Before the Divorce

Even before the divorce is finalized, you might feel the pinch of the tax implications. Even during the process of divorce, couples these days, choose to file for separate returns. The implication of this on your financial status is that your savings will go down as joint returns have a lower tax liability. However, there are occasions when the filing of separate returns has a better tax result for a divorced couple.

The Value of Dependants

Tax considerations also get more complicated. If you have dependents, then it provides the filter for an immediate subtraction from the taxable income of a parent. Other tax breaks in this regard include, amongst others, dependent care credit, educational deductions, child tax credits etc.

The Assessment of Assets

When undertaking the divorce proceeding, you must realize one thing. Your assets are going to get divided. Even if you have done the investment in your name, there is a chance that your wife will get an equal share of that investment. Also, from joint assets, you will now go towards single ownerships. As can be imagined, there are tax issues herein.

Spousal Support

Alimony is tax deductible for the person who is paying, whether it is the wife or the husband. However, whoever receives the payment; needs to pay tax on the amount. It is advisable that both the parties maintain complete and accurate records as to the payments made with regards to alimony. The payments and receipts are used to ascertain the amount of tax that is deductible and the amount of tax that must be paid.

The requisite documentation will go a long way in solving all your tax problems and issues. The tax issues regarding divorce are something that you must be wary of before you start your divorce proceedings. You must consult a tax expert for this purpose and be well versed with all the knowledge about tax deductions. When it comes to a divorce you must be prepared on all accounts.

Tax issues will dictate a person financial status after divorce. You must be well aware of what you can afford so as to make the correct decision during divorce settlements.

Even while Government provides a variety of rebates for business, especially small business, businessmen still wonder how to reduce their tax.

There are some tips for your business:

For starters, businessmen, and indeed other people should know what are ‘deductible’ expenses each one is entitled to. For example, businessmen are allowed to deduct expenses directly related to the business like the telephone expenses at the office, airline tickets provided it was for business, and so on.

Using your car for business? Maintain a log of the mileage when you started, and when you returned, with a separate column showing what it was for, like visiting a client, give as many particulars as possible. Keep the gas receipt you put in as a voucher and paste it in the logbook. All these are deductible.

Time to calculate your taxes? Work out how much you can deduct by using the mileage you rolled, or by another method in which you can deduct the total you paid for gas, repairs, etc., according to a tax code schedule.

See which one gives you a better tax advantage, and use it. Be sure to add your hotel/motel expenses and also your coffee and tea, breakfast, lunch etc. The key to deductibles is the receipts/vouchers. If you can produce them, you are entiled to the deduction.

Make it a habit to collect receipts: Put them in envelopes, or better still enter them into your computer under a head Business Travel expenses, and lock them up. Auditors are fussy about receipts.

Bills and receipts are required for everything you wish to claim under business: telephone bills, mobile bills, business lunch/dinner bills, flowers bill sent to customers or business associates.. the list is endless.

When you are entertaining clients, you are entitled to a fifty per cent deduction – provided you keep the receipt; when you host a party or any event for employees you get to deduct the whole of that expense; provided you keep a bill and a receipt.

The whole sum of the game is that you must keep receipts, bills, logs of what you spend, so that you can claim those as deductions. Without receipts and bills, sorry boss, you got no chance of claiming them as expenses

Well, no problem because an online tax software program will allow you to prepare your taxes in several different ways to see which one benefits you the most. You can run the numbers as many times as you like before the actual IRS filing is done. And when it comes time to filing your taxes, well, that’s no problem either. With a few more clicks of the mouse you’ll be able to submit your tax return to the IRS electronically. When you file your taxes electronically you can be assured that your information will be accurate. No longer does a human have to to manually read your tax forms. If you are due a refund then you can usually get it within 10 to 16 days from the day of your efiling. You can even have your refund deposited directly into your bank account. If you owe the IRS money then you can have the amount automatically deducted from your bank account. And you can even set it up to deduct from your bank on the last day of the the tax filing season.

So painted below in words is a hypothetical scenario of what would transpire as you head down the glorious path of preparing your Tax Return.

