Intetest and Dividends

Interest and dividends may be considered business income. Interest received on notes receivable that you have accepted in the ordinary course of business is business income. Interest received on loans is business income if you are in the business of lending money.

Uncollectible Loans- If a loan payable to you becomes uncollectible during the tax year and you use an accrual method of accounting, you must include in gross income interest accrued up to the time the loan became uncollectible. If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction.

Unstated Interest-If little or no interest is charged on an installment sale, you may have to treat a part of each payment as unstated interest.

Dividends- Generally, dividends are business income to dealers in securities . For most sole properties and statutory employees, however, dividends are nonbusiness. If you hold a stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income.

There are tax proffessionals that can help you better understand these terms. Contact Effectur today, and release the burden of tax debt !

Real Estate Rents

If you are a real estate dealer who receives income from real property or an owner of a hotel, motel,ect..... who provides services (maid services) for guests, report the rental income and expenses on Schedule C or C-EZ. If you are not a real estate dealer or the kind of owner described in the preceding sentence, report the rental income and expenses on Schedule E.



Real Estate Dealer- You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales. Rent and receive from real estate held for sale to customers is subject to ES Tax. However, rent you receive from real estate held for speculation or investment is not subject to SE Tax.



Trailer Park Owner-Rental income from a trailer park is subject to SE tax if you are self-employed trailer park owner who provides trailer lots and facilities and substantial services for the convenience of your tenants. You generally are considered to provide substantial services for tenants if they are primarily for the tenants convenience and normally are not provided to maintain the lots in a condition for occupancy. Services are substantial if the compensation for the services make up the material part of the tenants rental payments.



Examples of services that are not not normally provided for the tenants convenience include supervising and maintaining a recreational hall provided by the park, distributing a monthly newsletter to tenants,operating a laundry facility , and helping tenants buy or sell their trailers.



Examples of services that are normally provided to maintain the lots in a condition for tenant occupancy include city sewage, electrical connections, and roadways.

Bartering for Property or Services

Bartering is an exchange for property or services. According to the IRS, you must include in your gross receipts, a the time received, the fair market value of property or services you receive in bartering. If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will accepted as the fair market value unless the value can be shown to be otherwise.





Example- 1 You are self-employed lawyer. You perform legal services for a client, a small corporation. In payment for your services for a client, you receive shares of stock in the corporation. You must include the fair market value of the shares in income.



Example-2 You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. You must include the fair rental value of the apartment in your gross receipts. Your landlord must include the fair market value of the work of art in his or her rental income.



Example 3- You are a self-employed accountant. Both you and a house painter are members of a barter club, an organization that each year gives its members of a barter club, an organization that each year gives its members a directory of members and the services each member a directory of the member provides. Members get in touch with other members directly and bargain for the value of the services to be performed.



In return for accounting services provided for the house painter business, the house painter painted your home. You must include in gross receipts the fair market value of the services you received from the house painter. The house patiner must include the fair market value of your accounting services in his or her gross receipts.

Buisness Return

Business Income includes amounts you received in your business that were property shown on forms 1099-C or assets, such as land and office buildings, on the other forms instead of schedule C or C-EZ. You must report on your tax return all income you receive from your business unless it is excluded by law. In most cases, your business income will be in the form of cash, checks, and credit charges. But the business income can be in other forms, such as property or services.

Nonemployee Compensation- Business income includes amounts you received in your business that were property shown on Forms 1099-Misc. This includes amounts reported as non employee compensation in box 7 of your 1099-Form.


If you are a US citizen who has business income from other sources outside the United States, you must report that income on your tax return unless it is exempt from tax under US law. If you live outside the United States, you may be able to exclude part or all of your foreign-source business income.

If you think that not filing your buiness income tax properly, will not come back to haunt you than you are mistaken. This is exactly what will get you audited quicker than an individual return if not filed in accordance with the IRS regulation.

Farming and the IRS

Since I have been working at Effectur, I have learned a great deal about tax returns, and the guidelines with the IRS. When it comes to the IRS, there are even guidelines for farmers, fisherman and certain higher income taxpayers. Did you know that if at least two-thirds of your gross income for 2006-2007 is from farming or fishing, substitute 66 2/3 % for 90%.
Your gross income is all income you receive in the form of money, goods, property and services that is not tax exempt from tax. To determine whether two-thirds of your gross income for 2006 was from farming or fishing, use as your gross income the total of the income (not less) amounts.
On a joint return, you must add your spouses gross income to your gross income to determine of at least 2/3 of your total gross income is from farming or fishing. Gross income from farming is income from cultivating the soil or raising agricultural commodities. It included the following amounts:

* Income from operating a stock, dairy, poultry, bee, fruit, or truck farm
*Income from a plantation, ranch, nursery, range, orchard, or oyster bed
*Crop shares for the use of our land
*Gains from sales of draft, breeding, dairy, or sporting livestock

If inquiring about answers pertaining to farming and how to prepare your returns, contact your local tax consultant for the latest 2007 filing requirements !

