Taxes and Tax Information

The scenario is as follows

Ed purchased a house on an acre of land from Ruth. Prior to the purchase Ed has been renting the house from Ruth for $1000 per month. Ed paid the following:

$100,000 in loan proceeds to Ruth
$2,000 in points to the bank
$1,000 in real estate taxes
$1,000 in pas due rent to Ruth
$1,000 in closing costs to the bank for legal recording, title insurance and survey fees
$1,000 in escrowed Real Estate taxes to the bank
What is Ed’s “basis” in the house and land purchased from Ruth?

A. $100,000

B. $102,000

C. $104,000

D. $106,000

AND Now, Ed decides to sell the house and the land and receives $360,000 for the property 5 years later. How much of his gain will he have to pay taxes on? (Ed is single and lets say he did not invest any more money into the property)

A. 0

B. $4,000

C. $8,000

D. $12,000

Note: If you sold your house and you miss this question, you probably should NOT be doing your own Taxes. Contact your Tax Professional as soon as possible. In fact it would have been best to contact your Tax Professional “BEFORE” you sold your property, because if Ed didn’t live in the property for 3 of the last 5 years that he owned the property, then he would be exposed to Capital Gains Taxes on $258,000.

The correct answers based upon Tax Codes; are B and C

Congress votes in over 100 new Tax Laws every year. The software programs do an excellent job of implementing these changes, however, I am not sure how well they do with finding the loopholes.

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1. Do keep good records of your expenditures.

2. Do keep your receipts, even if its in a shoe box. Its better to have the backup in case IRS ask questions.

3. If you are in business and you need to purchase equipment for your business, do so, and ask your Tax Professional to 179 the property. (The provisions of Internal Revenue Code Section 179 allow a sole proprietor, partnership or corporation to fully expense tangible property in the year it is purchased )- In 2006, a business can expense $108,000 in capital expenditures.

To qualify for the section 179 deduction, your property must meet all the following requirements.

* It must be eligible property.
* It must be acquired for business use.

* It must have been acquired by purchase.

4. Do not over estimate expenses that you don’t have receipts for.

5. Do not round you number off to $50, $100, $150 $200 - allow your numbers to be “real” $51, $108, $148, $203, etc.

6. Do attach an explanation if you have an extremely large deduction.

7. Don’t try and force the software if your e-file won’t go through - take your return to a Tax Professional. There is a reason the e-file didn’t go through.

8. Do file your taxes before April 15. Extensions give IRS more time to review your return since it is not filed during the season rush.

9. Do sign and date your return. You would be surprised at how many people forget to sign and date their return.

10. Do not take the home office expenses unless you know what you are doing, especially if you are planning on selling your home in the next 3 to 5 years.

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It is the bane of citizens everywhere: high taxes that can crimp your lifestyle, even affect the way that you do business. In many areas, citizens are revolting against ever increasing taxes by insisting that lawmakers hold the line on spending. The results of these efforts are mixed and largely depend on the community’s determination to hold our elected official’s feet to the fire. Are you seeking real and last relief from high taxes? If so, read on and we’ll explore ways you can keep your own taxes in line.

Render unto Caesar the things that are Caesars, and render unto God the things that are God’s. Yes, even in Bible times taxes were a big issue. Back then, the government extracted taxes from its citizens by force, if necessary. The biblical command is clear: what the government wants, the government should get. Of course, illegal means of obtaining tax money is never encouraged but obviously the mandate is that all citizens must pay their share of taxes.

Today, modern democratic governments allow citizens to have at least some voice in how governments tax its people. In many cases this can even involve a proposition to the law, California is famous for this, where citizens can demand that the government cap taxes. By vote, citizens have the power to tell their elected officials how they must run the government.

Unfortunately, very few places empower their citizens to the point that California does. However, real relief for you can come in several different ways and the sum of each can add up to decent savings. These include:

Itemizing your tax returns. The IRS permits taxpayers to itemize their deductions to lessen their overall tax burden. Millions of taxpayers do not itemize, losing hundreds of dollars per year in potential tax savings.

Disputing property taxes. Property tax increases that are several times the inflation rate are commonplace in many northeastern states. While you may never be able to roll back taxes you can dispute an erroneous assessment. Challenge your tax bill with your tax assessor to drop your annual burden by 5 to 10 percent or more.

Contesting Sales Tax Increases. A state sales tax increase from 6 to 7 percent may not sound like much to most consumers. However, if you regularly spend 10,000 per year on goods, that amount translates into a quick $100 tax increase. Perhaps your governor needs to be reminded that the fat should be trimmed before the taxpayers are bilked.

Naturally, raising your voices collectively will go added weight to your cause. If you know that government mismanagement is behind the proposed tax increase, band together with other citizens and demand some accountability. Everyone deserves relief from high taxes including you!

Tags: pay less tax, tax relief, tax help, tax accountant, property tax

Popularity: 6%