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Economy Grows With The Big Help Of Taxation In Yonkers

How Taxes Can Affect The Yonkers Economy In The Long Run

The economy can dictate a lot of things. Economic activity is essentially a reflection of what consumers, businesses, and governments wish to buy or sell. In short, the factor of demand plays a big role. Over the long haul, supply is what dictates overall economic potential. The size and skill of the workforce are what dictates our productive capacity which includes everything from the efficiency of our machines, the total number of and quality of our buildings, computers, vehicles, and other physical capital that is used.

Incentives

Yonkers Tax PreparerTaxes can ultimately affect everything from the supply to the demand through incentivizing consumers. Minimizing marginal tax rates on both salaries and wages can help provide an incentive for people to work more. Whereas, improving upon the earned income tax credit will bring many more people into the workforce who are deemed low-skilled. By minimizing marginal tax rates on returns of assets can really encourage more investing and saving. Whereas, minimizing the marginal tax rates on the income of businesses can result in companies investing more domestically instead of taking their money abroad. By providing tax breaks on research and development, you can encourage many more new ideas which can help to provide a pillar for the economy to grow.

That being said, providing tax reductions can also have a negative impact on the supply channels. For instance, if a tax cut increases a worker’s income after taxes, they might decide they can do without working as hard and they might spend more time doing leisure activities. This type of increased income effect can work against what is known as the “substitution effect,” which provide more incentive through financial reward to work more.

Budget

Providing tax cuts can end up slowing down the economy as a whole by increasing the total amount of budget deficits that exist. When the economy is operating at its peak efficiency, government borrowing can be financed by pushing capital that would have otherwise gone into private investments or by bringing in foreign investors and borrowing from them. Therefore, government borrowing can either reduce private investment which can also result in a reduction of productive capacity or it can reduce the total amount of future income that goes to American residents. Regardless, future well being can be reduced by budget deficits.

Tax policies can have long term consequences that not only depend on the incentive efforts but also on the various effects of the budget. If Congress works to reduce the marginal tax rates on the incomes of individuals, the long term results are either going to be positive or negative based on whether or not the resulting impact on both investment and saving trump the potential consequences that the increased deficits bring.

Putting Everything Together

This ends up leaving a lot of good questions as to how much impact large incentive and deficit effects are and how to effectively model these things. Both the Congressional Budget Office and the Joint Committee on Taxation use various models that alter assumptions about how forward-thinking consumers are, how the country compares and rests within the global economy, and how the borrowing from the government impacts the incentives of private investment. Likewise, how both consumers and businesses react to changes in the tax structure. The one area that many agree on is that the most growth-centric policies are the policies that increase incentives to do everything from work, to save, to invest, and to innovate without causing the deficits to skyrocket.

Contact us or call us today if you need help to prepare your taxes! Visit our blog for more related articles.

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Small Businesses In Yonkers Face Serious Accounting Challenges

Specific Yonkers Accounting Issues You Need To Master

Small business owners have to deal with many challenges each and every day. Accounting is often one of the biggest of them. Read this content to find out how you can manage your finances if you’re an entrepreneur.

When you run any small business, you have to wear more than one hat. Your responsibilities will range from maintaining great relationships with your clients to hiring great employees to market your brand. On top of all that, you’ll need to track your business accounting and profits.

Accounting might not be your personal passion, but keeping organized books is critical for any small business. Accounting is a language of business, one that talks about financial growth. It can translate numbers into understandable statements about the profitability of a business.

Usually, accounting incorporates processes for the recording, summary, and analysis of the financial transactions of any business. That’s hard enough to do as it is. However, there are many other frequently experienced financial difficulties that small business owners have to get around. The following are some of the primary accounting challenges which entrepreneurs have to put up with, but also you can overcome them.

Here are the specific accounting issues you need to master:

1. Cash Flow

Managing the cash flow of any startup or small business isn’t an easy thing to do. Per a study from U.S. Bank, 8 in 10 businesses that wind up failing do it because of having cash flow issues. Owners of small businesses find it hard to earmark the funds they need to handle overhead and keep the lights on. To master cash flow, carefully look over your bills, and be firm when you chase customers for payments.

2. Unforeseen Costs

Consider the example of a restaurant netting $200,000 every year after its expenses. That looks like healthy circumstances, but not after someone burns themselves with a cup of coffee and files a lawsuit that wins them $2 million when the restaurant in question has no insurance coverage. Even much smaller expenses, like single-charge taxes on every business in a certain region, or just rising costs for goods, can wind up doing a lot of damage to a business’ bottom line. Optimizing your existing credit not only helps you manage short-term expenses but also helps you track your long-term profitability so that you can weather changes in costs without sacrificing liquidity.

