Many people are confused about the purpose of accountants given tax software and so on. To get the biggest benefit for the fees you pay, you need to understand what your accountant can do.

The Purpose of Your Accountant

An accountant is a licensed profession who has gone to hell and back to gain their designation as a certified public accountant. The testing for the certification is beyond brutal. If an accountant is certified, it means they are extremely versed in the tax code, finances and tax issues.

Many people are under the mistaken belief that accountants simply provide tax return preparation services. The stereotypical view involves a person dropping off their receipts a month before tax returns are due and the accountant doing the best he or she can to prepare a tax return while limiting the amount of money you owe the government. This occurs, but people are wasting money if this is how they are using their accountant.

Accountants have expertise in the tax code. You should use this. Ideally, an accountant will aware of all aspects of your financial life. They should also be aware of significant events in your private life, such as the fact you are about to have a child. The reason this is important is it gives the accountant the ability to solve your tax mystery.

Solving a tax mystery simply refers to an accountant figuring out the best way to limit your taxes. As you know from police shows on television or mystery novels, finding as many clues as possible is the way to solve the mystery. The accountant needs to do the same with you and you need to help them. Each part of your finances represents a clue to solving the mystery of how to cut your tax bill.

Once an accountant has all the clues, he or she can do their job. They will give you specific direction on the steps to be taken to save money on your tax bill this year. Equally important, they will give you advice on how you are going to save taxes in future years. Depending on your situation, they may even recommend a long-term tax strategy for stuffing away money to pay for your kids’ college tuition or your retirement.

The purpose of using an accountant is not just to put tax returns together. They put together tax strategies to save you money this year, the next and throughout your life.

With products like Turbo Tax improving, many wonder where this leaves accountants. Ironically, the evolving role of accountants is helping people save on their taxes.

The Evolving Role of Accountants

Given the fact that paying taxes isn’t the most popular of tasks, most people don’t give much thought to the role of accountants. Going to your accountant is often viewed much like going to the dentist. It is not going to be fun, but it needs to be done. While a toothache isn’t fun, an audit is one of the biggest fears of most taxpayers. I guarantee you that no contestant would survive if the Fear Factor television show made them undergo a tax audit!

Given this situation, it is hardly surprising that most people view the role of an accountant as the preparation of confusing tax returns. With the advent of tax preparation software programs, many wonder why they need an accountant. More than a few accountants have probably wondered as much also.

There is no disputing the tax preparation software revolution has led to a different role for most accountants. Ironically, this is good for both taxpayers and accountants. No longer does an accountant count on spending time filing out tax returns. Heck, even accountants use software to do this now!

The role of accountants is now to do tax planning for their clients. The best accountant is one that drags you into his or her office once a year to look at your finances and plan a strategy to limit what you will pay the IRS. This should occur at some point during the beginning of the tax year, not a week before your tax returns are due!

Unfortunately, a majority of accountants never took this step since they were to busy preparing the mountain of tax returns the federal and state governments now require. The evolving role of accountants, however, has let them return to the traditional position of coming up with proactive strategies to limit your tax bill. This is more interesting for them and obviously beneficial for you.

Many thought tax software would eliminate much of the need for accountants. Ironically, the changes in their duties has returned them to their traditional role of giving tax planning advice.

Have a car or a truck that you want out of your garage? Want to get that heart warming feeling of having helped the needy? And last but not the least, want to pay less in taxes this year? Well, you can do all three at the same time! Just go ahead and donate that old car to a charity.

The charity can then go ahead and do any thing with the automobile – sell it, use it for ‘not for profit’ activities or even give it away to a needy individual. Whatever it does with the car, it has to be in accordance with the norms laid down by the IRS to benefit you (in terms of taxes). The organization has to justify the sale or re-donation of the donated vehicle. The donor has to be forwarded complete details about what the charity ultimately did with the car. This documentation has to reach the donor within 30 days of the donation being made. Thereafter the donor can submit the papers to IRS and claim a tax break.

