Taxes Levied In California
In California, state taxes have always played an important role. At the end of the 21st century, the state of California spent a large amount of money to provide public services to the residents of California and the local businesses. The money spent has been provided by the state taxes. Three-quarters of the state treasury and one-half of the local shares are all provided by taxes.
The taxes levied by California State are all included as State Taxes. The personal income tax or PIT, the sales and use tax or SUT, the bank and corporation tax and major motor vehicle-related levies account for a major share of California’s own-source revenue.
The income tax, the sales tax and the bank tax finance the state’s General Fund. The largest single tax that is generated by the residents of California is the PIT. This Tax accounts for over half of the General Fund revenue.
The rest of the state expenditure is taken care of by the special funds. These special funds are generated by the motor vehicle-related taxes. Special funds include tobacco-related taxes and sales taxes. These funds support health programs and local governments.
Personal Income Tax:
Established in 1935, the personal income tax or PIT is the state’s single largest revenue source. In the year 2000, California collected over $35 billion as income tax. This tax accounts for roughly 40 percent of all revenues and half of General Fund revenue.
The Personal income tax is levied on both residents and nonresidents. Non-residents pay taxes on income derived only from California sources. In 1998, there were over 13 million PIT returns filed, which include 600,000 from nonresidents. Personal Income Tax also applies to proprietorships, partnerships, estates and trusts.
The income offered by the Sub-chapter S corporations is subject to PIT taxation. Wages and salaries, interest, dividends, business-related income and capital gains are also included in the Income Tax. One of the key articles that make California Income tax unique is that single taxpayers only account for 45 percent of total filed returns, but only 26 percent of tax liabilities. Married-filing-joint taxpayers constitute 40 percent of total tax returns, but over 68 percent of tax liabilities.
Bank and Corporation Tax:
California taxes corporate profits. The Bank and Corporation Tax or BCT is the state’s third largest source of General Fund revenue. The tax raises annually an estimated $6.1 billion or 9 percent of the total. The BCT applies to all corporations that earn income derived from or that is attributable to sources in California.
Except for the first two years of operation of a firm, the basic tax rate on profits is 8.84 percent and an $800 minimum tax. Banks and financial institutions are exempted on local levies, but pay a higher rate of tax, which is 10.84 percent. Banks and corporations are also subjected to an Alternative Minimum Tax or AMT, which is similar to the personal income tax or PIT. This Alternate Minimum Tax has a slightly lower rate of 6.64 percent. Sub-chapter S corporations are subjected to a reduced tax rate of 1.5 percent. California offers a share of the domestic or worldwide business income for multi-state and multinational corporations.
California Tax Help is available with CPA Firm Murray and Young. Get a former IRS agent on your side to protect you, your family and your investments. Visit us at http://www.april15.com.
Back Taxes Owed to IRS Now Collected by Private Debt Collectors
According to a New York Times article that was released August of last year (2006), I.R.S. back taxes and delinquent taxes under $25,000 or less owed by taxpayers will now be attempted to be collected by up to three private collection agencies.
Two weeks after the article was published, data on 12,500 overdue taxpayers was turned over to the three private collection agencies.
Paying Private Tax Collectors to Collect From You
The article explains that although I.R.S. official representatives agreed at the time that this will be more costly than collecting this “low hanging fruit” by using internal means, they felt as though Congress forced this step by not allowing the hiring of more revenue officers.
These private collection agencies are expected to rake in upwards of $1.4 billion over a ten year period, with the agencies about $330 million of the sum. Do you want to give these companies a portion of your hard earned money instead of paying the I.R.S. in full or at a reduced negotiated rate for your tax obligation?
I.R.S. Email Scams & Telephone Fraud -
Law makers and IRS agents who were against this privatization plan said that by involving these collection agencies there is a greater chance for abuse of the system.
With private companies in the mix, they said, debtors could more easily be tricked into paying money to scam artists calling the debtor on the phone or sending an I.R.S. e-mail scam. I.R.S. e-mail scams were a popular scheme among hackers and opportunists in 2005.
