Free Turbo Tax Online Software - How it Works For 2006

Through a partnership between the Internal Revenue Service (IRS) and tax software companies, such as Turbo Tax, lower income taxpayers are able to file their Federal tax returns at no cost. This partnership is known as the the Free File Alliance.

If you meet one of 3 requirements, you can file your Federal tax return for free. Here is a list of those 3 requirements. Remember, you only have to meet one of these to qualify.

* Have an adjusted gross income (AGI) of $28,500 or less in the year 2006.

* If you qualify for the earned income credit (EIC) for tax year 2006 then you qualify for free Federal tax filing.

* If you served active duty military and earned an adjusted gross income (AGI) of $52,000 or less in 2006 you qualify. Active duty military also includes Reservists and National Guard. You must have a 2006 W-2 form from the military to qualify.

Because of the partnership with Turbo Tax and the Internal Revenue Service, taxpayers who qualify can e-file their federal returns for free with the 2006 Freedom Edition software.

In addition, twenty-one states have also created free file programs based on the Federal free tax filing program. This means you may also qualify to file your State taxes for free with the Freedom Edition tax software.

Here's a list of those 21 states: Alabama, Arkansas, Arizona, Georgia, Idaho, Iowa, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, Mississippi, Montana, New York, North Dakota, North Carolina, Oklahoma, Oregon, Rhode Island, Vermont, and West Virginia.

The Free File Alliance tax filing program is designed for lower income taxpayers with simple tax situations and includes IRS forms and schedules. However, it is not designed for more complex tax situations.

“Oh, and Honey, it’s tax time, do you have your paperwork done?”

That phrase probably starts more wars than terrorism or liberal politicians in a conservative election season. At the very least, the irritation and steam rising causes high levels of stress and anxiety on the home front.

However, it could be solved, if both parties realize the value of sharing the Tax Burden.

When one spouse works a W-2 job and the other is self employed, quarterly tax payments can be avoided by increasing the W-4 withholding of the W-2 spouse, saving stress, paperwork, and the sudden anxiety caused by ‘taxes due’. While this isn’t necessarily a recommended solution to the self employment tax issue, it is often the cheapest method of managing tax dollars with the least stress on cash flow.

The realization of reduced taxation with a home based business decreases overall tax liability due to additional depreciation and deductions for home office, home improvements, and other various options related to owning your own business. Reduced tax percentages offer advantages for the whole family income, while increasing family options for such issues as aging parent care, child care, after school care, and flexible work hours.

Benefits of working from home in a home based business, far outweigh the negatives, when the process is handled correctly.

By bloating W-4 tax withholding and cutting Quarterly Taxes, self employment becomes a viable means of operating a home based business for cash flow benefits. Keep good records of all expenditures to help both members of the family understand the importance of controlling cash flow and managing tax funds appropriately.

Mild-mannered Ron Piner, CPA, is dashing and debonair as he goes about the practice of public accounting. The studious and nerd-like J.C. Minyon reads away at tax law and is forever looking to find a better way for his clients. When desperately needed, Ron Piner And J.C. Minyon become those financial super heros, "The Amazing Ron and Taxguy".

While busily working during the height of tax season madness, Ron and J.C. discuss business and tax strategies for a would be new client. Suddenly, the red phone rings and J.C. answers.

J.C.:Hello. MWIB accounting services at you service.

Excited 401K manager: (frantically). Help! There is a woman at a local auto dealership about to purchase a new vehicle by using her 401K proceeds. Oh please help noble financial warriors!

J.C.: Have no fear sir! Help is on the way. (to Ron): We must quickly get to the dealership to save this situation from happening.

Ron and J.C. quickly go and change into their respective super hero outfits.Ron steps out beautifully clad in his black tuxedo with red bow tie and cumber bun. J.C. appears with his cape and the letters TG posted on his chest. In addition, he is wearing his big nose and mustache glasses. Our heroes, The Amazing Ron and Taxguy are ready to strike. They drive several blocks in their limo driven by Bob. They arrive at the scene.

Taxguy: Wait you wicked, wicked woman. Do not sign those papers. I cannot allow you to wreck your retirement portfolio in this fashion.

Amazing Ron: I thought so Taxguy. It is the Evil Spender Woman about to engage in another reckless financial transaction.

Evil Spender Woman: You can't stop me financial "do-gooders". I want this new car and I want it right now.

Taxguy:But the cost of this transaction in tax will be tremendous. You are in a federal income tax bracket of 25%, a state income tax bracket of 8% and there will be a 10% excise tax penalty because you are not over the age of 59 and 1/2. You are going to pay 43% of the 401k's value in income tax.