Though this might look quite exciting, there are some ground rules that one has to keep in mind. First and foremost there is a threshold value of $500 set by IRS. What this means is that barring few exceptional cases, taxpayer can deduct no more than this amount from his taxable income even if the fair value of the car is higher. However, if the charity manages to sell the car at a price which is higher than the threshold price, all that the donor has to do is collect documents from the charity giving all the details and submit same to IRS and avail a higher deduction.

The $500 rule also states that if the fair price of the automobile is higher than the set threshold value but the charity manages to sell it at a price lower than $500, the taxpayer still gets to deduct $500 from his taxable income.

What happens if the fair price of the donated automobile is less than $500? In this case the taxpayer gets to deduct only the fair price amount from his taxable income.

What if the charity does not sell the donated vehicle within the stipulated 30 days and decides to use the same for humanitarian or public service activities for a couple of months and later decides to sell the car at a price that is higher than the threshold price? Here the donor can actually claim deduction at the fair market value as long as the charity is able to provide the donor with relevant documents pertaining to the selling price as well as how the auto was used for nonprofit works before the sale.

So, if you have a station wagon lying unused and unwanted in your garage after you bought your new shiny wheels, go ahead and donate it. Just make sure to follow the rules when you claim the tax deduction!

Social security as we know it now may change drastically in the future if some politicians have their way. It may be taken from a government-managed system where the interest rate is about 1.8% to a private system that has not yet been determined.

Government officials for reform argue that we could get higher interest rates if it is put in private investments. They claim social security is going bankrupt and needs to be changed. But, as far as I'm concerned private investments interest rates are not guaranteed. Look what happened to Enron retirees who depended on the stock of one private company, it was even listed as number 20 on the S&P 500 at one time.

Take a look at the current Medicare benefits after they got into the hands of private companies. It became one huge fiasco with millions of horribly confused senior citizens. Their families, who tried to decipher the myriad of drug plans with them, were just as confused.

Those against social security reform argue that we don't know for sure if social security is going bankrupt and if so, the government should only add minor changes to the current system to save it.

Social security should not be treated like an investment, it has several safeguards for older elderly people, especially women (who tend to live much longer than men), that would not be in place in a new "investment type" system.

My personal model is that the government should not risk money that elderly citizens need to live off, now or in the future. Unfortunately social security is the only source of retirement for far too many senior Americans. This is the main reason I don't feel social security should be invested as stocks or mutual funds. Who controls the money would determine how it is invested, and that would be the gamble.

The current model has a progressive benefits formula, a cost of living adjustment, helps women who haven't been working but who married a worker with benefits, and it pays survivors benefits to women whose husbands died or are disabled. All of this could change for the worse under the new system.

Since women are still working less because they stop working to raise kids, move with their husbands job promotion, take care of elderly parents, and live longer than men, they will depend on social security now and in the future at about the same rate their grandmothers did.

So, in my opinion, the system should be left alone except for minor adjustments. My fear is that major for profit investment companies, are currently somewhere behind the scenes, cooking up a formula so they can benefit from investing social security money, while we risk losing that valuable form of supplemental retirement before we are eligible to use it.

Internal Revenue Service (IRS) allows the deduction of the discount points on your income tax return. Discount points which are one of the most important tax deductions to homebuyers are paid upfront to reduce the mortgage payment.

Calculate the Discount Points

Each point equals one percent of the principal. For example, a 2 discount points on $150,000 mortgage comes to $3,000 ($150,000 x 0.02). The Closing Statements shows how much is your discount points. If you do not see discount points, have no fear. Discount points are also called Loan Origination Fees, Maximum Loan Charges, or Loan Discount.

First Time Homebuyer Discount Points

For a first time buyer, IRS allows to claim the full amount of discount points on the year paid. For example, Joe bought his first home on 2005. In his closing statement, the discount points come to $3,000. Joe claims the full amount on Schedule A of his income tax return.

Discount Points on refinance without home improvement

The homeowners claim the full amount of discount points, when the homeowners refinance towards the improvement of the home. Without the home improvement, the homeowners claim the discount points over the life of the mortgage. For example, Joe refinances his home with a lower interest rate on a 25 year mortgage. The closing statement shows $3000 discount points. Joe claims $120 per year ($3,000 / 25 year mortgage).