Nina B. Olson, an I.R.S. taxpayer advocate, warned Congress earlier this year,
“Because private collectors will operate under rules of profit maximization rather than the I.R.S.’s customer-service based policy, the private collectors may have less incentive to safeguard taxpayer rights.”
Unmentioned I.R.S. Tax Penalties -
Al Cleland, a retired I.R.S. tax collector in Minnesota, predicted that using private collectors would cause some debtors to owe more than he/she did originally,
“We always told people to get current on their taxes first, so they would not have more penalties added, and then work on paying off their back taxes,” Mr. Cleland said. “A private collection agency has no incentive to tell taxpayers that, so people will pay more penalties.”
The private debt-collection agencies are outside the budget rules for Congress because, except for the start-up costs, the collectors are to be paid from the proceeds - commissions on your overdue taxes.
I.R.S. News Commentary -
You read it right folks. These agencies will make every effort to contact you because it puts a portion of your owed tax money in their pockets. Why else would a company volunteer for such a thing? Civil service duty? Being a good corporate citizen?
These companies have no reason to make you aware of penalties and time tax amnesty deadlines or even work with you and the I.R.S. Settle your debts in a more reasonable fashion by using offers in compromise and/or I.R.S. payment plans with our help.
The Future of I.R.S. Debt Collection -
You now have more reason than ever before to get delinquent taxes taken care of with the I.R.S. before these companies annoy, pester, and threaten you by phone calls and letters.
It is a sad state of affairs, but I.R.S. debt collection privatization is the new direction of the federal government. The original New York Times article stated that by 2008, about 350,000 past-due tax records will be distributed among about 10 private debt-collection agencies.
This problem is not going away any time soon. Get started by learning about your I.R.S. debt options and contact us today for your free tax help analysis.
Resources -
The New York Times
Neil Lemons represents Allied Tax Solutions, a 30 year leader in IRS help & tax relief solutions helping individuals and companies. For more information or a free consultation visit http://www.alliedtaxsolutions.com.
California Local and Property Taxes
As the California state population increased, the demand for housing also increased and this resulted in higher property values and higher taxes.
Local taxes - About 35 percent of the total, county and city revenue in California is generated from the local taxes and this amounted to about $20 billion in 1997-98.
. Property Tax-29 percent
. Optional sales tax-32 percent
. Bradley Burns sales tax
. Vehicle license fee-14 percent
. Other taxes- 25 percent
Property Tax- A major source of tax revenue is from local government, cities, school districts, counties and special districts of California. Since 1849, property taxes have been a major part of Californias tax structure and also one of the most stable revenue resources. In 1999-00, the property tax reached $22.7 billion. The statewide average current distribution procedure is as follows:
1. Schools - 52 percent
2. Counties - 19 percent
3. Cities - 11 percent
4. Other local entities - 18 percent
Property taxes applies to all classes such as residential, industrial, commercial, agricultural, timberland, open space, vacant land and even some personal property. The real property comprises of land, fixtures, buildings, mineral rights and other similar components. Personal property is commonly limited to businesses and also includes equipment, machinery and aircraft.
Properties owned by government or charities, automobiles, securities, household personal property and business inventories are exempted from property tax.
Property taxes are assessed on the value of the real and personal property in the state. County assessors assess most of the properties locally, while some properties are assessed by the state, such as the utilities and railroads. Before Proposition 13 became a part of Article 13A of the California Constitution, all the properties were assessed based on the market value and a locally fixed tax rate was applied to the assessed value to calculate the total tax levied.
Due to the induction of Proposition 13 in Article13A, there are many restrictions on property tax, thus limiting the local government to raise the revenues obtained from this tax.
The local tax assessment of real properties is based on the acquisition value, while other properties still continue to be assessed based on their market value.
. The total assessed value is increased annually, according to the rate of inflation or by 2 percent.
