Learn About Tax Breaks for 2009
Jan 20, 2010     post this at del.icio.uspost this at Diggpost this at Technoratipost this at Furlpost this at Yahoo! my web.

While contemplating how to get yourself out of a tax crisis, first consider things you can do to avoid getting yourself into the crisis in the first place.

First of all, you should know that any economic recovery payment cannot be taxed for federal income tax purposes.

Also, the making work pay credit applies to those who earned income from their work. It counts for 6.2% of your pay for the year, but can only be used up to $400 dollars if filing singly and $800 if filing a joint tax return.

The EIC (Earned Income Credit) has increased this year as well. Those eligible are people with three or more children and some couples filing jointly. There are more details on the IRS website with specific earning details and numbers.

You may also be interested to learn that you can invest up to $5,000 of your tax return into multiples of $50 series 1 US savings bonds. This is a great way to save money for the future.

Cash for Clunkers was also a tax credit for the year 2009 that cannot be taxed for federal income tax purposes as long as the voucher was worth $3,500 – $4,500.

Going along with this tax reduction, if you purchased a car after February 16, 2009 you may be able to deduct any state or local sales or excise taxes on the car you purchased. If the state you purchased the vehicle in does not have sales taxes please check the tax form for more specific itemized deductions.

Also, if you have suffered a personal loss or theft you may be eligible to receive a personal casualty and theft loss credit. The IRS states that the loss must generally be more than $500 to be accepted.

If you are using your car for work related, medical related or moving related purposes there are standard mileage credits. For work related travel it is up to 55 cents a mile, for medical and moving expenses it is 24 cents a mile.

You may also be able to receive tax credits if you have purchased a plug-in electric car or updated your existing car to plug-in electrical. Also if you are on active duty with the military for at least 30 days you receive the differential pay during that time.

You must also not forget that some taxes have been adjusted for inflation. Some of these include standard deductions for those not itemizing their deductions, and also tax benefits for adoptions have increased.

These are important things to be aware of as you prepare to file your taxes for the 2009 year. It is also important to remember and be aware of the fact that if you are planning on mailing in your tax return this year, the IRS has changed some of its mail in locations.

The updates should be included in your tax packet for the year, but if not, you may go online to the IRS website to see a full updated listing.



Online tax filers more likely to cheat?
Aug 12, 2008     post this at del.icio.uspost this at Diggpost this at Technoratipost this at Furlpost this at Yahoo! my web.

Canadians who file their income-tax returns electronically are more likely to cheat, a newly released report suggests.

An internal analysis by the Canada Revenue Agency found that individuals who sent their tax returns through the internet — the so-called Netfile option heavily promoted by Ottawa — were more likely to understate the amount of taxes owed.

The “program analysis estimates the non-compliance rate to be higher on Netfile returns vs. the other filing methods,” says the internal report from last September.

The department analyzed random returns from the 2005 taxation year, which were filed in 2006, estimating that about 15 per cent of returns were non-compliant. That translated to about $569 million in taxes owed but not declared.

But closer examination showed that Canadians who sent in paper returns — attaching their receipts — were more likely to comply with tax laws. The Netfile option does not require that receipts be provided, though they must be kept for possible inspection later by the tax agency.

The report cited focus-group testing from 2006 that found the exemption from providing receipts with the electronic return appeared to increase cheating.

“The participants demonstrated a perception that not having to attach receipts to the return creates a temptation for electronic filers to overstate their claims for deductions and credits,” says the document.

“They believed they would not be caught as long as the overstatements were relatively small.”

The report also found that Canadians who use tax software to prepare their paper returns appear to be more likely to cheat.

Analysts examined tax returns that were filed to the agency on paper, separating them into those prepared with the help of tax software and those prepared by hand.

“Software users … demonstrate a significantly higher non-compliance rate as compared to non-software users,” they concluded.

That finding was also supported by focus-group tests, which suggested that the ability of the software to quickly calculate potentially bigger tax refunds provided a temptation for many filers to understate their taxes owed.

The heavily censored report was obtained by the Canadian Press under the Access to Information Act. Key statistics were removed from the document, the agency said, because releasing the information might impair tax investigations.

The agency also cautions that the definition of non-compliance is a tax-deduction claim that is rejected, but does not necessarily mean the filer intended to cheat.
4.2 million Canadians filed taxes online in 2008

As of May this year, about 4.2 million Canadians filed their 2007 returns via the internet using special software, an increase of almost five per cent from the year before. The agency has promoted the service as more efficient, with refunds in as few as eight days.

Professional tax preparers can also file their clients’ returns electronically using Efile, which also does not require receipts. Nine million such returns were filed by May this year, a nine per cent increase. The report noted that non-compliance rates were lower for Efile returns.

The agency also offers touch-tone telephone filing for returns that have no complications. Phone filing also does not require receipts, but is declining in popularity, with just 478,000 using the service this year.

Altogether, electronic filing without receipts increased by more than seven per cent this tax season, and has outstripped paper filing with 14 million returns compared with 10 million received on hard copy.

A spokeswoman said the Canada Revenue Agency has the tools to rectify the compliance problems with Netfilers, but would not be specific.

