You just got done paying taxes or filing an extension and are grumpy. If you are smart, you will use this miserable event to save some cash for next year.

Using This Years Taxes to Save On Next Years Taxes

For most people, preparing and filing taxes is the equivalent of sticking a pin in a body part. It simply is not fun. Heck, it is not even amusing. One of the reasons is you inevitably find some part of the process where you wonder how you could possible not have more deductions or credits. You fully realize you should tweak your finances to maximize certain expense areas and, by God, you are definitely going to do it for next year. This admirable goal, much like a New Years Resolution, fades into antiquity after about a month. You should not let this happen!

There is no better time than now to proactively plan for savings on next year’s taxes. Having just completed your taxes, you inherently know where you got hurt. Even if you do not, you inevitably felt like you paid more than your fair share. To avoid this, you need to do some tax planning.

Stop groaning. Tax planning may sound boring, but it actually very exciting if you think about it the right way. If I told you a trip to Vegas would definitely result in $2,000 in your pocket, would you be excited to go? Of course you would. Well, tax planning has the same the result. You need to focus on the amount of money you will save.

Unclaimed money in the United States is at an all time high, $25 Billion, and unclaimed tax refunds make up a large portion of that number. Approximately $2 Billion in unclaimed tax refunds is owed to 1,714,500 Americans who did not file for their return in 2002.

People owed refunds on their 2002 taxes had until April 17, 2006 to file for that tax year and claim their refund. If they do not file the $2 Billion will be forfeited to the government.

Unfortunately, unclaimed tax returns are common. There are a few reasons people do not file. Either they don't owe taxes, they didn't have to file because they earned too little, or they didn't take their earned income tax credit. Earn income tax credits for 2002 are for workers who made less than $11,060 and have no children, earned less than $29,201 and had one child, or earned no more than $33,178 and had two or more kids.

Considering the people who are eligible for the refunds are those who did not make much, they are probably most in need of this money. Most likely they are unaware the money is due to them or they simply don't know how to claim it.

The deadline to claim tax refunds for 2003 is April 15, 2007. People are owed billions from 2003 as well

Tax evasion is illegally avoiding paying taxes, failing to report, or reporting inaccurately. The most common one is failing to report cash income. The government imposes strict and serious penalties for tax evasion.

Tax evasion is different from tax avoidance, which is making use of legal methods to minimize tax due. There are many deductions you can legally claim to reduce your tax liability, for example if you have dependents (the more dependents, the lower your taxes), if you have certain medical expenses or if you contribute to certain retirement plans or to charitable organizations. Taking advantage of them and keeping your tax bill to a minimum is quite legal and if you do that you are guilty of no crime. However, when companies, individuals, or any other legal entities intentionally avoid their legal responsibility, that is tax evasion and the penalties are severe, including prison terms and hefty fines.

The Internal Revenue Service (IRS) oversees the regulation of taxes. It also prosecutes any person or entity that avoids payment of taxes due, and can assess penalties.

The IRS has nearly 3000 special agents who are trained to gather the information used to detect tax evasion. They have access to tax returns, the power to issue a summons for access to further financial information, and the right to seize or freeze monies in the attempt to collect the necessary financial information.

The IRS audits some taxpayers at random each year, but most audits are a result of unusual activity. If a person claims a lot of deductions in proportion to their income, or if a person with a lot of assets declares a very small income, an audit may result. If it is established that taxes have been intentionally evaded, the IRS can levy tax liens, seize assets, freeze money in check and savings accounts, and garnish wages. Any and all properties held by the individual taxpayer can be seized and sold at auction if no attempt is made to repay the liability.

Sometimes, another writer, upon learning that I'm both a book author and tax accountant, asks me for the best ways that authors can minimize their income taxes.

If I can, I try to weasel my way out of the discussion, offering up such basic tidbits as, "Well, be sure to look at the home office deduction." And "do use a basic accounting program like Quicken or Microsoft Money so you capture all of your writing business expenses."

Usually, those simplistic answers work. Usually, after dolling out such drivel, the guy waunders off to get another drink and more appetizers.

Everyone once in a while, though, I encounter some writer who's really motivated to save on taxes. Usually, someone now making good money writing... When I can't deflect their questions in some other way, I tell them about the three best ways that authors have to save on taxes.

