Tax Reduction Tips

In the rush to get tax returns prepared and filed by April 15th, many overpay their taxes. Following are a few tax reduction tips that could help you save a bundle.

Tax Credit For Starting A Small Business Pension Plan

Establishing a pension plan can help you retain important employees. What many business owners don't realize is a tax credit can be claimed if the business has 100 or fewer employees. Meet this requirement and you can take a tax credit of up to $500 in each of the first three years of the plan. Tax credits are extremely valuable because they are deducted directly from the taxes you owe, not gross revenues.

The credit is 50% of certain start up costs you incur in each of the first three years. The costs include the expenses incurred in establishing and maintaining the plan. They also include the cost of any educational retirement planning programs you provide for employees.For example, first assume that you spent $1,500 starting a pension plan for your employees in 2004. Next assume that you will spend $1,200 in both 2005 and 2006 for maintaining the program and educating your employees. In this scenario, you would be eligible to claim a tax credit of $500 in 2004, 2005 and 2006.

Personal Loans To Business

Many business owners lose track of loans they make to their business. As a result, they incorrectly classify the proceeds of the loan as part of their gross revenues. This artificially raises the gross revenues of the business and adds to the tax liability. Closely review your records for 2004 to make sure you are not making this mistake. Pay particular attention to charges on personal credit cards. You will be surprised how quickly the numbers add up.

SUV Deduction Wounded, But Still Alive

Much has been made about the "SUV Tax Deduction" that allowed purchasers of SUVs over 6,000 pounds to immediately deduct up to $100,000 of the cost. Many mistakenly believe that the American Jobs Creation Act of 2004 eliminated this deduction. It did not. Instead, it reduced the deduction to $25,000 with the remaining amount allocated to depreciation. This is still a significant immediate deduction. If you purchased a non-SUV truck that weighed over 6,000 pounds in 2004, you are not restricted to a "mere" $25,000 deduction.

Tsunami Relief Contributions Paid in 2005

Millions of Americans contributed to charitable organizations providing relief to Tsunami victims. Typically, charitable contributions are deducted in the year they are made. New legislation, however, allows you to deduct Tsunami contributions you made in January 2005 on your 2004 tax returns. Alternatively, you can wait and deduct the donation on 2005 returns. Unfortunately, you cannot deduct the contribution on both!

Sales Tax Deduction

If you itemize deductions, you have a choice of deducting your state and local income taxes OR your state and local sales tax. This option is available for the 2004 and 2005 tax years. If you live in a state that does not collect income tax, the optional sales tax deduction should be claimed for significant tax savings. See IRS Publication 600 for more information.

Deduction for Discrimination Lawsuit Costs

If you were required to pay attorney's fees and court costs associated with a discrimination lawsuit, you may be able to claim a tax deduction. The deduction is available only for costs and fees incurred after October 22, 2004 in relation to a judgment and settlement. The deduction is not limited by the alternative minimum tax. Realistically, this deduction will be more viable for the 2005 tax year, but a few taxpayers may be eligible this year.

There are numerous deductions and credits available if you take the time to look for them. Taxes can be confusing, but the savings justify the time and effort of finding all available deductions and credits.

Richard Chapo is CEO of http://www.businesstaxrecovery.com - Obtaining tax refunds for small businesses by finding overlooked tax deductions and credits through a free tax return review.

Need an Offshore Sales Office in a Tax Free Environment?

The 100 year old investment-banking firm of Warburg, Dillon Read (on Park Ave. N.Y.) (now UBS Warburg) has offices in 39 foreign countries - including the Bahamas, the tiny Cayman Islands, Hong Kong and the Channel Islands. Makes you wonder why, doesn't it?

Non-resident foreign companies, trusts, banks and individuals can trade stocks, bonds, commodity contracts and options 100% free from U.S. capital gains taxes.