3. Being Prepared For Disasters

Natural disasters are usually rather unpredictable, and they have substantial impacts on companies and citizens. However, they hit smaller firms really hard. You might have a few disaster recovery strategies planned out, but you still need enough cash on hand to make sure that you can revive your business following a catastrophe.

4. Taxation

Every company in the United States has to deal with paying taxes. However, taking advantage of the right deductions means that you can lower your final bill. If you have a home-based small business, then home office deductions are crucial to your profits. The National Federation of Independent Business claims that investing in your business lets you deduct investment costs immediately. As such, investment costs like these can get re-invested right back into your company.

5. Payroll Management

If you’re a small business owner, then serving as your company’s payroll or HR expert can be really hard. If you don’t know about HMRC’s RTI, then you don’t really know what tax code applies to bring new staff. How are you going to pay your employees along the way? These are all issues that can come up along the way, along with others. Recent research showed that half of all polled businesses claim they have no room for improvements in the payroll processes that they use right now. Other common issues include administrative burden, compliance issues, tracking absent employees, organization inconsistency, under- and over-due payments, and improper tax filings.

6. Staying On Track With Expenses

Maintaining good tracking of all receipts and your recurring expenses can get really hard to do. If you want to keep up with the market, much less get ahead of it, then you need to maintain great records. Luckily, times have moved on from stocking all paper receipts in storage. Many different accounting software options give you the option of going paperless. Every option is distinct, so you have to do your homework and due diligence in determining which one best suits the needs of your company.

7. Reconciling The Books

Closing your books is often annoying, particularly if there is no proper accounting system in place. Making a mistake in your books is quite easy, leading to potentially incorrect calculations, IRS audits, and misleading analysis of the data. You need to verify every single business transaction, perhaps monthly, weekly, or even daily. You need to get in the habit of going through your accounting books close to the end of every day when those transactions are still fresh inside your head.

8. Financial Analysis

Making solid financial decisions uses three steps, and they are interpretation, analysis, and advice. Regardless of what specific reports you choose to use, whipping up the numbers is only the first part. What do all those numbers really mean? More crucially, how can you make them better? You need to analyze and interpret the numbers so you can find the best possible advice and decisions. If you do this, then you make your financial position even better in your current market.

Prevent Accounting Errors

One hugely significant task for any small business is picking a great accountant. An experienced CPA or accountant can guide your business in preventing all the mistakes listed here. A great accountant can also advise you on every one of these issues, as well as others, so your business can grow, even in hectic markets.

Hiring an accountant can be expensive, but it’s still cheaper than many of these mistakes. It also frees you up to do what you do best, which is your business! Call us today or contact us via our website if you need any professional help with accounting and bookkeeping tasks.

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Knowing A Proficient Tax Preparer In Yonkers

Essential Skills A Yonkers Tax Preparer Should Possess

Personal Income Tax Preparation in YonkersWhat is the work of tax preparers? What skills and expertise should they possess to work and deliver effectively? Well, these days paid tax preparers are required to prove their technical skills knowledge and capabilities. In what way? You may wonder. The Internal Revenue Service needs them to tackle a federal tax law examination to prove their eligibility for the job. However, to become a tax preparer no formal education-related experience is necessary. Though to become an expert so vital skills are necessary to ensure you can handle all tax returns related tasks. To get a few insights on the relevant qualities, read on.

Perfect Communication Skills

While dealing with finances your communication should be professional and convincing. Let the client have no doubts about working with you. Ensure to listen keenly and give clear, straight-forward and truthful feedback. Also, be in a position to explain and give detailed information on every idea behind tax laws with ease. This way, you are a good fit for the job.

Ability To Think Critically

In the tax field, a couple of issues require you to think deeply, widely and intensively. Does a client qualify for credits and deductions? How should I group the various types of income and losses? It’s up to you to reason and come up with the right answers to such questions. Again, you must be able to analyze an issue and make the right decision. Such may include, deciding on what action to take. For example, what tax write-off should you go for?

Have A Strong Eye For Details

As a tax preparer, it’s required that you pay close attention to every detail. This is to avoid errors, wrong entries, and miscalculations. A slight inaccuracy could mean something terrible for a tax return. Such mistakes could cause wide problems. The client may lose money, and worse they may have a case to answer with the Internal Revenue Service and other tax agencies. To avoid such problems as a tax preparer you should be in a position to thoroughly review your work, spot errors, and do rectifications immediately.

Concrete Knowledge Of Mathematics

While dealing with taxes, you can not escape numbers. This means you need to have a solid grasp, knowledge, and understanding of all mathematical operations. Be able to carry out addition, multiplication, division, calculate percentages and also work with decimals. Once you are well versed in these basics, you will easily work with complex formulas and perform any calculations.

