Tax | Government Finances

Paying Taxes for Loans

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Here’s a quick overview of how loans and taxation work in the United States on a federal level. Keep in mind that every state and local municipality may have its own rules in addition to what is stipulated here.

Receiving Loans

You technically do not pay taxes when receiving a loan. Loans you receive are considered a liability, and taxes are paid on money you make, not money you owe. For example, if you receive a loan through an online cash advance lender, you do not pay taxes on the money they loan you. If you take a loan and invest it, the money you make from the investment can be taxed. If you are given a deal with the entity that provided the loan to pay less than the balance owed, you can be taxed on the amount you didn’t have to pay.

Giving Loans

If you give out a loan, you are obligated to pay federal taxes on the interest you earn from that loan. Anytime you loan anyone money, even family, you should have a promissory note or written agreement made that stipulates the conditions of the loan, including whether interest is paid or not. In some cases, the IRS may calculate an imputed interest or charge a gift tax (usually paid by the donor) on some interest free loans (usually large loans).

Generally, you will receive a tax form on anything you must pay taxes on, but if ever in doubt, especially before giving out a large loan, you can contact a tax professional, CPA, or the IRS with specific questions.

Filed Under: Business, Capital Tagged With: Loan, Tax, United States

Advantages of Declaring Your Business an S Corporation

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Many small business owners are faced with the decision to declare their business an S Corporation. If you are faced with this difficult decision, it is not one that should be taken lightly. There are many advantages and disadvantages to declaring your company as an S Corporation.

Here’s a look at some of the advantages to declaring yourself as an S Corporation.

The Tax Advantage

One of the biggest reasons business owners want to be declared an S Corporation is because of the tax advantages that are offered to them. Any losses or profits that the company sees is declared on the owner’s tax filings and not held to the company’s taxes. This means there is no double taxation of the losses or profits that happens in other businesses.

Protection Against Liabilities

An S Corporation filing will protect the business against any lawsuits or other liability claims. An S Corporation owner can still be held personally liable for things but the business is technically protected when an S Corporation filing is in place.

Ability to Write Off Startup Losses

Many businesses will see a loss before they see any type of profit. However, because they are not considered a corporation of some type the losses need to be absorbed by the business. Under an S Corporation filing, businesses are able to declare their losses on the taxes and not have to absorb the cost.

These are just some of the advantages businesses can have to declaring themselves as an S Corporation.

Filed Under: Business Tagged With: Business, Corporation, Tax

Simplify Tax Preparation

Everyone wants to get the biggest tax return possible. Often, tax payers agonize over the process of filing income tax returns. Changes to the tax code itself, life-altering events and more all have to be carefully considered each year at tax time.

Every tax payer needs to take some time to understand the whole tax process. After all, everyone pays taxes each year, and the best way to be effective during tax time is to arm yourself with knowledge. This knowledge can help determine The best tax preparation route for you.

The process of learning about filing income tax returns often starts with determining whether it will be more cost effective to prepare an income tax return yourself or to hire a tax professional. Instead of spending hours researching the various pros and cons of these options, it may be helpful to simple consider the complexity of your return.

Determining if a particular tax payer will be filing income tax returns which are ‘simple’ or ‘complex’ starts with answering two questions:

Did said tax payer have a life altering event? The birth of a child, a marriage or a death means a change in what deductions and credits will apply.
Does the tax payer qualify to ‘itemize,’ or list deductions, such as homeowners, parents, loan holders and those with more in deductions than the average automatic deduction amount?

Anyone who answered ‘yes’ to these two questions will be filing a more complex tax return than those who were able to say ‘no.’ It is these tax payers that should consider working with a tax professional. Their fee, which is often relatively small, is an investment in a greater tax return.

In the alternative, single, non-homeowners who do not itemize may choose to file their own return via an online service.

Filing income tax returns can be simplified by taking the time to ask yourself a few questions and determine the best filing route for you.

Filed Under: Budget Cuts, General Tagged With: Filing (legal), Itemized deduction, Tax, Tax return (United States)

My tax dollars went where?

2007 was the beginning. Housing prices fell, the unemployment rate was rising, and the foreclosures were mounting. Towns, cities and states began to feel a money crunch and were forced to re-evaluate there budgets and where the tax dollars were going. The budget cuts began. Where can we save any money that we can? What are some of the worst places that you could possibly cut?

Education is high on the list. Counties began cutting programs that are essential to the growth and development of our children. Where are our children going to go after school if there extracurricular activity is cut from the budget? What happens when we lay off teachers? Will the child/teacher ratio be too high and are children won’t learn as well as the have. Why don’t we cut back on the School Board Member’s pay. There are some areas that pay them over $35,000 a year for a night or two a week of work. If these board members worked two days a week at four hours each day, we would be paying them over $84.00 an hour. Is this too much?

We, also have some municipalities cutting back and laying off Police Officers and Firefighters. Wouldn’t you rather cut back on the people that could save your life, protect you or your children. Wouldn’t it make more sense to cut back on other expenses? Some cities are purchasing Segways, golf memberships for their elected officials, and even private jets. Is this how they should be using our hard earned tax dollars? Shouldn’t we be using this to help create jobs, save current jobs, or even help the less fortunate? How many unemployed workers does it take to make a change? Let’s not find out and make a change now. What would you do if you were elected?

Filed Under: Financial Tagged With: Tax

The Greatest Tax Hike in History

Many claim that 2011 brought us the greatest tax hike in the history. Taking a closer look ourselves, we can surely check how true that is. So, let’s begin.

It is obvious that the rates for income taxes in each bracket are going up. The 10 percent bracket has been discarded. High-income tax payers will feel the sting of the 39.6 percent bracket. Also, the marriage tax penalty, where married couples pay more than they would if each person filed a single return, has been re-incorporated.