. On resale of the real property, the reassessment is done at market value, based on the purchase price.
Property Tax Rate -The countrywide property tax rate is restricted to 1 percent of the total assessed value. Voter approved general obligation debt permits additional levies. For 1998-99 the average tax rate was 1,069 percent and the highest 1,167 percent was from the city and county of San Francisco.
Allocation of Property Tax - The share contributed by the property taxes towards a percent of the total revenue varies widely in different government entities. Under Proposition 13 in Article13A, the state gained the responsibility of allocating the property taxes among the local governments. To reduce state costs, the state government shifted its property allocation from counties, cities and special districts to schools in 1992 and 1993. This shifting was done through a mechanism known as Educational Revenue Augmentation Fund or ERAF.
Issues of Property Tax:
. Fairness of Tax- Under recent assessment methods the property owners could pay vastly different taxes based on the date of purchase of their property.
. Personal Property Assessment- There are many issues raised on using appropriate methods to assess the value of the personal property, as it largely affects businesses.
California Tax Help is available with CPA Firm Murray and Young. Get a former IRS agent on your side to protect you, your family and your investments. Visit us at http://www.april15.com.
Overview of California Income Tax
Personal Income Tax or PIT in the State of California is paid in addition to the Federal Income tax. Introduced in 1935, it singly generates the highest revenue for the state as compared to other sources. Both residents and non-residents are liable to pay PIT in California. Nonresidents pay California PIT only on income derived from sources in California. The state rose close to thirty five billion dollars in the year 1999-2000, which accounted for about forty percent of the total revenues generated by the state.
California PIT is payable on income from all sources, unless covered by statutory exemption. Therefore salary, wages, dividend, interest, capital gains and income from business all are subject to PIT.
Different categories of California personal income taxpayers include individuals and partnerships, sole proprietorships, estate and trusts. PIT rates in California are based on the status of the taxpayer. The returns can be filed under five different categories or status, depending on where the taxpayer fits in. They can file as single, married filing a joint return, married filing a separate return, and surviving spouse or as head of household.
For the computation of PIT, there are six different tax brackets, with a different rate of taxation for each bracket. As per the year 2000 details, the rates varied from one percent to three decimal points above nine percent of the taxable income.
Personal Income Tax in California is a progressive tax, which means that as your income level goes up, the effective rate of taxation rises. To cite an example, a married taxpaying couple with two dependants and having a taxable income of fifty thousand dollars would be taxed at 1.4 percent, whereas if they had a taxable income of one hundred thousand
Dollars, with other conditions remaining the same, their effective rate of taxation would be 4.8 percent instead.
The major part of PIT revenue comes from wages and salaries and accounts for nearly sixty percent of the total. Capital gains taxation contributes to a much lesser extent however, in recent years the share of capital gains has been steadily increasing.
This has been on account of many factors. Firstly, because the nature of income is generally attributable to high bracket income tax payers and is therefore, subject to be taxed at higher rates. The dollar amount of capital gains has risen rapidly in recent times. Now as capital gains are highly volatile, being mostly related to the stock market and the housing sector, they make PIT volatile and difficult to forecast and this poses many revenue-related challenges.
In the US, forty-three states and the District of Columbia impose personal income tax. By making an interstate comparison, it is found that the California PIT is above average than all other states. In marginal tax rates, the upper most level of marginal tax rate in California is quite high, as compared to most other states and it is next only to Oregon, although the lowest marginal tax rate covers a rather wide band of income range. The PIT burden in California is certainly higher. It is another matter that the cumulative burden of all other taxes in the state of California is near average, which helps to mitigate the effects of a higher PIT to some extent.
California Tax Help is available with CPA Firm Murray and Young. Get a former IRS agent on your side to protect you, your family and your investments. Visit us at http://www.april15.com.
Overview of California Sales and Use Tax
All the states in the US, except Delaware, Alaska, Montana, Oregon and New Hampshire levy Sales and Use Tax or the SUT. California Sales and Use Tax comprises of both, state and county level components. At a rough estimate, nearly three fourths of the revenue from SUT goes to the state and the remaining to the local authorities.