Scenario 1 : HAND-FILLED, SELF-FILED TAX RETURN

1. You go to the post office and pick up the paper booklet with the tax form. Now if you are smart you would have gotten every tax form you know – but you did’nt, so you had to make 2 trips to get all the forms you need.
2. Next… You have to go through the meticulous process of having to fill one box at a time, make sure your entries are okay, make sure you at least copied down everything from your W2 into your . Because each calculation is connected to the next, each box ties to the next. At the end of this painstaking process you arrive at the final number – your refund or the tax you owe.
3. Next step – Find the right address to mail to. Do you know where to mail your tax return. Well its there, its probably in the instructions to the form. Again scan every word until you get the address. Oh Well Eureka!! You just found it.. congratulations. Now put that in an envelope.
4. Walk to the post-office make it before midnight on April 15th and make sure you catch the last snail mail train. Because if it leaves, you are in trouble.. BIG trouble!
5. Well you made it. You rub your hands with joy and pat yourself on the back. Your Tax RETURN IS FINALLY DONE !! Well you just hit the starter to the engine. You just set in motion for the next series of events that will ultimately get you that coveted refund check! Assuming no postal delays – your tax return will get to the IRS in about 2 business days.
6. Next your little piece of work, your tax return, will enter a queue until its routed to the correct department. lets give his a day for making this arduous journey.
7. Next, It gets picked up to be scanned using sophisticated machines called optical scanners which converts your handwritten tax return into a readable computer file.
8. Hiccup 1: If you hand filled your return with pen and paper, if the scanner cannot recognize your handwriting – then the scanning process will reject – and then it would get put into another queue to be manually processed by a human – lets give 4 to 5 days for this to happen.
9. Someone will actually read your tax return and then type the contents manually into a computer. At this point your tax return is now a what is called a raw data file.
10. Now the raw data file will get run through an editing program which will verify the basic details – like did you put in a valid SSN, did you punch in too many zeros in your income eg. you wrote $50000 instead of $5000 in a box on the form.
11. If everything is okay, Your return which is now computer file will then get put into a database along with millions of other tax payers. Your tax return will join thousands of others who e-filed their tax return at this point.
12. From this point on – the process should work like greased lightning. Next a series of computer programs will be run on the database to validate the tax returns. It will compare the data on your file against what your employers filed. So if you incorrectly entered $15200 on your income but the employer sent in $20,000 the process will pull out your tax return for ‘special’ processing.
13. Also your tax return gets pulled up in a random audit checks. The most brilliant minds in the IRS ought to be designing these computer programs to determine which tax return needs to be pulled up for auditing. Perhaps the holy grail of IRS secrets !
14. If you pass step 9, and you have a refund, you will be routed to a program that prints your refund check – give another 1-2 days for this process to complete.
15. If you elected direct deposit, a pay request will be sent to deposit the money into your bank account (1 day)
16. If you did not elect direct deposit, your refund check will go for printing (1 day). Then your refund will go to the mailing department to be sent to you (1-2days). After about (2-3 days) of spending time in the USPS, the check should get to you – again via snail mail, the same way you mailed out your tax return.

Another cost savings of outsourcing is avoiding penalties and fees from the IRS and state if a tax filing or payment is submitted late or incorrectly. In the event that an error does occur most payroll service companies will pay the penalties and interest that are accrued.

Payroll companies stay up to date on the newest tax tables and tax laws. Tax laws are constantly changing and payroll companies stay on top of the new changes to keep the business out of trouble. Payroll companies offer services like direct deposit and pay as you go workers compensation insurance that some employers can’t get by themselves. Some payroll service companies can also help with the set up and administration of employee benefits.

Outsourcing payroll offers some safety to employers. You never have to worry about your payroll service company calling in sick on a payroll day. They are always available to process your payroll. You also don’t have to worry about paying the fines for something being done incorrectly like you do if an in house employee makes a mistake.

Many business owners realize the benefits of outsourcing the payroll service function. It helps reduce costs and also saves a lot of time and aggravation. Any business owner that doesn’t outsource payroll should serious consider the benefits of using a good service.

Once you have made the decision to use a payroll service company you should ask certain questions before deciding what payroll service company to use.

What is this going to cost me? Many payroll companies charge on a per payroll basis. Many factors go into what you pay each payroll. For instance the number of checks the payroll service generates for you. How many direct deposits you have and also any additional services the payroll company is doing for you play a factor in your pricing. You are going to want to make sure the payroll company doesn’t charge you for hidden fees that you are unaware of which happens a lot.

What is my payroll package going to look like when I get it? Usually a payroll service company can give you sample reports of what you will get with your payroll each pay period. You will want to ask to see sample reports from the payroll company before you make your decision on what payroll company you are going to use.

What is the average turnover of your payroll representatives? It gets very annoying to have new payroll representatives handling your account every couple of months. It leaves the door open for mistakes when you have new people handling your accounts all the time. You want your payroll service to understand your business.

This can get confusing, so let’s start off with the basics. The step up basis is simply the value of some asset at a date in time from which a gain is calculated. Let’s say I buy a share of Microsoft in 1990 [I wish!] and I sell it today. I would pay rather large capital gains taxes on the gain in value of that share of stock between 1990 and 2010.

The passing of an asset from a deceased person to their heirs triggers a bit of a different calculation. Let’s assume the same situation as above. Instead of selling the stock in 2010, I die after being attacked by a bear [might as well make it exciting] in 2002. At that point, my stock is transferred to my daughter per my written will. This transfer constitutes a taxable event. Historically, she would pay tax on the gain from the date of my death till she sold the item. The use of my date of death allows her to “step up” the value of the stock instead of pay taxes on all the gains since 1990.

The Bush tax cuts were designed to reduce a number of taxes, but they went a step farther with the estate tax. They were designed to phase it out. In fact, there is no estate tax in 2010. That is nice and all, but the problem is the step up basis for capital gains above is now gone for the year. Instead of paying capital gains on the increase in value from the date of my death, she will have to pay them on the gains from 1990. That is a huge difference and constitutes a massive amount of money going out of my family and to the government. What did the government do for this money? Nothing, I just died!

Is there anything one can do about this mess with the step up basis? Unfortunately, there is not. It is simply another example of the government creating a mess with the best of intentions.