Amazing Ron:Right you are Taxguy. Not only will the Evil Spender Woman have this high income tax to pay, she will have purchased an asset that will go down in value, thus ruining her chances to retire.

Evil Spender Woman: I can do what ever I want. This transaction is none of your business.

Taxguy:(ripping the papers from her hand) Reckless financial decisions are our business. We must stop you for your own good.

A fight ensues as Taxguy and the Evil Spender Woman struggle for supremacy. When the smoke clears, the papers are shredded and Taxguy reigns supreme.

Amazing Ron:Great work Taxguy! You have foiled yet another improper financial act. I wish that we didn't have to take such means to get our points across.

Taxguy:Right you are AR (nickname for The Amazing Ron). Let us away as I need to address my scrapes.

The Evil Spender Woman:You won this round menacing super heroes. By I'll be back again.

The basic principle behind Individual Retirement Accounts (IRA) is a deferment of tax liability from the time when your tax burden is greatest until after retirement when it is the lightest. When you establish an IRA and make contributions to it, you do not have to pay any tax on those contributions. Once you are past retirement age and receive distributions from these accounts, you will be in the "over 65" tax bracket. Even though you will have to pay taxes on the distribution at this time, your tax rate will be considerably less.

There are some important tax tips involved with receiving early distributions from a retirement account. The most important one is do not do it unless you have no other option open to you. If you take a distribution early, you will be subject to basically the same tax rate you would have paid originally. In many cases, a person's personal income, and thus his tax rate, will be highest in those latter years just prior to retirement. This will mean an even higher tax rate than if you had just paid when the money was first earned.

This is not the worst of it either. If you take an early distribution prior to reaching the age of 59 and one half, you are subject to a 10% penalty. It is those years between this magic number and your retirement age that you will incur the greatest tax burden if you receive a large distribution. When tax withholding is done properly in this era of paying taxes online, people are used to receiving a refund. A large and premature withdrawal will eliminate this post winter bonanza.

The sad truth about retirement is that a large portion of the population are saving nothing at all. Most people are operating their own personal budgets at a lost and not setting aside any savings toward retirement. This creates a constantly growing debt and an early distribution from your retirement fund becomes a necessity. Proper planning for retirement has become even more essential then ever in this time when employees tend to move from job to job. In past times when employees were more apt to remain with an employer for many years, pension plans would be a good addition to Social Security. This is rarely the case today.

The growing population of retired citizens has changed the face of retirement in more ways than one. The Active Adult Community has become a popular way to spend what are supposed to be a person's golden years. This has created a need for even more income during the retirement years. An Active Retirement Community that offers all the amenities most seniors are seeking will demand an adequate income. It is important to begin planning for retirement as early as possible and to understand the negative tax implications of dipping into that retirement account too early.

If you are not familiar with them yet, S Corporations are simply companies (corporation or limited liability corporation) which do not pays any taxes on its corporate profits. Under the Internal Revenue Code’s chapter 1 and Subchapter S, only the shareholders would have to pay their income taxes from the earnings they received from the company. In short, an S Corporation is taxed more like a sole proprietorship rather than a C Corporation.

There are many C Corporations who have filed for S Corporation status because of the difference between the two tax structures. Because of this set-up, the S Corporation actually enjoys several tax advantages over C Corporations. They include:

• Any losses incurred by the company can be passed to its shareholders. This way your income tax return can reflect the same losses allowing you to pay less in taxes.

• As an S Corporation, you get to enjoy the privileges of not paying any corporate taxes and at the same time enjoy a level of limited personal liability protection.

• Compared to single-member limited liability corporations, S Corporations do not have to pay any self-employment taxes, which can be quite considerable.

• On the other hand, the S Corporation’s advantage over multiple-member LLCs include not paying self-employment taxes and low accounting costs, since LLCs like this would require extensive and complicated accounting.

If you are interested in becoming an S Corporation, there are certain requirements set by the IRS that you must fulfill. Among them are (1) you must be an eligible entity with no more than 100 shareholders, (2) all shareholders must be a resident or citizens of the United States (3) must possess only one type of stock and (4) shareholders must receive profits according to their business interest.

If you meet all these requirements, then you will simply have to file an IRS Form 2553 within 75 days of the initial tax year. Depending on the state you are in, different tax laws may implemented, it would be wise to check them before applying for the S Corporation status. Also, you must keep in mind that an S Corporation would incur higher cost compared to sole proprietorship. Even if you file taxes online, S Corporation would require much better bookkeeping and accounting.