Discount Points on refinance with home improvement

The discount points which are paid to improve the home is fully tax deductible on the year paid. The rest are claim over the life of the loan. For example, Joe refinances his home to add a swimming pool on a 25 year mortgage. He paid $20,000 to add a swimming pool. The total mortgage comes to $150,000. The closing statement states $3,000 discount points. Joe claims $400 ($20,000 swimming pool / $150,000 principal x $3,000) + $104 per year ([$3,000 discount points - $400 discount points of swimming pool] / 25 year mortgage).

If the homeowner has an outstanding discount points to claim, the homeowner claims the outstanding discount points on the year of refinance. For example, Joe has $2,000 discount points which are not claimed yet. Joe claims a total of $2,504 ($2,000 outstanding discount points + $400 swimming pool discount points + $104 per year discount points).

IRS yearly update

This article may or not contain the most current tax regulations, and laws. You may want to consider checking with your trusted Tax Advisor or IRS.

There is no requirement in Alabama for a company to carry Workers Compensation Insurance. Alabama is the only state where it is not required.

There is no provision for minimum wage in the State of Alabama.

There is also no general provision in Alabama State Law covering paying overtime in a non-FLSA covered employer.

Alabama State new hire reporting requirements are that every employer must report every new hire, rehire and recall. The employer must report the federally required elements of:

* Employee’s name
* Employee’s address
* Employee’s social security number
* Employer’s name
* Employers address
* Employer’s Federal Employer Identification Number (EIN)

This information must be reported within 7 days of the hiring or rehiring. The information can be sent as a W4 or equivalent by mail, fax or electronically.
There is a $25.00 penalty for a late report in Alabama.

The Alabama new hire reporting agency can be reached at 334-353-8491 or on the web at www.dir.state.al.us/nh.htm .

Alabama does allow compulsory direct deposit but the employee’s choice of financial institution must meet federal Regulation E regarding choice of financial institutions.

Alabama has no State Wage and Hour Law provisions concerning pay stub information.

In Alabama there are no statutory requirements concerning pay frequency or the lag between when the lag time between when the services are performed and when the employee must be paid.

Nor for that matter does Alabama have legal provisions concerning when a terminated employee, voluntary or involuntary, must be paid.

Deceased employee’s wages must be paid when normally due to the surviving spouse or custodian of minor children.

Escheat laws in Alabama require that unclaimed wages be paid over to the state after one year.

There is no provision in Alabama law concerning record retention of abandoned wage records.

There is no provision in Alabama law concerning tip credits against State minimum wage.

In Alabama the payroll laws covering mandatory rest or meal breaks are only that: minors under 16 must have 30 minutes rest after five hours of work.

There is no provision in Alabama law concerning record retention of wage and hour records therefor it is probably wise to follow FLSA guidelines.

The Mortgage Interest that you paid to acquire your first and second home can be deducted in your income tax. As you read on, you will learn how to deduct and calculate Mortgage Interest for your income tax return. Plus, you will learn how Mortgage Interest works.

How it works

The Lender sends you form 1098. The form 1098 shows how much mortgage interest was paid. Using the values from form 1098, you transfer the values to Schedule A Form 1040 of your income tax form.

Requirements for Tax Deductions

There are three conditions to meet to be able to deduct mortgage interest. First, you must fill out the Schedule A Form 1040. Second, you must be liable for the loan. Basically, the homeowner pays the mortgage payment. And, he owns the home. Lastly, the home must be a secured debt of a qualified home.

Mortgage, Deed of Trust, or Land Contract instrument secures a debt. The instrument provides a way to satisfy debt in case of default, makes the owner liable to pay debt, and records under the local state of law.

Qualified Home means house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. And, the home is first and second home of the homeowner.

Qualified Mortgages

The three categories are Grandfathered Debt, Home Acquisition Debt, and Home Equity Debt. Grandfathered Debt is acquired mortgage prior October 13, 1987. If the Homeowner refinanced the mortgage, the mortgage remains as Grandfathered Debt. Home Acquisition Debt is acquired mortgage after October 13, 1987 to buy, build, or improve a home. The total mortgage must not exceed $1 million. Home Equity Debt is acquired mortgage after October 13, 1987 not to buy, build, or improve a home. The mortgage must not exceed $100,000 of the fair market value.