Company History Of Pupilo

We began our operations in 1985. We started small in the local area of Yonkers in New York. Since then, there has been no turning back. We are now offering services countrywide, and our specialization is in accounting and tax consulting.

We offer almost every business solution, from consulting and auditing to debt settlements and book-keeping. We have two offices from where we serve our clients – over 700 companies. Our main office is in Yonkers, and we have another office in the Dominican Republic.

What service can you get from us? We are open to Tax Consultations, any form of Auditing and Filing Income Taxes for both Corporates and Businesses. We have a large number of professionals in the USA and abroad to sort you out.

Let your business grow smoothly, as we take care of the finances.

Do you require your income tax return prepared? Contact or call our professionals who are always ready, open and willing to assist. Be sure to get a free quote once you do so.

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The Importance Of Professional Tax Services In Yonkers

Reasons Why You Need A Diligent Yonkers Tax Preparer

Whether you earn $50,000 a year or 50 million dollars, taxes are a big expense. This is one of the reasons why many individuals hire the services of a tax expert to help them prepare their returns. Furthermore, a tax professional can advise about the best way to structure certain financial transactions over the course of the year to help reduce your tax bill. This is what is known as tax planning. In the majority of cases, unless you happen to have a background in accounting, knowing the most effective methods for reducing taxes is very difficult.

CPAs (Certified Public Accountants) attend school and complete tough exams to ensure they know all there is to know about tax law. While it may take you several hours to identify one tax credit, a CPA is likely to already know about all the tax credits applicable to your situation. It is for this reason that more than 60% of taxpayers hire a professional when tax time approaches.

If you’re still not sure, read through the following 6 triggering events to discover more about why hiring a tax professional is likely to be in your best interests:

1. You’re Running Short On Time

The tax filing process should never be rushed. If you wait until the last minute to start completing your taxes, there’s a good chance you’ll find yourself short of time. Tax season can be the busiest time of year for many businesses and rushing the tax filing process restricts your ability to avail of all possible tax deductions or tax credits.

Effective tax preparation requires a lot of research. If you are looking to pay the least possible amount (who isn’t?), you need to know your way around IRS forms and tax law. If you aren’t a CPA, it’s very unlikely that you will be acquainted with all the ways you can reduce your bill. The same rings true for those who own businesses. Time for business owners is particularly limited as the tax filing deadline approaches. From managing your customers, employees, and business operations, time is precious. While tax time happens at the same time each year, it always seems to be inconvenient.

2. You’re One Of The Millions Of 1099 Contractors

Do you get 1099-MISC forms from the IRS at the close of each tax year? Do you run your own business? If so, you require a tax preparation service. Compared to a typically W-2 employee, 1099 contractors have more going on. There are multiple expenses surrounding your business. And, if you don’t keep track of those expenses, you will miss out on thousands, if not tens of thousands, of dollars in tax savings. Are some of your customers spending more than $600 with your business each year? Depending on the sector, all of your business’s customers could be paying you dramatically more than that. In many cases, those customers should be issuing 1099-MISCs to you at the start of each year.

The 1099-MISC form reports the total income they paid you during the previous tax year. 1099-MISC is required for all contractors to file taxes. The income on your tax return is calculated from the figures on all the 1099s you receive.

3. You Have Outstanding IRS Issues

The feared letter. Sent from the dreaded IRS. The IRS will never call you or email you demanding immediate payment. They will, however, send you a letter in the mail. Contained in the letter is typically a date, relevant tax years, reference number, your personal details, and all the penalties, taxes and interest fees you owe. No one wants to get such a letter, but things can happen. Often due to an omission, error, or suspected fraud on your previous year’s tax return. It doesn’t matter if you file your taxes through a tax firm, you are ultimately responsible for all information submitted on your return. However, a CPA or tax firm can represent your case to the IRS. For instance, you might not agree with the amount the IRS states that you owe. In such a case, a CPA can represent you as you face the IRS. A licensed CPA will build a case advocating in your favor that is most likely to be received in good faith by the IRS.

CPAs along with other tax services are there to help you avoid an IRS dispute going to court. CPAs know how to get penalties reduced or eliminated from your account. They often have decades of experience communicating with the IRS in a way that doesn’t incriminate their clients and helps them to get back on the good side of the IRS. The reality is that you can go to jail over IRS tax issues. Do you want to find yourself facing the IRS in court without legal representation? Of course not! It would be foolish to try to fight the IRS alone.

