Q: With the end of the year quickly approaching, what are some important tax and financial planning measure we can take to reduce our taxes and improve our financial position?

The Problem – Year-End Financial Oversights and Mistakes
With so many gifts to purchase and holiday parties to attend, it is easy to forget important year-end tax and financial planning measures that can save you taxes or bear financial benefits for years to come.

The Solution – Take Action in the Next Two Weeks
Many tax and financial planning deadlines are based on a calendar cycle – do them after December 31st and lose the benefit for that year. Outlined below are some of the most common oversights and mistakes to avoid before the year comes to a close.

1. Not Contributing to Your 401(k) or 403(b)
Not only do you build your retirement nest egg, but you also gain a tax break by contributing to your employer’s retirement plan. Better yet, many employers will match your contributions. Unfortunately, there is a cap on contributions each year. For 2007, it is $15,500 for those under the age of 50 and $20,500 for those aged 50 and over. Once you maximize your contribution you cannot make additional contributions to make up for under-contributing in previous years.

2. Not Timing Capital Gains and Losses
Capital gains and losses are classified as either short-term (less than one year) or long-term (more than one year). Long-term losses can only offset long-term gains, and vice versa. Selling investments, like stocks or mutual funds, you have held for more than one year generates a 15% capital gains tax rate. Realizing a gain on investments held for less than one year could generate a 35% tax rate. Review your portfolio to maximize your gains and losses. Do not forget your gains are reported on your New Jersey state income tax filing.

3. Leaving Money in Your Flexible Spending Account
Many employees take advantage of their employer provided pre-tax flexible spending account (FSA). Unfortunately, many employees leave balances in their accounts at year-end instead of spending them down. Many FSA’s have a ‘use it or lose it’ policy, and you could be wasting your hard earned savings by not spending down your balance. Make sure you pay your child day care bill and fill your medical cabinet before December 31st.

4. Paying the Alternative Minimum Tax
Also know as AMT, the alternative minimum tax is running rampant in New Jersey. Instead of prepaying your state income taxes and real estate taxes pay them when they are due. Instead of exercising your incentive stock options early exercise them when they are closer to their expiration date. Each of these measures could eliminate or mitigate your AMT exposure.

5. Forgeting to Take Your Required Minimum Distribution
Also know as RMD, required minimum distributions are necessary on traditional IRA accounts once you turn 70 ½ years old. If you have a 401(k) or 403(b) from a former employer and you are at least 70 ½ years old, RMD applies as well. Forget to take your RMD and you can be subject to a 50% tax penalty.

6. Forgetting to Fund Your 529
For 2007, the maximum contribution per person, per beneficiary to a 529 higher education savings plan is $12,000. There is a special five-year one time pull-forward rule. Like a 401(k) or 403(b), once you maximize your contribution you cannot make additional contributions to make up for under-contributing in previous years. Plan assets of up to $25,000 in the New Jersey 529 plan won’t be included in determining a beneficiary’s eligibility to receive financial aid awarded by the state of New Jersey.

If you need IRS tax relief when it comes to the unpleasant chore of filing as an independent contractor, you are not alone. This category of tax law is poorly understood by many people, and results in a very busy month of April for professional tax preparers.

There are several criteria that the IRS uses to determine if someone is an independent contractor. The main consideration is whether or not the taxpayer received a W2 form from an employer. In cases where a 1099 was issued instead of a W2, the IRS by default considers that person an independent contractor.

Independent workers pay the entire Social Security tax burden, which is normally shared between employer and employee. If you work for yourself, you have to pay both sides of the bill. The only saving grace to the Schedule C, which is the form you will use to file as an independent contractor, is the business expense section. There, you will achieve a bit of IRS tax relief by deducting your annual business expenses from business income. The IRS is keen on documentation for this category, so make sure you maintain adequate records throughout the year.