Under the U.S. Tax Code, only when a foreign company, foreign trust or nonresident alien individual takes up permanent residence within the United States will he be subject to U.S. capital gains taxes in the same way as domestic taxpayers. For a corporation permanent residence would be a U.S. office or warehouse. Capital gains realized by foreign corporations and other nonresidents "not engaged in a trade or business within the United States" are exempted from tax under IRC Section 871 and IRC Section 881 & IRC Section 897(c)(3). Moreover, U.S. Treasury Regulations Section 864-2(C)(1) & (2) provides an exception for what embodies being "engaged in a trade or business within the United States". Under U.S. regulations, a nonresident's Stock Market transactions carried-out through a U.S. stock broker, independent agent, or an employee are not considered to cause the nonresident to be "engaging in a trade or business within the United States".

Publicly traded stock market gains (from NYSE, NASDAQ or AMEX listed stocks and bonds) accruing to an offshore company are free of US capital gains taxes by the Internal Revenue Tax Code's statutes, but "US Shareholders" can have a tax liability (indirectly) if the offshore company is a "Controlled Foreign Corporation (CFC) (i.e., "more than 50% of voting and non-voting stock is owned by US SHAREHOLDERS). See sections 951 thru 958 of the IRC. See especially Code-Section 951(b) for the definition of US SHAREHOLDERS.

American taxpayers that use tax havens are taking more risks (generally) than a foreign non-resident alien (not a US citizen). Whether an American citizen taxpayer will have a tax liability on the offshore company profits depends on a lot of things - including what kind of income is produced by the company (i.e., Subpart F or non-Subpart F) and how many shares in the company you own, and whether the offshore company is a CFC - as defined in the Internal Revenue Code in Sections 957 and section 958.

More on the No-tax haven of Anguilla. Click onto the link below for the detailshttp://www.geocities.com/taxhavens123/caribbeantaxhavens.html

A Tribute in Honor of: Bank Confidential Ordinances in the Caribbean
http://www.geocities.com/taxhavens123/bank_confidentiality.html

The Old Monied Dupont Nemours and Roosevelt Families Buy a Tax Haven

Want to know why and how the old monied Dupont Nemours and Roosevelt families were able to buy 4,000 acres of waterfront property on the island of Provindentcials in the tax free, crown colony (or "Overseas Territory") of the Turk and Caicos Islands for 1 cent an acre?

This 4,000 acre sale (now a marina and resort town - with an airport for jumbo jets (the $50,000,000 airport was donated by the UK government) went down in the 1970's - not the 1870's!?!?

Source: A Turks & Caicos Government 3 full page advertisement in Investor's Daily (1985).

Was this the most profitable real estate investment of the 20th century? A quarter acre lot in the gated community of Sandyport here in Nassau, Bahamas sells for approximately $260,000 today. Half acre canal lots in Lyford Cay sell for about one million dollars.

Do the math. On an initial investment of just $40, the 4,000 acre property might be worth almost 4 BILLION dollars today.

YOU BE THE JUDGE.... Are the use of the world's tax havens a blessing or a detriment? Before you answer, see some of the IRS's loopholes from our "Tax Code" - discovered for your viewing below, and buried inside the tax law for the taxpayers! There's a very important loophole for the non-resident alien you should not overlook!

Tom has lived offshore in the Bahamas for over 10 years. When I'm not working on my newsletter, or with a client, I'm out swimming, diving or sport fishing in the sunny- tax-free Bahamas.

Business Tax Deductions

As we enter April, taxpayers begin to become very interested in deductions. Following are a few that you may be entitled to claim.

Deductible Expenses

· Office expenses
· Rent or lease payments
· Advertising
· Costs of goods sold
· Insurance costs
· Utilities
· Payments to independent contractors [file form 1099]
· Accounting fees
· Legal fees
· Communication expenses
· Credit Card Interest for business charges
· Travel expenses
· Vehicle expenses
· Business-related meals and entertainment
· Uncollected receivables
· Bank fees on business accounts
· Interest payments on notes
· Excise and fuel taxes
· Employment taxes
· Real estate tax paid on business property
· Special local assessments for repairs or maintenance to business property
· Promotional costs that create goodwill such as sponsoring a youth team
· Business association dues
· Business-related magazines
· Casualty losses
· Beverage services
· Credit bureau fees
· Taxi fares
· Telephone calls made on trips
· Self-employment tax [if applicable]

Sales Tax Deduction Option

The American Jobs Creation Act of 2004 provides all taxpayers with the option to claim a deduction for state and local sales taxes instead of state and local income taxes. If you purchased a high cost item during 2004, you may find that the total sales tax you pay far exceeds your state income tax payment. If so, you should determine whether you should claim a larger deduction by using the IRS Optional State Sales Tax Tables found in IRS Publication 600.