Technique #1: Smooth Your Income

Whatever you think of the US Internal Revenue Code, you need to know that it's quite progressive. That progressivity means the more you make, the more you pay. The progressivity also means that if your income fluctuates, your income taxes go up even if you make the same money on average as someone else makes whose income is steady.

To give you an example of this, suppose that you compare two writers, John and Jane. If John makes a steady $60,000 a year and has a mortgage, a spouse and couple of kids, he might pay about $1000 over four years (net of tax credits such as for children.)

In comparison, suppose that Jane averages $60,000 a year, but sees her income fluctuate between $30,000 a year and $90,000 a year. She still makes $60,000 a year on average. Yet if she also has a spouse, two kids and a mortgage, she'll probably pay $8,000 to $10,000 in taxes over those same four years.

Please note that over the same four years, then, the two writers make the same amount of money: $240,000. But what they pay in taxes differs radically. Jane pays eight to ten times what John pays! Yikes!

What can Jane do? Well, let's bring this back to the example of working writers. Jane can probably rather easily smooth her income. She can make sure that she's not stacking two big advances in the same year. She can spread out advance payments over two or more years. She can even try to stuff more of her expenses into the good years. In the good years, for example, she can buy new computers, take those graduate classes, or top off her pension.

The magic tax date of April 15th has passed. If you did not file a tax return or extension request, you need to consider the following.

Didn’t File Anything with the IRS on April 15th?

The Internal Revenue Service is a bit touchy about filing tax returns. It would prefer you to file a return or extension to doing nothing, even if you cannot pay. If worse comes to worse, the IRS will simply put you on a payment plan. Failing to file anything, however, can lead too more unwanted attention from the agency than you could possible want to receive.

In general, you should always try to pay your taxes whenever possible. Failure to do so can lead to brutal penalties and interest charges. If the IRS thinks you are up to something funny, the penalties and interest can add up to 25 percent of your tax bill. That is a big chunk of change!

If you are due a refund, but just did not get around to filing your taxes, you do not have to worry about penalties and interest. There are none since you are owed money. That being said, are you nuts? Why would you give the government an interest free loan? What could you be using that money for in your daily life? Get off the couch and get a return filed so you can get your money back. For obvious reasons, few people let refunds sit at the IRS. If you are insanely lazy, keep in mind you will lose the refunds if you do not claim them within three years of the original filing date. Frankly, you deserve to if you are that lazy!

The Internal Revenue Service wants you to pay taxes on time. That being said, it understands this is not always possible and has created a program for such situations.

The Internal Revenue Service is very upfront about its goal in dealing with taxpayers. While it obviously wants to collect all taxes due, it is also focused on keeping you in the system. This attitude is a relatively recent change undertaken in the 1990s. The IRS essentially determined it made better financial sense to have you in the system versus spending hundreds of man hours hunting you down. In practical terms, this means you need not have a panic attack if you do not have sufficient funds to meet your tax obligation. If you panicked this past tax deadline, there was no need.

The IRS will put you on a payment plan if you cannot pay your taxes on time. The plan calls for monthly payments like a car loan, to wit, they are an equal amount each month so you know what you are obligated to pay.

You are only eligible for a payment plan if you file a tax return. Once you file, you want to use form 9465 to request the payment plan. It costs $43 to file the application. The IRS will then get back to you on what it is willing to do. The payment plan process is not an audit. Millions of people apply each year and the IRS considers it standard operating procedure. No red flags are raised when you file the application. To the contrary, the IRS tends to view you as an honest tax payer since you are acknowledging the full amount due and trying to find a way to pay.

Importantly, the payment plan should be viewed as a means to buy time. Making the monthly payments will eventually pay off the debt, but it will take years. Interest on the amount you owe will also continue to accrue. The best strategy for using the plan is to make the monthly payments while saving up money to make a lump sum payment to satisfy the debt

Prior to January 1, 2006, you were restricted to claiming a $2,000 tax deduction if you purchased a hybrid car. Now you can claim a tax credit, which is much more valuable.

Conspiracy theorists often offer rather exotic arguments about how the government tries to control us. When it comes to taxes, they are absolutely correct. Both federal and state governments try to influence our behavior by levying or reducing taxes. If the government wants to promote something, it gives you tax breaks if you do it. If the government wants to discourage something, it loads the product or service up with taxes.