After filling out the Schedule C and including it with your personal tax return, you are all through. The process sounds much simpler than it is because many small businesses are quite complicated enterprises. Perhaps your expense category included depreciation or a loss due to property damage. In these and many other situations, you may seek IRS tax relief from a professional in order to file correctly. The last thing you need is for the IRS to audit your Schedule C and disallow some of the large deductions.

The typical types of businesses that fall under the independent contractor category include just about anything that is done at home, unless the employer provides a W2 form for the work. Childcare, freelance writing, personal services, and even tax preparation are standard types of contract jobs.

For IRS tax relief regarding filing as an independent contractor this year, it is best to consult a tax professional. That way, you will know that you are filing under the correct category and are taking the largest, legally allowable deductions for your specific situation. Independent contractor filings can be tricky and usually require at least a bit of outside help, so be sure you find help early on to avoid the rush.

‘Tis the season for gift giving. But is the gift taxable? Or deductible?

The gift tax. I’m sure you’ve heard about it. I receive a lot of calls about it. But do you know what it’s all about?

What is a gift? A gift is any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return.

In other words, if you give away something of value and don’t receive an equal value in return, you’ve given a gift.

(So far, so good, right?)

Why is there a gift tax? There is a gift tax to prevent those with a sizable estate from giving away their property before death and escaping the estate tax. You could say it acts as a ‘backstop’ to the estate tax.

Why gift? Several reasons are:

• Assisting someone in immediate financial need

• Providing financial security for the recipient

• Giving the recipient experience in handling money

• Seeing the recipient enjoy the gift

• Taking advantage of the annual exclusion

• Paying a gift tax now to reduce overall taxes

• Giving tax-advantaged gifts to minors

Cash Gifts

Most gifts are not subject to the gift tax, and don’t even have to be reported. Here are a few rules to keep in mind.

1. The annual exclusion: you are allowed an annual gift tax exclusion of $13,000 to as many people as you want (including your accountant), without any reporting or tax consequences. A married couple’s exclusion is doubled to $26,000. This includes your aunt, uncle, brother, sister, next door neighbor, – anybody.

2. The gift tax return, IRS form 706, does not need to be filed if the value is less than the annual exclusion of $13,000 per person.

3. Gifts are not taxable to, or reportable by, the person receiving your gift. Any number of people can give you up to the $13,000 limit each, and you will have no tax consequences. No liability whatsoever.

4. Gifts are not deductible by the giver, unless to a charity. Non-charity gifts do not reduce your taxable income because they are not deductible on your tax return.

5. There is no gift tax for:

. Gifts less than the annual exclusion of $13,000

. Tuition or medical expenses you pay for someone (directly to the institution). (Does not have to be family member.)

(Grandparents paying college for grandchildren are common.)

. Gifts to your spouse.

. Gifts to a political organization (for the organization’s use).

. Gifts to a charity.

6. If you sell something at less than its value or make an interest-free or reduced-interest loan, you may be making a gift.

7. Gift Splitting. A married couple may give a gift of up to $26,000 to a third person by considering it being made as half by each. A gift tax return needs to be filed because the total is over the $13,000 limit, but there is no tax. (By contrast, each may give a $13,000 gift separately without the need to file the gift tax return.)

8. Lifetime Credit: Even if you exceed the annual $13,000 per person limit, there is no tax until you reach the lifetime credit of $5 million.

Non-Cash Gifts:

Your tax basis, or cost, in the property you receive as a gift is the same as it was in the hands of the person giving you the gift, and you are considered to have owned the property for as long as the person giving you the gift owned it. (I’m not talking about an inheritance here, only the receipt of a gift from a living person. Inherited property is always considered long-term.)

As an example, let’s assume that your father gives you a piece of property in 2011. He paid $1,000 for it thirty years ago, and today the property is worth $50,000. If you sell the property this year, you will have a long-term capital gain of $49,000 (Sale price $50,000 minus cost $1,000). The property is considered to be long-term because you take on the purchase date of thirty years ago.

In general, the long-term/short-term holding period of property received as a gift is added to your holding period.

