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The tax imposed by the U.S. government on the taxable incomes of individuals, corporations, trusts and estates is known as federal income tax. Personal income taxes are payable on the total income of the individual (after some permissible deductions). Corporate income taxes are payable on the gross profit, the difference between the total receipts and total direct and indirect expenses.

Federal income tax was imposed for the first time by the U.S. government in 1861 to finance the Civil War. A tax of 3 percent was levied on incomes above $600, which rose to 5 percent for incomes above $10,000. These rates were raised in 1864. A new income tax act was enacted in the late 1800s. After the Civil War, income tax was rescinded in 1872.

In the present scenario, the revenues of the federal government mainly accrue from personal and corporate income taxes. Earlier, tariffs on imported goods constituted a large chunk of the government?s revenues, but, at present tariffs represent only a minor portion of federal revenues. Other non-tax fees are also levied, which recompense agencies for services or fill specific trust funds.

Several specific taxes, in addition to the general income tax, are also collected by the federal government. For example, the social support programs such as social security and Medicare are funded by taxes on personal earned income. Estate taxes are also levied on inheritances.

It is income tax that forms the bulk of the Read more…

The small business segment creates a lot of new jobs. Even though big business always demands the limelight, small businesses play their part in providing a support base to the national, state, and local economies. They are critical in providing the much-needed economic vitality, especially in traditional areas of commercial activity. Given their importance to the national economy, tax plans and reforms have targeted small businesses in terms of providing them various kinds of tax relief.

Most small businesses are sole proprietorships or limited partnerships. New legislation has reduced the amount of taxes that small businesses have to pay. Tax relief to small businesses has come through as relief on income tax returns, growth incentives, and reduction of taxes on dividends and capital gains.

The income tax reductions for small business owners have come from inclusion of more items under the 10 percent and 15 percent tax categories. So, more of the income will be taxed at these lower rates. Further, the 27 percent, 30 percent, and 35 percent tax rates were each reduced by 2 percentage points, with the highest tax rate being reduced from 38.6 to 35 percent. The death tax has been repealed until 2011, which benefits small owners from paying tax when they pass their businesses to their family members.

The Jobs and Growth Tax Relief Reconciliation Act of 2003, increased depreciation rates on qualified Read more…

The preparation of tax documents and filing of tax returns is a complicated process and requires professional handling. Professional help is generally expensive and can burn the pockets of taxpayers if availed of. Taxpayers can also prepare tax files on their own but there are risks of committing errors when a large number of deductions and exemptions are taken into consideration. As a result, taxpayers seek professional help even though it is expensive. In recent times however, some tax experts and tax companies have started offering free tax filing services.

The principal means of filing taxes for free is through online websites of tax companies and use of software provided by them. These companies offer online tax preparation help and electronic filing through a partnership agreement with the IRS. Almost all the free tax filing companies offer services based on different sets of criteria to qualify taxpayers for the service. Companies offer free filing service for taxpayers whose gross annual income is below or equal to $50,000. There are also many age and area restrictions for free tax filing service. Some tax filing companies prepare and file taxes for people of only certain area codes and states.

Primarily, Form 1040EZ is used to file tax returns of these types of customers. The companies fill out the forms and prepare Read more…

There are many people who are not in a good financial position to pay their taxes on time. As a result, they get termed as tax defaulters due to their inability to pay taxes. Tax debt lawyers are legal specialists who possess the necessary knowledge and experience required for handling such cases.

Tax defaulters incur tax related problems due to many reasons such as layoffs, divorce, illness, accidents or prolonged unemployment. Tax debt lawyers try and work out possible solutions for such clients to help them recover from their tax debt and pay their tax dues over a period of time. These taxes do not get exempt if not paid in time and defaulters are liable to be prosecuted by the tax department. Tax debt lawyers argue such cases in courts of law against the tax department on behalf of their clients.

Some people fail to file their income tax returns by oversight or the tax return filed by them is not updated on the IRS lists. Such people are also categorized as defaulters and have to pay a penalty for this accumulating tax debt. To avoid this, they take the help of a tax debt lawyer without which their condition is unlikely to improve. As tax debt lawyers know the intricacies of the trade and the legal system pertaining to tax, they can work out deals with the IRS and help their clients get some relief in cases of tax debt.