If you have filled up your car at the pump in the last week, you know gas prices are out of control. Despite our wailing, they politicians really cannot do that much since we are dependent on foreign oil sources. They have, however, taken one long-term approach by promoting the purchase of hybrid vehicles.

Prior to 2006, the government provided all taxpayers that purchased a new hybrid with a healthy $2,000 tax deduction. With the recent passage of the Bush Energy Act, the government has made it foolish NOT to purchase a hybrid. It did this by changing the tax deduction into a tax credit.

The IRS is now allowed to set tax credit amounts applicable to hybrid purchases so long as the amount does not exceed $3,400. In regard to the 2007 Lexus GS 450 hybrid, it has just done so. If you purchase a new 2007 Lexus GS 450 hybrid after January 1, 2006, you can claim a tax credit of $1,550.

You may think $1,550 is nice, but not overly impressive. How wrong you are! Unlike a tax deduction, a tax credit is applied directly to the amount of taxes you owe. Assume you determine you owe $6,500 when you prepare your 2006 taxes next year. Instead of writing a check to the IRS, you will first deduct your tax credit from the amount you owe giving you a bill of 4,950. This dollar for dollar reduction in your tax liability is what makes tax credits so great.

The business part of your home must be exclusively and regularly used for your business. The business part of your home must be your principal place of business; a place where you meet or deal with patients, clients, or customers in the normal course of your business; or a separate structure (not attached to your home) that you use in connection with your business.

To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. The area used for business can be a room or other separately identifiable space. The space does not need to be marked off by a permanent partition. You do not meet the requirements of the exclusive use test if you use the area in your home both for business and for personal purposes. There are separate IRS rules if you use part of your home for the storage of inventory or product samples or as a daycare facility.

To qualify under the regular use test, you must use a specific area of your home business on a continuing basis, not an occasional or incidental use, even if you do not use that area for any other purpose.

See IRS Publication 587.

Jo Ann Joy is the CEO and owner of Indigo Business Solutions, a legal and business consulting firm that differs from other business consulting firms, because it offers comprehensive legal and business counseling. Jo Ann has a law degree, an MBA, and a degree in Economics, but she is not a traditional attorney. Rather, she is a strategic business attorney who works closely with clients to create and implement strategies that will greatly improve their performance and success.

Jo Ann uses her talents, expertise, and education to inspire enterprising and imaginative people to make their goals a reality and enjoy professional and personal growth. Her background includes commercial and real estate law, accounting, financial planning, mortgages, marketing, product development, and business strategies. She ran a successful business for 10 years, and she has written and given presentations on many different legal and business subjects.

Your home may be considered your principal place of business based on the following factors:

• The relative importance of the activities performed at each location, including your home, where you conduct business.
• If the relative importance factor does not determine your principal place of business, you can also consider the time spent at each location, including your home, where you conduct business.

The IRS further states that your home office may also qualify as your principal place of business for deducting expenses for its business use if you meet the following requirements:

• You use it exclusively and regularly for administrative or management activities of your business.
• You have no other fixed location where you conduct substantial administrative or management activities of your business.

You can have more than one business location, including your home, for a single business. To qualify to deduct the expenses for the business use of your home under the principal place of business test, the substantial administration and management of that business must be conducted in your home. All the facts and circumstances must be considered to determine that your home qualifies as your principal place of business.

According to the IRS regulations, the following are a few examples of administrative or management activities:

• Billing customers, clients, or patients.
• Keeping books and records.
• Ordering supplies.
• Setting up appointments.
• Forwarding orders or writing reports.

Some administrative or management activities may be performed at other locations, and that will not disqualify your home office from being your principal place of business. Examples of activities that may be performed at other locations are:

• You hire someone else to conduct some administrative or management activities at locations other than your home. Many companies hire someone else to do their payroll, and this would not disqualify the home from being their principal place of business.
• You can conduct some administrative or management activities away from your home at places that are not fixed locations, such as in a car or a hotel room. This allows you to conduct business while you are traveling.
• You can occasionally conduct minimal administrative or management activities at a fixed location outside your home. This must be done infrequently.
• You conduct substantial nonadministrative or nonmanagement business activities at a fixed location outside your home. For example, some companies use a conference room outside their home to meet with or provide services to customers or clients at a fixed location outside their home, and that would not disqualify their home from being the principal place of business.