Why Knowing the Basis is so Important:

Sale at a Profit: If the stock is sold at a gain, the profit is the difference between the basis of the stock in the hands of the giver, and the proceeds received.

Example: Now let’s say that your father gave you stock which cost him $10,000, but when he gifted it you, the market value was $6,000. If you sold it for $12,000, you would have a gain of $2,000 (Your father’s cost which now became your basis, $10,000, less the selling price of $12,000.)

Sale at a Loss: If, when the stock was given as a gift, the market value was less than the basis of the stock in the hands of the giver, the loss is the difference between the lower market value and the proceeds.

Example: Now let’s say that you sell the same stock for $4,000. Is the loss $6,000 (Cost of $10,000 less selling price of $4,000)? No. It’s only $2,000. Tax law says it’s the market value at the time of the gift, $6,000, less the selling price of $4,000.

Sale at no Gain or Loss: There is no profit or loss if the stock is sold at a price between the basis of the stock in the hands of the giver, and the market value on the date of the gift.

Example: If the stock is sold at a price between the market value at the time of the gift, $6,000, and your father’s basis, $10,000, there is no gain or loss.

One more point: If a gift tax was paid when the stock was given, the basis of the stock is increased by the amount of the gift tax.

Planning Tip: If you’re considering the sale of property (like rental real estate or a vacation home), gifting this property to family members can reduce the income tax liability for the family as a whole. Caution: If, after the sale, you control the sales proceeds or have the use of them, the IRS may claim that the gift was never actually took place.

Planning Tip: In addition to reducing the size of your estate, another major tax advantage of making a gift is the removal of future appreciation in the property’s value from your estate. Suppose that you give stocks worth $50,000 to your children now. If you die in 10 years and the stock is worth $130,000, your estate will escape tax on the $80,000 appreciation even though you may have to pay a gift tax.

Conclusion

There’s a lot more in this area that is covered here, but this is a basic summary. You’ll need to contact an expert is this field before you begin any gifting strategies. You may want to check out IRS Publication 950.

But at least now, you are ready for your first quiz, aren’t you??

And don’t forget, in the words of Arthur Godfrey, ‘I’m proud to be paying taxes in the United States. The only thing is, I could be just as proud for half the money.’

As Americans continually search for tax relief they can too easily allow themselves to become victims of tax scams. In order to make the most of your tax relief options this year keep the following points in mind when it comes to protecting yourself against tax scams.

There is a concept of tax scams and other types of scams called “phishing”. This refers to email marketing that is unsolicited, pointing the user to a bogus website. The problem is that the email and the website can look official, creating confusion and inviting the user to enter personal information which is used for nefarious purposes. Well meaning Americans who are looking for help with tax information can unwittingly provide valuable, personal information that opens up the window to tax scammers.

In order to avoid this tactic keep in mind that the IRS will never contact you through email asking for any kind of personal information. The IRS will not contact you electronically at all either through text messages or other types of electronic communications. If you are ever approached in this way it is important to report the fraudulent actions to the IRS to help prevent further victimization.

Another scam rising in popularity is the concept of money being given away by the IRS or supposed money owed to you through social security. These scams often come in the form of a paper advertisement such as a flyer and are dispersed in low-income communities where people are desperate for money. Targeted populations often include older people who are easily conned into believing that they have the right to some type of government stimulus money.

These scam artists work by building false hopes based on making outrageous claims of government money ‘owed’ due to misquoted federal aid programs. These scams also revolve around false promises of a social security credit or rebate, which, of course, is non-existent.

Some fraudulent tax preparers make it a point to victimize taxpayers by offering tax benefits based on inflated or falsified information. If the taxpayer signs the returns with any kind of inflated information in hopes of getting some tax relief there is a hefty $5,000 penalty that results from intentional misinformation.

Choosing to include income that was not actually earned in order to try and make the most of potential tax credits is becoming a more popular way of seeking tax relief in a fraudulent manner. When taxpayers choose to exploit the system in this way, they end up being hit with penalties for falsifying information, being required to pay back all refunds along with additional fines. In some cases taxpayers may also face legal consequences such as prosecution, which may even, be on a criminal level, depending on the level of intentional misinformation.