For additional tax tips, you can search the latest information over the internet. There are many resources that both discusses the advantages and disadvantages of S Corporations.

Natalie Aranda isa freelance writer. You must keep in mind that an S Corporation would incur higher cost compared to sole proprietorship. Even if you file taxes online, S Corporation would require much better bookkeeping and accounting. Doing taxes online will save our time for tax filing. For additional tax tips, you can search the latest information over the internet. There are many resources that both discusses the advantages and disadvantages of S Corporations.

Tax Preparation - Tax Tips For Investors

As the tax code grows by several encyclopedia volumes each year, more and more tax preparation services and software programs spring up all over the country.

Proper preparation is something to take very seriously, as the amount of money illegally saved by tax cheats is said to be dwarfed by the amount that law-abiding taxpayers overpay each year.

Who is to blame for this? Well for starters, the tax preparation professionals, who often fail to properly address their clients' needs. But ultimately, losses due to excess taxation are the fault of the individual taxpayer.

Each and every American should be aware of tax code basics in order to ensure that they pay the least amount of taxes legally permissible. This is what preparation is all about!

Tax Preparation Tip - Know Your Tax Rates

Were you aware that not all income is taxed equally? Yes, the more you earn, the higher your tax rate, but this refers only to earned income at your job.

Most truly affluent people make the bulk of their money through capital gains, dividends, and interest. It's important to know the differences between these rates for tax and investment planning purposes.

Buy, Sell, or Hold - Capital Gains and Tax Preparation

Long-term capital gains are taxed at a maximum rate of just 15 percent. This maximum rate applies only to people in the highest tax bracket (i.e. those most in need of preparation help). For people in lower tax brackets, the long-term capital gains tax rate can be as low as zero.

Short-term capital gains are taxed at the owner's normal tax rate, however, they are not subject to FICA, the 7.65 percent killer that funds Social Security and Medicare.

Since long-term capital gains apply to securities (stocks, bonds, etc.) held for one year or longer, and short-term capital gains are charged for securities held for less than one year, tax preparation planning might be a factor in deciding whether to buy, sell, or hold. For example, you may want to hold a stock that you've owned for 11 months for just one month longer.

Dividends and Tax Preparation

Even after capital gains were given a tax cut, dividends were still taxed as regular income until recently. They are now taxed at the same 15 percent maximum rate as long-term capital gains, and can be taxed less for people not in the highest income brackets.

Tax Preparation Caution:

This is one of the most hotly contested tax issues in Congress. Some elected representatives think it is unfair that working people are essentially taxed at a higher rate than more well-to-do investors, and they are fighting to have dividends taxed as regular income.

If you make dividends a primary part of your investment strategy, be sure to stay on top of changes in the tax code and the debate in Congress. Perhaps you should even write to your representative to let him or her know where you stand on the issue.

Interest Income and Tax Preparation

Interest, however, is still taxed at the individual's regular tax rate, although it is not subject to FICA. This means that bonds are a bad investment for tax purposes.

While you may crave the safety of fixed income, perhaps a dividend-paying blue chip stock would be a better investment, or maybe even preferred stock with its tax advantages, would be preferable to bonds.

Tax Preparation Planning - It's Not The End All, Be All

As an investor, you must be aware of the tax advantages and disadvantages of each asset class, however, you should never let tax considerations be the only factor in deciding whether to buy, sell, or hold any investment.

For example, if you feel strongly that the stock you've held for 11 months is set to crash, sell it now and worry about the tax preparation consequences later.

If you feel a given bond is the right investment vehicle for you, then buy it. The important thing is that you're aware of tax preparation strategies and that you factor them in to your investment planning.

Tax Help - The More You Know, The More You Save

It's no wonder that people need tax help. After all, the Internal Revenue code is tens of thousands of pages long and grows longer by hundreds of pages each year.

Nobody can ever achieve complete mastery of the tax code. In fact, the tax code is complex and varied that even most accountants have to look to others in their profession for specialized help.

Everyone should receive some form of tax help from an accredited professional. For high income earners, business owners, and the self-employed, professional help is especially necessary.

But first, you must help yourself. It is important to develop a basic knowledge of tax help strategies before setting foot in your accountant's office.

Armed with an understanding of some tax law basics, you will be able to get much more out of your accountant and the help that he or she provides.

