Unofficial Tax Guide

Each year the IRS revises their tax policies. The year 2005 brought a lager number of tax deduction changes than usual. Below is a summary of important information pertaining to the tax deduction changes that the IRS has made.

A large number of individuals make charitable contributions to charities that are approved by the IRS. Donations that are made to an approved charity are tax deductible. Some of the donations that taxpayers are likely to donate include money, clothing, household items, or modes of transportation. One new tax deduction law now requires that deduction totals are limited based on the amount of profit that an organization makes from reselling a donated vehicle or boat. A receipt or proper documentation must be obtained from the organization to which the charitable contribution was donated.

The 2005 tax season is also seeing an increase from previous years in the amount of income that a taxpayer can have to be eligible to receive earned income credit. In the year 2006 the amount of individuals with more than one qualifying child can make up to $36,348 and still be eligible. Taxpayers with one qualifying child who earned less than $32,001 and taxpayers who do not have a qualifying child are required to make less than $12,120 a year to be eligible for the earned income credit. The income increases averages about an extra thousand dollars and it enables a larger number of taxpayers to qualify for the popular and helpful earned income tax credit.

Taxpayers are able to use transportation to and from a work-related or charity-related event as a tax deduction. In 2005 the IRS changed the mileage rate used for determining the deduction due to a travel-related expense. The mileage rates for the period of January 1, 2005 to August 31, 2005 is 40.5 cents to the mile for business related travel, 14 cents a mile for travel to charitable services or activities, 15 cents for travel related to medical reasons, and 15 cents for each mile traveled while moving. Volunteers who helped during the Hurricane Katrina recovery process are eligible for a mileage rate of 29 cents a mile.

Due to a spike in the prices of gasoline, the IRS increased the tax mileage for the period of September 1, 2005 to December 31, 2005. Business related travel can earn 48.5 cents a mile. Volunteers who assisted during the recovery process of Hurricane Katrina after September 1, 2005 are eligible to receive a tax mileage rate of 34 cents a mile; however, the mileage associated with standard charitable activities remains the same. The mileage rate for travel related to medical reasons or moving both increased to 22 cents a mile.

The above mentioned changes were proposed by the IRS for taxes that are being filed for the previous 2005 year. Each year the IRS may make changes to the existing rules and restrictions dealing with tax deductions. To maximize the benefits of every single tax deduction available taxpayers are encouraged to keep with the ever-changing tax laws and guidelines.

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Many working Americans are required to pay a number of work-related expenses. These expenses may include, but are not limited to, transportation expenses related to business, uniforms, tools or other needed work materials. The majority of employers who require these items are not always required by law to reimburse their employees for such purchases. However, employees who are not reimbursed for purchasing merchandise or services that are related to their job are eligible to receive tax deductions for the purchases they have made.

The IRS requires that all work-related expenses that a taxpayer claims must exceed two percent of the adjusted gross income of the taxpayer. For work-related purchases to qualify as tax deductions, the taxpayer needs to have proof that the items or services were paid for and used for only business use. This is where many taxpayers are ineligible to receive a tax deduction on work-related purchases because they fall to keep the necessary documents. Taxpayers who are interested in claiming their work-related expenses as a tax deduction are encouraged to plan ahead. This planning may include developing an effective filing or storage system for all receipts or other important work-related documents.

The majority of work-related expenses must to be itemized on a “Schedule A” form. A Schedule A form can be obtained online at taxengine.com, by using a tax software program, or wherever traditional federal and state tax forms are available. A Schedule A form can be used to determine whether a taxpayer will meet the two percent requirement imposed by the IRS. It is not uncommon for a taxpayer to be close to the percentage for deducting employee related expenses. A mistake that many taxpayers make when falling short of the guidelines for claiming work-related purchases is that they just give up while there is a long list of work-related tax deductions that the traditional taxpayer does not even know about.

One of the most overlooked work-related expenses that are tax deductible are those related to finding a job. It is possible for job seekers to use the money that they spent searching for a new job as a tax deduction. Common job search expenses may include the costs of having a professional resume prepared, the cost of mailing or faxing the resume, the cost of telephone calls to and from potential employers, and the travel to and from job interviews.

There are a large amount of businesses who are now allowing their employees to work-from-home. Individuals who work for a traditional company, but from the comfort of their own home are eligible to use their home office equipment as a tax deduction. The home office equipment may include a computer, telephone, fax machine, printer, copy machine, or other equipment that a business may require their home-based employees to have.

