Simply Junior

With the recession and surging unemployment swelling the ranks of people reinventing themselves, millions of taxpayers are setting up home-based businesses and providing their services as self-employed independent contractors. Whether your new self-employed independent contractor status is a temporary measure or part of your long-planned road map to fortune and glory, there are tax dangers (plus surprisingly lucrative income tax relief) that should grab the attention of every self-employed independent contractor.

We know the IRS is targeting self-employed independent contractors. The government estimates that 85% of the $345 billion tax gap is due to self-employed individuals – freelance professionals and independent contractors who don’t get a 1099 the way large business employees do. Being a self-employed independent contractor means you’re the boss, unfortunately it also means you’re the one on the hook for any problems with back taxes. How you handle your back tax problems will not only determine whether your business will succeed, but it also carries the real threat of jail time if you get it wrong.

To learn more ways to legitimately maximize deductions while avoiding IRS problems, check out Part 2 of this series on Tax Help Tips for Saving Money on Taxes for Freelance Professionals and Self-Employed Individuals.

Read on for my best year-end tax help tips to show self-employed independent contractors how to get the biggest income tax relief possible.

Year-End Income Tax Relief Tip #1: Did you owe back taxes because you made a mistake in your quarterly estimated taxes? If you’ve spent your life working as an employee, you may be delighted that the first money you receive as a self-employed independent contractor is a flat fee without any taxes taken out. But your joy should be short-lived, this is a case of the taxman being delayed but not denied.

Contact a tax attorney to make sure you have structured your business correctly. If you haven’t gotten tax help from a tax attorney yet, there is still time to structure your business to get the maximum income tax relief before the year end. (After that you’re stuck with your mistakes. Well, mostly. A good tax attorney or tax resolution specialist can still get you out of back tax trouble, but the best approach is to avoid owing back taxes in the first place.)

Year-End Income Tax Relief Tip #2: Are YOU really a self-employed independent contractor? Many businesses (large and small) mislabel their employees as “self-employed independent contractors” to get income tax relief and sidestep a host of state and federal laws. If your boss has you misclassified as a self-employed independent contractor and you file as one, you could be in a heap of trouble when the IRS comes knocking on either your door or your boss’s door to collect back taxes. Suddenly, all those lovely deductions go out the window and your tax bill explodes. If you feel your boss has misclassified you as a self-employed independent contractor, contact a tax attorney or tax resolution specialist immediately for some self-employed independent contractor back tax help before the year ends.

Year-End Income Tax Relief Tip #3: Are your subcontractors really self-employed independent contractors or are THEY employees? While you may be a true self-employed independent contractor, you need to establish whether your subcontractors are self-employed independent contractors or employees. According to IRS Summertime Tax Tip 2009-20, “the cost of misclassification to employers in additional taxes, as well as administrative time, or the loss of tax-favored status for employee benefit plans, can be steep.” If you’re not sure, contact a tax attorney or tax resolution specialist to get tax help immediately.

Year-End Income Tax Relief Tip #4: Want to get income tax relief on your 2009 self-employed independent contractor work by delaying paying taxes until 2011? For a host of income tax relief reasons, a self-employed independent contractor might want to defer getting paid until next year. If you did work in 2009 but don’t want to pay 2009 taxes on it, simply wait to invoice your clients until January 1, 2010. This 2009 income tax relief technique is perfectly legal for self-employed independent contractors as long as you pay taxes on that income in your 2010 tax return.

Year-End Income Tax Relief Tip #5: Get that root canal before New Year’s. The secret to income tax relief is just like the secret to great comedy…timing. A self-employed independent contractor’s medical expense deduction is limited to 7.5% of the self-employed independent contractor’s adjusted gross income. If you haven’t reached that cap yet, go have those dental procedures or that bit of elective surgery (we’re not just talking about that nose, the swimsuit season will be here again before you know it). As long as you’re under that 7.5% limit, you can get income tax relief from your standard variety medical expense deductions. A little known year-end income tax relief tip – you don’t even have to pay for the medical procedures before January 1, 2010. Just put the medical charges on plastic and pay the minimum balance. As long as you had the procedures in 2009, the deduction is good. If your medical expenses are already over the 7.5% level of your self-employed independent contractor’s adjusted gross income, you should delay breaking your leg until January 1st, 2010.