Tax Help Tip #1 - Income Tax vs. Payroll Tax

If you are a wage earner, you may not give much thought to taxes. Sure, you may notice that the federal government takes a healthy chunk of your pre-tax pay, but since you never see this money in the first place, you barely miss it.

Employees, particularly those without sources of income outside of their day jobs, need the least help of all. But certain life events, such as an inheritance, the sale of a home for profit or loss, or an unexpected influx of cash definitely require professional tax help, and thus, it is important for employees to understand tax basics.

Furthermore, if you are an employee thinking about making a jump into the ranks of the self-employed, general knowledge of the tax code is essential.

Self-employed people definitely know the difference between income tax and FICA. FICA, named for the Federal Insurance Contribution Act, is also known as the payroll tax.

The revenue generated by this tax pays for Social Security and Medicare benefits, and is assessed at 7.65 percent of employee earnings. Employees of corporations can see that 7.65 percent of their pay is being taken from each paycheck, but they might not know that their employers are required to match their FICA contributions.

Self-employed people definitely know this, because since they are their own employers, they have to pay both halves - that's 15.3 percent, and it can be painful.

If you are self-employed or the owner of a small business operating as a sole proprietorship or general partnership, you should definitely find professional help.

It is best to pay your income tax and FICA on a quarterly basis, and to save a set percentage of your gross proceeds in a special bank account in order to be prepared for when these tax burdens become due.

Tax Help Tip #2 - Consider Incorporating Your Business

If you own and operate a small business, you should definitely consider incorporating. By doing so, you create another legal entity, the corporation, which is responsible for its own taxes. You, the individual, only pay taxes on the salary or investment income you receive from the corporation.

Clearly, anyone choosing to incorporate needs professional help. But there is a common misconception, even among tax help professionals, that incorporating results in "double taxation."

In reality, a corporation pays taxes at a rate of just 15 percent on its first $50,000 in profits, and of course, corporate profits are not subject to the dreaded payroll tax.

Furthermore, any dividends paid to you, while taxable as corporate income (15 percent for the first $50,000) and personal income, are taxed at a maximum personal rate of 15 percent - and that's only if your personal income puts you in the highest tax bracket. Best of all, dividends are not subject to the payroll tax either.

Tax Help Tip #3 - Make Sure Your Tax Professional Is On Your Side

The tax help industry - accounting, bookkeeping, lawyers specializing in tax law - is the fastest growing field of business in the United States. As more colleges expand their offerings of courses designed to train future tax professionals, the quality and character of people dispensing tax help advice is becoming more diverse.

In this case, diversity is a bad thing, as trustworthy and highly trained tax specialists have been joined by people who just want to make a quick buck in the tax help industry. They are just going through the motions - they have no real passion to serve.

True tax professionals understand the difference between tax evasion and tax avoidance. The IRS is clear - you are fully entitled to do everything within the law to avoid taxes. It is only when you break the law that you are guilty of tax evasion, a very serious crime.

Make sure that your tax help professional is on your side, and that all tax advice he or she dispenses is designed to legally save you as much money as possible.

No one wants to pay too much tax and if you are looking for some ways you can reduce the amount of tax you have to pay the taxman each year then take a look at the list of tax saving ideas compiled below:

1. Always try to make full use of your capital gains allowance that you are entitled to each year.

2. Ensure that you send in your tax return in before the deadline each year in order to avoid receiving a fine for filing your return late.

3. You can save 10 pounds off your tax bill by filling in your tax return online.

4. If you are a non tax payer then make sure that you complete a form at your bank or building society so that you do not pay tax on the interest on your savings.

5. If you are married, then make sure that any income you receive from investments is paid to the partner that pays the least tax.

6. Always check any calculation made by the tax man or any tax code given to you as they can make mistakes.

7. Always keep your tax records in a secure place, up to date and in good order as it is possible to get fined by the taxman for not keeping tax records.

8. When choosing your company car, go for a car with low carbon emissions as the amount of company car tax you pay is based on its carbon emissions.

9. Try to take full advantage of the tax incentives given for taking out a pension.

10. In order to reduce inheritance tax liability on your estate in the future, you could make some gifts whilst you are alive to the people you wish to inherit that money.

11. You could arrange to make a will which can be used to reduce tax on your estate and make things easier and clearer for everyone when dealing with your estate.

12. If you are a taxpayer then a good idea is to make full use of tax free savings schemes such as ISA schemes.

13. If you would like to give to charity then you can ensure that the tax goes to charity by using Gift Aid.

14. If you find that you are paying too much tax on account, you can request to pay less on account through the taxman.

Well that is all the tax saving tips I have for you in this article and if you try to do some or all of these things it will be worth the effort as you will be able to save a worthwhile amount of tax in the future.

