Everyone saves for the rainy day, our parents taught us to save money from a young age so that it is of some use at a later stage. Even the tax man says that.
IRA, or Individual Retirement Arrangement, is a personal savings plan that lets you save up for rainy days and gives you tax benefits in the form of tax deductions. All contributions made to this plan are entitled to the IRA tax deduction. This also includes earnings from these contributions unless they are distributed to you.
2 basic rules govern the working of IRA.
The first is the simple IRA. The more traditional way which helps for that long retirement plan. Contributions to IRA are exempted unless you receive any kind of distribution.
Setting up an IRA is very simple, you need to be less than 70.5 years of age before you can apply. A taxable income is necessary to avail this. Only salaries, commissions, alimony, maintenance or any other means of income
Generated by self constitutes this. Rental or any other income from property, annuity or deferred compensation does not qualify as taxable compensation.
The maximum you can contribute to your IRA is either $ 3,000 or your taxable compensation for the year, whichever is less. It goes to $3500 if you are 50 or older. If you are uncovered, you can claim the complete deductions. If, however, you are covered by a valid retirement plan, your IRA deduction can either be reduced or eliminated, depending on the amount of your Modified Adjusted Gross Income and your filing status.
If in case you have made any withdrawals, then you have to pay tax on the amounts available. And it is wholly taxable.
Roth IRA - Roth IRA is the reverse of the traditional IRA. Contributions that you make to this RA will get you no deductions. No taxes on withdrawals or earnings. Everything else about Roth IRA is like the simple IRA. Like the latter it can be either an account or an annuity. To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is set up.
These two basic rules now sum up what you want to know about taxes and especially the savings aspect. Just make the most out of them,
About the Author
Find more about Tax Deductions at http://taxdeduct.net
Thursday, August 27, 2009
Wednesday, August 19, 2009
How To Protect Your Assets And Live The American Dream By Moving Abroad
Taxes are a drag for every US citizen who is forced to give away part of their earnings on a yearly basis. While most Americans simply complain over taxes, others are taking a more proactive approach: retirement abroad.
For folks who have spent a lifetime trying to build an estate and set aside hard earned assets, paying taxes on said assets becomes a huge burden. Not so much because they cannot afford it, they just do not feel as though they should be required to pay.
Many people, not just retirees, feel that their quality of life is not up to par. In fact, 25% of the college educated say that they have thought about leaving the country to pursue more suitable locations. Whether it is a cultural or a financial chasm, there are many citizens who have considered relocation. It's not to say that they despise the United States government or the way of life that the US promotes, they are simply fed up with taxes and other financial issues that can be appeased elsewhere.
Some may think that the capitalist society and other freedoms that America offers is the ticket to financial freedom and happiness. The term "American dream" stems from this notion. However when delved into further than face value, the American dream may not seem so dreamy after all. It is a semi truth in America that if you work hard you will be successful. All things being equal this statement has merit, however, all things are not often equal. Once income deductions begin, they tend to pile up until income feels more like "outgo", so to speak. In order to bounce this phenomenon off of themselves, many people are picking up and leaving the home soil.
Retirees often dream of relaxation and a subdued life after completing their working stint. However, in the US, they are often met with undue stress relating to taxes, healthcare cost, and the like. This forces the thought of something or somewhere better, and this is where moving abroad enters the picture. Obviously it is not an option for all retirees considering health issues and the necessity to be close to extended family and familiar medical care.
For others, however, there are no strings to connect them to America, and they are free to go and enjoy the tax freedom. This notion may hit home to retirees who have been basking in the dread of American taxes their entire lives, but it may also hit those far from retirement who are making long term plans for the future. If the working class decides they are fed up with income taxes in America, they may actually consider the option of moving abroad, and if they are in the prime of their careers, they may even do it sooner that expected.