Individuals who are required to make a purchase due to the nature of their work should either be reimbursed by their employer or claim the expense as a deduction on a federal income tax return. Working taxpayers are entitled to a full or partial reimbursement for work-related expenses; therefore, there is no reason why a taxpayer should be letting money that they earned slip through their hands.

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Each year millions of Americans move to another place of residence. Many times this move includes the buying of a new home or the selling of an existing one. Buying and selling a home can be stressful all on its own, but when tax issues are added in to the blend, the stress is almost sure to escalate. The following are important tax issues that many homeowners face when buying or selling their home.

A mortgage loan is almost always required for an individual or family to purchase a new home. Mortgage loans are obtainable through mortgage lenders, banks, or credit unions. A mortgage loan, like any other loan, is subject to high interest rates. Many mortgage loan holders are put in a financial strain due to the extra money they are required to pay on a home because of these high interest rates. Although the burden of high interest rate payments can be felt all year long there is the possibility of relief during tax return season. Individuals who have a first or second mortgage loan on their home are able to use the interest that they paid as a tax deduction. This tax deduction can reduce the amount of money a homeowner owes in taxes or it can increase the tax refund that they may be receiving.

In addition to purchasing a new home many individuals are faced with a number of other fees and taxes that they are required to pay. A mortgage loan is subject to a closing cost fee which can be fairly expensive. The expenses paid for obtaining a home are also tax deductible. These expenses may include the closing cost on a mortgage loan or appointments with mortgage lenders or financial advisors.

When a homeowner relocates to another area it is highly likely that they will place their home on the real estate market. The IRS offers a number of tax benefits for individuals or married couples who make the decision to sell their home. There are, however, set restrictions. For example, the IRS allows single taxpayers to keep up to $250,000 in capital gain from the sale of their home and married couples are able to keep to $500,000 in capital gain. The capital gain is the amount of money that an individual or family profited from by selling their home.

Individuals who have recently purchased a new home or are interested in selling their existing one should become fully educated on all of the tax issues that homeowners or sellers face. For just about every tax issue that homeowners face there is a solution that is provided by the IRS. Owning and maintaining a home can be costly for many individuals and families; therefore, each homeowner or seller is encouraged to fully take advantage of all of the tax benefits offered by the IRS.

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Personal tax exemptions are extenuating circumstances that are used to prove that a taxpayer cannot pay the amount that is due on their income taxes. Personal exemptions often allow taxpayers to reach an agreement with a state or federal government to reduce the amount of taxes that are owed.

For taxpayers to claim a personal exemption they must be able to prove without a doubt that they are eligible to receive the particular personal exemption which they are seeking. Personal exemptions can be filed with the federal or state government when taxes are due or after a tax bill has been received. The approval of personal tax exemptions is not guaranteed; therefore, taxpayers should not count on having a personal exemption until it has officially been awarded.

Personal exemptions can only be obtained by individuals who are claiming themselves, a spouse, or any dependents. For the 2005 fiscal year, the amount that the IRS allows for each personal exemption increased from $3,200 to $3,300. This increase makes it easier for individuals to obtain assistance when they are unable to pay the amount due on their taxes.

A personal tax exemption may also be awarded to taxpayers who may have lost a spouse or a child, usually termed a minor for tax purposes. When a death occurs in the family many individuals are hit with a large financial burden. For one, the cost of burying a deceased individual has skyrocketed in recent years. For taxpayers to be awarded this particular personal exemption they must be able to legally prove their child or spouse has passed away during the year.

There are also a number of health related problems that may be considered a personal exemption by federal or state governments. One particular health issue that allows taxpayers to claim a personal exemption is that of being blind. A taxpayer must be able to prove that they are legally blind to qualify for this personal tax exemption. The most effective way for individuals to prove that they are legally blind is by requesting a notice from their physician.

War veterans who are burdened with a disability that is somehow related to their service are also eligible for a personal exemption from many state and federal income taxes. The amount of assistance associated with a veteran disability is often determined on the severity of the disability. Veterans must supply proof of service documents and a notice from a medical physician explaining the injuries that he or she received while in service.

A number of elderly individuals may be able to receive a personal exemption on their taxes. The eligibility requirements for elderly individuals to receive this particular personal tax exemption are likely to vary from state to state. Elderly individuals may be required to meet a certain age, residence, or income requirements. Check with your state to find out the specifics of these eligibility requirements.

If a taxpayer filed and received a personal tax exemption for the current year they must reapply again the following year. The majority of federal and state governments allow personal exemptions to expire each year; therefore, it is the taxpayer’s responsibility to reapply for another exemption if needed.