When preparing for the 2014 tax season make sure to work with a well qualified, tax preparation service and take care of avoid all appearances of misrepresentation of IRS agencies. Remember that many forms of false advertising and misinformation are run by scam artists who prey on those who are easily led to believe things that are too good to be true. Report any knowledge that you find concerning tax scams in order to help less informed, and therefore more vulnerable, parts of the population be more protected from this type of victimization.

There are several types of debt you encounter-mortgages, credit card debt, auto loans, and even personal loans. Then, there’s the IRS Debt-something that the agency is authorized to collect by whatever means necessary. Once the IRS has placed you in their collections list, you are set to face these actions-bank account seizures, property liens and levies, wage garnishment, and asset seizures. If you don’t act on it, the IRS will definitely get ugly.

To avoid this, you should have a tax debt relief mindset, that is, a combatant mindset. Why? The IRS is the least caring, patient or compassionate. If it places you on its “get money from” list, you should accept that you are now the enemy and they have waged war on you. When the IRS sees your name, they will do whatever it takes to collect from you. This starts with automated notices, then it gets more intimidating and threatening as the bills pile up.

But in a democracy, you have your rights as a taxpayer. Tax debt relief is one of them. However, you must keep in mind that informing you of this right is the last thing an IRS collection agent will consider. You should know what to do and know it well.

Before anything else, you should have the right combatant attitude. As IRS agents would only care less if your life ends up a big mess after this war, you should fight back. Your first step in obtaining tax debt relief is knowing and understanding the rules of engagement-that is getting pointers from a retired IRS agent or tax professional, who can guide you through the process.

One form of tax debt relief is the IRS Statute of Limitations, which taxpayers can use to resolve this matter of paying and settling back taxes. This statute sets a time period to review, analyze or resolve taxpayer and/or IRS issues. In effect, this means that the IRS has only a certain period to assess, credit, refund and collect taxes. Going beyond this period, the IRS can no longer accommodate refund requests, assess additional taxes, and most importantly, collect. This Statute has certain time limits for assessment, refund and collection.

This Statute gives the delinquent taxpayer instant tax debt relief. It states that the IRS is given a certain time limit, say ten years, to collect from the time the back taxes were assessed. If they haven’t done so beyond that time, you’re off the hook. This and other types are available to you. The point is, you should not lose hope. You still have a range of options in this war.

This means that you don’t have to fear the IRS agent knocking on your door or trying whatever means necessary to pin you down. You only need to know how to fight back. This can be done if you know those weapons in your arsenal-tax debt relief options protected by law. You have the right to a worry-free life.

The term kiddie tax identifies the age in which kids become an individual tax entity separate from their parents for the purposes of calculation of taxes on investment income. Right from birth to the age of fourteen, children might earn investment income of up to double the standard dependent deduction. They are supposed to be taxed on the basis of their tax rate, usually around ten percent. Any sort of investment income above that threshold, would be taxed at the presumably higher tax rate of the parents.

After the age of fourteen, all the investment income has been taxed at the lower rate of the child. The Congress has officially extended the childhood age to 18, for the purpose of calculation of tax on the investment income. As per the Tax Increase Prevention and Reconciliation Act of 2005, passed in May 2006, the age was extended to eighteen. A child is said to be eighteen for the total tax year in which the child turns eighteen. For the year 2006, the threshold in terms of investment income has been fixed at $1,700. The amount is taxed at child’s rate. Anything, which is in excess of this amount, is taxed up at the rate of the parents.

Kiddie tax applies only in case of investment income and not earned income, therefore, teens with jobs would pay income tax as according to their rate and not their parents’. Also, individuals who get married before the age of eighteen are presumed to be adult as they are not children anymore, and in case if filing jointly, they file according to their own rate.