As is evident from the name, the SUT consists of (a) Sales Tax and (b) Use tax.
Sales Tax, first introduced in 1933, is imposed on retail dealers of tangible personal property, on the sales they make in the State of California. Use Tax introduced in 1935 relates to imposition of tax on users of goods that are bought out of the State, but brought in for use in California. Both of these together constitute the SUT. However, there is no National Sales Tax in the US.
SUT is applicable only to the final sales of tangible personal property like appliances, motor vehicles, clothing and a host of other items, except such items that have been specifically exempted. Any intermediate sales like those made from a wholesaler to a retailer are not subject to SUT. Services are also out of the SUT sphere, except some that are taxed in California. As the costs of services are included in the final price of tangible goods, they are anyway taxed indirectly.
The exemption or exclusion list for California SUT includes water, electricity, gas, steam, heat, food products, candy, gum, confectionery products, bottled water, prescription medicines, animal feed, custom computer programs and free newspapers and periodicals.
SUT rates all over California are not uniform. The rates differ in different counties, ranging between seven to eight and a quarter percent on account of varied rates of optional taxes, if levied additionally by the county. Out of the fifty-eight counties of California, twenty-four counties impose individual optional SUT levies that among other purposes are used to fund local programs such as schools, hospital services, public libraries and transportation projects.
As per the statistics available, as on the 1st of January 2001, the average California SUT rate (statewide) stood at 7.67 percent. The break up was a state share of 5.75 %, out of which 4.75% was to be attributed to the General Fund and the other 1% to specified local purposes. The balance 1.92% was the local tax imposition, consisting of 1.25% Uniform Local SUT, the Bradley Burns Uniform Local Sales and Use Tax for general purposes with the major part of the balance Optional Local SUT of 0.67% being used for transportation. The maximum rate of optional SUT is 1.50 %.
The allocation of 1.25% Bradley Burns Uniform Local Sales and Use Tax is done in two parts, to cities and counties. One part consisting of 0.25% goes to the county in which the sale occurs and is to be used for funding transportation projects, while remaining 1% goes to the city in which the sale occurs or if the sale is made in an unincorporated area, it goes to the county.
California Tax Help is available with CPA Firm Murray and Young. Get a former IRS agent on your side to protect you, your family and your investments. Visit us at http://www.april15.com.
Overview of California Tax System
With over 35 million residents, California is ranked as the sixth largest economy in the world. It exhibits great demographic and economic variation and has various substantial demands in areas such as health care, education and infrastructure. Similar to other governments, California depends mainly on taxes to fund the public services. The California tax system is composed of a wide range of taxes that are managed and collected by different states and local agencies. Tax plays a significant role in the state and local fiscal system of California.
Taxes levied in California: There are a number of taxes that are levied in California, such as state tax and local tax. The bank and corporation tax, personal tax, sales and use tax along with the major motor vehicle-related levies are the main sources of the own-source revenue of the state. Around 80% of the state expenditure is supported by the sales and use tax, bank and corporation tax and personal income tax. Personal income tax is considered to be the largest single tax that accounts for over half of the entire General Fund revenues.
The remaining 20% of the total expenditure of the state is supported by special funds for certain allotted purposes, including more than half for transportation funded by motor vehicle-related levies. Many taxes such as taxes on tobacco and sales also go into special funds that support health programs and local governments, respectively. In addition to this, local tax revenues come from the property tax that is eventually followed by the local portion of the SUT, utility user charges, business license taxes, as well as other miscellaneous revenues. Local governments, especially counties also depend on the state aid.
Change in the Tax Structure: Over the years, the tax structure of California has changed tremendously. The fundamental elements of the current state tax system were put in place in the late 1920s and early 1930s. Before this, an insurance tax, fuel tax and utility tax used to raise the revenue of the state. Major fiscal disruptions that came along with the depression led to the adoption of both personal income tax as well as the state SUT.
