Taxes Exist Online?

So, you want to start your own online business? Before you start designing your own website or webpage, make sure that you know all about the do’s and don’t of
starting an online business and that includes the technical, financial and legal matters of the business.

When you decide to start a business, you should be aware and prepared for whatever legal or financial issues that may arise. If you think that you can escape from paying taxes by starting your very own online business, think again – your dreamy balloon may burst once you get into complications regarding taxes and your online business.

The Truth About The Internet Being A Tax-Free Zone

More and more shoppers are getting lured by online shops and retailers because of their famous tag line of “no-tax shopping”. What most people don’t know is that that certain tag line used to lure online shoppers is not applicable to all states.

For you to be able to understand this concept better, here is an example: A woman from Indiana regularly purchases exotic orchids through an online shop based on Switzerland.

Since she purchases and sends her payments directly to Switzerland, she is not obliged to pay any sales tax in Indiana since her orchid supplier has all of its facilities in Switzerland.

A few months later, the exotic orchid supplier of that woman has decided to open a store in Indiana. The woman still purchases online but she already has to pay for the sales tax of the orchid since there is already a store based in the place where she is staying.

In other words, the responsibility to pay for taxes is an interdependent status between the consumer and the supplier. By that example, we can Come to a conclusion that the Internet is not really a tax-free zone. It depends on the location as well as the type of business that one is involved in.

The Responsibility To Pay Sales Tax

Admit it, nobody really loves to pay taxes. Perhaps even the rich people are irritated come tax-paying time because it is sometimes a tedious and complicated
process. There are a lot of rules and laws to refer to before one can actually come to a clean calculation of the taxes that he or she must pay.

If an individual lives in a state that is known for collecting “sales tax”, you are not exempted from it even though you try to escape it by making a lot of purchasing through the Internet because you are still required to pay for the “sales tax” directly to the state.

When you pay a “sales tax” directly to the state, it is no longer called a “Sales tax” but rather a “use” tax. Perhaps the only difference between “sales” tax
and “use” tax boils down as to which person – the buyer or the seller – pays the state. “Use” taxes are usually used by the state to make sure that they collect the right amount of revenue on every taxable item purchased within the state borders.

There are actually still a lot of points to be discussed about taxes and online business and the points mentioned here are just what we may call “a tip of the iceberg”.

In determining what’s the right thing to do in handling taxes and your online business, it would be best to go beyond researching for legal answers alone. Consulting the help of lawyers and other legal professionals would probably benefit you more than you expect.

The Evolving Role of Accountants

With products like Turbo Tax improving, many wonder where this leaves accountants. Ironically, the evolving role of accountants is helping people save on their taxes.

The Evolving Role of Accountants

Given the fact that paying taxes isn’t the most popular of tasks, most people don’t give much thought to the role of accountants. Going to your accountant is often viewed much like going to the dentist. It is not going to be fun, but it needs to be done. While a toothache isn’t fun, an audit is one of the biggest fears of most taxpayers. I guarantee you that no contestant would survive if the Fear Factor television show made them undergo a tax audit!

Given this situation, it is hardly surprising that most people view the role of an accountant as the preparation of confusing tax returns. With the advent of tax preparation software programs, many wonder why they need an accountant. More than a few accountants have probably wondered as much also.

There is no disputing the tax preparation software revolution has led to a different role for most accountants. Ironically, this is good for both taxpayers and accountants. No longer does an accountant count on spending time filing out tax returns. Heck, even accountants use software to do this now!

The role of accountants is now to do tax planning for their clients. The best accountant is one that drags you into his or her office once a year to look at your finances and plan a strategy to limit what you will pay the IRS. This should occur at some point during the beginning of the tax year, not a week before your tax returns are due!

Unfortunately, a majority of accountants never took this step since they were to busy preparing the mountain of tax returns the federal and state governments now require. The evolving role of accountants, however, has let them return to the traditional position of coming up with proactive strategies to limit your tax bill. This is more interesting for them and obviously beneficial for you.

Many thought tax software would eliminate much of the need for accountants. Ironically, the changes in their duties has returned them to their traditional role of giving tax planning advice.

Taxes – and Your Online Business: Basic Things You Need To Know

So you want to start your very own online business. Aside from having unlimited access to the Internet, you also need to be armed with adequate knowledge about taxes and your online business because without it, you will surely be at loss.

Online retailers, or more commonly known as e-tailers are not exempted from paying taxes, contrary to the common misconception of most people. E-tailers are still included in the rush for meeting the April 15 deadline for tax filings.