4. You Have Fallen Behind On Your Taxes

If you have fallen behind on your taxes and have not received a letter from the IRS, you should not assume the storm has passed. The IRS has up to 7 years to challenge you on your taxes for any specific year. And, if you haven’t yet received a letter from them, you better believe it will arrive soon, especially if you owe the IRS taxes. It will be much better for everyone if you file for any missed years instead of waiting for a dreaded IRS letter. To make sure everything is completed correctly, you should hire an accountant to file taxes from prior years on your behalf.

5. Big Life Changes

If you are experiencing a major life event, such as a death in the family, a divorce, a life-threatening medical diagnosis, etc., outsourcing your taxes is a good idea. Whether you’re getting divorced, buying a new home, having a child or getting married, the way your taxes are completed will change. If you got married, for example, during the year, there will now be more options open to you when it comes to tax credits and tax deductibles. You and your spouse could file jointly or separately. Each option offers different credit eligibility and deduction thresholds. In some situations, it can be more advantageous to file separately rather than jointly. An accountant can outline the differences for you and help you choose the best option.

6. Not Just A Tax Nerd

A CPA can help you with a lot more than just filing your taxes. Generally, a licensed accountant can act more like a financial strategist for you. That can provide you with expert financial advice regarding business expansion, retirements, or investments. Accountants have clients from all types of industries and their widespread knowledge can provide you with valuable insight beyond your tax return.

Give us a call or contact us today for professional help with your income tax preparation.

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Helpful Tips For Preparing A Corporate Tax Return In Yonkers

The Documents Needed To Prepare For A Yonkers Corporate Tax Return

If you have a partnership company or a limited liability company, then you must prepare and submit an annual corporate tax return. The structure of your firms as well as how you choose to others will have a significant role in determining the documents that you’ll need to prepare the tax return sufficiently. Under certain circumstances, even you as the business owner could be required to present personal tax returns together with the corporate tax return.

Form 1040

If you’re a limited liability company (LLC) or you are also an employee of your firm and pay yourself a salary, the income you earn as an employee for your corporation must be included on your 1040. There are corporations that are viewed as “pass-through” entities which mean that loss and profits “pass-through” the firm and to the owner of the corporation. For this reason, the owner or member of the firm is required to list their profits, losses, and income on personal income return.

Form 1120

Form 1120 is for annual corporate income tax return. It also includes Schedule C. Form 1120 requires you to provide some basic info about your corporation, including the Employer Identification Number, a list of all deductions including compensations made to the board of directors or officers. Form 1120 also lists other schedules that may or may not be relevant to your business. For instance, Schedule A covers the cost of goods sold; Schedule K includes information regarding your business, such as the type of business and your accounting.

Form 1065

If your business is a partnership; for instance, an LLP (limited liability partnership), you may have to fill out form 1065 for the associated income. According to the IRS, partnerships do not pay taxes on their income. But, the profits and losses “pass-through” to the partners’ personal tax returns.

Other Forms Related To Corporate Taxes

If your corporation has employees or independent contractors, you’ll also have to submit other forms. For example, you’re required to electronically file Form 944 with the IRS for federal unemployment taxes. Also, if you withheld Medicare and Social Security from your employees, then you must submit both W-2 and W-3 forms to the Social Security Administration.

For every independent contractor that you pay more than $600 for work completed or other services, you’re required to include Form 1099-misc. If your corporation paid more than $10 in broker fees or royalties, you must also issue Form 1099-misc. Note that different forms will have different deadlines. Consult with a certified public accountant or your attorney to know the dates as well as the deadlines for paying your corporate taxes.

We know you want to keep an eye on the big picture and that’s precisely why we will work with you closely to minimize your tax liabilities and maximize your allowable deductions.

Reach us or contact us for expert help with preparing your corporate tax return.

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Knowing How Important Are Tax Accountants In Yonkers

The Purpose Of Yonkers Tax Accountants

Laws surrounding taxes aren’t constant. These regulations can change over time and are often quite very complicated. Tax accountants specialize in these regulations. They can assist both individuals and companies with filing tax returns in a way that’s compliant with current tax law. In some cases, a tax accountant may also be able to provide advice that will help with tax planning and lead to savings. Jobs in this field can be difficult, but it can also be a satisfying career. In order to become a tax accountant, individuals will need the right education. Being aware of these requirements is essential.

Preparing Tax Returns

Tax accountants can be self-employed, or they may work with a firm. Either way, helping clients to prepare their tax returns is an important part of their job. Accountants will meet with clients on an ongoing basis so that they can get a better picture of their finances. During these meetings, accountants will collect important documents from their clients, including financial documents like pay stubs and records of investment income. Since tax laws can change, accountants must follow regulations and keep up with them over time. An accountant will typically look at potential tax credits and deductions so that they can reduce the amount their client owes.