When inheritance is handed down to the Next Generation often a big chunk of change is a windfall for the kids. Many of them go out and buying new cars and take expensive vacations; the auto industry wants to see some of that money in their getting ready to launch the huge campaign to lobby the Senate to vote down the estate tax.

You can bet that the union autoworkers will get all the Democratic votes and you can also bet that many tax adverse Republicans will also vote down the estate tax. Government's job is to protect the people not to take our money and waste it.

We do not mean double taxation in the United States of America. This country was founded on much more and has deep-rooted principles, which are supposed to protect the American people from foolish government spending an over taxation. It looks like the auto industry will pull out all the stops in the estate tax war and do everything except maybe pollute the water with tea.

IRS Form 8829 is used to claim the allowable expenses that you can deduct for business use of your home on your federal tax return. From Form 8829, you calculate the deduction amount to be inserted on Schedule C (Form 1040). To deduct expenses related to the part of your home used for business, you must meet the following tests:

1. Your use of the business part of your home must be either:

Exclusive: You must use a specific area of your home only for your trade or business, and the area cannot be used for any other purpose. The area can be a room or other separately identifiable space. The space does not need to be marked off by a permanent partition.

Regular: You must use a specific area of your home for business on a continuing basis, not just occasional or incidental use; or

2. The business part of your home or a separate structure (not attached to your home) must be your principal place of business where you meet or deal with patients, clients, or customers in the normal course of your business. You must conduct the administrative or management activities of your business in your home exclusively and regularly, and you have no other fixed location where you conduct those activities Deductions

You generally cannot deduct expenses that are allocable to tax-exempt income. To calculate deductions, you can use square feet or any other reasonable method to measure the area for the part of your home used for your business. Direct or indirect expenses for the business use of your home can be 100% deductions.

You can deduct the depreciation of the part of your home you use for business by using the cost or the fair market value of your home on the date you first used the home for business. You will need to attach a schedule showing the cost of additions and improvements placed in service after you began to use your home for business. Then you refer to the IRS chart in the instructions booklet for the use of Form 8829 to find the percentage to use to calculate the depreciation deduction.

The power to tax is the power to destroy. Even Pharaoh, 3000 years ago, was aware of this wise saying. Unfortunately, it seems to have been forgotten by some of the more influential modern economists. But, what is destroyed? What is destroyed are economic incentives for business formation and growth.

With Congress and the White House talking sporadically about a stimulus package to spur economic growth, it is important to distinguish what tax policies will work and what is sheer political puff and business as usual (increase spending) disguised as an economic stimulus package. With this in mind, you might say that this article is a short primer on understanding the growth aspects of tax policy.

Taxes, broadly speaking, can be categorized into two types of headings--taxes on capital and taxes on labor. Since this article will be dealing with taxes on income, capital taxation would be identified with the corporate income tax. Similarly, a tax on labor is equivalent to the personal income tax schedule. Now the sixty-four thousand-dollar question. Which one is more important in helping to stimulate economic and business growth?

As President Lincoln stated in one of early speeches as president, the tax on labor is of more importance than the tax on capital. Why? Economic growth is driven by net new business formation. Or, to put it another way--the economy is driven briskly when everyone wants to be a business owner. When entrepreneurs (risk takers) start an enterprise, their business income tax is initially reported on the personal income tax schedule. As the business grows, the owners may incorporate and file using the corporate tax rate. (As a reminder, when individuals start businesses, they hire people. Businesses with less than 100 employees are responsible for 75% of the net new job growth. Net new business formation should be the goal of tax policy designed to stimulate economic growth.)

Tax time! Aaaahhhhhh! Sound familiar? Tax time is the one time of the year that everyone gets nervous and anxious because we all know that we are going to be putting out a big chunk of change. It sucks, we hate it but it is one of those things that we have to deal with, unless of course we want to go to jail. Taxes don’t have to be so scary though, and they don’t even have to cost you too much money. You would be surprised to learn just how much you can save by simply learning about tax deductions.

