We pay taxes but most of us pay a little too much and get a refund. The amount we get back varies but the average figure is around $2750 for those in the United States.

If you are getting a refund, what will you do with it?

Spend it?

Save it?

Here’s some ideas in info-graphic form.

Source: http://yourlocalsecurity.com/in-good-measure/tax-return

Are you one of the millions of Americans who will wait until Tuesday, April 17, 2012 this year to complete your tax returns?

If you STILL haven’t filed, make sure you run through these steps to ensure everything is in order.

Step 1: Don’t forget important numbers

Whether you file an electronic or paper return, the numbers to check most carefully on the tax return are the identification numbers — Social Security numbers — for each person listed. This includes the taxpayer, spouse, dependents and persons listed in relation to claims for the Child and Dependent Care Credit or Earned Income Tax Credit. Missing, incorrect or illegible Social Security Numbers can delay or reduce a tax refund.

Taxpayers filing paper returns should also double-check that they have correctly figured the refund or balance due and have used the right figure from the tax table.

Step 2: Don’t forget to sign the returns

Taxpayers must sign and date their returns. Both spouses must sign a joint return, even if only one had income. Anyone paid to prepare a return must also sign it.

People sending a payment should make the check out to “United States Treasury” and should enclose it with, but not attach it to the tax return or the Form 1040-V, Payment Voucher, if used. The check should include the taxpayer’s Social Security number, daytime phone number, the tax year and the type of form filed.

By the April due date, taxpayers should either file a return or request an extension of time to file (Form 4868). Remember, the extension of time to file is not an extension of time to pay.

 Forms and publications and helpful information on a variety of tax subjects are available around the clock on the IRS Web site at IRS.gov.

Step 3: Don’t ignore the Alternative Minimum Tax (AMT)

AMT is complex enough to make even a tax pro’s head spin. If you don’t know what it is or if it applies to you, do some digging. The IRS will flag an AMT that’s MIA, and you could get smacked with the taxes you owe plus penalties and interest if you don’t pay your tab on time. CPAs are prepared to discuss in more detail if necessary on this topic.

Step 4: Don’t leave any money on the table

Some common tax return errors actually work in your favor, not Uncle Sam’s. Many people assume that itemizing your deductions is the best way to reduce your tax bill, but don’t automatically dismiss the standard deduction. If your itemized deductions aren’t even close (e.g., if your home is paid off or you live in a state that doesn’t charge income tax), then going with the standard deduction will be better for your bottom line.

Step 5: Don’t mess up state tax refunds

Don’t make the mistake many taxpayers do by blindly reporting prior-year state tax deductions as income in the current year. Even if the state taxing authorities notified you of your refund, they have no idea whether that refund is taxable. If you didn’t receive a benefit for deducting those taxes last year, your refund may be partially or completely untaxable. For example, you may have used the standard deduction for federal purposes and itemized on your state return, or used the sales tax tables rather than state taxes paid in the prior year. If that’s the case, you might be overstating your taxable income by simply reporting your entire state tax refund as current-year income.

Step 6: Don’t overlook carry-forwards

Sometimes lemons (like a stock you own that tanked) can be turned into lemonade (a tax deduction!). And in many cases, you can carry forward losses from prior years to this year’s tax return — so don’t forget about them. (As if they were in danger of slipping your mind this year.)

Step 7: Go to the IRS Web site

Remember that for the genuine IRS Web site be sure to use .gov. Don’t be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Useful IRS Links That Can Help Taxpayers:

• Form 9465, Installment Agreement Request (PDF 100K)
• Form 1040-V, Payment Voucher (PDF 47K)
• Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return (PDF 50K)
• Official Payments Corporation
• Link2Gov

Tax On.

Being your own boss and/or being the boss of others is a difficult and daunting endeavour.

Sure, it’s great that when you work for yourself you are no longer a “slave to the man,” but simultaneously it’s intimidating because you must accurately report all of your income and expenses to the IRS every year.
If you are a self-employed person, an independent contractor, or plan on becoming one, you have come to the right place!