Planning Taxes

Virtually every decision that a business makes can impact what they pay in taxes. These ramifications can be difficult to predict, particularly for people that aren’t familiar with current tax laws. Things can become even more complicated if a company is engaged in international business deals. Because of this, it’s all the more essential for businesses to work with tax accountants. Tax planning is the specialty of some accountants. The goal of tax planning is to look at a client’s finances and work to reduce the amount of income tax the client will pay. In the case of corporations, it’s common to have both internal and external accountants developing tax strategies on their behalf.

Educational Requirements

It’s standard for accountants to receive either a bachelor’s or a master’s degree with a specialty in accounting. After someone has graduated, they will typically seek work with a public accounting firm or look into internal tax accounting jobs. Taking the CPA, or certified public accountant, exam after graduating can make it easier to find work. While requirements for sitting the exam vary from one state to the next, most states require people to have a minimum of 150 college credits. It’s not unusual for a tax accountant to become either a partner or a director at the firm they work for.

The Positives & Negatives

If you like problem-solving, challenging work, and dealing with numbers, working as a tax accountant may appeal to you. It’s important to remember that tax preparation isn’t the only job that task accountants handle. Accountants also need to keep up with current tax regulations. If research is a passion for you, and you prefer to work at a faster pace, the tax accountant career field might be appealing to you. However, you should be aware that long hours are a common job requirement, particularly when tax season is ongoing. You may find the deadlines to be stressful. Entry-level positions for accounts can also be very challenging.

Accountant & Auditor Salary Report For 2016

According to data from the United States Bureau of Labor Statistics, the median salary for accounts in 2016 was $68,150. The salary in the 25th percentile was $53,240. The salary in the 75th percentile is $90,670. 25% of accountants earned even more in that year. There were 1,397,700 individuals in the United States employed in this field in 2016.

Contact us or call us now for any help with accounting, bookkeeping, auditing, and income tax preparation!

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Why Is Filing A Business Taxes So Important In Yonkers?

The Importance Of Filing A Yonkers Business Taxes

When you own a business, it is very important that you file taxes. Every business has to file taxes at both the federal and state (if applicable) levels.

The amount of taxes that each business pays is varies depending on many details such as the industry, the size, the locality, the nationality, etc. Because it takes so much thought and energy to run a business, taxes can be a part of the business that is often left ignored. Unfortunately, ignoring this one aspect of a business can potentially ruin it.

When a business fails to file and pay taxes on time, it can face steep penalties and fines. Because every business may be faced with different tax laws depending on its location, it is important that business owners under the different tax regulations and rules. These taxation laws apply to every type of business whether it is an online business or a home-based business. In simpler terms, if you do not want to face the consequences related to the tax rules and regulations in your area, you need to be aware of the tax regulations and rules that apply to your business.

There are some steps that you should take as soon as your business is up and operational.

  • Choose the best legal structure for your business ahead of time (i.e. sole proprietorship, LLC, etc.)
  • File your taxes before the deadline in order to avoid additional penalties and fees.
  • Keep accurate documentation of all of your business expenses for tax purposes.
  • Save some of your company’s income and apply it to business taxes.
  • Seek legal tax advice if you need business tax assistance.

The Consequences From Not Paying Taxes On Time In Yonkers

Your company’s tax obligation is one that you should never ignore. If you do not pay your company’s taxes on time, you will likely incur fees and penalties. Everyone is required by law to pay taxes whether they own a small business or not. This means that if you do not pay your taxes on time as required by law, you will face additional penalties and fees.

Failing To File Taxes

If you failed to file your company’s taxes on time, it is likely that you will face a penalty for failure-to-pay. Usually, this penalty is approximately five percent of the business tax that is not paid for every month in which the tax return was filed late.

Failing To Pay Taxes

If you are able to file your small business tax, but you are not able to pay the amount that is due, your business will be penalized .5 percent of the amount of the unpaid tax. This penalty will be in effect for each month that the tax payment is late. This means that you will be paying interest on the amount of money that is due.

Unfortunately, this can add up to a very sizeable tax bill that can financially devastate both you and your business. In fact, if you fail to pay your business taxes, the IRS can:

  • Claim your assets and property
  • Claim your business
  • Forfeit your refunds
  • Revoke personal identification such as passports
  • Garnish income

The effects of not filing your federal income taxes are serious, and the list of ways the IRS can penalize you is extensive. This is why it is important to make sure that you comply with all tax codes and file your company’s taxes on time.

It is not difficult to stay updated with the changes in business tax codes. Although it can be difficult to understand at first, as you become familiar with the tax codes, it will be a lot easier. Always keep in mind, a business will run more efficiently when the taxes are filed on time.

Contact us or call us today if you need a help with paying your income tax!

