?
Taxes ---------------------- 32.0%
Housing -------------------- 16.7%
Medical Care --------------- 11.5%
Food ----------------------- 8.2%
Transportation ------------- 7.9%
Recreation ----------------- 5.7%
Clothing ------------------- 4.1%
Savings -------------------- 1.4%
Other Miscellaneous -------- 12.5%
TOTAL --------------------- 100.0%
So, if you think you are being "nailed" by the government, you are absolutely right. You spend more on taxes than any other category of consumer spending.
In fact, you spend more on taxes than on food, clothing, and housing combined.
And it's not just federal income taxes we're talking about here. There's also state and local income tax, payroll tax (Social Security and Medicare), sales tax, excise tax and property tax.
Maybe you already knew "intuitively" that your tax bill is outrageously high. If not, the picture I've just painted should thoroughly convince you that you pay too much tax, period.
STEP #2: Get The Right Attitude About Your Taxes
What do I mean by this? Well, you simply must have a certain "mental attitude" toward this whole idea of paying taxes. I'll get right to the point -- you must have an attitude about taxes that says, "Enough is enough. I'm paying way too much tax and I don't like it. And it's about time I did something about it -- TODAY!"
After reading those numbers above, how do you feel? Doesn't that just make you furious? If so, great, then you are on your way to solving this problem. The old cliche is true: "You can't solve a problem until you admit you have one.")
If you saw those numbers above and said, "Big deal. So I pay 32% in taxes. So what? So does everybody else in this country" -- well, I'm sorry, but you might as well just stop reading this article right now. You will continue to pay too much tax because you really don't care about it.
To reduce your taxes, you must be committed to the idea of paying less taxes.
Before today is over, go get last year's personal income tax return (Form 1040) and look at how much tax you paid.
When you have Form 1040 in front of you, do you realize where the most important number is on this form?
No, it's not Line 71 -- the refund amount.
No, it's not Line 74 -- the balance due amount.
The most important number on Form 1040 is Line 62.
It says: This is your TOTAL TAX. That is how much federal income tax you paid for all of last year. When it comes to reducing your taxes, it doesn't matter whether you got a refund or whether you had a balance due.
What matters most is: What was your total tax liability for the year. That's the "magic number" that should just make your blood boil and your heart beat so fast that you can hardly stand it.
Now that I've got you all "riled up" about paying so much tax, let's move on to Step #3.
STEP #3: Realize That Reducing Taxes Is The Easiest Path Possible To Creating Wealth
Consider this simple fact: Reducing your taxes by just $4,000 per year is the easiest way possible to becoming a millionaire.
Let me elaborate.
Let's say you implement some new tax-saving strategies that reduce your taxes by $4,000 each year. Now, if you take that $4,000 per year in tax savings and invest it over the next 30 years, assuming you earn 11.5% on your investment, you end up with $1,048,745.98 at the end of the 30 years.
And here's the best part about this scenario: Where did you get the $4,000/year to invest? Well, you got it from money that would have gone to Uncle Sam. It's money that you used to spend on taxes, part of the 32% of your income that goes to taxes each year.
In effect, it's free money. It's money that was always there -- you just didn't realize it.
Is this a good deal or what? By simply reducing your taxes, the government will finance your million-dollar retirement.
And let's say your tax situation is such that you save $2,000/year instead of $4,000/year. Same assumptions: you invest the $2,000 each year at 11.5% for 30 years. End result: $524,372.99. Not too shabby, eh?
So all you have to do is come up with the tax-saving strategies that will put $2,000 or $4,000 in your pocket each and every year. Which brings us to Step #4.
STEP #4: Get Hold Of The Tax-Saving Strategies That Will Make You A Millionaire
You know, it doesn't really take much information to save a bundle in taxes. It is true: just a little bit of tax knowledge goes a very long way.
Useful tax information is freely available. On the Internet, at your local library, and through your local tax professional.