One of the methods suggested by tax debt lawyers to defaulters is that they Read more…

LESSON ONE

First Remember that:

THE LOCAL PROPERTY TAX in New Jersey is in fact a LOCAL TAX.

This means that the tax is assessed and collected at the local municipal level for the support of:

LOCAL SCHOOLS

MUNICIPAL GOVERNMENT

COUNTY GOVERNMENT

THE STATE RECEIVES NO PORTION OF THESE PROPERTY TAXES.

As a matter of fact the State pays out 48? of every State revenue dollar collected to counties, municipalities and schools in some form of State Aid. In 1961, some 44 years ago, the State paid out 43 cents of every State revenue dollar collected.

In FY 2005 the State budgeted approximately $12,465.6 million in State funding for property tax relief programs for the following purposes:

($Millions)

Schools Aid $8,657.3

Municipal Aid 1,757.0

Other Local Aid 716.0

Direct Taxpayer Relief 1,335.3

TOTAL $12,465.6

LESSON TWO

Next we must understand that:

THE LOCAL PROPERTY TAX in New Jersey is a RESIDUAL TAX.

A Residual Tax is one which is levied to raise the amount of money required over and above the total revenues available from other sources.

For example, in Jerry’s Small Town, total budget requirements are:

For Local Schools $ 149,000

For Municipal Services 175,000

For County Services 75,000

Other Items 1,000

TOTAL BUDGET REQUIREMENTS $400,000

Available Revenues to offset these requirements:

State School Aid $ 75,000

Other Revenues 25,000

(Parking Meters, Licenses,

Court Fines, Etc.)

TOTAL AVAILABLE REVENUES $100,000

AMOUNT TO BE RAISED BY

LOCAL PROPERTY TAXATION $300,000

This $300,000 is the RESIDUAL amount to be raised by Taxation after giving effect to all other sources of revenue.

LESSON THREE

Now we must also understand that:

THE LOCAL PROPERTY TAX in New Jersey is an AD VALOREM TAX.

Don’t let that fancy name frighten you.

An AD VALOREM tax simply means that each taxpayer shares in the total tax burden of his town in the direct proportion as the value of his property bears to the total value of all the property in his town.

AD VALOREM means each taxpayer pays according to the value of the property he owns. The amount of property he owns is used as a yardstick in determining his ability to pay.

For Example:

Jerry owns a house and lot

having a market value of $ 300,000

The total market value of all property

in Jerry’s towns is $60,000,000

ACCORDINGLY:

Jerry’s share of the total Local

Property Tax base is $300,000 /

$60,000,000

$300,000 equals ? of 1% of the total property tax base of $60,000,000.

Reducing this to a decimal, Jerry’s share of the total Local Property Taxes in his community is ? of 1%, or .005.

This percentage is usually shown as a Tax Rate charged for each $100 of Assessed Valuation. (See Lesson Four)

AD VALOREM means nothing more than PROPORTIONATE OR FAIR SHARE.

REVIEW

So far we have learned that the Local Property Tax is a -

LOCAL Tax

RESIDUAL Tax

AD VALOREM Tax

LOCAL TAX levied at the local municipal level for the support of local schools, municipal and county governments.

RESIDUAL TAX levied to make up the difference between available miscellaneous revenues and budget requirements.

AD VALOREM TAX, which means that each taxpayer pays his proportionate share based on the value of the property he owns.

LESSON FOUR

Now, we must learn the answer to the question:

WHAT IS THE MEANING OF TAX RATE?

TAX RATE is the number of dollars per $100 of Assessed Valuations which must be applied to the assessed valuation of all property in a taxing district in order to produce the amount of money required to support school, county and municipal budgets.

TAX RATE is another method used to arrive at the amount of each taxpayer’s proportionate share of local taxes.

The TAX RATE is determined by a simple arithmetic calculation similar to the method illustrated in Lesson Three.