Married Taxpayers

If you qualify tomake joint estimated tax payments , apply the rules discussed here to your joint estimated inocme. You and your spouse can qualify to make joint estimated tax payments even if you are living together.

However, you and your spouse cannot make joint estimated tax payments if:

*You are legally separated under a decree of divorce or separated maintenance
*You are your spouse have different tax years or
*Either spouse is a nonresident alien (unless you elected to be treated as a resident alien).

If you do not qualify to make joint estimated tax payments, apply to make joint estimated tax payments , apply these rules to your separated estimated income.

Whether you and your spouse make joint estimated tax payments or separate will not affect your choice of filing a joint tax returns for 2007.

If you plan to file a joint return with your spouse for 2007, but if you filed separate returns for 2006, your 2006 tax is the total tax shown in your separate returns. You filed a separate return if you filed as single, head of household, or married filing separately.

If you have questions about how to file as a married couple, or you have an acrued tax liability, contact a licensed tax rep that can help you solve your tax delinquency today !

Who Does Not Have To Pay Estimated Tax

If you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to take out more tax. To do this, file a W-4 with your employer. You do not have to pay estimated tax for 2007 if you meet all three of the following conditions.

-You had no tax liability in 2007
-You were US citizen or resident alien for a whole year
-Your 2007 tax year covered for a 12 month period
-You had no tax liability for 2007, if your total tax was zero or you did not have to file an income tax return.

As a general rule, those that need to pay estimated tax payments are as followed :
-You expect to owe at least $1000 in a tax for 2007 , after subtracting your withholding and credits.

Estimated Taxes and the IRS

Estimated taxes the method used to pay, on income that is not subject to withholding. This incudes income from self-employment, interest, dividends, alimony, rent, gaines from the sale of assets, prizes, and awards. You also may have to pay the estimated tax if the amount of income tax being withheld from your salary, pension or the other income is not enough.
Estimated tax is used to pay both income tax and self-employment, income tax and self-employment as well as other taxes and amount reported on your tax return. If you do not pay enough through withholding or estimated payments, you may be charged a tax penalty. If you do not pay enough by the due date of each payment period, you may be charged a penalty even if you are due a refund when you file your tax return.

Getting the Right Amount of Tax Withheld

In most situations, the tax withheld from your pay will be close to the tax you figure on your return if you follow these two rules.
* You accurately complete all the forms W-4 worksheets that apply to you
*You give your employer a new form W-4 when changes occur

But because the worksheets and the withholding methods do not account for all possible situations, you may not be getting the right amount withheld. This is most likely to happen in the following situations
*You are married and both you and your spouse work
*You have more than one job at a time
*You have non wage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income
*You will owe additional amounts with your return, such as self-employment tax
*Your withholding is based on obsolete Form W-4 information for a substantial part of the year
*Your earnings are more than $130000 if you are single or $180000 if you are married
*You work only part of the year
*You change the number of your withholding allowances during the year

Withholdings Allowances

Did you know that the more allowances you claim on Form W-4, the less income tax your employer will withhold? You will have the most tax withheld if you claim "O" allowances. The number of allowances you can claim depends on the following factors:

*How many exemptions you can take on your tax returns
*Whether you have income from more than one job
*What deductions, adjustments to income ,and credits you expect to have for the year
*Whether you will file a Head Of Household.

If you have income from more than one job at a time,complete only one set of W-4 worksheets,then split your allowances between he W-4 form for each job. The taxpayer cannot have the same allowances with more than one employer at the same time.

Married Individuals-
If both you and your spouse are employed and expect to file a joint return, figure your withholding allowances using your combined income, adjustments,deductions, exemptions and credits.Use only one set of worksheets. You can divide your total allowances using separate worksheets based on your own individual income, adjustments, deductions, exemptions, and credits.