Year-End Income Tax Relief Tip #6: Pay your state taxes before the ball drops. As a self-employed independent contractor, one of the best income tax relief strategies is to pay your state estimated tax before December 31st. If you pay by December 31, 2009 you get the deduction (on your federal return) in 2009. You can also charge these expenses on your credit card(s) in 2009 and receive the deduction in 2009, even though you won’t be paying for them until 2010. If you are having issues paying your estimated state taxes, a tax attorney can give you tax help to get the maximum income tax relief possible.

Year-End Income Tax Relief Tip #7: Make your stock market losses work to your advantage. If your personal portfolio has taken a nose dive, realize your tax losses before New Year’s Eve. Long term capital losses can be used to offset long term capital gains, and up to $3,000 of ordinary income, with any remainder carried forward for use in future years. This is about getting income tax relief not whether you made the right investment choices. If you still believe those stocks will go up again, buy them back on January 1st. Keep in mind that some mutual funds can have high capital gains distributions even as they lose money. The best income tax relief advice is to ditch these first because they are hitting you with a double whammy. As a self-employed independent contractor you have access to some of the best retirement accounts out there like a SEP-IRA. To understand which investing should be done as part of a retirement account, and which should be in your personal portfolio and when to take losses for maximum income tax relief, get tax help from an experience CPA or tax attorney.

Year-End Income Tax Relief Tip #8: Give your personal gifts before Rudolph goes flying. As a self-employed independent contractor, you can give a friend or family member up to $13K annually before the year end without having to pay gift taxes. (Your spouse can give that same amount to the same individual.) You can also give that same amount to your child’s or grandchild’s tax-free 529 education plan. If you haven’t funded such a plan yet, you can make a single contribution covering five years of gifting. That’s $65,000 you can give per donor per recipient tax-free. (Your spouse can match that contribution as well.)

Year-End Income Tax Relief Tip #9: Give gifts to clients: Gifts to clients are limited to $25 per recipient per year, BUT if the gift has your embossed logo on it and tells about your services, it isn’t a gift, it is an advertising or promotional expense. There is a fine line here, a quick call to a CPA or tax attorney for year-end tax help will help you stay on the right side of the law.

Year-End Income Tax Relief Tip #10: Take your retirement contribution to the max. Self-employed independent contractors have the best income tax relief vehicle the federal government has ever offered. While individual worker contributions to a simple IRA max out at $11,500, if you’re under 50 in 2010 ($14,000 if you’re over 50), how is this for serious income tax relief, as a self-employed independent contractor you can use SEP-IRAs to contribute 25% of your wages (or up to 20% of your Schedule C income) up to a maximum of $49,000. The income tax relief to a self-employed independent contractor are massive. A tax lawyer or CPA an give you the tax help to set up the right retirement vehicle for you.

I know that this is a long list but the income tax relief you can get from just paying attention to the calendar is huge. These 20 self-employed independent contractor tax help tips can make the difference between being a Grinch and having a Happy New Year. Your call.

For more information on achieving a tax resolution for your back taxes or IRS debt, visit www.taxresolution.com for a free tax relief consultation or call 866-IRS-PROBLEMS.

The year 2011 seems to hold promise for tax payers with the new tax laws that are being enacted. The tax payer will not have to worry about trying to pay taxes if they can prove hardship. The average tax payer will see an IRS tax relief as they are going to be allowed to earn more money and pay less on their taxes. This will be a great stride for the American tax payer since they usually have to carry the brunt of the nation’s bills.

The IRS tax relief for 2011 will cover millions of Americans who have had it pretty hard this past year. Millions of homes have been foreclosed leaving Americans homeless. The jobs are not there to be had and the economy has worsened by degrees. It is even predicted that we might plunge into a double digit fall back in the economy. This would be a devastating event for most Americans. This is not what the President wants for the country and that is why he is trying very hard to get the Congress to compromise with some IRS tax relief programs.

It is possible that with some of the new tax laws that this will help save the families and put more money into the pockets of the consumers helping the economy to stay more at an even base. It is not totally up to the president it seems that some of the governors are trying hard to increase employment in their states. This increase of work will help the American to earn more money and create a better and stronger economy. The only thing left is for American business to stay in this country and give the jobs to the American people instead of outsourcing the work to foreign countries.