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The Objectives Of Taxation In Yonkers – Discussed!

Top 6 Objectives Of A Yonkers Taxation

The main objective of taxation is to increase revenue such that it matches up to the huge public expenditure. The tax must finance a lot of government opportunities. However, it is not the only purpose. In general, the taxation policy includes a few non-revenue objectives.

In the modern world, generally speaking, taxation is usually applied as the basis of economic policy. It plays a significant role in the distribution of income, the balance of payments, choice of industrial techniques and location, investment, consumption, the total volume of production, and so on.

Below, you’ll learn more about the objectives of taxation when it comes to modern public finance.

Tax Preparer Yonnkers1. Full Employment

One of the crucial objectives of taxation is full employment. A country that desires to achieve the aim of full employment should reduce the rate of taxes because the level of employment generally relies on effective demand. As a result, there will be an increase in disposable income and, therefore, an increase in the demand for goods and services. An increase in demand will fuel the investment resulting in employment and income through the multiplier mechanism.

2. Economic Development

The second objective is economic development. Mostly, the growth of capital formation determines the economic development of any given country. It’s is known that capital formation is the pivotal role of economic development. However, there is often a shortage of capital when it comes to LDCs.

To fight the scarcity of capital in these countries, governments tend to mobilize resources such that a quick capital accumulation occurs. Generally, the government often taps into the tax revenues to step up both private and public investment. By following the correct tax planning, there can be an increase in the ratio of savings compared to national income.

The entire capital formation process can be made smooth by imposing new taxes or increasing the existing rate of taxes. One of the fundamental factors of capital formation is the increase of savings to income ratio, in which the taxation policy can effectively increase.

3. Control Of Cyclical Fluctuations

The control of cyclical fluctuations, which includes periods of depression and boom, is regarded as another goal of taxation. In the depression phase, there is a decrease in taxes, whereas there is an increase in taxes during the boom phase to tame the cyclical fluctuations.

4. Price Stability

Taxation can also play a role in ensuring price stability. In general, taxes are considered as an effective method to control inflation. There can be control in private spending by increasing the rate of direct taxes. The pressure on the given commodity market is naturally reduced.

However, imposing indirect taxes on commodities leads to inflationary tendencies. On the other hand, high commodity prices discourage consumption but encourage savings. You should expect the opposite effect with the lowering of taxes during deflation.

5. Decrease Of BOP Difficulties

Taxes such as customs duties are also used to manage the importation of specific goods to reduce the magnitude of the balance of payments difficulties, as well as to support domestic manufacturing of import substitutes.

6. Non-Revenue Objective

Lastly, another non-revenue or extra-revenue objective of taxation is the decrease in inequalities in wealth and income. By launching a system of progressive taxation or by taxing the affluent at a considerably higher rate compared to the poor, this can be done.

Contact us or call us today for more information!

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10 Nontaxable sources of Income

The Internal Revenue Service defines income as any money, property or services that taxpayers receive. All types of income are taxable unless specifically excluded by law. There are a few exceptions, though, and they’re – needless to say – worth knowing about. This article will describe a few of the more common categories of nontaxable income.
Income That Isn’t Taxed

1. Disability Insurance Payments

Usually, disability benefits are taxable if they come from a policy with premiums that were paid by your employer. However, there are many other categories of disability benefits that are nontaxable.

  • If you purchase supplemental disability insurance through your employer with after-tax dollars, any benefits you receive from that plan are not taxable.
  • If you purchase a private disability insurance plan on your own with after-tax dollars, any benefits you receive from that plan are not taxable.
  • Workers’ compensation (the pay you receive when you are unable to work because of a work-related injury) is another type of disability benefit that is not taxable.
  • Compensatory (but not punitive) damages for physical injury or physical sickness, compensation for the permanent loss or loss of use of a part or function of your body, and compensation for your permanent disfigurement are not taxable.
  • Disability benefits from a public welfare fund are not taxable.
  • Disability benefits under a no-fault car insurance policy for loss of income or earning capacity as a result of injuries are also not taxable.

2. Employer-Provided Insurance

The IRS says that “generally, the value of accident or health plan coverage provided to you by your employer is not included in your income.” This could be health insurance provided through your employer by a third party (like Aetna or Blue Cross) or coverage and reimbursements for medical care provided through a health reimbursement arrangement (HRA). Furthermore, employer and employee contributions to a health savings account are not taxable. Employer-provided long-term care insurance and Archer MSA contributions (a type of medical savings account) are also not taxable.