By : Gregg Hall
Gregg Hall is an author living in Navarre Beach Florida. Find more about this as well as easy asset protection at http://www.easyassetprotection.com
For folks who have spent a lifetime trying to build an estate and set aside hard earned assets, paying taxes on said assets becomes a huge burden. Not so much because they cannot afford it, they just do not feel as though they should be required to pay.
Many people, not just retirees, feel that their quality of life is not up to par. In fact, 25% of the college educated say that they have thought about leaving the country to pursue more suitable locations. Whether it is a cultural or a financial chasm, there are many citizens who have considered relocation. It's not to say that they despise the United States government or the way of life that the US promotes, they are simply fed up with taxes and other financial issues that can be appeased elsewhere.
Some may think that the capitalist society and other freedoms that America offers is the ticket to financial freedom and happiness. The term "American dream" stems from this notion. However when delved into further than face value, the American dream may not seem so dreamy after all. It is a semi truth in America that if you work hard you will be successful. All things being equal this statement has merit, however, all things are not often equal. Once income deductions begin, they tend to pile up until income feels more like "outgo", so to speak. In order to bounce this phenomenon off of themselves, many people are picking up and leaving the home soil.
Retirees often dream of relaxation and a subdued life after completing their working stint. However, in the US, they are often met with undue stress relating to taxes, healthcare cost, and the like. This forces the thought of something or somewhere better, and this is where moving abroad enters the picture. Obviously it is not an option for all retirees considering health issues and the necessity to be close to extended family and familiar medical care.
For others, however, there are no strings to connect them to America, and they are free to go and enjoy the tax freedom. This notion may hit home to retirees who have been basking in the dread of American taxes their entire lives, but it may also hit those far from retirement who are making long term plans for the future. If the working class decides they are fed up with income taxes in America, they may actually consider the option of moving abroad, and if they are in the prime of their careers, they may even do it sooner that expected.
By : Gregg Hall
Gregg Hall is an author living in Navarre Beach Florida. Find more about this as well as easy asset protection at http://www.easyassetprotection.com
Thursday, August 13, 2009
How Taxes Apply To Corporations
A corporation is a designated entity where the company and the individuals related to it, have different legal identities. The reason most companies prefer to incorporate is asset protection. Incorporation protects your personal assets from seizure during a lawsuit.
If you decide to incorporate your small business, you can choose the S corporation, C corporation or LLC model. Before choosing any kind of corporate model, you should look at the tax rules and regulations related to a corporation.
Tax Laws for Various Corporations
Tax laws vary from country to country and state to state. You need to go through them before and after incorporating. In general, all countries have mandatory tax requirements for companies. Your corporation needs to pay taxes on the profits it earns. Even if your corporation is registered abroad, you may need to pay taxes if you reside in your home country.
1. C Corporations have to go by standard corporate tax laws. They need to pay taxes on their profits, and are subject to certain deductions depending on their shareholding structure.
2. S Corporations are the best option if you have a startup company or a small business. S corporations do not have to pay income tax, and still get to enjoy the advantages of being a standard corporation. The eligibility condition is that your small business should have less than 75 shareholders who are all citizens of the US. To get the benefits associated with the Subchapter S Corporation, you need to file an application with the tax authorities. If you want to submit taxes under an LLC structure, you need to submit another application before the current financial year ends.
3. Limited Liability Partnerships, or LLC, are preferred by businesses that need streamlined allocation of profits and losses. This facility is not available to S Corporations. LLCs need to file form 100 ES and form 100.
S Corporation Taxes
Since this article is primarily concerned with entrepreneurs and small businesses, it would be relevant to go into the details regarding the S-corporation. If you decide to register yourself as an S corporation to avail tax breaks, you need to keep in mind the eligibility conditions. Apart from the conditions already discussed, you need to remember that you must use the calendar year as the financial year of the company. In addition, any shares your company sells must be of a single kind.
Advantages of Being an S Corporation
1) The best thing about the S Corporation status is that the shareholders shoulder the responsibility for paying the taxes as their personal income tax. Therefore, the corporation need not pay income tax twice, first as a company and secondly as individual shareholders. In fact, most S corporations do not pay any taxes.