Filing as Married on your W-4

Did you know that there is a lower withholding rate for people who qualify to check the "Married" box in line 3 of form W-4. Everyone else must have tax withheld at the higher single rate. You must check the single box if any of the following applies:

* You are single. If you are divorced, or separated from your spouse under a court decree of separate maintenance, you are considered single.
* You are married, but neither you nor your spouse is a citizen or resident of the United States
* You are married, either of you or your spouse is a nonresident alien, and you have not chosen to have that person treated as a resident alien for tax purposes.

To qualify as married, the following would need to qualify:

* You are married and neither you nor your spouse is a non resident alien. You are considered married for the whole year even if your spouse died during the year.
* You are married, either you or your spouse is a nonresident alien, and you have chosen to have that person treated as a resident alien for tax purposes.
* You expect to be able to file your return as a qualifying widow or widower. You usually can use this filing status if your spouse dies within the previous 2 years and you provide more than half the cost of keeping up a home that was the main home for you and your dependent child for the entire year. However, you must file a new form W-4 showing your filing status as single by December 1 of the last year your eligible to file as a qualifying widow or widower.

Some married people find that they do not have enough tax withheld at the married rate. This can happen, for example when both spouses work. To avoid this, the IRS states that you can check the "Married" but withhold at higher Single rate box (even if you qualify for the married rate). Also. you may find that more tax is withheld if you fill out the Two-Earners/Multiple Jobs Worksheet .

There are licensed professionals that can help with the answers to theses questions and more at Effectur.

Itemized Deductions

Taxpayers that either own a home, and or give money to charities/non profit organizations can itemize deductions on their taxes. If you are filing your 2007 tax returns, you may want to be aware that if your adjusted gross income is above a certain amount, you may lose part of your itemized deductions. In 2007, the amount is increased to $156,400 ($78,200 if married filing separately).
In 2008, if your adjusted gross income is above a certain amount, you may lose party of your itemized deductions. In 2008, this amount is increased to $159,950 ($79975 if married filing separately). Beginning in 2008, the amount by which these itemized deductions are reduced is only of the amount of the reduction that otherwise would have applied.

How events in your life, change your W-4

There are several events in ones life that may change whether or not you need to make more allowances, exemptions, deductions or credits you expect to claim on your tax return. When this happens, you will need to make necessary changes to your W-4 within 10 days after either of the following happens:

* You divorce, if they have been claiming you as married
*Any event that decreases that number of withholding allowances you can claim

Events that will decrease the # of withholding :

- You have been claiming an allowance for your spouse, but you get divorced
-You have been claiming an allowance for your qualifying child but now you fins out that eh is she will provide more than half of his or her own support during the year.
-You filed for bankruptcy under Chapter 11 of the Bankruptcy Code and you may or not be entitled to the same number of allowances or the estate may be taxed at a higher rate.

Changing your withholding in 2008:
If you have events that impede your life where your allowances will decrease your withholdings for 2008, you needed to have let your employer know this information before December 2007. Events that will decrease your withholdings for 2008 are as followed:

*You claim allowances for the 2007 based on child care expenses, moving expenses, or large medical expenses.....but you will not have these expenses in 2008.
*You have been claiming an allowance for your spouse, but he or she died in 2007.

You can find more detailed information concerning these events by visiting the IRS website or better yet, by contacting a licensed rep that can help with your tax debt.

W-4 Withholdings- How much do you know what to take out?

When starting a new company, knowing how much one should deduct from their W-4 can make all the difference on whether or not you will owe the government at the end of the year. The amount of income tax your employer withholds from your regular pay, depends on two things:

* The amount you earn
*The information you give your employer on your W-4 Form

Form W-4 includes three types of information that your employer will use to figure your withholding
*Whether to withholding at the single rate or at the lower married rate
* How many withholdings allowances you claim (each allowance reduces the amount withheld).
*Whether you want an additional amount withheld.

When you start a new job, you must fill out a W-4 Form and give it to your employee. If you need to change the information, you must fill out a new form. Keep in mind that if you begin a new ( at the beginning of the year), too much tax can be withheld. If this happens, ask for a part-year method .In order to qualify for the part year method, you have to meet the following criteria:

* You must use the calendar year (January 1-December 31) as your tax year ( not a fiscal year).Furthermore, you must not expect to be employed more than 245 days during the year.

If you have questions concerning W-4 withhoings, or you have immediate tax debt , contact a licensed tax rep that is skilled in understanding the guidelines and practices per the IRS.