Since then, the tax system in California has remained intact, despite a number of significant statutory and constitutional alterations. By far, the adoption of Proposition 13 in 1978 is considered to be one of the most important of these modifications. It has led to a considerable reduction in the property taxes and changed the state and local fiscal relations.
Adoption of Tax Laws and their modification: Statutory and constitutional are the general types of California tax provisions. Statutory tax provisions reside in the California Revenue and Taxation Code and accounts for a number of tax laws. The legislature or a voter-sponsored initiative can be used to place them on the ballot. A two-thirds vote of the legislature is needed for the application of measures that lead to a net increase in tax revenues. However, in other cases, a plain majority vote suffices. Only the subsequent votes of the people can alter the statutory tax provisions that are approved.
California Tax Help is available with CPA Firm Murray and Young. Get a former IRS agent on your side to protect you, your family and your investments. Visit us at http://www.april15.com.
California Tax Assistance Centers
The tax assistance centers are one of the best sources of personal tax related help in California. There are times when certain complicated tax issues cannot be handled online or via telephone and people require a face-to-face interaction for assistance. IRS Taxpayer Assistance Centers helps people resolve all sorts of tax related problems. If you have a question regarding how the tax laws apply to your individual tax returns, then you can approach your local Taxpayer Assistance Center where you can display your tax related documents and discuss the issue with an IRS representative across the counter. IRS and other organizations across the world are committed to assist taxpayers. However, they also work towards achieving their own individual goals. They help to strengthen outreach efforts and bring education and assistance to millions.
You need not take any prior appointment to discuss your problem and can just walk in to the center. But if you wish, you can call a local number and leave a message requesting to make an appointment to resolve a serious tax related problem. It is important to note that the telephone numbers of all the locations are not toll-free. When you make a call, you will reach a recorded business message that would enable you to gather information on the office hours, location and services provided by that particular office. There you may leave a message to request for an appointment or the rescheduling of an existing appointment.
Within two working days, you would receive an appointment. Though many people prefer a face-to-face interaction, a telephonic assistance can also work in the same manner. If a personal contact is not very important for you, then you can also avail of the assistance via phone on the toll free number or IRS letters, to help you solve your tax account issues.
The major assistance provided by tax assistance centers include:
. Acceptance of cash payments.
. Inquiries related the account via notices and levies on wages or bank accounts.
. Tax adjustments i.e. changes to tax account information or payments.
. Alien clearances like sailing permits.
. Application for Taxpayer Assistance Order or ATAO
. Copies of Tax Returns and Transcripts.
. Help people prepare Form 2290 i.e. Heavy Vehicle Use Tax
. Assistance in over 150 languages.
. Arrangements for payments
. Procedural inquiries
. Offers solutions to tax related issues.
. Provides tax forms depending upon the availability.
. Tax Law Assistance i.e. it answers your queries regarding your individual Federal Tax Return
Tax kiosks are the other helpful means of obtaining tax assistance. The Internal Revenue Service has set it up at several locations across the country. It provides the taxpayers with a quick, self-service option, even without the Internet access to help them get forms and basic tax related information. These machines are located in a few selected locations such as Oakland, San Jose, Los Angeles, Sacramento and Laguna Niguel. Tax kiosks have the following features:
. It offers the taxpayers with touch screen facility with easy instructions.
. It issues the Federal tax forms for the current and previous years, for print or review.
. It answers several frequently asked tax related questions.
. It offers information in English and Spanish.
California Tax Help is available with CPA Firm Murray and Young. Get a former IRS agent on your side to protect you, your family and your investments. Visit us at http://www.april15.com.
How to File and Pay Your Taxes in California- For Individuals
We are always in search of some easy ways to pay our tax. It may involve quicker submissions, improved accuracy and up-to-date methods.