However, veteran e-tailers would say that the most difficult part for online business owners is navigating and complying with the confusing and complicated laws and conditions governing day to day sales taxes.

An Everyday Challenge If you are one e-tailer who would like to take your online business seriously, then you should be prepared to deal with the fact that handling and managing sales taxes is actually an everyday challenge.

The truth is, a lot of e-tailers are required by the government or their state to file and remit sales tax to states on either a monthly or regular interval. The basis for the filing of sales taxes would more or less depend on how much revenue you online business generates.

Few Tips For E-tailers

It is very vital that you understand your responsibility for sales tax. You must also know that the idea that e-commerce companies are required to collect and remit sales tax in every state is one big myth.

You only have to pay sales tax if you have nexus in that certain state. If you are a neophyte in online business, perhaps you don’t have an idea what the word nexus means, right?

Well, in online business jargon, nexus means a “connection”. Put in application, making a sale in another state does not mean that you automatically have a sales tax obligation.

You have to put in mind that there are many rules and laws that you need to consider before you can determine whether or not you will need to pay for sales tax in a certain state.

When you create your very own nexus in a certain state, you are then required to calculate, collect, report and remit the sales that you make in that certain state every time you have a transaction there.

This is the reason why you are obliged to pay tax sales based on the location of your business.

However, you must also keep in mind that there are also other ways to create your very own nexus in a state. Aside from physical presence or structure of your business establishment in a certain state, you can also establish a nexus by having sales representatives present in that state, tradeshows, mobile stores, etc.

Trying to make an online business work amidst the seemingly confusing and complicated rules that apply to different states can be quite impossible.

However, one must not lose hope; with the help of professionals in the legal field and certified public accountants, you will surely be enlightened as to what steps you should take for your online business to stabilize and prosper.

By being armed with the right knowledge about taxes and your online business will surely help you achieve success in the realm of online businesses.

Tax Considerations When Re-Financing

For many homeowners the overall goals of re-financing are often paying less in interest overall and reducing monthly payments. When a homeowner is able to obtain a lower interest rate, there is usually the opportunity to re-finance the mortgage to capitalize on the lower interest rate. However, a lower interest rate does not automatically translate to a savings. The homeowner must carefully consider the amount of money they will be savings over the course of the loan in relation to the amount of money they will be spending to re-finance the mortgage. When the closing costs associated with re-financing are larger than the savings, re-financing may not be warranted. Re-financing can also have financial ramifications associated with tax options.

Paying Less Interest Equals Less of a Deduction

In most locations, homeowners are permitted to deduct the amount of taxes they pay on their mortgage when filing their tax forms. This is usually quite a substantial deduction for homeowners who owned the home for the entire tax year. Those who re-finance their mortgage will typically be paying less money each year in taxes on the mortgage. While this is great in the long run, it can adversely affect the homeowner’s tax return.

Consider a situation where a homeowner is located just below a major tax bracket which would be quite costly for the homeowner. As all ready discussed, re-financing may result in the homeowner paying less money in taxes each year. This means the taxpayer will be able to make a smaller deduction this year now fall above the tax bracket they previously fell below. When this happens the homeowner may find themselves paying significantly more in taxes.

Consult a Tax Preparation Specialist

Determining the exact ramifications of paying less interest on a home mortgage on a tax return can be a rather tricky process. There are a number of difficult equations involved which can make the apt to make mistakes while trying to determine the consequences of paying less in taxes on the mortgage. For this reason, the homeowner should consult a tax preparation specialist when determining whether or not re-financing is worthwhile because the tax specialist can provide information regarding the impact of paying less in interest.

In selecting a tax preparation specialist, the homeowner should seek out opinions from friends and family members if the homeowner does not employ a specialist to prepare their own taxes. This can be helpful because trusted friends and family members are only likely to recommend professionals they feel were knowledgeable, trustworthy and caring. A tax preparation specialists should have all of these qualities but should also be well versed in the area of tax preparation. This will enable the tax preparation specialist to make all of the right decisions when considering the needs of the homeowner.

Online Calculators

For homeowners who do not know a tax preparation specialist or for homeowners who are unable to afford the consulting services of these individuals, there are online calculators which homeowners might find very useful. These calculators are readily available throughout the Internet and can be used to determine the tax ramifications to re-financing. These calculators ask the user to input specific criteria then returns results regarding the amount the homeowner will pay in taxes during the year if he refinances.  Additionally the homeowner can run these equations several times to consider a number of different scenarios.