Salaries & Wages

Income tax is withheld from the pay of most employers. Your pay includes your regular pay, bonuses, commissions, and vacation allowances. If your income is low enough, you will not have to pay federal income tax; you will be exempt from withholding. There have been questions raised upon whether or not/how farm workers, household workers and military workers are taxed:


Military Workers- Military retirement pay is treated in the same manner as regular pay for income tax purposes, even though it is treated as a pension or annuity for other tax purposes.


Household Workers: A household worker is someone/employee who performs household work in a private home,local college club, a fraternity, or sorority chapter. One can ask to have tax withheld from their employer, if not then you may want to pay estimated tax payments (ES payments) , provided you made enough income.

Farm workers: Generally,income tax is withheld from your cash wages for work on a farm, unless your employer both:

* Pays you cash wages of less than $150 during the year, and

* Less than $2500 in expenditures for agricultural labor


You can ask your employer to withhold income tax from non cash wages and other wages not subject to withholding. There again, if you make enough income and your employer refuses to take out income tax, you may want to make those estimated tax payments (that I have been speaking) of so that you will not owe so much when you file your tax returns. The Internal Revenue Service will issue Estimated Tax penalties if you fail to pay them !

Tax Withholding : IRS

Federal Income tax is a pay as you go tax. You must pay the tax as you earn or receive income during the year. There are two ways to pay as you go:

Withholding

Estimated Tax

In essence, withholding is where your employer withholds income tax from your pay. In addition, tax may be held from certain other income, including pensions,bonus's commissions and gambling earnings. This amount withheld is paid to the IRS.

In regards to estimated tax, of you do not pay your tax through withholding, or do not pay enough tax that you may have to pay estimated tax quarterly to the government.Those in business, will h ave to pay a portion of their income (according to the proposed time) during the following months: Mar, June, September and December. This amount is in proportionate to your AGI (Adjusted Gross Income) from the previous year. In addition to business estimated tax, one may have to pay quarterly if they receive a certain amount in dividends, interest, capitol gains, rents , royalties , and gambling earnings.

If you have tax debt as a result of not enough withholdings or estimated tax payments that you are regularly paying, contact Effectur where a licensed tax preparer can better explain the deficiency on your returns.

Mortgage Claim Release Act:

We all are aware of the rising mortgage debt foreclosures in America today. In conjunction of our recessed economy and the erroneous loans that mortgage companies are issuing, there is no relief for those with outstanding balances. Unfortunately there are loan companies that have been approving anybody and everybody (so to speak) for loans in the past. Presently there is an over saturation of homes today and mortgage companies are tightening their grip of qualifying applicants.
According to the IRS, a bill was passed called the Mortgage Forgiveness Debt Relief Act of 2007, enacted on December 20, insuring taxpayers some relief on their returns. Homeowners whose debt was partially or entirely forgiven during 2007, may be able to claim special tax relief by filling out a Form 982 along with attaching it to their 2007 federal income tax returns. IRS Commissioner Linda Staff is encouraging those people in this qualified debt to take full advantage of this opportunity.
Normally debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act. of 2007, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was less than $2 million. The limit is $1 million for a married person a filing separate return. Keep in mind that the new law applies to debt forgiven in 2007,2008,2009. Debt. This enactment is for qualified homeowners of debt foreclosure and the debt restructuring of a home. The debt must have been used to buy, build, or substantially improve the taxpayer's residence. Debt use to refinance qualifying debt is also eligible for exclusion, but only up to the amount of the old mortgage principal, just before refinancing.

Changes to the 2007 Charitable Contributions

According to the IRS, there are three new points that are to be made in compliance with the IRS standards in regards to your 2007 federal taxes:

New record keeping requirements for cash contributions-
You cannot deduct a cash contributions, regardless of the amount unless you keep bank records i.e cancelled checks, or the name of a charity including the date and the amount.

Contributions to a donor-
After February 13,2007, you cannot deduct a contribution to a donor , if the sponsoring organization is a war veterans organization, a fraternity society, or a nonprofit cemetery company. Generally a person that is donating a certain amount can have a say in how the money should be distributed or how it should be invested. When adhering to this new law, donor's will no longer have a say in these matters.

Filling fee for assessments on buildings in historic districts-
According the Internal Revenue Service, after February 12, 2007, a new $500 filing fee must be paid for each qualified conservation contribution that is an easement on a building in a registered historic district (if the claim deduction is more than $10,000).

If you need require additional assistance on filing your returns, please contact a licensed tax prep to assist you in being in compliance with these updated regulations.