It is not the best solutions that have come forth from the 2010 Congress but it has given the economy a jump start which if the 2011 Congress carries it forward will help all Americans. One of the most important things at this time is to put more money back into the pockets of the consumers by giving them an IRS tax relief program that will help families stay on track financially. It would be a great advantage as well if the IRS would consider collecting back taxes from business’s who have made it a point to outsource jobs. The money that these businesses owe would really help the economy. Since they took the tax breaks in the past but did little to nothing to help the countries economical growth they really do not deserve an IRS tax relief program.

President Obama’s Tax Proposal, Expiration of the Bush Tax Cuts Pay Lower Taxes Now…Higher Taxes Later

Obama’s Tax Proposals. Many will pay lower taxes now and higher taxes later whether or not President Obama’s Fiscal Year 2011 Revenue Proposals (translated: tax changes) becomes law. Outlined in generalities in more than 150 pages, President Obama proposes tax increases and tax decreases for businesses and individuals and many complex provisions whose precise impact and details will not be known for years.

Increases for Higher Income Tax Payers. Overall, the revenue changes produce a net increase in tax revenue to the federal government from 2011 to 2020 of $1,103,250,000,000 dollars. Of this, $969,467,000,000 or almost 88% of the new tax revenue comes from upper income individuals. This is done by exempting high income tax payers from the Bush tax cuts set to expire at the end of this year. The President proposes to reinstate the maximum rate of 39.6% on earned income from the Clinton administration as opposed to the 35% rate under the Bush tax cuts. This maximum rate would apply to taxable incomes over $373,650 for married persons filing jointly and single fliers. This 39.6% rate is projected to produce about a third of the new revenue to come from the increase of taxes on upper income people. There will be a top 36% rate, up from 33%, which will apply to married filed jointly with $250,000 of annual income (less the standard deduction and two personal deductions) and $200,000 for single filers, less the standard deduction and one personal exemption.

In addition, for the $250,000/$200,000 income and above group, there will limitations on itemized deductions, phase out of the personal exemption, a 20% capital gains rate and limitation of the value of a deduction to a maximum of 28%. These items raise $642 billion over the next ten years, the other two thirds of the new $970 billion of revenue from upper income tax payers. Many people who think that they will not be in the $250,000/$200,000 brackets will be shocked when they find that when they sell real estate or stocks at a profit that this could move them into these brackets in the year they make these sales.

Extension of the Bush Tax Cuts. In a short paragraph on page 147 of the Revenue Proposals, President Obama proposes an extension of the Bush tax cuts for those below the $250,000/$200,000 and above brackets. As promised by him during his campaign, he said he would not raise taxes on the middle and lower classes. This extension of the Bush tax cuts, together with indexing of the Alternative Minimum Tax, will cost about $3.8 trillion of lost revenue over 2011-2020, or a loss of nearly four times the revenue increase from all of the other provisions in the 146 pages before the one page on the AMT and the Bush tax cuts. The largest item is a revenue loss of about $1.6 trillion resulting from the Bush tax cuts for middle and lower income tax payers. The Bush tax cuts took millions off of the tax roles and provided large tax rate reductions for lower and middle income earners; President Obama plans to continue these tax breaks. This results basically in an income transfer of about $970 billion from upper income taxpayers and $2.8 trillion from government deficits to middle and lower income taxpayers of about $3.8 trillion over ten years.

Will it Pass? Congress will have their own ideas about tax changes and there is a lot of talk about an omnibus tax bill. Such a bill will have tax increases, tax loopholes, closing of tax loopholes and hundreds of pages of nearly indecipherable tax talk. Republicans will probably vote as a block against the bill as a “tax increase” and the Republicans who vote for it will fear a tea party challenger in their Republican primary. Many Democrats will worry about reelection if they vote for a large tax increase. Of course, the fear of voting for a tax increase ignores that the President’s proposal is really the continuation of the Bush tax cuts for most people and these large tax cuts contribute substantially to the increasing deficit.