Tax Season-Don’t Dread The Start Of The New Year

Tax season is just around the corner and even though we all know it is coming every year, we still dread it…every year. With the yearly changes in the tax codes and everything just getting more and more complicated it is no wonder every one is stressed to the hilt this time of year.

Tax season starts on January 1st and runs through midnight on April 15th, normally. Last year though, the 15th landed on Good Friday and so the government gave everybody until midnight on the 18th to file their taxes.

If you have never filed taxes before, you should receive your W-2 from your employer by January 31st. If for some reason you do not get it by then, just call your employer and have them resend it. Then when you get it you can file your taxes. In any instance that you never receive your W-2 you can file your taxes using your last pay stub of the year so hang onto that one. There will be an additional form to fill out as well so it may take a little longer but it will work.

If you have other forms of income they need to be documented as well. Lottery winnings or any other winnings, like casino gambling, or other sweepstakes is all taxable income. Alimony payments and retirement savings like an IRA are also considered taxable income.

If you have kept accurate records throughout the year you should not have too stressful a time filing this year. Organization is key to knowing where everything is that you need when you need it. For things like mileage to and from work, you should keep a notepad in your car and be documenting every single mile you drive for work. This is the only proof you need to back up your claim of miles driven.

Make sure that you can document or back up every deduction you claim. It really doesn’t matter how many you have but if you go from one or two to ten or twelve the IRS will take notice and they will audit you. When they do this you must be able to back up what you have claimed otherwise they will penalize you with fines and may even charge you with fraud. Do not be stupid and get yourself thrown in jail. Cheating on your taxes is not worth it.

That said, do make sure that you get all the deductions that you have coming to you. Deductions are the things that get deducted from you total taxable income and this is how you arrive at the adjusted gross income number at the bottom of the filing page. The more deductions you have the less income you will be taxed on.

Then you have to figure your credits, this will also reduce the amount you are taxed on. Some credits you may be eligible for are the child care credit, earned income credit, and possibly credits for being a first time home buyer or if you bought a new car recently.

Talk to your tax professional to see that you get whatever it is that is coming to you in the form of a refund on your return this tax season.

Tips For Preparing Your Taxes from the Internet

When it comes to preparing our taxes, many of us could use some help. The following websites offer guidance and information that may assist you in learning about how to get the most out of filing your returns.

Recommended by, sia tax site dedicated to helping investors file their taxes correctly, offering a Tax Help Center and guidance when dealing with Roth IRAs, capital gains, and financing for college.

Although not affiliated with, this site suggests online taxx programs you can use for filing your return; info about extensions, deductions, and refunds; and Hot Topics, such as Tax Scams.

MSN Money

MSN Money’s Tax Estimator hepls you prepare to file this year’s taxes with information about tax law changes. A tax terms glossary helps you decide what forms you need to file, and tax attorney Jeff Schnepper answers questions you post in the Tax Corner message board.

A directory of tax and accounting websites, provides links for state tax agencies, legal information, organizations, and governmment sites for each state.

United States Tax Court

The U.S. Tax Court lets you dispute tax-related offenses. This site describes the process the court uses, presents FAQs about what’s involved when a case goes to tax court, and gives contact information for court offices and judges.

Yahoo! Taxes

The giant search engine’s Taxes page includes Tax Tips, a Tax Guide For Investors, Tax Education, and resources that can help users find an accountant or talk with others on the Yahoo! message board.

Tax Savings Tips For Parents

Ask any new parent, and they will tell you that the costs associated with a new baby are many, everything from bottles to diapers to cribs, strollers, and high chairs, and all of this before the child even learns to walk and talk and beg you for a pair of $500 designer jeans.  Parenting is one of the most rewarding, and important jobs that a person can have, in addition to being one of the most expensive. The good news is that there are two tax breaks offered by the federal government that the majority of parents can qualify for, which are the dependent exemption and the child tax credit.

The dependent exemption is a tax break that allows you to receive an additional tax deduction of as much as $3,000 each year until your child turns 19. This is addition to the standard tax exemption that the IRS allows per person to cover basic living expenses. Single people are allowed one exemption, while married couples have the option of taking two of these exemptions per year.

The amount that you will save with this exemption depends on your current tax bracket, and generally, the higher the tax bracket, the more money you will receive, unless your income is too high to claim an exemption, but again, most people will qualify.  This dependent exemption is only phased out for married couples filing jointly with an adjusted gross income of more than $300,000. Limits for single parents exist as well, and it is important to research these limits, both for married and single parents, to be sure that your income does not exceed them. If you qualify for this exemption, you can simply fill out the required lines on your tax form, including an adoption taxpayer identification or social security number for each child.

