An interview with tax attorney Samuel Landis regarding important issues in resolving IRS problems. Topics include: how to choose the right representative and how to avoid making mistakes in dealing with the IRS. For more information please contact: slandis@scltaxlaw.com or (310)285-3999
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Filing your income tax is a regular part of life but you may have done it for several years without much thinking about how the system actually works. To start off, it’s important to know that Federal income tax is considered as progressive tax. It means that the more money you earn, the higher will be your tax rate. It’s obvious that low earners pay less because they will not have the money to pay the high taxes. That’s why everything is adjusted to your income level.
Tax brackets are simply ranges of incomes that are taxed at specific rates. The applicable tax rate not only depends on the taxable income but also on your income tax filing status such as single, married filing separately, married filing jointly, head of household and qualifying widower with dependent child.
Let’s take a look at how you are taxed. For filing status as single, the tax brackets as of year 2010 are the following:
< income = ,375 = 10% of the amount over
,375 < income = ,000 = 7.50 plus 15% of the amount over ,375
,000 < income = ,400 = ,681.25 plus 25% of the amount over ,000
,400 < income = 1,850 = ,781.25 plus 28% of the amount over ,400
1,850 < income = 3,650 = ,827.25 plus 33% of the amount over 1,850
3,650 < income = 8,421.25 plus 35% of the amount over 3,650
The first bracket reads that for taxable income greater than but not over $ 8,375, the tax rate is 10%. But notice that the tax rate on the second bracket is 7.50 plus 15% of the amount over ,375; from this bracket onwards you will see that you are taxed actually in a lower rate than the percent indicated. Take for example Leah with taxable income of ,000 would be at the third bracket which others call the 25% bracket. A lot of people get the wrong idea that Leah’s income is taxed at 25%. In truth, the overall amount is lesser than 25% of ,000. Here’s a detailed calculation of Leah’s tax:
1. Leah’s first ,375 of income is taxed at 10% which is equal to 7.50.
2. Her next ,375 to ,000 is taxed at 15% which yields ,843.75.
3. And from ,000 to ,000 Leah is taxed at 25% which results to ,000.
4. The total tax is then 7.50 + ,843.75 + ,000 = 81.25.
So you see, the 25% of ,000 which is ,500 is a lot higher compared to the actual tax which is 81.25.
Calculations of tax applicable for married filing separately, married filing jointly, head of household and qualifying widower with dependent child are still the same as above. They will of course differ in the range of income on each bracket and the corresponding tax rate. For bracket details on the other filing status, please visit the government’s official website on taxation: http://www.irs.gov.
Aside from knowing how tax brackets work, it’s also important to do some research on tax exemptions and tax credits. You may be paying more than you should be.
Loretta Valero-Smith owns and operates the leading <a rel=”nofollow” onclick=”javascript:_gaq.push(['_trackPageview', '/outgoing/article_exit_link']);” href=”http://www.AWSBookkeeping.com”>Tax Preparation Boca Raton</a> company. With over twenty years of experience, they are reputed as subject matter experts on <a rel=”nofollow” onclick=”javascript:_gaq.push(['_trackPageview', '/outgoing/article_exit_link']);” href=”http://awsbookkeeping.com/prices.html”>Taxes in Deerfield Beach and Pompano Beach</a> and <a rel=”nofollow” onclick=”javascript:_gaq.push(['_trackPageview', '/outgoing/article_exit_link']);” href=”http://awsbookkeeping.com/about.html”>Condominium and HOA bookkeeping in Boca Raton</a>.
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Preparing an accurate IRS Offer in Compromise is a lot of work. Before spending the time and money to have an Offer in Compromise prepared, there are 3 things that must be completed before the offer is submitted.
Bankruptcy – If you are in an active bankruptcy your Offer in Compromise will not be processed. You should wait until you receive your bankruptcy discharge before any IRS tax relief agreement is submitted.
Tax return filing compliance – All tax returns that are legally required to be filed must be filed before an Offer in Compromise is submitted. This includes all income tax, payroll tax and excise tax returns as well as returns for all corporation, partnership and limited liability companies you have an ownership interest in.
If you feel that if you do not have a filing requirement for any particular period, you must attach a detailed explanation with your offer. Examples of not having a filing requirement would be income below the required level to require the filing of an income tax return.
All required tax deposits must be brought current. All payroll tax deposits and returns must be paid for the current quarter. Also, if you are self employed, all required estimated tax payments must be paid up to date for the current year.
If you are not current with all return filings and tax deposits, you will be given one opportunity to bring them current.
If you submit an IRS tax relief agreement while in a bankruptcy or fail to bring all tax return filing requirements and tax deposits current, your Offer in Compromise will be returned and the 0.00 filing fee will be kept. In addition, the 20% deposit or first payment with your offer will be kept and applied to your tax liability.
If you would like to gain an unfair advantage over the IRS and discover some awesome OIC strategies while learning how to prepare your, Offer in Compromise, click here
Brian Prentice is an Enrolled Agent with 20 years experience representing tax payers before the IRS and state taxing agencies.
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President Obama recently signed into law the Tax Relief Act of 2010. The full name of this legislation is the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. But for purposes of this article, let’s just call it the Tax Relief Act.
There are plenty of good things in this bill. Here are some of the highlights:
1. Personal income tax rates will remain the same for the next two years. If this bill had not been passed, individual tax rates would have increased on January 1, 2011 to 15, 28, 31, 36 and 39.6 percent. Instead, they will remain at the levels of 10, 15, 25, 28, 33, and 35 percent for 2011 and 2012.
2. Maximum capital gains tax rates will also remain unchanged for 2011 and 2012. The maximum rate of 15 percent (zero percent for folks in the 10 and 15 percent tax brackets) stays in effect instead of increasing to 20 percent (10 percent for those in the 15 percent bracket).
3. Maximum dividend tax rates also stay the same for the next two years – 15 percent rather than ordinary income tax rates.
4. The child tax credit of ,000 is extended for the next two years, rather than returning to 0 per qualifying child.
5. The American Opportunity Tax Credit (a credit to offset qualified higher education expenses) remains in effect for 2011 and 2012.
6. Employers can continue to provide tax-free educational assistance to their employees up to ,250 per year in 2011 and 2012.
7. Several tax breaks that had expired on December 31, 2009 have been extended for 2011 and 2012. These include the teacher’s classroom expense deduction, the higher education expense deduction, and the state/local sales tax deduction.
8. The deduction for qualified mortgage insurance premiums has been extended for 2011.
9. The dependant care credit remains as is for the next two years.
10. Social Security taxes have been reduced by 2 percent for 2011. This reduction applies to both employees and the self-employed. For many years, employees and employers have both paid 6.2% in Social Security taxes. For the year 2011, this rate drops to 2%. So for a person who has income of ,000 from salary, wages or self-employment, this bill provides a tax break of ,000.
Of course, there’s at least one thing to dislike about the Tax Relief Act – all these provisions are temporary. A few exist for only one year (2011). Most of them will expire at the end of 2012, and so in two years, we get to watch Congress and the President have yet another debate on what to do about tax rules that change every year because our politicians created them that way. So enjoy these tax breaks while they last.
Looking for more info on how to maximize your tax deductions? Get your free copy of the Special Report “How to Save Hours of Time and Thousands of Dollars with One Simple Tax Deduction” at OneSimpleTaxDeduction. Wayne Davies is the Internet’s Top Tax Preparer. You can meet him at GoodTaxPreparer.
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