Best Guess. The bigger the tax bill, the more likely it will fail. From the standpoint of the budget deficit, if Congress is not able to agree on a tax bill in 2010, then the Bush tax cuts will expire at the end of 2010 and in 2011 and thereafter, there will be a huge increase in projected federal revenue. Unless there is a substantial decrease in the rate of increase in federal spending and a boom in the economy, the Bush tax cuts can not be sustained. Members of Congress can point out that they voted against the proposed tax increase bill. My best guess, based upon years in politics, is that no major tax bill will pass this year and the Bush tax cuts will expire at the end of the year.

Action Item. Whether the President’s proposals pass or the Bush tax cuts expire, you will be paying a lot more taxes in the future. If you have capital gains or income over which you have the option to be taxed in 2010, it may be a good bet to pay taxes now, rather than later. This is completely different from the usual advice that it is best to postpone paying taxes. Contact us and we will assemble your team of advisors to implement a tax strategy designed around your needs.

2011 online income tax return season is around the corner. This year also there are millions of people who are going to file and I am sure millions will make mistakes in their tax returns.

So as to avoid these mistakes, let me give you some recommendations that you should keep in mind when filing tax returns in 2011 -

1. Keep a tab of all the expenses that you have made – It will be a good idea if you start a journal and start writing all the expenses that you have made so far. You can start doing it immediately so that you have about 2 months time to have all income expense related details in place.

2. Joint returns or Individual in 2011 taxes – Decide whether it will be beneficial to file individual returns or should you fine joint returns. There are considerable benefits of filing one over the other depending on whether you both have income or not. So do some level of due diligence here as well. Typically it can make a difference of more than $1000 of one form of filing over the other.

3. How to file in 2011 – Another big decision you need to make is whether you should file income tax returns manually or through a tax consultant or should you through an online tax software. When deciding you should consider various factors like how complicated are your returns, fees that are going to pay and how much time will it take to get tax refund.

The end of the estate tax during 2010 might only be a temporary reprieve. As the law now stands, beginning in 2011 estates valued above $1,000,000 will be subject to estate tax at very hefty rates rising as high as 55%. This circumstance suddenly creates the real possibility that the estates of surviving spouses who inherit more than $1,000,000 will ultimately incur a significant estate tax when they later die and before their estate moves on down to the couple’s children. That’s the bad news. But, the good news is that there may be an estate planning technique to minimize or avoid this result. It is called a “disclaimer.”

A disclaimer is an irrevocable and unqualified refusal by a person to accept an interest in property. The disclaimer permits the intended recipient to reject all or a portion of a bequest, with the result that it then passes without estate or gift tax directly to the next person or persons named in the trust or will or, if none, then to the disclaimant’s heirs at law. In many families, the next in line after the surviving spouse is usually the couple’s children. With the threat of the return of the estate tax in 2011 for estates valued over $1,000,000, the surviving spouse of a person dying this year may now have good reason to consider a timely disclaimer. Doing so may eliminate tax as assets pass from the surviving spouse’ estate on down to the couple’s children. The use of disclaimers in this context is best explained by the following example:

John and Mary are a married couple and have a combined marital estate worth approximately $2,000,000. They have three loving children. If John dies in 2010, there would be no estate tax under current law. But if he leaves everything to Mary, her estate would then be worth $2,000,000. Absent a further change in the law, if Mary dies in 2011 or thereafter, the excess above $1,000,000 (i.e. $1,000,000) would then be subject to estate tax. Her estate would then owe hundreds of thousands of dollars to the IRS.

But there may be a way to pass the excess on to the children tax free: if within nine months of John’s death she properly disclaims the excess above $1,000,000, the excess would then go directly to their three children, and the disclaimed portion would escape tax entirely on Mary’s later demise because it would never have become a part of her estate. In addition, her retained $1,000,000 would also pass tax free, as it would be within her own exemption. The result: there would be no estate or gift tax, either at John’s death or at Mary’s later death, and the entire estate of $2 Million would then pass on down to their children tax free.

In order to make a valid disclaimer, there are some IRS rules that Mary must follow, including the following: (1) she cannot have used the disclaimed portion of the estate or received any benefit from it; (2) the disclaimed portion must pass without any direction by her (i.e., it must pass automatically to whomever is next in line — presumably the children – and Mary cannot direct it elsewhere); (3) the disclaimer must be in writing; and (4) the disclaimer must be made within nine months of John’s death. Under Internal Revenue Code