The child tax credit is available for married couples filing jointly with a reported gross income of below $13,000, although again, it should be noted that income limits for both single and married parents are revised frequently. With this credit, it is possible to receive up to $1,000 per child.

Determining the amount of credit that an individual can claim requires the completion of the child tax credit worksheet, which can be downloaded from the IRS website. You will need to provide a social security or adoption taxpayer identification number for each child in order to qualify.  As with all tax information you should always check with a professional because tax laws can change every year.

Tax Rules & Benefits For The Self-Employed

Who hasn’t dreamed of quitting their day job, starting their own company, and living happily ever after? Abrasive bosses and questionable decisions can make a normal nine to five job grow stale pretty fast. Today, more people than ever are enjoying the freedom that comes with starting a small business and being their own boss, but what about the taxes? How much should you pay, and how often? What can you claim as business expenses? What can be deducted?

One good thing about those regular, nine to five jobs is that they take care of tax payments for you by withholding them from your paycheck. If you start up a small business of your own, you will be responsible for withholding your own taxes and paying them on a different schedule.

Sole proprietorships, the category which many small businesses fall under when they are created, have relatively simple tax rules. The sole proprietor pays estimated taxes four times a year. If they fail to pay quarterly, they will be penalized at tax time, to the tune of 8% of their annual income. Those who fail to pay their taxes at all can expect the IRS to come knocking – literally or figuratively, depending on how much they neglected to pay. To avoid the dreaded audit, make sure to keep meticulous records of your income and business expenses, and pay your taxes on time. Tax payment coupons can be printed from popular tax software programs, or downloaded from the IRS web site.

This is more inconvenient than having your taxes withheld from the get-go, but small businesses also get special tax benefits that you won’t enjoy as someone else’s employee. If you do most of your work from home, you can claim a deduction for your home office, including the depreciation on the space. Remember, a home office doesn’t have to be an entire room. Part of a room will suffice. Rent can also be claimed as a business expense. The forms can be confusing, though, so be sure to read them carefully and enlist a tax professional if you need help.

Self-employed workers can also write off business equipment purchases as tax deductions, to a maximum of $18,500 per year. If you need a better computer to keep up with your business needs, you can feel good about buying one, because it counts as a valid business expense. Contributions to retirement plans are also deductible. And don’t forget the expenses you incur from marketing, advertising, and promoting your business. Gasoline and auto repairs can be deducted if you use your car for your business or if you have a company-owned vehicle. Office supplies are another deduction.

Other, less tangible expenses can be used as tax deductions. These include the interest and fees from carrying credit card debt on business expenses. This area gets tricky, though, so I recommend hiring a professional to help you wade through the forms and procedures.

Tax rules get a little more confusing when you hire employees. A husband and wife can work together and maintain a sole proprietorship, but if you hire an outside employee, you’ll need to apply for a tax identification number from the IRS. Then you will be responsible for keeping records for each employee, withholding the appropriate amount of tax from their wages, and paying it to the government. The good news is that you can deduct the employment taxes you pay.

To find out more about the tax rules and tax benefits that apply to you, take a look at the IRS web site. Other great resources exist online. All you need to do is a little research to avoid getting caught up in a tangle of tax trouble.

Tax Returns for the Deceased

Two things in life are certain – death and taxes. Here’s what to do if the two are combined as far as filing a tax return.

Tax Returns for the Deceased

If a person dies, their finances are immediately converted into something called an estate. The estate is then responsible for filing a tax return covering the finances including income and distributions to heirs and beneficiaries. However, a final personal tax return must still be filed for the deceased.

The final personal tax return for the deceased is known as Form 1040. Yep, you file the same tax form as you would for any personal tax return. It is hard to believe the IRS passed up an opportunity to create another form, but there you go. Miracles do happen.

When determining the income and taxes due for a person who passes away, the date of death is the cutoff. All income earned before that date for the year goes on the personal tax return. All income earned after death is the responsibility of the estate and will be reported on the estate tax return.

As to deductions, there is good news. Regardless of the time of the year when the grim event occurs, you can claim the full deduction for the year and any other expenses that occur prior to death. Put another way, you don’t have to calculate any ratios based on the number of months that have passed. If someone passes away in February, you still get the full write-offs for the rest of the year.

When a person passes away, an executor or trustee will be in charge of their estate. The exact designation depends on what type of estate planning they did. Nonetheless, this person will sign the tax return and note the person is deceased. This should take care of everything with the IRS excluding the estate tax return.