Everyone can find something to deduct from his or her taxes, they just need to know how to do it. Tax deductions are simple. You see, we all get taxes on the part of our income that is taxable. If we can get some of our income designated as non-taxable then we will not have to pay taxes on that portion. By making use of the many different deductions that we are eligible for we can cut down the amount of taxable income that we have each year.

There is more to tax deductions than just the deductions themselves however. For example, the deductions that you can claim will depend on the way you are choosing to file your taxes. There are several different ways that you can go about filing and the one you choose will depend on your own personal circumstances but it should also depend on which way will save you the most money in the end.

When you are filing for tax deductions you will have a choice between either standardized deductions or itemized deductions. This amount is always different from year to year because of inflation and such but you don’t have to worry about getting confused because every year this amount is stated right there on the tax forms. Each form has the deductions on them so you will not have to worry.

Standardized tax deductions are generally the simpler of the two methods and that is why most people choose this kind. If however, you can save more with the itemized version then you really should use that one.

Property taxes are a substantial expense for Texas homeowners, averaging about $3,600 annually. To reduce this expense, property owners should annually review and consider appealing property taxes. While there is no guarantee that an appeal will be successful, a recent survey conducted by O'Connor & Associates indicates that 70% of property tax appeals are successful.

Since the mortgage company typically disperses payments, property taxes tend to be a stealth tax. Although the homeowner writes a check, including taxes and insurance monthly, the property tax component is not evident. The property tax component can become quite evident when the homeowner is asked to fund a deficit in the escrow account.

Although 70% of property tax appeals are successful, only 7% of homeowners appeal each year. Research indicates five primary reasons homeowners do not appeal:

1. The process seems overwhelming and they do not know how to appeal,
2. They do not think an appeal is likely to be successful,
3. They think their home's assessed value is below market value and there is no basis for appealing,
4. They do not understand they can appeal on unequal appraisal,
5. They are busy and do not want to set aside time, given the presumption that "you can't fight city hall". Why appeal?

Consider an appeal for a $150,000 house where the property taxes are reduced by 5%. This would reduce the assessed value by $7,500 and the property taxes by $225, based on a 3% tax rate. Since the typical appeal hearing takes less than an hour, these are meaningful savings for the time involved. Regularly appealing your property taxes will minimize the value, so you are assessed for less than most of your neighbors. Most of the property tax appeals are resolved at the informal hearing, which is the first step in the process.

How to appeal

The first step to appealing annually is to send a written notice to the appraisal review board (ARB) for the county in which your home is located. Even if you have not received a notice of assessed value from the appraisal district, file a notice of appeal by May 31st for the following reasons:

Apartment owners can face staggering expenses to maintain apartment communities. The upkeep of even a modest community could involve groundskeeping, unit renovation, and replacements, such as parking lot asphalt and fencing. Another steep expense is federal income tax - and in some areas an additional state tax on income - but through an innovative study known as cost segregation, the depreciation of property components can be used to help lower federal taxes.

Today, more apartment investors, especially those whose occupancy rates are challenged by the nation's single-family housing, are taking a close look at every possible avenue to lower costs. That's a frustrating task in the apartment business. One historically underused technique for saving money, in this case saving taxes, is to ensure that all depreciable items are reflected accurately on tax returns.

Those items are not limited to copiers, automobiles and heavy equipment. The list extends to a wide range of buildings and improvements. In fact, the IRS recognizes 130 items that depreciate over much shorter time periods than the standard depreciation of 27.5 years for an apartment community. Many of those items, such as parking surfaces, landscaping and even certain wall coverings, are present in large proportions on typical apartment communities.

A cost segregation analysis, when reflected on deprecation schedules, reduces taxable income now and also defers taxes on capital gain amounts until the community is sold. At that time, the recapture of taxes on the extra depreciation taken can occur at a much lower rate than the 35 percent max tax rate that was avoided with the extra losses.

Don't forget the time value of money by deferring that inevitable tax by a few years. In light of the 130 IRS-identified "short life" items, this conservative tax-planning tool can help apartment owners allocate more costs to five-year, seven-year, 15-year and 27.5-year improvements versus the land value on apartment communities.