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Most states have a law that requires employers to withhold income taxes from their employees. This withholding is commonly referred to as the withholding tax and it comes out of the weekly, biweekly, or monthly wages that an employee earns.

Since employers are required by law to withhold income taxes from their employees, there are a large number of individuals who are losing valuable money each week. Federal and state governments require that employers withhold income taxes for a number of reasons; however, many taxpayers do not understand why.

When tax season arrives individuals are required to file a federal and state tax return. The tax return is used to determine if a taxpayer paid too much money in government taxes or if they paid too little. Taxpayers who were not fully taxed based on the guidelines of each state or the federal government are required to pay additional taxes. On the other hand there are a large number of taxpayers who may receive a tax refund. This tax refund basically means that a taxpayer paid more money to the government than was required of them. Many taxpayers are left wondering why they are charged a weekly, biweekly, or monthly income tax fee on each paycheck if they are just going to receive a tax refund later on.

Some sates allow employers the option of deducting income taxes from an employee’s paycheck. The final decision of how much tax is paid is often left up to the employee. Individuals who are interested in receiving a large weekly, biweekly, or monthly paycheck can ask their employer to stop withholding income taxes from their check. However, it is important that taxpayers understand that just because the tax is no longer being charged does not mean that it is no longer owed. Taxpayers who opt for a larger paycheck without federal or state income tax withholdings are often required to pay a large amount of money during the tax season.

By law an employee is an individual who performs a service for a business. These employees are subject to federal and state income tax withholdings. Taxpayers that live in a state where it is legal to stop the collection of federal or state withholdings should think long-term. Although it may have been nice to receive the extra money during the year, there are taxes due on that money and it still needs to be paid to the state or federal government. Also, taxes such as Medicare and social security are required by the federal government whether they are paid throughout the year or once at the end. These taxes are used to fund government-run programs that many taxpayers will likely end up using in their future.

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The most common type of income that is subject to FICA is income that an individual receives from their employer. FICA is the common abbreviation for the Federal Insurance Contributions Act. FICA is the category heading that includes social security and Medicare taxes. The majority of income that results from employment is subject to FICA taxes; however, there are certain payment restrictions that may be applied.

Some employers provide their employees with assistance for caring for their children or any disabled dependants. According to the IRS married couples can receive up to $5,000 in child or dependent care expenses without being taxed. Married individuals who are seeking joint returns are only eligible for receiving $2.500 worth of non-taxable payments.

There are many small business owners who rely on their children for help with employment. Legally children are able to work or perform work-related actions for a family member. Children who are under the age of eighteen and work for their parents are not subject to the FICA tax withholdings that traditional employees are.

A large number of American workers make or receive contributions to a pension or 401(k) retirement plan. The contributions made by employers are not subject to FICA taxes; however, payments made by employees are. Therefore each time that an employee places money into their 401(k) plan account they are being taxed.

When an employer closes down their business or has to layoff any number of employees, a severance pay is often given. This Severance pay is often given to employees to help them financially survive while searching for a new job. Although the severance pay is not the same as a traditional paycheck it is treated as if it were. All severance pay packages are subject the tax withholdings allowed by FICA.

Many times when an individual comes down with a serious illness they are given a sick day. A large number of employers pay their employees for a limited number of sick days each year. The pay obtained from sick pay will appear on a traditional paycheck. The sick pay is also subject to FICA taxes like traditional paycheck earnings are.

A large number of individuals work in professions that allow them to receive tips from customers. All tips must be reported to the government. According to the IRS tips totaling more than $20 a month are subject to FICA taxes. All employees receiving tips are legally required to inform the government and pay taxes on any and all tips earned over $20 a month.

Although the taxing of FICA taxes, including social security and Medicare, may seem like a pain they are a way to save for important government run programs. When a traditional taxpayer ages they will likely receive social security payments and Medicare benefits; therefore, taxpayers are basically saving for their future.

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Tax rate schedules are used on both federal and state tax returns. A tax schedule is used to help taxpayers determine what their estimated income taxes rates are for the year.

Tax rate schedules are charts that are used to determine which income bracket a taxpayer falls into. Tax schedules separate individuals who are single, married filing together, married filing separately, or as individuals who can be classified as the head of a household.

Taxengine posts these tax schedule rates on their website for all taxpayers to be able to use as a reference. The website of Taxengine can he viewed by visiting www.taxengine.com. If you aren’t able to find these rates at Taxengine, the IRS posts these rates also at www.irs.gov. Below is a list and summary of the 2005 tax rate schedules for individuals of all filing types.