What happens if the deceased is due a tax refund? In such a situation, the IRS will not just kick out a refund unless the deceased was married. If married, the refund is sent to the spouse. If not, you must file a Form 1310 to get the refund. This form basically says you are claiming the refund, have the right to do so and absolve the IRS of any involvement in subsequent disputes.

Tax Magic: How To Turn Taxable Income Into Tax-Free Income

Believe it or not, there are ways to convert taxable income into non-taxable income, without any fear of an IRS audit.

Here’s one of my favorites. It’s been part of our tax code for over 30 years, yet many still don’t take advantage of it.

What am I talking about?

The IRA — Individual Retirement Account.

Now, before you say, “Oh, I know all about that one; what’s so great about an IRA?”, give me 10 minutes to explain 3 new benefits to the IRA rules that you may not realize.

BENEFIT #1: How To Avoid Tax Rather Than Postpone Tax

First, did you know that there are now 2 kinds of IRA’s available?

The so-called Traditional IRA is the one that first came out way back in the 1970’s.

But there’s a newer version of the IRA that’s only a few years old — it’s called the Roth IRA. And the difference between these 2 IRA’s is huge.

Traditional IRA contributions are tax-deductible, resulting in immediate tax savings. The growth of those contributions is also tax-sheltered while the funds remain in the account.

But eventually all tax-deductible Traditional IRA contributions, as well as the growth of those contributions, will be subject to income tax when the money is withdrawn from the account.

In other words, Traditional IRA’s offer the opportunity to temporarily postpone taxes.

In contrast, the Roth IRA offers the opportunity to permanently avoid taxes. With a Roth IRA, you don’t take a deduction for your contributions; instead, you make a contribution with “after-tax” dollars.

Whatever you put in not only grows tax-free, but can also be withdrawn tax-free.

Here’s an example to illustrate:

If you invest $2,000 per year for 20 years into a Roth IRA, you will have invested a total of $40,000. Now if that Roth IRA earns an average of 10% per year, that $40,000 will grow into $126,005.

Now comes the fun part: Assuming the IRA has existed for at least 5 years and you are at least 59 ½ years old, you can withdraw the entire $126,005 tax free.

In contrast, if this money had been invested in a Traditional IRA, the entire $126,005 would be subject to income tax as it is withdrawn.

The $86,005 of growth is magically converted from taxable income to non-taxable income. Assuming you are in the 15% federal tax bracket, that’s a savings of $12,901. Add any state income tax, and you could save over $15,000 in taxes.

BENEFIT #2: Take An Extra 3 ½ Months To Fund Your IRA

The deadline for contributing to your IRA is April 15 of the year AFTER the year for which the contribution made.

So for Year 2005, you have until April 15, 2006 to put money into your IRA.

If you’ve already invested the maximum (more about that in a moment) by December 31, 2005, then you’re done. No more money can go into the IRA for 2005.

But if you haven’t maxed out your IRA, you have until April 15 to do so.

Which brings me to . . .

BENEFIT #3: The Maximum Contribution Amounts Have Increased

For many years, the most you could put into an IRA was $2,000. Now, the maximum is $4,000 (assuming you have at least that much earned income from wages or self-employment income).

And if you are over 49, you can put in another $500, bringing the total maximum to $4,500.

A married couple, both age 50 or older, can put a whopping $9,000 per year into a IRA. Not too shabby, eh?

One final note about these Roth IRA rules: For married people, you can only contribute the maximum of $4,000 or $4,500 if your combined income is less than $150,000.

If you are single or head of household, you can contribute the maximum if your income is less than $95,000.

For most middle-class folks looking for a perfectly legal way to permanently avoid tax (rather then merely temporarily postpone tax), the Roth IRA fits the bill.

Now comes the hard part — how to actually implement this tax avoidance strategy.

“We’d like to save as much as we can for our golden years. But $9,000 a year? It’s hard to put aside that kind of money. We need every dollar we make just to pay the bills.”

If that’s your situation, I’m not going to get up on my “what-do-you-mean-you-can’t-save-any-money-for-retirement” soapbox and start preaching at you.

I will say this: You’ve got to start somewhere, and you’ve got to start saving something, don’t you?

People who have a problem saving for retirement usually have a budgeting problem. For an excellent resource on budgeting, I highly recommend the Budget Stretcher web site:

This site offers a free budget system complete with simple forms and worksheets to help you figure out how to put some money aside for a Roth IRA or other savings plan.

Take advantage of this resource and get started today.