A good tax shelter is hard to come by, but the perfect shelter may be right in front of your eyes. There are many companies which are encouraging people to spend their hard earned money on investments in tropical places where it will be kept safe and away from the IRS. Yes, this type of tax shelter is illegal and really aren't very efficient in keeping your money away from the tax man. However, most people do not realize that that the government allows us to use our homes as a way of collecting a tax deductions, credits, and benefits. These benefits were established to offset the costs of owning a house. It is said that home owners are the basis to all communities and therefore the economy as a whole.

It is the homeowner who purchases services and goods which in turn supply jobs to the people of community which eventually leads to funding state and local taxes. The deductions help keep the real estate market full of new buyers which helps the prices of houses increase over time. As the public needs more and more houses and the supply of available homes gets smaller, it causes the market price of houses to increase. This creates equity and real wealth in the house and therefore a sound investment which can be passed down from generation to generation. Owning your own home is not just the American dream it can work great as a way to store and built personal wealth.

Most of the money paid for mortgage payment goes toward interest, especially when the loan is brand new. All the interest paid on a home loan is tax deductible. Not only that but you can own up to two homes and the interest payments on both are tax deductible. This type of deduction reduces our taxable income and therefore reduces the amount of taxes we have to pay each year. Additionally any money put out for home improvements or home improvement loans can also be tax deductible. These are calculated differently then mortgage taxes. Only capital investments can be used as tax deductions. Capital investments are those which increase the value of the home. For example adding new room or another bathroom, anything that prolongs roof life, or even adapting the home for the elderly or people with disabilities.

Married couples are allows to have up to $500,000 profit from the sale of home which was the primary residence for over 5 years. This profit is tax free. Single people are allowed $250,000 profit which is also tax free. Houses are great shelters and this is one of the reasons that home based businesses are so popular and successful. When individuals use even part of their home for business purposes they are able to write off a percentage of those costs associated with whatever part of your house you are using for a business. This may include utility bills, insurance, repair cost, and depreciation.

One of an American citizen's worst fears is an audit by the IRS. The unlucky individual who is the target of an audit begins to conjure up images of penalties, fines, levies, or worst of all, jail time. Even the most honest of taxpayers, under the scrutiny of an audit, begins to think back in their mind, "Did I calculate my return correctly?", "Did I save all my receipts for the deductions I claimed?" This is a most stressful and challenging time in a taxpayer's life. Nevertheless, before one loses sleep over the impending audit, there is a law which protects Americans in an IRS audit situation.

To be more specific, in 1998 the IRS passed the third installment of the Taxpayer Bill of Rights (TaBOR). The bill was passed as a byproduct of numerous complaints to Congress concerning the abusive behavior by IRS auditors. The Taxpayer Bill of Rights also requires the IRS to inform a taxpayer of his rights and what effect of the tax action the IRS is pursuing. The audit itself is traditionally thought as a meeting between an agent of the IRS and the taxpayer. However a good percentage of tax audits come in the form of a letter asking for clarification or substantiation of items on the tax return. Careful and organized record keeping usually make these types of audits resolve rather smoothly.

The IRS may choose to audit a portion of the filed return, or on some occasions an agent may request a closer examination of the entire return. If the auditor merely asks for documentation for a specific part of your return, it would be a good idea to give the auditor only that piece of information that is requested. Bringing additional documentation or information not requested could subject the taxpayer to wider scope audit, that is if something else on the return looks irregular. In other words, only bring what is requested. Do not volunteer any information to the tax auditor, and answer their questions with simple, direct answers.

Since most people are not experts at tax law, it is highly recommended that a CPA, tax lawyer, or tax advisor represent them in a meeting with the IRS. Contact the person who prepared the return. They will have specific advice on how to prepare for the audit. In most cases they can attend the audit in place of you to gather information from the field agent. This puts the taxpayer at an advantage and may buy valuable time to prepare the necessary documentation.

The audit will conclude with the IRS agent citing any irregularities noted with the return. They will then formally notify the taxpayer of any monetary adjustments that need to be made. In some cases some lucky citizens have received additional refunds after an audit. Unfortunately, in most cases, the IRS will be asking for a check. An agent's decision can be appealed to a supervisor, or the Appeals Division of the IRS. If the Appeals Division decision is still unsatisfactory, a final appeal can be made to the US Tax Court.