The 2005 tax schedule for single individuals filing their taxes alone according to the IRS is as follows:
Individuals who have a taxable income less than $7,300 are subject to a 10% tax fee of money over $0.
Individuals who have a taxable income between $7,300 and $29,700 are subject to a $730 tax plus 15% of the money that is over $7,300.
Individuals who have a taxable income between $29,700 and $71,950 are subject to a $4,090 tax rate plus 25% of the amount over $29,700.
Individuals who have a taxable income between $71,950 and $150,150 are subject to a tax rate of $14,652.50 plus a rate of 28% over $71,900
The remaining tax schedule rates for singles can be obtained by visiting Taxengine’s website or by going to irs.gov.

Below is a sample of a few of the tax rates for married couples who are filing their taxes separately.
A taxable income between $7,300 and $29,700 will result in a tax rate of $730 plus 15% of the total amount that is over $7,300
A taxable income between $59,975 and $91,400 will result in a tax rate of $11,658.75 plus 28% of the amount that is over $91,400.
A taxable income that is over $163,225 will result in a tax rate of $44,160 plus 35% of the amount that is over $94,000
The remaining tax schedule rates for married couples that are filing their taxes separately can be obtained by visiting the website of the IRS.

Below is a sample of a few of the rate schedule rates for married couples who are filing a joint tax return.
A taxable income that is $14,600 to $59,400 is subject to an income tax rate of $1,460 plus 15% of the money that is over $59,400.
A taxable income that’s is $59,400 to $111,995 is subject to an income tax rate of $8,180 plus 25% of the money that is over $59,400
A taxable income that is $11,995 to $1,872,800 is subject to a tax rate of $23,317.50 plus 28% of the amount of money that is over $182,800.
The remaining tax schedule rates for married couples who are filing a joint tax return can be obtained by visiting the website of the IRS.

Below is a sample of a few of the tax schedule rates for individuals who are filing as the head of a household.
A taxable income that is less than $10,450 is subject to a tax rate of 10% of the amount that is over $0.
A taxable income that is $10,450 to $39,800 is subject to a tax rate of $1,045 plus the amount that is over $10,450.
A taxable income that is $39,800 to $102,800 is subject to a tax rate of $5,447 plus 25% of the amount that is over $102,800
The remaining tax schedule rates for a taxpayer that is filing as a head of household can be obtained by visiting the website of the Internal Revenue Service.

The above tax rate schedule numbers for the 2005 season were obtained from the IRS. A full list of all federal tax rate schedules can be obtained from Taxengine.com.

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The 15th of April is a day that is all too familiar to the majority of Americans. It is the deadline for taxpayers to have their federal and state income taxes filed; however, there are many individuals who are unable to meet the deadline. There are a large number of disadvantages to filing taxes late; therefore, taxpayers are not encouraged to do so without a good cause. The following are a few legitimate reasons for filing late and ways to solve these problems.

Individuals who may have lost a W-2 or a 1099 form may be unable to file their tax returns in time for the deadline. Copies of a W-2 or 1099 form can be obtained; however, it may take a while for the new copies to arrive. These taxpayers are eligible to apply for a deadline extension. A tax deadline extension can be requested by the IRS by filing a Form 4868. This form must be filed with the IRS by April 15. Form 4868 can be found online at Taxengine.com

A good cause for taxpayers to miss filing their taxes on time does not include not having the money owed on taxes. Many taxpayers are unaware that regardless of when their tax returns are filed the amount of money that a taxpayer owes on their income tax is still due in April. Individuals who fail to file or pay for their tax returns by the traditional April 15 tax deadline are subject to late fees or other additional penalties. If an individual is unable to pay their tax return on time, they are encouraged to file their taxes regardless to avoid extra fees.

The IRS not only charges late fee penalties, but also charges interest on all income taxes that are overdue. The interest rates imposed on overdue taxes varies depending on the individual or extenuating circumstances. The interest rate that the IRS can impose can be anywhere from five a percent to twenty-five percent. Individuals who are unable to pay their taxes or who avoid the IRS or who fail to file a deadline extension are more likely to receive a higher interest rate.

Taxpayers who are unable to file their tax returns or pay the full amount due to the IRS are encouraged to make an estimated payment or even a small payment. If the payment received does not cover the full amount of money due, interest rates will still be applied; however, the IRS may take the partial payment into consideration when deciding upon an interest rate to impose on the remaining balance.