Initially, when technology was not so advanced, you might have sent the required documentation to the IRS by the US Postal Service. But things have changed today and you can make use of the available technology and file the returns electronically, by downloading and retrieving information from the IRS. IRS e-file is an excellent service that provides the facility of electronic filing.
Before you file your tax return please remember the points listed below:
. First understand your state taxes.
. Check the due date.
. Check on the required documentation.
. Enquire about the tax form applicable.
. Choose an appropriate tax professional.
. Keep in mind that tax law changes for individuals.
. California conformity to federal law.
Paying your tax
. You can pay tax online
. Pay tax by credit card
. For banks and corporation use electronic funds transfer.
. You can request for an installment agreement
Once the tax return is filed
. Check the account balance
. Check the refund status
. Check the e-file return status
Electronic payment options for Individuals and Businesses
This is the most convenient, secure and safe method for paying taxes or user fees. Those who like to pay tax by this method can use their credit card and enroll in the Electronic Federal Tax Payment System of the US Treasury. Taxpayers can pay by check or money order. Payments can be made 24 hours a day, 7 days a week. Paying through electronic funds and EFTPS options are free.
IRS E-Filling
The IRS e-file program provides you some easy and adequate alternatives to file your returns on paper.
Choose the method of e-filing that works for you:
Try a Tax Professional
When you choose a tax professional in order to prepare your returns, always remember to ask for IRS e-file. Refunds are fast and in case of direct deposit, they are even faster. These tax professionals may charge you for the tax preparation and sometimes they may also ask for additional fees to provide the IRS e-file.
Make use of a Personal Computer
You can always choose your computer with a modem or Internet access and tax preparation software in order to file your taxes. It is very convenient to e-file from home 24 hours a day, 7 days a week.
Free File
It is possible to prepare and e-file your federal income tax returns free of charge. Commercial tax software companies provide these online free file services. But, you need to know the criteria for the option.
Income Tax Payments for Individuals
Federal (Internal Revenue Service)
In this case, as you earn or receive income during the year, you also need to pay the tax. You can pay in two ways.
Withholding: In case you are an employee, your employer withholds tax from your pay. Tax is also applied to certain other income like gambling winnings, commissions, pensions and bonuses. The amount withheld in these cases is paid to IRS in your name.
Estimated Tax: Generally people who are in business need to pay estimated tax. Also those who receive income from dividends, rents, capital gains and royalties may have to pay estimated tax. It includes not just income tax, but also self-employment tax and alternative minimum tax.
California Tax Help is available with CPA Firm Murray and Young. Get a former IRS agent on your side to protect you, your family and your investments. Visit us at http://www.april15.com.
Other State Taxes in California
California State raises its revenue by imposing various taxes such as estate tax, insurance tax, alcoholic beverage tax, gambling, motor vehicle tax and tobacco tax. In addition, the employees or the employers have to pay taxes to trust funds, to help disabled and unemployed employees.
Estate tax-This tax is the fifth largest source of the General Fund Tax and it was estimated as $937 million in 1999-00.In June 1982, this tax was established under Proposition 6. This eliminated the inheritance and the Gift tax law of the state. Estate tax is levied on the adjusted property value of an individual taxpayer, after his demise because the federal law permits a credit against the federal estate tax paid and the state rate is equal to the maximum federal credit allowed.
Insurance tax-This tax was implemented in 1911. This is the oldest tax in California. Insurance tax is charged on the premium sold by insurance companies and is charged on all the states insurance companies except on the license fees and the real estate taxes. This is the fourth largest source of General Fund revenue and it was raised by $1.3 billion in 1900-00, from 2000 companies.
Alcoholic Beverage Tax-Excise taxes are levied on the beverages sold by the manufacturers, on a per gallon basis. This tax is levied in addition to the federal excise tax. In addition to these two taxes, the retail establishment liquor owner pays an annual license fee. The tax rate differs, based on the type of beverage. The fund raised from this tax was estimated to be $274 million in 1999-00. Majority of this revenue is obtained from distilled beer and spirits.