The question is: Are you willing to spend some time this year learning about effective tax strategies that can save you literally thousands of dollars?
Here's a simple goal to set for yourself: Over the next 10 weeks, set aside just an hour a week to read up on tax-reduction strategies. That's all, just 10 hours.
Chances are you'll find 2 or 3 strategies that reduce your tax bill by $1,000 this year.
So you spend 10 hours and, in effect, pay yourself an extra $1,000 for your time. Not a bad hourly rate, eh?
Many times, that's all it takes to pay less tax.
4 Reasons People Get Into Trouble With the IRS
by Tatya H.P.
You don't want to mess with the Internal Revenue Service. One small mix-up when handling your finances can cost you big.
For example, in recent years the IRS has increased its filing of levies, liens and wage garnishments. In fact, in 2004 alone, approximately 2.5 million levies were filed.
The experts at JK Harris & Co., one of the nation's largest tax resolution firms, offer this list of common ways people get into trouble with the IRS.
1. Filing too many exemptions. An exemption gives you a major tax deduction, and some taxpayers can't resist the temptation to report more exemptions than they're entitled.
You can only claim exemptions for yourself, a spouse and for all "dependents." Dependents have to meet specific criteria, however, so make sure you follow the IRS guidelines so that you don't mistakenly file an extra exemption.
2. Being unaware of taxes levied for early withdrawal from certain retirement plans. If you withdraw from a retirement fund such as a 401(k) or IRA before you're 59 1/2, you may face a 10 percent federal penalty on your investments, as well as a state penalty and an income tax on the money withdrawn.
3. Not paying enough taxes when self-employed. Many people who own their own businesses don't know how much they have to pay in taxes. The tax structure for a self-employed person - what to pay, how to pay and what can be deducted - is decidedly complex, so it's easy to become confused.
4. Not paying taxes on winnings. It is necessary to report all gambling winnings, including winnings from lotteries, casinos and horse races, as income.
For people who are in trouble with the IRS, there are various programs available that can provide debt relief if a taxpayer qualifies. JK Harris helps its clients determine if they meet the requirements for one of these IRS programs. Its staff includes former IRS agents, certified public accountants, attorneys, enrolled agents and other experts that offer tax services, financial planning, small business services and other assistance.
You don't want to mess with the Internal Revenue Service. One small mix-up when handling your finances can cost you big.
For example, in recent years the IRS has increased its filing of levies, liens and wage garnishments. In fact, in 2004 alone, approximately 2.5 million levies were filed.
The experts at JK Harris & Co., one of the nation's largest tax resolution firms, offer this list of common ways people get into trouble with the IRS.
1. Filing too many exemptions. An exemption gives you a major tax deduction, and some taxpayers can't resist the temptation to report more exemptions than they're entitled.
You can only claim exemptions for yourself, a spouse and for all "dependents." Dependents have to meet specific criteria, however, so make sure you follow the IRS guidelines so that you don't mistakenly file an extra exemption.
2. Being unaware of taxes levied for early withdrawal from certain retirement plans. If you withdraw from a retirement fund such as a 401(k) or IRA before you're 59 1/2, you may face a 10 percent federal penalty on your investments, as well as a state penalty and an income tax on the money withdrawn.
3. Not paying enough taxes when self-employed. Many people who own their own businesses don't know how much they have to pay in taxes. The tax structure for a self-employed person - what to pay, how to pay and what can be deducted - is decidedly complex, so it's easy to become confused.
4. Not paying taxes on winnings. It is necessary to report all gambling winnings, including winnings from lotteries, casinos and horse races, as income.
For people who are in trouble with the IRS, there are various programs available that can provide debt relief if a taxpayer qualifies. JK Harris helps its clients determine if they meet the requirements for one of these IRS programs. Its staff includes former IRS agents, certified public accountants, attorneys, enrolled agents and other experts that offer tax services, financial planning, small business services and other assistance.
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