As you know, the income you earn is taxed by the government. Alas, not all income is treated the same. In fact, some is considered off limits and is not taxed at all.

The federal income tax is perhaps the most abused, misunderstood and chaotic financial subject there is. Much of the problem can be traced to the use of terms that seem to mean one thing, but are treated as though they mean something else. Income is one such term. One would think anything you earn is income. While the IRS is happy to agree, it is important to realize there are some types of income that are not taxed. While this is good news, it can be a bit confusing.

Income related to the non-nuclear family is one area that can get confusing. If you receive child support payments from an ex-spouse, I have good news. They count as income, but are not taxed. You would think the same would be true for alimony, but it is not. If you receive alimony from an ex-spouse, it is income and taxed. In fact, your ex is supposed to issue you a 1099. Ah, the IRS has a funny sense of humor!

The number of lawsuits filed in this country is fairly staggering. If you are a plaintiff and win a lawsuit, you could be in for some surprising news. Any part of the judgment that is apportioned to compensatory damages, such as pain and suffering, is not taxed as income. Any part of the award, however, that is attributed to lost earnings because you missed work is considered income and taxed. In short, get hurt, but don’t miss work!

Life insurance is another area where things get confusing. If you a relative dies and names you the beneficiary of a life insurance, the proceeds are not taxed as income. They may, however, be subject to the estate tax – a subject for another article. On the other hand, if you have a life insurance policy and cash it out, you must pay taxes on any gain that exceeds the premiums you paid. This is why many people prefer to take loans against their policies. Loans are, of course, not taxable.

If you win a scholarship or grant to pay for your education, congratulations! It is not taxable as income with a couple of exceptions. If you use any of the money for room and board, you have a tax problem. Yep, you have to pay income tax on the amount paid for the room and board. Welcome to the world of tax!

When it comes to income tax, you would be surprised how many types of income are not actually taxable. Before you include all of your income on your 1040, it may be worth your time to figure out if any of it can be excluded from your adjusted gross income.

Most Liberals in mixed company would never admit that they are for higher taxes and these same people even though they do believe in higher taxes do not wish to pay them themselves. The truth is that a true Modern-Day Liberal does indeed favor progressive taxes. Why you ask? Because they truly believe that there is an "imbalance from the top strata and those at the bottom." Yes, but why is that? It takes hard work to achieve wealth.

What is wealth, it is nothing more than the division of someone’s total sum value to the system and the value of their assets divided by a unit of trade; a dollar. Those who work harder have more dollars, which is exactly who should have the most units or wealth. Why should an under achiever or lazy person have equal rights to the wealth without putting in their efforts or enjoying the efforts of their genetic lines?

The modern day liberal favors taxation without representation and taking from the productive and giving to those who do not give a darn. The modern day liberal denies that everyone with a hand out is not needy, they deny that abled body men will put out their hand for something that is free.

In doing so or giving to such free-loaders we make those men weak, beholden to the state and indeed snare them into the lair of political supporters, while weakening our nation and limiting self-reliance and training weakness into our societies. Therefore, Modern Day Liberalism is a crime on the productivity, health, wealth and strength of our nation.

Sorry if this cuts into your belief system, it is simply a factual accounting of the situation. I certainly hope this article is of interest and that is has propelled thought. The goal is simple; to help you in your quest to be the best in 2007. I thank you for reading my many articles on diverse subjects, which interest you.

The IRS would like to welcome you to the income tax preparation season of the new year! That's the way the taxes work. While on one hand you are enjoying the beginning of the new year and on the other you are looking back at the previous year while coming to terms with the pending tax bill. There is joy for a few. In fact, this is a very lucrative time for one of shortest seasonal industry in the US - Tax time. Every year, the IRS hires thousands of temporary workers for the process of accepting/verifying tax returns. In the corporate sector the tax preparation firms and individuals get ready for the deluge of clients come tax time. In all this, the question still remains - what is the best way to get your income taxes prepared?

Firstly, you should be aware of the fact that there are basically three ways to prepare your income tax return - (1) Do it yourself the old-fashioned way by filling out paper forms with pen and pencil (2) Do it yourself using software or web tools (3) Hire someone to do it for you. Now, which one will be most suitable for you? Well the answer is the all-time favorite - 'It depends'. It all depends on your preferences and your situation.

This is where a self-evaluation helps. Is your tax situation complicated? Do you own a part-time business? Do you have real estate investments? Did you buy/sell a home? These questions will help determine the level of complexity involved in calculating your return. As far as your personal preferences are concerned - are you a analytical person who loves working with numbers and details or do you dread math? If you are the latter, you will probably want to hire an tax prep expert to take care of your filing. For the remaining few, doing it yourself is the way to go. With the wide variety of tax prep software and websites available you will have plenty of options to choose from. For you, the first task is to shop around to narrow your choices.