3. Gift Giving of Up to $14,000 ($15,00 starting in 2018); Gift Receipt of Any Amount

Just as the IRS defines all income as taxable, except that which is specifically excluded by law, it defines all gifts as taxable, except those specifically excluded by law. Thankfully, there are many gifts that aren’t taxable, and any tax due is always paid by the gift-giver, not the recipient. (Note that a prize is not the same as a gift. Read Winning the Jackpot: Dream or Financial Nightmare? to learn more.)

Perhaps the most well-known exclusion is that individuals can gift up to a certain amount per recipient per year without the gift being taxable. For example, both spouses of a married couple could give each of their three children $14,000 in 2017 and $15,000 in 2018. The parents would gift a total of $87,000, and none of that gift would be taxable for either the parents or the children. Each child would receive $29,000 of nontaxable income.

The following types of income are also considered nontaxable gifts:

  • tuition or medical expenses paid on someone else’s behalf
  • political donations
  • gifts to charities (charitable donations) – in fact, these are tax-deductible, meaning that they reduce the giver’s taxable income by the amount of the donation if they itemize their deductions instead of taking the standard deduction (learn more in It Is Better to Give AND Receive)

An important exception to this rule is gifts from employers. These gifts are usually considered fringe benefits, not gifts, and are taxable income. A small gift worth less than $25, such as a holiday fruitcake, is an exception to the fringe benefit rule. (You might want to check out Top 7 Estate Planning Mistakes.)

To prevent tax evasion, the IRS also says that the gift tax applies “whether the donor intends the transfer to be a gift or not.” For example, if you sell something to someone at less than its market value, the IRS may consider it a gift. An accountant can provide you with tax-planning advice to help you avoid triggering the gift tax and let you know when you should file IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.

4. Life Insurance Payouts

If a loved one dies and leaves you a large life insurance benefit, this income is generally not taxable. However, be aware that there are some exceptions to this rule in more complex situations. IRS publication 525: Taxable and Nontaxable Income, describes these exceptions.

5. Sale of Principal Residence

Individuals and married couples who meet the IRS’s ownership and use tests, meaning that they have owned their home for at least two of the last five years and have lived in it as a principal residence for at least two of the last five years, can exclude from their income up to $250,000 (for individuals) or $500,000 (for married couples filing jointly) of capital gains from the sale of the home. That policy was challenged but ultimately not changed under the final version of the new GOP tax bill.

6. Up to $3,000 of Income Offset by Capital Losses

If you sell investments at a loss, you can use your loss to reduce your taxable income by up to $3,000 a year. Capital losses can even be carried over from year to year until the entire loss has been offset. For example, if you sold investments at a loss of $4,500 in 2016, you could subtract $3,000 from your taxable income on your 2016 tax return and $1,500 from your income on your 2017 tax return.

7. Income Earned in Seven States

Under the U.S.’s federalist system, each state is able to make many of its own laws. So even though most income is taxable at the federal level, and most states also levy a state tax on income, seven states – Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming – have chosen to not levy a state income tax on their residents. (Not surprisingly, that makes some states popular with retirees – though other factors, such as whether pensions and Social Security payments are taxed and the cost of living are also factors. Read Finding a Retirement-Friendly State.)

8. Corporate Income Earned in Four States

Some states also encourage corporations to locate there by not taxing corporate income. There are no corporate taxes in Nevada, Ohio, Texas and Washington, according to the Tax Foundation. Instead, these states impose gross receipts taxes. The lowest rates are North Carolina (3%), North Dakota (4.31%) and Colorado (4.63%).This tax break can encourage corporations to locate in these states.

9. Inheritance

The estate tax exemption doubles as part of the new GOP tax bill. In 2018, that figure was supposed to rise to $5.6 million for individuals; double for couples. Now that individual exemption will be $11.2 million, with couples at $22.4 million – a break that will last until 2026.

While the estate tax technically falls on the estate, it really affects the estate’s beneficiaries. But if you are the beneficiary of an estate that falls into the exempt category, you’ll get all that income tax free. And if you inherit an estate worth more than the exemption, you’ll still get the exempt amount tax free.

10. Municipal Bond Interest

Most of the time, when you invest in bonds, you have to pay federal, state and/or local tax on the yield you earn. However, when you earn money from municipal bonds, the proceeds are usually tax-free at the federal level and also tax-free at the state level if you live in the same state in which the bonds were issued. This tax exemption applies whether you invest in individual municipal bonds or purchase them through a municipal bond fund.

Although municipal bonds generally offer a lower rate of return than other types of bonds, when you consider their after-tax return, you may end up ahead by investing in municipal bonds. Municipal bonds are generally recommended only for higher-income individuals and married couples who fall into the 28% to 39.6% federal income tax brackets. (Investing in these bonds may offer a tax-free income stream, but they are not without risks. See The Basics of Municipal Bonds.)