One of the overall goals at Tax On Tax Off is to provide you with as many excellent tips for deducting business expenses as possible.

Before we do that however, we feel it best to start out with an introductory article for those not as well versed in the self-employed arena.

Today and onward, we are going to de-mystify technical jargon, feed you informative stats, and explain the current climate for self-employed people as clearly as possible.

Before we get into whether or not you can deduct your Gym Membership (sorry bro) and your new Gucci suit (nope), we are going to cover five important areas that self-employed people will benefit from knowing:

Five Important Tax Facts for the Self Employed

1. The terms sole-proprietor and self-employed person pretty much mean the same thing

In general you can classify yourself as any of these two terms. The important thing is that you are carrying on a trade or business with the intent of making a profit. Most of the time, the term independent contractor is very similar to these two terms but not as synonymous because you can be both incorporated and an independent contractor.

2. Self-employed persons report their business income or loss on Schedule C of IRS Form 1040

Self-employment tax is calculated on Schedule SE, which is also part of IRS Form 1040. If your estimated tax liability exceeds $1,000 U.S. dollars, estimated taxes should be paid quarterly using form 1040-ES (FYI the ES stands for ‘estimated’). If you choose not to pay estimated taxes the IRS will very likely choose to charge you interest and penalties.

3. The amount you pay in self-employment tax is based completely upon your net self-employment income

What is “net” income you ask?

“Net income,” to keep it simple is your gross income less your business expenses. Expenses can range from property tax to freight to your everyday business expenses. Having well-kept, contemporaneous records will assure greater piece-of-mind come tax time.

4. The 2010 Tax Relief Act reduced the self-employment tax by 2% for self-employment income earned in calendar year 2011

The self-employment tax rate for self-employment income earned in 2011 is 13.3% (10.4% for Social Security and 2.9% for Medicare). By comparison, for self-employment income earned in 2010, the self-employment tax rate was 15.3%. The rate consists of two parts: 12.4% for social security and 2.9% for Medicare.

5. You are not alone in your journey as a sole-proprietor and there are resources available to help you

And we’re not just talking about the kind folks at Tax On Tax Off of course!

In fact, approximately one-quarter of the working population in America identify as a sole-proprietor. You can join the National Association for the Self-Employed or visit their website at www.nase.org for continued information and on-going support for your line of work.

Of the five areas outlined above, the most important facts for you to remember as someone reading this is that the self-employment tax rate for 2011 is 2% lower than in prior years and that if you have an estimated tax liability of $1,000 or more you should strongly consider making estimated tax payments every quarter.
Now that we have gone over the essential facts of being self-employed, in our next article we will delve into properly deducting those pesky business expenses of yours. Stay tuned for an article aptly titled: Deductions for the Self-Employed.

Don’t miss an update

Fill in your email address here and we’ll let you know how to reduce your tax-bill even further. Knowledge really means less tax paid!

Tax Off.

Tax On.

It’s Tax-filing season in the US.

The IRS started accepted electronic filing on Jan 17th so there’s never been a  better time to ensure you know all the tax rules and laws to make sure you only pay the tax you need to.

If you’re just starting out in the world you may be wondering how much money do you have to earn to file taxes.

It’s an important question, but thankfully it’s easily answered. In short, it’s $9,500 if you’re single.

For the full breakdown here’s the handy table for income earned in 2011.

Important Tax exceptions and considerations

These figures refer to ‘Gross Income’ – the total money you have earned before taxes.

As a general rule if you receive social security income this is not counted in your threshold. However, if half of your social securities and your other group income is more than $25k (or $32k if married filing jointly) then you do have to file a tax return for 2011.

For more info from the IRS: Are Your Social Security Benefits Taxable?

If you have other income sources like if you are self employed you must file if your 2011 Self employment net earnings are greater than $400.

Why You Should File Regardless of Income

Even if you think you are not required to file a tax return, it might be worth doing so anyway.

It definitely makes sense if you have had any federal withholding or are entitled to tax credits. For example if you qualify for earned income tax credit you may get a tax refund.