The Internal Revenue Service (IRS) reports, home based business tax deduction scams have increased in popularity in recent years. Notably, in a consumer alert, the IRS warned that regardless of how convincing claims made by unscrupulous marketers of bogus home based business schemes may appear, nondeductible personal living expenses cannot be magically transformed into home business tax deductions. This means that envelope stuffing at a kitchen table does NOT qualify for a deduction for a home office, travel or entertainment.

Be Aware: Creating or being a party to a bogus home based business or other scheme puts YOU, the taxpayer on a slippery slope that will result in you paying interest and penalties on top of the taxes you will owe as well. This will also increase the likelihood of an audit. You can’t cheat for long and if the IRS feels there was fraud in claiming unqualified home business tax deductions, they have FOREVER to attack your return and you!

The IRS also reported that many personal expenses that do not qualify for home business tax deductions are wrongly claimed as business expenses in home based business schemes. These are some of the most frequent:

Claiming a home based business tax deduction for the cost and operation of a personal residence(your home) is a no no.

Deducting excessive car and truck expenses when the vehicle has been used for both business and personal use. (That $1800 Blaupunkt Stereo System you put in the family van is not a legitimate home business tax deduction);

Paying children a salary for services, such as answering telephones, washing your cars, or other tasks and then claiming these costs as home based business tax deductions;

Claiming a home business tax deduction for education expenses from the salary you wrongfully paid to your children by calling them an employee (double whammy);

Deducting personal furniture, home entertainment equipment, children’s toys, and other household items (That 62" plasma HDTV is not a home business tax deduction);

The deduction of personal travel, meals, and entertainment under the guise that "everyone is a potential client." Many Multi Level Marketing (MLM) promoters will tell you EVERYTHING is a deduction because EVERYONE is a prospect. NOT. That won’t fly with the IRS.

You will find many home business tax deductions schemes that claim you can convert a personal expense into a business expense and that the IRS will allow it, just by calling it home business expense. Now I have to ask how this makes any sense at all. If you're "in business," you can take a home based business tax deduction. To be in business you have to have what is called a "profit objective" that you can substantiate. This is not rocket science.

Do you have a DBA?
Do you have a business address?
Do you have a business phone number?
Do you have a business checking account?
Do you even have a business card?

You have to really be "in business" from your home.

Investigate and research anyone that is promoting a home business to you, period. If in doubt, consult a tax professional and save yourself from the expensive headaches that will surely come from the IRS if you choose to become involved in a fraudulent home business. Make sure that any claims of home based business tax deductions you take are legal.

The Internal Revenue Service determines whether your claimed home based business tax deductions are legal using various criteria. Is your home based business really a business or a hobby? Are the deductions claimed really for business use or personal? Is your business a scheme masquerading as a business? These are some of the questions that must be answered to ensure your home business tax deductions are legal in the sight of the IRS. The IRS has surmised that home businesses are fertile ground for tax fraud and look closely at returns to weed out any abusers of home business tax deductions.

Some but not all home based business tax deductions you may qualify for are: home office space and a portion of utilities, telephone, maintenance costs, office Furniture, cleaning expenses, licenses and regulatory fees, air fares, auto expenses ,books and magazines, educational expenses, meals with business clients, laundry expenses (When Traveling), and advertising.

Business or Hobby?

Your home based business could be classified as a hobby rather than a business by the IRS. The is a critical distinction. Why? Many businesses will have an operating loss during a tax year. This loss is used to offset any income from other sources. In contrast, a loss from a hobby is not deductible and cannot offset other sources of income. To put this simply, in a business you have income from sales and losses from expenses. The two offset or counter each other. In a hobby it is usually one way to the IRS. Everything you make is taxable and everything you spend is your contribution to the hobby, and not eligible for a home based business tax deduction.

Really, is it a business?

Here's how the IRS distinguishes between a home based business and a hobby:

The manner in which you conduct business. Do you maintain accurate books and records? The amount of time you devote to operating the business. Do you have expectations that your assets used in the business will appreciate in value? Whether you have a history of success in other activities. Your history of income and losses. Do elements of personal pleasure or recreation exist? Do you have a DBA, business checking account, or a business phone? Is this your sole source of income? If so, the IRS is more inclined to consider the activity a business.

Home Office Let's say a taxpayer's activity is classified as a business and that there is a office in the taxpayer's home, additional criteria must be met before any home based business tax deductions are allowed for the office.

A home office must be used exclusively and on a regular basis as the principal place of business by the taxpayer and at no time used for personal or family use. Two exceptions to this exclusive use test are: (1)A area of the home that is used to store inventory, it must be a specific and identifiable. (2)The home is used regularly to provide day-care services to children, handicapped persons, or the elderly.

A home business tax deduction can also be taken if the home office is used to conduct administrative or management activities, and the taxpayer has no other fixed location in which to do so. Additionally, a home business tax deduction is allowed for business expenses associated with the regular use of a separate structure that is not attached to your home.