If you itemize your deductions, the amount you can deduct will be phased out above $169,750. The reduction in the value of the itemized deduction can be up to 80 percent. There is 55 percent estate tax on assets returns, with a $1,000,000 exemption. This means, heirs pay taxes on their inherited property too. The capital gains tax rate will jump from 15 to 20 percent for most taxpayers.

Wondering about the income tax credits?

Well, the child tax credit drops from $1,000 per child to $500. Also, the credit is no longer refundable unless earners make less than $12,550. For joint filers, the tax credit begins to phase out at $110,000, and phases out at $75,000 for single filers. This will seriously impact low-income families.
The partial credit (payroll tax credit) of 6.2 percent for payroll taxes that low income earners used to pay is eliminated. This will increase the tax liability of low-income single payers by $400 and joint filers by $800.
The 2010 credit of 30 percent (up to $1,500) for energy efficiency improvements to principal residences expires.

Apart from the above alterations, there has been some other changes too such as in capital gains tax, Earned Income Tax Credit (EITC), college tuition tax credit, mortgage insurance premiums, student loan interest deduction, medicine cabinet taxes etc. for more detailed information you can easily refer to any tax forums or follow tax blogs so you’re prepared.

Filed Under: Budget Cuts, Spending Tagged With: Earned Income Tax Credit, Income tax, Tax, Tax credit

Learning More About What The Government Does With Our Tax

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When you pay taxes every year it’s only natural to want to better understand where those taxes go and what they’re used for. After all, it’s your hard-earned money that they’re using, why shouldn’t you be able to better understand what it is that they need it for in the first place? The short answer is: a whole lot of things. The government that you pay your taxes to is broken into three parts, country, state, and local, depending on how large the city happens to be. For this reason, knowing where your tax money can be every bit as hard as figuring out where the money came from in the first place.

Not only is tax money going towards interesting things like the trips which promote diplomatic conversations but it is also being used to fund the soldiers who are currently being kept overseas. This is incredibly important on both levels as they help the soldiers with both funding and equipment. Additionally, tax money can be sent towards hospitals and nursing homes or schools.

Of course, there is always the health care bill and the bail out funds which will obviously be fairly large and difficult to pay back over the years. However, the government is making an effort at trying to do so. Additionally don’t forget about your local and state governments as well. These governments collect your taxes to use to replace roads, provide services and the like.

There are plenty of other useful and interesting things that the government spends your tax money on. Surprisingly it isn’t simply for trips around the world or for public events but also for many important and life changing events that are designed to help all citizens, not simply for those work in government. Although many people complain about taxes, without them, the government could not provided the needed services for its citizens.

Filed Under: Government Spending Tagged With: Accounting, Business, Government, Money, Nursing home, Tax, Taxation, United States

Basic Government Investments

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Despite the large federal bailouts, much of the tax money that you pay doesn’t go towards the companies that were bailed out. As a matter of fact, the majority of those companies weren’t so much bailed out as they were loaned the money. Just like a bank, the government invested in the future of America by not letting the financial market crash and, by doing so, gave companies a loan with the full expectancy of its eventual return, sometimes with interest, sometimes without. As a matter of fact, at least one of the companies has already paid back the money that the government lent them in full. Due to this, it’s plain to see that at least some of the companies fully intend to and, certainly, the government didn’t just hand them the money with no desire to have it returned.

If it had been under any other circumstance, the bailout would have been looked upon as a sound investment in the future. Or as a nice gamble, something that the financial market is very used to doing as that is essentially what the stock market is, only it tends to be slightly more stable than regular gambling would be. While it certainly is true that Americans will be paying for this debt out of their taxes, it will be spread out in a way that makes it more like every other investment that the United States government makes.

Most of the taxes will more than likely continue to go towards big things like health care, social security, and military spending with the additional funds going to the regular miscellaneous but still important things like education, natural disaster relief, income support, and other similar things. Despite the concern that the bailout would drastically change the taxes of those who live in the United States, there are already plenty of investments that the government makes that we pay off, anyway, and that are considered perfectly sound.

Filed Under: Government Spending Tagged With: Bailout, Business, Financial market, Investing, Investment, Money, Tax, United States

Where Does Our Tax Money Go

Many people complain that their hard earn money is wasted on taxes because taxes don’t go to anything needed. This is actually not truthful, as many taxes go to programs and services that help millions of people who are ill, infirmed or lower income. When people are unable to pay their own bills for whatever reason, or tax money assists them in keeping a house over their head and foods on the table.

The first big chunk of our tax money goes to a category called income securities. Income securities include social security, Welfare, disability and unemployment insurance. Social security, a well known program, provides money to those that are of retirement age. The amount given out is based on how much a worker made over their lifetime. Welfare is a tax-payer funded program that provides assistance to taxpayers that cannot support themselves. Disability is a government program to provide funds to those who are physically or mentally disabled that cannot earn enough money to support themselves. Unemployment insurance provides workers who are unemployed at no fault of their a monthly check to assist them while they find new employment.

The second chunk of tax money goes to Medicare. Medicare is the main form of health insurance for the elderly and disabled. It is primarily funded by tax money. Medicaid is another form of medical assistance paid for by tax money. Medicaid provides insurance to individuals an families that cannot afford to pay for their own insurance.HRB

Country and neighborhood defense is another item that taxes cover. This includes national defense (i.e., military), police, prisons, courts and firefighters. The nation’s schools also receive a chunk of our taxes moneys, which helps pay for elementary, middle and high schools, public universities and libraries. Finally, running the government is expensive and they need our taxes to pay loans, pay the elected officials and run the administration.

Filed Under: Government Spending Tagged With: Tax