And regardless of income you need to file if you have sold your home in 2011 (as detailed in Publication 17)

If you have any other tax questions we’d love to hear from you – you certainly will not be the first or last person to have the same question and by sharing the answers we can help more people only pay the tax they need to. Email: connor@taxontaxoff.com

Tax Off.

Are you still paying off your student loans? Read on and we’ll show you how you can reduce the amount you have to pay back.

I’m still paying off my student loan and it is not that fun.

Personally, having two different student loan companies hounding me for their money creates substantial stress.

Sure, I knew what I was getting into at the time and college was the best four years of my life.

I loved it.

But life goes on and making monthly payments can be challenging, especially in the economic climate we are currently living through.

Fortunately for us, there is a silver lining to the money that we spend to pay off our student loans when we are finally earning money in our first admin jobs or, if you’re diligent, your career job.

It’s called….

The Student Loan Interest Deduction

The Internal Revenue Service graciously allows, as a deduction from your income, the lesser of $2,500 or, the actual amount of interest you pay on your student loans.

Better yet, you can take this deduction even if you do not itemize on Schedule A when you file your taxes. The amounts you pay in student loan interest is reported back to you on Form 1098-E by each lending agency so make sure you keep any and all 1098-E’s you receive as you will need them to take the deduction in April.

If you have no clue what the student loan interest deduction is, you’ve quite possibly missed out on one of the best adjustments to income that exists in the tax code today.

Since I took massive loans to go to a private college I will always get to deduct the full $2,500 because I pay such a high monthly amount. But, I can do so only as long as this particular adjustment to income continues to exist in its current form.

Sadly, less favorable rules are scheduled to take effect at the beginning of 2013 so make sure you take advantage of it this year. Promise?

Deduction Exceptions

Aside from beloved Congressional activities, the most common situation that will disqualify me or you from taking the full $2,500 deduction is if we start making too much money.

For single taxpayers in 2011, the deduction is reduced if your MAGI (Modified Adjusted Gross Income) is over $60,000 ($120,000 if married filing jointly) and it is gone if MAGI is over $75,000 ($150,000 if married filing jointly).

In my opinion, the MAGI phaseout for the student loan interest deduction is biased and would be better if there were no ceiling. If you think about it, any graduate who decides to be a doctor, lawyer, or any other profession that quickly earns more than $60,000 will not get the deduction. Sorry Doogie Howser.

How to know if you can claim the student loan deduction

Now that you’ve been introduced to the student loan interest deduction, you must know that you can claim the deduction only if all of the following apply:

1. You paid interest on a qualified student loan in tax year 2011
2. You are legally obligated to pay interest on a qualified student loan
3. Your filing status is not married filing separately
4. Your modified adjusted gross income is less than a specified amount which is set annually, and
5. You and your spouse, if filing jointly, cannot be claimed as dependents on someone else’s return

If those points apply to you, then congratulations - the student loan interest deduction can reduce your taxable income by up to $2,500 so you pay less tax.

There you have it: The student loan interest deduction.

Easy breezy right?

Give yourself a pat on the back because you are now paying less income tax to the government.

We hope you found this article useful! If you did, please share the article on Facebook and Twitter. And definitely put your email address in the form below for more tax-info awesomeness in your inbox. Finally if you have any questions feel free to email “connor” @TaxOnTaxOff.com

Happy 2012 everyone and welcome to Tax On Tax Off.  For more about what the site is all about, click on our About page.

At the time of writing it is January of 2012.

Soon you are going to have to report the charitable contributions you made last year in 2011.

Whether you donated $100 or $1 million, you will have to follow certain steps with the IRS to realize the tax benefit of your generosity.

Just in-case you do not know, the IRS has created a series of numbered publications, designed to address everything having to do with US Income Tax. They are available in print or on the internet.

There is a particular publication, numbered 526, that sufficiently answers and explains everything having to do with charitable contributions. I did the google search for you and here is a link you can use at anytime to access Publication 526, Charitable Contributions:

http://www.irs.gov/pub/irs-pdf/p526.pdf

Unfortunately, Publication 526 consists of over twenty-one pages of densely written material; a ton of information for simply giving the bell-ringer outside your local supermarket a 5 dollar bill. This is why you are reading this article.