“While our random sample results do suggest a higher non-compliance rate for individuals who use the Netfile method of filing their return, we are confident that we have the necessary risk assessment and claim review mechanisms in place to suitably address the situation,” Beatrice Fenelon said in an e-mail.

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Canadians will pay less taxes in 2008
Dec 31, 2007     post this at del.icio.uspost this at Diggpost this at Technoratipost this at Furlpost this at Yahoo! my web.

Canadian workers, consumers and businesses will all start paying less taxes starting New Year’s Day.

Finance Minister Jim Flaherty’s surprise mini-budget in October ushered in $60 billion in tax cuts over five years, with many of those reductions coming into effect on Jan. 1, 2008.

According to the Canadian Taxpayers Federation, most Canadian families can expect to reduce their tax burden by well over $1,000 by the end of 2008 due to the combined savings from a lower GST, lower federal income taxes and provincial measures.

That’s good news for Canadians, who Flaherty said are overtaxed, but also for the economy, said Dale Orr, managing director of Global Insight Canada.

Both Prime Minister Stephen Harper and Flaherty have warned in year-end interviews with numerous news outlets that the Canadian economy is entering a year of turbulence.

They blame tight financial markets and the fallout from a slowing U.S. economy, which will affect Canada’s export-oriented industries.

Many economists have forecast Canada’s growth to slow in 2008, particularly in the first half of the year.

“So the timing has turned out to be quite fortuitous,” said Orr of the stimulative nature of the tax cuts.

“But I would hope Flaherty doesn’t get into the business of trying to hit the economic cycle, because he’ll probably miss.”

The most dramatic single tax saving most Canadians will realize in 2008 will come when they file their income tax return this spring.

Restoring a tax measure first introduced by the previous Liberal government two years ago, Flaherty cut the lowest tax bracket to 15 per cent and raised the personal exemption to $9,600, effective last January.

That means the government has been deducting more than necessary from pay stubs throughout the year and filers will be able to recoup the difference in one lump sum with their tax returns.

For a single taxpayer earning $45,000 and more, the payoff will be $223.

Taxpayers in the same tax bracket will save an additional $272 in 2008 because of the same measure, with the change reflected in their pay stubs starting Jan. 1. If paid biweekly, an employee should expect to take home slightly over $10 in additional net pay on each payday.

GST will drop on New Year’s Day

Lower-income Canadians will not realize as much savings. For instance, an individual earning $15,000 annually will wind up paying $121 less in taxes.

The other headline grabber from the mini-budget — reduction of the GST tax rate on goods and services to five per cent from six — also goes into effect New Year’s Day.

Most Canadians are likely to gain between $120 and $200 in small increments with most purchases throughout the year. But the savings will be dramatic with purchases of big ticket items like homes, automobiles, furniture or appliances.

When rebates on lower-priced homes are included, a family purchasing a new $300,000 home will save $1,920 in GST, rising to $5,000 on a $500,000 residence, according to the finance department.

A family spending $30,000 on a new minivan will save $300.

Some provinces will realize even deeper tax cuts

In addition, residents of Quebec, British Columbia and Newfoundland will realize even deeper tax cuts in 2008 as a result of provincial tax changes.

According to the taxpayers federation calculation, the biggest cuts are in Quebec, where a single taxpayer earning $45,000 will wind up with $437 more 2008, in addition to what they gain from the federal side, rising to $1,138 for an individual earning $80,000.

The exception is New Brunswick, where provincial tax increases mean individuals earning more than $52,700 will wind up paying more income tax overall.

Also looking forward to the new tax year will be Canada’s businesses.

Starting Jan. 1, Canada’s corporate tax rate will be trimmed to 19.5 per cent from the current 22.12 per cent. This rate is slated to come down each subsequent year until it is reduced to 15 per cent on Jan. 1, 2012.

As well, the tax rate on small businesses with incomes under $400,000 drops to 11 per cent from the scheduled 11.5 per cent rate.

Of course, what the government giveth, it often takes away and Ottawa has also brought in a slight increase in so-called payroll taxes.

The taxpayers federation estimates that employees will pay an additional $50.43 in 2008 on employment insurance and the Canada Pension Plan, while employers will pay $46.02 more per worker.

Source: CBC News



Top Ways To Avoid Income Tax - Part 2
Aug 02, 2007     post this at del.icio.uspost this at Diggpost this at Technoratipost this at Furlpost this at Yahoo! my web.

Here is part 2 from John Chow on ways to avoid income tax. I have found this information extremely interesting and felt compelled to share.

This is part 2 of my series on the top ways to avoid income tax. In case you missed part 1, you can read it here.

The Principal Residence Flipper

I have a friend who likes to buy the cheapest house in the best neighborhood. While living in it, he would fix it up and renovate it. After the renovations are complete, he would sell the house and walk off with a gain of $35,000 to as much as $100,000. Then he would move on to the next one. In Canada, there is no capital gains tax on a principal residence (the house you live in).