The IRS has announced that it will stop collecting the federal excise tax on long distance telephone services.

The IRS has announced that it will stop collecting the federal excise tax on long distance telephone services.

The agency announced last Thursday that the tax does not apply to long-distance service as it is billed today. The tax was first imposed in 1898 to help pay for the Spanish-American War. The current rate of 3% is charged on the service amount.

Taxpayers will be able to receive a refund of all excise taxes paid on long-distance services billed since Feb. 28, 2003. Interest will also be paid on these refunds. The IRS will soon announce a simplified method that taxpayers may use to minimize administrative burden.

"So taxpayers won't have to spend time digging through old telephone bills, we're designing a straightforward process that taxpayers may use when they file their tax returns next years," said IRS Commissioner Mark W. Everson. He said that claiming a refund will be a simple process.

The IRS says that local telephone service will remain under the federal excise tax. Other state and local taxes and fees paid will also remain in affect.

"Today is a turning point in the long battle to stop the levy for a war that ended 100 years ago," said Senate Finance Committee Chairman Charles Grassley (R-Iowa). "This tax hits every telephone owner, but it doesn't pay for any specific program. It now pours billions into the U.S. Treasury every year for no reason. It's time to hang up the telephone tax."

How much you will save as a result of the new tax law, signed last week by President Bush, depends on many factors. Proponents of the new law say that the provisions will benefit almost all taxpayers. They say that not only will individual taxes be reduced, but economic growth will generate higher tax receipts as income and investments grow.

At the signing ceremony, Bush called the new law, "a victory for the American taxpayers and a lift for the economy."

Opponents of the new law say that only high-income taxpayers will see any relief. They claim that the economic growth provided by the bill is not proven and that many of the provisions will only add to the deficit.

But how will the bill affect your taxes?

The new tax law has extended the 15% tax rate for long-term capital gains and dividends for two more years. For low-income taxpayers, the rate is 0%. The extended rates are expected to expire at the end of 2010. Then the rates will revert to 20% for long-term gains and top income tax rate for dividends.

The estimated cost of this provision is $50.8 billion over the next 10 years.

Critics say that the reduced rate primarily benefit the wealthy, partly because middle-income taxpayers don't have as many investments.

The Urban-Brookings Tax policy estimates that a taxpayer with an income between $50,000 and $75,000 would save an average of $58 on his tax bill in 2009, approximately 0.4% of what his total tax liability would have been before the extension. The average tax cut would be $255, which roughly equals 2% of their tax liability. Only 23% of middle-income taxpayers have taxable investments.

The taxpayer with an income in excess of $1 million or more would save an average of $32,111, or 3.3% of the unextended tax liability. The average tax cut received is $39,448, or about 4% of their tax liability. Eighty-one percent of upper income taxpayers have taxable investments.

Many middle income taxpayers will see benefits from the AMT. The new law increases the AMT income exemption levels that were in effect for 2005. The new exemption levels are $42,500 for single filers and $62,550 for joint filers for 2006.

Taxpayers will also be allowed to use all nonrefundable personal credits to offset AMT liability. Most of these credits are usually disallowed under AMT.

It is estmated that an additional 15 million taxpayers will be protected from AMT in 2006. Most of these taxpayers would come from households with incomes between $100,000 and $500,000. The average household savings ranges from $1,074 to $2,838.

The final reconciliation package was designed to remain below a $70 billion spending limit. To achieve this goal, lawmakers added a few revenue raisers to the bill.

The most controversal provision is one that allows all taxpayers, not just those with AGIs of less than $100,000, to convert their traditional IRAs to Roth IRAs starting in 2010. Proponents say it will raise revenue when IRA holders pay taxes in order to make the conversion. It is expected to raise $6.4 billion between now and 2015.

Critics say that when reducing taxable savings, future revenue is also reduced. Conversions won't make sense for upper-income taxpayers, but depending on your current income tax rate, you could decide to convert to a Roth. Those expecting to be in a high income tax bracket at retirement may decide to convert.

The IRS has canceled the tax-exempt status of some of the nation's largest educational credit counseling services after determining that they prey on debt-ridden customers.