Total Amount to be Raised by Taxation – $300,000

Total Value of all property in Town – $60,000,000

$300,000/

$60,000,000 = .05

The Tax Rate is then 5? per $1 of Assessed Valuation

or

$5.00 per $100 of Assessed Valuations

EXAMPLE:

Jerry’s house and lot have

an Assessed Valuation of —————— $300,000

Tax Rate per $100 of

Assessed Valuation ————————- X $5.00

Jerry’s Tax Bill is ————————— $ 1,500.00

LESSON FIVE

What is the meaning of -

TRUE VALUE

ASSESSMENT RATIO

ASSESSED VALUATION

TRUE VALUE means market value – the amount a parcel of real property would sell for at a fair and bona fide sale.

ASSESSMENT RATIO is that percent of True Value used by the assessor in making up his assessment rolls as prescribed by his/her County Board of Taxation).

In New Jersey assessors use the statutory 100% ratio or Full True market value in making up their assessment rolls; assessors in others states use assessment ratios or percentages less than 100%.

ASSESSED VALUATION or ASSESSMENT is the value placed on each parcel of property by the assessor as indicated above; it is determined by the use of True Value or some percentage thereof.

REVIEW

In Lessons One and Two we learned that:

Total Budgets less available revenues result in the Residual Amount to be raised by taxation which is the total tax bill.

It follows then that the amount to be raised by taxation is a primary factor in determining the amount of each individual property owner’s tax bill.

In Lesson Three we learned that:

Local Property Taxes are apportioned among property owners according to the value of each individual taxpayer’s property in proportion to the value of the property of all taxpayers.

We learned that this method of taxation is called AD VALOREM taxation.

In Lesson Four we learned that:

Tax Rate is the dollar amount per $100 of assessed valuation which must be raised to support local budgets.

In Lesson Five we learned that:

Assessed Valuation is the true value or percentage of true value placed on each parcel of property by the assessor. This is the basic factor which implements the AD VALOREM principle of taxation.

LESSON SIX

What are the relationships among:

Total Amount to be Raised by Taxation

Tax Rate

Amount of the Individual Taxpayer’s Bill

The relationship among these factors can best be illustrated by the following example. This example incorporates some of the lessons we have already learned.

In Jerry’s Hometown:

The Total Amount to be Raised by Taxation is $300,000

The True Value of All Real Property is $60,000,000

The Assessor Uses an Assessment Ratio of X 100%

Thus the Total Assessed Valuation Taxable is $60,000,000

The Tax Rate then is ($300,000)/ – $5 per $100 of Assessed Valuation

$60,000,000)

Accordingly, if Jerry’s House and Lot have a market value of $300,000

And the assessor uniformly applies an Assessment Ratio of 100% 100%
(Note: All New Jersey County Boards Of Taxation Require 100% Ratio)

Jerry’s house will be Assessed at: $300,000

By applying the Tax Rate in Jerry’s Town X $5.00

JERRY’S TAX BILL WILL BE Read more…

With a little bit of planning, you could find filing tax returns to be a simple task. First of all, keep documents like your SSN, your spouse’s SSN, and dependent’s SSN in order. Get together medical expense records, charitable contribution records, accounting records of your business, wages and asset purchase records.

Make sure you have gathered the interest income (Form 1099 INT), dividend income (Form 1099-DIV), sale of stocks and bonds (Form 1099-B), mortgage interest (Form 1098) and IRA/ Pension Distribution (Form 1099-R, Form SSA 1099).

Some of the other important documents are Form 1099G, Form W -2G, Form 1099-MISC, Form-1099MSA, and Form-1098 E.

Keep a record of the mileage on your vehicle, Internal Revenue contribution, job travel, wages and taxation of household employees. Home property details, such as total area, home office area, expenses records, rent paid and theft from property are also important details. Along with this you should also have scholarship and bank statement records.

To qualify as head of the household, your filing status for the year has to be either “married filing separately,” or “married filing jointly.” As an unmarried dependent, you must file a tax return if your earned and/or unearned income exceeds certain limits. There are many specific rules for couples who are divorced, separated or living together. It would be a good idea to go through the rules and become clear about them.

Dependents are divided into two categories: qualifying relative and qualifying childv which means your child, as well a relative you are supporting can be claimed as dependents. They must have passed the tests of citizenship or residents, joint return test, gross income and support.