The Bottom Line

Why has the IRS chosen to exempt these and a few other sources of income when it generally tries to tax everything? The answer to this question varies, depending on your political views. Reasons include the belief that eliminating or dramatically reducing taxes in certain areas will encourage certain activities thought to benefit the country, such as home ownership and investment, and reduce the risks associated with these activities. (Learn the logic behind the belief that reducing government income benefits everyone in Do Tax Cuts Stimulate the Economy?) In addition, some exemptions are targeted to people in need, such as those receiving certain categories of disability payments.

 

Source: Investopedia.

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What To Do If You Filed Your Taxes Late

Last year, your federal income tax return was due on Tuesday, April 17. That’s because the usual deadline, April 15, fell on a Sunday, and a federal holiday, Emancipation Day, fell on April 16. If you didn’t file your return on time despite the extra two days, here’s what to expect.

Interest and Penalties

If You Filed Your Taxes Late, the Internal Revenue Service (IRS) will charge you interest, compounded daily, on your unpaid tax. Interest accrues from the April 17 deadline until the date when you actually pay. The IRS’s annual interest rate on late payments is the federal short-term rate (currently 0%) plus 3%. The rate changes quarterly; taxpayers can find current rates at the IRS’s news release web page.

In addition to interest, you’ll be responsible for a late payment penalty of 0.5% plus a late filing penalty of 4.5%. Both penalties are charged on the amount of tax you owe for each month or partial month that you don’t pay your tax bill. The penalty maxes out at 47.5% – that’s 22.5% for filing late and 25% for paying late. The late filing penalty increases to 15% per month with a maximum of 75% for fraudulent failure to file.

The IRS will reduce or even eliminate the late filing and payment penalties if you can show “reasonable cause,” but the IRS may not interpret those words in the same way you would. Also, members of the armed forces who are currently serving in combat zones may qualify for an exception to the filing and payment deadlines. So will some taxpayers affected by recent natural disasters.

The good news is that you don’t have to worry about going to jail for filing or paying late or for making a mistake on your return. The IRS says it reserves criminal prosecution for “flagrant cases involving criminal violations of tax laws.”

Willful Neglect

If you don’t file a return, the IRS may prepare a return for you using the information it has about your income from W2s, 1099s and other forms it collects from third parties like your employer and financial institutions. An IRS-prepared return is unlikely to give you credit for all the deductions and exemptions you’re allowed, so an IRS-prepared return (also called a substitute return) is likely to result in your owing more tax than you were actually required to pay. If the IRS does file a substitute return, you’ll have the opportunity to correct it and receive the exemptions, credits and deductions you’re owed if you file your own return.

 

If you intentionally don’t pay your taxes or make any effort to pay them, the IRS can force you to pay them. It can levy your bank accounts, garnish your wages and/or seize your assets. It can also file liens against your assets, including your home. If you aren’t intentionally evading your tax liability but you can’t pay, your best bet is to file on time and work out a repayment plan with the IRS. Under such a plan, the IRS may lower your late payment penalty to 0.25% per month, and you won’t owe the late filing penalty of 4.5% per month.

 

What Is Considered on Time?

 

If you file your tax return electronically, your return transmission will have an electronic postmark. This electronic postmark determines whether you filed on time.

 

The IRS considers paper returns to be filed on time if they are “mailed in an envelope that is properly addressed, has enough postage and is postmarked by the due date.” If you use a private delivery service such as DHL, UPS or FedEx to send your tax return, the postmark date is considered to be “the date the private delivery service records in its database or marks on the mailing label.”

 

Tax Return Extensions

If you need more time to prepare your return, filing an automatic extension request is simple and straightforward. Filing form 4868 gives you an extra six months to prepare your return. Be aware that if you file an automatic extension, your filing deadline becomes October 15, not October 17. This extension does not, however, extend the amount of time you have to pay any tax you owe.

 

If you need more time to pay and you owe $50,000 or less in combined taxes, penalties and interest, try using the IRS’s online payment agreement to automatically set up a payment plan. You can do this even before you receive any notices from the IRS. Another option is to request a payment agreement by filing form 9465-FS. If you’re having trouble paying your taxes because you lost your job or your self-employment income has declined by 25% or more, you might qualify for penalty relief and a six-month payment extension under the IRS’s Fresh Start program.

 

The Bottom Line

 

In the future, if you know you won’t be able to file your return on time, file an automatic extension using form 4868. You can do this online through the Free File link at IRS.gov, through a tax software program or through a professional tax preparer. The form asks you to estimate your tax liability and pay what you think you will owe. Even if your estimate turns out to be incorrect, it could reduce any late payment penalties you might owe, and you won’t be subject to late filing penalties.

 

Credit: Investopedia

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