2) It reduces the need for extensive paperwork when filing tax returns or declaring income.
Additional Help
If you wish to incorporate your small business and need more information about tax structures of various corporations, you can consult a small business advisor or tax consultant. Choose the type of incorporation carefully, as taxes will apply to your business based on that. Get yourself educated on the advantages and disadvantages of each type of incorporation according to the tax laws. This will help you reap the benefits of a corporation without having to pay huge taxes.
By : David Gass
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
If you decide to incorporate your small business, you can choose the S corporation, C corporation or LLC model. Before choosing any kind of corporate model, you should look at the tax rules and regulations related to a corporation.
Tax Laws for Various Corporations
Tax laws vary from country to country and state to state. You need to go through them before and after incorporating. In general, all countries have mandatory tax requirements for companies. Your corporation needs to pay taxes on the profits it earns. Even if your corporation is registered abroad, you may need to pay taxes if you reside in your home country.
1. C Corporations have to go by standard corporate tax laws. They need to pay taxes on their profits, and are subject to certain deductions depending on their shareholding structure.
2. S Corporations are the best option if you have a startup company or a small business. S corporations do not have to pay income tax, and still get to enjoy the advantages of being a standard corporation. The eligibility condition is that your small business should have less than 75 shareholders who are all citizens of the US. To get the benefits associated with the Subchapter S Corporation, you need to file an application with the tax authorities. If you want to submit taxes under an LLC structure, you need to submit another application before the current financial year ends.
3. Limited Liability Partnerships, or LLC, are preferred by businesses that need streamlined allocation of profits and losses. This facility is not available to S Corporations. LLCs need to file form 100 ES and form 100.
S Corporation Taxes
Since this article is primarily concerned with entrepreneurs and small businesses, it would be relevant to go into the details regarding the S-corporation. If you decide to register yourself as an S corporation to avail tax breaks, you need to keep in mind the eligibility conditions. Apart from the conditions already discussed, you need to remember that you must use the calendar year as the financial year of the company. In addition, any shares your company sells must be of a single kind.
Advantages of Being an S Corporation
1) The best thing about the S Corporation status is that the shareholders shoulder the responsibility for paying the taxes as their personal income tax. Therefore, the corporation need not pay income tax twice, first as a company and secondly as individual shareholders. In fact, most S corporations do not pay any taxes.
2) It reduces the need for extensive paperwork when filing tax returns or declaring income.
Additional Help
If you wish to incorporate your small business and need more information about tax structures of various corporations, you can consult a small business advisor or tax consultant. Choose the type of incorporation carefully, as taxes will apply to your business based on that. Get yourself educated on the advantages and disadvantages of each type of incorporation according to the tax laws. This will help you reap the benefits of a corporation without having to pay huge taxes.
By : David Gass
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
Friday, August 7, 2009
Top 7 Ways to Reduce Income Taxes
Are you paying too much in income taxes? Are you getting all the credits and deductions you are entitled to? Here are 7 tips to help you minimize taxes and keep more in your pocket:
1. Participate in company retirement plans. Every dollar you contribute will reduce your taxable income and thus your income taxes. Similarly, enroll in your company's flexible spending account. You can set aside money for medical expenses and day care expenses. This money is "use it or lose it" so make sure you estimate well!
2. Make sure you pay in enough taxes to avoid penalties. Uncle Sam charges interest and penalties if you don't pay in at least 90% of your current year taxes or 100% of last year's tax liability.
3. Buy a house. The mortgage interest and real estate taxes are deductible, and may allow you to itemize other deductions such as property taxes and charitable donations.
4. Keep your house for at least two years. One of the best tax breaks available today is the home sale exclusion, which allows you to exclude up to $250,000 ($500,000 for joint filers) of profit on the sale of your home from your income. However, you must have owned and lived in your home for at least two years to qualify for the exclusion.