As it is, the change tends to put the future of the accounts set up under the Uniform Gifts to Minors Act, or the Uniform Transfers to Minors Act. As per these acts, the individuals might place the assets in the accounts for benefit of a child, yet retain control over the assets as trustee as long as the child doe not reach the age of majority, generally eighteen. The tax advantage of moving assets to the name of a child might now be deducted as income invested in such accounts over $1,700 would be taxed at the rate of the parent.

With the capital gain rate of five percent, in the ten percent or fifteen percent tax bracket, the parents falling in the higher brackets might still wish to consider the transferring of appreciating assets. However, parents who feel they had the years in between fourteen and eighteen to sell the assets in the portfolio of the child and potentially pay up no capital gain tax have lost the option.

One of the major fears of an average American, is when taxes are concerned is that of an IRS tax audit. Over the years, people come up with a number of ways of avoiding a tax audit. The following are a few simple tips, in order to avoid a tax audit. Now, even when we are confident that you can file your taxes properly, you keep wondering as to when, you would re required to receive a phone call, as well as a letter from the an IRS representative. So, you might worry a little bit lesser this tax season.

A few types of taxpayers have been much likely to be audited, than in case of others. They involve taxpayers who earn in excess of 200,000, small business owners as well as self-employed taxpayers. It also includes taxpayers who might be hiding the taxable income overseas. A major catalyst, in regard to tax audit is by having high deductions, in comparison with the other taxpayers within the same tax bracket. As it is, one can account for high deductions, caused due to attachment of a receipt or in other cases,Now, since the documentation to the tax return. While an average deductions might make way for an audit, being proactive, as well as reduction of the chances of getting audited. Do not be afraid to deduct the expenses, which tend to be legally deductible. Instead, you can make sure that you can justify the sum of your deduction. You should write checks wherever possible and keep up a copy of the cancelled checks in your records.

You can make use of tax preparation software. You can take up Tax prep soft wares, such as TurboTax, which eliminate the calculative errors, which may lead to an audit. As it is, they may also do a study of the tax return to let you realize that any items which could trigger an audit. You should be aware that tax software can not completely eliminate the chances of getting audited as the IRS computer systems audit a number of random taxpayers each year.

You can make use of a reputable tax preparer. As it is, you may not have an idea, as to what kind of reputation a particular tax preparer has made up with the IRS. Make sure that your tax preparer must be experienced with the filing of the kind of return, which you need. You may find out about the audit record at the preparer.

It is illegal and unlawful not to pay taxes, every citizen of a country is expected to pay a share of tax. The purpose of complying with the rules of taxation actually has a noble endpoint. Although sometimes it make seem as though taxes are a way for the government to squeeze the hard-earned money from the general public. It still remains true that taxes assist a nation in creating a stronger society and providing reliable services to the people.

The taxes we pay and are collected by the government serve specific purposes but basically are used to finance and fund many institutions and agencies. Companies, people with lots of businesses and people who have high monthly or yearly salaries are commonly demanded to pay taxes. They are the ones who are obligated and intentionally pay their taxes. Nevertheless, taxes are supposed to be paid by all members of the society. So even the poorest member of the nation happens to contribute in the taxation system. There are basic products and commodities which are laden with tax percentages. In fact, some issues pertaining to the high price increase of the commodity, products and services are attributed to the implementation of VAT or Value Added Tax. This is the unintentional paying of taxes.

Nobody in the society is exempted from paying taxes. Through the government-collected taxes, institutions are provided with funds in order to work and operate for the welfare of the nation’s citizens themselves. A few of these institutions supported by the taxes we pay are public schools, public hospitals, orphanages and public law offices.

There are people working for the government offices, and agencies, their salaries are coming from the collection of taxes. Among these government employees who are also working for the benefits and services of the nation are public teachers, policemen, public doctors, public nurses, public hospital staff, firemen and many other public services.