Tax on Gambling related Activities-California State permits a state lottery, horse racing and bingo for charitable purposes.
. The state lottery was established under the Proposition 37, in November 1984. The California State Lottery Act sets the distribution of the lottery proceeds. Lottery revenue also funds a minor source for schools.
. Horse racing and the license fees are basically levied on the amounts that are raised during horse racing meets. This tax ranges from 0.4 to 2 percent and it depends on the type of wages, type of racing and also the placement of the wager. An estimated $35million was generated from these levies in 1999-00.
Motor tax- Motor tax is the main source of state special fund revenue, estimated to be around $8.4 billion of the special fund total.
Accounting to the largest share of motor taxes, the state fuel tax is mainly categorized into three types:
1. License Tax or Gas Tax-This tax is imposed on the fuel distributors, based on per gallon of fuel that is distributed. This tax levied contributes to the greatest share of fuel related tax revenue.
2. Used Fuel Tax- This is an excise tax which is levied on the used fuel. This is mainly imposed on alternative fuels such as compressed natural gas, ethanol and liquefied petroleum.
3. Diesel Fuel Tax-This tax is levied on the delivery and sale of diesel fuel and the record is generally collected from the distributors.
Tobacco tax-This tax is levied on cigarette distributors. The California State tobacco tax is currently $0.87 per pack.
Tax related to Employment-The disability insurance program is funded by the State Disability insurance company and it is levied on the employees and it is deducted from their payroll.
California Tax Help is available with CPA Firm Murray and Young. Get a former IRS agent on your side to protect you, your family and your investments. Visit us at http://www.april15.com.
Tax Tips For 2007
Most of us have just finished getting over the stress received from our Christmas expenses. Now, it is the taxman is tugging at your coat tails and you feel another financial hangover in the horizon.
These great tax tips for 2007 will help keep that hard-earned money in your pocket.
1. File your tax returns on time to avoid penalties for being late.
2. If you are a trade’s person you may be able to write off certain expenses relating to your trade. Make sure that your records are always up to date and that any connotations are in place.
3. Keep all records for a minimum of 6 years before destroying.
4. If you are self-employed then you must keep complete books that comply with HMRC. If you are unsure of acceptable book keeping practices check with the HMRC.
5. Don’t believe everything people tell you. You will hear all kinds of stories about what expenses you can deduct. Make sure you have it right. For an expense to be deductible, it must be wholly incurred exclusively for the purpose of your business.
HMRC has issues a booklet called “Janet and John” which explains what records they would expect a self-employed individual to keep. It is excellent.
6. Plan so that you have the cash ready for the taxes you are going to need to pay. That way you will not be stalling sending in your taxes and having to pay interest.
7. If you are self-employed and work from home, you can write off a room of your home if you use it to conduct business. That also means you can deduct a portion of your lighting, heating, and mortgage interest.
8. Never write off a portion of your mortgage payment for space used because this could lead to you having to pay capital gains on your principal residence when you sell it.
9. Understand what deductions are available and whether they apply to you.
10. Any time you are able to split income consider if it is advantageous to you.
11. Pay less in inheritance tax on your death. Make use of the $3000 annual exemption or the gifts out of income exemption, which lets you make regular gifts to people out of your regular earnings as long as you do not short yourself.
12. Pay less in capital gains tax. There are some interesting ways you can reduce your capital gains. These are too lengthy and detailed to list here, but your financial advisor or tax consultant.
13. New residents do not rely on the old 90-day rule as there have been some complex changes to this and you need to calculate it correctly.
14. Share some seasonal goodwill if you are in a 40% taxpayer bracket. You can give to charities this time of year when it is so much in need after the Christmas season and reap the benefits on your taxes.
These tax tips for 2007 will help keep the taxman at bay keeping the most dollars in your pocket and giving you time to recoup your finances.
Terry Fitzroy is a professional writer and reviewer specializing in efile, tax refunds, and taxes online. For further information and/or to efile your taxes visit http://www.taxengine.com