The new sales tax deduction is a windfall for taxpayers in Alaska, Florida, Nevada, Texas, Washington, South Dakota and Wyoming. These states do not tax the income of their residents, which makes the sales tax deduction a very valuable deduction indeed! Regardless, taxpayers in all states should the possibility of claiming a sales tax deduction.

Free File for All Is No More

From Yahoo Finance:
IRS' Free File now restricted to lower-income taxpayers

SAN FRANCISCO (MarketWatch) -- Last year, any taxpayer could go to the IRS Free File program to file their return online without a fee. Not anymore.

Starting next year, the Free File program is limited to taxpayers earning about $50,000 or less a year in adjusted gross income -- or 70% of filers each year, the IRS announced Tuesday.
That means about 93 million taxpayers will be eligible, still "a large population," said Bert Dumars, the IRS' director of electronic tax administration.
It's essentially a return to normal. In the first two years of the program, the participating companies offered their free services to disparate groups: You had to be over 55-years-old, say, or live in a particular state.

Then, at the start of the filing season earlier this year, some companies started vying for top spot on the provider list -- and the way to ensure that was to offer services to the largest number of taxpayers, with some companies eventually offering free online tax services to all.
But the tax providers weren't eager to repeat their free giveaway in the upcoming filing season.
"They all felt this was a death march, basically, and it was going to ruin the industry and it was going to impact the quality and services being delivered," Dumars said.
"We felt the best thing to do was find the balance that would allow us to make sure we had a good free program for a very large population of taxpayers, but also allow the industry to maintain its health and stability," Dumars said.

Anticipating Your IRS Refund Can Cost You Plenty

While accountants are reaching for aspirin, millions of Americans are reaching for some fast cash this tax season. Unfortunately, those who reach for fast cash in the form of a "refund anticipation loan" are getting hit with interest rates and fees that are out of this world.

The tempting ads are plastered in newspapers and on television for "fast cash refunds", "express refunds", or "instant refunds." The ads offer to get your refund in a day or two, or in some cases even instantly.

What is a "refund anticipation loan"? It's a loan that borrows against your anticipated tax refund from the IRS. Refund anticipation loans, or RAL's as they are known in the tax industry, carry annual percentage rates (APR's) of about 60% to over 700%, a fact that many consumers either don't realize or simply overlook.

RAL's are marketed to people who need money the most such as low and moderate income workers. A report by the National Consumer Law Center notes that "about 40% of the 12 million refund loan customers in 2000, were families who received the Earned Income Tax Credit, the largest federal poverty assistance program." And since the RAL's often use the term "refund" in their ads, many of those who take the bait don't realize that they're receiving a loan and not their actual refund from the IRS.

The fees associated with RAL's are expensive. For example, let's say the IRS owes you a refund of $2,000. In order to get a RAL you pay the following: RAL loan fee = $75, Electronic filing fee = $40, tax preparer's fee = $100. Total fees associated with your RAL = $215 which is more than 10 percent of your estimated refund. The APR on your refund loan equals a whopping 142 percent!

Many low and moderate income workers are without bank accounts and wind up paying an additional fee to set up a one-time-use account so that their IRS refund can be direct deposited.Before giving in to the temptations of refund anticipation loans, ask yourself if you really need your money that quickly. If you can wait just a bit longer for your refund you'll line your own pockets with extra cash rather than forking it over to a RAL lender.A great way to save money at tax time is to go to a Volunteer Income Tax Assistance (VITA) site. VITA sites provide free tax preparation to low and moderate income taxpayers and are sponsored by the IRS. They can be found in libraries, community centers and other locations during the tax season. To find a VITA site call the IRS general help line at 1-800-TAX-1040 or visit www.tax-coalition.org.