My friend went around flipping principal residence after principal residence until the government finally had enough and tried to put a stop to it by requiring you to live in your house for at least a year before it can be call a principal residence. This didn’t stop principal residence flippers, but it did slow them down.

The US has a better deal than Canada. Mortgage interest is tax deductible and if you sell your principal residence and buy another one of equal or greater value within 180 days, there is no capital gains tax. It’s a fantastic way for build wealth tax free. When the time comes to finally take the money out, you can do the real estate equity play mention in part 1.

Earn Dividends Instead of a Salary

If you own your company, then you may consider paying yourself with dividends instead of a salary. Depending on the province you live in, you could earn up to $30,000 of dividends per year tax free. This is possible because of the basic personal and dividend tax credit, and the way that the tax rates are calculated.

Another advantage of paying yourself dividends instead of a salary is you don’t need to pay CPP (Canada Pension Plan) or EI (employment insurance) on the earnings. Chances are, the Canada Pension Plan won’t be around by the time your retire so why pay into it if you don’t have to?

The Perpetual Traveler

Canada taxes its citizens based on residence and not on citizenship. If you no longer live in Canada, you are considered a non-resident and therefore not subjected to Canadian income tax. You are a non-resident when you live outside the country for six months plus a day (you can live in Canada for up to 182 days and still maintain non-resident status). You are allowed to keep your Canadian citizenship if you become a non-resident. There are other rules to follow – simply leaving the country isn’t enough. Internet publishers are ideally set up to take advantage of this because we can run our sites from anywhere in the world.

By dividing your time between three or more countries, it’s possible to be avoid all income tax. For example, you can spend five months in Canada and then divide the rest of the time in countries that welcome Canadians without a visa – there are tons of them. The amount of time you are allowed to stay in each country varies. For example, Taiwan lets Canadians stay 30 days visa exempt while the US will let them stay six months. The US actually doesn’t care how long Canadians stay. Every time I go into the US, they don’t brother to stamp my passport.

The US taxes its citizen based on citizenship and not residency. It doesn’t matter where a US citizen is in the world, your income is taxable. However, Uncle Sam understands that if you’re not living in the good old USA, you should get a break. The first $75,000 of income is tax free if you become a US non-resident. This is one of the reasons why Mr. 4-Hour Workweek, Tim Ferriss, is now partying it up in Costa Rica.

Look for part 3 of this series tomorrow.



Top Ways To Avoid Income Tax - Part 1
Aug 01, 2007     post this at del.icio.uspost this at Diggpost this at Technoratipost this at Furlpost this at Yahoo! my web.

Below is an excellent post by John Chow that I had to share, it is part 1 of the series, I will post the rest as they become available.

It is the right, and IMO, duty of every citizen to structure their financial affairs to pay as little tax as possible and to avoid paying taxes whenever possible. Tax avoidance is not illegal, tax evasion is. The two are completely different from each other. Avoiding income tax is not the same as evading it. If you have ever contributed to an IRA, 401K or RRSP, you are in fact avoiding income tax. There are many ways to avoid income tax. Here’s a another method used by the rich and powerful to avoid tax. Look for part 2 soon.

Don’t Make Income

This is not as stupid as it sounds. Out of all the things the government taxes, employment income is at the very top of the list. Therefore, if you want to avoid the biggest tax hit, don’t make income. How do you live with no income? You borrow it.

If you make $100,000 at a job, it gets taxed because it’s income. If you borrow $100,000 from the bank, it’s tax free because it’s not income. At this point, most people will say, “Ya, but you have to pay it back!” I say you have to be more creative. The next two examples should help illustrate this.

The Real Estate Equity Play

In this situation, our asset rich real estate developer put mortgages on his properties to the point where the rental income equal all expenses. If we assume he can borrow 75% of his equity and still be revenue neutral he would be able to borrow a nice chunk of cash to live on. If our mogul has $1 million of income producing real estate, he would borrow up to $750,000 tax free to do with as he pleases.

The money is not taxed because it’s not income. The rental income covers the cost of servicing the debt and other expense so the net income from operation is zero. So no income tax on that either. As the value of the real estate increases, the investor will be able to borrow more.

Borrowing against assets is a way to realize unrealized gains. Instead of selling the asset to realize the gain and getting taxed on it, the owner borrows against it to get the money out without paying any tax. It’s a lot easier to borrow $1 million than it is to make $1 million. It’s also tax free.

The Life Insurance Wrap

In this scenario, our tax avoiding friend has a life insurance policy with a big cash surrender value (let’s say $1 million). If he takes out the $1 million, he would lose the insurance and the money would be added to his income and be taxed at nearly 50%. It’s not a good deal and only a fool would do that.

What you would do in this is this situation is borrow against the cash value of the policy. A bank will lend up to 90% of the cash surrender value. That’s $900,000 to spend as you please. You can take it all at once or have it paid out over time. Because the money is a loan, it is not income and therefore not taxable. Furthermore, the bank will capitalize the loan so you will never have to pay it back.

How does the bank get its money back? When you die, the death benefit will pay off the bank loan plus accrue interest and any money left over will go to your beneficiary tax free. See my post on Using Life Insurance To Shelter Income for a more detailed explanation.



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