"These organizations have not been operating for the public good and don't deserve tax-exempt status," IRS Commissioner Mark Everson explained on Monday. "They have poisoned an entire sector of the charitable community."

A two-year investigation has resulted in the revocation, possible revocation or other termination of the tax-exempt status of 41 credit counseling agencies, said Everson.

According to Everson, many of the services offered little in the way of counseling or education. Counseling agencies must provide education and counseling to have tax-exempt status.

The 41 counseling organizations represent over 40% of the revenue in the $1 billion industry.

The remaining tax-exempt credit couseling services will be required to report on their activities. The other 740 known tax-exempt services will receive compliance inquiries.

"Depending on the responses received, additional audits may be undertaken," said the agency.

Everson explained that groups secure tax-exempt status and make cold phone calls to people in desperate financial situations. They use scare tactics to sell debt management plans that are not really geared towards reducing consumer debt. These plans are often very costly, charging consumers all types of administrative fees.

Everson recommends the 150 consumer credit counseling organizations that are approved by the Better Business Bureau. He warns that you could still find predatory agencies, no matter the endorsement.

Since 2003, the IRS has processed 100 applications by credit counseling firms for tax-exempt status. It has only approved three.

Many Americans working overseas may experience higher tax bills under the new law signed by President Bush. In some cases, overseas taxpayers could face tens of thousands of more dollars in taxes.

Those most affected will likely be those living in high cost areas, such as Hong Kong and Singapore. Those whose companies don't help cover the additional tax burdens of living abroad may suffer the highest increases. For companies with special relief packages for taxes, the additional costs could mean that fewer workers will be working abroad.

Under the old law, Americans working overseas could exclude up to $80,000 of foreign-earned income for 2006. Under the new law, the figure rises to $82,400. But the rate after that level is now higher than before. The new law also reduces the amount of housing costs that can be excluded or deducted.

The provision is expected to raise an estimated $2.1 billion in revenue over the next 10 years.

It is unclear how companies will react to the new law. The additional tax burden is expected to "significantly affect the cost" of overseas assignment, according to an Ernest & Young report.

In some areas of the world, American workers can expect to have as much as $20,000 in additional taxes for this year.

Mortgage Interest can be qualified as a Tax Deduction for the qualified home and mortgage. In fact, Mortgage Interest Tax Deduction remains a huge tax breaks for homeowners. Here are the common questions and answers. Internal Revenue Services (IRS) updates the tax laws and regulations every year. Be sure to keep with the current tax laws.

How to claim mortgage interest tax deduction?

The Lender sends the Form 1098 every year. In the form 1098, you can see how much mortgage interest paid. From the form 1098, you transfer the amount to Schedule A Form 1040 of income tax form.

What is secured debt?

A home acquisition that uses mortgage, deed of trust, or land contract is a secured debt. It provides a way for repayment in case of default, establishes the ownership of the home, and records the transaction under the local state of law.

How to distinguish a qualified home?

Any property that has sleeping, cooking, and toilet facility includes house, condominium, cooperative, mobile home, house trailer, or boat. Plus, the home must be first and second home of the homeowner.

Can I deduct mortgage interest for rented out second home?

Yes, you may deduct as long as you use the home more than 14 days or 10% of the calendar year.

Am I allowed to several second home?

If you have more than one second home, you can only use one second home for tax deduction. IRS does not limit which second home to choose. In case of new home purchases, main home disqualifies, and second home sells, you may choose another home as your second home.

What if I rented out part of the home?

You may treat the home as residential if you meet the following. First, the tenant use the rented part as primarily for residential. Next, the rented part does not have separate cooking, sleeping, and toilet facilities.

Does a home under construction consider as a qualified home?

You may consider a home under construction as a qualified home if the home is ready for occupancy in 24 months. The 24 months can start on or after the construction begins.

How about deducting a destroyed home?

In case the home was destroyed by fire, storm, tornado, earthquake, or other casualty, you can continue to deduct mortgage interest. However, you must rebuild the home, or sell the land.

Do I lose my deduction on refinanced of Grandfathered Debt?

No, it is still considers as Grandfathered Debt after your refinance the mortgage.