5. Time your investment sales. If your income is higher than expected, sell some of your losers to reduce taxable income. If you will be selling a mutual fund, sell before the year-end distributions to avoid taxes on the upcoming dividend or capital gain. Also, you should allocate tax efficient investments to your taxable accounts and non-efficient investments to your retirement accounts, to reduce the tax you pay on interest, dividends and capital gains.
6. If you're retired, plan your retirement plan distributions carefully. If a retirement plan distribution will push you into a higher tax bracket, consider taking money out of taxable investments to keep you in the lower tax bracket. Also, pay attention to the 59 and one half age limit. Withdrawals taken before this age can result in penalties in addition to income taxes.
7. Bunch your expenses. Certain expenses must exceed a minimum before you can deduct them (medical expenses must exceed 7.5% of your adjusted gross income and miscellaneous expenses such as tax preparation fees must exceed 2% of your AGI). In order to deduct these expenses, you may need to bunch these types of expenses into a single year to get above the minimum. To achieve this, you might prepay medical and miscellaneous expenses on December 31 to get above the minimum amount.
The most important thing is to be aware of the tax deductions and credits that apply to you and to plan for taxable events. And don't be afraid to ask for help. The benefits from consulting an experienced tax professional far outweigh the cost to hire that professional.
By : Kristine A McKinley
Kristine A McKinley, CPA, and Certified Financial Planner, is a fee-only financial planner. For more personal finance and tax tips, please visit our blog at http://beaconfinancialtips.typepad.com/financialtipsforwahms/
1. Participate in company retirement plans. Every dollar you contribute will reduce your taxable income and thus your income taxes. Similarly, enroll in your company's flexible spending account. You can set aside money for medical expenses and day care expenses. This money is "use it or lose it" so make sure you estimate well!
2. Make sure you pay in enough taxes to avoid penalties. Uncle Sam charges interest and penalties if you don't pay in at least 90% of your current year taxes or 100% of last year's tax liability.
3. Buy a house. The mortgage interest and real estate taxes are deductible, and may allow you to itemize other deductions such as property taxes and charitable donations.
4. Keep your house for at least two years. One of the best tax breaks available today is the home sale exclusion, which allows you to exclude up to $250,000 ($500,000 for joint filers) of profit on the sale of your home from your income. However, you must have owned and lived in your home for at least two years to qualify for the exclusion.
5. Time your investment sales. If your income is higher than expected, sell some of your losers to reduce taxable income. If you will be selling a mutual fund, sell before the year-end distributions to avoid taxes on the upcoming dividend or capital gain. Also, you should allocate tax efficient investments to your taxable accounts and non-efficient investments to your retirement accounts, to reduce the tax you pay on interest, dividends and capital gains.
6. If you're retired, plan your retirement plan distributions carefully. If a retirement plan distribution will push you into a higher tax bracket, consider taking money out of taxable investments to keep you in the lower tax bracket. Also, pay attention to the 59 and one half age limit. Withdrawals taken before this age can result in penalties in addition to income taxes.
7. Bunch your expenses. Certain expenses must exceed a minimum before you can deduct them (medical expenses must exceed 7.5% of your adjusted gross income and miscellaneous expenses such as tax preparation fees must exceed 2% of your AGI). In order to deduct these expenses, you may need to bunch these types of expenses into a single year to get above the minimum. To achieve this, you might prepay medical and miscellaneous expenses on December 31 to get above the minimum amount.
The most important thing is to be aware of the tax deductions and credits that apply to you and to plan for taxable events. And don't be afraid to ask for help. The benefits from consulting an experienced tax professional far outweigh the cost to hire that professional.
By : Kristine A McKinley
Kristine A McKinley, CPA, and Certified Financial Planner, is a fee-only financial planner. For more personal finance and tax tips, please visit our blog at http://beaconfinancialtips.typepad.com/financialtipsforwahms/
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