Taxes are important to be paid so that reliable public buildings, roads, hospitals, schools and shelter for homeless people are built and constructed. Taxes also finance and allot required funding for any repair and reconstruction of these public infrastructure. A part of the collected taxes is allocated for the basic necessities of the children in the orphanages. The nation’s security is also provided for by the taxes we pay. Part of the tax allocation goes to the fire and police departments. The country’s defense is also made possible by taxes which fund the arms, supplies and machineries of the army, air-force and navy.

The cleanliness and maintenance of the public facilities are also financed by the taxes: from the cleaning of roads to the proper water treatment to the construction of streetlights to the removal of wastes and trash.

Public hospitals get their medical tools, equipment and supplies through the taxes as well. Free health supplies and services are made possible through the taxes paid by a country’s citizens such as immunization shots and medical consultations in health centers. When calamities suddenly happen, relief goods are distributed to the affected people through tax funding.

There are in fact a lot of other beneficial projects and activities which are made possible by taxation including sectors of agriculture, energy and commerce so it is important that we all pay our tax dues.

There are always ways to try and save money and one of those ways is often overlooked by many homeowners and that would be property tax. Anyone knows that your property tax is based upon how much your home is supposed to be worth. In today’s economy a lot of homes are going down in value and some may not know it but you can apply to get your property taxes lowered. The way in which the tax is lowered is going to vary from state to state but below is a basic guideline for you to at least get a start.

First off, don’t sit there and think that the tax man is going to be the nice guy and come by and offer you a way to lower your property tax. Come on, you aren’t going to find the nicest people in the world of collecting taxes. We all know where they stood back in the days of Jesus even. So as the value of your home continues to drop you need to do something about continuing to pay the same high property taxes, because no one else is going to do it for you. You’re going to have to fight this battle on your own.

You will need to get yourself educated. When it comes to this kind of taxes it is really important that you are aware of the housing market and the situation that it is in, especially in your own area. You need to find out how much homes like yours are selling for in your immediate city and even on the block that you live in. You will need to put together some sort of record of the prices of real estate in the area as evidence to support your claim that your property taxes need to be lowered.

Next you need to get in touch with a local property tax assessor. You should ask them what the criteria is that they use to come up with how much you home is worth. If anything that they say doesn’t seem to be in line with what the current market is showing then you need to challenge it. Make sure all the details that you have on your home is correct. It’ not very uncommon for an assessor to make an estimate on your home about features you may not even have just to inflate the value.

You also should talk to a local real estate agent. You can get an official valuation done on your house by them. Also make sure to ask them for evidence of the sale prices of homes that are similar to yours that have been sold in the past 6 months. It is very important to find houses that are very similar to the one you own and that have seen their values drop. Make sure to do a report that includes all of the information that you get from the agent.

Once you have gathered all of your information you will then need to make an appeal at the property tax office. You will need to be ready to answer questions about your property and in relation to the appeal. They are going to do everything they kind to find a way not to lower your taxes.

With the addition of solar federal and state tax incentives and rebates, the average consumer can shave 50% off of their initial solar installation costs. A more complete list of the state incentives can be found on the DSIRE website. Here are a few things you should keep in mind when going through the application process.

Federal Tax Incentives

At the federal level, federal tax incentives have been extended another 8 years as part of the American Recovery and Reinvestment Act.
· A 30% tax credit is available for residential and commercial installations. As of 2009 and 2010, the money is actually a grant for installations beginning before Dec 2010 and implemented before Dec 2016.

Solar America Initiative

The US Department of Energy is enacting an initiative to develop solar technology by creating an incubator which invests approximately 3 million dollars per company. The goal is to achieve grid parity through advancements in solar technology by the year 2016. Grid parity is achieved when the cost of a watt of solar electricity is equal to or lower than the cost of existing electrical grid electricity.

State and Local Initiatives

California is spearheading the advance of solar technologies by implementing a number of novel programs.
-San Francisco is allowing businesses to gain $10,000 in incentives and homeowners $6,000
-Berkeley allows homeowners to add the cost of solar installations to their property tax assessment and allows them to pay out of their electricity cost savings.