Taxpayers are encouraged to prepare for the tax season ahead of time. Pre-planning will enable most individuals to have their taxes filed or paid on time. Each year a large number of individuals are paying more money than they need to. Taxpayers should prepare ahead and prevent themselves from becoming victims to the late fees and interest rates that are imposed by the IRS.

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For many individuals to successfully prepare their own taxes they need to be aware of the common tax terms that are used in the majority of tax forms. Most of the key tax words or terms are easily learned but there are a few that may be confusing. Below is a list of some of the most common words or tax terms that a taxpayer should know.

An accounting method is the way that income taxes and expenses are calculated and determined.

The adjusted gross income is what an individual’s income amounts to once the appropriate tax restrictions or deductions have been applied.

Business property is a term that describes property that is used to operate a business. Business property can include an office space, rental space, or other common business locations.

The calendar year used for tax preparation is January 1 until December 31.

Capital gain is the money that was profited from the exchange of a valuable asset. An example of capital gain is when a homeowner sells their home.

The Dependent Care Credit is a tax credit that is based on the amount of money paid for a dependent’s child care or adult care. This credit is commonly overlooked by a large number of taxpayers.

Earned income is money that an individual received from owning property, investments, or from obtaining a job. The total earned income is often found on a W-2 form or 1099 form.

An estimated tax is the amount of money that a taxpayer believes they will be required to pay in taxes or the amount of money that they will receive back. A large number of taxpayers estimate their taxes to plan ahead.

FICA stands for the Federal Insurance Contributions Act. FICA taxes are used to pay for social security or Medicare programs. FICA taxes are commonly taken from a paycheck that an employee receives from an employer.

Head of household is the filing title that is used for individuals who are unmarried, but pay more than half of the costs for running the household.

A joint return is when income taxes are filed for both individuals together. The income, tax credits, tax deductions, and tax exemptions are all combined between the married couple.

A non-custodial parent is a parent who does not have full or physical custody of their children. A non-custodial parent is not eligible to claim their children on their taxes.

Personal expense is money that is spent when an individual purchases a service or product for their own personal use. Unlike business expenses, personal expenses are not tax deductible.

A qualified charitable organization is a charity or a non-profit group that is approved by the IRS. Donations that are made to a qualified charitable organization are all tax deductible.

Schedules are forms that are provided by the IRS. A schedule is commonly used to record tax deductions or tax credits.

A tax bracket is a preset group of incomes that are used to determine what a tax rate is.

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E-filing is a convenient, popular, and easy way for taxpayers to prepare and send in their income taxes. With many taxpayers waiting until the last minute to prepare or send out their taxes, e-filing has become extremely popular. A late delivery to the post office can cost a taxpayer additional money in fines or late fees. E-filing is an easy way for many internet savvy taxpayers to prepare and submit their taxes on time.

E-filing is used by a large number of individuals, including professional tax preparers and those who are preparing their own taxes. E-filing uses the same forms and calculations to determine the amount of money owed or the total of a refund due. To use the e-filing system there is some important personal information that will be needed. This information includes a social security number, the social security numbers of any family members, W-2 forms, receipts for deductibles, and any banking account information. Since all of the above mentioned items will be needed to e-file they should be gathered and arranged ahead of time.

There is also a program that is provided by the IRS and a group known as the Free File Alliance. This program allows taxpayers who meet certain eligibility requirements to have their taxes prepared for free by using a professional tax software program. The most common requirement for a tax payer to use the Free File program is that they must have an adjusted gross income that is $50,000 or less. There are also other rules and restrictions that can be placed on the Free File program depending on the company providing the software or the state that the taxpayer resides in.

E-filing is expected to gain additional popularity in the 2006 tax season due to the fact that the Telefile program was recently canceled by the IRS. This program previously allowed qualifying tax payers to submit their tax information using an automated telephone program. E-filing is expected to be used as a replacement for many taxpayers who previously relied on Telefile to file their taxes each year.

E-filing is also convenient because the IRS will send a message or notice if a tax return was received or denied. There are many reasons why a tax return could be denied when filed electronically; however, the most common reason is due to a mistake in personal information. In case of a denial notice check and make sure that all social security numbers, names, addresses, and birth dates are all correct. Once the mistake has been found and corrected the tax forms can be resubmitted.

E-filing is a popular program that is easy for many taxpayers to use. If an individual has a computer with an internet hookup there really isn’t any reason why they cannot be using the e-file program to file their taxes.

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