A person claimed as a dependent cannot claim any other dependents during the same calendar year. There is no age limit as long they have passed the above Read more…

If you are a part of a corporation or business, you do not have to worry about handling your taxes. Chances are, your company already deducts it from your salary and deals with the IRS for you. But what if the business is yours? You are the one expected by your employees to keep up with the tax payments. What if you own and operate the business by yourself? It’s doubly hard to prepare self-employed tax with multiple responsibilities. However, handling your business tax efficiently is not impossible with the right preparation.

Popular career coaches like Sarah and Paul Edwards give some tips in filing for your own self-employed tax. According to them, the IRS has different regulations like special deductions for home-based businesses. It is to the advantage of your home business to understand these tax rules. By knowing your deductions, you can slash your taxes in half. Some common deductions allowed for home-based businesses are too ordinary that most are overlooked. Examples of these deductions are vehicle expenses, like auto insurance and gas. However, make sure that you keep receipts from gassing up during business trips. The IRS is likely to probe and investigate these claims. You’re better off with valid proofs. You may not know this, but the IRS actually allows home businesses to deduct costs of business stationery and other office supplies. Trickier deductibles are business entertainment and meals. In a corporate setting, the company reimburses you for any amount you spent in treating a client out. But if your business is based at home, there is no one to reimburse you. Keep the bill from business dinners and hotel stays. Standard deductibles are communication expenses, credit card interests, publication subscriptions, and utilities. These are deducted from your total taxable income and translate Read more…

If the tax you owe is less than the total of the amount of refundable tax credits that you can claim and the amount of the withholding that you paid, then you can expect a tax refund. Why? The most recent tax law provided for a new 10% tax bracket. This means that, depending on your tax category, the first $6,000 to $12,000 of your earnings will be taxed at 10 percent instead of 15 percent. To a lot of Americans, this seems like good news. But is it really?

Many financial experts are quick to interpret the tax refund as a loan that the government borrowed from you ? a loan that it is now paying back to you, interest-free. For this reason, some people see tax refunds as an inadequate premium. It is nothing more than excess money you paid, which the government used, and is now giving back to you with no interest.

For a greater majority, however, tax refunds are mere ?savings? ? money that the government kept for you that you are now going to get back for use in other things. Many Americans are pleasantly surprised to receive tax refunds each year. Most people use the money to pay off debts, beef up savings accounts, and even go on vacations.

To get your tax refund you have three options. You can either let Read more…

If you are expecting an income tax refund like millions of US taxpayers, read on. The good news is, you will have extra money. The bad news? It will be tough figuring out how to use it.

If you still don?t know how to make the most out of the extra income that?s about to come your way, here are some helpful ideas from financial experts.

Pay off your credit cards, your 401(k), or your mortgage. Paying off the amount you still owe on plastic maybe the wisest thing to do. Credit card interest rates are at an all-time high, so free yourself from crippling balances by wiping them out. Remember that paying just the minimum payment is never a good idea. Your money just goes into servicing the interest, and does not really reduce the principal.

But if your credit card is in good shape, why not make a lump sum payment to the principal on your mortgage? Doing so can save you a lot of money in the long run. Think about it: if you pay $1,000 to your principal on a $100,000-mortgage (assuming your rates are at 7 percent), you would save at least $4,000 over the loan term.

You can also use the money to add to the balance in your 401(k), and then use the money you Read more…

If you are about to start a new business, organization or company, you should definitely have an idea about payroll tax, how to do calculations and why they are important in the USA. Payroll taxes are a major source of tax revenue for state and federal governments, generating funds for unemployment and welfare checks.

Pay roll tax is the Federal and state taxes that an employer is required to deduct and pay to the government on behalf of employees. These include state and federal income taxes, social securities and Medicare taxes that are withheld from the wages of an employee. The employer has to contribute to these taxes, the same amount that is deducted from the employees. Payroll tax also includes the state and federal unemployment taxes paid by a company to the government; this means employers have to pay the State and Federal unemployment tax.

In the United States, payroll taxes pay for two insurance systems namely Social Security and Medicare. Social security that comes under payroll tax includes insurance policies for retirement, disability, hospital, workers? compensation and many more. Medicare is the insurance policy that covers elderly people, mostly above 65 years of age. Being a Read more…