Knowing the practical steps for charitable contributions will save you time and confusion. For your convenience, here are seven steps, written in the form of questions, that will provide you some solid knowledge on the subject:

Step 1. Are you Itemizing Deductions?

Let’s make sure this is right out in the open: in order to deduct a charitable contribution, you must file IRS Form 1040 and itemize your deductions on Schedule A. So, if your allowable charitable deduction plus all your other itemized deductions doesn’t add up to more than your standard deduction you generally won’t realize a tax benefit from the charitable contributions you’ve made.

Step 2. Did you donate to a  Qualified Organization?

You can only deduct contributions that are made to qualified organizations. Churches, synagogues, temples, and mosques automatically qualify. Practically all other organizations have to apply to the IRS. An organization should generally be able to tell you if it is a qualified organization. If you need to you can check IRS Publication 78, Cumulative List of Organizations Described in Section 170(c) of the Internal Revenue Code of 1986, which is available online at www.irs.gov.

Contributions are not tax deductible if given to any of the following:

• Political parties, political campaigns, or political action committees.
• Contributions given to individual people.
• Fees or dues paid to professional associations.
• Contributions to labor unions, chambers of commerce, or business associations.
• Contributions to for-profit schools and hospitals.
• Contributions to foreign governments.
• Fines or penalties paid to local or state governments.
• The value of your time for services rendered to a non-profit.

Step 3. Did you receive a benefit?

If you make a contribution and receive a benefit as a result, you can only deduct the amount that’s more than the value of the benefit you receive (for contributions over $75, the charity must give you a statement describing the value of the goods and services provided to you). Therefore, if you pay $300 at a charity auction for a weekend getaway that has a fair market value of $250, your deductible charitable contribution is $50.

You can, however, deduct your entire payment to a qualifying organization if you receive only a token item or benefit in return, and the organization determines that the value is not substantial and tells you that you can deduct the full amount of your payment. (Special rules apply to payments made to colleges and universities for the right to buy tickets to athletic events.)

Step 4. Do you know the limits?

You are allowed to deduct cash contributions in full up to 50% of your adjusted gross income. You are allowed to deduct property contributions in full up to 30% of your adjusted gross income. You can deduct contributions of appreciated capital gains assets in full up to 20% of your adjusted gross income.

Charitable contributions in excess of these limits can be carried over to the following tax year. The excess contributions can be carried over for a maximum of five years.

Step 5. Did you Volunteer your Time? Review your expenses

If you volunteer your services to a qualified organization, you are allowed to deduct unreimbursed amounts directly connected with the services you provide. You can deduct out-of-pocket expenses that are directly related to the use of the vehicle in providing services. You can use actual expenses, or base your auto deduction on the standard mileage rate. You can also deduct parking and tolls. You can’t, however, deduct the value of your time.

Step 6. Have you Practiced Good Recordkeeping?

Make sure that you keep records that document the contributions that you make during the year.

For cash contributions, you’ll need a bank record (e.g., a canceled check or a credit card statement), or a receipt from the organization that includes the name of the organization as well as the date and amount of the contribution. If you make an individual contribution of $250 or more, you’ll need a written acknowledgement from the organization that meets specific requirements.

If you made noncash contributions, the specific documentation that’s required depends upon the amount of the deduction.

Step 7. Why is there always more steps?

The seventh step is just a reminder that there is always a little more you can do. One example, discuss your situation with a tax professional. He or she might be able to provide you with additional strategies not mentioned on the internet. Also, do additional research on the topic. Read Publication 526, Charitable Contributions and utilize similar resources.

This is our first ever article so thanks for reading and we hope you found it useful! If you did find this useful please share the article on Facebook and Twitter. And definitely put your email address in the form below for more tax-info awesomeness in your inbox. Finally if you have any questions feel free to email “connor” @TaxOnTaxOff.com

Hello World.