Apartment communities, according to IRS rules, depreciate over the course of 27.5 years. This is 10 years less than the depreciation estimated for office, retail and industrial properties, which equal quicker savings for apartment community owners. Items that are found in every apartment, such as carpet, linoleum, window treatments and appliances, are categorized as five-year items, meaning that they are typically replaced after five years of use.

Because each home owner who protest their assessments, with a knowledge of how the property tax assessment system works, often recieve $500 to $1000 tax savings, if not more annually on their property tax bill. Simply stated the property tax bill is calculated by multiplying the homeowner's assessment times the local property tax rate and subtracting any tax deductions for which the individual home owner is eligible.

The property tax doctor can show you how to lower your assessment and thereby reduced your property tax bill! The property tax doctor is a former tax assessor who knows first hand how difficult it is for the average person to penetrate the tax assessor's bureaucratic jungle comprised of arcane terms and practices. No government document does this for the home owner.

Just like going to a medical doctor's office the first thing that you need to do is to gather the necessary information with which to do the paperwork. The primary sources for that information is the homeowner's property record card obtained at the assessor's office and comparable home sales. Most homeowners armed with one or both of these information items get their assessment reduced the majority of the time without going beyond their local tax assessor's office.

Just as you ask your medical doctor informed questions to get some pain relief, so also you must ask your tax assessor (with the help of the property tax doctor) some informed questions in order to win some property tax relief. The best advice the property tax doctor can offer is to go to your local tax assessor's office and check your property record card for mistakes of fact! Clerical errors and plain mistakes do occur during the valuation process. Here is a partial list of common mistakes you should check up on.

1. The dimensions of your home or the dim

Taxes of any type and form always burden you. Your income, off and on, is half eaten by the taxes you pay. These taxes can be federal taxes, state taxes, local income taxes, payroll taxes, which include Social Security and Medicare, sales tax, excise taxes and property taxes. However, if you are intelligent enough, you can apply tax-planning tricks that would eventually enhance your income. Given below are the effective steps for reducing your tax burden:

1. Understand your tax situation - By understanding how much tax you will pay, or what part of your income is taxable, you would smoothen your tax burden. In addition, you should keep a fair account of your daily and miscellaneous spending on various items. These include housing, medical care, food, transportation, recreation, clothing and other luxury items. If you calculate, you would come to know that you spend approximately double the amount of above items on the taxes you pay on your income.

2. How much did you pay as taxes - You can estimate how much you paid as taxes the previous year, and how much extra or less will you be paying this year. You can do this by getting the details of the previous year's personal income tax returns and comparing it with your present income tax. All information in this regard is found in form 1040, line 62, which also gives detailed information on your total tax liability for the year.

3. Plan your investment - If you know the facts, you will be better in generating your wealth. This means, that you can choose available and effective tax-saving investment plans. You can choose NSC, infrastructure bonds, flexibonds (Anshu - Pls check the research, I don’t think there are NSC bonds etc in America) and the like. Thus, you will save a major portion of your taxes and you can invest this money to earn extra profits. It is this money that you used to waste away paying taxes and adding to Uncle Sam’s kitty. What is more, if you reduce your taxes, the government will give you extra benefits on retirement.

The third biggest financial goal for a family is saving for a college education. Buying a house and retirement are the first two goals. With the cost of higher education on the rise, parents are beginning to try and set aside money for education as soon as a child is born. There are two popular federal and state sponsored plans that make saving for college easy: the Coverdell and the 529 plan.

The Coverdell Education Savings Account

The Coverdell is a federally sponsored plan that helps you to set aside money for higher education expenses. These expenses include tuition, fees, books and supplies, and even room and board.

The annual contributions are not tax deductible, making the withdrawals tax-free as long as they are used to pay for eligible education costs. There are limits to the amount of annual contributions that can be made each year.

The Coverdell is established as a custodial account, set up by the parent or another adult to pay for the education expenses of a designated beneficiary. The child must be under the age of 18 to establish an account. All balances must be spent within 30 days of the child's 30th birthday.

Any financial institution that handles IRAs can assist you in setting up a Coverdell, including banks, investment companies and brokerages. The Coverdell is like an IRA in that it is an account. You can put your account funds into any investment you want - stocks, bonds, mutual funds and certificates of deposit are just a few options.